Since 1937, we've been serving our iconic Original Glazed Doughnut to customers and it's always been about sharing moments among friends, family, and community. As unaffordable indulgence today, we love the fact that more than 80% of our doughnuts are bought to be shared with others, including as gifts. In 2022, 36% of our customers bought our doughnuts for a party or special event in their life up from just 10% a few years ago. The purpose of our company is to touch and enhance for lives of others through the joy that is Krispy Kreme. We are committed to positively impacting the world by loving our people, our communities, and our planet. In the fourth quarter, we wrapped up another great year for fundraising. And in total raise more than $40 million globally in 2022 for local communities, a roughly 25% increase from 2021.

Fundraising has long been an integral part of Krispy Kreme's purpose. As part of our efforts to give back and support local communities and issues while generating brand love. We also focused on reducing weight and increasing landfill diversion efforts and continue to engage and give back to local communities across the world through volunteering, philanthropy and creating moments of joy through innovative doughnuts. We are constantly looking to engage people across the globe in funds enjoyable ways that really connect people to Krispy Kreme in a powerful way. Turning to 2022, we had a great year on the top line. As organic revenue grew over 12% led by a 14% increase in fresh points of access globally to nearly 12,000 in total at the end of the year.

Growth was strong across the world, especially to end the year as we sell double-digit organic revenue growth in all three segments in the fourth quarter with performance accelerated in the U.S. Krispy Kreme business, market development and in retail in the UK. We sold a record $1.63 billion doughnuts in 2022, $1.63 billion that's a lot of doughnuts, all delivered fresh daily to more than 30 countries around the world. The fourth quarter accentuated a great year for our brand as we had highly successful seasonal global campaigns that drove an increase in volume, especially at Halloween and winter holidays where we saw very strong performance across the world. These global campaigns show the path forward for significant events and holidays as we'll be able to leverage marketing cost, media coverage, and brand partners across many or all of the countries Krispy Kreme and our franchise partners operate, driving increased efficiency on both the top and bottom line.

For the full year, we earned more than 35 billion media impressions highlighting the true power of our incredible brand. Also, strengthening our omni-channel capabilities in the fourth quarter was our e-commerce efforts. In the U.S. that included expanding availability of specialty doughnuts and more targeted marketing efforts. Additionally, Insomnia benefited from the expanded radius of warm cookie delivery of up to 10 miles. These efforts led to more than a 20% increase in e-commerce revenue in the fourth quarter compared to a year ago, and led to a 260 basis point increase in sales mix of e-commerce to 18.3% for the company as a whole during the quarter. The fourth quarter was our strongest in e-commerce since the pandemic and we continue to see significant opportunity grow in this channel.

Our performance in the fourth quarter in the U.S. and Canada segment was strong led by successful premium offerings, effective pricing actions, and higher e-commerce revenue. This quarter in the U.S. for the first time ever we sold all three seasonal specialty doughnuts in our DFD Doors. This led to record weekly sales in the U.S. of $620 per DFD Door, highlighting the benefits of a complete omni-channel model approach. Organic revenue growth for the segment was 12% and margins expanded 50 basis points to our highest margins during 2022. Insomnia Cookies had another great quarter with 24% revenue growth driven by strong same shop sales and very high productivity from the 2022 class of new shops. Insomnia's AOB increased to $850,000, up 8% from the previous year, and we opened more than 20 cookie shops last year.

The capital efficiency of an Insomnia Cookies shop is fantastic. As said, Insomnia's Founder and 20-year CEO highlighted our recent Investor Day, the payback for these new stores is roughly one year or around 100% ROIC thanks to 4-wall margins approaching 30%. The recent class of new stores has been one of our best return classes ever. We are focused on accelerating Insomnia's growth as we grow from our current 231 shops today to a total addressable market we believe in more than 4,000 locations with the goal to eventually ramp up to nearly 100 new cookie shops per year. We truly believe Insomnia Cookies will be the next Krispy Kreme, and we plan to expand globally this year into the UK and Canada. In our international segment, where our Hub and Spoke model is more developed, we continue to grow fresh points of access and see significant upside from where we are today.

In 2022, we added nearly 600 points of access internationally with growth across all countries. This led to 18% organic revenue growth in 2022 and sales per hub increased 8% to nearly $10 million despite significant FX wins from the stronger dollar. We saw strong progress in Mexico particular in 2022, where points of access increased by nearly 40% to more than 550. This led to a 24% increase in revenue and more than 100 basis points of adjusted EBITDA margin expansion for Mexico for the year, despite significant inflation. We also signed a record number of international development agreements in 2022 with eight new agreements from both existing and new partners. Interest from high quality franchise partners remains robust and we are confident in our ability to sign three to five new countries a year moving forward.

We expect to open five to seven new countries in 2023, including in France, bringing our total to more than 35 countries by the end of this year. As we look ahead, our relentless focus on capital light expansion of our omnichannel model will continue. We continue to gain confidence in our existing DFD channels and are now excited in growing our fresh business to new channels such as QSR, club and drug. That's why we have high conviction in our ability to grow to more than 75,000 points of access globally, an increase from our prior target of 50,000. In addition to expanding DFD, we will also continue our work to align our specialty doughnuts across all channels and expanding our e-commerce capabilities in 2023, and we'll continue to accelerate the growth of Insomnia Cookies.

Krispy Kreme has great momentum right now as we enter 2023 and we remain confident in our long-term 2026 expectations, we highlighted just a couple of months ago that our Investor Day in December. Before turning the call over to Josh, I'd like to welcome Jeremiah Ashukian as our new Global CFO, who started last month. Jeremiah not only brings with more than 20 years of financial leadership, including 12 years of CFO, but also global and significant brand and CPG experience, all skills critical to our successful going forward. His appointment allows Josh to fully embrace his role as Global President and COO driving performance in our larger equity markets around the world and operating excellence throughout the company. With that, to close out his final quarter as CFO, I'll hand the call over to my friend Mr. Charlesworth to talk about the fourth quarter financials and expand more on what we're seeing in the U.S. operationally.

On a personal note, Josh has been a tremendous partner for me and the Krispy Kremers over the past six years, and we're clearly a much stronger business because of his leadership, not just as an individual, but also just the focus on how to drive the business forward with financial acumen. And then because of that, we're able to attract a great partner like Jeremiah and I look both as Jeremiah continues and starts his new role and Josh really takes on the President role and thinks about the operations execution on that, which will really strengthen Krispy Kreme as we go forward. Josh?

Josh Charlesworth: Thanks, Mike and a warm welcome to Jeremiah as well. I'm just thrilled to have him on board and look forward to his leadership of our terrific finance teams around the Krispy Kreme world. I'm confident that Jeremiah went up to drive strong performance and create shareholder value for years to come. As Mike said, we saw strong growth across all of our reporting segments in the fourth quarter with net revenue up 9% year-over-year, the $405 million organic revenue, which excludes the impact of acquisitions and changes in foreign currency grew 12.5%, an acceleration from the summer trends driven by pricing, our premium seasonal innovation, the growth of delivered fresh daily doughnuts sold in grocery and convenience stores and e-commerce.

Adjusted EBITDA grew 17% in the fourth quarter to $56 million or 25% in constant currency. Once the $4 million impact of the stronger dollar is taken into account. Similarly, our 2022 adjusted EBITDA was up 7% in constant currency with the full year impact of the stronger dollar at $10 million. Pricing Hub and Spoke efficiencies in G&A explained the 90 basis points year-over-year increase in adjusted EBITDA margins to 13.8% in the fourth quarter. We saw low levels of elasticity from the pricing actions we took in the second half of 2022 with consumers domestically and globally remaining enthusiastic about premium specialty doughnuts for their sharing occasions and celebratory events. We saw a small GAAP net loss of $1 million in the fourth quarter.

However, net income would've increased over the prior year, if not for one time, overwhelmingly, non-cash expenses of $12.4 million related to our previously announced optimization of our poorer performing Hubs without Spokes in the U.S. We do not expect significant expense moving forward relating to these efforts. Adjusted net income for the quarter increased 27% to $20.4 million, and adjusted diluted EPS in the fourth quarter was $0.11, an increase of 38% or 63% in constant currency. In the U.S. and Canada business segment, total revenue increased 11% in the fourth quarter to $277 million. And organic revenue growth was 12%, an increase on our third quarter performance with strong growth in fresh doughnut sales, both on and off premises, explaining a 15% increase in trailing 12-month sales step up to $4.6 million.

We also saw another great quarter from Insomnia Cookies, which continues to benefit from growth in its e-commerce delivery channel. Adjusted EBITDA for the U.S. and Canada in the fourth quarter increased 16% to $37 million with margins increasing 50 basis points year-over-year to 13.3%. This reflects the successful pricing taken in the second half of the year. The efficiency benefits to our Hubs with Spokes from the growth in delivered fresh date off-premises sales, and then improved performance in Hubs without Spokes. These factors more than offset over 20% ingredient cost inflation and high single digit salary and wage growth. 2022 has been a record year for our delivery fresh daily channel, now accounts the 21% of sales up from 17% in 2021.

This reflects both a 10% increase in door served to 5,700 and a 10% increase in average weekly sales per door to $580 in the U.S. for 2022, reflecting both successful pricing and the addition of specialty doughnuts previously only seen in our doughnut shops. In the fourth quarter, we added another 21 doors, mostly in New York and LA. As we see every year, this number is lower than the other quarters due to the preference of our trading partners to limit changes to their floor space during the busy holiday period. We've already seen a return to the prior growth rate so far this quarter, including the recent edition of Target supercenters and continue to see a huge opportunity to increase doors across the country, both from existing and new customers, as well as growing the average sales to door.

DFD door sales continue to benefit from the addition of more specialty doughnuts like the crowd pleasing Biscoff range and Valentine's doughnuts we've sold recently in the U.S. We're also rolling out more fresh cabinet displays in grocery stores, which typically lead to a 30% to 70% increase in DFD sales per door, less than a $10,000 investment. Also in the U.S., we've been making significant progress in the optimization of our shop network. During the fourth quarter, we closed an additional six lower performing shops, bringing our total number of closures in 2022 to 14. We expect to close seven more in 2023, largely in the first half of the year. As a reminder, these are mostly low revenue Hubs without Spokes with flat or negative EBITDA margins.

We're also converting some hubs without spokes previously considered unsuitable for DFD to serve DFD doors in new ways, such as closing the lobby and using it to stage doughnuts ahead of the late night shipments. Others, we're converting the other way into fresh shops. As a result, we ended the year with 137 hubs with spokes, an increase of eight from the prior quarter and 99 hubs without spokes, down 20 from the prior quarter. Now moving to our international segment. Net revenue grew 3.3% in the fourth quarter to $93 million with FX headwinds creating an 8% drag during the quarter due to the stronger U.S. dollar. Organic revenue increased 11% led by the double-digit growth in Mexico and Australia driven largely by DFD. International sales per hub increased 8% to $9.8 million, despite the FX headwinds.

International adjusted EBITDA for the fourth quarter declined slightly to $20.5 million, but would have increased by nearly $3 million in constant currency. Driving that improvement from the last two quarters with successful pricing actions and seasonal specialty doughnuts in the UK as well as hub and spoke efficiencies associated with the strong growth performance in Mexico. The UK saw adjusted EBITDA margin back over 20% in the fourth quarter, our best performance since the first quarter in 2022. And Mexico saw its best ever margin performance approaching 30% in the fourth quarter. Now to our third business segment, market development, which is made up of our franchisee businesses around the world and the equity-owned Japan market. Total revenues in the fourth quarter increased 11% to $35 million, even with a 13% impact from FX headwinds and a franchise acquisitions.

In fact, organic growth in the quarter was a very strong 23% with great performances in our international franchise markets and then equity-owned Japan, which saw constant currency revenue growth of 40% as we accelerate our DFD expansion there. Adjusted EBITDA in the fourth quarter for market development increased 11% to $12.3 million, despite a roughly $1 million negative impact from FX headwinds. Adjusted EBITDA margins increased 20 basis points to 35.4% in the fourth quarter compared to the prior year and would have been higher if not for a mix shift due to a very strong organic revenue growth in equity-owned Japan. As a reminder, moving forward, Canada is moving out of the U.S. segment and into the market development segment for 2023 to better reflect the significant opportunity ahead of it and to match with changes in our reporting structure.

Our fourth quarter earnings presentation on our IR website has 2022 historical performance with Canada by quarter and for the full year to assisted modeling. I will now turn the call over to Jeremiah to share his priorities as our new CFO, give more detail on the balance sheet and discuss our 2023 outlook. Jeremiah?

Photo by Ben Dutton on Unsplash

Jeremiah Ashukian: Thanks, Josh, and good morning, everyone. I'm very excited to be here at Krispy Kreme with such a beloved brand and a great team across the globe. I look forward to getting to know the team and developing a deeper understanding of the business over the next few months. As I take the reins as CFO, my focus will be on ensuring we are increasing shareholder value by delivering consistent top and bottom line results, improving performance throughout the business and driving higher return on invested capital. Our balance sheet is strong and the business generated $32 million of free cash flow in Q4 leading to 15% cash conversion in 2022. Our existing debt obligations go current this June. As such, we expect to refinance our existing term loan A and revolver debt at similar terms to our current facilities this year.

It's worth noting our interest rate hedge that fixed approximately 70% of our outstanding debt will remain in place through June 2024 even after refinancing. We expect to continue to decrease our net debt leverage ratio over time as well as reduce our dependency on supply chain financing. This is a priority this year as those rates have increased more than our term loan A and revolver. As such, we plan to reduce our supply chain financing a bit faster while paying down our term loan a bit slower than previously planned in 2023. We expect to reduce our supply chain financing by $50 million to $75 million this year and be around 3.5 times net leverage by year end 2023 remaining on track to be between 2.0 times and 2.5 times net leverage in 2026.

This morning, we introduced more detailed 2023 guidance in line with our December Investor Day outlook. This includes growth of 9% to 11% in organic revenue and 8% to 10% in net revenue. Net revenue growth is modestly lower than our organic growth due to foreign exchange and the closure of approximately 20 lower performing shops in the U.S. that Josh discussed. In 2023, we expect $205 million to $215 million in adjusted EBITDA, which equates to 8% to 13% growth. We expect a delivery between $0.31 to $0.34 adjusted EPS, which represents 7% to 17% growth or an increase of 10% to 21% in constant currency. Our adjusted EPS guidance includes expected net interest expense for the year between $39 million and $43 million, which is an increase of $5 million to $9 million.

We expect capital expenditures of $105 million to $115 million or roughly 6.6% of revenue down from just over 7% in 2022. We expect to open 30 to 40 new Insomnia Cookie shops and approximately 10 company build hubs in 2023. Our 2023 guidance includes modest headwinds from foreign exchange for the year based on current exchange rates, a roughly negative 1% impact on revenue growth and approximately $3 million hit to adjusted EBITDA. Each 1% move in the U.S. dollar index is a little over $1 million impact on adjusted EBITDA on an annualized basis as roughly half of our pre corporate expense adjusted EBITDA is outside the U.S. From a cost of goods sold perspective, we are more than 90% covered on our major commodities such as sugar, wheat, and edible oils for 2023 at an average increase in the high single digits.

These commodities make up roughly half of our spend. On a remaining spend, we have contracted pricing in place and expect low double digit inflation. Both of these are lower than we experienced in 2022. Inflation on our largest expense labor is expected to remain elevated in the mid to high single digits as we continue to invest in our Krispy Kremers across the globe. We expect pricing will generally offset inflation for the full year. While we don't provide quarterly guidance, I did want to provide some color to assist with our cadence for modeling bottom line performance in 2023, given we expect somewhat similar quarterly organic revenue growth throughout the year. First, we expect FX headwinds to continue in the first and second quarter as the dollar lapsed tough comps.

However, we expect modest FX tailwinds in the back half 2023. Second, we expect lower discounting in the U.S. segment during the summer months compared to last year as we cycle the Beat the Pump promotion and focus on premium specialty doughnuts. Third, commodity costs be the highest of the year in the current quarter, increasing roughly 15% higher compared to Q1 2022. However, we expect bonding inflation to soften as the year progresses. To close, I'm very excited about the long-term growth potential of Krispy Kreme. We had good momentum in the business, as you heard from Josh and our Q4 results and have high degree of confidence that we can meet or even exceed our long-term outlook in 2026 that we provided at our Investor Day. Operator, we can open the call up to Q&A now, please.

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