Krispy Kreme, Inc.

Good day, and thank you for standing by. Welcome to the Krispy Kreme first quarter 2022 earnings call. At this time, all participants are on a listen-only mode. After the speaker's 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 telephone. Please be advised that today's conference is being recorded. If you're requiring further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Rob Ballou, 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 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 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.crispycream.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 built 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 continued 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've 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 sparked 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 do and how we can really drive genuine consumer connections with our brand in an impactful way. Turning to our performance, the continued progress on our long-term strategy was well apparent in the first quarter, with organic revenue of 15% driven by strong performance across all three segments. Our organic growth was led by fresh donuts through our omni-channel model. This growth was driven by engaging and buzz-worthy seasonal and limited-time offerings, or LTOs, such as our successful Twix Donut campaign in the U.S. and a nearly 2,000-point increase in our points of access from a year prior. The increase in fresh points of access to 11,000 globally, including 600 new points in the first quarter alone, shows how we can leverage the economies of scale of our 415 production hubs to deliver fresh donuts. every day. Our strong revenue growth in the quarter led to an increase in adjusted EBITDA over the prior year to $48.9 million. We consolidated margins in excess of 13% as we expanded margins in the US and Canada and market development segments. And excluding a one-time benefit in the previous year, our international segment as well. These results were in the face of macro issues such as supply chain disruption, Omicron, inflationary pressure, and the war in Ukraine. In these troubling times for all of us, we are doing our part to help our communities with acts of joy, like Beat the Pump promotion in the U.S. to sell an original glazed donut for the price of a gallon of gas on Wednesdays. This promotion increased our transactions in the middle of the week and generated several billion media impressions. We have and we'll continue to successfully navigate these challenges, what is a constantly changing environment through our omni-channel model, and the dedication, agility, and hard work of our Krispy Kremers. Our biggest growth opportunity is getting to more than 50,000 fresh global points of access, largely driven by low-capital, delivered fresh daily, or DFD doors. I want to spend a little bit of time this morning doing a deeper dive on our DFD strategies DFD is the delivery of fresh donuts to grocery and convenience stores from one of our production hubs and Krispy Kreme branded merchandising units, allowing us to leverage the fixed cost of our production facilities and ensure our customers receive a fresh donut daily in a convenient location to them. We know that fresh matters. As our customers tell us, this is the most important attribute when purchasing the sweet treat. These points of access typically cost between $2,000 to $10,000 capex per merchandising unit, a capital lightweight to increase accessibility to consumers. We've seen strong growth in DFD door count and a 27% increase in sales per DFD door in the U.S. and Canada over the last year, but we still have significant room to grow. We'll achieve higher sales per door by focusing on premiumizing our DFD options in the U.S., including adding LTOs this year and upgrading our merchandising units with more menu choices and better displays. These are improvements that will drive higher sales per door, increase the bottom line, and improve margin. Similarly, as illustrated this quarter and all of 2021, we continue to make great progress in expanding our global points of access in a capital-efficient manner, both from our existing grocery and convenience customers as well as adding new customers. Likewise, we see significant opportunity for growth in both our existing markets and in markets we do not currently operate. We have strong visibility to our pipeline of DFD expansion globally over the next few years and remain highly confident that we can deliver at least 10% increase in points of access each year, primarily through highly profitable capital like DFD Doors. Supporting this expansion will be the addition of 10 to 15 new equity hubs added per year, as well as 5 to 10 franchise hubs. Each will be located and designed to maximize the hub and spoke system with 50 to 80 additional points of access per hub over time. Each new hub investment has a goal of a three-year total payback period. In the U.S. and Canada segment, our performance was driven by the strength of our fresh business and Insomnia Cookies. Organic revenue grew 9.7% in the first quarter, while total revenue grew 13.8%. Our DFD business continued to gain momentum as we added over 200 points of access during the quarter, bringing us to nearly 6,000 locations in the U.S. and Canada, well on our way to exceeding 500 doors in 2022. The increase in our points of access and strong growth in revenue per DFD door allowed us to expand adjusted EBITDA margins by 90 basis points in the first quarter to 13.3%, even in this inflationary environment. Insomnia Cookies had another strong quarter, growing double-digit organic growth revenue and adjusted EBITDA. We added seven new cookie shops during the quarter, and with a strong pipeline, we are confident that we will add more than 30 shops this year and deliver unit growth in the mid-teens each year moving forward. Finally, in our branded sweet treats business, quality packets, shelf-stable donut bites, and mini crullers, we continue our plans to expand points of distribution, growing to 18,000 points in the first quarter. We continue to invest in this great opportunity to drive future growth. Our international segment delivered another quarter of strong performance. Organic growth for the quarter was 36%. with sales per hub up nearly 50% from a year ago with the same number of hubs, showcasing our ability to increase revenue in a very capital-efficient manner. We saw strong performance across all of our international units, including 42% organic growth in Mexico from the prior year, and we continue to see significant runway for growth across the entirety of our international segment. Our market development segment also had a great start of the year, with organic growth of 10%, and margins expanding nearly 200 basis points to 35%. This was led by a robust performance in our franchise business, as well as our equity-owned Japan market, where we are implementing our omni-channel model with the expansion of e-commerce and the launch of Delivered Press Daily. Krispy Kreme is truly a loved global brand. Roughly half of our system-wide sales and adjusted EBITDA are outside the U.S. As you know, our goal is to open at least three new countries per year going forward. Last quarter, we announced signed agreements in Switzerland and Chile, and we're pleased to announce two additional signed agreements to bring Krispy Kreme to Costa Rica and Jordan. On average, we expect each new market entry will provide 400 to 500 additional points of access. With a proven model, We are building a very strong pipeline for new market entries for both existing and new franchise partners, as well as looking at equity stakes in strategic markets. We expect to be able to announce further country entries later this year as we continue our journey to become the most loved sweet treat brand in the world. Turning to a few other drivers of our growth. E-commerce is a core pillar of our omnichannel strategy. In the first quarter, 17.4% of our retail sales came from e-commerce, up from less than 10% pre-pandemic and 17.2% for the full year 2021, with a goal to achieve e-commerce penetration of over 25% globally long-term. We continue to strengthen our capabilities with our app in order to improve the user experience, enhancing our customer targeting of more than 10 million loyalty members. including B-Suite weekends and double-dozen promotions, and we continue to expand accessibility with additional third-party partners. In addition to e-commerce, innovation, branding, and marketing are key capabilities that drive our business segments and keep us relevant across all the consumer touchpoints in our omnichannel model. Innovation remains a significant driver of frequency as we create and introduce premium, fresh, and buzz-worthy offerings to customers across our points of access. We had highly successful seasonal activations across the globe during the quarter, including our Lunar New Year and Valentine's Day campaigns. We've continued our momentum on innovation and branding into the second quarter, including our successful hand-cut, hand-rolled cinnamon rolls on Sunday and the introduction of our new Cinnamon Toast Crunch Donuts, The product, the packaging, the emotional storyline connection really matter for our customer. All these initiatives, driven by innovation and premiumization, give us real pricing power, sometimes up to 50% more per individual item than our original glazed donut, and continue to be scalable opportunities for our business and provide a notable offset to current inflationary pressures. He's also a hit. right in the sweet spot of gifting and purchasing still affordable treats and larger quantities for sharing and celebrating. As evidenced by the 13% increase in donuts sold this quarter compared to a year ago. To wrap up, I want to once again state how enthusiastic we are about the long-term growth in our business, our ability to execute our omni-channel model, and ultimately expand to more than 50,000 points of access globally in a very capital-efficient manner. Leveraging our innovation and brand connection with expanding points of access in our existing markets and opening 15 to 25 new hubs across the global system each year gives us strong confidence that we can achieve double-digit organic revenue growth in 22 and beyond. I'll now turn it over to Josh to walk you through the Q1 financials and our 2022 outlook. Josh?