Hello, my name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Mr. Rob Ballew, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Krispy Kreme’s third quarter 2022 earnings call. Thank you for joining us this morning. Our third quarter earnings release and accompanying earnings presentation deck are available on the Investor Relations portion of our website. Joining me on the call this morning is Mike Tattersfield, President and Chief Executive Officer; Josh Charlesworth, Global President, Chief Operating and Financial Officer; and Joey Pruitt, Chief Accounting Officer. After prepared remarks by Mike and Josh, there will be a question-and-answer session. Before we begin, I would like to remind you that this call contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities and Litigation Reform Act of 1995, including statements of expectations, future events or future financial performances. Forward-looking statements involve a number of inherent risks and uncertainties, and we caution investors that these risks could cause actual results to differ materially from those contained in any forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's 10-K filed with the SEC on March 11th of this year. Forward-looking statements made today speak only as of today. The company assumes no obligation to publicly update or revise any forward-looking statements, except as may be required by law. Additionally, today's call will include certain non-GAAP financial measures. A reconciliation between non-GAAP financial measures and their closest GAAP measures can be found in the company's third quarter 2022 earnings press release and our Form 10-Q.

Good morning and thank you everyone for joining us today. We are pleased to share our third quarter 2022 results, which were bolstered by accelerating organic growth driven by a continued successful execution of our omni-channel strategy. I want to start today's call by thanking our Krispy Kremers, our team members for driving another strong quarter of revenue growth where we had positive organic growth in every country around the world, despite a tough macro environment. Without your efforts and dedication, this would not be possible. As you all know, the purpose of our company is to touch and enhance the lives of others through the joy that is Krispy Kreme. In the third quarter, we celebrated our 85th birthday with sweet promotions around the globe, launched doggie doughnuts for our four-legged friends, and helped support over a dozen charities around the globe ranging from cleaning up the planet, driving blood donations, and supporting children and low-income communities. We have raised more than $30 million through fundraising year-to-date. Fundraising is an integral part of Krispy Kreme’s purpose and has been part of our DNA for many years as part of our efforts to give back and support local communities and issues. We are proud to be a global company operating in over 30 countries, and campaigns like these highlight the joy we help create and how we can really drive genuine consumer connections with our brand in an impactful way. Turning to our performance, we made terrific progress on our long-term strategy to drive our omnichannel model in the third quarter, demonstrated by a 17% increase in points of access from a year ago, leading to global organic revenue growth of roughly 12% over the prior year. Total donuts sold during the quarter was up 6% globally from a year ago or more than 380 million donuts; that’s a lot of donuts. We saw strong performance in the U.S. in our Hubs with Spokes and Insomnia Cookies, as well as in Mexico, Australia, and New Zealand, alongside a robust performance in equity in Japan. In addition to strong DFD performance, much of the growth was also driven by robust e-commerce sales, which represented 18.5% of retail sales, up 170 basis points from a year ago. The growth was led by Insomnia Cookies and Krispy Kreme in the U.S., which saw e-commerce mix grow a combined 370 basis points to 20.7% from a year ago. E-commerce growth was driven by an expanded delivery radius through partnerships with third-party aggregators, the addition of dark shops, and improved availability of our specialty donuts on our mobile app. While much progress has been made, we continue to see significant upside to our e-commerce platform in the coming years. Our U.K. market continues to experience a challenged consumer environment impacted by soaring energy costs and overall inflationary pressures. This has led to significant declines in general retail and supermarket traffic in the U.K. Additionally, the strength of the U.S. dollar continues to impact our results, which has reduced our net revenue growth and adjusted EBITDA in the quarter by approximately $3.1 million. Despite strong global organic revenue growth, adjusted EBITDA in the quarter declined modestly to $38.5 million, due to foreign exchange challenges and the U.K. operating environment. In the U.S., we ran higher promotional activity in the first two months of the quarter, but since September, we have significantly reduced our promotional activity without any impact on revenue, which has led to significantly improved gross profit trends. In the U.S. and Canada segment, our performance was driven by the strength of our Hubs with Spokes, highlighted by another increase in sales per hub and double-digit same-store sales growth by Insomnia Cookies, led by growth in e-commerce revenue. Organic revenue grew 9% in the third quarter, while total revenue grew 12%. Our DFD business continued to gain momentum with the addition of two large regional partners, higher points of access, and we continue to see strong interest from potential partners. We have continued to strengthen our omnichannel execution with a successful premium Pumpkin Spice LTO in August, which was launched simultaneously through DFD, retail, e-commerce, and branded sweet treats. Since then, we've also run our premium price Halloween LTOs across multiple channels and we'll be using a similar approach during the Thanksgiving and Winter Holidays as well. We continue to premiumize and innovate with the recent successful launch of Fritter Fridays to add to our Hand Cut Cinnamon Roll Sundays, both of which are in our newer four-tier premium price point, which can be more than 50% premium to our original Glazed doughnut. These LTOs and innovative products really drive buzz and brand love in addition to more profitable sales. Adjusted EBITDA in the third quarter increased 10% in the U.S. and Canada with strong organic revenue growth and price increases offsetting higher promotional activity and margin loss in the Hubs with Spokes. In our international market, all of our international countries, including those in market development, had positive organic growth in the third quarter, led by robust performances in Mexico, Australia, and Japan. Additionally, our U.K. business also had modestly positive organic growth with a successful omnichannel LTO, despite cycling a tremendous quarter a year ago and coping with the worst consumer sentiment there in decades. One thing that gives us confidence in our omnichannel model is our ability to succeed in challenging markets, as we reach consumers wherever they are. When you complement that with relevant products, strong brand partners, and maximizing our celebratory occasions, like our recent Minions Halloween doughnuts in most markets across the globe, we really see strong engagement with the brand. Roughly, half of our system-wide sales and adjusted EBITDA are outside the U.S., proving that Krispy Kreme is truly a loved global brand. As you know, our goal is to open in at least three new countries per year going forward. So far in 2022, we've signed development deals in seven international countries, including announcing Jamaica this morning, as well as a recently announced joint venture in France for 2023, which together represent more than 5,000 points of access or nearly 50% of our existing points of access. France alone has the potential for more than 2,000 points of access, and we expect to open 500 there in the first five years. We will enter this market as a minority partner with a very strong operator, which operates more than 200 Columbia cafes in France with the right to acquire majority stake in future years. Additionally, Americana, our franchise partner in the Middle East, recently opened a shop in Jordan for the first time and achieved the highest weekly sales ever in the Middle East. With a proven model, we are building a very strong pipeline for new market entries with both existing and new franchise partners, as well as looking at equity stakes in certain strategic markets. We expect to announce further market entries over the coming quarters as we continue our journey to become the most loved sweet treat brand in the world. While our omnichannel strategy has grown significantly over the past few years, lack of access to Krispy Kreme is still by far and away the number one reason customers do not purchase our product. Our DFD journey to this point has been led by points of access in grocery and convenience stores. However, we see the Spokes strategy evolving over time to more channels. Just recently, we announced an operational test pilot of nine locations in Louisville, Kentucky, and the surrounding area with McDonald's to serve Krispy Kreme doughnuts, bringing together two iconic brands that have so much in common. This is a small test to partner with a global company. But we believe this represents the type of opportunity that shows why we remain confident in our long-term goal of achieving more than 50,000 points of access globally. We believe that strong global partners could be a great fit to significantly grow our DFD business. We continue to look for new partners and channels across the globe as we build out our Hub and Spoke model to increase access to customers, and we look forward to updating you on this journey. Wrapping up, I'm extremely proud of how the team has and continues to manage to evolve on pricing, growing points of access with excellent cost discipline as we manage external challenges like inflation and geopolitical pressures. Short-term macro challenges will remain in some markets, but I am confident in our ability to thrive, highlighted by the strong organic growth in the third quarter. Low levels of pricing elasticity and the continued ability to expand our omnichannel model in new and capital-efficient ways. As I mentioned last quarter, we are very excited to be hosting an Investor Day on December 15 here at our headquarters in Charlotte, North Carolina, which will also be webcast. At that time, we will provide further detail on our strategic vision and long-term growth goals. We will have a number of exciting updates to share with you at this event and introduce our initial 2023 to 2026 outlook as well.

Thanks, Mike, and good morning, everyone. In the third quarter, our Krispy Kremers once again showed that our beloved brand and our unique business model combined to deliver growth across our sales channels and across the world. Sales revenue grew 10% to $378 million with organic growth, which excludes the impact of franchisee acquisitions and changes in foreign currency, of an even stronger 12%. During the quarter, we added another 294 fresh points of access, mostly in the form of capital light delivered fresh daily doors, taking us to over 11,700 points of access globally, an increase of nearly 1,700 from a year ago. Along with our successful brand activation and pricing initiatives, this resulted in a more than 15% increase in 12-month sales per hub, compared to the prior year in both our domestic and international business segments. We see this as a strong indicator of higher margins in the future due to the efficiency benefits of adding off-premise sales to the hot light theaters. Adjusted EBITDA was $38.5 million for the third quarter, down slightly from a year ago. It would have been slightly up, but for a $3.1 million foreign exchange impact. The benefits to EBITDA of higher points of access and further price increases were also partially offset by two additional factors. First, our high-margin U.K. market was challenged by weak retail traffic in all sectors, reflecting the cost of living crisis there. Second, price promotional activity in the U.S. remained high for the first two months of the quarter due to our well-received Beat the Pump discount, which ramped all the way through Labor Day. The final period of the quarter saw price promotional activity in the U.S. return to normal with no impact on sales. This, along with additional pricing on DFD in September, meant that the final period of the quarter posted significantly higher margins than the prior year. In the third quarter, GAAP net loss was $11.8 million or negative $0.08 diluted EPS, which includes the impact of $5 million of impairment charges related to planned shop closures as part of our strategic review of our Hubs without Spokes in the U.S. Adjusted net income for the quarter was $5.9 million, and adjusted diluted EPS in the third quarter was $0.03. In the U.S. and Canada business segment, total revenue increased 12% in the third quarter to $253 million, and organic growth was 9%, an acceleration on our second quarter performance. Growth was strongest again in delivered fresh daily, partly due to a 9% increase in points of access, but we also saw strong growth at the donut shop via e-commerce and from Insomnia Cookies. We added 206 points of access in the third quarter, taking our total to 6,259 in the U.S. and Canada. Like last year, we do not expect points of access growth in the fourth quarter in the U.S. with grocery store customers accepting minimal changes to their floor space during the holidays. We expect points of access to resume their strong growth again in 2023, though. Hubs with Spokes in the U.S., which increased by two to 129 during the quarter, averaged $4.5 million sales per Hub on a trailing 12-month basis in the third quarter, which is up 18% compared to a year ago, due to the success of our omnichannel model and pricing actions. Our Hub and Spoke model is working and helped add more than 200 basis points of margin in the quarter, which along with higher pricing, offset significant commodity inflation and elevated labor costs. In addition to increasing the number of Hubs with Spokes, we opened six new cookie shops in the third quarter, reaching 227 Insomnia Cookie shops in total at the end of September. Last quarter, I announced the planned closure of approximately 10 Krispy Kreme shops after a performance review of our shop network. In particular, the 118 hubs without spokes, which are hot light theaters that do not benefit from off-premise points of access expansion. We closed eight shops during the third quarter. We also identified a further 12 shops that we will close in the coming months. All of these shops are low revenue and have flat or negative EBITDA margins and most are Hubs without Spokes, which could not be converted to produce for DFD. We believe these 20 locations represent the overwhelming majority of potential closures. During our review, we also identified additional Hubs without Spokes that could either be converted to produce for DFD by closing the lobby area, or we convert all the way to Spokes taking in donuts from other production Hubs. I look forward to sharing more details on this at our December Investor Day. Adjusted EBITDA for the U.S. and Canada in the third quarter increased 10% to $22 million with margins roughly flat at 8.7% in our seasonally lowest margin quarter of the year. EBITDA margins improved as the quarter progressed, reflecting a mid-single-digit price increase in September and significantly reduced promotional discounts after Labor Day. We took further pricing action in mid-October in retail and e-commerce, which brings the total year-over-year pricing increase to low double-digits. Overall, we've seen low levels of elasticity from both the July and October retail price increases and expect price promotional activity to remain at more historical lower levels moving forward. Now moving to our International segment, net revenue grew 5.4% in the third quarter to $92 million with foreign exchange headwinds creating a temporary drag during the quarter. Organic revenue increased 15.5% with excellent performances from Mexico, Australia, and New Zealand, driven by strong premium product innovations and successful price increases. In the U.K. and Ireland, we saw organic growth at a much lower rate with the continued challenging consumer environment. International points of access expanded by 14 in the third quarter and by 548 year-to-date. The 22% increase in international points of access from a year ago allowed us to leverage our 37 international hubs to grow international sales per hub to $10 million on a trailing 12-month basis, up 16% from a year ago even with the FX headwinds. International adjusted EBITDA for the third quarter declined 15.7% to $18 million, as gains in Mexico, Australia, and New Zealand were not enough to offset a decline in the U.K. The U.K. decline was driven by $1.6 million in foreign exchange from the weakened pound, as well as cost increases in labor and commodities. We recently took a double-digit price increase in retail in the U.K. and continue to review pricing across our markets as we look to offset expected cost increases in 2023. Now to our third business segment, market development, which is made up of our franchise businesses around the world and the equity owned to fund market. Total revenues in the third quarter increased 11% to $33 million even with a 15% impact from foreign exchange headwinds and franchise acquisitions. The organic growth in the quarter was a very strong 26% with great performances particularly in our international franchise markets and in Japan, both of which saw organic growth in excess of 25% for the second quarter in a row. Adjusted EBITDA in the third quarter for market development increased 15% to $10.4 million, despite a negative $0.7 million impact from foreign exchange headwinds. Adjusted EBITDA margins increased 100 basis points to 31.4% in the third quarter, compared to the prior year. Turning to guidance, this morning we reiterated our 2022 full-year guidance, which included 10% to 12% organic revenue growth, $189 million to $195 million in adjusted EBITDA, and $0.29 to $0.32 adjusted EPS with capital expenditures of $105 million to $110 million. We guided $10 million to $12 million in foreign exchange headwinds for 2022, but given the continued strength in the dollar, we expect to come in closer to the $12 million. We have great top-line momentum with a strong performance at Halloween and record results in DFD, which leads us to expect to come in near the top end of our revenue range. In the fourth quarter, we expect to benefit from our recent pricing actions and reduce discounting through the holiday season, but the FX headwinds and uncertainty in the U.K. consumer environment leads us to believe that it is more likely we will come in at the lower end of our EBITDA guidance. Commodities are locked in for the balance of 2022, and we have now also locked in more than 90% of our needs through Q3 2023 at high single-digit inflation, well below the more than 20% we have seen for 2022. We remain confident in our ability to deliver strong organic top and bottom-line growth in both the near and long-term through omnichannel, innovation and marketing, the expansion of our Hub and Spoke model, and the growth of e-commerce. In addition, we're using pricing, productivity initiatives and the optimization of our hubs without spokes to offset inflationary pressures and grow margins.

We can now open the call up to Q&A, please.

Hi, thank you. I'm going to ask some questions about the McDonald’s partnership and I'd like to talk about it more strategically if I can. First, I mean, there are a few of us on this call who are not old enough to remember when Krispy Kreme doughnuts were put into McDonald’s stores in London, Ontario, 20 years ago. I don't know if there was a case study that was done on that. I mean, what was done correctly, what wasn't done correctly, at least from what I remember, there just weren't enough doughnuts sold in a given day for that program to continue. So I just wanted to kind of get some comments on what may have changed versus I think a fairly similar program put in 20 years ago versus today, but certainly educate me on that? And then secondly, if I may, just the broader idea of distributing Krispy Kreme products to areas where customers are likely to buy one or two or three doughnuts versus the six, 12, 18, 24 that's currently available in grocery stores. Again, this brand used to be distributed fairly widely in convenience stores. I mean, I think management had a strategy that you didn't like and it really wasn't profitable? From a DFD perspective, but I wanted to see if what we're seeing with this McDonald’s test could be the development of a much broader single-serve type of DFD occasion, which is obviously very different than what you currently have in most grocery stores that I've seen? Thanks.

Sure. So John, this is Mike. How are you doing today? I'll give you just two questions, yes. First about McDonald’s, our long-term strategy, as we've always said, is to get access to our customer base. In fact, we define very clearly long-term that we believe is 50,000 points of access. It's primarily going to be made up of that convenience and grocery stores. We also knew internally that it would evolve with other spokes. So when the opportunity came, as you have an iconic world-class brand like McDonald's, we agreed to do a DFD test in Louisville, Kentucky; it aligns with our DFD model. It’s about fresh doughnuts to them. It's early days; we just started this, and we’ll keep you updated on the journey as we move along. In terms of the Canada story, it wasn't a DFD, a fresh business model. They didn't have an integrated system of how to do it daily. So anytime they were trying to do doughnuts, they couldn't really figure out the demand pattern. So history gives you a lens, but that's a very different history. In terms of merchandise mix, if you think about the opportunity, if you look at other channels or other partners, they will have three packs, six packs, 12 packs, even single packs, because that even exists today in our convenience shops, right, where you can walk in and you can buy singles, and people make donut selections. It's about putting the cabinet in the locations. So that's the discipline of how we sell. We're not really in the business of a single-donut purchase. So what we do is for our customers, and then they maximize their merchandise mix opportunity. It's about fresh donut access to where our customers are and using what we're building today in a DFD system to get there. I hope I answered those questions for you.

You did, but again, I mean, maybe it's in being in South Florida and seeing Publics and seeing the doughnuts. I think the smallest pack is six; it might even be 12 at my local store. But kind of getting back to where you have cases where customers can buy single serves going into convenience stores, yes. I mean, there are many convenience stores where customer visitation is highly predictable, if it makes sense. I mean, to go into national convenience stores, for example, I mean, does the DFD model support relatively small drops versus grocery where presumably you're selling more per store per day? I just want to get a sense of how flexible that model is in terms of delivering fresh daily to accounts that might not sell that any doughnuts in a given day?

Right. So think about a route and the flexibility of adding an additional door on an existing route. You can get into how the convenience store model works. So that becomes an opportunity for you. The grocer stores will continue to evolve from 12 and six to even single serves as well as you see in Tesco, and that ability you want to see what the customers are looking for. You want to maximize your merchandising mix by having the cabinet there, so the choice option becomes there. It's the same drop; you are then going through a route system and looking at convenience customers, and you want to pick the few customers, brands that matter and then build that logistics. Different sizes, different customers, but it's not about going everywhere we've said before, and we're going to be really disciplined about how we build the route.

Thanks for the patience. That's an interesting evolution. Thanks.

Hi. This is Jessica on for Sarah Senatore. Thanks so much for taking my question. This is just another one related to McD partnerships, or I guess, just more hub more generally. Could you talk about your Hubs and how we can think about how many additional DFD doors you could support in the U.S. from the existing capacity? And how many more you would need to, for example, service all of the Walmart stores or if you were to discuss a broader rollout with McDonald's?

Hi, Jessica. This is Josh. Yes. I mean, we do have clearly excess capacity across the U.S. to build out the DFD door network, whether it's Walmart, McDonald’s, or others. We know that the sales per hub, just $4.5 million in the U.S., compares to more than $10 million internationally to give you a good guide of that track capacity. Now some of the hubs are not all in optimum locations or are all structured and laid out to maximize the opportunity to match the international level, but there is significant room to grow, and our annual guide with a 10% increase or more DFD door growth can be supported largely in the U.S. by our existing hub network. We currently have plans for five to 10 hubs a year added in the U.S., and that will be more than enough to support that growth going forward. Although, indeed, as you see, in the U.S., the growth is strong. So we need to continuously look to ways to optimize and improve the operations of our existing hubs, and even then convert more hubs without spokes to be able to service the DFD growth given the level of demand we're seeing in points of access.

Good morning. First, Mike, just going back to your comments on the reduced promotional activity in the U.S., and you're not really seeing a diminishment in demand. Are you rethinking how you think about promotions, price point promotions, maybe in favor of focusing on LTOs? Or is this just about timing, and you just aren't going to promote as much given the holidays, but you might still go back to traditional promotional activity next year?

Hi, John. Well, Q4, as you well know, is our big celebration quarter, the biggest quarter of the year. So obviously, it's natural that we wouldn't be promoting on price as much at this time of the year, more focused on our specialty donuts, which are premium price points and don't necessarily need during the holiday season to have the same kind of a price promotion. So there's certainly an element of timing in that. We certainly found that the Beat the Pump promotion that gained a lot of notoriety in the spring was not as successful as it bled through the summer. So it's clear that mechanism isn't as applicable in the fourth quarter. So no major change; we want to ensure that we provide value to our consumers but also provide those premium celebration offerings to them. So recognizing the changing consumer dynamics, we just did a great promotion for Veterans Day and one for the election. So we'll still continue to do these acts of joy as appropriate. But yes, this is the big quarter for us; Halloween and the holidays when there's a lot of demand, and we want to make sure we follow through on that.

Thanks for that. And just as a quick follow-up, can you just talk about the points of access growth in the international markets? There wasn't much. I'm not sure if that had to do with the timing. Can you speak about how you see points of access growth in the international markets, particularly in the DFD business?

You may have seen back in the second quarter very strong growth internationally. So it's more of a timing piece. In the third quarter, we didn't see major expansions; our teams have just made great gains during the second quarter.

And therefore your view on the fourth quarter that normalize, or is that still pull-forward from the second quarter so you don't see as much?

We certainly don't expect a big fourth quarter in point of access growth; that is typical around the world for those grocers not wanting a lot of change on the floor when we have a lot of other holiday activity. The first quarter next year is when we'd expect to see strong expansion growth again. We are continuously looking to add, but really January is a great opportunity to reset the store and add new merchandise, not just additional points of access but continue to improve the merchandising we have already out there.

Thanks. Good morning, a couple of questions on the United Kingdom. On price, if I got this right, you already had about a 5% increase over the summer. I think you just mentioned a double-digit increase, so if your prices are up to the mid to high teens, what does that tell us about commodity inflation? I assume it's running higher there than it is in other parts of the world? And secondly, have you had any view on elasticity so far? I mean, that's a big price hike, particularly in the economy, as you said, it is experiencing something of a consumer crisis?

Maybe I'll start with the first, and I’ll hand off to Josh. So on the inflation, we have seen slightly higher inflation in the U.K. versus the rest of the world, and commodity inflation on average this year has been about 20% to 22% globally, a little bit higher in the U.K., not just on commodities. We're also seeing fuel logistics costs a little bit higher in the U.K., and wage inflation overall is about the same as elsewhere but a little higher on drivers. So that's all reflecting, of course, the tough economic conditions there. Josh, do you want to talk about the price?

Yes. If you think about the pricing of the consumer in general, we've seen as the consumer and by channel and we get into the right product. So we just launched the Jaffa Nut doughnut that did exceptionally well. So the consumers will continue to look at that part of the promotional activity that goes through the marketplace. The omnichannel approach to the business also lets us continue to move to where the customer wants the access. So they shift around from retail; they shift around the delivery, or they become price-sensitive to one; they have access to the channel. So even with that, our business is still really solid in the U.K., and we're pretty comfortable about how we'll continue to be able to grow.

Great. Understood. I wanted to ask about the guidance, which you have kept the same despite the situation in the U.K. You mentioned that the lower end might be more favorable for EBITDA due to conditions in the U.K. Should we assume that other regions and segments are generally exceeding your internal expectations? Or were you expecting the U.K. performance to stay about the same?

Yes. Looking ahead, we anticipate that the U.S. will be the frontrunner in the fourth quarter, although we are also seeing strong performance from various countries globally. In the U.S., we had an excellent Halloween, which is significant for this quarter. We plan to increase our volumes, especially with those specialty donuts at higher price points. As mentioned earlier, our discounts are significantly lower, and we implemented pricing changes at the end of the third quarter in the U.S., allowing us to take advantage of that for a full quarter. I also talked about the ongoing progress we have with the Hub and Spoke model and the optimization of the Hubs without Spokes. Several factors in the U.S. instill confidence in both our revenue and profits. Meanwhile, we are still experiencing solid momentum in the Hub and Spoke omnichannel approach worldwide, though we need to be mindful of foreign exchange challenges and manage the situation in the U.K. during these tough economic times. Overall, with the strength from the U.S., we are confident in our ability to meet our guidance.

One thing that should give you a little bit of support on that, as well as all of our countries, are actually growing top line; every single one, even the U.K. So it shows you how the consumer and how we can adjust in these environments and how the omnichannel model can actually really benefit us, right? It's not just one retail access point; it's a multichannel approach to how we view it. So that's where, as Josh just said, it’s going to be led this time by the U.S., but a lot of the countries will come through. Even we saw organic revenue growth in the U.K.

Thanks. Good morning. I'm curious about pricing net of commodities. When do you expect pricing to catch up to commodity inflation, net of your any hedging you're doing? And how does that differ between the U.S. and U.K., for example?

So during the third quarter, you saw us take price for the first time in 2022 on retail and early in the quarter, DFD, later in the quarter in the U.S. We also took pricing earlier in the quarter in the U.K. Following the U.K., we had taken another price increase, but quite small, at the beginning of the year. I would definitely say that that was the beginning of a catch-up. We certainly didn't anticipate the level of food inflation in the U.S. or the U.K. at the beginning of the year as we saw. We're pleased with the success of those pricing initiatives. Since then, we have taken further pricing in October in both U.K. and the U.S. We find that, in this environment of price increases, we can almost instantaneously increase the pricing on retail. But obviously, we need to work with our partners on DFD, which does lag a little bit behind. I would say we're working now through the fourth quarter to catch-up to the level you’re describing. It's fair to say that we’re very close to that now. Inflation continues next year, but we have a good read on it with more than 90% of the commodity requirements that we have in our ingredients already covered, which is obviously, we’ve gone a little further out than in past years in the context of the environment and, indeed, some favorability on some of those commodities. It leads us to be more like high single-digits. We do see wage inflation remaining high; we want to invest in our Krispy Kremers, but it’s slowing a little bit. So with all that said, we think we're there, in terms of your original question about having the pricing up to the qualities as we stand now here in the fourth quarter, but we're obviously still a little behind in the third, a little bit maybe into January as we make sure the DFD, which kind of lags behind.

Thank you for your input. As we consider the outlook for 2023, I would like to know if you anticipate meeting or exceeding your long-term EBITDA growth expectations for that year. Aside from pricing adjustments related to commodities, what key areas should we focus on? You mentioned non-hub rationalization, and it's clear that the economic performance of the U.S. compared to the U.K. will influence matters. What other factors should we be mindful of?

I am happy to share our current outlook for 2023. We are confident in our ability to maintain growth even in the current economic environment. Globally, including in the U.K., we experienced organic growth in the third quarter, while in the U.S. and other regions, we are seeing significant increases in revenue. This is due to a combination of volume and pricing, as well as over a 10% rise in points of access. Supported by modest hub growth, this trend is expected to continue for many years. Additionally, we are observing favorable margin growth from our Hubs with Spokes model, which is benefiting more cities as we enhance these hubs and leverage fixed costs. We anticipate this benefit will persist. However, some of the Hubs without Spokes have proven to be less effective in this environment. We are planning to exit some of these locations and adjust their operational characteristics. Consumer sentiment in the U.K. and currency exchange trends are factors beyond our control, but we will manage them as best as we can. The good news is we remain confident in our model in this climate, just as we were at the beginning of our journey. Our long-term goals remain consistent, and we look forward to providing more details at the Investor Day in December, where we will discuss the expansion of points of access, particularly in new markets. We will also take a deeper look at the Hub and Spoke optimization in the U.S. There’s valuable insight to share on that. Another aspect we haven't touched on in this call is Insomnia Cookies, which is performing exceptionally well, especially in e-commerce. We are not just adding new cookie shops; we are experiencing significant growth in our existing shops, primarily due to ongoing success in digital commerce. We are eager to share more about this as we look ahead.

Good morning. Thank you for taking the question. I wanted to get a sense of the sort of exit rate on the margins from the third quarter or what you're seeing so far in the fourth quarter. You talked a little bit about the incremental positive trends on the margin line. I think the commentary around the top line and the EBITDA for the full year would imply a pretty meaningful step-up in EBITDA margins in the fourth quarter? So I just wanted to get a sense of maybe, I mean, that number looks like it's close to 14%. I just wanted to get a sense of maybe what you're seeing in terms of the incremental margins as you flow through the incremental price to date?

Yes. It's clear, in reiterating the guidance that doing the same math that you are in terms of the VAC calculation and can see in the U.S. in period nine and period 10 that the pricing is working. The reduced discounting is working, and the volumes are strong at these, particularly the specialty donuts, which are at a premium price point. So all those things combined through the Hub and Spoke model to deliver confidence in the guidance that we've given, largely from what we're doing in the U.S. Internationally, we're seeing a good performance as well, top and bottom line. The market development reporting segment is doing well even with the FX headwinds. In Mexico and Australia, we're also seeing good performance and flow-through. It's just the uncertainty in the U.K.; although as Mike highlights, it’s still a growth business. So there's every expectation that we'll deliver on the guidance that we reiterated this morning for the bottom line, reflecting the kind of assumption you've made.

Great. And I guess just following up on that, would you expect U.S. and Canada EBITDA margins to be above last year's rate? I think last year it was at 12.8%, if I have that correct. I think this quarter came down a little bit versus last year, pretty close, down maybe 10 basis points, so just curious maybe how we should be thinking about that?

This quarter, the third quarter, was heavily affected by discounting. Typically, the third quarter has the lowest margins due to the seasonal factors in the U.S., particularly during the summer months, leading up to the holiday excitement in the fourth quarter for our Krispy Kreme consumers. While we do not provide guidance for individual markets, it is evident that the U.S. will be at the forefront based on its current performance in the fourth quarter.

Just a couple of things there. First of all, I certainly expect a strong Q4 performance, which you've already been talking about from an EBITDA standpoint, that will certainly be helpful for us as we look to reach our guidance range there. We also have a couple of things that we can do from a cash standpoint. Working capital is going to be a little more favorable in the fourth quarter than it was to the rest of the year through Q3, as well as some things like another sale-leaseback that we can do; some things like that will help us to drive down our debt in addition to just the higher EBITDA run rate. So those are the main things there.

When I examine it further, the expected improvement in EBITDA, especially in the U.S., is anticipated from the benefits of the Hub and Spoke model. We also made an acquisition a few months ago of a business that is expected to enhance our margins. However, the EBITDA from that, close to $20 million, paid in the Midwest, is just starting to materialize, so it won't be included in your leverage calculations. The overall EBITDA improvement, ongoing focus on working capital, and the advantages from that acquisition will be realized in the coming quarters. It's important to note that our leverage management is tied to our net debt position, and we aim to maintain a strong standing. While there are concerns around interest rates, we are fortunate as we decided a couple of years ago to fix our interest rates, with over 75% of our debt at fixed rates before the recent hikes lasting until mid-2024. Our goal is to reduce leverage and increase EBITDA while managing our cash position, but we are not worried as our interest payments will not rise significantly at least until mid-2024.

I appreciate everybody for listening in to the call and the growth that we had in the third quarter, as well as how we view the end of the year, and I want to thank all the Krispy Kremers, who are just doing an incredible job for us every day. I look forward to seeing everybody that would like to attend on the Investor Day or off to the webcast as well. You'll see a lot more detail on how the growth story and how we continue to evolve Krispy Kreme. Thank you very much.

This concludes today's conference. You may now disconnect.