Hello, everyone, and thanks for standing by. My name is Carly, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Krispy Kreme Second Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Christine McDevitt, Krispy Kreme Associate General Counsel. Please go ahead.

Thank you. Good morning, everyone. Welcome to Krispy Kreme's Second Quarter 2025 Earnings Call. Thank you for joining us today. This morning, Krispy Kreme issued its earnings press release for the second quarter of fiscal 2025. The press release and an accompanying presentation are available on our Investor Relations website at investors.krispykreme.com. Joining me on the call this morning are President and Chief Executive Officer, Josh Charlesworth; and Chief Financial Officer, Raphael Duvivier. After prepared remarks, there will be a question-and-answer session. Before we begin, please note that during this call, we will be making forward-looking statements 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 risks, assumptions and uncertainties, and we caution investors that many factors 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 cautionary statements in the company's earnings press release, in the company's annual report on Form 10-K filed with the SEC, and in other filings the company makes with the SEC from time to time. Forward-looking statements represent the company's expectations only as of today, and the company assumes no obligation to publicly update or revise any forward-looking statements, except as may be required by law. Additionally, during this call, we will reference certain non-GAAP financial measures. Please refer to our earnings press release on our website for additional information regarding those non-GAAP measures, including a reconciliation to the closest comparable GAAP measures. Raphael will take us through the company's financial performance in a moment. But first, here's Josh.

Thank you, Christine, and good morning, everyone. We are sharply focused on our two biggest opportunities: profitable U.S. expansion and capital-light international franchise growth. To achieve these goals, we have implemented a comprehensive turnaround plan to deleverage the balance sheet and deliver sustainable, profitable growth through: one, refranchising; two, improving returns on capital; three, expanding margins; and four, driving sustainable, profitable U.S. growth. To deleverage the balance sheet, we have halted the quarterly cash dividend and completed the sale of our remaining interest in Insomnia Cookies. And now we are in active discussions to restructure our well-established joint venture with WKS Restaurant Group in the Western U.S., reducing our ownership stake and deploying the proceeds to further pay down debt. As you may recall, we have already initiated the process of refranchising select international markets, including Australia and New Zealand, Japan, Mexico and U.K., Ireland. To improve returns on capital, we are focused on our capital-light international franchise model, whilst reducing capital intensity in company-owned markets. We have seen exceptional returns growing Krispy Kreme's presence across the world with franchise partners in both well-established markets like South Korea and the Middle East as well as newer markets like France and Brazil with minimal capital investment from the company. We expect future international growth to come from franchisees through both new shop openings and fresh delivery door expansion. Door expansion would be through existing sales channels like grocery and convenience as well as in new channels like club wholesalers and quick service restaurant partners. For example, our franchisee in the UAE has started selling Krispy Kreme at about 50 KFC restaurants with plans for further expansion. In addition, our pipeline of new market entries with franchise partners is strong, with the first Hot Light Theater Shop in Spain opening later this…

Thank you, Josh. Before I cover the results, I want to take a moment to introduce myself and express how honored I am to take on the CFO role of this beloved brand. I have been with Krispy Kreme for over 6 years, leading our international businesses. Krispy Kreme is at an inflection point and to position us for sustainable, profitable growth, my immediate focus is on three things: deleveraging the business, improving profitability in the U.S. during the second half, and leading our refranchising efforts. We are shifting our focus to a more capital-light franchise model, which I strongly believe will provide a high return on capital and profitable, predictable growth. I'm confident that we'll be able to bring in the right franchise partners to expand the business and continue our development growth. In the near future, our capital-light international franchise model will make our company look quite different than it does today. We believe our current liquidity provides us with the flexibility to meet both short-term obligations and long-term investments. With the amendment of our credit facility in May, we now have over $200 million of excess liquidity as of the end of Q2. We expect this to enable the full implementation of our 2025 strategy as we continue to strengthen our balance sheet and delever the business. Shifting to the quarter. Net revenue was $379.8 million, reflecting a $64.2 million reduction related to divestiture of Insomnia Cookies in the third quarter last year, coupled with an organic revenue decline of 0.8%, driven by lower transactions related to consumer softness. Adjusted EBITDA was $20.1 million, down from $54.7 million last year, impacted by a combination of the divestiture of Insomnia Cookies and losses from the now ended McDonald's USA partnership. Turning to the U.S. segment. We're encouraged that…

Thanks, Raphael. In summary, we are highly focused on our comprehensive turnaround plan to deleverage the balance sheet and deliver sustainable, profitable growth through: one, refranchising; two, improving returns on capital; three, expanding margins; and four, driving sustainable, profitable U.S. growth. With this plan in place, I am confident in our ability to capitalize on the significant growth opportunity ahead and share the joy of Krispy Kreme with more people in more places around the world. Operator, let's now open it up for Q&A, please.

[Operator Instructions] Your first question comes from Rahul Krotthapalli with JPMorgan.

My question is on the DFD doors. I mean this comes with a significant last-mile delivery cost, as you guys know. And are there tools to better manage profitability per drop even when employing a third-party strategy? And might some of this include introduction of products with longer shelf stability, which was done in the previous era? And I have a follow-up.

It's important with the DFD model to understand that when the conditions are right in high-traffic doors, when in-store visibility is high, the volumes are high, and that's when we see sustainable profitable sales. And we actually see that with several of our customers already today in the U.S. and we are expanding -- continue to expand with them. And so that, combined with the shift to third-party logistics means that we then have predictable costs to go with that. Look, we've obviously shifted the business model and implemented this turnaround plan that we've shared today to ensure sustainable profitable sales. And so the actions we're taking are all about making sure that we drive profitable, sustainable sales and deleverage the company going forward.

And then of the 240 Hot Light Theaters or so in the U.S., these are often located in the higher cost retail areas. Can we consider driving more productivity out of the on-site customer visits or to perhaps consolidating more capacity into fewer stores as we go through this turnaround?

Well, there's definitely an opportunity with the production hubs to make sure that we optimize efficiency. And Nicola, our new COO, is very, very focused on that. She's identified opportunities definitely within the system as we optimize the DFD footprint and then expand with these high-traffic DFD partners to make sure that they get more efficient over time. So that's certainly the case.

Perfect. And then one last one, if I may. I did see the update on the international businesses on refranchising, which we have been discussing for a while. Can you share like how as an organization today, you're handicapping the duration risk of executing this because there are like -- these are like large assets and they are spread over multiple geographies. How quickly, for lack of better term, can we look at executing this in your view?

Rahul, this is Raphael. Look, we are targeting doing one to two deals this year. I feel confident about this. We have initiated the process, as I mentioned, on Mexico, U.K. and Australia. And we will use the proceeds to deleverage and repay down our debt.

Your next question comes from Daniel Guglielmo with Capital One Securities.

I appreciate the turnaround plans. When thinking about the four components, are you able to get started on all four of those kind of at the same time? Or is one kind of more important to get going on first before you can really kind of jump in to the others?

Yes. No, we've already implemented this turnaround plan. Those actions are already underway. Raphael referenced the process for international refranchising. We also shared today that we are in active discussions with our Western U.S. joint venture partner for them to move to the franchisee model. Regarding the other activities such as optimizing the DFD footprint, implementing the third- party logistics, making the cuts to G&A, these are things that we have already put in place. That means we expect to see the benefits already within this year. I mean I would expect the EBITDA to be higher in the second half of the year than in the first half. I would expect cash flow to be positive. So these are things that are very much already in play.

Great. Yes, I appreciate that. That makes sense. And then I think it was on the last call, we had talked about potentially rationalizing, I guess, [Technical Difficulty]. Is that still kind of [Technical Difficulty]

Unfortunately, Daniel, the line broke up there. You said we've been talking about rationalizing and then it broke up. Do you mind repeating, please?

Yes, for sure. So yes, we had talked about rationalizing about 5% to 10% of the DFD doors. And I'm curious, is that kind of still in the works? Is that kind of a good number? Does it go into the franchising of some of the properties out West? Or how are you guys thinking about that now?

Well, what we've chosen to do following the exit from McDonald's is look at our whole footprint. And we identified 1,500 doors that were below average weekly sales, so much less profitable. We've already well on our way of intervening on those, all at the same time while adding higher weekly sales doors with major customers like Target, where we've seen a lot of growth this year, Walmart, we're growing in Costco. So that is a shift we're making as part of the turnaround plan. Going forward, we would expect once that is complete, a small amount of turn -- churn, probably around about 5% a year. But really, this is a decisive intervention to get profitable sales increased in the back half of this year as part of the turnaround.

Your next question comes from Sara Senatore with Bank of America.

One question and then -- I mean, first a clarification. I'm sorry, I came on the call a little bit late. I wanted to understand your thoughts about CapEx. I know historically, you've kind of guided to a percentage of revenue at 7% to 8%. So I wanted to make sure that there is -- that's part of the sort of more capital-light approach, sort of bringing that down more in line with perhaps where some of the franchise businesses might be. So that was point one, and I apologize if I missed it. But point two, I guess, is a bigger question, which is it feels like some of what you're talking about now as this turnaround is sort of unraveling what were the initial growth drivers like, I think, in-sourcing some logistics and production or this QSR partnership. So I guess I'm trying to understand like what a steady-state Krispy Kreme should look like. Should -- is it more of a CPG company? Should it be perhaps part of a bigger portfolio? It feels like the strategy has shifted a bit, and I'm trying to envision kind of the long- term structure.

I'll take the first one. Yes, I mean, as we think about our new and better model, right, our capital-light model, you would expect and should expect lower capital, higher EBITDA to cash conversion, higher margin and even more importantly, a more predictable model. So as we move our international refranchise efforts, you should start seeing CapEx as a percentage of revenue going down even in the second half of this year. As Josh mentioned, we should expect positive cash flow and already lower cash flow than we had in the first half.

And then, Sara, to the second question. I think it's important to understand that Krispy Kreme is primarily a growth story. It's more about how we maximize shareholder value as we take advantage of that opportunity. The distribution partnership with McDonald's, although proved unprofitable and hence, our decision, we saw significant incremental sales in those geographies, reminding us of the fact this is a growth story because people want to access to our fresh doughnuts. So it's about the model to get there. It's clear that franchising is a capital-efficient way of doing that, particularly internationally. So that is clearly going to be the model. And to the CapEx point, working with franchisees to take advantage of that development opportunity. And then overall, it's still a multichannel model. You've got opportunities in retail. We're seeing strong digital growth, as we mentioned today. But then, of course, expansion with major national partners. So the multiple channels continues to play a role. It's just the conditions have to be right. And this turnaround plan is about making sure that those conditions are right with those DFD accounts in the U.S. or with franchise partners so that we have sustainable profitable growth and deleverage the balance sheet as we go.

[Operator Instructions] There are no further questions at this time. I'll now turn the conference back over to Josh Charlesworth for closing remarks.

Well, thank you, everybody, for your interest in Krispy Kreme today, and thank you also to our hard-working Krispy Kremers all over the world. We are focused on executing our new business model to maximize shareholder value. The turnaround plan we shared today is in full swing. We are taking the appropriate actions to deleverage the balance sheet and drive sustainable, profitable growth. Thank you again.

This concludes today's conference call. You may now disconnect.