Joining. My name is Brian Mullan. I'm the Restaurant and Food Distribution Analyst at Piper Sandler. Very happy to have the Krispy Kreme team, Josh Charlesworth, CEO, Jeremiah Ashukian, CFO. Thank you for being here. I think maybe a good place to start is just in the U.S., your efforts to continue to grow the core donut business with a hub-and-spoke model. Earlier this year, you announced the McDonald's partnership. That's enabling. There's more than just McDonald's, but that's enabling you to kind of undertake a pretty big investment into your production capacity across the U.S., allowing you to accelerate your Delivered Fresh Daily expansion strategy. Long-winded, but thank you for staying with me. I guess to start, you've got 151 hubs in the U.S. today. You're gonna take that up to north of two hundred by the end of, I think, 2026. Just help us with that bridge. How do you get from point A, how do you get to point B? Do you have the whole country mapped out at this point? All right. Thanks, Brian. Hello, everybody. Yes, we do. Okay. I mean, it's important to remember what we're doing here is making the donuts, fresh donuts, more available to more people. That's the number one barrier to purchase. And so the partnership with McDonald's and then the ability to then service other major national accounts with fresh donuts is important. It's a big growth driver. By the end of 2026, we're targeting to be in 23,000 locations across the U.S., where someone could buy a fresh donut, compared to about 8,000 today. So it's quite a ramp-up, although we've doubled in the last three years. And bear in mind, compared to a CPG player, this is quite a small distribution still. It's only with, if you use a restaurant benchmark, that it sounds bigger than it is. People will still see us as scarce. Specifically on production, we're able to add the first 6,000 with just our existing production facilities, a lot of them former franchisees, a few years old, heavily underutilized. So we're able to leverage that to service the demand. We are able to also take some donut shops, would you believe, that don't even serve off-premise locations and convert them to support the expansion. And then, of course, we need to add. So we basically identified literally every McDonald's in the country that we'll be distributing to. That's more than 12,000, mapped them against all the production hubs that we have today, the ones that we convert and bring online, and then that leaves about 25 that we need to build. The vast majority of those are already either under construction, going through permitting or signed leases, and so we have a very clear path to support that expansion. Thank you. For the new hubs that you do need to build, you know, it seems like they are starting from scratch. It seems like you have a choice: you could build a hub that also serves as a retail store, it serves consumers, it's somewhat like a restaurant, or you could essentially build a factory, no consumer-facing business. So what's the analysis and thought process there, and how are you approaching those decisions for the new ones? In the last few years, we've built about, in the U.S., about five Donut Theater Hot Light shops, where you can get the fresh donuts straight off the line. We still see that as the pinnacle of the experience, brand experience at Krispy Kreme, so it's important to continue to communicate that. To communicate fresh and authentic, and high quality, we'll continue to have, particularly in new communities, the fresh donuts hot off the line at a similar pace. That leaves, donut production hubs, which are more specifically built for the expansion. They can be all the way through to something not consumer-facing at all, which are more in an industrial location, probably a converted building, with more than one production line, could even have three or four production lines. And then actually, we see an opportunity for hybrids in between, where it's still a retail location, but with additional capacity to support the demand. For example, we've identified former drugstores that can provide a drive-through retail location, but also the infrastructure to then support the off-premise distribution. So it's a range of assets that will be able to support the full 23,000 opportunity. And then just sticking, thank you. Sticking with that for what a newer hub might look like, you kind of just touched on, it's a range, but what a newer hub could look like relative to the existing hubs. And I'm asking in the context of the technology, the degree of automation, the efficiency of the operation. You have a chance to build it how you want it and make it look how you want. And you know, do you have the expertise internally to design these right, or have you enlisted any outside help with that element of this? When it comes to making donuts, we feel very confident in our capability. Definitely, in terms of equipment automation, there is support that we have reached out to. But generally, what we're doing is we're maintaining the experience of a fresh donut. We're looking for ways to save labor in terms of icing the donuts, topping the donuts, connecting the machines up digitally, so we can monitor yield, performance, productivity, even preventative maintenance. You know, how's the temperatures at various part of the fryer, the proofer, the glazer, et cetera. So we are bringing technology in. The new ones that are designed for the expansion will look different in that they will be laid out slightly more efficiently. There'll be bigger load-out areas, and they'll be very much with the off-premise distribution in mind, as opposed to the smaller donut shop retail experience, so a real mix, as I said, we're building about 2025 out through 2026. I would say about half of them will be the traditional retail experience, outright, and the other half will be a mix of these donut factories or hybrids that I mentioned. Okay, well, thank you for taking us through all that. And then maybe, maybe just segue to the actual McDonald's rollout. You know, I think Chicago, when does the rollout to the Chicago area formally begin? And I think you have three hubs. You know, how many spokes per hub do you have now? And just talk about what happens to the sales per hub and the margins of the whole DMA once you start deploying. Sure. Chicago is a market with a long history for Krispy Kreme. So we have, I think, actually, one of these sort of hybrid style production facilities already. Imagine two big, high-capacity lines and a restaurant lobby and a drive-thru. It's in Elk Grove, just by the airport. Welcome to check it out next time you're there, because you actually can see the lines behind the glass. That will take the bulk of the demand from McDonald's and DFD in the Chicago area. We service about 150 locations across Chicago today, mostly grocery stores, some convenience stores. McDonald's has more than 400, so it's quite a significant uplift. We're excited to support McDonald's in their home market there. And because we have that big facility, it made total sense to do that. The other two hubs will support, particularly because they're in the south. They'll support some locations, but the bulk will be in that hybrid facility, if you like. That one, I mean, it will probably be doing over 500 or near 500 doors by the time the rollout is complete there in Chicago. We're starting in late fall, and then we're looking to support the rollout to McDonald's across the Midwest over the coming months. And you asked about the sales per hub. That's our KPI that we use, sort of like a trailing twelve-month KPI that shows the health of a hub. I mean, we average in the U.S. system about $5 million per hub. That big one will be over $10 million, and the others will be ticking up over the $5 million as well. Internationally, we have many doing $10 million, so... And they're high margin. So, that's part of our journey to having a more productive and efficient system, that drives not just the top-line opportunity for McDonald's and the expansion brings us, but the operating leverage and bottom line. As you embark on this expansion across 2025 and 2026, the DFD expansion in the U.S., a lot of McDonald's, but also some non-McDonald's. Can you do this and expand the segment EBITDA margins at the same time? Can the revenue and profits offset? I'm sure you have to make some investments, but do you see margins progressing upwards throughout this? Yeah, we do. Obviously, we're in the midst of a startup phase of this, and so therefore, we're incurring costs ahead of revenues, and so from an EBITDA margin perspective, we're absorbing that in the financials that we would have seen this year. Even despite that, we're still expanding our margins in the U.S. business, which is great to see, so we're making the right trade-offs and choices. As we kind of look forward, we'll continue to be in this kind of startup phase throughout the front half of 2025, where we expect in the second half of 2025 to start to pick up more revenue, and as a result, start to see the EBITDA margins start to improve. We fully expect to expand margins again in 2025 as well as in 2026. It'll probably be back halfway to 2025 so. Yeah, we have dedicated teams, obviously, supporting the rollout, so as they move from location to location, that'll make sense. That's great. You know, I wanted to ask on logistics. You've discussed being in tests with certain third-party logistics providers to help with this rollout. I think it would just be helpful to hear you elaborate on this as much as you can. You know, how do you service your existing DFD customers today? What led you to running some of these tests, and what are you finding? You know, how do you think this will evolve? Yeah. No, and I think, there's really two capabilities. You started this a little bit. There's the making of doughnuts, which we've been doing for 85+ years, and we're pretty good at that. And then there's the moving of doughnuts, which is something that's newer for our business. Today, we service and move doughnuts with our own Krispy Kremers and our own trucks, branded trucks. You can imagine as we start to expand and as we have expanded in the last couple of years, growing over 20 percentage points of access, it's becoming more complex. Which has led us down a path to start to really think about what's the model we want in the future, as we really start to accelerate points of access, and the model becomes even more complex in the future. We ran a trial in, I would say, earlier this year, Q1, Q2, in D.C. and L.A., where we're testing for quality and service. Ensuring that the quality of the donuts when they arrive are as to what we expect, and the service levels to our customers, what they would expect as well. As you can imagine, any logistics partner that's been doing this for 40, 50 years is a little bit better than we are. We've seen improved service levels and quality of delivery through that test. We're now kind of moving to the second phase of that test, where we'll actually assess financially whether this makes sense for us or not. It's beyond just the kind of hard cost of a truck and a driver and the hours and the fuel. We'll be looking at some of the technology we need to invest. Obviously, leasing a truck, for sure, but things like insurance and some of the other hidden costs will be, we'll be looking at kind of end-to-end, what that cost structure and investment looks like versus, you know, partnering with somebody. With respect to how it's done, it'll be done the same way we would do it ourselves if we were to partner with somebody. We end up in a hybrid approach. Our person arrives at the shop, goes in through the front door, with a cart, delivers the donuts, takes the old donuts away into the truck, and he or she would do about 12-18 stops on a route. So that's- Okay. I was gonna ask, when you're done with your testing, whatever the conclusion is, you just used the word hybrid, so I might know the answer, but is there a scenario where you have to decide we're gonna move nationwide with a 3 P, or we're gonna do it ourselves, or hybrid? Maybe to me, what does that mean? These are all the things that we investigate, whether it makes sense to go fully outsourced, whether it makes sense to have a hybrid, whether it makes sense to own specific markets versus not. I think it is important to note that none of this is going to hinder our ability to execute in Chicago, in the fall. So we will do that with our own drivers and our own trucks, so, you know, we can do this without a third party. I think one thing that we're looking to is understand the additional capabilities these third parties can bring beyond just doing a good job replicating our current model. For example, improve routing of the trucks, dynamic routing, leveraging technology, AI, to improve the distribution, access to different fleet capabilities, and all the infrastructure around that. If and when we can get harness that, then it becomes more compelling, and you'd lean more to the third party. Top priority is to deliver on our commitments already, and so these are all about. And you know, we haven't made any assumptions around any upside from it other than you know, we think it, it's the right thing to do, to open our mind up as we expand so rapidly versus what we've built before. Yep, and that's a good segue. That expansion is obviously in the U.S. It's not gonna be just McDonald's. You're gonna add, continue to add DFD doors outside of that over the next several years. On your most recent earnings call, you did reference Walmart as one customer. Please, you know, just remind us what the business today looks like with Walmart, and then how that might evolve as you build out your production capacity. I mean, Walmart has been an excellent partner on this journey. In fact, they were the first to take on the Delivered Fresh Daily program, fresh doughnuts from local grocery store back in 2019, but it's been almost a Walmart-by-Walmart approach. We're in about 1,400 today out of what? Over 4,000 Walmarts that there are nationally, and we don't have. We're not on their sort of a national planogram. Instead, we have agreed where we will display the doughnuts, and it's very dependent on our ability to supply. They obviously impressed to hear about our expansion going nationwide and have been very positive about what that could mean to support expansion. So we're in discussions with them about how we can take the partnership to the next level and support their bakery category and the Walmart shopper. That's been great that they've continued in that way. They see us as a more significant player, we think, and that's what we're becoming, and we're finding with a range of customers the news that we're able to bring fresh doughnuts to more places and the continued feedback from the consumer. The availability is their biggest barrier to purchase is attracting more and more customers. That's great. And then, you know, Target's actually another retailer that also came up on the call last month. Maybe just talk about that relationship, and is that, is that a prominent retailer? Could that potentially grow? Yes. I mean, it's not as well developed as Walmart yet, but we've had fantastic discussions with them. They've been very focused on making sure that we offer excellent doughnuts, high quality, fresh. We've been very focused on making sure that they're presented in a way that people understand that they're Krispy Kreme. So the branding has been important, the merchandising. And we're now in about 25 cities across the U.S. with Target and expanding going ahead, which is great. I mean, this story that we're able to bring to these retailers, that we help create additional foot traffic, that we help them grow their sweet baked goods category is well received and now well understood. Okay, thank you. Just pivoting a bit here. I wanted to ask about the U.S. consumer. You know, just what's your read of the situation? I know Krispy Kreme is a relatively infrequent purchase. I think it's fair to call it, you know, an affordable luxury, if you will. So I'm not sure how consumer softness would or would not manifest itself in your business. So really would just love to get your read on what you can see. I definitely wouldn't look at Krispy Kreme as a barometer of consumer trends. You know, there, there's a couple reasons for that. We're a relatively infrequent purchase. We are nearly always shared with others and usually a gift, and so actually considered a relatively infrequent, affordable gift for special occasions. So a lot of that means that the daily or the regular cadence of purchase don't impact us in the same way. Our main job is to make it available by the... And make it top of mind. Bring, you know, remind people of the joy that Krispy Kreme brings, these tie-ups with special occasions to get social media awareness, like our current Barbie range. Or literally just have great marketing activation and promotions. Generally for us, it's the effectiveness of those that changes whether or not we have a good quarter or not, than the general consumer trends. We're mindful of them. Digital and DSD are the main things that are growing for us, though, rather than the traditional foot traffic restaurant. We're sort of relatively insulated overall. Okay, I want to switch over to the International segment. There's only a few countries in this segment. I know each one is important, but just wanted to ask about the U.K. There have been some challenges in that country. Just maybe remind us, what have the issues been? Where do things stand today? And is this, are some of these challenges temporary, or do you think anything's permanent and just would love to hear the state of the U.K. Sure, yeah. So, for understanding Krispy Kreme, we actually serve and sell Krispy Kreme in 40 countries around the world, and growing rapidly. Loved by all communities, it seems. We run those businesses through two business segments. International, you refer to, these are company-owned operations, places like the U.K., Mexico, Japan, and Australia. And then we have a significantly growing, very capital efficient, more franchise-focused business in Market Development, where a lot of new markets are going in, like France and Brazil. Across the board, we're seeing fantastic results and very strong growth in these markets. The U.K. has been a laggard in that, though. It's still growing, though, interestingly. It's just growing at a much slower pace, impacted by a few government regulatory changes around the way sweet goods are merchandised in grocery stores. Certainly, the economy has been challenged. So we have been very thoughtful there. We've been needing to adapt to that environment. We've made some changes recently, and new leadership in our U.K. business. We're excited about the team coming in there. The existing team has been working hard to adapt by selling, for example, in convenience stores, different pack types and what have you. But, you know, it's fair to say, out of a portfolio of all these markets, the U.S. is gonna be the biggest focus in terms of where we're gonna get behind selectively in other international markets. And then with these partners, franchisees in particular, or the minority investments that we have with franchisees, will be where a lot of our focus is internationally. Okay. And on that Market Development segment, which has many countries, maybe talk about the recent entrance into France. What's the strategy there, what you've learned? And then tie that into, you know, in the last few months, I think you've announced to be launching in Germany and Spain in 2025. Is the strategy in those markets gonna be similar? Are there any differences to call out? And talk about, do you take an equity stake every time or not? And just... But these are big markets, and it's exciting. So if you could elaborate on that. Yeah. A couple of years back, we did some work to identify international markets that would be right for growth, and you look culturally at where we're successful. It's almost universal, so it quickly comes down to where there are big population centers with decent disposable income, and crucially, business partners we can tie up with, either as a franchisee, like in Germany, or in France, where they're a franchisee, but we took an investment in the new venture and have taken a minority investment. The same in Brazil and Spain. You know, there will be other geographies, particularly in Europe, across Eastern Europe, Northern Europe, that qualify in the same way with these big metro areas. I mean, the love for Krispy Kreme. It's so well known, it's amazing, even in Paris. And the excitement around the launch last year actually ended up being the biggest opening we've ever had. We've added now eight fresh shops that are leveraging that production hub, and we'll be going into DFD next year. So it's been an exciting journey to go after these opportunities with some really strong partners who are well known for either QSR or coffee shops or even omni-channel businesses. They love the business model story we can bring them. And it's therefore something when you start looking ahead two, three years out, you can see it becoming a significant contributor to our financial health. So I think at the end of next year, you'll be in four large or the four largest. I don't know if it's only four large or the four largest, you know, European markets. Yeah, the U.K., Ireland, France, Germany, Spain, Portugal, and we'll be looking for more. So just bring it back to the U.S. You know, you recently sold, you know, some of the, your stake in the Insomnia Cookies business. In the end, were you happy with that outcome? And for clarification, you know, do you have the ability to fully exit ownership over time if you wanted to, and what would you need to see for that to happen? Yeah. We're super pleased with how the Insomnia transaction played out. I think, we're very thoughtful through the process, so we didn't need to sell Insomnia to fund the growth agenda that we have in the U.S. The most important thing for us was to create focus on the donut business. Josh talked about the opportunity that's there. And so where we ended up with a minority ownership with Insomnia, so we were able to kind of monetize on the asset and realize cash, obviously, which is used to delever the business, which we've done in Q3. And right now, you know, there is optionality at the end of the term to exit. We're super focused right now because we believe in the long-term health and growth potential of Insomnia to help fuel that and support that business where we can. But ultimately, at the end of the day, you know, we'll be focused on making donuts where our time is to be, so. Okay, and then just on the balance sheet, I think, you know, pro forma for Insomnia, you'll exit this year around three and a half. Maybe just remind everyone what's the target, and can you deleverage the balance sheet over the next couple of years at the same time that you're making these investments in the capacity? Yeah. So Q2, leverage is around 4.2x. We believe we are working towards 3.5x by the end of this year, as a result of the transaction. EBITDA will be the main source of deleverage in the future, especially as we kind of ramp up McDonald's. We typically spend 6%-8% on CapEx. So we're not ramping up CapEx, but for the next couple of years to fund some of the expansion in the U.S., we'll look to make trade-offs and choices with our capital in the future. And so we fully expect to be able to delever and work toward that kind of 2.5x by 2026. That's great. In the little time we have left, Josh, I'll just turn to you if you have anything you'd want to add or just about Krispy Kreme. I'll say that the joy of Krispy Kreme is so it does transcend whatever is happening in recessions, whatever is ever happening in pandemics or questions around the world. Whatever the election result, people will be looking for fresh donuts, not just in the U.S. and around the world. Our job is to make sure they're high quality, taste great, and more convenient to buy. That's what we hear again and again. So big penetration strategy, and it's great that customers like McDonald's and others are coming to us to take advantage of that opportunity. That is great. Okay, we'll leave it there. Thank you for doing this. Appreciate it. Thank you.