Krispy Kreme, Inc.

Thank you for standing by, and welcome to Krispy Kreme's second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your touchtone telephone. Please be advised that today's conference may be recorded. Should you require any further assistance, please press star 0. I would now like to hand the conference over to your host, Senior Manager, Communications, Cassie Williams.

Thank you, Operator. Good morning, and welcome to Krispy Kreme's Q2 2021 Earnings Call. Thank you for joining us today. 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 and Litigation Reform Act of 1995, including statements of expectations, future events, or future financial performance. Forward-looking statements involve inherent risks and uncertainties, and we caution investors that a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. These factors and other risks and uncertainties are described in detail in the company's registration statement on Form S-1. The company assumes no obligation to publicly 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. A reconciliation between GAAP and non-GAAP financial measures required by Regulation G can be found in the company's second quarter 2021 earnings press release. which will be furnished to the SEC on Form 8K this evening and available at investors.crispycream.com. For your convenience, today's conference call is being webcast and recorded for replay via our Investor Relations website. Following prepared remarks, CEO Mike Catterfield, CFO and COO Josh Charlesworth, and Chief Accounting Officer Joey Pruitt will take your questions. And now, Mike will provide an update on Krispy Kreme's business.

Welcome, everyone, and thank you for joining today's call. We're excited to share our progress for the second quarter of 2021, which was the first in our return to the public market and one of the strongest quarters in our 84-year history. Q2's results demonstrate the effectiveness of our global transformation and our continued progress towards becoming the most love sweet treat brand in the world. Our business is strong, healthy, and expanding, a direct result of the foundational work we've done to set our omnichannel strategy and deploy our hub-and-spoke model. We believe that our sustained growth in Q2 shows the resilience of our approach as well as the ability to adapt to evolving operating environments. Over our five-year transformation journey, Krispy Kreme has evolved into a truly global business with significant growth opportunities still to come. We have made investments and now own and operate our businesses in the UK and Ireland, Australia and New Zealand, Mexico, and the recently acquired business in Japan, with partners executing the omni-channel strategy in the remaining international markets. The success of Krispy Kreme brand and our omni-channel strategy around the world highlights the global opportunity ahead. We're in early days of our international growth story, and we plan to both grow in our current geographic base and expand into new markets. Our focus on driving a high-quality donut experience while growing our brand around innovation and celebratory occasion has taught us how to build a successful global business, enabling us to drive faster growth and stronger performance. In addition to our global story, we see significant growth in the U.S., where we now control 48 of the 50 top markets, and continue to build our omni-channel approach. This quarter, that approach in all our core markets allowed us to grow net revenue 43% to 349 million year-over-year. Organic revenue grew positive 23%, which represents one of the best quarters on record. We believe that organic growth is a fundamental indicator of the health of our business. To put this in perspective, on a two-year stock basis, Our organic revenues have grown 16% since 2019, demonstrating the strength of our performance compared to pre-COVID-19 results. Make no mistake, this growth is due to the success of our omnichannel strategy and our increasing ability to reach customers wherever they're located. As we further implement our hub-and-spoke model, we see material gains in profitability. Most notably, our adjusted EBITDA grew 78% in Q2, to $52.4 million, and our adjusted net income grew 254% to $20.5 million. Josh will help unpack these numbers in more detail as we explain what is driving our results at an operational segment level. It is important to note that this growth was ultimately driven by fundamental improvements in the business, as we are now lapping the impact of COVID-19 in many of our key markets. When we set out our transformation journey, we focused on three primary growth levers to drive our expansion. We believe together they drive sustainable value creation and set us on a path to becoming the most loved sweet treat brand in the world. These growth levers are, first, increasing purchase frequency by giving consumers more reason to buy our sweet treats through new platforms and channels. Second, increasing availability by providing consumers with more convenient ways to buy our sweet treats. And third, Increasing profitability by implementing a hub-and-spoke business model that allows us to efficiently supply our expanding points of access with high-quality sweet treats. I'll explain those in a bit more detail. First, increasing purchase frequency. When a consumer chooses to indulge in a sweet treat, we want them to choose Krispy Kreme or Insomnia cookies. Building out our e-commerce capability is a primary means for driving frequency. And in the first half of the year, 19% of our global retail sales were from e-commerce, a proportion we expect to keep growing. The power of e-commerce is clear. In the full year 2020, 82% of U.S. e-commerce delivery transactions were incremental to sales and e-commerce transaction values have increased as we expand our offerings into new areas like catering, gifting, and dark kitchen expansion. We've also increased purchase frequency through product innovation. By constantly evolving our core offering and regularly introducing new products, we provide customers with more reasons to choose Christopher Cream more often. Our occasions-based innovation, which focuses on holiday and major celebratory moments, creates a steady drumbeat of reasons for consumers to purchase donuts in shareable formats of a dozen or more. Our brand is powered by highly efficient marketing that keeps Krispy Kreme top of mind. By heavily leveraging social media, we can increase our cultural relevance and keep emotionally connected to consumers at low cost. In addition to formal marketing activities, we also engage our passionate consumers through memorable cultural and community shareable moments, our acts of joy, which fuel love for our brand, year to date, we have generated more than 16.3 billion media impressions, largely driven by the success of our vaccine program and innovative product rollouts. Our second driver, expanding availability, is focused on building new ways for consumers to access our sweet treats. Notably, immediately after our Q2 closed and for the first time ever, 100% of our donuts served in the U.S. and Canada were delivered fresh, no matter where they were purchased. Creating more ways for consumers to engage with Krispy Kreme is fundamental to our growth story, whether they access through our shops, e-commerce, our delivered fresh daily cabinets, or our branded sweet treat line. In the first half of 2021, we added 1,300 new global points of access, the majority in the form of new DFD doors, as we complete the transformation of that business in the U.S. and Canada. We remain committed to expanding consumer access to our sweet treats for consumers, and we plan to add approximately 800 to 1,000 points of access per year globally as we continue to execute our transformation. Further, since we launched our branded sweet treat line last year in 4,700 Walmart stores, we have expanded this consumer packaged goods offering to several new U.S. retailers, including Albertsons, one of the largest grocery chains in America with multiple banners. While early in its evolution, we believe the sweet treat line is scalable and will allow us to push toward wide distribution through grocery stores and convenience stores. Our third growth driver is increasing profitability. Over the past two years, we have strategically acquired franchisees, allowing us to take control of operations and drive efficiencies. As of the end of Q2, we control and operate 85% of the system in the U.S. and Canada and 73% globally. To continue driving margins and profitability, we are expanding our hub and spoke manufacturing and distribution model, which enables us to efficiently execute our omni-channel strategy while increasing operating leverage and improving our bottom line. In deploying our hub and spoke model, we invest in a limited set of fresh donuts manufacturing hubs, primarily our hot light theater shops, and use those hubs to supply additional points of access. Each new point of access within the hub and spoke network leverages an investment already made in a manufacturing hub, increasing efficiencies as new spokes are added. We believe that this model is vital to continued profitability and margin growth, and you can see this demonstrated clearly in the Q2 performance of our international segment, where the hub and spoke model is more mature. In the near term, we expect that further deploying our hub and spoke model in the U.S. will incur some additional costs in the form of labor and training and route expansions. costs which we view as investments in considerable growth to come. Finally, I must highlight that Insomnia Cookies was a key component of our outstanding Q2 growth. A proven winner that has clearly grown beyond its college campus origins, the second quarter saw Insomnia continue to deliver in digital innovation, new product development, and operations excellence, including the opening of the 200th Cookie Shop in Westchester, Pennsylvania. Overall, Our omni-channel strategy is working, and our global expansion continues to capture more and more of our worldwide market opportunity. We are implementing our hub-and-spoke model globally and are seeing significant growth and increasing profitability as a result. With that, I'll turn it over to Josh for a deeper dive into our performance and some operational developments in the second quarter.