Good morning. Welcome to The Wendy's Company Earnings Results Conference Call. [Operator Instructions] You may begin your conference.

Good morning. and thank you for joining our fiscal 2025 2nd quarter earnings conference call. After this brief introduction, Ken Cook, Interim Chief Executive Officer, will provide a business update and then Suzie Thuerk, Chief Accounting Officer and Global Head of FP&A, will review our second quarter results, share capital allocation priorities and our updated 2025 outlook. From there, we will open up the line for questions. Today's conference call and webcast includes a presentation, which is available on our Investor Relations website, ir.wendys.com. Before we begin, please take note of the safe harbor statement that appears at the end of today's earnings release. This disclosure reminds investors that certain information we discuss today is forward-looking and reflects our current expectations about future plans and performance. Various factors could affect our results and cause those results to differ materially from the projections set forth in our forward-looking statements. Also, some of today's comments will reference non-GAAP financial measures. Investors should refer to our reconciliations of non- GAAP financial measures to the most directly comparable GAAP measure at the end of this presentation or in today's earnings release. If you have questions following today's conference call, please contact me. I will now hand the call over to Ken.

Good morning. We appreciate you joining us today for our second quarter 2025 earnings call. Before we dive in, I want to say how honored I am to lead this great company. Wendy's has a powerful brand, a strong foundation and significant opportunity ahead. I want to start by thanking our franchisees and employees for their commitment to our customers and the progress we have made on our strategic initiatives. Our U.S. top line results and rest of year outlook are below the expectations we set at the beginning of the year as the consumer and competitive environment looks much different today than we anticipated. While our long-term strategy remains unchanged, we are increasing our focus to improve both execution and performance. I'll walk through the lessons we have learned and the actions we're taking as a result shortly. But first, I want to share why I'm so excited about the future and the opportunities we have to create value for our franchisees, employees and shareholders. Wendy's is an iconic brand loved by generations around the world, built on having the highest-quality food in QSR made from the best ingredients like fresh, never-frozen beef and has a track record of successful innovation for more than 55 years. We have over 7,300 restaurants across 35 countries and territories, with significant white space opportunities to expand our global footprint. Our franchisees and employees are deeply committed and passionate about the long-term success of the business, and we have a solid financial foundation with over $315 million of cash on our balance sheet, over $0.5 billion in annual adjusted EBITDA and significant free cash flow generation to continue investing in long-term growth and returning cash to our shareholders. When I took on this role in July, the first thing I did was speak…

Thank you, Ken, and good morning, everyone. I'm excited to join today's call and continue supporting the teams as we execute against our shared strategic priorities. Together, as One Wendy's, we are focused on driving long-term value for our franchisees and shareholders. I will start with our second quarter results, including an update on our operational initiatives and capital allocation during the quarter, followed by an update on franchisee financial performance. And last, I will share more details around our outlook for the remainder of 2025. In the second quarter, global systemwide sales declined 1.8% on a constant currency basis. This was driven by a decline in the U.S., where same-restaurant sales were down 3.6%. This was partially offset by higher systemwide sales in our International business. The decline in U.S. same-restaurant sales was driven by a decrease in traffic, partially offset by a higher average check. Same- restaurant sales at our U.S. company-owned restaurants outperformed the U.S. system by almost 300 basis points, declining 0.7%. This [ outperformance ] was driven by a strong third-party delivery growth and the implementation of our digital menu boards and FreshAI automated ordering technology. We are encouraged by this performance because it demonstrates that the changes we're implementing in our company-owned restaurants are working and can be scaled across the system. Shifting to our International segment. The Wendy's brand continued its strong momentum across the globe, delivering growth of 8.7% in systemwide sales and 1.8% in same-restaurant sales in the second quarter. We achieved systemwide sales growth across all regions with some of the fastest-growing markets, including Japan, where we have brought to life local partnerships, driving a 27% increase in systemwide sales; and in Mexico, where we saw a 16% increase in system-wide sales and continue to bring innovation and value to…

Thank you, Suzie. In closing, I want to reiterate my confidence in Wendy's strategic direction and our ability to capture the significant opportunities in front of us. Our global footprint is expanding, and international sales growth continues to be strong. We are acting with urgency to improve our U.S. business by knowing our customers better, increasing our focus and strengthening our partnership with franchisees. I'm confident that by operating together as One Wendy's, these actions will strengthen our foundation and enable us to reach our long- term potential. I'll now hand it over to Aaron to share our third quarter Investor Relations calendar.

Thank you, Ken. On September 18, we will be in New York City for an NDR hosted by JPMorgan. Then on September 23, we will be in Boston for an NDR hosted by Truist Securities. If you are interested in joining us at either of these events, please contact the respective sell-side analyst or equity sales contact at the host firm. We will now transition to the Q&A part of the call. [Operator Instructions] Operator, please queue up the first question.

[Operator Instructions] Our first question for today comes from David Palmer of Evercore ISI. Your line is now open. Please go ahead.

Great. Great. Forgive me if I'm going to make you repeat yourself on some of this stuff, but I just would love to hear your just honest assessment about what is working, what is not working from a marketing value, menu perspective so far this year. It sounds like you're moving from some collaborations and flavors that maybe less about Wendy's brand in the first half and maybe you're doing some more significant platform innovation that's really more Wendy's branded in chicken and beverage in the second half. I'm not really sure how much you're planning on the investment sort of levels changing in the second half, how much is contemplated in that second half guidance. So any color about how you're strategically shifting, given what you've seen in the first half and the plans for the second half?

Excellent. Great question, David. So I think it would be helpful to zoom out for a minute and look at how things have transpired over the year, and then we can talk more specifically about what we're doing about it in the second half of the year. If we go back in December of 2024, we went into 2025, expecting industry traffic to be better than in years past. This was supported by our own forecasts and also multiple third-party forecasts. And we built a programming calendar that was built to perform well in that environment. We had a combination of quality messaging and value with innovation in Frosty, chicken and beverage, and we had 3 big collaborations with Takis, Wednesday and Girl Scouts. As we started 2025, it was a noisy start to the year. We had weather significantly impacting us in the first 2 months of the year. And then in March, we saw the biggest decline in consumer sentiment in recent history. Consumers are behaving very differently, which resulted in a very different environment than we originally expected. So we then went to our inventory of tested marketing moves. And candidly, we were not confident that what was in there would resonate well with customers in that environment. So that was a big learning for us that we're addressing by building up that inventory of tested marketing place. So then, we put together the 100 days of summer. It looked great on paper. It had something for everybody, and it did ultimately have some bright spots in there. Frosty's performed well. A core menu innovation, combined with a successful media launch, Frosty sales were up 30% year-over-year in the second quarter, which was in line with our expectation. Other programming as part of the 100 Days of…

Our next question comes from Jeffrey Bernstein of Barclays. Please go ahead.

Great. One thing, just to clarify, I think, Ken, you just said that the -- I guess, the July U.S. comps were down 5 to 6. I just want to make sure I heard that correctly.

Yes, Jeffrey. That is correct.

Got it. Otherwise -- my question is just a bigger picture on the franchisees. You talked about the One Wendy's partnership. I'm wondering if you can share based on your conversations, maybe their current sentiment, their alignment to improve the comp. It would seem like value is more critical than ever. So I'm just wondering -- I know in your prepared remarks, you talked a lot about in the second half, collaborations, beverage innovation and chicken tenders. Other than that, I think you just mentioned maybe more value on the app. But just trying to get a sense for franchisee sentiment and their willingness to perhaps be more aggressive on value, which seems to be what the competition is pushing more aggressively.

Thanks for the question, Jeff. I would say, I've spent a lot of time with franchisees over the past several months and even more in recent weeks. And I would say Wendy's has a good relationship with franchisees today, but we have an opportunity to make it great. And by moving from good to great here, we can unlock tremendous value by operating together as One Wendy's. And when I say One Wendy, that means ensuring the entire Wendy's system, our employees, management teams, franchisees, restaurant teams are all aligned on where we are going and working together to get there. So I'll share a few quick examples of the opportunities. One piece of feedback from franchisees is they shared examples of when the brand would share info that would affect them with others before sharing it with actually our franchisees. And one example of that is the earnings call today. This causes a lot of back and forth and waste of time tracking down the truth. So it's a small change, but we committed to tell them things in advance. So earlier this week, the SLT and I had a call with franchisees to let them know about the changes to the second-half programming before we went out and announced that publicly on the call today. So that's a small thing, but it does go a long way to establish a stronger partnership and enhance trust. Another thing from franchisees is prioritization. They want prioritization, and we can help them do that in a big way. We need to better prioritize and sequence initiatives that take up capacity in the restaurants and require change in the restaurants. And doing that will help better set up our restaurant teams for success. In order to prioritize, it's really important that we…

Our next question comes from Rahul Kro of JPMorgan.

Clearly, there seems to be a lot of opportunity ahead to improve franchise operations and profitability, especially given all the details and the road map you guys laid out. Is there a thought process around revisiting the U.S. franchise development, '26 and beyond, especially the funded franchise development, given the fact like the operations improvement could take a while before we see the divergence close between company and franchise performance? And I have a follow-up.

Yes. Great, Rahul. Thank you for the question. I think we are committed to doing everything we can to help improve franchisee economics. We have some really exciting initiatives underway today. One of those is the new data analytics capability that we have historically. We've relied on third-party data that gave us a view of national customer behavior with our competition. We're going to get a lot more granular and eventually have regional and restaurant- level visibility to help them inform their decisions and help us inform our decision. So really excited about the potential for that. And then the other thing is this is the first year we've collected granular P&L details at the restaurant level. So really excited about the opportunities that we have to unlock profit growth through that. Suzie, why don't you share a couple of more details?

Yes. Thanks, Rahul. So we are really excited about getting down to that restaurant level. In my prepared remarks, I mentioned the franchisee right now is -- we're having conversations at a franchise entity level. And now we're able to get down into specific areas of the P&L. So for example, we're having detailed conversations about line items like take food waste or labor supplies, for example, and we're comparing those to benchmark within the system. And so we can take a restaurant that has performance within those ranges and apply those learnings into the restaurants with similar characteristics, and we're making immediate impact on the actions we can take to improve restaurant economics. So we're having really good discussions, and that's a testament to the investments that we're making in the field. So those investments are paying off, and we're really excited.

Yes. And one thing I'd add to that, Rahul, the more we can improve the economics of a Wendy's restaurant, the more franchises that we're ultimately going to sell, the more restaurants that we're going to open. So that is where we are focusing.

Perfect. And at what point do we start to see the customer satisfaction scores translating to the same-store sales growth, not just in the company stores, but also the franchise stores? And are you tracking that actively as well?

We absolutely are tracking that. We believe that hospitality and enhancing the customer experience is one of the most important areas that we can use to drive customer frequency. And we have tremendous opportunity to increase the frequency of the folks who are already visiting Wendy's today. And that customer satisfaction is a big tool that we can use to get there, which is why we invested in significantly expanding the U.S. field team earlier this year. and we are already starting to see progress in those areas. If we look at overall customer satisfaction at orders through employees, that's actually up 140 basis points year-over-year, second quarter of '25 versus the second quarter of '24. And then we had an even bigger improvement in our digital orders. Those orders, the improvements have really centered around two things: accuracy. So we've talked about deploying scale so that we can weigh those digital orders to make sure we're not missing anything. That has resulted in a significant improvement in accuracy in our digital orders. And then our hospitality scores are also up year-over-year. We're really excited about that. And when we think about when that's going to drive frequency, I think it's kind of like a flywheel that has a cumulative effect. So we're up 140 basis points on employee orders year-over-year. We're going to continue to build on that. And I think the higher you go, the more impactful it becomes to frequency, and the frequency also builds on itself. So if you think about somebody now, for example, that's coming to Wendy's once every 2 or 3 months, okay, if I increase that frequency from 3 months to 2 months and then they continue to have great experiences, we have the potential to increase it from 2 months to 1 month, and those continue to build on each other. And the more velocity we can drive through these restaurants, further enhances the quality of the food and the experience that customers get. So it's a flywheel. We're early innings right now, but pleased with the progress that we've made so far.

Our next question comes from Brian Mullan of Piper Sandler. Please go ahead.

Ken, I'd like to get your perspective of something else that maybe is influencing the same-store sales, but I would like to hear what you're thinking. Earlier this week, the largest player in the industry essentially said, for a lot of consumers, their perception of value comes from the core menu and the prices they see on the menu boards. I'm just curious to get your take on that for the industry and for Wendy's separate from the programming which you've discussed and even the value with the Biggie Bag. Is there anything that needs to be done to address the pricing of the everyday core menu?

I appreciate the question. I think it's absolutely something that we'll look at, and we will have more capabilities to precisely answer that question with the new data analytics capability that we have. Obviously, it's something we look at. We know when we start talking about price, it's about several things. It's about the quality of food, it's about the experience that customers have and price. So that's one component that we'll be looking at. Again, I think when you look at the legacy of Wendy's, it's really built on having that highest-quality food in the industry. So you're going to hear us talk a lot more about that moving forward. But yes, price and pricing contracts is one thing that we will evaluate with this new data analytics capability.

Our next question comes from Jake Bartlett of Truist.

I had a question, and then I had a clarification. Actually, the clarification first. And that is just the comments on kind of running too much and having kind of a little bit of a cluttered marketing calendar, and what you've done in the back half is decluttered that and decreased it. I just want to make sure I understand, was that -- I mean, was the problem from an execution standpoint, was it from a marketing standpoint, where the consumer may be didn't get one big loud message? But what was the problem with your marketing calendar to date? And why do you see a need to change it going forward? And then I had another question.

Great question, Jake. I think in hindsight, again, when we drew it up, it looked great on paper because it did have something for everybody. I think we're -- what we found out and what we learned was that it created confusing messages to consumers. When I walked up to Wendy's and I've seen 8 different deals at point of purchase, I wasn't sure what I was coming for. And so we created some confusion with customers. And then I think from a restaurant execution perspective, when you start launching all this volume of programming at them, it does require training and change. So even the point-of-sale terminals, we have to update those, and then the cashier has to be trained on how that works. A personal example, I was in a Wendy's and somebody came in and ordered one of the new promotions that we are running. And the cashier, it took them 30 to 45 seconds to actually find the right key on the POS. So that's one small example that's illustrative of just the complexity of executing this in our restaurants and trying to throw too much at the system at one time. So we did simplify the menu programming in the back half of the year. We're going to focus on two big things. We're going to do it exceptionally well, while at the same time continuing to enhance the customer experience through hospitality and accuracy, and we're really excited about what the cumulative effect of those things will be as we look towards the future.

Great. And then just a question on chicken. There are some reports that you've changed your patty. Maybe just to make some comments there, just some clarifications of what has been done to the chicken pie that you're offering? And then the other question was just about -- or part of that was about your focus on chicken in the back half of the year. Obviously, a focus for others a pretty -- an important category for the consumer but also pretty clouded. What is the thinking in terms of really focusing in there? And any other details on testing of your tender for instance, and just your approach there?

No, happy to. So we continue to use the highest-quality ingredients in QSR. Obviously, different products will source things different ways just to make sure we have the best mix of price and value for our customer. I think in terms of chicken, obviously, it's been a very fast-growing protein within QSR, and we really like how our product stacks up against the competition. So in the test that we ran, our chicken tenders performed better than our largest competitor and it performed towards the top of the entire competitive set, including those who specialize in chicken. So we're really excited about the quality of this offering. And with the launch of the tenders, we're also launching 6 new sauces that we're really excited about, including a Wendy's signature sauce. So I think that's going to be great. And then this also gives us the ability to innovate off of this core menu item going forward, which also gives us a lot more potential to do things differently in that protein chicken category.

Our next question comes from Dennis Geiger of UBS. Please go ahead.

I wanted to ask a little bit more on the company comp outperformance and specifically, what you mentioned and alluded to that you're seeing in third-party delivery, but more importantly, the implementation of the digital menu boards and the FreshAI. Anything more to unpack there, what you're seeing and kind of the lift that you're seeing across those initiatives?

Yes. Dennis, this is Suzie. We're really proud of our company investments in the technology initiatives. And fun fact that you asked for, so our mix in our company restaurants is outperforming that of the system, and that's really driven by that automated ordering technology, recommending products based on seasonality or popularity of certain products. So really happy about that. In terms of other initiatives, the training and employee turnover that we recommended, those are -- those investments are paying off in our restaurants, and we're really proud of that.

Our next question comes from Andrew Strelzik of BMO Capital Markets. Please go ahead.

This is Jared Hludzinski on for Andrew. In the first quarter, you called out the breakfast daypart is softer than rest of day. Just curious if this trend has continued into the second quarter and if you could provide any additional insights on performance across the other dayparts.

Yes. Thanks for the question, Andrew. Yes, breakfast continued to perform worse than rest of day in the second quarter, which makes sense when you look at what's happening from a consumer behavior perspective. When consumer uncertainty increases and consumers choose to eat another meal at home, breakfast is often the first place that they do that with. So yes, breakfast continues to perform worse than rest of day. What we're doing about it is we are excited about our new beverage lineup. Obviously, breakfast is also a very habitual daypart that often centers around beverage. And so we are launching a new cold brew coffee to take advantage of some trends that we see in the marketplace, with cold foam add-ins for somebody who wants a more indulgent drink in the morning. This is also easy for our restaurant teams to execute on the cold brew side. And then really excited about sparkling energy, which we think also has potential to browse both the breakfast daypart and rest of day, leveraging the Coca-Cola Freestyle machines so that we can offer something that's uniquely Wendy's in the pineapple citrus and the Cherry Limeade Sparkling Energy drinks. So both of those things, we think, are going to help us at breakfast as well as rest of day.

Our next question comes from Danilo Gargiulo of Bernstein.

Great. First of all, I encourage you to hear that the franchisee EBITDA grew by about 22% in '24. I was wondering if you can help us understand how you expect the pressure that you see this year in terms of sales deleverage and common inflation perhaps increase, and we heard some larger players talking about mid-single-digit inflation due to this. I was wondering if you can help us understand, what's your expectations in terms of unit growth for next year in the context of the franchisee leverage in the system? And whether do you expect to see some higher pressure from a closure standpoint next year? And if so, what do you expect Wendy's to do to step in and support franchisees in case that would be a possibility?

Yes. Thanks, Danilo. So I'll start and then turn it over to Suzie to give some additional color. The good news with our franchisee system is we are starting from a position of strength. So in 2024 in the U.S. and Canada, franchisees grew sales, EBITDA and margin. So that's the trifecta, and we're happy about that. Obviously, when sales are down, it does put pressure on the system. That is why we are working so hard to grow the top line to improve hospitality and focus on the things that we can execute with excellence in the second half of the year, setting ourselves up really well for the longer term. So overall, we feel good about the health of the U.S. system. Of course, there will always be restaurants that are -- that underperform the average, and we'll work with them on a case-by-case basis. We also are very excited about the new tools and visibility we have to help them like the granular franchisee restaurant-level P&Ls that we have. And Suzie, why don't you share an example of that?

Yes, these are the conversations that we're having with franchisees on a regular basis with getting that information on the restaurant level, we're able to have more proactive conversations. And franchisees aren't just sharing information with us and us with them, they're sharing it amongst each other. So that's really exciting to see as well, is that they're sharing what works across the system. And that will provide a flywheel for the restaurant economic model. As I stated, we're in the early innings of this, and we're transitioning into the analysis and insights part of that program. But what we've seen thus far is very encouraging and really exciting for the system.

Yes. And regarding your question on net unit growth, what we're focused on is creating an exceptionally compelling economic model at the restaurant level. And we feel very confident that when we do that, it creates a flywheel where a big pool model where people want to build restaurants as fast as they possibly can. So interest outlined there, and we feel very good about our prospects to continue our net unit growth trajectory in 2025 and beyond.

Our next question comes from Jim Salera of Stephens.

I was hoping you might be able to give us a little bit of a debrief on the Takis collab and why that fell short after kind of a strong opening And then if you can maybe also give us an update on the Wednesday, LTO compared to something like SpongeBob last year, just so we can get a sense for how that's performing and guest engagement on that.

Yes, happy to. So starting with Takis, we saw week 1 perform well, in line with our expectations. And then we saw the following weeks tail off and underperformed our expectations by a little bit. That was due to multiple reasons. One of them was secondary trial. So we didn't see as much secondary trial as we had expected. This is another thing, a learning for us that we have the opportunity to do more robust testing on some of these collaborations in advance that could flag things like that for us and help us optimize things like duration of collaborations like Takis. Regarding Wednesday, we just launched this week. I would say it's performing in line with expectations, so we're pleased about that and excited to continue to use collaborations to get new people into Wendy's restaurants and then leverage our core menu and exceptional customer experience to bring them back time and time again.

Our next question comes from Margaret-May Binshtok of Wolfe Research.

I just wanted to ask on the 100 Days of Summer campaign. I know you guys talked a little bit about some messiness there, but was there any silver lining in terms of a slight bump in value perception? And then I know last time you guys talked about that platform leading into a full winter value calendar. Is that something that is still on the table?

Yes. Thanks, Margaret. I think we need to be very clear about what the focus is to make sure everybody knows where we're going and is working together to get there. So we have simplified the programming calendar in the second half of the year to focus on chicken and beverage, and we want to make sure that we do those two things exceptionally well. That being said, we know value is an important part of the menu, especially in this environment. And so we will continue to leverage our industry-leading value offerings there like our Biggie Bag. We do have a big opportunity to retell the quality story and remind customers that even for $5, you are getting the best quality food in all of QSR. And we think that's a really compelling value proposition. So we'll continue to look at that. The other thing that I'll say is, with the new data analytics capabilities that we have, has the potential to unlock some really impactful learnings for us as we start digging into the details over the coming months.

Our next question comes from Jon Tower of Citi. Please go ahead.

I just want to unpack your commentary regarding advertising spend. And specifically, you had talked about the idea of, I believe, concentrating a little bit more of your spending on these fewer campaigns, more impactful. When we're thinking about that, are you going to be spending a similar amount of dollars in fewer campaigns? And how as consumers should folks expect that to show up through different mediums throughout the year? And then more broadly, as systemwide sales dollars are lower than they were last year, are you contemplating maybe adding company to the advertising budget? I know it's something that the brand has done in the past when you built out the breakfast platform in order to keep -- in order to build that out. Is that something you're contemplating now, given the underperformance this year?

Thanks for the question, Jon. Let me start by saying we are extremely excited about the opportunity we have to increase the effectiveness of our media programs. The first step of that is this new data analytics capability that we have to be able to precisely measure the performance of certain advertisements and certain media campaigns and really get our finger on the true incrementality of those transactions and then be able to tell how successful we are at bringing those people back after those campaigns end. So we have a tremendous opportunity. And we're also looking at how to optimize our mix of spend. So from linear and digital and social perspective, we think we have big opportunities there as well, especially when you think about Wendy's history as a leader in the social space, how do we get that mojo back and do some great things on social. So those are all things that we're looking at. In terms of the company spend, we'll continue to evaluate all alternatives. When we find things that make sense and provide a good ROI for our franchisees and the company, those are investments that we'll make all the time. So that's definitely on the table as we evaluate what opportunities we have to improve sales and accelerate the flywheel. Regarding your question on advertising spend, we do expect advertising spend to be down in the second half of 2025 and both on a year-over-year basis and relative to the first half of the year, and we factor that into our guidance. If you think about the mechanics of it, as sales have come in below our expectations so far this year, it does compress the overall media budget that we have, which ultimately gets compressed into the back half of the year. So it has a larger impact as we near the end of the year, and that has been reflected in our guidance, but makes it really important that we leverage these new data capabilities to maximize the effectiveness of our media spend. And that's a work stream that we have already kicked off.

That was our last question of the call. I will now turn it back to Ken for a few closing comments.

While I know that 2025 is not shaping up the way we wanted it to, I am so excited about our future. I've spent lots of time with franchisees and our restaurant teams over the past few weeks. And one of the things I know for sure is that there is a tremendous amount of opportunity in the Wendy's system to accelerate growth and significantly increase profitability. This requires a lot of work, it requires bold decisions, and it requires us to focus on the handful of things that Wendy's can do better than anybody else. Working together as One Wendy's, we will capture these opportunities and create tremendous value for our franchisees, our employees and our shareholders. Thank you for listening.

Thank you for joining us. That concludes our call today. You may now disconnect.