Good day, and thank you for standing by. Welcome to the Krispy Kreme First Quarter 2022 Earnings Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Rob Ballew, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Krispy Kreme's First Quarter 2022 Earnings Call. Thank you for joining us today. Our first quarter earnings release and an accompanying earnings presentation deck are available on the Investor Relations portion of our website at investors.krispykreme.com. Joining me on the call this morning is Mike Tattersfield, President and Chief Executive Officer; Josh Charlesworth, Chief Operating and Financial Officer; and Joey Pruitt, Chief Accounting Officer. After prepared remarks by Mike and Josh, there will be a question-and-answer session. Before we begin, I would like to remind you that this call contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations, future events or future financial performance. Forward-looking statements involve a number of inherent risks and uncertainties, and we caution investors that these risks could cause actual results to differ materially from those contained in any forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's registration statement on Form S-1. Forward-looking statements made today speak only as of today. The company assumes no obligation to publicly update or revise any forward-looking statement except as may be required by law. Additionally, today's call will include certain non-GAAP financial measures. A reconciliation between non-GAAP financial measures and their closest GAAP measures can be found in the company's first quarter earnings press release and our Form 10-Q, which will be furnished shortly to the SEC and available at investors.krispykreme.com. With that, I'll turn the call over to Mike.

Good morning, and thank you, everyone, for joining us today. We are pleased to share our first quarter 2022 results as we build on strong momentum established in 2021. I want to start today's call by thanking our amazing group of Krispy Kremers, our team members, for their continuing hard work to create moments of joy for our customers, especially while navigating significant uncertainty across the world. Our people continue to be at the forefront of delivering on our mission of becoming the world's most-loved sweet treat brand. We have accelerated investments in our talent to ensure we continue to attract, engage and retain our most vital asset, and we are already seeing improvements across the key people measures to start the year. The purpose of our company is to touch and enhance the lives of others through the joy that is Krispy Kreme. Last quarter, we discussed the strong positive impact Krispy Kremers have had on the community in 2021. We continued those efforts this year, including our blood donation campaign in conjunction with the Red Cross in January to help save lives. Another great example this year includes celebrating International Women's Day across the globe with our Hear From Her campaign, which put the spotlight on talented female illustrators globally and encouraged our customers to share their own voice as well as donating product and proceeds to women-based organizations. This campaign sparks social conversations across the world with a theme of celebrating the special women in each of our lives. Both of these campaigns perfectly highlight our key brand value of joy, generosity and connection with our consumers, which we know drives strong brand love. We are proud to be a global company operating in more than 30 countries, and campaigns like these highlight the good we can…

Thanks, Mike, and good morning, everyone. In the first quarter, our Krispy Kremers have once again shown that our beloved brand and our omnichannel approach is not only resilient in this turbulent macro environment but continues to thrive, with net revenue growing 15.8% year-over-year to $373 million, organic revenue growing 15.0% and adjusted EBITDA increasing 5.4% to $48.9 million or a margin of 13.1%. This performance reflects the effectiveness of our strategy to maximize sales from our production hubs, selling more fresh doughnuts through our shops via ecommerce and into local grocery and convenience stores. This also helped us work through the disruption from Omicron back in January, with fresh doughnuts always available even if we lost a few operating hours when Krispy Kremers fell sick. During the quarter, we added 600 of these points of access across the world, mostly in the form of capital-light DFD doors. We now have more than 11,000 points of access, an increase of nearly 2,000 from a year ago. Along with our successful brand activation initiatives around the world, this directly resulted in double-digit sales per hub increases across all our business segments. The resulting operating leverage explains the 90 basis point increase in first quarter U.S. and Canada segment EBITDA margin year-over-year. Total company adjusted EBITDA margin was 130 basis points lower than the same quarter last year due to the impact of public company costs, and we also lapped the receipt of a business interruption insurance payment in the U.K. 1 year ago of $3.5 million. Nevertheless, a margin of 13.1% is higher than we saw across the second half of 2021 and shows how the efficiencies of expanding our hub-and-spoke model plus the pricing we took during the course of 2021 were enough to cover inflation. In the first quarter,…

[Operator Instructions]. Our first question is from Sara Senatore with Bank of America.

This is Katherine Griffin on for Sara. So first, I just wanted to -- Mike, I appreciate kind of the down-low on the DFD door strategy, but I wanted to just kind of drill down specifically into first quarter. There was pretty significant year-over-year growth in sales per access point there. So is that the kind of growth we should expect going forward? Or were there -- was there anything unique in the kind of doors that you opened this quarter that would suggest maybe the year-over-year growth is not apples to apples? I think any color there would be helpful.

Yes. I think -- so thank you for the question. If you look about the growth that we had in the first quarter of 600 doors and then, again, the 27% growth that we had, you'll see a mix of that from either the new door growth and then the existing door growth that's coming in. So it's just as we add new customers, as we expand more routes not just in the U.S. but also in International, you'll see the mix. In terms of the number of growth, if you think about quarter by quarter, some of that, you get front loaded a little bit from the last -- if you think about Q4. There is some pruning of doors that tends to happen at the back end of the year so then it gets a little bit front loaded in the first quarter. So you anticipate -- again, the 10% that we said year-over-year is what we still target for the back end of the year.

Great. And then just I wanted to follow up on the LTOs. So I think the last time we spoke back in March, we heard a little bit about some of the innovation being done on digital such that you can direct customers through geolocation to the closest either DFD door or access point where you can get those premium products. So I'm curious if there's anything that's been helping drive the LTO success in terms of like the digital side or whether it's app, whether it's loyalty. I understand like it's definitely innovation and premiumization that's driving that, but I'm curious if there is sort of keys on digital or loyalty that you can couple to sort of optimize growth there.

Yes. So I'll break it down into a couple of things. There's a lot of questions that you kind of posed there. So one of the first things that we try to do in innovation when we come up with something pretty unique and differentiated is the social media strategy that we really push, right? So you get these impressions that you get out and you get the brand awareness. And remember, we don't spend -- or not a heavy spend on the marketing side, right? So we use the power of the brand and its uniqueness of products, whether it's the Twix bar that was in the middle of the doughnut. Or even -- as you just saw today, we launched in the U.S. a Honey Bee line, right, where you're trying to get something pretty unique from a new flavor profile. Social media and how we play that is really where you get the expansion. From ecommerce and pieces, what you'll see is we connect that either through the delivery app where you can link on innovation and then make sure that there's an opportunity for everybody to see that. I think you were referencing geofencing or something like that, where we're talking about the dark shops, which allows us to add a location that then launches a delivery zone into a market. So that gives you more access to customers. So that's how you can see the expansion of that, and that's how innovation can get to customers. The number one challenge that we have in Krispy Kreme, we really like our 415 hubs that produce for our doughnut shops. It's about getting access to the customers and using the DFD methodology as well as unlocking ecommerce.

And Mike, the only thing I'll add to that is on the LTOs, specifically using loyalty. We do communicate to our loyalty customers, and they're given the opportunity to get a free LTO when they come in with a code and what have you into the store. So that's one way that we leverage the loyalty program to make sure that the LTOs are top of mind and bring them in just one more time.

Our next question comes from John Ivankoe with JPMorgan.

Just looking at -- in the U.S., I think it was 5,411 DFD points of distribution. I mean it got me thinking. As you talk about expanding 10 to 15 equity stores, I think that was in the U.S. Where do you expect those stores to be? Meaning will they be in completely greenfield markets, for example, like New England or Minneapolis, 2 that I guess like pop into memory? Or do you have an opportunity to locate those stores where the DFD market will be completely new; in other words, the DFD outlets that those new stores would serve would be truly incremental to Krispy Kreme versus those that are necessarily pulled out of existing outlets?

John, I think the way that we've thought about this, when we took control of the system, we finally took control of some of the largest markets. So when we're doing 10 to 15 new equity hubs, right? So equity hubs that we're talking about, that would be equity plus, the international markets where we're equity owners as well as the U.S. The prioritization that we'll continue to look for those hubs will be in those new markets potentially where you would have incremental on new DFD doors, right? So you will be expanding in the U.S. You'll start to get to that 50 to 75 points of access as you open up the hub, and then in due time, it starts to get its points of access. But you continue to look at the base of hubs today, and you continue to fine-tune and add more hubs. As we think that the route becomes more interesting, you can see dark shops will add onto the existing base. And you can look at -- continue to look at either fresh shops, another piece that will drive the business deeper. So it's about leveraging. So always, there'll be more new growth on the DFD as we open up hubs, but also continue to really leverage our existing hubs to see how we can continue to drive more points of access.

Understood. And the DFD strategy, I mean, it's really just a couple of years old, and you obviously made that transition very quickly and broadly across the U.S. How has, I guess, the intelligence of measuring profitability on the DFD door changed or improved? And as you think about the overall DFD opportunity now in the U.S., there are probably some locations where you didn't expect to be profitable and you are, maybe other locations you thought would be good and aren't yet. I mean how is, I guess, the overall intelligence of mapping out DFD in the U.S. changing now that you have a decent body of, I guess, experience with you, which, I guess, on a post-COVID world is actually pretty short amount of experience, as you think about mapping out the future?

Sure. John, this is Josh. So yes, you're right, 85-year-old system that we're transforming here. And over the last recent times, we've, of course, been acquiring franchise shops in all sorts of different situations in key cities but not always set up for this strategy. So a lot of the focus has been converting and adjusting those shops and then engaging the local customers in the new DFD program. We have, during the course of that, learned that it's important to have grocery stores and convenience stores that are high traffic, that are locally located. It's important for us to then manage the routes so that drivers can really efficiently get to them. This is all expertise we've been building. We've been adding route management software. We've been adding demand planning capabilities and labor management capabilities in our hubs to not only make sure that the drive-thru is working well, that the ecommerce integration is working well, but indeed that we get the doughnuts out quickly and efficiently. So all of that is a learning journey. And definitely, we're finding some of the older stores need adjustment, need remodeling and even need the space adjusting to make sure that it works effectively and efficiently. We're seeing a whole range of performance, but overall, 300 to 400 basis point increase in margins when we've deployed the DFD program. And we now have cities, as I mentioned in today's call, Nashville, previously Tampa, Albuquerque and others, where we're already over 20% local EBITDA margin and rivaling those international ones. So we'll continue to deploy all these operational best practices we learned from the international folks, and then we learn as we go, as you say.

I think one thing that is important, John, is if you take the base that you talked about, instead of just pruning doors, right, there's still an opportunity to start to get into the single-serve. If you imagine in the COVID world, right, you got pretty selective of what you could do. As you get into merchandising in a different way, it completely takes your base and moves you to a different way of how the consumer is going to actually engage with your brand. So getting into that single usage becomes an opportunity to capture. So there's a lot that's still to do in the existing base beyond just opening up the new DFD doors. You have 2 strategies that you're actually doing and exactly what Josh talked about. How do you maximize the profitability as you're going through this? A, you get more occasions as you start to get into the single base. It opens up different platforms, different customer base, et cetera.

Yes, definitely. I think the smallest one I've seen in my local store is 6. And to your point, they're meant to be daily. That's not always -- not for every day a single-use occasion. Maybe some days it is, but that's another topic. But I guess how -- as you -- hopefully, you got that joke. So as you talk about kind of like the potential of DFD, again, that 5,411, I mean, are you prepared to talk about what that white space is in the U.S.? Again, I mean, is it fewer, more profitable doors? Is it more doors? I mean I'm just really trying to just push about what you're kind of thinking in this post-COVID world, as you now have the experience set, how that number may be evolving in terms of your ultimate target.

Yes. We believe that there's a 10,000 DFD -- or point-of-access opportunity, largely DFD, in North America, opportunity versus the 5,500 DFD doors we have today. We have mapped out both the U.S. and now Canada, which we control as well, city by major city, customer by customer, the opportunity based on either where we have hubs today or where we see hub opportunity. And it's actually pretty even, when you look at going from that 5,500 to the 10,000, where that opportunity is. About half of it is in new cities versus cities that we're already distributing DFD in. About half of it is new customers versus existing customers. So right now, we are continuously adding largely with the existing hubs that we have, adjusting those to maximize the capacity we have. But indeed, as Mike mentioned, we'll be adding 7 to 10 hubs in North America a year over the next few years to go after the Minneapolises and Bostons of this world. Most recently, we opened up for the first time Colorado Springs, Tucson. So we are bringing these doughnuts and indeed, DFD swiftly through across the system. So yes, we have a clear line of sight to that. And our confidence obviously is high given the momentum we've had over the last, call it, 2 years in transforming from the old legacy wholesale business.

[Operator Instructions]. Our next question comes from Bill Chappell with Truist Securities.

This is Stephen Lengel on for Bill Chappell. I wanted to circle back to labor. I was wondering if you guys could provide us some additional color on the labor market as you expand your distribution points. Given the backdrop of the consumer environment, have you seen more or less improvements in access to label -- labor, sorry? Any color there would be great.

Yes. So from a labor perspective, we still continue to be able to -- what we really like about the brand culture is we're still able to attract plenty of labor to come into our business. We're averaging about -- we can bring in about 1,500 new Krispy Kremers into the business in the U.S. to give you an example. And we don't see -- we haven't seen any material challenge to labor. It could be little pockets somewhere in the United States where there might be some opportunity. But it's really about the culture, that they want to come into the business. We are a growth system. So people continue to look for growth and opportunities. So they see what's happening with the logistics opportunities. You start to get into the delivery system, to the DFD doors, et cetera. From a driver standpoint, everybody is really concerned about that. But it's -- on average, we're talking about 4 to 6 drivers per shop a month. So that's not an overwhelming number for us to do. We continue to be competitive in every market that we're going to be. We will do that against making sure that that's not the barrier. And the benefits -- and actually, it's really about helping our Krispy Kremers hit their dreams and goals and growth as a differentiated company.

And I'm currently showing no further questions. I'd like to turn the call back over to Mike Tattersfield for closing remarks.

Yes. So thank you, everybody, for being on the call. I can't say enough about what our Krispy Kremers do on a daily basis to make this brand amazing and be able to accomplish that. The purpose of the company is to touch and enhance lives of others through the joy that's Krispy Kreme. They live that every single day. When we can do that really well and drive our culture, we can become the most loved sweet treat brand in the world and deliver the type of performance that we lay out in front of us. So thank you for participating in the call today, and we look forward to continued chats and growth in Krispy Kreme.

This concludes today's conference call. Thank you for participating. You may now disconnect.