Potbelly Corporation

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

Good afternoon, everyone, and welcome to our third 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 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 managers' 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 Factors 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 GAPs. 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. Before we discuss the quarter, I'd like to begin by thanking the Potbelly employees for their continued dedication and hard work. Our people continue to provide a warm, welcoming, and enjoyable experience for our customers, which has allowed the Potbelly brand to deliver the good vibes of a first-class dive for over 45 years. I, along with the entire leadership team, am extremely grateful for their efforts. As the macro environment continues to evolve, we and our customers have been adapting along with it. At Potbelly, we continue to prioritize delivering value not only through our food but our service experience, and the good vibes of our shops. Additionally, I think it is fitting we are discussing our business with you today. After all, it's National Sandwich Day. Our support center employees are in our shops today as the entire Potbelly Nation celebrates with our customers. I will begin today on slide three to discuss our key strategic achievements in the third quarter. Our five pillar strategy continues to serve as our framework for growth and has yielded meaningful results. I'm excited to report we achieved record AUVs for a second quarter in a row and significantly expanded our shop-level margins on a year-over-year basis, despite challenging macroeconomic conditions and persistent inflationary headwinds, particularly within commodity costs. This margin improvement was due to record top-line expansion and increased operating leverage. As we look to further strengthen our operations, we remain dedicated to the increased testing and implementation of our Potbelly Digital Kitchen, or PDK, in both franchised and company-owned shops, which is proving additive to operational efficiencies, margins, our catering business, and improvements in the digital and in-shop customer experience. PDK will allow for increased order accuracy, better speed of service, increased throughput, improve customer experiences, and better food quality. So far, we're very pleased with the initial feedback. Additionally, we continue to enjoy benefits from our enhanced marketing programs, including LTOs and special promotional offerings through our perks loyalty program. These activities all contributed to our record top-line results this quarter. Also, and as announced during the quarter, we completed two franchising deals, signing SDAAs, or Shop Development Area Agreements, to bring a total of 19 new shops between the Tampa, Florida and Central Illinois markets. Since closing Q3, we signed a third deal for six shops in Orlando, Florida. These deals mark key milestones for our Franchise Growth Acceleration Initiative. We're extremely excited by the current momentum in our business and improvements we've achieved despite uncertain economic conditions. Slide four outlines our financial successes for the third quarter, which I will touch on briefly, with Steve providing greater details later in the call. Overall, the quarter was another strong one. Performance metrics included all-time record revenue of $117.6 million. Continued strength in our digital business, once again accounting for 36% of revenue. 10.6% shop-level margins, an expansion of 190 basis points year over year. 15% same-store sales growth, leading to another record weekly AUV of $23,383. Net income of $9 million for the quarter. And lastly, we reported an adjusted EBITDA of $4.7 million, up $2 million from the year-ago period. Turning to slide five, I'd like to take you through our recent marketing initiatives and successes during the quarter. We continued to prioritize targeted marketing initiatives and select digital advertising campaigns, which led to increased customer engagement from our PERCS loyalty members and contributed to meaningful top-line expansion. Our PERCS loyalty program continued to gain traction, with 115,000 new members added during the quarter. an encouraging sign as we continue to expand our digital assets and programs. Additionally, our catering business positively impacted sales with continued growth in popularity across professional and social settings and across all shop types as well. We remain committed to menu innovation with LTOs, including our gyro sandwich, s'mores cookie, and pumpkin spice shake, which drove revenue expansion during the quarter. Also, as we began to discuss last quarter, we launched our refreshed branding assets to better reflect the uniqueness and rich heritage of Potbelly Sandwich Works. Ultimately, our marketing initiatives are providing critical support in attracting and retaining Potbelly customers, driving traffic, delivering strong branding and unrivaled value for our patrons. With all this success and only an approximate 2% brand fund contribution as a percentage of system-wide revenue, we remain optimistic in our ability to expand our investments in digital advertising and marketing as a core driver of continued top-line sales growth. With that, I will now turn the call over to Steve to detail our financial performance in the third quarter. Steve?