Potbelly Corporation

Welcome to the Potbelly Corporation fourth quarter and full year fiscal 2022 results 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 conference over to Adia Dixon, Chief Legal Officer and Secretary. Please go ahead.

Adia Dixon Good afternoon, everyone, and welcome to our fourth quarter and full year 2022 earnings call. Our presenters today are Bob Wright, our President and Chief Executive Officer, and Steve Cyrillis, 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 2023 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 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 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 and thank you for joining us today. Before we discuss the quarter and year, as always, I'd like to begin by thanking our Potbelly team members for their continued hard work and loyalty to our brand. Our dedicated people provided differentiated, welcoming, and good vibes dining experience for our customers, which allowed us to gain continued momentum in both the quarter and the year. I'll begin on slide three with our key successes in 2022. First, let me say how very proud I am of our team and our results in 2022. I'm particularly impressed with our overall performance and momentum when considering the lingering staffing challenges, the impact of Omicron on Q1, persistent supply chain issues, and the ongoing inflationary pressure on our consumers and our business. We drove strong performance across our portfolio of shop types with notable acceleration in suburban, CBD, and airport locations. The strong recovery of CBD in airport shops with CBDs nearing pre-pandemic levels has served as a traffic-driven tailwind for the business, and we expect to enjoy continued growth portfolio-wide in 2023. Additionally, we prioritized improving operational efficiencies in 2022, which included the implementation of a streamlined training program set, refinement of how we staff our shops with the help of our hours-based labor guide, and digital tipping. We also expanded the testing and implementation of Potbelly Digital Kitchen, or PDK as we call it, which supports order accuracy, speed of service, and throughput. And most importantly, I'm happy to report our customers have validated our operations focus as we achieved a notable improvement in customer satisfaction scores compared to previous years. We also strengthened engagement with our customers through our strategic marketing initiatives, including targeted digital advertising, special offerings, and our refined perks loyalty program. We've experienced great success with our LTO promotions, which included at least one craveable sandwich, cookie, or shake each quarter. These focused marketing efforts led to a continued strength in digital engagement, strong traffic, and customer excitement. Finally, we made important progress towards our franchise-focused development goals with 51 new shop commitments signed in the latter part of 2022. Despite the economic pressure on small business, including climbing interest rates, we are very pleased with the momentum towards becoming a primarily franchise-focused organization and have a robust and expanding pipeline of highly qualified franchise candidates to support this critical growth initiative. I'll detail our franchising progress later in today's call, but first I'd like to turn to slide four to provide a high-level overview of our financial successes in the fourth quarter and the full year. Performance metrics included. Quarterly revenue was $120.2 million, and we achieved $452 million for the full year. Both are all-time records. We drove meaningful shop-level margin expansion for the quarter of 14.2% and finished the year with shop margins of 10.5%. Same-store sales growth came in at 18.9% for the quarter and 18.5% for the year, driven by the aforementioned strength in traffic combined with operations and marketing success. We had record fourth-quarter AUVs of $24,144 and record AUVs of $22,464 for the year. All this drove positive net income for the quarter and year of $2.7 million and $4.3 million, respectively. Notably, our fourth quarter performance marked our third consecutive quarter of profitability. And lastly, we reported adjusted EBITDA for the year of $15.7 million, clearly marking the company's strong financial health. Turning to slide five, I'd like to take you through our marketing initiatives and successes for the fourth quarter in greater detail. Our continued focus on strategic marketing once again helped support traffic driven sales growth. During the quarter, we reported strong digital engagement representing 38% of revenue, which when combined with our perks loyalty program activations meaningfully contributed to our record fourth quarter top line results. Our digital engagements, We're further supported by a combination of digital-only promotions, such as National Cookie Day, Week of Perks, as well as our successful LTO offerings and promotions, which this quarter included the pastrami sandwich and the eggnog shake. Additionally, our catering business continues to accelerate with targeted offerings for both social and professional engagements. As such, our catering levels as a percentage of sales are fast approaching pre-pandemic levels. We believe there remains tremendous potential to exploit additional marketing opportunities, and we expect these efforts to support traffic, further enhance engagement with our customers, and advance our unique brand position. With that, I'll now turn the call over to Steve to detail our financial performance for 2022. Steve? Thank you, Bob.