Good day, and thank you for joining us. Welcome to the Second Quarter 2022 Jack in the Box Earnings Conference Call. Currently, all participants are in a listen-only mode. Following the presentation, there will be a question-and-answer session. I would now like to turn the conference over to our first speaker for today, Mr. Chris Brandon, Vice President of Investor Relations for Jack in the Box. Please proceed.

Thanks, operator, and good morning, everyone. We appreciate you joining today's conference call highlighting our second quarter 2022 results. With me today are Chief Executive Officer, Darin Harris; and Chief Financial Officer, Tim Mullany. Following their prepared remarks, we will be happy to take some questions from our covering sell-side analysts. Note that during both our discussion in the Q&A portion of the call, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in today's earnings release, which is available on the Investor Relations website at jackinthebox.com. In addition, we may make forward-looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from these expectations because of risks to our business. We, therefore, consider the safe harbor statement in today's earnings release and the cautionary statement in our most recent 10-K to be part of our discussion. Material risk factors as well as information relating to company operations are detailed in our most recent 10-K, 10-Q and other public documents filed with the SEC, which are also available on the IR section of our website. Two brief housekeeping items before we get started. First, you have likely already reviewed our consolidated pro forma financials, which were issued earlier this week as an 8-K filing and can be found on our IR site under SEC filings. Hopefully, this serves as a helpful guide for modeling the remainder of 2022 and beyond for our new company. And second, I am happy to let you know that we will soon be debuting an investor presentation, which may be particularly interesting for those of you looking to become more familiar with our company's story. Look for this on our IR website over the next few days ahead of our active participation at investor conferences next month. And now I would like to turn the call over to our Chief Executive Officer, Darin Harris.

Thank you, Chris, and good morning, everyone. Before I get started today, we operated Jack in the Box in Uvalde, Texas, and I would just like to sincerely say on behalf of all of us at Jack in the Box and Del Taco, our thoughts and prayers are with that entire community following the tragic events that took place earlier this week. We are here to support the people of Uvalde in any small way we can during this difficult time. Now shifting to our earnings discussion. I want to start by recognizing the work of our operators, teams and franchisees. While we continue to face a tough and volatile operating environment, our talented teams remain focused on upholding the Jack standard of service for our guests and helping generate progress across all four pillars of our strategy. This morning, I will utilize these four pillars to communicate the actions we are taking to drive the business in this current environment and for the long term. I'd like to give a warm welcome to the Del Taco family, which officially joined us on March 8. With our common geography, guest profiles and operating models, we are confident we have the people and vision to be a force as a multibrand QSR organization. Our integration process has already begun, and we are starting to realize the benefit of joining forces with a challenger brand that shares a similar culture, values and a passion for serving guests. Over the last month, I have had the opportunity to meet with many of our Del Taco colleagues and franchisees to discuss how we can support them and grow together. I have been overwhelmed by the positive interaction, engagement and shared enthusiasm for opportunities to unlock value by being together. While we are not looking to change what makes Del Taco a beloved brand and a leader in its markets, our simple goal is to combine our resources, talent and knowledge to advance the capabilities and growth of both brands. This process is off to a great start, and I would like to thank our teams at both Jack and Del Taco for their hard work during this initial integration phase. Let's move on to our performance. Both brands had strong 2-year same-store sales performance, Jack up 19.8% and Del Taco up 22.3% for the quarter. However, sales were impacted by the final weeks of Omicron, the lapping of heavy stimulus and issues with staffing and hours of operation. Additionally, margins were pressured across the board due to inflation. These are common themes within the industry. So what I would like to spend our time focusing on today is what we are doing about it and how we are navigating these elements in the short term while ensuring we are positioned for sustainable long-term growth. Starting off with our building brand loyalty pillar. Our Crave marketing strategy continues to resonate with guests as we focus on improving their experience. Beyond food, this includes everything from ad imagery to new in-store uniforms, menu panels, new packaging and restaurant designs, all of which you will start seeing in our restaurants soon. We took meaningful steps in quarter two to refine and amplify our brand positioning, highlighted by the hiring of a new advertising agency, Shy at Day Out of Los Angeles, which returns to Jack after working on the brand in the '90s and has a proven record of raising the profile of some of the most well-known brands in the world. We are excited to be working together again. And we don't need a revolution of Jack or the Jack brand, but we do want to ensure our evolution that keeps things unique and relevant as we enter this new chapter of our company. In Q2, Jack continued doing what Jack does best, innovating. During the quarter, we launched our Nacho Tiny Tacos, while bringing back some existing fan favorites, including popcorn chicken and our soft and loaded fries. We also had some fun with the launch of brand new shapes, our Oreo shake in March and more recently, the debut of our Pineapple Express shake on 420. It was an active quarter that helped our top line performance during challenging comparisons. Looking forward, I'm excited to share that we have more new menu items on our testing calendar than we have seen since this new management team started. Our 2-year product pipeline calendar includes enhancements to core offerings, packaging and some game-changing innovation that we are excited to reveal in due time. There was a notable initiative within our late-night menu in Q2 as we launched a new late night Monty Mill platform test, which not only simplifies operations during a daypart where simplification and speed are critical, but also offers increased pricing opportunity for our franchisees compared to our previous late-night menu platforms. We also debuted our new brand pillars, which include our late-night color scheme, a nice shade of purple, to our everyday brand look and feel, which will fold into everything from marketing and digital to store design as part of our overall Crave strategy. While we aren't in a normalized environment yet where we can fully execute late night across our entire business, we are aggressively pursuing a daypart that we feel we can dominate. I am thrilled with our digital progress. By combining the resources of the two brands into a digital center of excellence, I'm even more enthusiastic for the tremendous upside that we can achieve in this business channel. Jack had a key milestone in Q2, exceeding 10% of overall sales coming from digital channels. Considering a couple of years ago, this number was near zero. This is a great accomplishment for our brand and only the beginning of what we believe is a critical platform for future sales growth. We expanded our Jack pack rewards loyalty program to our drive-thru and in-store guests outside of just the mobile app, which resulted in a 25% increase in users of the loyalty program during Q2 alone. We aren't slowing down in the back half of 2022, which will be highlighted by the launch of web ordering, including a completely new e-commerce experience for guests across all digital channels. We're excited about this rollout later in the summer, and we believe this will unlock a new base of digital customers while driving the frequency of existing guests. I am proud of the work our marketing team has accomplished in quarter two to help drive our business now and into the future, from loyalty expansion, product innovation to having some fun with the debut of Jack on the street web series and our Jack loves trees short video on 420. Now shifting to our second pillar, driving operational excellence. During a challenging staffing environment, we must be able to recruit the best people and train them effectively. To jump-start this, we implemented a new staffing initiative in our two largest company-owned markets during Q2 with notably strong results. Beyond focusing on culture and surveying our team members to help us understand what they value in their employee experience. Other methods included contract recruiters, direct mail campaigns and improved employee referral program, premium pay, particularly at late night and more. We have seen a dramatic increase in interviews, higher than improved retention in these markets, including a 7% increase in total employee count in L.A. versus where we started on January 1. More broadly, our current base of company-owned stores removing the evolving market is now at 90% of pre-pandemic staffing levels. These trends will benefit us as we continue to work toward normalized hours of operation and dining room openings throughout the back half of 2022. As staffing goes, also goes to our focus on opening more dining rooms. While we still have over half of these yet to reopen, mostly due to labor, we are seeing a nice lift in sales from reopening. I anticipate this figure will continue to improve throughout the back half of the year. We are already sharing these best practices for staffing with our franchise partners, as everything we have achieved in these markets is translatable and scalable to others in our system. While hiring and retaining team members is critical, we are just as focused on training and retention. One measure of success is our store team member certification program, executed through our new online learning system, which used to be from managers only. When we first started implementing and tracking it nine months ago, we were at 2% completion of these training modules. Today, we have expanded this to all store team members beyond just managers and have hit 70% certification. This revised effort on staffing and online learning helps position our restaurant team members for immediate success and operational excellence. Our commitment to helping our restaurant team members and managers break out of the box and reach their full potential, whether that might entail becoming a manager, a franchisee or just having a great experience as part of one of our in-store teams has been a part of the Jack culture for a long time, and we want to keep it that way. These initiatives will help us raise the standard in all restaurants, but most notably, it will help propel evolving markets to improve performance. As we've communicated in the past, we are committed to improving the operations of these restaurants with the intent to re-franchise and put them back in the hands of franchisees who can grow these markets successfully. Tim will touch on this further in his remarks. Our third pillar, growing restaurant profits, is certainly one that is at the forefront of everything we do in all operating environments, particularly the current one. As part of our long-term strategy, we invested in our operation services team with a focus on improving restaurant level margin through a program called financial fundamentals. This team is innovating Jack's operating systems by using new processes, equipment and technology to remove cost from the P&L and drive top line performance with improved speed. In addition to this team, we have also established a margin task force made up of team members and franchisees with the objective of identifying multiple short-term expedient opportunities to save costs and labor without jeopardizing the guest experience. Many of these tactics were already planned, but in response to the current environment, testing and implementation plans have now been accelerated. Helped by some of these initiatives, we see an opportunity for 200 basis points of margin improvement per store on average. Cheese pumps build simplification, automated shake machine cleaning and munchie mill revisions are all examples of ways we can improve costs in the short term while continuing to work on our longer-term strategies. Another example you likely heard about recently is our automation test with Metro within our fryer and restation which should lead to margin improvement and key learnings for the long term. As part of growing restaurant profits, we will be utilizing price in as aggressive a manner as our data, guest insights and the competitive landscape will allow between our unique guest loyalty, multiple dayparts highlighted by the late night and our wide menu that allows us to be surgical in our approach, we believe we have pricing power, and this allows us and our franchisees to apply pricing strategies to value platforms, premium items and everything in between. We must also be looking beyond just price to grow average ticket while preserving traffic. Our hook-and-build approach helped by our menu variety containing upsell items and innovative new add-on items has been an effective strategy over the last year and half. This approach will continue to be part of our plan to deliver solid top line performance as Jack has achieved reliably over time. Improving profitability is certainly a pillar where the Del Taco acquisition and its immediate synergy opportunities come into play, particularly related to supply chain. With our overlapping footprint, access to more vendors and shared supply partner, which both brands utilize, much of the near-term savings will certainly come from executing on these synergies. And this process is already underway. And lastly, our fourth pillar, expanding Jack's reach, one that will clearly help us unlock value. Let's start with the reimage program that officially launched in Q2. This is a big part of truly expanding our reach and offering guests the best experience possible. Whether they are long-time fans in an existing territory or yet to be fans in an untapped territory, it is imperative we get our current base of restaurants to a new image, which not only helps restaurant performance but also attract franchisees to grow the brand in the future. We are putting skin in the game and capital to work on improving the image of our restaurants, both franchise and company-owned through our reimage and tenant improvement program. We have 12 company-owned restaurants already in the design and permitting phase, and I'm thrilled that 136 franchise restaurants have already been approved for upcoming reimage projects. We look forward to updating you on our progress as franchisees continue the journey of modernizing our brand and remodeling restaurants. We have a fantastic example of a recent successful company-owned reimage in Yuma, Arizona. At this location, we doubled the size of the parking area, reconfigured the layout to optimize traffic circulation and added both a double drive-thru and a fully remodeled dining area. While still early in only one location, the early results during the first month indicated a 25% lift in same-store sales while exceeding over $100,000 per week in sales, driven mostly by transactions. We will continue to create more reimaged case studies like this one, which will influence our franchisees to take further advantage of the new program and its capital support, leading to significant progress on reimaging our restaurant base and ultimately sales growth, something we are enthusiastic about working to accomplish and is tremendously important to our future. Regarding Jack unit growth. As of Q2, we are now at 53 development agreements for 218 restaurants since the program launched last summer. Under these agreements, 12 restaurants have already opened leaving 206 remaining for future development. This reflects meaningful progress. And in due time, we'll go from commitments on paper to shovels in the ground. We continue to not only see our pipeline of commitments grow but also the number of sites we have approved for development. We are still well on pace to accomplish our long-term goals, including 4% net unit growth by 2025 and look forward to showcasing traction within our results sooner than later. Lastly, I'd like to quickly circle back to Del Taco. Part of the learning process for me and my team about this outstanding branded business has been to assess its competitive advantages and initiatives in place to help manage during this period of time. Here are a few things I have learned at this early stage. Much like Jack in the Box, Del Taco has highly relevant brand positioning with strength in its barbell menu strategy. This strategy was recently highlighted by the new 20 under $2 platform and will continue to provide the compelling value offerings guests have come to expect while offering premium items and promotions for other guests. The industry winners will find ways to maintain traffic while raising prices in other areas of the menu. And I believe this value initiative hits the mark, particularly in quarter two, where, regardless of the price taken across the platform, we saw increased mix for these items. The new Fresh Flex prototype is not only a great experience for guests, but also has provided excitement and momentum around franchise growth. Del Taco signed 10 development agreements in Q2 and new franchisees have signed up for 74 units across 11 states since 2021. This is a terrific catalyst for future system growth. Similar to Jack, I believe Del Taco's ability to innovate is key, whether it be new products like the recent release of chicken cheddar rollers and recurring fan favorites like the Tamale menu and crispy Jumbo shrimp or within digital, where the team has innovated successfully on everything from the Del Yao Rewards program, now at 675,000 members to the stuffed case via Taco's tour live on Twitch. Their emphasis on thinking ahead and pushing the boundaries is something we certainly have in common. As mentioned in this morning's release, we are finalizing a go-to-market plan for Del Taco refranchising, and we'll have more details to share in the very near future. Even more important than the advantages of an asset-light model or using refranchising proceeds as a capital source is the importance we place on taking care of great people running these restaurants while creating opportunities for them in the future. This is something we did at Jack with our people during a long refranchising campaign and something Del Taco has accomplished in previous refranchising efforts. We know Jack franchisees are thrilled to have a brand like Del Taco to add to their portfolio and enterprise. And in combination with adding new franchisees, we are confident we can grow both brands faster together than separately. While these are just a few highlights I have observed within our first six weeks together, I am convinced Del Taco is doing the right things to take share within the Mexican QSR category. And I'm convinced their challenged spirit is the perfect fit for our future together. To close, I'm proud of this team and the tremendous efforts we've made with our strategic plan, while focusing on our fundamentals for growth. Looking through the near-term industry headwinds, we see a clear path to maximizing our ability to compete and achieve our long-term objectives. With the addition of Del Taco, we are now a bigger, stronger company, well positioned to take share and drive significant innovation, growth and shareholder value. Thank you again for joining the call today. And now I'll turn it over to Tim.

Thanks, Darin, and good morning, everyone. Before I begin my review of the quarter, I would like to note that my commentary will be primarily focused on the Jack in the Box segment due to the recent completion of the Del Taco acquisition, except where noted. Looking at our results for the quarter. On a company-wide basis, including both brands, system-wide sales were up 12.2%, driven primarily by the acquisition of Del Taco. Jack in the Box systemwide sales were up 10 basis points, while same-store sales declined 80 basis points in the quarter. The differential between Jack systemwide sales and same-store sales is due to a one-week shift affecting the calculation of same-store sales related to the 53rd week in 2021. This negatively impacted the same-store sales calculation by including more of the stimulus benefit when comparing to the prior year fiscal quarter. The decline in same-store sales was largely attributable to staffing challenges, resulting in lost operating hours, headwinds from the final weeks of Omicron and lapping stimulus benefits within the comparable period of the prior year. However, we were pleased to see improvements in both quality and speed of service, something that has steadily improved throughout the fiscal year. A meaningful number of our restaurants continue to operate at reduced operating hours during the quarter, many would close dining rooms. With that said, compared to the prior quarter, the impact from lost operating hours has notably reduced, and we expect this to be an opportunity during the back half of 2022. During the quarter, the burger and sides categories had the greatest contribution to sales, while the breakfast category faced pressure lapping successful prior year promotions. We had positive results across the majority of the burger category with Bacon Ultimate Cheeseburger and the Ultimate Cheeseburger as particular standouts. Within side, Tiny Tacos performed well in the quarter. And as Darin mentioned, we continue to innovate across the menu and benefit greatly from the return of some fan-favorite LTOs, notably Popcorn Chicken. During the quarter, we opened five new restaurants and closed six restaurants, bringing our quarter end Jack restaurant count to 2,207. On a company-wide basis, we now have over 2,800 units across both Jack and Del Taco. Jack restaurant level margin for the quarter was 15%, which include our temporary evolving markets compared to 25.9% in the prior year, which did not. These evolving markets are comprised of the Oklahoma, Kansas City, Oregon and Nashville markets that we proactively acquired to turn around and subsequently refranchise. Excluding the evolving markets, restaurant level margin would have been 18.3%. We continue to pursue such refranchising efforts for these markets, and we will provide updates on our progress in future quarters. In addition to the impact from these markets, restaurant-level margin was pressured by commodity and wage inflation. Food and packaging as a percentage of company-owned sales in the period was up 4.8% versus the prior year, primarily due to commodity inflation of 16.4% as well as unfavorable sales mix, partially offset by menu price increases. The inflation we have experienced is across all categories with the greatest impact seen in proteins, oils and tacos. Labor as a percentage of company-owned sales in the period was up 3.2% due largely to wage inflation of 14.2% compared to prior year as well as the impact of our evolving markets. Both of these cost pressures were also partially offset by price increases. The labor market remains tight. And in order to attract and retain talent, we have selectively increased wage rates in key markets to remain competitive, resulting in the improvement of lost sales due to reduced operating hours. This is in addition to the premium pay test that Darin mentioned earlier. The inflation we are experiencing across the P&L is unprecedented and significant. We will continue to prudently look towards taking additional prices that means to mitigate impact on our bottom line. Franchise level margin in the quarter came in at $65 million and was $6.9 million below the prior year. The decline versus the prior year was primarily due to reduced operating hours, lower early termination penalties as well as bad debt expense and lost franchise revenues associated with the St. Louis area franchisee bankruptcy. The quarter included a $4.1 million impact associated with this franchisee's restructuring plan. And without this unfavorability, the franchise level margin would have been 41.9% for the quarter. This margin is in line with our prior year 42%. Additionally, we estimate the impact of lost operating hours on franchise level margin was about $3.7 million. Jack SG&A in the quarter was $21.9 million. Excluding advertising, G&A was $17.1 million, $2.6 million higher than the prior year. The drivers of the increase were net core losses in the period versus a gain in the prior year and higher stock-based compensation due to the timing of the current year grants. These increases were partially offset by lower incentive compensation. Company-wide SG&A for the quarter, including Del Taco and excluding net COLI gains or losses, was $26.4 million. Consolidated GAAP EPS for the second quarter came in at $0.37 compared to $1.58 in the prior year. Operating EPS, which includes certain adjustments, came in at $1.16 for the quarter versus $1.40 in the prior year. The decline in operating EPS was primarily attributable to lower company restaurant level and franchise level margins, as well as higher interest expense connected with increased borrowings to fund the acquisition. Conversely, prior year share repurchases as well as the acquisition of Del Taco benefited operating EPS in the quarter. Given the inflationary environment we are currently in, we believe it would be helpful to provide you with additional insight into our expectations for the year. We will be issuing onetime operating EPS and same-store sales guidance for the current year in addition to updates to our previously disclosed full year 2022 metrics. All guidance metrics are for the Jack in the Box brand only, unless otherwise noted. For full year 2022, we anticipate consolidated operating EPS to be within the range of $5.80 to $6.10. Our outlook is predicated on the following. Jack in the Box same-store sales are expected to be flat to positive 1%, while Del Taco same-store sales are expected to be positive 3% to positive 4% in full year 2022. This assumes our updated guidance of high single-digit pricing for the year for Jack in the Box. And as I mentioned earlier, we will continue to prudently take price at both brands to mitigate the impacts of inflation across our P&L. Commodity inflation is now expected to be 12% to 14%, driven by inflation across the entire product basket. We expect labor inflation to be 12% to 13% versus the prior year as we roll out targeted increases in late night pay to recover lost operating hours as well as selectively increased wage rates in key markets to attract and retain talent. Jack restaurant level margin is expected to be approximately 17%, including our temporary evolving markets versus the prior range of 20% to 21%. Excluding evolving markets, restaurant level margin is anticipated to be approximately 20% or a roughly 300 basis point impact on the current year. On a consolidated basis, we now anticipate SG&A to range between $120 million to $130 million, including Del Taco versus our prior guidance of $92 million to $97 million for Jack in the Box only. Consolidated capital expenditures are now expected to be between $75 million and $80 million across both Jack in the Box and Del Taco. Lastly, except for the aforementioned items, we do not plan to provide specific Del Taco guidance for full year in 2022 and we'll begin to provide such guidance beginning in full year 2023. As previously announced, inclusive of transaction costs, we completed our $593 million acquisition of Del Taco earlier in the quarter. I'd like to reiterate that this transaction marks an important milestone for Jack. It combines two like-minded challenger brands to create a scaled QSR player with a runway for growth and increased profitability. We are pleased with the early indications which fully support our strategic and financial rationale for the acquisition. It aligns with our long-term objectives of expanding our reach, increasing unit and company profitability and creating short and long-term shareholder value. As part of the integration effort, we recently wrapped our initial planning phase and are now well underway in bringing the two brands together under a shared service model. The teams have been hard at work identifying and implementing synergies to capture value, and we are comfortable with our previously communicated savings target. I'd now like to spend some time revisiting our capital allocation strategy that we rolled out at our most recent Investor Day. Our primary goal has and will continue to be investing in growth while being disciplined in our commitment to return cash back to shareholders via share repurchases and quarterly dividends. Furthermore, we continually assess the optimal sources and uses of cash for our business and how to create value for shareholders. And as we have previously stated, one way to accomplish this is to operate an asset-light business model. This includes refranchising of Del Taco in the near term. We plan to be strategic about who we partner with in our refranchising efforts to further strengthen the franchisee base of both brands, maximize proceeds and deliver 4% annualized net unit growth by 2025. Another opportunity we are pursuing is sale leasebacks for our owned Jack in the Box properties. We are finalizing this program and working with advisers to develop optimal structure within the securitization. We do believe these efforts will unlock shareholder value over the coming years, and we look forward to updating you on our progress of these initiatives. Shifting to share repurchases. I'm happy to announce that we intend to resume share repurchases in the back half of this year. At present, we have a $200 million share repurchase authorization that expires in November 2023 and our company has rarely let an authorization expire before being fully exhausted. Our approach to share repurchases will remain as it always has, evaluating how much excess liquidity we have available and determining whether we think the stock is attractively priced. In closing, first, on behalf of myself and the rest of the Jack team, I want to welcome Del Taco team members and franchisees to the Jack family. We are very excited about the combined power of our two brands and look forward to future success. Second, I would like to thank all of our team members and franchisees across both brands for their tireless work as we navigate these temporary challenges. While the near term may remain volatile, the future is very bright for our combined companies. And with that, we'd be happy to take some questions. Operator, please feel free to open the line for Q&A.

Thank you. Our first question is from Brian Bittner with Oppenheimer. Your question please.

Thanks, good morning, and thank you for all the details today. I wanted to ask first about just your perception of this evolving consumer environment. Your Jack in the Box same-store sales guidance for the year does imply really stable trends for the second half, and this is despite some insights from others that the lower-end consumers are potentially pulling back particularly in California. So can you just comment on the health of your core customer? And what is bolstering your confidence in the sales targets that you laid out today?

Yeah. Thanks, Brian, for the question. As we think about what we've been executing against our Crave strategy with our upsells and add-ons, we have confidence that that is working holistically. We've seen with digital growth, online ordering, we continue to see the higher income consumers purchase more frequently and add-on as we've expected. We didn't see the transition back to pre-pandemic. We also believe that what we're doing with staffing is working. And if we in the back half of the year, enabling cascade to our franchisees, we can continue to improve in the back half of the year as we had weaker comps to roll over than we did in this quarter. And so we also know that what we've seen in our open dining rooms that when we open dining rooms, they're performing better, so we have opportunity to open dining rooms. And so we think we have a lot of levers to pull to continue to grow same-store sales. We anticipated this quarter to be lighter because of the heavy comps last year, but also with what occurred during Omicron. That was the only thing that was unanticipated. And then we also knew going into the situation with stimulus that that would be a tough rollover. So that was not a surprise. I think the surprise was we all still had Omicron in this quarter. As far as to your consumer, definitely, I think the industry as a whole in the category, QSR has seen the lower-income consumer be a little bit less frequent to our business. And so what we're doing is making sure that we have value items that can still attract that consumer and keep them coming back to Jack in the Box. And what we've seen is we've been able to hold on to the consumer. What we haven't seen is the frequency increase of that lower-income consumer.

Thank you for all those thoughts. And just my follow-up, more strategic question as it relates to a potential refranchising strategy, can you help us understand maybe what type of franchise mix you're potentially targeting for the pro forma enterprise? Is it similar to what Jack in the Box was before the acquisition? And I know it's really early, but any way you're thinking about proceeds and EBITDA dilution from a refranchising strategy? Thanks.

Yeah. We have part of our thesis when we purchased Del Taco was to implement a refranchising strategy. We have internally set a target for where we think we become asset light. We're not prepared to provide that guidance today. But what I would say is that we think there's tremendous opportunity to refranchise Del Taco. We're prepared. We've identified markets and how we would cut it up with development opportunities, and we've been working with a third party that will help us launch into this refranchising initiative. So we'll provide more details to come. But we think this is a really exciting opportunity for not only Del Taco, but for Jack in the Box to transition to an asset-light model to enable us to continue to focus on growth as a result of refranchising. As we said earlier, part of the thought was we were going to access Jack in the Box franchisees in some of our existing markets. They've shown a tremendous amount of interest, but we've also seen outside of Jack in the Box interest in refranchising.

Question is from Brian Mullan with Deutsche Bank. Your line is open.

Hey, thank you. My question is on the current operating environment. As it pertains to development, does this environment present challenges in terms of getting new agreements signed? Or does it make it such that agreements have already been signed that those franchisees want to pause or slow down a bit? I'm just trying to get a sense if the expense inflation, if that has any kind of read-through to development in any way?

Yeah. I mean, naturally, I think that's the - we would all surmise that, that is a possibility. The positive here is we've had a lot of our existing franchisees that we focused on signing development agreements with. And so we have 54 development agreements for 218 restaurants. And those franchisees have shown a commitment. We've got more sites in process and in our pipeline than we've had since this management team has joined. And so we believe we will be able to continue to get to that pace of 4% as we go forward. The bigger challenge is really just as it relates to some of the access to equipment as we go forward. But most of our franchisees are committed to growth, and we'll continue to access new franchisees.

Thank you. And then just as a follow-up to kind of bringing back the capital allocation, there was a mention resumed share purchase potentially during the back half of this year. Just looking for clarification, does that - is that dependent on completing either refranchising or sale leasebacks? Or do you view those decisions independently at this point? Just any color on that? And any leverage guideposts you'll be using as you move forward would be helpful to understand.

Yeah. So we view those as two independent initiatives. So our resumption of share repurchase in the back half of the year is really through organic free cash flow and cash on hand as we embark on refranchising and garnering proceeds from that initiative as well as the sale-leaseback process.

Thank you. Next, we have the line of Andrew Charles with Cowen. Your question please.

Great. Can you clarify how much pricing did both the company and the system run versus the industry at 7%? And just looking forward, what are you monitoring within your data to determine if more pricing is needed while recognizing they need to emphasize value given the evolving consumer that's rapidly evolving in this backdrop?

Yeah. So from a system point of view, we are negative 80 basis points. And then on the company side, for same-store sales, we were positive 1.7%. We think that's reflective of the fact that we were much quicker and more deliberate in taking pricing at the company side. We took 8.2% in company stores, which really drove that attractive positive same-store sales in our portfolio of company units. As you look at their performance and how that breaks down, we were slightly negative on transactions, negative 2%, which is actually a positive trend from that perspective. And our average check actually grew 3.7%. So in addition to price, our product mix on the company side was relatively flat, down just 90 basis points. There were some movements across categories there with our breakfast daypart units per transactions slightly negative as well as on the daypart side, our lunch saw some slight losses in units transactions. But overall, when you look at product shifting going around, we saw some trade out of our Jack Spicy Chicken into our new clock sandwich option. So it was a fairly lateral move in the consumer behavior aspect there. And then similarly, with our Buttery Jack, we saw that going to our jumbo jet platform as well. So really sort of lateral moves on the product shifting side.

We've also seen that on the franchise side, they took less price quarter-over-quarter compared to the company. Company is outperforming at this point in time. We do anticipate continuing to take price throughout the year. And we've done a lot of studies around each menu item across our system, and we realized where we have items that could be resistant to price changes. And we also understand specifically the value items. And then we also know where we have opportunity within price across our core. And so we think there's plenty of opportunity for us in pricing power based upon the analysis and data that we've generated for our pricing strategy through the back half of the year.

And ultimately, we're guiding to high single digits for price throughout the rest of the year.

Thank you. Next, we have Alex Slagle with Jefferies. Your line is open.

Hey, thanks. Good morning. Just first, I wanted to follow up on some of the previous questions on the development agreements, whether your current negotiations are now starting to contemplate tying in the taco refranchising opportunities into the agreements already? Or if this is something to expect further down the road?

Yeah, that's something to expect further down the road. We have not tied those together at this point. They will absolutely be tied to refranchising transactions, but we've also had others within our system who are just interested in developing Del Taco on their own.

Thank you. Next, we have John Glasslass with Morgan Stanley. Your line is open.

Hi, guys. This is Brian on for John. Maybe just a follow-up on the one thing you just mentioned where franchisees took a less pricing versus the company. Was there a reason for that? Like are they seeing something different? Or do you think that they'll eventually catch up to you? I'm just curious about that dynamic.

Yeah. They took more price in Q1. So I think they were just slower to take price in Q2, which they started to do in period seven as we saw the spike in commodities in the back half of the quarter.

Thank you. Next, we have Jared Garber with Goldman Sachs. Your line is open.

Hi. Thanks for taking the question. I wanted to switch to the Del Taco synergies now that the business has fully been sort of integrated and maybe not integrated, but at least incorporated into your financials. And I think at the time of the announcement, you had highlighted $15 million in synergies. And I think a time frame on that likely in 2023. And I think more recently, we've heard some commentary that there may be upside to that synergy calc. So I just wanted to get a sense of how we should be thinking about the synergies and the timeline of achieving them? And then maybe where exactly your thinking may come from? Is it more on the G&A side? I also heard about some potential margin savings on the restaurant side, given the larger store base that you're now purchasing for. So just any incremental color there would be great. Thanks.

Thanks, Jerry. Great question. So we recently wrapped up an engagement with a large national management consulting firm to help us with post-merger integration. We've concluded a very successful phase of that. We've identified the synergy target levers. They've been quantified. They've been assigned inside business unit owners and leaders to execute upon that. And we've embarked on achieving those milestones. Obviously, it's going to take some time for us to fully realize that. As you suggested, we feel incredibly confident in the target that we set out for realizing those synergies of the $15 million. And of course, we're aspirational to exceed that as well. We think that will come in various buckets. As you mentioned, there's obviously some G&A synergies, but also supply chain procurement and technology synergies as well that are meaningful. So overall, there's nothing but optimism and brightness for what we've seen and uncovered and the work that we've done since the acquisition, and we're excited to get moving and achieve on those.

Thank you. Next, we have Eric Gonzalez with KeyBanc. Your line is open.

Hey, thanks. My question is similar to the last one. Perhaps you can help us think about the contribution from Del Taco in this year's guidance. I think the original guidance when you first made the acquisition was for a mid-single digit EPS accretion and maybe a more meaningful accretion in 2023. So how should we think about that today in light of your current EPS range and what we're seeing in terms of inflation? And then I have a follow-up.

Sure. Yes, Eric. So we're guiding on Del Taco on top line same-store sales this quarter at the moment and leaving it there. So we're guiding positive 3% to 4% same-store sales guidance for Del Taco stand-alone with a 2-year stack of positive 10.5% to positive 11.5%. So they performed incredibly well, as you see in the results for the second quarter. They had a positive 2.5% same-store sales Q2. And for company stores in the Del Taco portfolio, which, as you'll recall, is about half of their portfolio, it's a positive 1.6%. So with the performance that we saw in the second quarter, in line with our annualized guidance, we think that Del Taco a very strong start as a bottom line contributor.

Thank you. Next, we have Jeffrey Bernstein with Barclays. Your question please.

Thank you very much. Two related questions on development and remodels. On the development side, it does seem like there was a modest uptick in terms of the agreements and the openings expected. I'm just wondering whether you expect that to accelerate in the second half or maybe you've kind of run its course with the existing franchisees and now you're considering opening up to new. And the other question was just on the remodels. I know you mentioned you have skin in the game and putting capital to work. I'm just wondering if there's any color you can share in terms of potential corporate contribution. Obviously, if you can get that 25% sales lift, that would seem like a no-brainer. So just trying to get order of magnitude on that? Thank you.

Yeah. Great question. And as it relates to the development agreements, we still have - we've signed about 30% of our existing Jack in the Box franchisees a little over 30%. We still think there's plenty of opportunity within our existing franchisees that have expressed interest that we're still working through territories and aligning on where those opportunities exist. So our estimation is that about 50% of our system will assign development agreements by this time next year. So we do believe within the existing base of franchisees at Jack in the Box, they're still interested in expressed interest in growing with us. So we continue to see that progress. And then the second part related to reimages. We've seen really nice progress from our existing franchise base and showing interest. We launched this in quarter two, and shown that we have an incentive for that growth through providing some capital incentive. And we've already seen 136 approvals for franchisees that have shown interest in actually moving forward with the program. So there's a ton of interest. We like what we've accomplished so far in some of our reimages, and we'll continue to update regularly on the progress of we're doing. The last thing I would say is we've committed to 12 company-owned remodels that are in process with some of the new designs and we see most of those opening or reopening in the early part of '23.

Thank you. Next, we have Chris O'Cull with Stifel. Your line is open.

Yes. I had two questions. One, can you provide a bit more color on your level of confidence around your commodity outlook? And then, Tim, I was hoping you could quantify what you expect in terms of the magnitude of any sale-leaseback proceeds and maybe elaborate on what are some of the restrictions you have in using those proceeds under the securitization.

Sure. Yes. So our commodity guidance was 12% to 14% for the year. So you've obviously seen that go up fairly meaningfully, as we mentioned in the second quarter for company commodity increase, it was a 16.4% inflation. So that was up versus 10.5% in the first quarter. So that was a meaningful jump. So our anticipation is that we see that pressure continuing to some degree throughout the rest of the year. Relative to sale leasebacks, there's really two components to this strategy, right? So you have sort of the core traditional sale leaseback where we have our company-owned assets that we can look to monetize and take advantage of some arbitrage valuation opportunities. But then the second piece of that is, obviously, we're a wholly securitized business here, and we have to be nimble and nuanced in how we are able to utilize those proceeds. So that's something we have advisers currently working on with us. But this is - as we mentioned in our early commentary, this is a significant opportunity for us. We're acutely aware of the benefits of returning value to our shareholders and what that does for us and our investors. So that's something again that this is a meaningfully sized program for the company, and we are keeping it as a high priority for us over the next few quarters here.

Thank you. Next, we have Chris Carril with RBC Capital Markets. Your line is open.

Thanks, good morning. David, you mentioned a task force to identify potential short-term margin opportunities. And I think you noted 200 basis points of potential expansion opportunities. So can you talk about maybe the timing around how soon some of these strategies can be implemented?

Yes, we want it yesterday, to be honest with you. So we are aggressively pushing with our existing franchisees to realize some of those within the next quarter. I don't think we can get all of the 200 basis points just within the next quarter, but we would hope by three quarters from today, we would have realized a substantial portion of these. And it comes through a combination of some things we've already been working on with equipment, with technology, and with process. And so some of the examples I gave from with the equipment on our cheese pumps and other things like our automation, we think there's 200 basis points of margin improvement. Our shake machine, we've already rolled that out. So we think that could be captured pretty quickly.

Thank you. Next, we have Dennis Geiger with UBS. Your line is open.

Thank you. Could you talk a bit more about how the brand is positioned on value currently, Darren, perhaps many relative to historical. You've done a solid job with value and promo bundles in recent years. But I'm just curious how you sort of view value promotional activity as a key lever, particularly in a more challenged consumer spending environment and how much you can push on those from where you're at now? Thank you.

Yeah. We've done a lot of menu innovation, and we're really excited about what's coming in our pipeline. In the meantime, we will continue to leverage value. And you saw in this quarter in the back half of the quarter, we shifted to our patty melt as the primary versus the other menu items, and we use that in tandem to what we've done all along in our creative strategy, which was what we call hook and build. We want an aggressive price point for the promotion and then build that ticket as guests see the rest of the menu or come through the drive-through. And we've consistently executed on that over the last 1.5 years. And so a lot of our innovation is built around those add-on platforms, those upsell items, and we'll continue to do that. So the value comes with the initial offer and then the build comes through giving guests what they want.

Thank you. Next, we have Drew North with Baird. Your line is open.

Thanks for taking the question. I was hoping you could provide some color on the franchisees run rate on profitability today given the current inflationary environment? And then I have one follow-up question on development.

Yes. So the franchisees have continued to have consistently strong average unit volumes. I mean, obviously, they are experiencing the same pressures that our company stores are as well as our peer set across the industry are related to inflation on both commodity and wage. And then thirdly, the challenge that they're facing as well is ensuring that they can get labor into their stores. So the optimism here is that the company portfolio is sort of the leader in demonstrating success with getting that in the second quarter. So we cut our impact of lost labor hours from Q1 to Q2, almost by half in the company store portfolio. The franchisees have seen that. Our ops team is working with them to implement similar programs. So that should assist them with their margin improvements in the next quarter as well in the quarter that we're currently in, in Q3. So outside of that, I would say, again, just to summarize, strong, consistent top line average unit volumes, initiatives underway to help alleviate inflationary pressures and return back to the attractive margins that the ad in the prior fiscal year.

Yes. I would add to that is we've aggressively been working with our franchise partners. And as I mentioned, this task force, so that we're watching their margins. We're working together on improvement - we do that through a process that we call our balanced scorecard protocol consultation. We're out in the field. So we're watching their numbers closely. We're working with them. I would say, based upon the feedback we're getting from franchisees, they have not seen as much degradation in margin because of their closeness to the stores and they're in there managing the numbers a lot more aggressively. They also were less aggressive on wage than what we were. So we think that's something where as they staff accordingly, revenue will grow and they'll continue to drop more dollars to the bottom line in the back half of the year.

Thank you. Next, we have Nick Setyan with Wedbush Securities. Your line is open.

Thank you. Just kind of beyond the near term, how are you thinking about company-owned margins? I mean is going back to 27% company online on Jack and how long do you think it will take to get there? Is it in the low 20s, better target that you can maybe talk about and some strategies to get there?

We've discussed much of the strategy we've been implementing to achieve our goals, but I'd like to highlight a few additional points. When considering the growth of restaurant profits and our financial fundamentals plan, we see 200 basis points as an initial step, but we aim to go further. We're also focusing on build simplification to enhance speed; this means not necessarily reducing menu items but finding ways to improve how they're prepared, as we've identified that as a bottleneck in our business model. We believe this, combined with pricing adjustments, gives us the tools to enhance our margins and move closer to our historical performance. Of course, we're mindful of the currently volatile commodity markets, which are beyond our control. Overall, we feel optimistic about our current annual guidance.

And just to add, our evolving markets have been a significant piece of that as well. So that was about 300 basis points of impact. So we came in at a 15% restaurant level margin in the second quarter. Excluding those turnaround markets, it would have been an 18.3%. So as Darren mentioned, wage inflation, commodity inflation, given where they are at these sort of unprecedented highs in combination with these evolving markets are really the main delta that would get us back to our historical rates.

Thank you. Next, we have Gregory Francfort with Guggenheim. Your line is open.

Thanks for the question. Maybe the way to frame, I think the last question is how many stores we are running EBITDA or EBITDAR negative however you look at it? And the stock has been under a lot of pressure, obviously, from the highs. I think it's down 43%. Darren, I'm curious what do you think is maybe misunderstood about the story by the investment community and kind of how you can go about addressing some of that. Thanks.

So Tim will take the second component of that, and I'll take the first.

Yes. I mean, as we look at - obviously, from an investor point of view, the stock is attractively priced right now. We're excited to capitalize on that opportunity with this unlocking proceeds, as we mentioned, with sale leasebacks. We think there's an arbitrage opportunity for sure. as well as utilizing proceed from the Del Taco side refranchising initiative. Again, at these share prices, we think that this is a great opportunity for us to return that degree of capital back to shareholders and have an impact. As far as what may be missing there, I think it's - we've been very vocal about our growth story. We're well on our way of developing a pipeline at the fastest rate in a decade. We're on track to achieving our 4% net annual new unit growth by 2025. So that at some point should start to resonate, we believe, with our investors. And we're also going to, as we mentioned, continue returning capital back to those shareholders. So we think with those two things, in addition to the fact that we're operating this business, we feel very efficiently, we think that that will become reflected properly in the share price fairly shortly.

Yeah. I mean I'll add to what Tim said. I think the unlock that we've all talked about is growth. In the meantime, there's noise going on in the marketplace related to commodity inflation related to all the things happening around us that are impacting the full story. I fully believe the things we're doing to execute on our long-term strategy around building brand loyalty, the things we're doing around operations, with our training programs, the focus we have on growing profits for franchisees and this expansion initiative are all the right levers over the long term to drive our business. And we still have plenty of upside just on same-store sales through pricing and through what we're doing with our menu and innovation strategy and then digital. So we think the long term, we're in good shape for performing in the marketplace. I think the true unlock, as we all know, is growth.

Thank you. Next, we have Jake Bartlett with Truist Securities. Your question please.

Great. My first is just, I guess, building on that last question. I think there's probably some also some concern about potential weakness of the consumer, specifically at the low end, and investors can look back to the Great Recession and see that the Jack had some of the most underperformed some of the most within QSR. So my question is how do you view your value platform? And how do you view it now versus then? Should investors have more confidence that you will not lose as much share as you did back then just because of any changes to the value platform? And then I had a follow-up.

Yes. I mean I think some of that was part of a change in our direction within our marketing strategy compared to where we were back when that occurred in the last recession. With our digital programs, with what we've done with our add-on menus and what we have coming in innovation, we feel very comfortable to compete on the value level. And we think with what we've been doing with currently maintaining the value guest that we feel very comfortable with some of the things that we have coming from an innovation standpoint that we can meet the needs going forward...

Thank you. And this concludes the Q&A session. I will now hand the call over to Darin Harris, CEO, for closing remarks.

Thank you, everyone, and we look forward to speaking next in August for our Q3 results.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect. Have a great day.