Wendy's Company (The)

Good morning. Welcome to the Wendy's Company Preliminary Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number two. Thank you. Kelsey Freed, Director of Investor Relations, you may begin your conference.

Thank you, and good morning everyone. Today's conference call and webcast includes a PowerPoint presentation, which is available on our Investor Relations website, irwendings.com. Before we begin, please take note of the safe harbor statement that appears at the end of our earnings release. This disclosure reminds investors that certain information we may discuss today is forward-looking. Various factors could affect our results and cause those results to differ materially from the projections set forth in our forward-looking statements. Also, some of today's comments will reference non-GAAP financial measures. Investors should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measure at the end of this presentation or in our earnings release. On our conference call today, our President and Chief Executive Officer, Todd Penegor, and our Chief Financial Officer, Gunther Plush, we'll briefly review our preliminary Q4 and full year 2022 results and provide an update on our capital allocation actions. From there, we will open up the line for questions. With that, I will hand things over to Todd.

Thanks, Kelsey, and good morning, everyone. I'm pleased to speak with all of you a bit earlier this quarter to announce our preliminary fourth quarter financial performance and revisit our capital allocation policy. Before diving into our strong results, I did want to take a moment to comment on Tryon Partners' amended 13D that was filed this morning. We look forward to continuing our partnership with Tryon Partners with a shared goal of delivering value for all shareholders. Wendy's continues to make meaningful progress against our three strategic growth pillars, and we are pleased with Tryon Partners' confidence in our growth strategy. Today's call will be focused on our preliminary fourth quarter and full year 2022 results and the capital allocation actions we announced earlier this morning. I look forward to sharing the detailed drivers of our 2022 results and providing our 2023 and long-term financial outlook as part of our full earnings release on March the 1st. Now let's turn to our preliminary fourth quarter and full year 2022 results, which highlight the strength and resiliency of the Wendy's brand as we continue to deliver compelling growth. 2022 global system-wide sales grew 6.8%, supported by a second consecutive year of double-digit two-year global same restaurant sales, as well as over 275 new restaurants we opened across the globe. This sales strength, along with a step down in inflationary pressures, underpinned the almost 300 basis point improvement in company-operated restaurant margin over the course of the year. This momentum, alongside the hard work and dedication of our restaurant crews, franchisees, and support center staff, drove our full-year adjusted EBITDA of approximately $498 million, a 6.6% improvement versus the prior year. The strength we are driving in the business, alongside our robust liquidity position, supports the capital allocation actions we announced this morning. We have achieved our 12th consecutive year of global same-restaurant sales growth which is a streak we plan to keep alive in 2023 and beyond. 2022 also marked our second consecutive year of double-digit global same restaurant sales on a two-year basis, which is truly remarkable. This growth extended across the globe with double-digit two-year same restaurant sales in both our U.S. and international segments. Our sales results have enabled the Wendy's system to weather the unprecedented headwinds over the last few years and set us up for further growth next year. Our sales momentum picked up even further to close the year as our two-year same restaurant sales results accelerated in Q4 versus the prior quarter. Our international business continued to achieve outstanding results, supported by growth across all our regions. This sales strength further bolsters our confidence in accelerated international expansion in the coming years. The acceleration in our U.S. business same restaurant sales was supported by our strategic mix of craveable innovation and compelling price points across a variety of occasions. We launched the decadent Italian mozzarella sandwiches and garlic fries, delivered another exciting extension of an iconic product with the peppermint frosty, and continued to promote our ownable $5 Biggie Bay. At the breakfast day part, we enticed trial with our $3 croissant promotion and continued to see our French toast sticks resonate with customers. I'm excited to share more about our strong sales results including updates on our breakfast and digital pillars at our full earnings call in March. I am proud of the new net unit growth our team was able to deliver in 2022, despite ongoing development challenges across the industry. We opened over 275 new restaurants globally, reaching 2.1% net unit growth and marking a second consecutive year of net unit growth accelerations. This growth was spread across the globe, with the U.S. and international segments making up approximately 40% and 60% of our net unit growth, respectively. Turning to the U.K., we have grown the market to a footprint of almost 30 restaurants in well under two years. As of year end, this includes 12 company-operated restaurants, as well as our first traditional franchise-operated restaurant. We are excited for all the growth that's ahead for this market in 2023 and beyond, including our first drive-through restaurant expected to open in the coming weeks. Finally, our focus on franchise recruiting has paid off with nearly 40 new franchisees joining the Wendy's family across the globe in 2022. This signals just how much excitement there is in the investment opportunity of the Wendy's brand. In addition to the new development commitments to come along with these new franchisees, we are excited by the wealth of experience and growth mindset that they bring to the system. We are committed to bringing Wendy's to more of our fans and are excited about the strong foundation we set for further growth ahead. We remain committed to driving accelerated growth across our three strategic pillars, building our breakfast day park, accelerating our digital business, and growing our global footprint. Before turning it over to GP to walk through our capital allocation updates, I want to take a moment to comment on the redesign of the company's organizational structure that we communicated this morning. The redesign is being made in an effort to better support the execution of our long-term growth strategy by maximizing organizational efficiency and streamlining decision-making. Following this change, we intend to embark on a broader redesign of our organizational structure as we see an opportunity to operate as a fully global brand with a unified voice, approach, and operating model. We anticipate that our 2023 and 2024 GNA will be relatively flat versus 2022, despite elevated inflationary pressures. As a result of the redesign, we are now beginning in service of accelerating our growth even further. With that, I'll turn it over to GP to walk through our capital allocation actions.

Thanks, Todd. As Todd mentioned in his opening remarks, our Board of Directors recently had the opportunity to revisit our capital allocation plans in order to address our cash balance which remained elevated at approximately $780 million as of year end 2022. Our capital allocation policy is unchanged, and our first priority remains investing in the business for growth, which we will continue to do while remaining true to our asset life model. Second, we are committed to maintaining an attractive dividend. Our continued business momentum, supported by the large investment in our strategic growth pillars over the last several years, and our strong liquidity position support a 100% increase in our quarterly dividend to $0.25 per share. We expect the full year dividend to reach $1 per share and anticipate similar strong dividends moving forward as supported by our expected strong free cash flow growth and other factors subject to the discretion of our Board of Directors. Lastly, we will utilize excess cash to repurchase shares and reduce debt. We announced today a new $500 million share repurchase authorization expiring in February of 2027. This replaces the previously approved $250 million share repurchase authorization, which was set to expire in February of 2023. Additionally, we repurchased $20 million of our debentures so far in the first quarter under an existing board authorization. We will continue to assess opportunities to reduce our debt in alignment with our capital allocation policy. We continue to deliver on our simple yet powerful formula. We are an accelerated, efficient growth company, and we are committed to returning cash to shareholders as the momentum in our business continues to grow. With that, I will hand things back over to Kelsey.

Thanks, Gigi. Please note that we plan to report our audited fourth quarter and full year earnings on March 1st and host a conference call that same day. At that time, we will answer questions regarding our 2022 results and share our 2023 and long-term outlook. As we transition into our Q&A section, please keep questions focused on the capital allocation actions that were announced this morning. Additionally, due to the high number of covering analysts, we will once again be limiting everyone to one question only. With that, we are ready to take your questions.

Certainly. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Our first question comes from the line of Brian Bittner with Oppenheimer. Brian, your line is now open.

Thank you. Good morning. Good morning, and thanks for the question. So as we focus on the capital allocation strategy and clearly the significant increase in your capital returns to shareholders that you've announced this morning, it seems like a pivot from the last couple calls, GP, when it sounded like you were pretty focused on putting capital towards deleveraging the balance sheet. So could you just talk about how the board came up with this balance to increase the dividends so dramatically? And on the buybacks, you know, it's a long tail on the buybacks going out to 2027. But can you talk about maybe the near-term buyback strategy? Are you looking at doing some sort of ASR, particularly with that cash balance being so heavy still?

Thank you. Good morning, Brian. There were a lot of questions in there. So, again, the first and most important point is our capital allocation policies have changed. Yes, what we have definitely decided with the elevated cash balance we had of around $780 million, it's obviously time now to put this cash to work and return it back to shareholders. Our second most important priority was always to issue attractive dividends. So we felt with the high cash balance we have, the high visibility we have in growth, the high visibility we have in future strong cash flow growth, that it is the right action to actually be a little bit more attractive on the dividend side. We are balancing that with our third priority, which is returning cash to shareholders through share repurchases and through debt reduction. On the share repurchase side, the $500 million, you're right, it goes out for four years. We're not going to comment how that is going to phase out annually. You can expect for us that we're at least going to spend about $70 million a year to manage our dilution. The rest is going to be on our discretion. We will see how things develop over the next couple of years.

Our next question comes from the line of Andrew Charles with Cowen. Andrew, your line is now open.

Great, thanks. I know the lines of questions you want to be capital allocation related, but Todd, I was wondering if you could help contextualize your strong 4Q US sales results relative to QSR per category dollar share. You could probably do that with earnings calls and just giving you released 4Q comps. I think that would be helpful. My other question, though, just on capital allocation was for GP, and could you just speak to your ability to in meeting your growth priorities while reducing or limiting G&A, keeping those dollars flat from 23 and 24, and just your confidence and your ability to really reach, achieve your priorities, you know, while keeping those dollars flat.

Andrew, on the sales front, I'm a little too early to have all of the fourth quarter share data, so we'll share a lot of our share performance as we get together on March 1st with our full earnings release. But when you look at the momentum that we had in third quarter and the step up in momentum that we had on a two-year basis into the fourth quarter, both U.S. and international, my sense is we performed very well relative to competitors within our space. I mean, we had a strong calendar. As I said on the prepared remarks, our breakfast business behind the continued momentum on French toast sticks, the $3 breakfast deal to drive trial, You know, we did all of that lapping the Buck Biscuit promotion from a year ago with those strong numbers in place. And then you look at the rest of our day calendar, very balanced with the $5 Biggie bag on the value side, iconic Peppermint Frosty out there, and the continued success of Made to Crave with the pretzel, bacon, cheeseburger, and Italian mozz. You know, done a nice job balancing that calendar. And QSR continues to be the place to be, and we're performing well within that segment.

T.P.? ? Yeah, so on your G&A question, yeah, we are confident that we can keep G&A relatively flat versus 2022 in both 23 and 24. I mean, there will be some inflationary pressures. As you know, we are an efficient company. We ended 2022 with about 1.9% of global sales. And I think with the redesign actions to streamline our decision-making, I will give us enough tailwinds in our G&A to offset our inflationary pressures and keep, as a result of it, G&A relatively flat over the next two years.

Our next question comes from the line of Dennis Geiger with UBS. Dennis, your line is now open.

Great. Thank you. Another one that maybe strays a little bit from the capital allocation, but just wondering if you'd be able to speak a bit more to the organizational restructuring and any kind of additional detail on some of the benefits that you spoke to as it relates to streamlining decision making and, you know, sort of how that enhances growth potentially going forward, guys. I'd appreciate it. Thank you.

T. Great news is we're starting from a position of strength right we got a lot of momentum on our business to finish the year. T. We feel like we have strong plans in place that will share as we get into the march one discussion around 2023 guidance in. T. And our longer term guidance, but know if you think about where I wanted to go to to evolve the work structure, you know it was really around how do we actually. Think more global in all we do. How do I really make sure that we're focused on driving global unit growth? Are we driving more of a focus on digital activation, leveraging our technology with a global mindset? And as you take some layers out of the organization, it allows us speed of decision-making. It can drive focus. It'll drive efficiency, it'll drive productivity. And as GP just commented, it also helps us on the GNA front too. But ultimately, the way the resources will be reallocated and focused, it is around driving traditional new restaurant development without any distractions and things that we chase during the course of this past year, continue to drive more digital demand, and really raise the bar on the operational excellence of everything we do at the restaurant level while we continue to build our breakfast business.

So it's as simple as that.

Our next question comes from the line of Chris Carroll with RBC Capital Markets. Chris, your line is now open.

Hi, thanks for the question. Could you expand a bit more on your latest thinking on the long-term development outlook? And then would you expect the org redesign to result in any changes to the development strategy, pacing, or targets? I think you touched on that a little bit, Todd, just now, but any other further details would be great. Thanks so much.

Yeah, on the long-term development outlook, unfortunately, we'll have to wait until we get guidance put out there on March the 1st. So we'll talk through that in the context of our guidance for 2023 on March 1st. We'll give you a little more flavor on an update to our long-term targets as we get to that date also. But, you know, as we think about the org redesign, you know, we did test and learn in a lot of places during the course of this year. You know, we've looked at reef kitchens. You know, we did some things around hamburger stands and frosty carts. You know, what I really want to do is make sure that we got a dedicated focus to drive the U.S. development plan, drive the international development plan with most of our time energy effort on traditional new units with our global next-gen 2.0 design, which we're really excited about.

Our next question comes from the line of Jeffrey Bernstein with Barclays. Jeffrey, your line is now open.

Great. Thank you very much. Just following up on that org structure redesign, seemingly encouraging to be able to hold G&A flat in this environment over the next few years. But, Todd, I presume this means you'll be more intimately involved perhaps in the day-to-day as you're removing a layer of management in there. I'm just wondering if you could share any color in terms of any changes expected in terms of primary focus or initiatives or what we can expect from that perspective as you presumably streamline the global structure. Thank you.

Great question, Jeff. As we sit around the table operating as a senior leadership team, the last couple of years I had two business unit presidents that had a lot of autonomy that were driving their business, and it served us well. I mean, we've got a lot of success in the U.S., a lot of success in international, but we do need to have that global mindset, and it will put me a lot closer to the business. And as we sit around the table as a senior leadership team, having a global marketing mindset, talking about operations with a focus on the U.S. and international. It will help speed decision-making. We'll make sure that we got one message to the entire organization, both U.S. and international. And I do think it will make us a lot more effective so we can go faster to continue to drive and accelerate the results that we've seen behind our key strategic growth pillars that we've been very focused on the last couple of years.

So I see a lot of benefit from all of that.

Next question comes from the line of Danilo Gargiulo with Bernstein. Danilo, your line is now open.

Hi, good morning. I was just wondering if you can comment on the timing of the announcement. Essentially, you know, your comps are still continuing to see outperformance. You know, the G&A seemed to be, you know, relatively more elevated compared to last quarter. But I'm wondering, you know, what was propelling your decision to announce the organization redesign today when you're seeing kind of sales continue to be elevated?

I think, you know, just the function of how we're looking at managing our business moving forward. You know, as we start the year fresh here in 2023, I personally thought it would be good to have a fresh look on how we operate as a leadership team. And as we embark on some of the work to make sure that we can hold our GNA relatively flat in 2023 and 2024, as GP just alluded to, you know, having the senior leadership design in place certainly helps enable that work. So as we work through, you know, what that next layers look like, how does that org design flow out, what does our GNA actually come out to look like? We'll have all of that work done to be able to share with you as part of our 2023 guidance and our longer-term outlook when we reestablish that on March the 1st.

Our next question comes from the line of Chris O'Call with Stiefel. Chris, your line is now open.

Thanks. My question is regarding the capital allocation. The companies use more capital to repurchase stock than pay dividends on average, I guess, over the past several years. That looks like it's going to change going forward. Could you talk a little bit about how the company came to this decision? Then I had a follow-up.

Good morning, Chris. Yeah, it's obviously an active dialogue with our board of directors, the different point of views that we discuss. in terms of what options do we have to return the excess cash that we currently are sitting on to shareholders. And at the end of the day, what I think we decided is in line with the capital allocation policy. Number two is an attractive dividend. Now, obviously, the stance we are taking on dividends is very, very attractive, and we want to signal to the financial market that we have high confidence in growth, high confidence in high cash flow generation. And that's basically a little bit the adjustment that we made on the dividend side of things. Again, all combined, if you do the calculation, you're getting to capital returns over the next several years of more than $1 billion. So we are signaling that our cash flow generation is going to stay very strong.

Next question comes from the line of John Ivanko with JP Morgan. John, your line is now open.

Hi. Thank you. The question is on the comp, if I can, in the fourth quarter. I mean, can you talk about how much of that was price, how much of that was ticket? I mean, if you are kind of seeing different consumers behave different ways with the brand, if you think there's anything really instructive in the data that you're seeing in the fourth quarter, specifically and you know I guess I'll be a little cheeky and see if you'll address this I mean can you talk about you know what you think your uh you know your average pricing will be for 23 if you think you might take more pricing and you know there have been so many movements in commodities you know since we've last spoken if there's even a soft update you know that where we can kind of consider commodity inflation relative to pricing for for 23 if you're willing to address that thanks so much

Hey, John, a lot of good questions in there, and I won't address those today. We'll save a lot of that detail and discussion for our March 1 release when you start to think about where we are in price, where we are in customer counts, what we're seeing on mix, how we're looking at the health of the consumer. I mean, we continue to see a consumer that's a little more strapped. You know, we're in the right segment of the restaurant business. QSR continues to be the place to be. There is continued trade down into our category, and as you see from our results on a one- and two-year basis, we're competing and performing very well, so we're happy with that.

Yeah, just to add on this, John, right, and we are really happy about quarter four, right? We told you in quarter three that we're going to grow double-digit on a two-year basis across all segments, and we have done that, actually exceeded that with more than 13% growth on a two-year basis in the fourth quarter.

Our next question comes from the line of Gregory Frankfort with Guggenheim. Gregory, your line is now open.

Hey, thanks for the question. I just had one on the unit growth on the U.S. side. It looked like you guys had a bit of outsized closures. I mean, is that something we should read into on a go-forward basis, or was there anything specific to the quarter just in terms of – I think it was the first quarter in a while with net closures during the quarter. I'll figure out how to ask the question. Thanks.

Good morning, Greg. Yeah, we are happy with our outlook with our performance on the units, right? We told you it's going to be 2% to 2.5% for this year, and we ended up in that range. Secondly, I would say, you know, the split between growth is 40% in the U.S., 60% in international. We kind of told you as we worked ourselves through the year that we will have elevated closures this year. We told you in the past between 130 and 140. is definitely elevated versus what you have seen in the past from us. That's what basically happened this year. As you might remember, a lot of it had to do with reef and cleaning that adventure up for us. I'm not going to comment on closure rates on a go-forward basis. We do that beginning of March.

Our next question comes from the line of David Palmer with Evercore ISI. David, your line is now open.

Thanks. I don't know if you mentioned this, but what is your leverage target now? And then I'm just curious how you perhaps weighed using cash for buying back stock against debt reduction or other sort of business-related spending, perhaps incentivizing unit growth or or even if that cash is used on an expense basis. I'm wondering how you weighed those options. Thanks.

Good morning, David. From a leverage ratio point of view, we haven't really issued a target. As you know, at the end of the third quarter, we were about five times levered. We're going to do the final numbers once we issue the full audited results. From a debt structure, as you know, we have securitized debt. It is really nicely lettered. The first time we need to get into kind of refinance mode is probably in 2025 or 2026, so we have some time to think about it. Optionistically, we definitely are taking that down in line with our capital allocation policy. You've seen it. We have bought back in the quarter already $20 million of our debentures, as you know. They are due for repayment in December of 2025, so there's $70 million to go, and we'll see whether we can reduce that on a go-forward basis. It's the balancing act between the share repurchases and debt, but I think we are demonstrating that we are doing both.

Our next question comes from the line of Eric Gonzalez with KeyBank. Eric, your line is now open.

Thanks for the question and good morning. I'd like to ask one about sales if I can. One of your biggest competitors has been on air quite a bit lately. It's been mostly brand messaging, but also a little bit of value. And from your strong fourth quarter results, it does seem like it didn't have much of an impact or perhaps even benefited from the higher level of media attention on the category. So maybe if you can comment on how you think the heightened competitive messaging affected your business in the fourth quarter and what it can mean for the trend going forward in 2023.

I think we continue to do a great job of having a very balanced calendar. When you think about what we continue to do on $5 Biggie bag to bring folks in for affordable, great tasting food, that's a great offer. The news we continue to bring on Made to Crave continues to allow folks to trade up and through their purchase cycle in the course of the month, you can buy on the low side of the menu and the high side of the menu. And things like bringing Peppermint Frosty into the restaurant really is something that drives our iconic Frosty brand, but actually a great halo to the rest of Wendy's. You know, there is a lot of activity, a lot of folks out on air, no different than we've always seen. We're out there on air, you know, actively at the moment. We've got strong messaging going as we start the year, so we feel like we're really well positioned to continue to compete, both from the perspective of where our momentum was, as GP just commented on the fourth quarter, But with the plans that we have in place moving forward, we feel really strong that we're well positioned to continue to win in the category.

Our next question comes from the line of Alex Slagle with Jefferies. Alex, your line is now open.

Hey, thanks. Good morning. Just looking for any additional color on the org redesign, just on the timing, you know, what led to the realization that there was, you know, a more efficient path. I'm sure there's something continually, you know, you've been reviewing. And then back on the confidence, you can contain the cost. If you could just reflect on where you stand now with building up the teams and capabilities to deliver on the digital and growth plans, just comfort that you're sort of cresting the peak of investments here.

Yeah, back to, you know, as I said a little bit earlier, the timing was one that, you know, we had to make some of the senior structural changes first to get that out so we can continue to do the work to look at the organizational redesign that we said we were embarking on to make sure we can lock down our plans over the next, you know, 30, 45 days so we can kind of share all of that outlook as part of our 2023 guidance and have that thinking factored into our longer range targets. But you know we're absolutely committed to holding our gna relatively flat in 2023 2024 we think we can reallocate a lot of those resources to ensure that we've got the right focus on traditional net new net unit development across the globe. We think we can leverage a lot of our great marketing thinking even better across the globe. And clearly we can continue to drive digital with a global mindset, which we've had to date, but I think we can be even more focused on it. So I think all of those things set ourselves up to build off of a very strong foundation and a business that has a lot of momentum to take us to a whole new gear of growth.

Our next question comes from the line of Joshua Long with Stevens. Joshua, your line is now open.

Great. Thanks for taking the questions. I was just curious within the context of the new capital plan, how you think about carrying your cash balance going forward? Obviously, we can work through the implications for the share buyback and the dividends, but just curious, do you think holistically or maybe philosophically just about the amount of cash that you would like to carry on your balance versus historical periods?

Good morning, Josh. As you know, the last several quarters were obviously very elevated from a cash balance point of view. As I said in the prepared remarks, we ended up this year with about $780 million. Obviously, with the actions that we are taking now, that cash balance is going to get reduced. It will take a little time to kind of work this down. As you know, we can... run our business very conveniently at about 300 million dollars of cash uh definitely believe that we'll stay a little bit elevated over the next couple of years why is that you know we're heading into kind of uncertainty and volatility from a macroeconomic point of view so we definitely believe to be a little bit more prudent on cash balances is appropriate

Our next question comes from the line of Lauren Silberman with Credit Suisse. Lauren, your line is now open.

Thank you very much. Thanks for the time. My question is on the organizational restructure and keeping DNA flat. Are the efficiencies primarily going to be realized through headcount? Are there any other projects or investments you might pull back in? Are you considering things like more outsourcing of technology? Thank you.

Yeah, Lauren, a lot of work to do on the org redesign. And, you know, we had, you know, contemplated several investments that we would put in place the last couple of years, and we're thinking about an investment posture on some of the G&A for the next few years. But, you know, as we ran into this economic cycle, we're looking at where we're placing some of those resources. We're looking at some of the existing headcount in light of the org changes that were announced this morning with the senior team on the U.S. side with a few folks moving on. All of that is yet to come. So we got a lot of work to do now to really define how do we get to those savings, how do we make sure that they're structural so they stick and hold us relatively flat on the GNA the next couple of years. But most importantly, we got to make sure our resources are focused where they matter the most. As I continue to say, driving traditional new unit development, driving our digital demand, raising the bar on operational excellence, and continuing our momentum in breakfast.

Our next question comes from the line of Peter Soleil with BTIG. Peter, your line is now open.

Great. Thanks. Thanks for taking the question. Just two quick ones. One, a clarification. Just want to clarify that the G&A guidance is for flat dollars going forward in 23 and 24. And then just on CapEx, any color on CapEx in 23, And 24, are there any expenses that we should be expecting to be shifting out of G&A into CapEx, or is CapEx relatively consistent on a go-forward basis as well? Thanks.

Good morning. So as you know, we finished G&A in 2022 at $255 million. We are saying flat, relatively flat. So we're not saying flat. So there's going to be a little bit of inflation there, is the one clarification I have. On capital, not yet ready to give you any color on it. As you have noticed, we're actually not yet done with even the cash flow for this year. So that needs to settle, and we'll digest that one. And beginning of March, we'll give you a little bit more color how that number develops.

Next question comes from the line of Jake Bartlett with Truist. Jake, your line is now open.

Great. Thanks for taking the questions. And I have two follow-ups, which I hope just equal one question. The first is, could you just give us an update on where you stand with the reef closures? You know, I'm wondering how many close, for instance, you know, maybe in 22 or the fourth quarter, and how many you expect to close in the next year. And then I had a question on the dividend payout. So, you know, as I calculated, it looks to be, you know, about, you know, over 100% payout. I think, GP, you made the comment that this is going to be a consistent dividend. So I think that would mean that you're going to grow it from here. But if you could just comment on the targeted payout, things obviously but double, as I'm kind of calculating what you had previously talked about.

Good morning. So on your reef questions, we finished the year with about 50 reef units across the globe, kind of equally split. roughly between the UK, Canada, and the US. Again, as we said, the partnership is live and active. You will hear more how that develops at the beginning of March when we do our unit guidance. In terms of dividends, again, the exact payout ratios and what have you, we obviously going to declare when we issue our guidance for next year. And as you note, it's clearly well north of 50%. I also want to make sure that people absolutely understand that this is not a special dividend. It's a regular dividend increase. And again, you can also expect that that dividend will annualize to a dollar. And you can also expect that similar elevated dividends will be paid out in the coming years. Obviously, that is all subject to the discretion of the Board of Directors.

Our next question comes from the line of Nick Setian with Wedbush Securities. Nick, your line is now open.

Thank you. Obviously, just given the long tail on the buyback through 2027, how are you thinking about the timing across I guess the next four years or so, is it going to be relatively balanced? And then also, what was the unit level margin X, the UK?

Good morning, Nick. So, yes, you're right. The authorization is for four years. It gives us a little bit flexibility. As I said, at a minimum, you can expect us to spend $70 million a year just to simply manage dilution. In terms of how we then... manage the rest, which I would call discretionary share repurchases, is going to be the function in terms of what is our outlook on the fair value of the company, what is the timing when it makes sense for us to make the share repurchases. So we are going to make that decision on a quarterly basis and decide together with the board how we are going to pace and sequence those share repurchase programs. didn't fully understand.

So can you repeat that one second part?

All right, I think we can move to the next question. Certainly. Our next question comes from the line of Jim Sanderson with North Coast Research. Jim, your line is now open.

Thanks for the question. I wanted to follow up on the cash balance issue. You mentioned about a $300 million minimum cash level necessary. How has that changed? And given the lower G&A spend and the stronger sales, shouldn't that start to narrow or improve going forward, potentially freeing up more discretionary cash flow for share repurchases?

Yeah, Kim, you're not wrong, right? If you step back pre-COVID, if you go back to a balance sheet pre-COVID, we would manage the company at around $200 million in cash. Then obviously COVID happened. Remember, we had to do the famous relief, working capital relief package for franchisees. And we realized maybe we're living in a volatile world and basically said, look, you know what? We want to be a little bit more prudent and try to target around $300 million. If volatility comes down, are we moving to something between $200 and $300 million to comfortably manage what we need to manage? It's definitely an option, and you're absolutely right. It then clearly means there's a little bit more cash available for capital allocation actions.

Our final question comes from the line of Jared Garber with Goldman Sachs. Jared, your line is now open.

Great, thanks for the question and squeezing me in. GP, you kind of mentioned it, but just wanted to get a sense on the dividend. Was there discussion around doing a special dividend in the fourth quarter or the first quarter here? And maybe how you came to the decision to increase it 100% versus maybe doing a special? And then just a quick follow-up on the company restaurant margins. Maybe you can help frame where you saw a little bit more favorability in the quarter. Was it lower beef costs? better labor, just any incremental color on the line items there would be helpful. Thanks so much.

Good morning, Jarrett. Yeah, so I don't want to get into the details of the inner working discussions on board level, special dividend versus regular dividend versus share repurchases. I think collectively with the board, we landed on a very attractive, I think, capital allocation action, basically increasing the dividend by 100% and making this a regular dividend action. and to the famous half a billion dollars of share repurchases. So, yeah, I don't want to get into the discussions around all the details, how we got there. But I think the outcome is positive. On restaurant margin, really happy. As you have seen in the consolidated numbers, we are landing flat on prior year. If you actually peel this back a little bit, the U.S. company restaurant landed actually at 15.2%. and they were actually favorable, so up versus prior year's quarter by about 20 basis points. So that went well, so that tells you we are really starting to truly approach pre-COVID margin levels. I might remind you that it was in 2019 our U.S. company restaurant margin was 15.5%, and that despite really still a relatively elevated inflationary pressures we had in the fourth quarter. More detail in terms of what happens to labor, pricing mix, we'll give all of that out when we are fully analyzed in detail our results beginning of March.

Thank you, Jared. That was our last question of the call. Thank you, Todd and JP, and thank you everyone for participating this morning. We look forward to speaking with you again