Good day ladies and gentlemen, and welcome to the Popeyes Louisiana Kitchen First Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now turn the call over to your host Grady Walker, Treasurer and Director of Investor Relations. Please go ahead.

Thank you and good morning. Popeyes is pleased to host this conference call regarding results issued yesterday after market closed for the first quarter 2015, which ended April 19, 2015. Today's audio presentation will be available on the company's website at www.plki.com. To listen please follow the link to Webcasts & Presentations. A copy of our Press Release and all filings with the Securities and Exchange Commission are also available on the website. Before we begin I would like to read the following forward-looking statements. Certain statements made on this call by Popeyes Louisina Kitchen, Inc. officers and employees regarding future events and developments, and our future performance, as well as management's expectations, beliefs or projections relating to the future are forward-looking statements within the meaning of the federal securities laws. We wish to caution investors to not place undue reliance on any forward-looking statement since those statements speak only to the date they are made. By their nature forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. These risks and uncertainties have been described in the company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and in other filings with the Securities and Exchange Commission. We refer you to these sources for more information. During this call, references we made to the non-GAAP terms of company-operated restaurant operating profit, operating EBITDA, free cash flow, adjusted earnings per share and consolidated total leverage ratio. The company defines these terms as follows: company-operated restaurant operating profit is defined as sales by company-operated restaurants, minus restaurant food, beverages and packaging, minus restaurant employee, occupancy and other expenses. Operating EBITDA is defined as earnings before interest expense, taxes, depreciation and amortization and other expense or income net. Free cash flow is defined as net income plus depreciation and amortization, plus stock-based compensation expense, minus maintenance capital expenditures. Adjusted EPS for the periods presented is defined as reported net income after adjusting for certain non-operating items consisting of other expense or income net, interest expense associated with the credit facility retirement, deferred tax liability adjustment and the tax effect of these adjustments. Consolidated total leverage ratio is calculated as the ratio of consolidated total indebtedness including current and long term debt maturities, plus outstanding letters of credit, divided by consolidated earnings before interest expense, taxes, depreciation and amortization and other expense and income net and stock-based compensation expense for the four immediately preceding fiscal quarters. The company's full definitions, computations and reconciliations to GAAP measures of the numbers referenced for these terms are contained in our Annual Report on Form 10-K and in our earnings press release that can be found on the company's website at www.plki.com. Presenting on today's call will be our Chief Executive Officer, Cheryl Bachelder; and our Chief Financial Officer, Will Matt. I will now turn the call over to Cheryl. Cheryl?

Thank you, Grady. Good morning, we're glad you could join us for the call. The continued strength of the Popeyes brand was clearly demonstrated in our first quarter results. We are now entering our seventh consecutive year of positive same-store sales and we're sustaining that momentum through an emphasis on our strategic roadmap. With our compelling Louisiana inspired menu innovation, newly remodeled restaurants and increasing restaurant profitability, Popeyes has a significant growth opportunity both domestically and abroad. The strength and reliability of Popeyes' performance gives us confidence in our future investments in human capital, and international expansion to fuel continued success. Here are a few highlights from our first quarter. Our system wide sales increased by 13.7% for a two year compounded first quarter growth of just over 26%, our global same-store sales increased 7% for a two year compounded first quarter growth of 11.8%. We opened 53 new restaurants adding a net of 35 restaurants to our overall footprint. At the end of the first quarter, we had 2420 restaurants around the globe versus 2248 last year. This represents a net unit growth of 7.7% over the last 12 months. Operating EBITDA grew $4.7 million or approximately 22% versus last year. At 32.8% of total revenue our operating EBITDA margin remains among the highest in the industry. We delivered $0.58 of adjusted earnings per diluted share reflecting a 26.1% increase over the last year. This earnings per share performance exceeded the analyst expectation. Finally, during the quarter we generated $17.7 million in free cash flow which represented 22% of total revenue. We used the cash for company operated restaurant development and share repurchases to return value to our shareholders. I will begin today with an overview of our five pillar strategic roadmap, starting with our first new pillar, Develop…

Thank you, Cheryl and good morning everyone. This morning I'm going to step through a few key performance metrics and then Cheryl will return to review our guidance. In the first quarter, our adjusted earnings increased $13.6 million or $0.58 per diluted share, compared to $11.1 million or $0.46 last year. Popeyes system wide sales increased 13.7%, driven largely by strong global same-store sales performance and the addition of new restaurants. Total revenues in the first quarter were $79.5 million compared to $70.1 million in the prior year, an increase of 13.4%. Of these revenues franchise revenues were $43.1 million up $4.3 million over the prior year. This 11.1% increase was a primarily due to positive same-store sales in sales of new franchise restaurants. Our company operated restaurants had sales of $34.7 million in the first quarter compared to $29.4 million in 2014. Same-store sales of our company operated restaurants were positive 1% in the first quarter. Company restaurants in our heritage markets Memphis and New Orleans had combined same-store sales growth of 6.8%. As expected our restaurants in Indianapolis and Charlotte saw negative same-store sales. For this reason we believe you should focus on total sales by company restaurants as of better indication of performance. In Q1, 2015 total sales by company operated restaurants was $34.7 million compared to $29.4 million in Q1 2014, an increase of 18%. As a result of our same-store sales growth and the 13 company restaurants built in 2014, company restaurant operating profit increased 25% to $7.5 million from $6 million last year. Operating profit in our company operated restaurants increased to 21.6% in the first quarter from 20.4 last year. For purposes of modeling please recall ROP margins tend to run higher in the first quarter versus the balance of the year. Our…

Thank you, Will. Let me wrap up the call with a look ahead. We expect global same-store sales growth to be at the top of our original range of 3.5% to 4.5% representing a two year trend of 11% across the year. Accordingly, we are increasing our guidance on adjusted earnings per diluted share by $0.01 to a new range of a $1.84 to a $1.89 compared to prior guidance of $1.83 to $1.88. We reiterate our full year general and administrative expenses will be approximately 2.9% of system wide sales. Note that in the first quarter, general and administrative expenses were approximately 2.7% due to expense timing. We also reiterate the following guidance, we expect new restaurants opening of 200 to 225 and net restaurant openings of 115 to 150 for system growth rate of approximately 5% to 6%. Included in this 2015 total are 85 to 95 international restaurants. Capital expenditures of $15 million to $20 million which includes development of three to five new company operate restaurants. And effective income tax rate in 2015 of approximately 38% and share repurchases of approximately $40 million to $50 million. Long-term the company believes the execution of a strategic plan will deliver on an average annualized basis over the next five years, the following results. Same-store sales growth of 2% to 4%, net unit growth of 5% to 7% and earnings per diluted share growth of 13% to 15%. We are pleased to announce our leadership team is now complete with the addition of John Merkin as our Chief Operating Officer, U.S. John comes to us with over 20 years of experience in operations, human resources and brand management in the restaurant and hospitality industry. His history of forging strong franchisee relationship while continuously improving operating standards will serve Popeyes well. With that, I’ll wrap up today’s conference call and turn the call back over to our operator for your questions and answers.

[Operator Instructions] Our first question comes from Michael Gallo with C.L. King. Your line is open.

Hi good morning. Just a couple of questions and one follow-up. Obviously, congratulations on another good quarter. The international media spend, I think it was about $300,000 in the quarter. What do you expect that for the year, and how should we think about the cadence of that in Q2 to Q4? Should we think about the cadence of that in Q2 to Q4?

It's inside of our four year guidance Michael, and we've been gradually expanding that strategy to new countries as we expand our restaurants in our international sales. So, I think the best way to answer without getting to specific is to say it's within the four year number.

Okay. Second question I have, I just want to delve in a little bit on SG&A. I know you talked about it being a little below your 3% or 2.9% target as a percentage of system-wide sales. But I just wanted to drill into that management of the system to that level. I guess when we look at most of your peers, they seem to manage SG&A to a level of SG&A per store. I think when we look across the peer set, I think you're somewhere in the $35,000-per-store range. We see several of your peers that are less franchised than you are in the low 20s area and some that are certainly even in the $16,000-, $17,000-per-store range. So I was wondering if you could walk us through why 3% of system-wide sales is the right number, why $35,000 per store is the right number. And why you wouldn't expect to leverage that when you have such strong comps in the quarter. Thanks.

Mike, we've been really consistent on this metrics for the last seven years as a guide - I understand there's different ways to calculate and compare our focus on system wide sales and our data says that we run below industry average on percent of system wide at 2.9%. We've been in that 2.9% to 3.0% steadily. The reason we've not shown leverage is because we’re investing in growth and as we decide to grow more domestically and internationally, we get in front of that with the staffing required to both open those restaurants and monitor those restaurants after they open. And we found this run rate to be sustainable to support very rapid growth as you know in our 5% to 7% guidance in net new units is industry leading. So, I guess we don't view it as broken and it's led to pretty consistent earnings per share performance over a long period of time.

Right. Just what I was driving at is it seems like you started to get a little leverage on that line item last year. You obviously saw more of it in the first quarter. And I wonder if there's a point where the lines cross, where you start to get a return on that. It's not going to have to grow as fast. And perhaps what you used to think about as 2.9% maybe ends up being 2.6% or 2.7% just from the law of numbers.

As you know from calculating, the tenth of a point is a really big swing when it’s on system wide sales. So it has fluctuated at tenth of a point up or down here and there and it will but our current run rate and forecast is to cover right at that number and continue to invest. We've got a lot more growth to access both domestically and internationally.

Okay. Great. And then second question is just for Will on the balance sheet. I know you talked about the completion of the capital structure review at the end of the first quarter. You did buy back $11 million worth of stock, but it looked like the consolidated leverage ratio actually went down sequentially. So walk us through again how we should think about getting to the 2.5 to 3.5 times. Is it something we will wake up one day and it happened opportunistically? Or at some point you'll have to revisit whether $40 million to $50 million is the right number because just the growth of EBITDA suggests certainly not going to get you anywhere near that over the next couple of years. Thanks.

What we said on the end of year call is that, our intention is to adjust our capital structure to a leverage ratio of 2.5 to 3.5x over the next to two to three years. But our primary focus will be on having the capital flexibility to first bond our organic growth and the big investments that we see as our strategic investment in G&A that will provide us with this employee and guest experience, which will drive our AUV growth and our unit growth. We also see opportunities to invest internationally either investing in media to build the brand awareness and/or direct capital investments to either jump start or accelerate unit growth in new potential markets. And then ultimately what will be doing is we’ll take our access operating cash flow and we’ll repurchases shares but we’ll do that in a prudent way increasing our leverage to 2.5 to 3.5x and then using that money to opportunistically purchase incremental shares. But our primary focus is going to be one fueling or driving organic growth and increasing long term shareholder value.

And Mike, I would just add that the way you said is accurate. There will be a step change in our investment plan at some point when we make those investments and so we're in currently and this quarter I would call a steady state and at the point in time we make a significant investment it will be reflected in that borrowing rates.

Okay. Thank you.

Our next question comes from Joshua Long with Piper Jaffray. Your line is open.

Great, thank you. Wanted to see if we could talk about the heritage versus new markets. I appreciate the color and added detail on breaking that out, but was curious on how you are feeling about brand awareness trending in some of those newer markets. And then as we look forward, is it really a function of time to build that up? Or are there additional operational opportunities now that you've got the full executive team to leverage on as they go forward? Just trying to think about how those newer markets trend over time.

So the way I would describe it, brand awareness in those markets runs comparable to other markets because we are national advertisers. So there is not a distinctive around media driven brand awareness. There is certainly the fact that we've only recently become a strong footprint and the markets of Indianapolis and Charlotte. So really the major issue and the performance of Indiana and Charlotte is around staffing and getting experience veteran operators to run great restaurants and then working to drive excellence in the P&L overtime. So as you know, we've grown rapidly in those markets, we told on the last call that we take a pause this year to deepen our talent and strengthen our P&L before returning to more rapid extension. Anytime you go from kind of zero to 13 restaurants in a market, you have a pretty rapid ramp up of talent of - by hiring 30, 35 people per restaurants. So it's primarily in the human capital side and the managing the P&L that we see opportunity for improvement this year.

That's very helpful. And then understanding that the focus on human capital was paramount really is the linchpin here for driving the strategy over time, what's a reasonable time frame to be able to build up and build into those human capital -- that human capital work that you are doing and strengthening of the store-level teams? Is that -- what kind of time frame could you provide around that?

Where I described where we're at Josh is that, last year we talked though we’re kind of building the fundamental capabilities to be a stronger human capital based company. This year we're actually in market with what we're calling early adaptor franchisees, franchisees eager to invest in their human capital in training and support, leadership development. So we're now active end market with these team of early adopters as with everything we do at Popeyes we’re doing this in a very collaborative fashion with our franchises. So that when we go to market in '16 and '17 with these initiatives, we will have the advance support and partnership of our thought leadership franchisees. So this years end market and next year and beyond will be roll-out impact years for those strategies.

That's helpful. And then as we've seen pressure on the commodity line -- or, rather, the industry in general around chicken and the switch to bird -- switch in bird sides, rather, what are your thoughts or your outlook on that key commodity item for both your restaurants and also for franchisees going forward? And any sort of concerns on getting the supply needed as these adjustments are going on in the -- on the protein side of the industry?

We anticipated the increase in bone and chicken prices this year. Our team did quite a remarkable job of shepherding that cost information to our franchisees so that they could steward judicious and modest pricing increases on their menus really proud of work that was done, I think we minimized the impact on our customer base and protected our P&L. So while as I said we don’t have our first quarter data in on the franchise P&L, we feel good about the process we used to manage through that. In chicken commodity we expect the balance of the year to improve from a commodity standpoint and will be monitoring that quarterly. We have not seen supply issues. We've been managing supply effectively. We are obviously a fast growing chain in market share and continuing to expand our chicken needs, but we've had no supply concerns in the quarter and anticipate an ongoing forward.

Great. Thanks very much.

Our next question comes from Alton Stump with Longbow Research. Your line is open.

Thank you. Good morning, and good job on the quarter. I think maybe just press you a little bit just on the balance sheet commentary from earlier in the call. I certainly understand that you guys have a lot of growth in various places that you are pursuing. But still, I think as the point is brought up, if you look at your rate of $40 million to $50 million of buybacks, it would imply that your leverage is probably basically about flat. Maybe even come down a little bit if EBITDAC continues to grow nicely. And so how are you thinking about when we may see that overall pace of buybacks pick up? Is it a 2016 event, or is it more 2017, 2018 -- any color on that front on how you plan to get your leverage up by buying back shares?

Well you know we have only guided on buybacks for this year and I am not going to guide beyond the year, but I have been consistent about talking about the investments coming in human capital and international expansion. And so I think that’s the first foot forward investment that you will see from Popeye. And as well said if cash remains, we have been prudent and consistent about buying back shares to return that cash to the shareholder.

Okay. Thanks. And then just on the guidance, obviously the one coming up by a penny [indiscernible] first quarter beat by $0.04. Is that a case of perhaps consensus was just too low for the first quarter as paced, or is it just conservatism only one quarter in? Was a bit surprised to see you not raise guidance more.

Well the main difference is in G&A timing. We took the penny in sales B, but we kept the G&A in the balance of the year because that's actually how we planned our year. We typically backlogged G&A so that we know where we sit in the marketplace and performance results. So the first quarter was a great sales quarter. I might suggest we got a little more leverage than we anticipated on G&A, but the timing remains that most of our investments are in the back half of the year.

Okay. And then I'll just last one, and then I'll hop back in the queue. Thanks, Cheryl. But was very impressed to see the comp growth number in the first quarter given that there have been some negative news flow as to whether any impact in the first quarter namely in the Southeast region. From what you see, was there any impact from weather negatively in the first quarter?

No the first quarter was pretty calm weather quarter way better than last year.

Okay. Great, thanks.

Our next question comes from Alex Slagle with Jefferies. Your line is open.

Hi thanks, good morning. Wanted to follow up -- you may have touched on this in response to Josh's question, but on commodity costs for the Company-owned system, should we expect -- I guess I would have expected more pressure on the cost of goods line in the first quarter just given the higher chicken costs and even despite the price increases. But what drove the year-over-year improvement is very slight, but how should we think about that going forward into the second quarter? Should this ease in the second quarter and into the back half?

Specifically in company restaurants.

Yes.

So a couple of things one in the first quarter obviously our company restaurant had very good sale and that helped their margins. They took modest increases in price just like I franchise did that helped margins and then we had improved margins in our new market. So those are the components of the margin in growth improvement and we think company margins look good for the balance of the year.

We had nice improvement in Q1 and we expect to continue that throughout the balance of the year. So we were pleased with that and consistent with our desire to slow the pace and redouble how we were doing in our new company markets, we’re pleased with our performance.

Great. One question on just depreciation, it seems like the growth rate year over year has moderated this quarter and last. And maybe you could update us on the moving pieces here and what to expect. Is this sort of the new run rate we should think about now that we've passed the period with the acquisitions?

Yes I mean what I would say is that in 2015 our company operated restaurants, what we’re saying is we are going to open three to five, we also have a couple of relocations in that, so that will reflect how much capital we’re spending but in 2015 so as we cycle that our depreciation will be slightly lower versus. If you think about in 2013, we opened nine restaurants, in 2014 we opened 14 and what we’re saying is we’re going to open three to five in 2015.

Great, thanks.

Thank you.

Our next question comes from Mark Smith with Feltl & Company. Your line is open.

Good morning guys. First off, I want to hit some of the new restaurants again. You guys just talked about margins. The comps were down in the new markets, but can you talk specifically about the restaurant operating profit at these new restaurants? Are they becoming more efficient more quickly than you had expected, and was that the big part of the increase year over year in restaurant operating profit?

We had a good improvement in margin in the first quarter in those new markets, we were looking for a good improvement, when you open a lot of restaurants quickly and you’re training a lot of new managers, you’re going to have some cost control challenges initially, lot of training cost, lot of new people managing your processes, so we intentionally went after margin improvement in the first quarter in our new markets and we were able to accomplish it and as Will just said we think there is more to get there in the back half of the year.

Okay. And then I know that you guys typically don't break it out, but can you speak to traffic versus ticket at comped restaurants?

This one that always ask even though I never answered the question, I always say that positive transactions are the sign of the healthy concept in any year, in any quarter and I think what you can take confidence then is the quality of our promotion calendar, product innovation as I mentioned we had began our quarter back to back, innovative exciting new products of record week around Red Stick promotion. We have some excited guests about coming to Popeyes, so I will continue to not weather it out, but I would tell you that a healthy long-term chain has to have positive transactions to grow.

And I must just add we had very nice market share improvement both against the broader QSR, as well as the Chicken QSR and we were - we had nice comps, global comps of 7 and we took modest pricing increases.

Yes and would highlight what Will just said around the comparison of our comps to QSR, I have always talked about relative to Chicken QSR and we’ve outpaced that forever. But I think our trend up against the whole sector is impressive and tells you that we have a really strong brand concept with our customers.

And maybe to dig a little bit deeper if I push my luck here, looking at franchisees and how much price they took, was it more aggressive than what you did? It sounds like it was still pretty modest. And then looking forward, do you feel like system-wide you still have pricing power?

We think it’s really important to stay close to what our guest has available to spend, so what I delighted with it’s that we have gotten more sophisticated in the way we take menu pricing, today there is more data available and more analytical tools to help you take pricing in the menu where it has least impact on your guest. And so the answer to your question about company versus franchise, the increases were comparable but they were very sophisticatedly done meaning minimum impact on the sense of the customer buys most. So I think we’re not alone in this improvement. I think our whole categories getting more sophisticated, but the result is, it minimizes traffic impact if you can minimize the increases on your most frequently bought items.

We were very conscious when we this provided this guidance that our greatest strength has been over the last seven years we've enjoyed same-store sales growth and so what we wanted to be very careful with, is to not stall that growth and to be - to take the pricing that we needed to, but not stop that locomotive that's been driving this brand for the last seven years.

Excellent. Thank you.

Our next question comes from Nick Setyan with Wedbush Securities. Your line is open.

Hey, good morning, and congrats again on another great quarter. We're seeing the margin is continuing to improve here, and the cash in cash returns are just tremendous. It's continuing to grow year after year. Given that, any opportunities beyond Charlotte, Indianapolis to be able to capitalize on those types of ROICs beyond just the Charlotte, Indianapolis markets with respect to the Company on growth?

Nick we'll be reevaluating that as we plan for 2016 and 2017. We wanted to make sure we didn’t get ahead of our skews on that front in terms of our ability to prepare talent and to manage the scale of volumes we're getting in those new restaurants, and so this year is kind of collect ourselves year and I’ll give you more color on that when we come back on 2016 guidance for new store openings that's clearly one of the options we have.

Got it, got it. Okay. And with respect to maybe the cadence of the comp, was there any kind of - just like across the industry - deceleration from maybe having a really, really strong start to the year as the quarter progressed? Or was it just driven by the success of each individual LPO?

I think we benefited from some tailwinds in the quarter as you look at the other growing concept. It's pretty strong quarter for growing healthy brands. And so we got a little more tailwinds than we expected. But I would say they were fairly consistent across the quarter.

I mean the one thing I would add is that in the fourth period we had a record AUV with our registered promotion. So it was good quarter and it’s going particularly well in the fourth period.

Perfect thanks gentlemen.

Our next question comes from Michael Halen with Bloomberg Intelligence. Your line is open.

Thanks for taking my question. I feel you are trying the $4.99 price point with another chicken LPO, smoky garlic chili chicken. I think 4Q 2013 same-store sales suffered when you last tested that price point. I know that you're now giving your customers their choice of side item instead of just Cajun fries, which are great, by the way. But is that enough value for your customers at that price point?

We test all our new products with the price point, we never launch one without test data in hand. The one you referenced in the prior year was a VP promotion at a 499 price point, and I would attribute the weakness of that event more to the repeat than the price point. But again this one - that’s in the market right today has been through our rigorous test process just like the rest. And over time we had pretty consistent performance of our LPOs against our test market results. So we think we’re comfortable with the price point.

Thank you. And can you give us some color by your decision not to run the payday promotion nationally in the first quarter? Is that something you're keeping in your pocket for another quarter? Was it franchisee pushback because higher chicken prices maybe are squeezing margins on that promotion, or was it something else? I'm just looking for some insight how you manage these types of recurring promotions on your marketing talent.

Payday is a promotion we use selectively. It is not an evergreen that we put in our calendar permanently, it’s a great way to reward our loyal customers with the great value periodically and I think of it almost like an anniversary sales as some brands do once a year or some periodic timeframe. But it's a selective tool that's in our arsenal we can always bring it back. In fact our franchises periodically bring it back locally as an exciting way to generate customer transactions in their market. So just consider one of our arrows and our quiver that we will periodically go back to when the time is right.

Great. Thank you very much.

Thank you.

And our final question comes from Steve Anderson with Miller Tabak. Your line is open.

Good morning. I know you touched on commodities earlier on the call, but want to see what impact, if any, you have seen from the recent outbreak of avian flu and what steps your suppliers have taken to minimize that threat. Thank you.

Thank you Steve for asking, I know this topic has been in the news, so I want to be certain that everyone on the call is crystal clear on the situation. What Popeyes sales in our restaurants our protein comes from boiler chicken. The avian flu that has been referenced in the media is not in the boiler chicken slot, not in our boiler chicken. There’s been impact to the egg laying slot, but not to boiler chicken. So it had no impact on our business and it had no impact on our supply. And if you have a follow-up question, I’ll be happy to take it.

That's all I have right now. Thank you.

Thanks Steve.

Thank you. That concludes the Q&A session. I will now turn the call back over to Cheryl Bachelder for closing remarks.

Thank you. As always we appreciate your questions and joining us on the call. On June 10 we will be in New York presenting at the Piper Jaffrey Consumer Conference. Until then, I want you to get out and try that great promotion we just talked about Smoky Garlic Chile Chicken served with our new Garlic Herb Sauce I think you’re going to enjoy it. Our next call will be in late August when we announce our second quarter results and we look forward to speaking with you then. Thank you and have a great day.

Thank you. Ladies and gentlemen, that does conclude today's conference. You may all disconnect and everyone have a great day.