Krispy Kreme Reports Second Quarter 2021 Results

Net Revenue Growth of 43% and Organic Growth of 23% – Adjusted EBITDA Growth of 78%

Krispy Kreme, Inc. (NASDAQ: DNUT) yesterday reported financial results for the second quarter ended July 4, 2021 and issued full-year and long-term guidance. The Company reported 43% net revenue growth and organic growth of 23%, following strong performance across all business segments. On a two-year stack basis, organic revenues grew 16% since 2019.

“These results show the ongoing success from the implementation of our growth strategy,” said Mike Tattersfield, CEO of Krispy Kreme. “Our continued delivery of organic revenue growth and Adjusted EBITDA ahead of our expectations demonstrates that our omni-channel approach is working. The second quarter saw great continued momentum in the U.S. and Canada, enhanced by strong ongoing recovery in International. As a result, we are confident in our short and long-term growth targets as we continue to execute on our strategy, providing awesome fresh doughnuts as we become the most loved sweet treat brand in the world.”

$ in millions, except per share data

Q2
2021

%

vs 2020

%
vs 2019

First Half 2021

%

vs 2020

Net Revenue

$349.2

42.6%

49.8%

$671.0

32.6%

Organic Revenue Growth(1) (2) (4)

$55.0

22.5%

15.7%

$76.8

15.2%

GAAP Net Income/(Loss)

$(15.0)

(28.3)%

(69.6)%

$(15.4)

32.1%

Adjusted Net Income(2)

$20.5

254.1%

199.1%

$38.1

125.5%

Adjusted EBITDA(2)

$52.4

77.8%

64.5%

$98.8

49.9%

Adjusted EBITDA Margin(2)

15.0%

+300bps

+130bps

14.7%

+170bps

GAAP Diluted EPS

$(0.13)

(30.0)%

$(0.16)

15.8%

Adjusted Diluted EPS(2)

$0.13

225.0%

$0.25

108.3%

Global Points of Access(3)

9,575

69.9%

58.5%

Notes:

  1. Organic revenue growth negatively impacted by $27.1 million in Q2 2021 and $57.9 million in the first half of 2021 due to exit of the legacy wholesale business.
  2. Non-GAAP figures – please refer to Reconciliation of Non-GAAP Financial Measures.
  3. Does not include legacy DSD doors as it only includes “fresh” points of access.
  4. Organic Revenue Growth “% vs 2019” figures are calculated as a two-year stack.

Second Quarter Consolidated Results

Krispy Kreme’s second quarter results showcased strong, accelerating growth compared to both before and throughout COVID-19. Organic revenue grew 22.5% in the quarter, up from a 6.7% decline in the second quarter of 2020 and from 3.1% growth in the second quarter of 2019. Organic revenue growth was driven by our International segment, which performed stronger than prior to the COVID-19 pandemic, as well as by the ongoing transformation of our U.S. and Canada business into a fully-implemented Hub and Spoke model (each as defined below).

Adjusted Net Income grew 254.1% to $20.5 million in the quarter. We saw a GAAP net loss of $15.0 million, largely driven by initial public offering (“IPO”) costs, related-party interest expense, and incremental tax expenses associated with the United Kingdom corporate tax rate change and limitation of executive compensation expense deduction as a result of the IPO. Adjusted EBITDA grew 77.8% to $52.4 million, and Adjusted EBITDA margin of 15.0% also increased from 12.0% the previous year. GAAP diluted loss per share was $0.13 for the second quarter of 2021, with Adjusted Diluted EPS increasing to $0.13 from $0.04 in the second quarter of 2020.

Key Growth Drivers: Our second quarter in 2021 illustrates the continued and successful execution of our growth algorithm, centered on three key elements that combine to drive growth on both the top and bottom lines:

Increasing frequency through marketing, innovation, and ecommerce. Year to date, our marketing and innovation generated over 16.3 billion media impressions in the U.S. alone, largely driven by the success of our vaccine program and innovative product rollouts. In addition, ecommerce comprised 19% of total company shop sales, representing strong progress as we continue to expand our ecommerce platforms.

Increasing availability of our fresh doughnuts through new points of access as we execute on our omni-channel strategy. In the first half of the year alone, we have added 1,300 global points of access, driven by the transition from our legacy wholesale business to Delivered Fresh Daily (“DFD”). We continue to focus on adding approximately 800 to 1,000 points of access per year as we execute our omni-channel strategy.

Increasing profitability, largely driven by ongoing recovery in the mature International business and the continued application of the Hub and Spoke model in the U.S. and Canada. In the second quarter, we grew our Adjusted EBITDA margin by 300bps to 15.0%, and we are investing in additional labor and delivery routes in order to expand our points of access through DFD and other channels.

Second Quarter Business Update

Executing on our Transformation: Our transformation is driven by the implementation of an omni-channel strategy to reach more consumers where they are and drive revenue growth, and this strategy is supported by a capital-efficient Hub and Spoke distribution model that provides a route to market and powers profitability. Our Hot Light Theater Shops and Doughnut Factories serve as centralized production facilities (“Hubs”). From these Hubs, we deliver doughnuts to our fresh shops and DFD doors (“spokes”) through an integrated network of company-operated delivery routes, ensuring quality and freshness. Since the end of 2020, we have increased our Spokes per Hub in the U.S. and Canada to 45 from 37, and in International to 71 from 65.

In order to measure the effectiveness of our Hub and Spoke model, we use “Sales per Hub” on a trailing twelve month basis, which includes all revenue generated from a Hub and its associated spokes. In the U.S. and Canada, we reached average Sales per Hub of $3.6 million, up from $3.5 million in the full year 2020 and up from $3.2 million at the beginning of our transformation in 2019. In our International markets, where the Hub and Spoke model is most developed, Sales per Hub at the end of the second quarter was $8.0 million, up from $6.4 million in the full year 2020 and $8.3 million at the end of the second quarter of 2019. As we further extend the Hub and Spoke model into existing and new markets around the world, we expect to see this measure continue to grow.

Growing our Points of Access: We continue to add quality points of access across our network as we convert markets into fully implemented Hub and Spoke models. As of July 4, 2021, we had 9,575 global points of access, with approximately 1,726 Krispy Kreme and Insomnia Cookies branded shops and 7,849 DFD doors. 73% of our global system is currently controlled and operated by the Company. We plan to continue adding new locations and expanding our ecommerce and delivery platform in order to extend the availability of our products. For the first time, as of today, 100% of our doughnuts in U.S. and Canada are delivered fresh.

Growing the Branded Sweet Treat Line: Our Branded Sweet Treat Line continues to gain momentum as production ramps up, in-store merchandising improves, and store count grows. As a result, Branded Sweet Treats in the second quarter demonstrated strong sequential growth, which we expect to continue in the quarters ahead. Branded Sweet Treat item velocities are strong, leading to the addition of new grocery customers and expansion of shelf-spaces, number of items carried, and increased merchandising opportunities with current customers. In addition, higher volumes create production efficiencies that further our ability to sell into new channels and customers, and this virtuous cycle makes us confident in the line’s continued growth in the quarters ahead.

Continued Strength of Insomnia Cookies: Insomnia Cookies’ digital-first approach continues to drive strong performance, supporting meaningful organic growth. In the quarter, Insomnia Cookies opened its CookieLab flagship shop in Philadelphia, which is an extension of Insomnia Cookies’ R&D lab, designed for sweet treat lovers of all ages to enjoy cookie innovation and customization. As of today, Insomnia Cookies has opened 200 cookie shops, demonstrating the brand’s continued growth across the country.

Second Quarter Market Segment Results

U.S. and Canada: In U.S. and Canada, GAAP net revenue grew to $230.9 million from $184.3 million the previous year, driven by a combination of franchise acquisitions and organic growth of 3.9%. Growth was driven by the expansion of our DFD network, higher DFD sales per door, continued distribution growth of our Branded Sweet Treat Line, including recent expansion to new customers, and the strong performance of Insomnia Cookies. As we continue our transformation and implementation of the Hub and Spoke model, the transition to DFD from our legacy wholesale business continues to drive strong results. Excluding the impact of exiting the legacy wholesale business, U.S. and Canada organic growth was 18.6%.

U.S. and Canada Adjusted EBITDA grew to $28.3 million from $27.6 million the previous year, with the efficiency benefits of the DFD expansion, improving traffic in New York City, and Insomnia Cookies all contributing positively. When compared to the second quarter of 2020, at the height of the pandemic when our lobbies were sometimes closed, labor costs have increased, impacting overall EBITDA growth. As we continue to expand our Hub and Spoke model in more cities, we are also hiring more employees or “Krispy Kremers” than ever before, as we take on newly-acquired shops, add routes and transition to DFD.

International: In International, GAAP net revenue grew to $89.2 million from $34.4 million the previous year, with organic growth of 125.9%. Organic growth in the quarter was driven by restrictions being lifted in the United Kingdom, where COVID-19 had led to a nearly complete closure of the business in the prior year, as well as a strong DFD and ecommerce performance. Australia, New Zealand, Ireland, and Mexico also contributed to organic growth while lapping the second quarter of 2020, which was heavily impacted by COVID-19 disruptions.

International Adjusted EBITDA grew to $23.7 million from $1.6 million the previous year, driven primarily by strong revenue growth relative to the prior year, when our network was impacted by COVID-19 related closures. Revenue growth significantly outpaced expense growth, leading to higher margins consistent with these more established Hub and Spoke markets. We expect the International segment to continue contributing to strong EBITDA performance as the markets have rebounded well to match or exceed their performance prior to the pandemic.

Market Development: In Market Development, GAAP net revenue grew to $29.0 million from $26.3 million the previous year, with organic growth of 17.0%. GAAP net revenue growth was driven mainly by the acquisition of Krispy Kreme Japan in the fourth quarter of 2020, while organic growth was primarily driven by improved market conditions for international franchise locations as COVID-19 restrictions in certain key markets continued to ease.

Market Development Adjusted EBITDA grew to $9.9 million from $7.9 million the previous year, driven by improved market conditions around the world.

IPO & Capital Structure

As of August 8, 2021, we have $118.7 million of cash, $738.7 million of bank debt, and $26.0 million of other debt-like items, for a total net debt of $646.0 million. The current share count is 167,112,953. With the proceeds of the IPO, our total net leverage ratio (defined below) is 3.6x, in line with our expectations, largely due to the payoff of a $500 million term loan facility.

On July 1, 2021, we successfully completed our IPO, in which we issued 29.4 million shares of common stock. Net proceeds of $460 million were received after the end of the second quarter and used primarily to pay down debt and reduce leverage. Subsequently, on August 2, 2021, our underwriters exercised their over-allotment option in part and purchased an additional 3.5 million shares, generating additional net proceeds of approximately $56 million, bringing total net IPO proceeds to $516 million. Because the IPO proceeds were paid after the end of the second quarter of 2021, there was a higher temporary net debt balance at the end of the quarter. However, the $345 million of related party notes were eliminated prior to the IPO and the majority of IPO proceeds received were utilized to pay down debt, which puts us in a favorable leverage position to continue our growth journey.

Financial Outlook

Krispy Kreme introduced the following guidance for the full year 2021:

  • Net Revenue of $1.34 billion to $1.38 billion (growth of 19.4% to 23.0%)
  • Organic Revenue growth of 10% to 12%
  • Adjusted EBITDA of $178 million to $185 million (growth of 22.4% to 27.2%)
  • Adjusted Net Income of $62 million to $68 million (growth of 46.4% to 60.6%)

The Company also introduced the following long-term outlook:

  • Organic Revenue growth of 9% to 11%
  • Adjusted EBITDA growth of 12% to 14%
  • Adjusted Net Income growth of 18% to 22%

We anticipate exceeding these long-term targets in the full year 2022.

We expect total net leverage to be under 3.0x in the next 12 months. In accordance with our dividend policy, we expect to pay an initial cash dividend of $0.035 per share for the quarter ending October 3, 2021. Thereafter, we expect to maintain a stable quarterly dividend until we reach our long-term net leverage policy of 2.0x.

About Krispy Kreme

Krispy Kreme operates in 30 countries through its unique network of doughnut shops, partnerships with leading retailers, and a rapidly growing ecommerce and delivery business.

       

Krispy Kreme, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share amounts and number of shares)

       

Quarter Ended

Two Quarters Ended

July 4,
2021 (13 weeks)

June 28,
2020 (13 weeks)

July 4,
2021 (26 weeks)

June 28,
2020 (26 weeks)

Net revenues

Product sales

$

341,223

$

236,608

$

654,808

$

488,144

Royalties and other revenues

7,963

8,364

16,187

18,044

Total net revenues

349,186

244,972

670,995

506,188

Product and distribution costs

85,017

68,958

165,014

137,106

Operating expenses

157,877

104,221

305,418

220,000

Selling, general and administrative expense

60,930

41,487

110,467

82,569

Marketing expenses

10,052

8,575

19,559

16,689

Pre-opening costs

1,752

2,863

3,143

6,300

Other (income)/expenses, net

(761)

1,339

(4,006)

2,510

Depreciation and amortization expense

25,194

18,097

48,595

37,184

Operating income/(loss)

9,125

(568)

22,805

3,830

Interest expense, net

9,793

9,711

18,042

18,355

Interest expense — related party

4,821

5,566

10,387

11,132

Other non-operating income, net

(416)

(2,660)

(858)

(112)

Loss before income taxes

(5,073)

(13,185)

(4,766)

(25,545)

Income tax expense/(benefit)

9,923

(1,500)

10,608

(2,912)

Net loss

(14,996)

(11,685)

(15,374)

(22,633)

Net income attributable to noncontrolling interest

2,146

945

4,829

1,512

Net loss attributable to Krispy Kreme, Inc.

$

(17,142)

$

(12,630)

$

(20,203)

$

(24,145)

Net loss per share:

Common stock — Basic

$

(0.13)

$

(0.10)

$

(0.16)

$

(0.19)

Common stock — Diluted

$

(0.13)

$

(0.10)

$

(0.16)

$

(0.19)

Weighted average shares outstanding:

Basic

132,351,087

124,987,370

128,669,228

124,987,370

Diluted

132,351,087

124,987,370

128,669,228

124,987,370

       

Krispy Kreme, Inc.

Segment Reporting

(In thousands) (Unaudited)

       

Quarter Ended

Two Quarters Ended

July 4,
2021

June 28,
2020

July 4,
2021

June 28,
2020

Net revenues:

U.S. and Canada

$

230,918

$

184,255

$

453,388

$

354,705

International

89,237

34,412

155,743

95,071

Market Development

29,031

26,305

61,864

56,412

Total net revenues

$

349,186

$

244,972

$

670,995

$

506,188

(in thousands except percentages)

U.S. and Canada

International

Market Development

Total Company

Total net revenues in second quarter of fiscal 2021

$

230,918

$

89,237

$

29,031

$

349,186

Total net revenues in second quarter of fiscal 2020

184,255

34,412

26,305

244,972

Total Net Revenues Growth

46,663

54,825

2,726

104,214

Total Net Revenues Growth %

25.3

%

159.3

%

10.4

%

42.5

%

Impact of acquisitions

(39,429)

1,750

(37,679)

Impact of foreign currency translation

(11,499)

$

(11,499)

Organic Revenue Growth

$

7,234

$

43,326

$

4,476

$

55,036

Organic Revenue Growth %

3.9

%

125.9

%

17.0

%

22.5

%

(in thousands except percentages)

U.S. and Canada

International

Market Development

Total Company

Total net revenues in first two quarters of fiscal 2021

$

453,388

$

155,743

$

61,864

$

670,995

Total net revenues in first two quarters of fiscal 2020

354,705

95,071

56,412

506,188

Total Net Revenues Growth

98,683

60,672

5,452

164,807

Total Net Revenues Growth %

27.8

%

63.8

%

9.7

%

32.6

%

Impact of acquisitions

(71,134)

(390)

(71,524)

Impact of foreign currency translation

(16,462)

$

(16,462)

Organic Revenue Growth

$

27,549

$

44,210

$

5,062

$

76,821

Organic Revenue Growth %

7.8

%

46.5

%

9.0

%

15.2

%

(in thousands except percentages)

U.S. and Canada

International

Market Development

Total Company

Total net revenues fiscal 2020

$

782,717

$

230,185

$

109,134

$

1,122,036

Total net revenues fiscal 2019

587,522

223,115

148,771

959,408

Total Net Revenues Growth

195,195

7,070

(39,637)

162,628

Total Net Revenues Growth %

33.2

%

3.2

%

-26.6

%

17.0

%

Impact of acquisitions

(121,671)

(42,811)

35,053

(129,429)

Impact of foreign currency translation

(906)

$

(906)

Impact of 53rd week

(15,615)

(3,287)

(1,603)

(20,505)

Organic Revenue Growth

$

57,909

$

(39,934)

$

(6,187)

$

11,789

Organic Revenue Growth %

9.9

%

-17.9

%

-4.2

%

1.2

%

   

Krispy Kreme, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except number of shares)

   

As of

(Unaudited) July 4,
2021

January 3,
2021

ASSETS

Current Assets:

Cash and cash equivalents

$

37,377

$

37,460

Marketable securities

744

1,048

Restricted cash

82

23

Accounts receivable, net

49,207

74,351

Inventories

38,500

38,519

Prepaid expense and other current assets

20,911

12,692

Total current assets

$

146,821

$

164,093

Property and equipment, net

415,319

395,255

Goodwill

1,095,369

1,086,546

Other intangible assets, net

1,003,948

998,014

Operating lease right of use asset, net

414,096

399,688

Other assets

18,027

17,399

Total assets

$

3,093,580

$

3,060,995

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Current portion of long-term debt

$

538,985

$

41,245

Current operating lease liabilities

46,763

45,675

Accounts payable

156,564

148,645

Accrued liabilities

165,826

124,951

Structured payables

139,748

137,319

Total current liabilities

$

1,047,886

$

497,835

Long-term debt, less current portion

626,417

785,810

Related party notes payable

344,581

Noncurrent operating lease liabilities

390,962

376,099

Deferred income taxes, net

150,687

144,866

Other long-term obligations and deferred credits

55,822

63,445

Total liabilities

$

2,271,774

$

2,212,636

Commitments and contingencies

Shareholders’ Equity:

Common stock, $0.01 par value; 300,000,000 and 174,500,000 shares authorized as of July 4, 2021 and January 3, 2021, respectively; 163,595,516 and 124,987,370 shares issued and outstanding as of July 4, 2021 and January 3, 2021, respectively

1,636

1,250

Additional paid-in capital

1,362,875

845,499

Subscription receivable

(471,250)

Shareholder note receivable

(3,827)

(18,660)

Accumulated other comprehensive income/(loss), net of income tax

1,304

(1,208)

Retained deficit

(162,399)

(142,197)

Total shareholders’ equity attributable to Krispy Kreme, Inc.

728,339

684,684

Noncontrolling interest

93,467

163,675

Total shareholders’ equity

821,806

848,359

Total liabilities and shareholders’ equity

$

3,093,580

$

3,060,995

   

Krispy Kreme, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

   

Two Quarters Ended

July 4, 2021

(26 weeks)

June 28, 2020

(26 weeks)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(15,374)

$

(22,633)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization expense

48,595

37,184

Deferred income taxes

7,995

(2,601)

Loss on extinguishment of debt

1,700

Impairment and lease termination charges

1,126

1,693

Loss/(gain) on disposal of property and equipment

148

(1,164)

Share-based compensation

10,658

6,141

Change in accounts and notes receivable allowances

110

717

Inventory write-off

776

Other

(425)

(76)

Change in operating assets and liabilities, excluding business acquisitions and foreign currency translation adjustments:

1,536

(5,325)

Net cash provided by operating activities

56,845

13,936

CASH FLOWS USED FOR INVESTING ACTIVITIES:

Purchase of property and equipment

(52,842)

(44,133)

Proceeds from disposals of assets

147

2,793

Acquisition of shops and franchise rights from franchisees, net of cash acquired

(33,888)

212

Principal payments received from loans to franchisees

45

362

Purchases of held-to-maturity debt securities

(55)

Maturities of held-to-maturity debt securities

277

116

Net cash used for investing activities

(86,261)

(40,705)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from the issuance of debt

540,000

263,097

Repayment of long-term debt and lease obligations

(541,353)

(97,496)

Payment of financing costs

(1,700)

Proceeds from structured payables

140,598

135,222

Payments on structured payables

(138,100)

(97,530)

Capital contribution by shareholders

120,932

Proceeds from sale of noncontrolling interest in subsidiary

53,256

17,592

Distribution to shareholders

(34,364)

(19)

Payments for repurchase and retirement of common stock

(102,698)

Distribution to noncontrolling interest

(6,018)

(5,612)

Net cash provided by financing activities

30,553

215,254

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(1,161)

249

Net (decrease)/increase in cash, cash equivalents and restricted cash

(24)

188,734

Cash, cash equivalents and restricted cash at beginning of period

37,483

35,450

Cash, cash equivalents and restricted cash at end of period

$

37,459

$

224,184

Supplemental schedule of non-cash investing and financing activities:

Accrual for property and equipment

$

1,381

$

6,105

Stock issuance under shareholder notes

446

Common stock issuance under subscription receivable in connection with initial public offering, net of underwriting discounts and issuance costs

459,685

Accrual for distribution to shareholders

(7,970)

Accrual for repurchase and retirement of common stock

(35,803)

Reconciliation of cash, cash equivalents and restricted cash at end of period:

Cash and cash equivalents

$

37,377

$

224,050

Restricted cash

82

134

Total cash, cash equivalents and restricted cash

$

37,459

$

224,184

   

Krispy Kreme, Inc.

Supplemental Information

   

Global Points of Access(1)

Quarter Ended

Fiscal Year Ended

July 4,
2021

June 28,
2020

January 3,
2021

U.S. and Canada: (2)

Hot Light Theater Shops

237

176

229

Fresh Shops

56

45

47

Cookie Shops

199

175

184

DFD doors (3)

5,067

1,923

4,137

Total

5,559

2,319

4,597

International:

Hot Light Theater Shops

28

27

28

Fresh Shops

354

354

348

DFD doors

2,264

1,657

1,986

Total

2,646

2,038

2,362

Market Development: (3)

Hot Light Theater Shops

113

168

119

Fresh Shops

739

705

732

DFD doors (2)

518

405

465

Total

1,370

1,278

1,316

Total global (as defined)

9,575

5,635

8,275

Total Hot Light Theater Shops

378

371

376

Total Fresh Shops

1,149

1,104

1,127

Total Cookie Shops

199

175

184

Total Shops

1,726

1,650

1,687

Total DFD Doors

7,849

3,985

6,588

Total global points of access (as defined)

9,575

5,635

8,275

1.

 

Excludes Branded Sweet Treat Line distribution points and legacy wholesale business doors.

2.

 

Includes points of access that were acquired from franchisees in the United States during the first quarter of fiscal 2021 and the second half of fiscal 2020. These points of access were previously included in the Market Development segment.

3.

 

DFD doors for both the U.S. and Canada and Market Development segments exclude legacy wholesale doors, which have been declining consistent with our strategy to evolve our legacy wholesale business to focus on the new DFD model and our new Branded Sweet Treat Line. As of July 4, 2021 legacy wholesale doors for the U.S. and Canada and the Market Development segments were substantially eliminated.

4.

 

Includes locations in Japan, which were acquired in December 2020 and are now Company-owned. As of the end of July 4, 2021, there were three Hot Light Theater Shops, 46 Fresh Shops and 53 DFD doors in Japan operating. As of the end of January 3, 2021, there were three Hot Light Theater Shops, 40 Fresh Shops and 24 DFD doors in Japan operating. All remaining points of access in the Market Development segment relate to our franchisee business.

 

Hubs

Quarter Ended

Fiscal Year Ended

July 4,
2021

June 28,
2020

January 3,
2021

U.S. and Canada:

Hot Light Theater Shops (1)

233

175

226

Doughnut Factories

5

7

5

Total

238

182

231

Hubs with Spokes

114

88

113

International:

Hot Light Theater Shops (1)

25

27

27

Doughnut Factories

12

9

9

Total

37

36

36

Hubs with Spokes

37

36

36

Market Development:

Hot Light Theater Shops (1)

112

165

116

Doughnut Factories

26

25

26

Total

138

190

142

Total Hubs

413

408

409

1.

 

Includes only Hot Light Theater Shops and excludes Mini Theaters. A Mini Theater is a spoke location that produces hot doughnuts.

       

Krispy Kreme, Inc.

Reconciliation of Non-GAAP Financial Measures

(In thousands)

       

Quarter Ended

Two Quarters Ended

(in thousands)

July 4,
2021

June 28,
2020

June 30,
2019

July 4,
2021

June 28,
2020

Net income/(loss)

$

(14,996)

$

(11,685)

$

(8,842)

$

(15,374)

$

(22,633)

Interest expense, net

9,793

9,711

11,776

18,042

18,355

Interest expense — related party(1)

4,821

5,566

5,693

10,387

11,132

Income tax expense/(benefit)

9,923

(1,500)

1,478

10,608

(2,912)

Depreciation and amortization expense

25,194

18,097

14,766

48,595

37,184

Share-based compensation

8,290

2,970

1,741

10,658

6,141

Employer payroll taxes related to share-based compensation

841

841

Other non-operating income, net(2)

(416)

(2,660)

(40)

(858)

(112)

New York City flagship Hot Light Theater Shop opening(3)

1,667

194

4,239

Strategic initiatives(4)

5,661

1

9,274

Acquisition and integration expenses(5)

223

812

2,650

2,375

4,423

Shop closure expenses(6)

2,786

2,786

Restructuring and severance expenses(7)

1,336

341

1,336

IPO-related expenses(8)

6,727

10,203

Other(9)

657

(1,956)

2,083

1,983

(1,964)

Adjusted EBITDA

$

52,393

$

29,469

$

31,841

$

98,796

$

65,913

Quarter Ended

Two Quarters Ended

(in thousands)

July 4,
2021

June 28,
2020

June 30,
2019

July 4,
2021

June 28,
2020

Net income/(loss)

$

(14,996)

$

(11,685)

$

(8,842)

$

(15,374)

$

(22,633)

Interest expense — related party(1)

4,821

5,566

5,693

10,387

11,132

Share-based compensation

8,290

2,970

1,741

10,658

6,141

Employer payroll taxes related to share-based compensation

841

841

Other non-operating income, net(2)

(416)

(2,660)

(40)

(858)

(112)

New York City flagship Hot Light Theater Shop opening(3)

1,667

194

4,239

Strategic initiatives(4)

5,661

1

9,274

Acquisition and integration expenses(5)

223

812

2,650

2,375

4,423

Shop closure expenses(6)

2,786

2,786

Restructuring and severance expenses(7)

1,336

341

1,336

IPO-related expenses(8)

6,727

10,203

Other(9)

657

(1,956)

2,083

1,983

(1,964)

Amortization of acquisition related intangibles(10)

7,627

6,192

4,687

15,076

12,572

KKI Term Loan Facility interest and debt issuance costs(11)

2,341

2,341

Tax impact of adjustments(12)

(798)

(3,573)

(4,632)

(4,820)

(8,967)

Tax specific adjustments(13)

3,816

1,400

3,947

Loss on extinguishment of debt(14)

1,567

Adjusted net income

$

20,469

$

5,780

$

6,843

$

38,095

$

16,891

Net income attributable to noncontrolling interest

(2,146)

(945)

N/A

(4,829)

(1,512)

Adjusted net income attributable to Krispy Kreme, Inc.

18,323

4,835

N/A

33,266

15,379

Adjustment to adjusted net income attributable to common shareholders

(424)

(253)

N/A

(417)

(150)

Adjusted net income attributable to common shareholders – Basic

17,899

4,582

N/A

32,849

15,229

Additional income attributed to noncontrolling interest due to subsidiary potential common shares

(120)

(18)

N/A

(145)

(27)

Adjusted net income attributable to common shareholders – Diluted

17,779

4,564

N/A

32,704

15,202

Basic weighted average common shares outstanding

132,351,087

124,987,370

N/A

128,669,228

124,987,370

Dilutive effect of outstanding common stock options and RSUs

3,507,228

2,921,671

N/A

3,384,547

2,871,797

Diluted weighted average common shares outstanding

135,858,315

127,909,041

N/A

132,053,775

127,859,167

Adjusted net income per share attributable to common shareholders:

Basic

$

0.14

$

0.04

N/A

$

0.26

$

0.12

Diluted

$

0.13

$

0.04

N/A

$

0.25

$

0.12

1.

 

Consists of interest expense related to the Related Party Notes which were paid off in full during the quarter ended July 4, 2021.

2.

 

Primarily foreign translation gains and losses in each period.

3.

 

Consists of pre-opening costs related to our New York City flagship Hot Light Theater Shop opening, including shop design, rent, and additional consulting and training costs incurred and reflected in selling, general and administrative expenses.

4.

 

The quarter and two quarters ended June 28, 2020 consists mainly of consulting and advisory fees, personnel transition costs, and network conversion and set-up costs related to the transformation of the Company’s legacy wholesale business in the United States.

5.

 

Consists of acquisition and integration-related costs in connection with the Company’s business and franchise acquisitions, including legal, due diligence, consulting and advisory fees incurred in connection with acquisition-related activities for the applicable period.

6.

 

Includes lease termination costs, impairment charges, and loss on disposal of property, plant and equipment.

7.

 

The quarter ended July 4, 2021 consists of severance and related benefits costs associated with the Company’s realignment of the Company shop organizational structure to better support the DFD and Branded Sweet Treat Line businesses. The quarter ended June 30, 2019 consists of severance and related benefits costs associated with our hiring of a new global management team.

8.

 

Includes consulting and advisory fees incurred in connection with preparation for the Company’s IPO.

9.

 

The quarter and two quarters ended July 4, 2021 consist primarily of legal expenses incurred for the period. The quarter and two quarters ended June 28, 2020 consists primarily of a gain on the sale of land. The quarter ended June 30, 2019 consists of lease impairment expenses related to our Winston-Salem office location incurred in connection with our Corporate headquarters relocation to Charlotte, North Carolina.

10.

 

Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the consolidated statements of operations.

11.

 

Includes interest expense of $0.6 million and debt issuance costs of $1.7 million incurred and recognized as expenses in the quarter ended July 4, 2021 in connection with the extinguishment of the KKI Term Loan Facility within four business days of receipt of the net proceeds from the IPO.

12.

 

Tax impact of adjustments calculated applying the applicable statutory rates. The quarter and two quarters ended July 4, 2021 also include the impact of disallowed executive compensation expense incurred in connection with the IPO.

13.

 

The quarter and two quarters ended July 4, 2021 consist primarily of the effect of the U.K. 2023 statutory tax rate change from 19.0% to 25.0% on existing temporary differences. The quarter ended June 30, 2019 consists of valuation allowances associated with tax attributes primarily attributable to incremental costs removed from the calculation of Adjusted Net Income.

14.

 

Consists of the write-off of debt issuance costs in connection with the refinancing of the 2016 credit facility.

 

Quarter Ended

Two Quarters Ended

July 4,
2021

June 28,
2020

July 4,
2021

June 28,
2020

Segment Adjusted EBITDA:

U.S. and Canada

$

28,285

$

27,551

$

55,848

$

49,188

International

23,673

1,618

39,021

12,811

Market Development

9,858

7,880

20,749

18,585

Corporate

(9,423)

(7,580)

(16,822)

(14,671)

Total Adjusted EBITDA

$

52,393

$

29,469

$

98,796

$

65,913

Trailing Four
Quarters Ended

Fiscal Year Ended

(in thousands, unless otherwise stated)

July 4,
2021

January 3,
2021

December 29,
2019

U.S. and Canada:

Revenues

$

881,400

$

782,717

$

587,522

Non-Fresh Revenues (1)

(82,271)

(128,619)

(112,051)

Fresh Revenues from Insomnia Cookies and Hubs without Spokes (2)

(389,762)

(323,079)

(271,067)

Sales from Hubs with Spokes

409,367

331,019

204,404

Sales per Average Hub with Spokes (millions)

3.6

3.5

3.2

International:

Sales from Hubs with Spokes (3)

$

290,857

$

230,185

$

223,115

Sales per Average Hub with Spokes (millions)

8.0

6.4

8.3

1.

 

Includes legacy wholesale business revenues and Branded Sweet Treat Line revenues.

2.

 

Includes Insomnia Cookies revenues and Fresh Revenues generated by Hubs without Spokes.

 3.

 

Total International net revenues is equal to sales from Hubs with Spokes for that business segment.

Quarter Ended

Two Quarters Ended

(in thousands except percentages)

July 4,
2021

June 28,
2020

June 30,
2019

July 4,
2021

June 28,
2020

Total net revenues – current year

$

349,186

$

244,972

$

233,030

$

670,995

$

506,188

Total net revenues – prior year

244,972

233,030

198,101

506,188

459,652

Total Net Revenues Growth

104,214

11,942

34,929

164,807

46,536

Total Net Revenues Growth %

42.5

%

5.1

%

17.6

%

32.6

%

10.1

%

Impact of acquisitions

(37,679)

(28,889)

(32,511)

(71,524)

(62,137)

Impact of foreign currency translation

(11,499)

1,240

3,718

(16,462)

2,939

Organic Revenue Growth

$

55,036

$

(15,707)

$

6,136

$

76,821

$

(12,662)

Organic Revenue Growth %

22.5

%

-6.7

%

3.1

%

15.2

%

-2.8

%