Jack In The Box Inc.

Good afternoon, everyone, and thank you for standing by. Welcome to the Jack in the Box Inc. Third Quarter Fiscal 2021 Earnings Conference Call. My name is Jesse, and I'll be your conference operator for today. At this time, all participants are in a listen-only mode. After the prepared remarks, the management from Jack in the Box will conduct a question and answer session, and conference participants will be given instructions at that time. As a reminder, this conference is being recorded. A replay of the call will be available on the Jack in the Box corporate website starting today. I'll now turn the call over to Chris Brandon, Vice President of Investor Relations. Sir, please go ahead.

Thank you, Jesse, and good afternoon, everyone, or evening, depending on where you are. We appreciate you joining today's discussion highlighting our third quarter 2021 results. And on a side note, I'm very excited to be a part of this earnings call, my first with Jack in the Box. Joining us today, our Chief Executive Officer, Darren Harris, and Chief Financial Officer, Tim Mullaney. Following their prepared remarks, we are happy to take some questions from our Southside coverage analysts. During our prepared remarks and the Q&A portion of today's call, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in today's earnings release which is available in the investor relations section of our website at jackinthebox.com. We may also make forward-looking statements that reflect management's current expectations for the future, which are based on current information and judgments. Actual results may differ materially from these expectations based on risks to the business. The safe harbor statement in today's news release and the cautionary statement in the company's most recent 10-K are considered a part of today's discussion. Material risk factors, as well as information relating to company operations, are detailed in our most recent 10-K, 10-Q, and other public documents filed with the SEC and are also available on the investor relations section of our website. A few brief housekeeping items before we get started. A reminder that the current year has a 53rd week, which will factor into our upcoming fourth quarter 2021 and its year-over-year comparison. We will provide more detail on this related to our results. And as a reminder, this will not have an effect on same-store sales, but will have impacts on, among other things, system-wide sales, revenues, and earnings. And hopefully this is good news. We will be changing our earnings release and call times going forward, beginning with Q4 in November. On earnings day, we will be putting out our earnings release at 8.30 a.m. Eastern time. And on that same day, our conference call will begin at 10.30 a.m. Eastern time. In addition, Jack has historically had a quiet period of one month prior to the earnings calls. That will now change to a two-week quiet period. So beginning in November, note that we will now be able to have analyst and investor interaction up to two weeks prior to our earnings release and call. Lastly, I'd like to quickly review our guidance updates included in this afternoon's earnings release. As a reminder, going forward, we will be providing new annual guidance each year for four items, CapEx and other investments, G&A, commodities, and labor cost outlook. These annual measures will be introduced at our fourth quarter earnings, typically around November, and updates to those annual measures will be provided at our second quarter earnings, typically around May. In this afternoon's earnings release, we provided the following updates. 2021 CapEx of $40 to $45 million, which was previously stated at Investor Day and does not include other investments, which will be included beginning with our 2022 guidance. 2021 GNA of $71 to $76 million. This GNA guidance omits our net COLE gains or losses. And going forward, we will be providing this in a dollar range rather than a percentage of system sales. 2021 Commodity Outlook is up 4% to 5% compared to 2020. And 2021 Labor Cost Outlook is up 7% to 8% compared to 2020. Our three- to five-year outlook related to comps, unit growth, and system-wide sales metrics, which all factor into that outlook beginning in 2022, remains the same as what we provided at our investor day in June. And as we stated then, all other outlook measures we had provided previously for 2021, particularly related to EBITDA, are no longer a part of our guidance going forward. Also this morning, for additional visibility, we provided a CapEx and other investments guidance range for 2022. Tim will speak to this further in his prepared remarks. And with that detail out of the way, let's get started. I will now turn the call over to our Chief Financial Officer, Tim Mullaney.

All right. Thanks, Chris, and good afternoon, everyone. We are excited to discuss our third quarter results with you today. Overall, we had a very strong quarter of top-line results. helping us in our effort to continue to drive top-tier, sorry, very strong top-line results, helping us to continue to drive top-tier unit economics and store-level returns for our franchisees, positioning us for the future growth that Jack has been capable of for decades. We remain as focused as ever on getting our fundamentals into place to accomplish just that. Turning to our results, overall, our franchisees, operators, and restaurant managers are generated strong operating results leading to a diluted EPS of $1.79 for the third quarter, a 26.1% increase from the prior year. I'll provide some detail on the components of these earnings. System-wide sales grew 10.6% as compared to Q3 2020. As a reminder, system-wide sales includes both comp and net unit performance. Our system-wide sales in Q3 were also benefited by restaurants that were temporarily closed for remodels a year ago but contributed toward our results this quarter, as well as high volumes at our newly opened stores, which helped offset the negative store count. Our same-store sales performance in Q3 was outstanding, growing 10.2% while lapping a prior year increase of 6.6%. Breaking down the comp, our franchise business increased 10.3% in the quarter, while our company-operated stores were up 9.0%. The comp this quarter was driven by a balanced mix of both check and transaction growth. This was our second consecutive quarter of traffic gains, helped by our strong value platforms and LTO offerings. While average check growth came from premium menu items, maintained strength in items per check, as well as some price increases at the store level. Shifting to unit count, we opened four stores during the quarter and closed 13, most of which included agreements for offsetting locations, as we continue to take the needed steps to make our system more efficient. Keep in mind that in most cases, these stores continue to pay both royalty and rent contribution until the offsetting locations become operational. As you may have seen in our thank you filing this afternoon, we stepped in to take over operations of 16 stores in a non-cash transaction, all of which are located in the state of Oregon. Our goal is to eventually have these stores back in the hands of franchise operators. But in the meantime, it's a prime example of our strategy to, when necessary, take in under-resourced stores in markets we know we can improve and grow. This process will continue as we get our fundamentals positioned for growth, and it's reflected within our three- to five-year unit growth guidance. We remain very confident in our target of 4% unit growth in 2025, and in the meantime, continue to develop and prove out the fundamental strength and best-in-class unit economics to get us there. Revenues for the third quarter were nearly $270 million, up just over $27 million, or 11.2%, from the prior year quarter. This increase was primarily driven by higher system-wide sales led by strong same-store sales across the board. Restaurant-level margin remained flat at 25.4%, or $23.4 million, while franchise-level margin improved to 43.3%, or $76.9 million. Sales leverage was offset by increases in wages, commodities, packaging, delivery fees, and maintenance costs in our company-operated restaurants, while higher royalties and rent revenues from strong comps contributed toward the increase in our franchise margin. G&A expenses increased approximately $7.4 million as compared to Q3 2020. This is due to increases in litigation accrual, insurance costs, and lower net COLE gains. Excluding net COLE gains of $2.6 million in Q3 versus a $3.9 million gain last year, G&A increased by $6.1 million. And as Chris mentioned, our annual G&A guidance measures assume a neutral or zero net COLE impact. Our reported effective tax rate as a percentage of earnings from continuing operations before income taxes was 23.1% for the quarter as compared to 27.9% in Q3 2020. This was primarily due to a decrease in the impact of certain non-deductible expenses an increase in non-taxable gains related to COLE policies, and release of reserves on certain state tax credits and losses. When you combine all of these elements, net earnings increased to $40 million for the third quarter, compared with $32.6 million a year ago. An adjusted EBITDA was $79 million in the third quarter, compared with just under $73 million from the prior year quarter. Our diluted EPS in Q3 was $1.79 versus $1.42 in the prior year, an increase of 26.1 percent, or 37 cents per share, breaking down that 37-cent increase a bit. Most notably, earnings from operations benefited us by 18 cents. A lower diluted share count driven by share repurchases benefited us by 5 cents. I'll provide more detail on share repurchases in a moment. Net interest expense positively impacted us by 2 cents, mostly related to our VFN activity a year ago. The lower effective tax rate positively impacted us by 11 cents. And lastly, other various items impacted EPS make up about 1 cent of positive impact. Now shifting to cash. Our top-tier economic model remains strong, and it continued to generate significant free cash flow throughout the Year-to-date, we have generated attractive net cash provided by operating activities of approximately $150 million. After deducting for CapEx, we have generated free cash flow of approximately $115 million. Also year-to-date, we have spent approximately $35 million on CapEx, primarily toward lease right-of-first refusal transactions and remodel refresh of company-operated restaurants. During Q3, and including the first week of Q4, we repurchased approximately 577,000 shares for $67 million, or approximately $116 per share on average, bringing our total 2021 year-to-date repurchases to $132 million. As of today, there are $68 million remaining under the Board-authorized stock buyback program. Additionally, during Q3, we returned $9.8 million to our shareholders in the form of a 44-cent quarterly dividend payment, bringing our 2021 year-to-date total dividend payments to approximately $28 million. I also wanted to touch briefly on the CapEx and other investments guidance range we provided this morning of $65 to $75 million for 2022. As a reminder, beginning with this guide, all annual CapEx and other investments guidance will include two main items. That will be capital expenditures, enfranchised tenant improvement allowances, and incentives. To help visibility, we thought providing this guidance earlier than expected, as it will typically come at our year-end earnings, would be helpful in framing up a focal point of our investment outlook for next year. I'd like to summarize by noting our performance related to the four box financial strategy I talked about at our investor day in June. First, driving operational excellence. I am particularly pleased at our ability to deliver strong operational and margin performance, yet again demonstrating the strength of our proven free cash flow model in Q3. Second, system-wide sales growth. This will be the key metric to measure our progress against balanced top-line sales plus unit growth performance. We had an outstanding quarter driving double-digit system-wide sales growth, and our future upside opportunity within unit growth has me optimistic that we can continue to perform well in this area. Third, funding investments. As we discussed at Investor Day, we are leaning in where needed, which will be necessary in getting our fundamentals to a meaningfully improved place where unit development and growth are delivered on a consistent basis. Look for us to continue to be disciplined yet front-footed in this area. And lastly, returning capital to shareholders. We will continue to manage the balance sheet and our use of cash efficiently, whether in the form of dividends, repurchases, or incremental business investments, always through the lens of strengthening franchisee profitability and maximizing shareholder return. In closing, Our business continued its strong performance during the third quarter, demonstrating the strength of our economic model at both the company and store level. We continue to focus on operating efficiently, investing wisely, and building fundamentals for long-term growth. Thank you again for joining the call today, and now I'll turn it over to Darren.