Ladies and gentlemen, good morning. My name is Abbie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme Fourth Quarter and Full Year 2022 Earnings Call. Today’s call is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And I’ll now turn the conference over to Rob Ballew, Vice President of Investor Relations. You may begin.

Thank you. Good morning, everyone, and welcome to Krispy Kreme’s fourth quarter and full year 2022 earnings call. Thank you for joining us today. Our 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, Global President, Chief Operating Officer; and Jeremiah Ashukian, Chief Financial Officer. After prepared remarks, there will be a question-and-answer session. Before we begin, I’d like to remind you that this call contains forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities and 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 Form 10-K filed with the SEC on March 11, 2022. Forward-looking statements made today speak only as of today. The company assumes no obligation to update or revise any forward-looking statements, except as may be required by law. Additionally, today’s call will include certain non-GAAP financial measures. Reconciliation between non-GAAP financial measures and their closest comparable GAAP measures can be found in the company’s fourth quarter 2022 earnings release and Form 8-K filed today, and our Form 10-K, which will be file with the SEC later this month will also be made available on our website investors.krispykreme.com. With that, I’ll now turn the call over to Mike.

Good morning, and thank you, everyone, for joining us today. We are pleased to share our fourth quarter and full year 2022 results as organic growth accelerated from the third quarter driven by our continued successful execution of our omni-channel strategy and strong performance of our premium offerings for celebration events and holidays. I want to start today’s call by thanking our Krispy Kremers, our team members for driving another strong quarter and year of revenue growth. In 2022, we had positive organic growth in every country around the world despite a turbulent macro environment and double-digit organic growth in all three segments in the fourth quarter. Thank you. Without your efforts and dedication, this would not be possible. Since 1937, we’ve been serving our iconic Original Glazed Doughnut to customers and it’s always been about sharing moments among friends, family, and community. As unaffordable indulgence today, we love the fact that more than 80% of our doughnuts are bought to be shared with others, including as gifts. In 2022, 36% of our customers bought our doughnuts for a party or special event in their life up from just 10% a few years ago. The purpose of our company is to touch and enhance for lives of others through the joy that is Krispy Kreme. We are committed to positively impacting the world by loving our people, our communities, and our planet. In the fourth quarter, we wrapped up another great year for fundraising. And in total raise more than $40 million globally in 2022 for local communities, a roughly 25% increase from 2021. Fundraising has long been an integral part of Krispy Kreme’s purpose. As part of our efforts to give back and support local communities and issues while generating brand love. We also focused on reducing weight and…

Thanks, Mike and a warm welcome to Jeremiah as well. I’m just thrilled to have him on board and look forward to his leadership of our terrific finance teams around the Krispy Kreme world. I’m confident that Jeremiah went up to drive strong performance and create shareholder value for years to come. As Mike said, we saw strong growth across all of our reporting segments in the fourth quarter with net revenue up 9% year-over-year, the $405 million organic revenue, which excludes the impact of acquisitions and changes in foreign currency grew 12.5%, an acceleration from the summer trends driven by pricing, our premium seasonal innovation, the growth of delivered fresh daily doughnuts sold in grocery and convenience stores and e-commerce. Adjusted EBITDA grew 17% in the fourth quarter to $56 million or 25% in constant currency. Once the $4 million impact of the stronger dollar is taken into account. Similarly, our 2022 adjusted EBITDA was up 7% in constant currency with the full year impact of the stronger dollar at $10 million. Pricing Hub and Spoke efficiencies in G&A explained the 90 basis points year-over-year increase in adjusted EBITDA margins to 13.8% in the fourth quarter. We saw low levels of elasticity from the pricing actions we took in the second half of 2022 with consumers domestically and globally remaining enthusiastic about premium specialty doughnuts for their sharing occasions and celebratory events. We saw a small GAAP net loss of $1 million in the fourth quarter. However, net income would’ve increased over the prior year, if not for one time, overwhelmingly, non-cash expenses of $12.4 million related to our previously announced optimization of our poorer performing Hubs without Spokes in the U.S. We do not expect significant expense moving forward relating to these efforts. Adjusted net income for the…

Thanks, Josh, and good morning, everyone. I’m very excited to be here at Krispy Kreme with such a beloved brand and a great team across the globe. I look forward to getting to know the team and developing a deeper understanding of the business over the next few months. As I take the reins as CFO, my focus will be on ensuring we are increasing shareholder value by delivering consistent top and bottom line results, improving performance throughout the business and driving higher return on invested capital. Our balance sheet is strong and the business generated $32 million of free cash flow in Q4 leading to 15% cash conversion in 2022. Our existing debt obligations go current this June. As such, we expect to refinance our existing term loan A and revolver debt at similar terms to our current facilities this year. It’s worth noting our interest rate hedge that fixed approximately 70% of our outstanding debt will remain in place through June 2024 even after refinancing. We expect to continue to decrease our net debt leverage ratio over time as well as reduce our dependency on supply chain financing. This is a priority this year as those rates have increased more than our term loan A and revolver. As such, we plan to reduce our supply chain financing a bit faster while paying down our term loan a bit slower than previously planned in 2023. We expect to reduce our supply chain financing by $50 million to $75 million this year and be around 3.5 times net leverage by year end 2023 remaining on track to be between 2.0 times and 2.5 times net leverage in 2026. This morning, we introduced more detailed 2023 guidance in line with our December Investor Day outlook. This includes growth of 9% to…

Thank you. [Operator Instructions] We will take our first question from David Palmer with Evercore ISI. Your line is open.

Thank you. Wanted just to ask you if you wouldn’t mind going through some of the gives and takes with regard to the EBITDA margin this year, which I guess would be roughly flat as per your guidance. And what are some of the offsets to what would seem to be good guys in the spoke expansion as well as some of the optimization of the store base domestically? What are some of the headwinds or maybe offsetting that? And then the other thing I wanted to ask you about is that test with McDonald’s, when will you know that, like what’s the timeline for that testing and what stage are you at with that? Thank you.

Hi, David. This is Josh. So yes, I’ll start with the guidance question and hand to Mike perhaps from McDonald’s. The first thing to say is our guidance for 2023 is consistent with the long-term outlook that we shared at our Investor Day in December. And you’re right, it does reflect the discipline rollout of hub and spoke around the world maximizing the utilization of our hubs in the U.S. in particular and driving sales per hub. You are specifically around the margin puts and takes. Well, the biggest driver is indeed U.S. and Canada margins reflecting the flow through benefit of that hub and spoke model is off-premise sales, which create efficiency down to the bottom line in our hubs in the U.S. That is the biggest driver. There’s a partial offset from FX about 20 or so basis points from FX. And then the rest of the world we’re assuming is largely flat during 2023 from a margin point of view. But all the segments around the world will be – we’re expected to be growing pretty balanced at a sort of double-digit organic growth rate. So it’s a balanced guidance that we think reflects the long-term trends that we see and indeed some of the recent success of actions like pricing and premium celebratory specialty doughnut promotions.

And in terms of – hey, David, how you doing? It’s Mike. In terms of McDonald’s amount, we’ll let you know about when we’re ready to discuss that. I think what we’re really able to talk about right now is we disclosed them December, 75,000 points of access, which has being driven by the QSR, the drug and the club business. What we’ve learned in the test is that we can actually manage the operations rigor, the logistics rigor of how do you manage a QSR our customer from the time demand, the quality demand and the execution and how it works seamlessly with our DFD route system. That’s what’s pretty critical for us to get that understanding and how our brand also works with another brand as well. So those are the pieces that why we continue to come back and say, looks like we have a – very clearly have a growth story about where we can go from a channel perspective and then how to manage that along the way, keep you up to date when we’re ready.

Thank you.

And we will take our next question from Sara Senatore with Bank of America. Your line is open.

Great. Thank you. Couple of questions if I may please. The first is just about you talked about Beat the Pump, you’re lapping that. My understanding was that initially actually was a pretty good driver, a top line driver, and then maybe the impact was diminished over time. So maybe it was too long. But I’m wondering if there’s still room for these kinds of like price point promotions to drive trial or is your observation that you can do that as effectively with higher margins with premium doughnuts and those kinds of initiatives, just as you think about getting more people trying the product. So that’s my first question. And then I’ll have a quick follow-up.

Sure thing. Good morning. Yes, I mean, we see the Krispy Kreme Original Glazed in particular as affordable sweet treat, both for personal consumption, but more usually shared and even given to others. So absolutely though we also have used it as a way of promoting and introducing encouraging people to try the brand or come in more often. And last year, you’re right, Beat the Pump resonated really well with consumers that are really excited about it and came for again and again in some cases. What we learned from that is that we still believe in selective promotion, price promotion we recently did, for example $20.23 for the January the first for two dozen doughnuts. We did a Friday, the 13th offer as well just in January. Both had had great positive impact well received. So we’ll continue to do that selectively whilst at the same time also driving innovation, marketing activation and excitement around our premium specialty doughnuts. We just did that in January with a Biscoff range and Valentine’s premium doughnuts and specialty Hershey range just over the last few days were really popular as well. So we’ll apply a dual strategy going forward and I’m sure you’ll be able to look out for good deals at times during 2023 as well.

Oh, great. Thank you very much. And then just the quick other question was on, you talked about capacity and the opportunity to both leverage existing hubs because I think in the U.S. at least, the volumes are a lot lower than what you’ve done in Europe. So there’s potential there and then adding hubs. But I think in at least one case, you have a partner where you kind of do a single drop and then they distribute. And I was wondering if you, as you’re thinking about signing some very big partners in the U.S. and the QSR with a lot of like, sort of local doors, is that something that you would contemplate here or you’re still committed to controlling all the distribution in this market? Thank you.

Our philosophy is to control the quality and make sure that the doughnuts are fresh, always well managed through the pipeline to the consumer and indeed any unsold, replace of fresh ones the next day. So that’s our priority that has meant that you can also partner with the customer as long as they maintain that freshness quality mindset and do things like you mentioned, I think you’re referring to we have a arrangement in Australia with our customer there where they all come and pick them up and distribute them through their network. And that’s certainly something that we will continue to explore as an option where it makes sense as long as they have the distribution capabilities themselves, then that’s something we’ll consider. However, we love the Delivered Fresh Daily model we have, and it breeds efficiency when you can add more drops and get density of routes to the optimum, and that’s how you maximize the profitability. And so we look and work with both ways as long as the great Krispy Kreme is always forefront.

Yes. I mean, Sara, I’d only add one thing on it, just as you think about the logistics and that expertise and understanding how to drop at each customer is one of those kind of core really interesting pieces. And Josh did talk about something which is the capacity to think about what the customer wants and then ensure that that logistics approach to that because we’re still doing the logistics to them, right? Regardless of what you need to do. So you have to have that expertise across it. And that’s something that we’ve evolved to over the last – past six plus years, right, how do we continue to do that in our model.

Thank you. Very helpful.

[Operator Instructions] And we will take our next question from John Ivankoe with JPMorgan. Your line is open.

Hi, great. I was hoping to get a sense of some of the legacy DFD accounts. I mean some of the ones that have been in place one in two years. How – are they growing from a volume perspective? Are they growing from a margin perspective? And on a given level of sales, are you finding them to be much more profitable or much more profitable as you understand things like drop sizes on different days of the week or send backs or whatever the case may be, even what the particular store may – might bear in terms of the ASP. Just to get kind of a sense if we can talk about it like this, kind of a same-store revenue and same-store profitability of your DFD accounts that have been around the longest.

Hi, John, I’ll take that and I refer – assume you’re referring to the U.S. so I’ll take the answer there. Yes, we’re very pleased with the transformation, you’re right, over the last couple of years to a Fresh Daily model out to both grocery and convenience customers across the country. And you’re right, there was – as we initially implemented those 5,700 or so doors that we now have, we definitely saw significant rises in the sales as they got bedded in as consumers noticed them, and we perfected the merchandising. And that’s actually continuing as we go forward right now, we have new customers, which I mentioned earlier, but the existing customers, which you are asking about we continue to be able to add more distribution with them. Customers like Walmart or Kroger obviously have – Kroger have different banners and different opportunities to distribute across the country and a lot of their door ads that we expect to have are with existing customers in that way. And then in terms of the doors themselves by adding more and more of our specialty doughnuts into the portfolio. And as we’ve mentioned upgrading to cabinets and other improved merchandising units, we do indeed expect to see higher sales per door going forward, just as we did in 2022, I think on the call I mentioned that we saw the sales per door average increase about 10%. And we think that the sales per door growth will be a contributor to our overall growth in the U.S. of the DFD channel, which again, we expect to be the biggest driver of growth in 2023 going forward. So yes, a healthy store base minimal optimization or rationalization of the doors and continuous growth double-digit, low-double digit growth we expect in 2023 in the U.S. of new DFD Doors.

And of the DFD Doors that do particularly well versus the ones that might be significantly lagging, I mean what are the real differences that you’re kind of seeing? Are there any patterns that you’re now seeing in terms of what determines a good door versus a slower door as we really think about this footprint going forward?

Well, from a door point of view, it’s naturally the traffic of customers that are coming to that real estate. And we have worked with the customers to make sure that we are going to ones that that commands that the number of footfall that, that would make all this make sense. And they’ve got used to that. We’re not in every one of our customers is stores and have periodically moved around the units both between stores, but even more significantly within stores. There are certain parts of the store that are better, obviously the higher traffic elements of the store. You want to be as near as either the book to the entrance or the checkout as you can, but that doesn’t mean that it can’t work in the Bakery Aisle or the milk section either. And we really work with our customers to optimize this. We’ve seen it work in big layout stores like a Walmart or I mentioned at the call a super target. We see it working not just in the big box stores, though, different grocery stores, convenience stores, now increasing drug stores. We’ve been rolling out with Duane Reade Walgreens. So yes, we are seeing different execution have a place and C-stores and even gas stations, we’ve been able to add. One of the things that really makes it work for us is to make sure the route profitability is right. So we focus on the number of stocks per route, the location of the stores on a route, make sure we’re optimizing that and these are all the areas that we are getting better at over time to make sure we don’t just get the top line, but we get the bottom line flow through and efficiencies that the model commands.

Thank you.

And we will take our next question from Brian Harbour with Morgan Stanley. Your line is open.

Yes. Thanks. Good morning, guys. Maybe just first, is there anything more you could say about kind of your pricing plans, especially given that you’ll – you’re kind of seeing more inflation in the first half. Do you intend to take any more pricing in the current quarter, for example, or how are you thinking about that?

Hi, Brian. Yes, and I’m assuming your questions around the U.S. but a lot of this holds for around the world in the pricing we have learned is successful as long, of course, as we offer a great product. And we’ve been very focused on that. In the U.S., we took pricing actions a little late last year. We mentioned that before in July and October on retail and then November on DFD. And we caught that up, it was lagging a little bit. And we’ve learned from that for 2023. We’ve definitely been very disciplined about identifying inflation as Jeremiah mentioned, we’ve got a good line of sight to inflation for 2023, even better than we had in 2022. And as a result, we already took another small price increase mix in January on retail low single digit. And we actually enter the year at low double digits effective pricing. And we will adapt to the inflation numbers and a price – have a price strategy going forward that adapts to them in both retail and DFD. And as Jeremiah said, we’ve got a reasonable pretty good view that the inflation will be higher at the beginning of the year – the end of the year. And so it’ll be natural that our pricing strategy will follow that.

Okay. Thanks. And then just in the international segment, could you help us think maybe a little bit about kind of the pace of growth there? Is it fairly, even through the year is when will we see kind of some of the new market openings take effect? And then also, I know that in 2023, the points of access growth was more weighted to the first half relative to the second half. Is that what you expect in 2023 as well?

So from a country perspective, Brian, this is Mike. I’m – we anticipate opening up anywhere between five of the seven countries, right? Those will be paced throughout the year fairly evenly. What I’m pretty pleased about that is that you’ll see, last year we were getting into the Middle East and even in the African continent, and now this year we’ll be opening up in the South America, Central America, the Caribbean as well, right? And then including Europe as well as they’re probably on the back end of the year. So we see that type of pacing. From a point of access, it ends up being fairly consistent, where you see the points of access being driven quarter by quarter with the back end of the year. I’m not fairly similar, right? It’s grocers or the doors tend to kind of look at their rationalization around holiday times. I don’t see any of that being anything different.

Thank you.

[Operator Instructions] And we will take our next question from Bill Chappell with Truist Securities. Your line is open.

Hey, good morning. This is Stephen Lengel on for Bill Chappell. Thank you for taking our question. Can you provide us…

Hey, Stephen, how you are doing?

Hey guys, how’s it going? Can you provide us more color on how much of the solid growth in 4Q was driven by the seasonal demand? And kind of how we started to see some normalization in January and February to date as consumers kind of cut back on indulgences post holiday or has momentum kind of carried over into these months? Thank you.

So again, – I’m – yes, so I’ll answer the first one, just the consumer. I’m – as we think about it, right? So our business model again is dozens gifting sharing, it’s not a high frequency model. And we even talked about people continue to buy our brand and a dozen to give to someone else. The affordable indulgent piece is a clear driver, which is really helps all of our consumers base about being resilient. And then Josh even talked a little bit about the premiumization that happens as we start to get into the Halloween or the holiday. And even, for example, when people say January or this, well, we actually introduced a very high premium, very indulging product in first part of the year and extremely successful. And we just finished with our probably one of our highest days of the year from a concept of what we do across the world in Valentine’s Day. So again, from that gifting model very successful Valentine’s Day. So again, this is a gifting kind of business that follows along. And that’s where the models really change in the difference. So that’s points of access allows the biggest opportunity that we have from the customers to get it to where they are. That is their number one challenge that they have for us is they can’t get the doughnuts, right. So here’s what it is from a – I believe your second part of the question just related to anything volume based.

Well, I think that look – just as you think about 2023, I mean, we’re not assuming any sort of backdrop of economic growth or changes like that. We are focused on is the point of access expansion that reflects the number one reason again and again why a consumer may not choose to buy a Krispy Kremers they just can’t get it. So that’s the number one driver of growth, getting those points of access out to people, making them more convenient through this delivered fresh daily channel. From an activation point of view, we’re also as you mentioned leveraging not just seasonal, but other specialty doughnut opportunities to take that further, to increase frequency, to make sure that we’re driving the premium growth. So it’s definitely not just about the seasonal celebration events there. And in fact, as Mike said, we can find a season in January, February, March, April every month of the year when somebody’s looking for an indulgent sweet treat. And so I think when you think about Q1, we expect top line momentum to continue. And certainly, the evidence so far would say that there’s no sort of change in our consumer’s behavior.

Great. Thank you so much guys.

There are no further questions at this time. I will now turn the call back to Mr. Mike Tattersfield for additional and closing remarks.

Thank you everybody for being on the call. Again, I’d like to thank all the Krispy Kremers. I really – I’m a really showed up every day in 2022 and made our brand really live its purpose on every single day. And I look forward to catching you up as we move along the year. Thank you very much.

Thank you.

And ladies and gentlemen, this concludes today’s conference call and we thank you for your participation. You may now disconnect.