Krispy Kreme reports strong Fourth Quarter and Full Year 2021 results at the top end of guidance

Fourth Quarter Results

• Fourth quarter net revenue grew 13.8% with organic revenue growth of 13.9%

• Significant GAAP net income growth to +$4.3 million and Adjusted EBITDA grew 14.4% to $47.7 million

• Introduces 2022 guidance above our long term outlook

22, 2022 // GLOBE NEWSWIRE // - Krispy Kreme, Inc. (NASDAQ: DNUT) (“Krispy Kreme” or the “Company”) today reported strong financial results for the fourth quarter and full year ended January 2, 2022 with fourth quarter net revenue growing 13.8% year-over-year, or 21.

5% adjusted for the extra 53rd week in 2020. For the fourth quarter, organic revenue grew 13.9%, including the now fully-exited legacy wholesale business, or 19.

6% excluding this business, year-over-year. For the full year, net revenue grew 23.4%, while organic revenue grew 12.

5%, or 21.4% excluding the legacy wholesale business.

GAAP Net Income was $4.3 million compared to a loss of $24.8 million a year ago while GAAP diluted Earnings Per Share for the quarter was $0.

01 compared to a loss of $0.21 last year. Adjusted diluted Earnings Per Share was $0.

08 for the quarter, compared to $0.10 last year due to share dilution from the IPO. Adjusted EBITDA grew 14.

4% in the quarter led by a 290 basis point improvement to U.S. and Canada margins, driven by the strength and efficiency of the Company’s fresh doughnut hub and spoke operating model.

The economies of scale from adding over 2,000 Global Points of Access in the last 12 months, as well as successful price increases in September and November, more than offset wage and commodity inflation.

Business Segments

Growth was driven by the performance and expansion of Krispy Kreme’s capital-efficient hub and spoke operating model, and strong performances across all three business segments. Global Points of Access, which reflect all locations where fresh doughnuts and cookies can be purchased, increased 25% year-over-year, providing customers access to Krispy Kreme in more than 10,000 locations around the world. International Sales per Hub grew 42% year-over-year, while U.S. and Canada Sales per Hub grew 14%.

Commenting on the performance, CEO Mike Tattersfield stated, “Our fourth quarter and full year results demonstrate the benefits of our omni-channel model and global expansion strategy, which allow us to meet consumer demand with premium, fresh doughnuts. Our global Halloween campaign and seasonal limited time offerings resonated strongly with consumers which really maximizes the gifting and sharing occasions of the brand.”

Krispy Kreme’s fourth quarter and full year 2021 results reflected strong growth compared to both 2020 and pre-pandemic. Net revenue grew 13.8% in the quarter to $370.

6 million, or 36.6% on a two-year stack basis. Total company organic revenue grew 13.

9% in the quarter compared to the same quarter last year, and 15.9% on a two-year stack basis against 2019. Organic revenue growth in the quarter was driven by the International segment, as well as strong Delivered Fresh Daily (“DFD”) performance in the U.

S. and Canada business, which is a reflection of weekly average sales per door growing more than 55% during the quarter compared to the prior year. Total Company organic revenue growth for the fourth quarter, excluding the exit of our legacy wholesale business, grew 19.

6% compared to the fourth quarter of 2020, and was up 21.6% on a two-year stack basis excluding the exit of our legacy whole business with strong growth from both the U.S.

and Canada and International segments.

For the full year 2021, net revenue grew 23.4% to $1.384 billion, or 40.3% on a two-year stack basis. Organic revenue grew 12.5% in 2021, or 21.4% excluding the exit of our legacy wholesale business, as well as 13.7% on a two-year stack basis, driven by the increase in points of access and higher sales per DFD door.

GAAP Net Income for the quarter was $4.3 million, compared to a GAAP Net Loss of $24.8 million in 2020.

Adjusted EBITDA in the quarter grew 14.4% to $47.7 million.

Operating margins grew 430 basis points to 4.4% while Adjusted EBITDA margin grew 10 basis points to 12.9% from the same quarter in 2020, as a result of improvements in our U.

S. and Canada segment led by our DFD business. Adjusted Net Income grew 17.

1% to $16.0 million in the quarter. GAAP Diluted EPS in the quarter was $0.

01 compared to a net loss of $0.21 in the same quarter last year with Adjusted Diluted EPS decreasing to $0.08 from $0.

10 in the fourth quarter of 2020, as a result of an increased share count following the IPO.

For the full year 2021, GAAP Net Loss for 2021 was $14.8 million, compared to a GAAP Net Loss of $60.9 million in 2020. Adjusted EBITDA grew 29.2% to $187.9 million in 2021. In 2021, Operating margins grew 260 basis points to 3.0% while Adjusted EBITDA margin was 13.6%, a 60 basis point improvement over 2020 led by strong performance from our International segment. Adjusted Net Income for 2021 grew 57.6% to $66.7 million. GAAP Diluted EPS for 2021 was a loss of $0.18 compared to a loss of $0.52 in 2020. Adjusted Diluted EPS for the year grew 23.3% to $0.37, an increase from $0.30 in 2020.

Weighted Diluted average shares outstanding for the fourth quarter of 2021 were 169.1 million, compared to 128.3 million in the fourth quarter of 2020 primarily as a result of the IPO. Weighted Diluted average shares outstanding for the full year 2021 were 150.3 million, compared to 128.0 million for the full year 2020 primarily as a result of the IPO.

U.S. and Canada: In the U.

S. and Canada segment in the fourth quarter, net revenue grew 10.5% to $249.

2 million from $225.4 million a year ago, driven by the continued execution of our omni-channel strategy, partially offset by one less week of sales this year compared to 2020. Organic revenue increased 9.

1% driven by our omni-channel model, primarily the strength of DFD, as well as strong growth from Insomnia Cookies. Excluding the impact of exiting the legacy wholesale business, U.S.

and Canada organic growth in the fourth quarter was 17.3%, with a two-year stack of 25.6% when compared to 2019.

For 2021, net revenue grew 18.6% to $928.4 million while organic revenue increased 5.

5%, or 18.3% excluding the impact of exiting the legacy wholesale business.

U.S. and Canada Adjusted EBITDA in the fourth quarter increased 42.3% to $31.8 million with margin expansion of 290 basis points to 12.8% driven primarily by the strong performance of our Hub and Spoke model from increased DFD doors and sales per door. Price increases were successfully implemented on fresh doughnuts during September and again in November to offset cost and labor pressures. For 2021, U.S. and Canada Adjusted EBITDA increased 17.5% to $107.6 million while margins were approximately flat at 11.6%.

International: In the International segment, net revenue in the fourth quarter grew 25.7% to $90.0 million, with organic growth of 30.8%. Organic growth in the quarter was driven by successful limited time offerings, expansion of DFD and an increase in average sales per door. Growth was strong across all of our International markets including the UK, Mexico, Australia and New Zealand. For 2021, the International segment saw net revenue increase 44.7% to $333.0 million, with organic growth of 36.9% highlighting the strength of the model even through the pandemic.

International Adjusted EBITDA in the fourth quarter grew 24.6% over the prior year to $20.7 million, driven primarily by revenue growth from points of access expansion and efficiencies from our hub and spoke model, which led to a record $9.1 million sales per hub over the trailing twelve months. International Adjusted EBITDA margin was 23.1% for the quarter, approximately flat compared to the same period 2020. For 2021, International Adjusted EBITDA grew 82.8% to $81.4 million on margins of 24.5%, an increase of 510 basis points compared to 2020.

Market Development: In the Market Development segment, net revenue grew 9.9% to $31.4 million, with organic growth of 8.8%. Net revenue growth was driven mainly by the acquisition of Krispy Kreme Japan in the fourth quarter of 2020, partially offset by franchise acquisitions in the U.S. For 2021, Market Development net revenue increased 12.7% to $123.0 million, with organic growth of 11.0%.

Market Development Adjusted EBITDA in the fourth quarter was approximately flat at $11.0 million, with strong increases in sales per hub in both domestic and international franchise as well as in Japan, offset by domestic franchise acquisitions. For 2021, Market Development Adjusted EBITDA increased 4.5% to $40.8 million.

During the fourth quarter 2021, the company invested $36.0 million in capital expenditures, primarily for the growth of Hubs and Fresh Shops and $12.4 million for the acquisition of Krispy Kreme Canada. For the full year 2021, the Company invested $119.5 million in capital expenditures and $46.3 million for franchise acquisitions in the U.S. and Canada.

As of January 2, 2022, we had $38.6 million of cash and cash equivalents, $696.2 million of bank debt and $24.5 million of other debt-like items, for a total net debt of $682.2 million. Using a trailing four quarters Adjusted EBITDA of $187.9 million, current net leverage declined from the third quarter to 3.6x, substantially below pre-IPO levels. Free cash flow in the fourth quarter was $6.4 million with the EBITDA generated from operating activities in excess of capital expenditures reflecting the capital-efficient hub and spoke growth model.

2022 Guidance

Krispy Kreme issues the following guidance for the full year 2022:

• Net Revenue of $1.53 billion to $1.56 billion (+11% to +13%)

• Organic Revenue growth of 10% to 12%

• Adjusted EBITDA of $210 million to $218 million (+12% to +16%)

• Adjusted Net Income to Krispy Kreme shareholders, Diluted, of $65 million to $69 million (+18% to +24%)

• Adjusted Diluted EPS of $0.38 to $0.41

• Approximately 170 million weighted average Diluted shares outstanding, compared to approximately 150 million in 2021 primarily driven by the IPO

• Income Tax rate between 23% and 25%

• Capital Expenditures between $115 million to $120 million

• Net Leverage under 3.0x

Krispy Kreme also reiterated 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%

• Net leverage of approximately 2.0x

The following definitions apply to terms used throughout this press release:

• Global Points of Access: Reflects all locations at which fresh doughnuts or cookies can be purchased. We define global points of access to include all Hot Light Theater Shops, Fresh Shops, Carts and Food Trucks, DFD doors and Cookie Shops, at both Company-owned and franchise locations as of the end of the respective reporting period. We monitor global points of access as a metric that informs the growth of our omni-channel presence over time and believe this metric is useful to investors to understand our footprint in each of our segments.

• Hubs: Reflects locations where fresh doughnuts are produced and processed for sale at any point of access. We define Hubs to include self-sustaining Hot Light Theater Shops and Doughnut Factories, at both Company-owned and franchise locations as of the end of the respective reporting period.

• Sales Per Hub: Sales per Hub equals Fresh Revenues from Hubs with Spokes, divided by the average number of Hubs with Spokes at the end of the five most recent quarters.

• Fresh Revenues from Hubs with Spokes: Fresh Revenues include product sales generated from our Doughnut Shop business (including ecommerce and delivery), as well as DFD sales, but excluding sales from our legacy wholesale business and our Branded Sweet Treat Line. It also excludes all Insomnia Cookies revenues as the measure is focused on the Krispy Kreme business. Fresh Revenues from Hubs with Spokes equals the Fresh Revenues derived from those Hubs currently producing product for other shops, Carts and Food Trucks, and/or DFD doors, but excluding Fresh Revenues derived from those Hubs not currently producing product for other shops, Carts and Food Trucks, and/or DFD doors.

• Total Net Leverage Ratio: Calculated using Net Debt (including both bank debt and financing leases as part of debt) divided by Adjusted EBITDA.

• Free Cash Flow: Defined as cash provided by operating activities less purchases of property and equipment.

Krispy Kreme will host a public conference call at 8:30 AM Eastern Time today to discuss its results for the fourth quarter of 2021.

This press release contains forward-looking statements that involve risks and uncertainties. The words “believe,” “may,” “could,” “will,” “should,” “anticipate,” “estimate,” “expect,” “outlook,” “guidance,” or similar words, or the negative of these words, identify forward-looking statements. Such forward-looking statements are based on certain assumptions and estimates that we consider reasonable but are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial conditions, business, prospects, growth strategy and liquidity.

Accordingly, there are, or will be, important factors that could cause our actual results to differ materially from those indicated in these statements. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will be achieved. Our actual results could differ materially from the forward-looking statements included herein.

Factors that could cause actual results to differ from those expressed in forward-looking statements include, without limitation, the risks and uncertainties described under the headings “Special Note Regarding Forward-Looking Statements” and “Risk Factors” in the Prospectus, dated June 30, 2021, filed by us with the Securities and Exchange Commission (“SEC”) and described in the other filings we make from time to time with the SEC. We believe that these factors include, but are not limited to, the impact of pandemics, changes in consumer preferences, the impact of inflation, and our ability to execute on our omni-channel business strategy. These forward-looking statements are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by applicable law, to update or revise any forward-looking or cautionary statement to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.

This press release includes certain non-GAAP financial measures including organic revenue growth, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Fresh Revenue from Hubs with Spokes and Sales per Hub, which differ from results using U.S. Generally Accepted Accounting Principles (“GAAP”).

These non-GAAP financial measures are not universally consistent calculations, limiting their usefulness as comparative measures. Other companies may calculate similarly titled financial measures differently than we do or may not calculate them at all. Additionally, these non-GAAP financial measures are not measurements of financial performance under GAAP.

In order to facilitate a clear understanding of our consolidated historical operating results, you should examine our non-GAAP financial measures in conjunction with our historical consolidated financial statements and notes thereto filed with the SEC.

To the extent that the Company provides guidance, it does so only on a non-GAAP basis. The Company does not provide reconciliations of such forward-looking non-GAAP measures to GAAP due to the inability to predict the amount and timing of impacts outside of the Company’s control on certain items, such as net income and other charges reflected in our reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.

Krispy Kreme, Inc. Consolidated Statements of Operations (unaudited and in thousands, except per share amounts and number of shares)

Krispy Kreme, Inc. Consolidated Balance Sheets (unaudited and in thousands, except per share data)

Krispy Kreme, Inc. Consolidated Statements of Cash Flows (unaudited and in thousands)

Krispy Kreme, Inc. Reconciliation of Non-GAAP Financial Measures (unaudited and* *in thousands, except per share amounts and number of shares)

1. Consists of interest expense related to the Related Party Notes which were paid off in full during the second quarter of fiscal 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. 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 U.S.

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. Fiscal 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.

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

9. Fiscal 2021 consists primarily of legal expenses incurred related to cases outside the ordinary course of business. Fiscal 2020 consists primarily of fixed asset and impairment expenses, net of a gain on the sale of land, as well as $1.2 million of management fees paid to JAB.

10. Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization expense in the Consolidated Statements of Operations.

11. Includes interest expense and debt issuance costs incurred and recognized as expenses 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 Company’s adjusted effective tax rate is 22.4% and 25.2% for each of the fiscal years 2021 and 2020, respectively. Fiscal 2021 includes the impact of disallowed executive compensation expense incurred in connection with the IPO.

13. Fiscal 2021 consists primarily of the effect of tax law changes on existing temporary differences. Fiscal 2020 includes a valuation allowance of $20.5 million associated with tax attributes primarily attributable to incremental costs removed from the calculation of Adjusted Net Income.

Krispy Kreme, Inc. Segment Reporting (unaudited, in thousands except percentages)

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 Fresh Revenues from Hubs with Spokes for that business segment.

Krispy Kreme, Inc. Global Points of Access (unaudited)

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 U.S. and Canada. These points of access were previously included in the Market Development segment prior to the respective acquisition dates.

3. Beginning in the third quarter of fiscal 2021, we include Carts and Food Trucks in our calculation of global points of access. Carts and Food Trucks are non-producing, mobile (typically on wheels) facilities without walls or a door where product is received from a Hot Light Theater Shop or Doughnut Factory. They are primarily found in international locations, in airports, train stations, etc. Comparative data has been included in all periods presented above.

4. 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 January 3, 2021, and December 29, 2019, the legacy wholesale doors were 1,508 and 4,693 for the U.S. and Canada segment, respectively, and 187 and 1,919 for the Market Development segment, respectively. As of the end of the second quarter of fiscal 2021 legacy wholesale doors for the U.S. and Canada and the Market Development segments were substantially eliminated.

5. Includes locations in Japan, which were acquired in December 2020 and are now Company-owned. All remaining points of access in the Market Development segment relate to our franchise business. As of January 2, 2022, there were four Hot Light Theater Shops, 48 Fresh Shops and 105 DFD Doors in Japan operating. As of January 3, 2021, there were three Hot Light Theater Shops, 40 Fresh Shops and 24 DFD Doors in Japan operating.

Krispy Kreme, Inc. Global Hubs (unaudited)

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