Good afternoon, everybody. I'm Brian Bittner, the restaurants analyst at Oppenheimer, We are thrilled to have Domino's Pizza back at our 2023 consumer conference. Domino's doesn't really need an introduction, but it is the largest pizza company in the world, with over 20,000 stores in 90+ markets. While Domino's has a strong track record of impressive growth, we believe there remains an attractive opportunity for AUV and unit expansion upside moving forward, both internationally and domestically. At Oppenheimer, we have an outperform rating, with a $375 price target on the stock. We believe shares present an attractive risk reward at current levels, particularly as the company builds a path to improve its delivery business, all while continuing to execute against an incremental and very significant carryout opportunity. With that as an introduction, I'm really excited to have from the company, Sandeep Reddy, the Chief Financial Officer, who joined Domino's in April of 2022, as well as Ryan Goers, Vice President of Finance and Investor Relations. Thank you both for being with us today. We greatly appreciate your time and appreciate your attendance at our conference. Thank you, Brian. Excited to be here. I'd like to begin our discussion by just zooming out, very high level, Sandeep. You've talked consistently on the last several earnings calls about some of the macro pressures impacting the overall delivery segment. What's your current view on the health of the U.S. consumer through the lens of Domino's Pizza, and how is this shaping your strategy to win market share within QSR Pizza? Thanks, Brian. I think when you actually ask the question on the macro environment, you're right. I mean, the macro, especially in 2022, was very challenging from a consumer standpoint. We saw declines in real disposable income that definitely did impact the delivery segment. I think as we move into 2023, we've seen that kind of inflect, and real disposable incomes are beginning to grow again, especially with inflation coming down, job growth and wage growth basically continues to hold up pretty well. Typically, you'll see demand being a lagging indicator, but I think the macro is what it is, and it looks like it's actually better than it was looking last year. That being said, how does that inform Domino's strategy? It doesn't. I mean, the macro is gonna be whatever the macro is going to be. What we really want to focus on is our strategic initiatives and kind of how we're gonna drive the business. We've talked about a number of different things in the last few quarters. Specifically, we're super excited about the upgraded loyalty program that's expected to come out this fall. I think the loyalty program is a really robust one, as you know, with 77 million customers in the database, 30 million active customers, it's easily the biggest in the pizza business. As far as we're concerned, this is just taking it to the next level, and this is making it much more accessible to customers who are actually transacting to us, whether they're delivery customers or carryout customers, with many enhanced features and functionality that should drive more frequency. We had that track record in our previous loyalty program launch. We should start seeing some of that as we go forward into this one, too. Similarly, I think from an e-commerce platform, we're looking to actually upgrade the e-commerce platform to our next generation platform. There, too, we saw tremendous uptake. It's 80% digital penetration in our business, so we have a terrific platform. We have a lead over the competition. We intend to extend the lead over the competition by making these investments in technology that accelerate our growth. Both these two things that I'm talking about are super important accelerators of growth. It's happened in the past, it will happen again, and that's exactly why we're making these investments. Sorry, Brian. If you add to that, there's a couple of other areas where it's super important to continue to stay ahead of the game in terms of innovation. Whether it's menu innovation, whether it's operational innovation, we've been doing a ton of stuff on that area. We'll keep doing that, too. I think the most important thing for us is value. I think as long as we continue to demonstrate value in our product, we will continue to gain more and more volume with our customers, because despite what's happened in terms of macro headwinds, our acquisition has been extremely strong. Our retention has been extremely strong. Where we've actually lost a bit of traction in the delivery business is frequency of transactions. Really constrained a little bit by the macro. If we maintain our value and bring in these initiatives on the loyalty program as well as e-commerce over time, we will see that volume come back because our acquisition continues to be robust. That's a great overview. That kind of answers my second question, but I'm gonna dive a little deeper into it. Just, you have two distinct businesses, really, delivery and carryout. The delivery business, same-store sales trends there have been pressured, driven by the factors you've already discussed. You've talked about the need for value, and service at Domino's to capture delivery. What are you specifically doing on the value side to position the delivery business for an above-average growth cycle when these macro headwinds inevitably recede? Yeah. I think, specifically on value, you're exactly on point. If you think about how much pricing we've taken on average, you probably will see that our pricing has been less than perhaps the competition and perhaps the overall QSR space. This is specifically because we've been focused on making sure that the product we're delivering is of great value. I think when you actually look at what's been happening in the commodity markets, especially this year, it started off in the first quarter already softening. I think since then, we've been seeing a lot of headlines in terms of what's been happening in the commodity prices space, and it's continuing to soften. This essentially is super important because we wanted to make sure we didn't get too far ahead of ourselves in this situation. It's important for profitability, but in the end, our business is predicated on frequency and volume. We have a very strong database of customers that are actually engaging with the brand and making sure that we continue to stay on value is super critical. The Mix and Match promotions, the updates to the national offer, the $6.99, was absolutely the right thing to do because that ensured the flow-through and profitability on those transactions to our franchisees. It's showing up in their profitability and their P&Ls. The thing that we talked about at the beginning of the year was, in certain cases, the menu prices had gotten a bit out of sync with the national pricing. That's been fixed. We're now in a really good place on value. As long as we keep on executing on all our strategic initiatives, we will see frequency and volume come back into the business, which is gonna drive our sales model and actually drive growth again in our business. Brian, just one thing I wanted to just say, because The question's come up on the delivery business specifically, but it hasn't really come up recently, but I've had a number of callbacks on this, about aggregators, and why are we not working with aggregators? I wanna make sure, because there's a lot of confusion about this, that I address this head-on and just talk about this a little bit. For us, it's a very simple calculation, a simple evaluation process. We just look at what is the incrementality of a potential partnership, weighed against the potential risk of customers who are on our platform switching out of our platforms into an aggregator platform. If we see that on a long-term basis, the incrementality of the opportunities is greater than the risk, then that calculus leads us to actually partnering with a third-party aggregator. This is the evaluation process I'm describing in the United States, but it's not unique to the United States. It's one that we've done in every single market internationally, where we're partnering with aggregators. That business is now $1 billion in size, and I think we're very comfortable with that. I think what I wanted to make sure that we lead on is exactly this thought process and this evaluation process for how we think about it. It's really simple. If we get to the point where the long-term benefit is greater, we sign up. If we get to the point where we say the risk is much greater, most of the long-term benefit, we don't. It's like that. It's not a static. If things change, the marketplace evolves over time. You've got to continuously be updating your assumptions as you're evaluating the opportunity, and that's exactly what we've been doing. Just on that, so the bottom line is, despite many thinking that you've closed the door on that, you know, potential partnership opportunity, it's a constant evaluation process, and the door has not been shut. Absolutely. You're correct. Got it. You know, on the carryout side, which is arguably a separate business, everyone knows you've been number one in delivery for a while, but now you're number one in carryout, too. In fact, 50% of your U.S. orders are now coming from carryout, so the order count is split. Can you just explain to the audience, you know, why do you believe that this carryout opportunity is incremental and is a separate growth opportunity relative to the delivery business? I get a lot of questions on that, where people have a hard time believing there's not cannibalization or one doesn't share with the other. Why is it so incremental, and why is it a separate growth vehicle? I think the one thing I can do is definitely point to data, right? Because we have the data. When we look at the data from our database, from our customer database that I just described, with 77 million customers in it, we look at the transaction history of those customers. When we look at the transaction history of those customers, we see that less than 20% switch between channels. This is over a long period of time that we're actually observing this. It may go up a little bit here and there, but overall, it's less than 20%. What this is we definitely see that the psychographic profile of the customers who buy delivery versus buying carryout are quite differentiated. The delivery customer tends to be very interested in convenience, not so, not as much value-oriented. The carryout customer is value-oriented, but also is looking for control over the all aspects of the experience. The combination of the psychographic profiles, plus the empirical data of how customers have been transacting, is what tells us that the overlap is very limited. I think you can look at, okay, if it's incremental, that's great. Why is there so much growth potential in that business? Even though we've had such explosive growth on the carryout business in the last few years, our share in carryout is still significantly below our share in delivery. It's the same product that we're selling. The experience of accessing the product is different. The carryout business is a much newer business in the Domino's portfolio. It's just over a decade old, whereas the delivery business is over 60 years old. As the compounding effect of actually having seen growth on growth continues, we're making enormous strides to getting to a share at least at the same level as delivery. Frankly, we see potential to grow our delivery share, as well as carryout share beyond where delivery is today. That's the way we're looking at our business. We think there's enormous growth potential on carryout, I think we continue to look at both channels as independent opportunities, the carryout is incremental to delivery business. That makes sense. Another thing I wanted to touch on is service. It seems like a catalyst that you have sitting within the business is improving your service levels because they have been challenged now for a bit. You went through the intense staffing challenges, which seems to be in the rearview, and you're starting to see some tangible service improvements. In the last quarter, I think you said you got a minute better on delivery times. That's something, that's the start of an improvement. You're launching an initiative called Summer of Service. It's a training program when all of your U.S. franchisees are coming to Ann Arbor for one of the largest training efforts you've had in the history of the company. Can you unpack what the goals of this initiative are, and how could it ultimately get the business back on a better path for improving service? Yeah, I think it's a great question, Brian, because I think there's two different levels, right? One is like absolute levels of service and kind of how do they improve. We're still not at the 2019 levels of delivery service, for example, and we wanna make sure that we continue to make strides towards actually improving even going forward. Summer of Service is a slightly different construct. If you think about what's been happening over the last few years, especially during the pandemic, so much of our operational processes has evolved. So much of the technology that's been enabling these operational processes has evolved. Then you had a lot of turnover in the during the course of the pandemic, where you had a number of team members kind of departing and new team members coming in. This is really an opportunity to just level the playing field across the franchisee system, bring everybody together under one roof, ensure that the training materials that they receive are consistent, and they're all together receiving it. This will enable us to be better utilizers of the technologies that are at the disposal of the franchisees to actually get operational effectiveness. The practices, the SOPs that we have in the stores, again, if there's a best practice, it's standardized, and it's applied everywhere. I think that's gonna make a huge difference in terms of productivity to the franchisees, and their P&Ls basically will get much better from more efficient, cost deployment, labor deployment, essentially. That, I think, is a big piece of it. You're gonna get better service as well, but I think the profitability of the individual units gets improved in the process. Great. You know, I wanna touch on digital, because you talked about the beginning, you know, digital and the revamping of some of these systems being a very big opportunity for you. You know, digital is obviously 80% of your sales, and you're set to make some big changes. You're in the middle of refreshing and improving your loyalty program. That was launched back in 2015. You're making these other investments into your overall e-commerce platform. I'm just trying to understand how impactful these tech changes could be. Can you kind of elaborate a little bit more on what you're aiming at actually doing with these relaunches and these overhauls? No, I think, again, another great question, Brian, because look at 2015, what happened to the company. I think the lead up to 2015 was, I think the digital launch had already happened, and that was on the back of New and Inspired. So you'd seen pretty good growth already up to 2015. When we launched the loyalty program in 2015, you saw a significant increase acceleration of growth that came behind that loyalty program. Yes. That's exactly what we're looking to do. We're looking to basically re-accelerate again with this refreshed loyalty program, which will take all the good things that we got from the existing loyalty program and add new bells and whistles to it to make it much more attractive and even more attractive to those in the loyalty database to drive incremental sales growth. That's the thinking on the loyalty program by itself. I think when, in terms of the e-commerce platform, obviously, it's a very strong platform when it's driving 80% of our sales being digital. In itself, we're happy with that, but it's important with, especially with e-commerce technology, that you continue to evolve with the way technologies are evolving in the marketplace. We had a substantial lead because we started so much ahead, back about a decade ago. As time goes, technology gets older, and it needs to be refreshed. We just wanna extend our lead. We just wanna get right in front of it again and actually make sure we build that lead to be a bigger lead. Just have state-of-the-art technology that is very easy for the user to interface with. I think you're gonna hear a lot more about this during Investor Day on exactly what we're trying to basically accomplish with the e-commerce platform. Over time, this will actually drive improved conversion and increase sales as well. Both loyalty and e-commerce platform, the upgrades are intended to accelerate sales. Great. We're gonna talk probably a lot about unit growth, but let's first talk about the unit economics first. you know, a piece of your, of your growth puzzle does rely on U.S. franchisees accelerating unit growth later this year and into 2024. You've disclosed that franchisees still have strong, you know, EBITDA generation per unit of about $140,000, but three-year payback, so very strong incentives to build units. I think investors' concern is that while U.S. franchisees should be incentivized to grow, the capital return metrics are lower than they were a couple years ago, when EBITDA per store was much higher and investment costs were such, were much lower. Can you help us understand what drives your confidence that the U.S. unit growth picture has a solid outlook? Yeah. I think my big piece of confidence comes from two areas. One. Just profitability trends in the units themselves. Q4, we saw significant accelerations behind the Mix and Match carryout offer basically being raised and the ticket, the profit flow through from the ticket increase actually materially improving profitability to the franchisees. Q1, if anything, saw an acceleration in the trend. When you take those two things, we talked about commodity costs and what's happening with commodity costs. The ticket is basically higher. If commodity costs are moderating, the flow-through becomes materially more. Franchisees are actually enjoying significant improvements in the profitability of their units, as you see. When they are looking at making investments as we move forward, they were already looking at pretty compelling economics in the beginning of the year. They're looking at even more compelling economics right now because the flow-through is getting even better. Even in an increasing construction cost environment, you're seeing significantly improving profitability metrics, so the paybacks, if anything, are just getting better, not worse. That makes sense. As it relates to your overall system growth, I think it remains clear that you still have a very bullish long-term view for your business and its ability to grow units. We're gonna talk about international shortly, but when you merge the international and domestic growth opportunities, you believe that unit growth can grow at an annual algorithm of 5% to 7% over the next two to three years. This remains one of the best unit growth algorithms among scaled public restaurant companies, but its ability to be achieved does seem to be a major investor debate, particularly in the current environment, where capital costs of capital are up. What informs you that number, that 5% to 7% is the correct unit growth range for the platform moving forward? Brian, I'll take it in two parts. I'll take the U.S. first and then international, because there's probably different drivers for both. In the United States, I just talked about the unit economics being solid, really solid. That's one piece of why I'm so confident. The second is we have visibility to the pipeline every year as we actually go into the year. The difference between visibility last year and this year is the execution behind the commitments in the pipeline. Last year, I think we were having a lot of issues with permitting, supply chain constraints, and so on and so forth, so expected timings weren't actually materializing to when they actually did open. This year, we've been seeing pretty consistent trends of: Here's what our timing was going to be, and here's when the stores should open. Within a very reasonable margin, I think stores are opening when they should be opening. As the economics continue to be even more compelling, I'm expecting more signups for stores rather than the other way around. So I think both those factors give us extremely high confidence, which is why on the Q1 call, we talked about specific cadence of what's going to happen with unit growth for the United States. We'll see a stabilization first, probably in the third quarter, inflection in the fourth quarter, continuing into 2024. This is based on visibility, this is based on pipeline, this is based on economics. So it's not speculation, it's not hope. It's what we have in hand. We have the franchisees here now for Summer of Service, so we're talking to them and having conversations with them all the time. That's the U.S. piece. The international piece, I think there's a few things going on over there, and I think there's been some closures that have actually been happening in, so pretty idiosyncratic. I mean, Brazil, there's been an optimization that's been going on. I think in Russia, our partner that actually manages the Russia market has announced that they're probably gonna exit the market, and there's been some closures that have actually happened around that. If you look at gross openings, gross openings are still very strong, and we're very confident that the gross openings will continue to be strong. Why? We look at our top 20 international markets by sales, the average payback is around three years over there, with all the pressures that we talked about in 2022. There's a very compelling reason, just as compelling as I talked about in the U.S., for the international markets. I mean, I'll have to go through each market one by one to actually have the same kind of color on it, I'm not gonna do that. I'm telling you that on average, it's a three-year payback. On average, it's not that different from the United States in terms of being compelling to the franchisees to open. That's why we're really confident that we'll have to deal with some of this noise that we're dealing with in terms of closures. One of our partners announced yesterday that they were gonna exit the Denmark market, which is about 27 stores over there. Last year, we had the Italian market being exited. These were strategic reasons that those partners took, which we agree with, and that's fine. I think when you look at the underlying health of markets in which we're operating, the vast majority of the markets, and every one of the top 20 markets I'm talking about, have very, very compelling economics. That's why the growth is gonna be tied into this. On the last call, Russell mentioned that six of the top 20 public QSR companies are part of the Domino's family, including DPC Dash, who is your master franchisee in China, who just came public earlier this year. How does this dynamic of having such large public international franchisees shape your view and your strategy of your international business? Any tidbits you can give us on China would be helpful, given the potential big growth opportunity there. Yeah, I think, number one, I'll address the broader structure of our master franchisees and having such large public master franchisees as part of our strategy. It makes a ton of sense. When you have the scale that these large master franchisees do, they have the resources to invest in the growth of the brand, and that's precisely why we partnered with them. It's one that we think is a very compelling way to do business, and we expect to continue doing business with them. We touched on China and specifically DPC Dash. I think I'm going to talk about China and in the context of the entire international business, and then I'll scroll it into each of the regions. I'll start with Asia, in which China is definitely a huge opportunity within Asia. The growth that we can see coming in China is just unbelievable and astronomical in terms of relative to where we are. The potential growth is very, very strong because the economics are very compelling, and it's a highly developed QSR market where the demand for the Domino's brand is very high. We continue to see a very strong appetite, not just in Tier 1, Tier 2 cities, but Tier 3 cities and wherever we're actually opening up stores. There's a lot of potential for us to continue to put down more and really apply the fortressing approach to drive much more density and much more growth in the China market, with the size of potential stores that we haven't opened yet being very significant relative to where we are right now. That's China. The other market, I think, which is very, very good, is India. In India, essentially, it's the same similar population of China, but I think over there, we've probably been in market for a little longer. Even there, with less than 2,000 stores in India, the potential for India is significantly above that number in terms of number of stores that we can open. We'll give you more specific numbers during the Investor Day, so you can actually draw on to how big this all could be. I think these two markets are going to be material drivers of a, our business in Asia and international as we move forward into the next few years, and big drivers of the sales opportunity. I'll move on from Asia, and I'll move to Europe and talk about a few markets over there. You've got a kind of a mixture of markets, which are a little bit more mature and a little bit more with the white space over there. I think the U.K. is a relatively mature market in Europe, but even though it's relatively mature, there's still good growth that's coming in the U.K. that we're seeing. This good growth is coming on the back of very compelling same-store sales. Our partner basically was had a trading update back in, I think, a few weeks ago, where they talked about their trends in the business. Ex -VAT, which was a disruptor in terms of trends, because of the timing of the U.K. VAT relief, they were close to double digits in terms of same-store sales. That's very strong. To, on the backs of that, to continue to have the growth opportunity they do, is tells us that there's material growth opportunity in the U.K., and that's our biggest market. On top of that, you've got one of our partners, Alsea, basically has the Spanish market in Europe. They are doing extremely well in the Spanish market. There's a lot of growth over there that's ahead of us and that has been seen as well. I think France and Germany are markets with a lot of white space, too, where we're not quite as penetrated as we should be in that market. You take the European region, there's plenty of growth there, in addition to what we talked about in Asia. Coming closer to home in the Americas, I mentioned Alsea just now. They have a terrific presence in Mexico, and we continue to actually grow in Mexico at a very good rate. There's a lot of runway ahead of us for growth over there. Even closer to home is Canada. Canada has done extremely well. It continues to do very well, there's more growth in Canada that we see as well. You put all these together, all of these markets are key markets that are going to be a big part of the growth narrative as we look forward. When we talk about the unit growth as well as retail sales growth, a lot of it is coming from the markets I just mentioned. Got it, got it. I do want to move to profitability since I have you know, the CFO, I wanna touch on this. Sandeep, since day one of coming to the company, you've tried to bring a sharper focus to profitability, pricing, architecture, G&A leverage, et cetera. Can you speak about your philosophy on EBIT margins and profitability, and what you believe are still the biggest opportunities to improve EBIT margins over the next couple of years? Yeah. No, I think, the big one, especially when you had significant cost pressures like we did last year, was pricing architecture. Getting that right was very important in this face of the changing landscape. Look, we took the right decisions, in definitely on the national pricing, we're seeing the results flow through. Already by Q4, we talked about some adjustments in the menu pricing, which we did earlier in the year, and now profitability flow, so it's very good for the franchisees, which drives the funding. I think that's part one. I think there's other elements that we do once you get the pricing architecture to optimize flow-through versus volume growth, and you want to get that. You've got to look at the supply chain, which is a big part of our business model. There's a pretty significant cost structure. I think we've actually looked at ways to optimize that cost structure very aggressively this year. If you look at the procurement benefits that we took in the first quarter, that was a big driver of the improvement in gross margins that you actually saw, and you saw a bit of a leveling out of those margins and expect to see that the rest of the year. It's gonna be something that holds because that initiative was one that will, which will actually hold for definitely for the rest of this year. We've also looked at our fixed cost structures, and as we looked at, looking at efficiencies in that too, that helps you. Those are big components of the P&L. Then G&A is something we look at to actually manage as a ratio to retail sales and actually drive it in, drive it as a slower rate than retail sales to create margin leverage. That's something which we've done a really good job, I think, in the past year, of looking at all our spend and then resequencing it and strategically prioritizing where the spend is going for maximum impact to drive long-term growth in sales and profitability. When you put it all together, the whole idea is you grow your EBIT margins, and you wanna grow your EBIT dollars, and you wanna grow your EBIT margins. What we've done now is, with the optimization of all these levers, we saw pretty good margin expansion in the first quarter. We will see margin expansion happening pretty much the rest of the year. We will see our full-year operating margins going back to pre-pandemic levels this year with the kind of momentum that we're seeing. This year? Okay. Yeah. Yes. Oh, that's great color there. You know, I wanna move to capital structure real quick before we close it out. With the recent rise in interest rates, capital structure strategies are becoming more in focus for investors. We're getting more questions from investors about our company's capital structures. Can you provide just a roadmap on how you think about your debt structure and how you anticipate managing it over the coming years? How are you gonna balance that against, you know, your $400 million share authorization? Brian, great question, and I think as we've kind of looked at the changing landscape on interest rates and where things are or have been heading and where we're expected to head, we initially had the luxury of time because the next trip of debt that was coming due was in 2025. We just thought we'd play a bit of a waiting game to see where things land. If you look back at our history, our leverage against EBITDA has ranged from four to six times, somewhere in that range. If interest rates stay at current levels, obviously I think we're gonna have much leverage on the balance sheet, and we'll probably turn more towards that lower end of that range. If interest rates start reverting to the lows that we saw in 2021, you can probably be more towards the higher end of that range. That I would kind of bracket where leverage would be. What we would expect to do, though, is essentially deleverage naturally through growing earnings, because we have time to actually refinance our next structures. I think with the natural growth in the business, the leverage automatically comes down until we get to the next refinancing point. Our capital allocation principles don't change. I mean, it's return of capital to shareholders with dividends and share repurchases. We'll continue to deploy in that fashion, and that consistency is expected. Great. You know, lastly, you are gonna host a 2023 Investor Day. You're gonna host it in the fourth quarter, an event that we're very excited to attend. You know, I don't know if you're willing to give us a sneak peek or, you know, I know you don't wanna give us all your cards about what you're gonna show us at Investor Day, but is there any, you know, thing you want investors thinking about your communication goals for this event? What are you trying to accomplish with this Investor Day? Well, I think it's actually pretty simple in terms of construct. I'm not gonna give you details right now, but that's what we're gonna be listening. What we wanna do is highlight our strategic initiatives and really the top strategic initiatives. What we wanna do is go show you the financial outcomes as a result of those strategic initiatives, and then help bridge the gap between those initiatives and those financial outcomes, so you get some level of granularity on how we're gonna get there, and give you the confidence on how we're actually gonna get there in our execution plans. That's the high-level idea of what we want to do with that Investor Day, and I think you're gonna see that by the showcasing of all of our resources that we'll bring to the discussion. Great. Well, somehow we're already out of time. Time flies. Thank you so much for participating in our 2023 Consumer Conference. We appreciate your time, and we hope you have a great rest of your day. Thank you, everybody, for joining us on the webcast. That's Domino's Pizza. Thank you. Thank you, Brian.