Hello, everyone, and thank you for standing by. My name is Ellie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Christine McDevitt, Krispy Kreme Associate General Counsel. Please go ahead.

Hello, everyone, and welcome to Krispy Kreme's Third Quarter 2025 Earnings Call. Thank you for joining us today. This morning, Krispy Kreme issued its earnings press release for the third quarter of fiscal 2025. The press release and an accompanying presentation are available on our Investor Relations website at investors.krispykreme.com. Joining me on the call are President and Chief Executive Officer, Josh Charlesworth; and Chief Financial Officer, Raphael Duvivier. After their prepared remarks, we will host a question-and-answer session. But before we begin, please note that during this call, we will be making forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations, future events, or future financial performance. Forward-looking statements involve a number of risks, assumptions, and uncertainties, and we caution investors that many factors could cause actual results to differ materially from those contained in any forward-looking statements. These factors and other risks and uncertainties are described in detail in the cautionary statements in our earnings press release, our annual report on Form 10-K filed with the SEC and in other SEC filings we make from time to time. Forward-looking statements represent our expectations only as of today, and we assume no obligation to publicly update or revise any forward-looking statements, except as may be required by law. Additionally, during this call, we will reference certain non-GAAP financial measures. Please refer to our earnings press release on our website for additional information regarding those non-GAAP measures, including a reconciliation to the closest comparable GAAP measures. Raphael will take us through our quarterly financial performance in a moment. But first, here's Josh.

Thank you, Christine, and good morning, everyone. I am pleased with the early progress we are making on our turnaround plan to deleverage the balance sheet and deliver sustainable, profitable growth as reflected in our third quarter performance. As a reminder, we are focused on: one, refranchising; two, improving returns on capital; three, expanding margins; and four, driving sustainable, profitable U.S. growth. First, refranchising enables us to more profitably drive system-wide sales growth and accelerate unit development through our capital-light franchise model. We are already working toward refranchising certain international markets as we look for experienced long-term potential partners to operate and expand our iconic brand around the world. We also plan to restructure our joint venture in the Western U.S. with the WKS Restaurant Group, which today represents approximately 15% of our U.S. revenues. Restructuring is expected to reduce our ownership to a minority stake. We are happy with the strength of our operations in the WKS joint venture and look forward to future capital-light expansion across 10 Western U.S. states. Proceeds from international refranchising and the WKS restructuring are expected to be used to reduce net debt. Second, our focus on improving returns on capital involves reducing capital intensity by leveraging existing assets and focusing on franchise development. As part of this approach, we have lowered our CapEx spending for the back half of 2025 compared to the first half of the year. And in aggregate, annual CapEx will be significantly below 2024 levels. In the U.S. next week, we will open our Hot Light Theater Shop and production hub in Minneapolis, bringing Krispy Kreme to an area where fans have been eagerly anticipating our arrival. Overall, though, we have reduced investment in building new hubs, preferring to leverage existing excess capacity for growth where available. Looking ahead…

Thank you, Josh. Through our comprehensive turnaround plan, we have pivoted to better position ourselves for sustainable, profitable growth. As I mentioned in August, my immediate focus as CFO is deleveraging the balance sheet, improving profitability in the U.S. during the second half of this year and leading our refranchising efforts to evolve Krispy Kreme to a more capital-light franchise model. The third quarter provided us with an encouraging start as we grew adjusted EBITDA 17% year-over-year or 20% if you exclude the sale of our majority stake in Insomnia Cookies in the third quarter of 2024. Adjusted EBITDA was $40.6 million in the third quarter, more than double what we saw in the second quarter. We also delivered positive free cash flow of $15.5 million. These results reflect the early progress we are making on our turnaround plan, reducing our net leverage by 20 basis points compared to second quarter. We have excess liquidity of over $200 million as of the third quarter, which I believe provide us with the flexibility to meet both short-term obligations and long-term investments as we continue to implement our turnaround plan. Net revenue for the quarter was $375.3 million with 0.6% organic revenue growth driven by the International segment, offset by the strategic closure of underperforming doors, primarily in the U.S. Total net revenue declined by 1.2% compared to last year, largely due to the sale of a majority stake of Insomnia Cookies. Adjusted EBITDA was $40.6 million, up from $34.7 million last year. We generated nearly as much adjusted EBITDA in the third quarter as we delivered in the first half of 2025. These results were positively impacted by productivity initiatives, SG&A savings, and the removal of costs from the now ended McDonald's USA partnership, combined with recoveries from business interruption insurance…

Thanks, Raphael. In summary, we are making progress on our comprehensive turnaround plan to deleverage the balance sheet and deliver sustainable, profitable growth. We are focused on refranchising, improving returns on capital, expanding margins, and driving sustainable, profitable U.S. growth. I am confident in our ability to capitalize on the significant growth opportunity ahead and share the joy of Krispy Kreme with more people in more places around the world. Operator, let's now open it up for Q&A, please.

[Operator Instructions] Your first question comes from the line of Daniel Guglielmo of Capital One Securities.

You all mentioned great momentum in the International segment, and we have seen international strength versus the U.S. for other global brands this earnings season. Are you seeing continued strong trends in those markets for 4Q? I think you mentioned Japan and Mexico adjusted EBITDA growth this year -- this quarter.

This is Raphael. I can take the question. Thank you for the question. Yes, we did see, and as you can see from the results in international, we saw year-over-year growth, but also more important, a growth in the quarter, which we have not seen in the past quarters. We continue to see good momentum. You mentioned Mexico and Japan, they continue to deliver, but also the markets that we don't own, the international franchise markets, we continue to see growth in places like Brazil, where we've just opened and the places that we're actually planning to open. So we continue to see strong momentum there.

Okay. Great. I appreciate that. And then I think in the commentary, it seemed like there is going to be some DFD expansion in some of the international markets. Can you just talk about some learnings that you've taken away from the U.S. expansion that you're going to kind of think about as you're doing this expansion in international? It would just be helpful to understand.

Yes, it's a great question. Look, we learned a lot with DFD over the years. And as we expand internationally, we have the hub and spoke in mind. So as we go in places where we already have the DFD in place internationally, think about U.K., think about Mexico, Japan, but also the places we're expanding now, once again, new countries like Brazil or France, we are taking all those learnings. We know better and better what works. And it's interesting. When the brand is in the right place with the right partner, we see how DFD and the hub and spoke can operate very well.

Your next question comes from the line of Brian Harbour of Morgan Stanley.

I guess maybe can you just comment on sort of the U.S. demand environment as you saw in 3Q and kind of what's important here?

Yes, I'll take that. Q3 was very interesting for us because the results reflect the progress on our turnaround plan. Think about it, we intentionally exited from McDonald's restaurants and another 600 poor performing doors. So overall, that contributed to a small revenue decline, but a significant improvement in EBITDA and positive cash flow. So it was clearly the outcome of our actions, the rationalization program, though on U.S. doors is over. So instead, we continue to focus on high-volume, profitable doors going forward with strategic partners. We've actually added 1,000 of those year-to-date with people like Walmart, Target and Costco. And that's resulted in average weekly sales jumping back up over $600. So that is about the future. We intended to have that reduction in growth in the third quarter to drive the turnaround plan. Underlying all that, we're actually seeing U.S. trends improving. The consumer response, in particular to our specialty doughnut campaigns, we had Harry Potter in the late summer and just saw a successful Halloween means that my confidence in Krispy Kreme's long-term sustainable profitable growth is high.

Okay. What -- I guess, what additional cost things should we expect here just since the end of the year? And I know you're not guiding, right, but do you think that -- do you want to make any comments about where you think EBITDA could be in the fourth quarter?

Yes, I can take this. This is Raphael. Look, we saw a sequential improvement in EBITDA in Q3 as we saw in Q2 and are happy with the progress we made. The turnaround plan is working. And we continue to believe that as we enter Q4, we'll see sequential EBITDA improvement. As I said, we're not providing guidance, but we do expect Q4 EBITDA to be higher and to still be able to generate a positive cash flow in Q4.

The next question comes from the line of Sara Senatore of Bank of America.

Isaiah Austin on for Sara. My first question is around the comment on fully outsourcing U.S. delivery in 2026. Do you guys mind talking through the P&L implications? Does that create a lower cost per delivery or just a more like variable cost structure so that you don't need as much volume to lever expenses? And then I have a quick follow-up.

Yes, sure. This is an important program for us through our turnaround. You're right, we're now -- 54% of the network is outsourced to third-party providers, and we expect that to be the whole network in 2026. What we see is very high service levels. We're very pleased with the partners as we roll this program out. For now, on your P&L question, it's ensuring we have more predictable costs but interestingly, we see it as, in the long term, providing us a tailwind. If you recall, earlier in 2025, late '24, we were seeing the impact of casualty losses, and that exposure is reduced going forward. We also expect with the expertise of these partners who are focused every day on moving our doughnuts as logistics experts as opposed to us ourselves being the producers of the doughnuts, we expect operational improvements over time. They've already been identifying and sharing with us ideas around how they can use their technology and expertise to improve route management, for example. So a long-term tailwind for us. But for now, the impact on the P&L is more just ensuring we have predictable costs without any of the surprises of those casualty losses.

Excellent. And then just as a follow-up, just thinking about the recently announced expanded core menu lineup, just want to know like what prompted that change? And how do you all think about balancing variety versus complexity?

Yes. I mean it reflects -- we talk about long-term sustainable, profitable growth. That's seen us really focus on our core business. And there's nothing more core than our fresh doughnuts board at our doughnut shops across America. And we've been highlighting the original glazed itself, adding flavored glazes like chocolate glaze, strawberry glaze. But we also saw that we haven't refreshed and updated our assorted doughnut menu for many years. And we get a lot of input from consumers, social media, in particular, pointing out that there are favorite doughnuts from the past or even favorite ideas that they have that they would love to see. So we've been listening to the consumer. You'll see we've brought out with this new refreshed range, OREO Cookies with Kreme and New York Cheesecake, my favorite, the Biscoff Cookie Butter. And that's a response to consumer demand. Now we also think -- we've also done that. We've been really thoughtful about making sure that consumers have a good amount of choice and get a really awesome experience when they come to the Krispy Kreme Doughnut shop, all in the context of our turnaround plan, focusing on what we do best, making awesome doughnuts. And we're really looking forward to the impact of that.

[Operator Instructions] Your next question comes from the line of Rahul Krotthapalli of JPMorgan.

Josh, you have a large brand presence or brand equity that is probably even bigger than the company as many would say today. I mean discuss the growing supply or competition in the segment as we see a number of cake and cookie and other sweet treat brands in the market. And at the same time, many consumers are also being more mindful of spending generally and then also more conscious around the segment. Any thoughts you could like to share there? And then I have a follow-up.

Yes. We're very proud of the strength of the brand, both in terms of awareness and also in terms of what it means to people, particularly in sharing occasions, gifting occasions, makes us quite unique compared to others. It's a relatively infrequent purchase, just 2 or 3 times a year. So we don't really get impacted by those things. Instead, we find what's most important is making sure we really come with an awesome doughnut experience with our original glaze, most famously with the hot doughnut and continuously bringing news, as I just mentioned a moment ago, with innovation, specialty collections and being relevant at those important times of the year. I mean we're in hot doughnut season right now. It's really important that we saw a good response to the brand at Halloween and the whole holiday period coming up is an important one for us. So that's where we are focused, bringing moments of joy that people can share and enjoy with us.

And the follow-up is on the retooling the distribution network. I know you are like taking a full look on the entire DFD touch points now. Is there any changes to the thought process on kind of brands and partnerships you want to focus on going forward? Are we -- where are we in the journey there? And then also, is there any change in the kind of agreements or how you want to execute the drop-offs in this new model?

So we're continuously looking to improve our distribution network, looking at delivery timing, making sure that we are producing the doughnuts in close proximity to our customers, but also efficiently. So we really are doing a lot of work around that as part of our turnaround and continue to expect benefits from that. The big initiative for us was to exit from low-traffic doors. We had -- over time, we identified there were about 1,400 doors in the U.S. where the traffic wasn't high enough, and therefore, the weekly sales were good enough. And so we intentionally exited from those this year, but that program is done. So going forward, to your broader question, it is about expanding convenience and access to the brand. But only where the traffic is high enough and in-store visibility is really clear. That's when the conditions are right for us. What's great is we have several customers that already qualify against that. And they have plenty of upside opportunity. It's only recently in the last year or so that we entered Target, and we're really just starting out with Costco as 2 clear examples of that. And even more recently just got going with Sam's Club. So we have plenty of customers where we can go that are sort of proven with that high traffic. It's interesting and internationally that we see some other innovations such as the KFC we're seeing in the Middle East. But really in the U.S., the focus is on these big high-traffic locations in which we have plenty of runway, and they can support our long-term sustainable profitable growth.

Your next question comes from the line of Alexandra Gaillard of BNP.

This is Jaafar Mestari from BNP. Just wanted to clarify one thing in terms of the outlook where you talk about the remainder of 2025, you expect to see further improvement in adjusted EBITDA. Does that mean a Q4 '25 EBITDA higher sequentially than Q3? Is that a Q4 '25 EBITDA higher year-on-year than Q4 last year? Or is there any other way we should look at this?

I can take this. This is Raphael. Yes, that's the way you should read this. We do expect to see improvement in Q4 versus Q3 and also positive cash flow in Q4 as we generated in Q3. And as to 2026, we're still not providing guidance, but you can expect sequential improvement in EBITDA. And as I said, in Q2, we continue to focus on lowering CapEx spend. We will do this in the second half of this year, and we will lower CapEx for next year as well.

Thank you. There are no further questions. I'd now like to hand the call back to the CEO, Josh, for final remarks.

Well, thank you, everyone, for your interest in Krispy Kreme today. We saw we implemented a turnaround plan this summer to drive sustainable profitable growth and deleverage the balance sheet, and we are already seeing that turnaround underway. It's thanks in large part to our great Krispy Kreme team all over the world. So I thank you as well. Thank you. Goodbye.

Thank you for attending today's call. You may now disconnect. Goodbye.