Potbelly Corporation

Good afternoon, everyone, and welcome to Potbelly Corporation's fourth quarter and full year 2020 earnings conference call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Ms. Adia Dixon, Potbelly's Chief Legal Officer. Ms. Dixon, please go ahead.

Good afternoon, everyone, and welcome to our fourth quarter and full year 2020 earnings call. Our presenters today are Bob Wright, our President and Chief Executive Officer, and Steve Surilis, our Senior Vice President and Chief Financial Officer. Please note that we have provided a set of PowerPoint slides that will accompany our prepared remarks. You may access these slides on the investor relations section of our website. After our prepared remarks, we'll open the call for your questions. I'd like to call your attention to our cautionary statements on slide two and note that certain comments made in this call will contain forward-looking statements regarding future events or the future financial performance of the company. Any such statements, including our outlook for 2021 or any other future periods, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and events or results could differ materially from those presented due to a number of risks and uncertainties. Additional detailed information concerning these risks regarding our business, and the factors that could cause actual results to differ materially from the forward-looking statement and other information that will be given today can be found in our most recent annual report on Form 10-K under the headings Risk Factors and MD&A, and in our subsequent filings with the Securities and Exchange Commission, which are available at sec.gov. I'll now turn the call over to Bob.

Thank you, Adia. Good afternoon, everyone, and thank you for joining us today. I hope you and your families have remained safe and healthy since our last update. Let's start on slide three, and I'll provide a quick overview of last year. 2020 tested everyone around the world, and the restaurant industry was obviously significantly impacted. I joined Potbelly in the midst of the pandemic just a few months ago. I can tell you that great teams and great people rise to the challenge in the face of adversity, and I'm extremely proud of every team member of this organization for what we have collectively accomplished last year. Together, we demonstrated the resiliency, persistence, dedication, and creativity that made Potbelly truly unique. As we begin to pivot from being reactive and protecting our brand to being proactive and more deliberate in our efforts to drive profitable growth, It's those exact attributes and teamwork that will help us thrive. Clearly, our financial performance suffered in 2020, but we prioritized the things that were within our control, enabling us to respond and right-size the business throughout the crisis. This included aggressively controlling our costs, protecting our cash position, and prioritizing safety for both our employees and our customers. It also involved a significant pivot in the way that we service those customers as we focused on our digitally driven off-premise options like delivery, pickup, as well as drive-through. As the year progressed, we continued to invest further in our digital offerings with tremendous success, like our improved Potbelly Perks program. You'll hear about a number of new investments we plan to make later in today's call. Most of those initiatives were focused on the immediate needs of the business, but I think it's critical that our investors understand we also executed with strategic intent in 2020. This included numerous efforts to build a stronger foundation that will support more profitable growth as we exit this pandemic. It also included the rebuilding of our management team, which is almost complete. And it included the development of a new strategic plan, the components of which we'll share in full detail with you today. Let's discuss a few more specific outcomes of those strategic actions and where we stand as of today on slide four. There are really four critical takeaways from the actions we took to reposition the business in 2020. First, we built solid recovery momentum throughout the year, and barring a small hiccup from the extreme weather we had in February, have seen a continuation of those trends that Steve will talk you through in a few minutes. Our suburban locations have continued to trend positively, and we've seen positive comps with our drive-through and digital channels. We've opened nearly all of our closed non-CBD and airport shops now and have expanded our hours of operations in most shops to pre-COVID levels. Next, we fortified and enhanced Potbelly's foundation throughout the year. This included strengthening our shop base by closing 28 shops permanently and renegotiating 321 leases. This was a huge lift, and I think it's critical that I recognize not only the hard work that was done here, but also the partnership we have with our landlords who are willing to work with us through the pandemic and are clearly invested in our future. As a part of building a stronger Potbelly team, we also took a fresh look at our general and administrative and other costs to better align them to our smaller footprint and to industry norms. As a result, we completed our G&A restructuring in the fourth quarter, and have moved forward with over $3.5 million in annual corporate expense savings. Lastly, in terms of strengthening the organization, we welcomed a completely new leadership team in 2020. We have a handful of executive positions still to fill, but this team is energized and coming together quickly as we prepare to pivot to growth. With this new leadership team in place, our third strategic success exiting 2020 was our new traffic-driven profitability strategic plan. We outlined the foundation of this plan for you last quarter, and we began executing against it in earnest in the fourth quarter. Our fourth strategic success was more recent, but extremely critical. Last month, we fortified our balance sheet through the completion of a $16 million private placement, and we subsequently amended our credit facility to extend it forward an additional year. This was a critical need for the organization as it will support our business throughout the last steps of the pandemic-related recovery that's clearly still in progress. But more importantly, it will allow us to be front-footed and invest growth capital in our new strategic plan to accelerate our path forward and move quickly to achieving profitable growth. I'll conclude my opening remarks on slide five as I frame up how we expect this year to progress. Overall, we expect to see two very different halves of the year in fiscal 2021. The first half will hopefully see the virus wane and vaccines become more widely distributed as the weather improves. We've recently seen at least one state where we do business eliminate dining room restrictions altogether, and we'd expect most states to do this more gradually through the first half of the year. As this occurs, Our team will continue to test, develop, and refine the multiple traffic-focused initiatives that we've been working on. We'll finalize the rebuilding of our leadership team as well, and we'll continue to prioritize cash preservation and operating efficiencies. As Steve will outline, we have some legacy cash obligations to fulfill this year, but we still expect to be break-even at the shop level through the first half of 2021 and have ample liquidity to manage these cash expenses. As we proceed into the second half of the year, we, like you, hope to start seeing the impact of developing herd immunity. This should accelerate the lifting of dine-in restrictions and hopefully even eliminate them in most of our locations. As this occurs, we believe that many people will look to return to work in some fashion and begin to explore travel. And as a result, we'd expect to see our lagging locations in central business districts and airports catch up to the recoveries we've seen in our other shop types. Moreover, we'll be ready to capitalize on these trends as we will have achieved scale in our traffic-driven profitability strategic initiatives, and we'll have a fully developed and functioning team across the organization. There will likely still be a few shop-type gaps in the platform, as no one expects life to go back to exactly how it was, but our shop-level economics will be significantly strengthened in the second half. This is where the leverage of our primarily company-owned shop platform begins to benefit the company's economic model. Overall, there's an element of optimism that is present across the country, and that's certainly translating to our team here at Potbilly. To summarize, we have the right team, the right strategy, and a recently strengthened balance sheet that will support our strategic initiatives and help Potbilly emerge with a stronger platform that can grow more profitable than ever before. With that, I'd like to turn the call over to Steve to talk more specifically about our financial performance during the fourth quarter and full year. We'll close with an update on our traffic-driven profitability strategic focus and, importantly, the progress we have on these initiatives before we take your questions. Steve?