Potbelly Corporation

Everyone, and welcome to Potbelly Corporation's second quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the call over to Ms. Adia Dixon, Potbelly Senior Vice President and Chief Legal Officer. Please go ahead.

Adia Dixon, Potbelly Senior Vice President and Chief Legal Officer. Good afternoon, everyone, and welcome to our second quarter 2022 earnings call. Our presenters today are Bob Wright, our President and Chief Executive Officer, and Steve Surlis, 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 the remainder of 2022 or any other future period, 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 statements and other information that will be given today can be found in our Form 10-K under the headings Risk Factor and MD&A. And in our subsequent filings with the Securities and Exchange Commission, which are available at sec.gov. During the call, there will also be a discussion of some items that do not conform to U.S. generally accepted accounting principles, or GAAP. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the investor presentation and press release issued this afternoon, both of which are available in the investors tab of our website. I'll now turn the call over to Bob.

Thank you, Adia. Good afternoon, all, and thank you for joining us today. I'd like to begin our call today by thanking our Potbelly employees for their continued hard work and commitment to our company. Our people are the heart of our brand. It is their positivity, diligence, and strong work ethic that allows Potbelly to operate as the top quality food brand we promise our customers. I'm incredibly proud of our team and look forward to seeing what we accomplish together as we continue growing. Of course, we know our customers are navigating an ever-changing economy filled with challenges, and we are very happy to continue providing an unparalleled customer experience and value for their money. We'll begin with slide three, which provides a high-level summary of the quarter's results and our views on the broader operating environment. We continue to view our five-pillar strategy as our roadmap to success. Our strategy leverages superior quality food at an excellent value, while elevating our associate experience to set us apart for everyone that visits, providing bring-you-back customer experiences, building brand leadership in all our digital channels, and accelerating growth through franchising and re-franchising efforts. The five-pillar strategy has been the backbone of Potbelly's story from the beginning of the pandemic through the company's recovery and now growth. We've driven significant revenue and profitability improvement as well as record AUVs in the quarter by executing against this strategy. Additionally, our business has proven flexible and resilient in the face of broader macro environmental challenges. We've seen notable improvement in staffing trends, maintained disciplined spending, and continue to drive strong top line growth and expansion in shop level margins. Looking forward, we are highly encouraged by our ability to continue delivering value to our customers, and we remain on a positive trajectory to achieve our long-term growth objectives. Slide four headlines our financial achievements that Steve will cover in detail later in our call, but I'm proud to share we had a very strong quarter. We drove revenues of $116 million in the quarter. We achieved record AUVs of nearly $23,000 per week. grew same-store sales by 17.2% in the quarter, continued our strength in digital business at 36% of sales, and I'm very proud to share that we drove positive net income of $0.6 million and adjusted EBITDA of $5.8 million. We've been clear and consistent about our focus strategy. Today, I'm excited to highlight with additional clarity how the fundamental growth engines of operations, marketing, and development are leading us to achieve such strong performance and why I have confidence that it will continue. To this point, and turning to slide five, I'd like to highlight our recent marketing activities in the quarter that have become an integral part of our business strategy. These efforts always maintain focus on the elements that differentiate our unique brands, starting with our food. Our customers loved our innovative LTOs, including the successful rollout of cold brew shake, Cubano sandwich, and lemon cheesecake cookie, which have contributed to increased sales and daily transactions. Importantly, we maintained our investments in digital marketing and paid social campaigns as the primary means of marketing not only our LTOs, but broader brand awareness and traffic-driving advertising. In addition to traditional brand awareness and traffic driving methods, we also accelerated targeted digital-only promotions like our one-day-only buy-one-get-one-free or BOGO offers, which resulted in increased perks downloads, perks engagement, as well as incremental perks revenue dollars and daily transactions. Lastly, I'm very excited to announce we recently launched updated branding with a refreshed appearance that better reflects the uniqueness of Potbelly. This includes returning to our heritage as Potbelly Sandwich Works. You can already see our updated logo and colors on our website at potbelly.com and, of course, in today's presentation. Our online creative work will begin incorporating this updated branding later in Q3. The results of our marketing programs and initiatives are highly encouraging, and we have confidence they will be growth drivers into the future. Moving to slide six, I'd like to discuss our progress on our Franchise Growth Acceleration Initiative. We are extremely pleased with the pace and quantity of our re-franchising and new shop development discussions, as well as the state of our current pipeline. To support our pipeline and deal progression, we've held two discovery days so far this year, the most recent having taken place just a few weeks ago. These events allowed a number of experienced potential multi-unit franchise owners to have individualized time with the management team and learn about the unique opportunities here at Potbelly. Alongside our discovery days, our dedicated franchise team is proactively researching and identifying attractive areas for Potbelly's continued development and market penetration through SDAs or shop development areas ready for sale to our franchisees. Additionally, we are continuing to expand our marketing and sales tactics, supported by the integration of franchising tools and systems. Our franchise-oriented goals remain our top priority, and we look forward to sharing specific re-franchising and franchising deal activity as we sign and close those deals. Turning to operations highlights on slide seven, Operations focus is not an area we've previously highlighted in great detail, but we think it's important to discuss the innovative momentum we believe we've established in our ongoing quest for streamlining and improving efficiencies. We view it as a vital part of driving company growth. We're making in-shop investments with the intention of enhancing customer satisfaction through optimized workflows. We've also implemented internal control measures, including new shop-level financial reporting systems, an improved hours-based labor guide, and customer satisfaction monitoring, which allow for improvements to financials as well as the experience we offer our employees and our customers. We're making further improvements to our technology systems and tools to best support the customer experience, driving higher operational standards for the company, too. Additionally, we've begun testing a new in-shop tech platform through what we're calling our Potbelly Digital Kitchen, We believe this project has great potential to build on the customer-facing digital investments we've made over the last 18 months. Potbelly Digital Kitchen is designed to make processing our digital orders more efficient while also improving our traditional in-shop visits, bringing improved customer experiences, better speed of service and on-time orders, increased throughput, improved accuracy, and better food quality. Lastly, we are increasingly aligning our corporate staffing structure to support our franchise-oriented business model. These operational investments not only help us operate our own shops better and more profitably, but they also drive predictability of operation success and consistency, which is critical as we become a franchise growth company. I will now turn the call over to Steve to detail our financial performance in the second quarter. Steve?