Q4 2023 Sweetgreen Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Sweetgreen Inc.'s fourth quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise.

Okay.

Ladies and gentlemen, thank you for standing by and welcome to Sweet Green, Inc. Fourth quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star one on your telephone keypad, if you will.

Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, press the pound key.

To withdraw your question press the pound key.

Operator: As a reminder, today's call is being recorded. I will now hand today's call over to Rebecca Nounou, VP, Head of Investor Relations. Please go ahead.

As a reminder, today's call is being recorded I would now hand todays call over to Rebecca Nuno VP head of Investor Relations. Please go ahead.

Rebecca Nounou: Thank you and good afternoon, everyone. Here with me today are Jonathan Neman, co-founder and chief executive officer, and Mitch Reback, chief financial officer. Before we begin, we have a couple of reminders. Our earnings release is available on our website at investor.sweetgreen.com. During this call, we will be making comments that are forward-looking. However, actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors in our latest annual report on Form 10-K filing. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise these forward-looking statements. Additionally, we will be discussing certain non-GAAP financial measures, which are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP.

Thank you and good afternoon, everyone here with me today are Jonathan Neiman co founder and Chief Executive Officer imagery back Chief Financial Officer.

Before we begin we have a couple of reminders our earnings release is available on our website at Investor don't see Green Dot com. During this call we will be making comments of a forward looking nature.

Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties for more information about some of these risks. Please review the company's SEC filings, including in the section titled Risk factors in our latest annual report on Form 10-K filing.

These forward looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward looking statements. Additionally, we will be discussing certain non-GAAP financial measures, which are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of these items to the nearest U S. GAAP measure can be found in our.

Jonathan Neman: A reconciliation of these items to the nearest U.S. GAAP measure can be found in this afternoon's press release, available on our IR website. With that, it's my pleasure to turn the call over to Jonathan to kick things off. Thank you, Rebecca, and good afternoon, everyone.

This afternoon's press release available on our IR website with that it's my pleasure to turn the call over to Jonathan to kick things off.

Thank you Rebecca and good afternoon, everyone.

Jonathan Neman: My passion to connect people to real food is why I started Sweetgreen with my co-founders Nathaniel and Nick. In 2007, we began our journey to build a category-defining brand with the goal of serving delicious meals to local communities. What started as a single restaurant in Washington, D.C., now has 225 restaurants in 18 states across the country, as well as

My passion to connect people to real food is why I started sweet Green with my co founders Nathaniel Nicholas and.

In 2007, we began our journey to build a category defining brand with the goal of serving delicious meals to local communities.

What started as a single restaurant in Washington D. C. Now has 225 restaurants in 18 states across the country as well as D C.

Jonathan Neman: We are creating and defining the category of better for you fast, casual dining while remaining acutely focused on building an innovative and enduring business that drives both growth and profitability. In 2023, we were aggressive with initiatives that we believe will benefit us for years to come, such as menu innovation, SweetPath, and the Infinite Kitchen. We ended the year with increasing momentum that gives me optimism for the year ahead. We reported sales of $584 million, representing 24% year over year.

We are creating in defining the category better for yourself casual dining while remaining acutely focused on building, an innovative and enduring business that drives both growth and profitability.

In 2023, we were aggressive with initiatives that we believe will benefit us for years to come such as menu innovation suite passed from the infinite kitchen.

We ended the year with increasing momentum that gives me optimism for the year ahead.

We reported sales of $584 million, representing 24% year over year growth.

Jonathan Neman: Total digital sales represented 59% of our total fiscal year revenue, with over 60% of those sales coming via our own digital channels. Restaurant level margin for the fiscal year was $17.5. On a full-year basis, our adjusted EBITDA loss was $2.8 million, representing a $47 million improvement over the same period in 2022. For 2024, we are guiding adjusted EBITDA profitability. This profitability milestone will allow us to reinvest in the business with the goal of accelerating our growth. Our focus remains on building a category-defining brand that has tremendous value for our customers, team members, and our shareholders. Our strategic priorities are quite clear.

Total digital sales represented 59% of our total fiscal year revenue with over 60% of those sales coming via our own digital channels.

Restaurant level margin for the fiscal year was 17, 5%.

On a full year basis, our adjusted EBITDA loss was $2 8 million, representing a $47 million improvement over the same period in 2022.

For 2024, we are guiding adjusted EBITDA profitability.

This profitability milestone will allow us to reinvest into the business with the goal of accelerating our growth.

Our focus remains on building a category defining brand that has tremendous value for our customers team members and our shareholders.

Our strategic priorities are quite simple one continue building our brand by creating great products and guest experiences.

Jonathan Neman: One, continue building our brand by creating great products and guest experiences. And two, expand our connection to guests by building and operating great hotels. If we do both of these things well, aided by best-in-class technology, we should continue to amplify our already strong brand, widen our customer reach, drive customer traffic, and, in turn, continue to drive margin. Our brand has a significantly greater reach than our current physical footprint of 225 restaurants. In 2023, we entered three new markets, Milwaukee, Tampa, and Rhode Island, and we are pleased with how our 2023 class is tracking towards our financial year. So far this year, we've opened four restaurants, including our first of many in Seattle, Washington. Totem Lake, a suburb of Seattle, has been performing in line with our top urban restaurants in recent years.

To expand our connection to death by building and operating great restaurants.

We do both of these things well aided by best in class technology, We should continue to amplify our already strong brand widen our customer reach drive customer traffic and in turn continue to drive margin expansion.

Our brand has significantly greater reach than our current physical footprint 225 restaurants in 2023, we entered three new markets, Milwaukee, Tampa, and Rhode Island, and we are pleased with how our 2023 classes tracking towards our financial targets.

So far this year, we've opened four restaurants, including our first of many in Seattle, Washington.

Lake suburb of Seattle has been performing in line with our top urban restaurants in recent weeks.

Jonathan Neman: Openings like these reinforce our confidence that our brand resonates across the globe. Innovation is the core of Sweetgreen's culture. We have been consistently ahead of the market in culinary and supply chain development, as well as introducing new technology to drive a better customer experience, both online and in our restaurants. In the fourth quarter, we opened our second Infinite Kitchen in Huntington Beach. The Infinite Kitchen continues to deliver many benefits to our operating model, such as higher throughput, better order accuracy, portioning consistency, and substantially lower team member turnover. In addition to these benefits, we've also seen the average ticket at both locations be more than 10% higher than their respective markets. As a result, we are seeing Infinite Kitchen continuing to deliver margins well ahead of our internal projections.

Openings like these reinforce our confidence that our brand resonates across the country.

Core to <unk> culture is innovation, we have been consistently ahead of the market and culinary and supply chain development as well as introducing new technology to drive a better customer experience both online and in our restaurants in the fourth quarter, we opened our second infinite kitchen and Huntington Beach.

Anthony Kitchen continues to deliver many benefits to our operating model such as higher throughput better order accuracy portion of inconsistency and substantially lower team member turnover.

In addition to these benefits we've also seen the average ticket at both locations more than 10% higher than their respective markets. As a result, we are seeing the infinite kitchen, continuing to deliver margins well ahead of our internal projections.

Jonathan Neman: We are proud that we have built the industry leader in restaurant automation with the Infinite. We are confident that it will unlock revenue growth and restaurant level margin expansion and drive increasing returns for our shareholders. To be clear, we have a clear path to 20% plus four-wall margins with our current operating model, and we believe restaurants with the Infinite Kitchen will be accretive to restaurant level sales and margins. We remain focused on traffic-driving initiatives to drive positive same-source sales.

We are proud that we have built the industry leader in restaurant automation with the infinite kitchen.

We are confident that it will unlock revenue growth and restaurant level margin expansion and drive increasing returns for our shareholders.

To be clear, we have a clear path to 20% plus four wall margins with our current operating model and we believe restaurants with the infinite kitchen will be accretive to restaurant level sales and margins.

We remain focused on traffic driving initiatives to drive positive same store sales growth.

Jonathan Neman: Our multi-faceted approach to driving traffic includes accelerating culinary innovation, continuing to activate our rewards program, improving throughput, focusing on running great restaurants, as well as increasing advertising spend in 2024 while maintaining GNA levels. We see menu and culinary innovation as a key lever to expand customer reach, positively impact seasonality, and drive traffic. While Sweetgreen has historically been known as a salad company, we're broadening our menu while remaining committed to our ethos of building healthier communities by connecting people to real food.

Our multifaceted approach to driving traffic includes accelerating culinary innovation continuing to activate our rewards program improving throughput focusing on running great restaurants, as well as increasing advertising spend in 2024, while maintaining G&A leverage.

We see menu and culinary innovation as a key lever to expand customer reach positively impact seasonality and drive traffic.

<unk> has historically been known as a solid company, we're broadening our menu while remaining committed to our ethos of building healthier communities by connecting people to real food.

Jonathan Neman: On October 24th, we launched Protein Plates, featuring new proteins such as Herb Roasted Chicken and Nikko Glazed Salmon. While early, Plates have exceeded internal expectations, and are placed in categories with the tagline, "you don't have to be a salad person to be a sweetgreen person." It was designed to appeal to a wide audience. We are pleased with the early data points to broaden our brand appeal. In the first 60 days after introducing protein plates, we've seen our dinner day part grow with, and sites sales are over indexing in markets such as Texas and the South. On February 6th, we launched our test of caramelized garlic steak, a slow-roasted, marinated, tender cut of grass-fed, grass-finished tri-tip steak, finished with slow-roasted, caramelized garlic and Bob.

On October 24th we launched protein plates, featuring new protein such as herb roasted chicken and meso glazed salmon.

While early placement exceeded internal expectations.

Our plates category with the tagline you don't have to be a solid person to be a <unk> person was designed to appeal to a wide audience.

We are pleased with the early data points to broaden our brand appeal and the first 60 days after introducing protein place we've seen our dinner day part grow with plate plate.

<unk> sales are over indexing in markets, such as Texas and the southeast.

On February six we launched our test the caramelized garlic stake of slow roasted marinated tender cut grass said grass finished tri tip stake finished with slow roasted caramelized, garlic, and onion and Boston.

Jonathan Neman: If STAKE passes our market test process, we will look to roll this out later this year. We've made great strides in marrying customer insights with menu innovation, and we have a multi-year menu innovation roadmap. I am pleased with the operational strides we have made over the last few quarters and, in particular, how it has translated into frontline groups. There is still opportunity to capture additional demand, particularly at peak periods, and we've identified additional areas to drive throughput, including improving labor deployment. Our average head coach tenure continues to improve, and stability in restaurants for both our coaches and team members is the highest it's been in recent years. This, coupled with our decision to adjust the head coach schedule to spend more time on the floor, is translating into improved operations in March. Additionally, launching tipping last year has supplemented team member wages by nearly $2 an hour. Finally, I want to take a moment to welcome our new Chief Operating Officer, Rossanne Williams. Rossanne is an accomplished global operations executive, bringing more than 30 years of experience leading international retail businesses.

The state passes our market test process, we will look to roll. This out later this year, we've made great strides marrying customer insights with menu innovation and we have a multiyear menu innovation roadmap.

I am pleased with the operational strides we have made over the last few quarters and in particular, how it has translated into frontline growth.

There is still opportunity to capture additional demand, particularly at peak periods, and we've identified additional areas to drive throughput, including improving labor deployment.

Our average head coach tenure continues to improve and stability in restaurants for both our coaches and team members is the highest it's been in recent years.

This coupled with our decision to adjust head coach schedule to spend more time on the floor is translating into improved operations and margins. Additionally.

Additionally, launching shipping last year has supplemented team member wages by nearly $2 an hour.

I want to take a moment to welcome our new Chief operating Officer, Roxanne Williams Roxanne is an accomplished global operations executive bringing more than 30 years of experience leading international retail businesses.

Jonathan Neman: She brings a proven track record of driving sustainable growth of global iconic brands. Rossanne's passion for Sweetgreen's mission will further our work of bettering the communities we serve. I look forward to partnering with Roxanne and bringing her incredible skill set to our leadership team as we embark on the next phase of our growth journey. In the fourth quarter, we delivered our 11th consecutive quarter of over 20% sales growth and significantly expanded our restaurant level margins year over year. We continue to demonstrate, operationally and financially, our commitment to building a sustainable business with a category-defining brand known for quality and transparency. What gets me excited today is the innovation you're seeing from us. The Infinite Kitchen and our expanded menu offerings are just two powerful examples that, when coupled with the significant improvements we have made to our operations, have the potential to unlock significant value in the years ahead. My gratitude to all of our team members who continue to deliver a win-win-win for our customers, communities, and stakeholders.

She brings a proven track record in driving sustainable growth global iconic brands.

<unk> passion for <unk> mission will further our work of bettering the communities we serve.

I look forward to partnering with Roxanne and bringing her incredible skill set to our leadership team as we embark on the next phase of our growth strategy.

In the fourth quarter, we delivered our 11th consecutive quarter of over 20% sales growth and significantly expanded our restaurant level margins year over year.

We continue to demonstrate operationally and financially our commitment to building a sustainable business with a category defining brands known for quality and transparency.

Well get me excited today is the innovation, you're seeing from the company the infinite kitchen, and our expanded menu offerings are just too powerful examples that when coupled with the significant improvements we have made to our operations have the potential to unlock significant value in the years ahead.

My gratitude to all of our team members, who continue to deliver a win win win for our customers communities and stakeholders.

Mitch Reback: Because of our team, we had a great 2023 and achieved several milestones, including launching Protein Plate, launching two Infinite Kitchens, and expanding our unit economics. I couldn't be more optimistic and excited for the year ahead. And now, I'll turn it over to Mitch to walk through the financials. Thank you, Jonathan. And good afternoon, everyone.

Because of our team we had a great 2023, and we achieved several milestones, including launching protein plate launching to infinite kitchens, and expanding our unit economics.

Couldnt be more optimistic and excited for the year ahead, and now I'll turn it over to Mitch to walk through the financials.

Thank you Jonathan and good afternoon, everyone. In 2023, we set out to strengthen our financial model as we guide towards adjusted EBITDA profitability in 2020 for total revenue for the fourth quarter was 153 million up from $118 6 million in the fourth quarter of 2022.

Mitch Reback: In 2023, we set out to strengthen our financial model as we guide towards adjusted EBITDA profitability in 2024. Total revenue for the fourth quarter was 153 million, up from 118.6 million in the fourth quarter of 2022, growing 29% year over year, our 11th consecutive quarter of over 20% year over year sales growth. For the quarter, same store sales grew 6% year over year.

29% year over year.

Our 11th consecutive quarter of over 20% year over year sales growth.

For the quarter same store sales grew 6% year over year. This consisted of a 5% benefit from menu prices and a 1% benefit from traffic and mix. After a sluggish October our momentum increased each month in the quarter.

Mitch Reback: This consisted of a 5% benefit from menu prices and a 1% benefit from traffic and math. After a sluggish October, our momentum increased each month and a quarter. Our average unit volume in the fourth quarter was 2.9 million.

Our average unit volume in the fourth quarter was $2 9 million.

Mitch Reback: Restaurant-level profit margin in the fourth quarter was 16.2%, a more than 500 basis point improvement from the fourth quarter of 2022. Restaurant-level profit for the fourth quarter was $25 million, nearly double from a year ago. Our restaurant-level profit margin for the year was 17.5%.

Restaurant level profit margin in the fourth quarter was 16, 2% and more than 500 basis points improvement from the fourth quarter of 2022.

Restaurant level profit for the fourth quarter was 25 million nearly double familiar ago, a restaurant level profit margin for the year was 17, 5% for a reconciliation of restaurant level margins to comparable GAAP figures. Please refer to the earnings release.

Mitch Reback: For a reconciliation of restaurant-level margins to comparable gap figures, please refer to the earnings release. This year, we opened 35 net new restaurants, including one new restaurant in the fourth quarter for a total of 221 restaurants at the end of 2023. In the first quarter of 2024, we opened four restaurants, including Totem Lake, a Seattle suburb.

This year, we've opened 35 net new restaurants, including one new restaurant in the fourth quarter for a total of 221 restaurants at the end of 2023.

So in the first quarter of 2024, we opened four restaurants, including totem Lake a Seattle suburb.

Mitch Reback: In 2024, we anticipate opening between 23 and 27 new restaurants, and approximately seven new restaurants will contain the Infinite Kitchen. Our restaurant openings will be weighted toward the back half of the year, with approximately 40% of the openings in the second half containing the Infinite Kitchen. In 2025, we plan to reaccelerate our unit growth. Food, beverage, and packaging costs were 28% of revenue for the quarter, a 100 basis point improvement from the fourth quarter of 2022. This improvement was primarily due to menu price increases and a decrease in both chicken and fish costs.

2024, we anticipate opening between 23 and 27, new restaurants, approximately seven new restaurants will contain the infinite kitchen.

Our restaurant openings will be weighted towards the back half of the year with approximately 40% of the openings in the second half containing the infinite kitchen and.

In 2025, we plan to Reaccelerate our unit growth.

Food beverage and packaging costs were 28% of revenue for the quarter, a 100 basis point improvement from the fourth quarter of 2022.

This improvement was primarily due to menu price increases and a decrease in both chicken and fish costs.

Mitch Reback: Labor-related expenses were 29% of revenue for the fourth quarter, a 300 basis point improvement from the comparable period in 2022. This improvement is primarily attributable to the head coach schedule optimization we began implementing in the spring. Occupancy and related expenses were 9% of revenue, down 100 basis points from the fourth quarter of 2022. General and administrative expenses were $35.5 million or 23% of revenue for the fourth quarter of 2023 as compared to $43.5 million or 37% of revenue in the prior year period. This decrease in general and administrative expenses is primarily due to a $6.4 million decrease in stock-based compensation expense. Stock-based compensation for fiscal year 2023 was $49.5 million, down from $78.7 million in 2022.

Labor and related expenses were 29% of revenue for the fourth quarter, a 300 basis point improvement from the comparable period. In 2022. This improvement is primarily attributable to head coach schedule optimization, we began implementing in the spring.

Occupancy and related expenses were 9% of revenue down 100 basis points from the fourth quarter of 2022.

General and administrative expense was $35 5 million or 23% of revenue for the fourth quarter of 2023, as compared to $43 5 million or 37% of revenue in the prior year period.

This decrease in general and administrative expenses was primarily due to a $6 $4 million decrease in stock based compensation expense.

Stock based compensation for fiscal year, 2023 was $49 5 million down from $78 7 million in 2022.

We anticipated declining to the mid $30 million range in 2024, and mid teens in 2025 to a significant reduction is primarily related to the accounting treatment of pre IPO related grants.

Mitch Reback: We anticipated declining to the mid $30 million range in 2024 and the mid-teens in 2025. The significant reduction is primarily related to the accounting treatment of pre-IPO related grants. Our net loss for the quarter was $27 million compared to a loss of $49 million in the prior year period.

Our net loss for the quarter was $27 million compared to a loss of $49 million in the prior year period, the $22 million improvement in net loss is primarily due to a $12 million increase in our restaurant level profit.

Mitch Reback: The $22 million improvement in net loss is primarily due to a $12 million increase in our restaurant-level profit, a $6.4 million decrease in stock-based compensation expense, as previously discussed, partially offset by an increase in depreciation and amortization associated with additional restaurants. Adjusted EBITDA, which excludes stock-based compensation and certain other adjustments, was a loss of $1.8 million for the fourth quarter, an improvement of $16.1 million from the fourth quarter of 2022 loss of $17.9 million. This $16.1 billion improvement was primarily due to an increase in restaurant-level profit and a decrease in general and administrative expenses, as described previously. Adjusted EBITDA for the fiscal year 2023 was a loss of $2.8 million, representing a $47.1 million improvement over the same period in 2022. We ended the year with a cash balance of $257 million.

$6 $4 million decrease in stock based compensation expense as previously discussed partially offset by an increase in depreciation and amortization associated with additional restaurants.

Adjusted EBITDA, which excludes stock based compensation and certain other adjustments was a loss of $1 8 million for the fourth quarter, an improvement of $16 1 million from the fourth quarter of 2022 loss of $17 9 million.

The $16 1 million improvement was primarily due to an increase in restaurant level profit and a decrease in general and administrative expenses as described previously.

Adjusted EBITDA for the fiscal year 2023 was a loss of $2 8 million, representing a $47 $1 million of improvement over the same period in 2022.

We ended the year with a cash balance of 257 million.

Now turning to our 2020 for outlook for the fiscal year 2024, we anticipate the following 23% to 27 net new restaurant openings revenue ranging from 655 million to 670 million.

Mitch Reback: Now turning to our 2024 outlook. For the fiscal year 2024, we anticipate the following. 23 to 27, that new restaurant opening.

Same store sales growth between three and 5% rest.

Our restaurant level margins of 18 to 19, 5% and adjusted EBITDA between 8 million to 15 million.

Mitch Reback: Revenue ranging from $655 million to $670 million, same store sales growth between 3% and 5%, restaurant level margins of 18 to 19 and a half percent, and adjusted EBITDA between 8 million to 15 million. Our guidance is based on the new restaurant opening pipeline being waited for the back half of the year. Additionally, we plan to renovate three to four large urban restaurants with the Infinite Kitchen. These restaurants will be offline for some period of time, and we have built this revenue adjustment into our guidance. We expect these stores to grow significantly in revenue and margin in 2025 due to higher throughput as well as provide significant second order benefits, including better customer satisfaction with accuracy and lower team member turnover. Based on what we know today, we expect the Infinite Kitchen to cost between $450,000 and $550,000 and generate at least seven points of margin improvement, as well as deliver significant second order benefits as previously described.

Our guidance is based on new restaurant opening pipeline being weighted to the back half of the year. Additionally, we plan to renovate three to four large urban restaurants with the infinite kitchen. These restaurants will be offline for some period of time and we have built this revenue adjustment into our guidance. We expect these stores to grow significantly.

And revenue and margin in 2025 to higher throughput as well as provide significant second order benefits, including better customer satisfaction with accuracy and lower team member turnover.

Based on what we know today, we expect the infinite kits into cost between 450, and $550000 and generate at least seven points of margin improvement as well as deliver significant second order benefits previously described.

For the first quarter, we anticipate five to six net new restaurant openings revenue ranging from $150 million to 154 million same.

Same store sales growth of approximately 3%.

Restaurant level margins of 16% to 17% and then adjusted EBITDA loss between $4 million to a loss of $2 million.

Mitch Reback: For the first quarter, we anticipate five to six net new restaurant openings, revenue ranging from $150 million to $154 million, same-source sales growth of approximately 3%, restaurant level margins of 16% to 17%, and an adjusted EBIT loss between $4 million to a loss of $2 million. Our same-store sales guidance reflects timing shifts for New Year's and Easter, both of which did not fall in the comparable base of Q1 2023. Additionally, January was impacted by weather throughout much of the country.

Our same store sales guidance reflects timing shifts for new year's and Easter both of which did not fall into comparable base of Q1 2023.

Additionally January was impacted by weather throughout much of the country as weather has normalized our sales trends have strengthened.

Okay.

I am pleased with the progress we've made strengthening our financial model in 2023, we're committed to building a durable company that balances both growth and profitability. In 2023, we grew revenue, 24% expanded four wall margins, nearly 300 basis points and improved adjusted EBITDA by $47 million.

Operator: As the weather has normalized, our sales trends have strengthened. I am pleased with the progress you've made in strengthening our financial model for 2020. We're committed to building a durable company that balances both growth and profitability. In 2023, we grew revenue 24%, expanded four-wall margins by nearly 300 basis points, and improved adjusted EBITDA by $47 million as we remain committed to disciplined, capital-efficient growth. We're guiding 2024 to be our first year of adjusted EBITDA profitability. We believe this profitability milestone, coupled with a healthy balance sheet, will set us up for growth and expansion in the years to come. With that, I'll turn the call back to the operator to start Q&A. If you would like to ask a question, press star 1 on your telephone keypad. Your first question is from the line of Brian Bittner with Oppenheimer. Thanks. Good afternoon,

As we remain committed to disciplined capital efficient growth, we're guiding 2024 to be our first year of adjusted EBITDA profitability. We believe this profitability milestone coupled with a healthy balance sheet will set us up for growth and expansion in the years to come.

With that I'll turn the call back to the operator to start Q&A.

If you'd like to ask a question press star one on your telephone keypad. Yeah. First question is from the line of Brian Bittner with Oppenheimer.

Thanks, Good afternoon congratulations.

The traffic mix was positive in this quarter after being slightly negative last quarter and I know you rolled out protein place at the beginning of the quarter was was that kind of the biggest driver of that underlying traffic improvement and if so how does the performance of that innovation inform you about your <unk>.

Jonathan Neman: Congratulations. The traffic mix was positive this quarter after being slightly negative last quarter, and I know you rolled out protein plates at the beginning of the quarter. Was that kind of the biggest driver of that underlying traffic improvement? And if so, how does the performance of that innovation inform you about your strategies to continue to drive sales in 2024, particularly as you are testing this new steak item? Hey, Brian, thank you very much. I would say in the fourth quarter, our traffic mix was together about a one point positive, both pretty small numbers. We are very happy with the protein plates and have seen a great reception for them.

Strategies.

To continue to drive sales in 2024, particularly as you are testing this new steak item.

Hey, Brian Thank you very much.

I would say in the fourth quarter, our traffic mix was together about a one point positive both pretty small numbers. We are very happy with the protein plates and seen great reception of them and I think as we alluded to in the script, that's particularly been true into new markets in the southeast and we think it will.

Mitch Reback: I think, as we alluded to in the script, that's particularly true in the new markets in the southeast. And we think it will continue to be a source of traffic growth for us in 2024. And, and just on the margin, on the margins, the expansion in those restaurant margins in 23 was pretty strong up, you know, almost 300 basis points in your 2024 restaurant margin guidance suggests, you know, more than 100 basis points at its midpoint of expansion. So we can obviously see what happened in 23 and how you drove margins. But how do you continue this margin momentum in 24?

Continue to be a source of traffic growth for us in 2024.

And just on the margin.

On the margins the expansion in those restaurant margins in 'twenty three was pre.

Pretty strong.

300 basis points in your 2024 restaurant margin guidance suggests more than 100 basis points at its midpoint of expansion. So we can obviously see whats happened in 'twenty, three and how you drove margins, but how do you continue this margin momentum in 24 can you maybe unpack some of the buckets.

Mitch Reback: Can you maybe unpack some of the buckets where you see the greatest opportunity to continue to improve margins on top of a really strong year in 23? Yes, thanks, Brian. I think I would say at a high level, we see the margin improvement in 2024 coming from three big sources. One, continuing to gain benefit from our labor schedule optimization, much of which was started in the first quarter of 2023. We see strong improvement coming out of our new markets. They continue to grow and improve significantly from a profit standpoint. And there is some price leverage built into the model, where we see approximately four points of price rolling through 2024, and we see inflation pressures in really low single digits in COGS and labor. Your next question is from the line of Sharon Zackfia with William Blair. Hi, good afternoon.

Where you see the greatest opportunity to continue to improve margins on top of a really strong year in 'twenty three.

Yes, Thanks, Brian I think I would say at a high level, we see the margin improvement in 2024 coming from three big sources, one continuing to gain benefit from our labor schedule optimization much of which will start in the two.

2023 first quarter, we see strong improvement coming out of our new markets should continue to grow and improve significantly from a profit standpoint.

There is some price leverage built into the model, where we see approximately four points of price rolling through 2024, and we see inflation pressures and really low single digits in Cogs and labor.

Okay.

Your next question is from the line of Sharon Zackfia with William Blair.

Hi, good afternoon, thanks for taking the question.

Operator: Thanks for taking the question. I guess I wanted to come back to Infinite Kitchen and then maybe ask a question about sweet. But on IK, the $450K to $550K, is that the cost of a retrofit, and would it be fair to assume that that would be the incremental cost on a new build as well? And if you could tell us kind of where your new build cost is running these days, that would be helpful. Sure. Hi Sharon.

I guess I wanted to come back to and so that kitchen, and then maybe ask a question about free path, but on Ik. Thus.

That's $4 50 to 550 K is that the cost of a retrofit and would it be fair to assume that that would be the incremental cost on a newbuild as well and if you could tell us kind of where your newbuild cost is running these days that would be helpful.

Sure Hi, Sharon so on the Ik cost what we're guiding to is $4 50 to $5 50 incremental build out for our new restaurants.

Mitch Reback: So, on the IK cost, what we're guiding to is $450 to $550 for an incremental build out for a new restaurant. I would like to say that is the current cost in this current fleet. We do expect that number to come down as we continue to scale this and see some economies of scale as well as engineer some of the costs down. So expect that to come down over time. Here, in terms of retrofits, retrofits will have the cost of the machine plus some renovations. It really depends how invasive it has to be.

Like I say that is the current cost in this current fleet, we do expect that number to come down as we continue to scale this and see some economies of scale as well as engineer some of the costs down so expect that to come down over time.

Here in terms of retrofits retrofits will have the cost of the machine plus.

But some renovations it really depends how invasive it has to be so it will be slightly more than that and it really depends on the restaurant plus there will be some downtime, which we have modeled into the into our guide as we close some of those stores and we will be choosing some of the stores are retrofitting will be stores with very high high demand real big throughput from blocks <unk>.

Mitch Reback: So, it will be slightly more than that, and it really depends on the restaurant. Plus, there will be some downtime, which we have modeled into our guide as we close some of those stores. We will be choosing some of the stores or retrofitting them will be stores and very high, high demand, real big throughput unlocks. And so we're excited to see. We're excited to see what that does, especially in some of those urban environments where we are at capacity. Anything else?

We're excited to see we're excited to see what that does especially in some of those urban environments, where we are capacity constrained.

Anything else that is that does that answer your question before I move on to see pass.

Jonathan Neman: Does that answer your IK question before I move on to SweetPath? Yeah, and actually, let me let me ask my SweetPass question. I guess I was just curious, I remember last spring when you rolled it out, your most frequent users were the ones who signed up right away, and I know at the end of September, I think you started to implement signups in brick and mortar. So I'm just curious if you've seen SweetPass kind of neutralize or even start to benefit mix somewhat and how you're thinking about that as you go throughout 24. Yeah, so on SweetPath, I'd say, like most loyalty programs, it's a very iterative process. And I think what we've done is we've built a lot of good technology capabilities to enable a great loyalty program. We have not yet seen the benefit of that program.

Yeah, and actually let me let me ask myself past question I guess I was just curious I remember last spring when you rolled it out I mean, clearly your most frequent users were the ones who sign up right away and I know at the end of September I think you started to implement sign ups in brick and mortar. So I'm just curious if you've seen suite.

<unk> kind of neutralize or even start to benefit mix somewhat and how youre thinking about that as you go through 'twenty four.

Yes, so once we pass I'd say.

Most loyalty programs, it's a very iterative process and I think what we've done is we've built a lot of good technology capabilities.

Enable a great loyalty program, we have not yet seen the benefit of that program. So something that we're actively working on our optimizations and simply Kate simplification of the program to make it simpler better for the customer and better for the company to drive more transactions. So.

Jonathan Neman: So something that we're actively working on is optimizations and simplifications of the program to make it simpler, better for the customer, and better for the company to drive more transactions. So the good and bad news is it hasn't, you know, it hasn't had a huge impact on our business so far. There's a lot of upside to be gained, and the investment is large, so that is a big priority for us as we look forward. Your next question is from a line Chris Carril with RBC Capital Markets. Hi, thanks and good afternoon.

The bad news is it hasn't it hasn't had a huge impact on our business. So far the good news is there's a lot of upside to be gained and the investments have largely been made and so that is a big priority for us as we look forward this year.

Your next question is from the line of Chris <unk> with RBC capital market.

Hi, Thanks, and good afternoon.

Mitch Reback: So Mitch, you noted the improvement in sales following, I think, a softer October. Can you maybe provide any more detail on what you saw in terms of sales or comp trends over the course of the last couple of months of the year? And maybe a little bit more detail on what you're seeing quarter to date relative to the guide you provided for the OneQ. I think you also mentioned some improvement following some of the weather impact earlier in the quarter. So any detail would be great.

So Mitch.

I noted the improvement in sales following I think a softer October can you maybe provide any more detail on what you saw in terms of sales or comp trends over the course of the last couple of months of the year and maybe a little bit more detail on what you're seeing quarter to date relative to the guide you provided for the <unk> I think you also mentioned some improvement following some of the <unk>.

Other impact earlier in the quarter, so any detail would be great.

Yeah.

Mitch Reback: Thank you, Chris. What I would say is in the fourth quarter, what we saw was kind of a sluggish October that began to pick up momentum in November and a really relatively strong December, which gave us a great outlook as we headed into 2024. January, and that's been reported by many companies, what we saw were some very strong days offset by weather days and ended up being a relatively weak January.

Thank you Chris.

But I would say is in the core in the fourth quarter. What we saw was kind of a sluggish October that began to pick up momentum in November and a really relatively strong December which gave us great.

Outlook as we headed into 2020 for January and Thats been reported by vetted companies. What we saw was some very strong days offset by weather days.

Ended up being a relatively weaker January the business has been building pretty steadily as weather has normalized.

Jonathan Neman: The business has been building pretty steadily as the weather has normalized. Got it. And then Jonathan, you mentioned that I think performance in newer markets is tracking in line with your expectations. Could you expand maybe a bit more on how you're thinking about the balance of new and existing markets here from the development picture going forward? Sure, so in terms of the newer markets, what's been good to see recently is a lot of those newer markets. We've seen a lot of momentum in places where, you know, we had talked before had been historically stored open historically a little bit lower than we expected in the South, Southeast, and Texas.

Got it thank you.

Jonathan.

Mentioned that I think performance in newer markets is tracking in line with your expectations.

Could you expand maybe a bit more on how youre thinking about the balance of new and existing markets here.

From the development picture here going forward.

Sure. So in terms of the newer markets what's been.

Good to see recently is a lot of those newer markets. We're seeing a lot of momentum in places, where we had talked before had been historic open historically, a little bit lower than we expected in the south southeast and Texas some of our fastest growing markets today. It gives us a lot of optimism and confidence as we think about our longer term or long term Tam.

Jonathan Neman: Some of our fastest growing markets today give us a lot of optimism and confidence as we think about our longer camp, our long-term camp. In terms of new markets this year, we look to open 3 new markets. We open Seattle.

In terms of new market. This year, we look to open three new markets. We opened Seattle, we're going to be opening in Charlotte and we're going to be opening in Columbus. So those three markets expect a pretty similar cadence as we as we go forward kind of two to three new market and Theres, just so much opportunity still in our exist.

Jonathan Neman: We're going to be opening in Charlotte, and we're going to be opening in Columbus. So, those 3 markets expect a pretty similar cadence as we, as we go forward, kind of 2 to 3 new markets, and there's just so much opportunity still in our existing markets to continue to densify and extend. So, there's just a lot of runway for us, and we'd like to balance our risk between new and existing. So expect a very similar cadence between.

Markets to continue to densify and extend so just a lot of runway for us and we'd like to balance our risk between new between new and existing so I expect a very similar cadence between the two.

Jonathan Neman: One thing that I meant, just to add, sorry, Mitch mentioned a reacceleration of our pipeline. We very intentionally slowed down this year to better integrate the Infinite Kitchen, but we do expect a significant uptick next year in our pipeline and, longer term, we do expect to get back to at least 15% unit growth each year. And, you know, hopefully, as we get some confidence, we can, we can begin to expand that. One of the ways in which we're doing that is we've developed some smaller, you know, smaller format units so that lower costs can go more places.

One thing that I mean, just just to add sorry.

Mitch mentioned, a reacceleration of our pipeline, we very intentionally slowed down this year to better integrate the infinite kitchen, but we do expect a significant uptick next year in our pipeline and longer term do you expect to get back to at least 15% unit growth each year and hopefully we can.

As we get some confidence we can we can begin to expand that one of the ways in which we're doing that as we've we've developed some smaller smaller format unit.

Lower costs.

Operator: And with that, with that smaller format unit, we think there's a lot of opportunity to continue to accelerate building out our building out our footprint. Your next question is from the line of John Ivankoe with J.P. Morgan. Hi, thank you.

Can go more places and with that with that smaller format unit, we think theres a lot of opportunity to continue to accelerate building out or building out our footprint.

Your next question is from the line of John I Havent.

With J P. Morgan.

Hi, Thank you.

Jonathan Neman: You know, so thank you for just mentioning the reacceleration and growth in fiscal 25. Is it, you know, just because most of us probably have our models anchored on this, is there at least a loose range that we should be thinking about for fiscal 25 that you'd be comfortable seeing in the models at this point when we talk about significance? I mean, what I can say is really what I just said is we'd like to be at that at least 15% unit growth per year number. So that kind of gives you an idea of where we should be landing. All right. And that, obviously, and that's just not a long-term number. That's also a 25 number, so that's helpful. Right?

So thank you for your just mentioning the reacceleration in growth in fiscal 'twenty five is it just because most of them probably have our models anchored on this is there at least a loose range.

That we should be thinking at fiscal 'twenty, five that you'd be comfortable seeing in the models at this point when we talk about significant.

Okay.

I mean, what I can say is really what I. Just said is that we'd like to be at that at least 15% unit growth per year number.

That can kind of get that idea, where we should be lending alright, and that obviously in that that's just not a long term number. That's also a 25 numbers. So that's helpful.

Jonathan Neman: Yeah. And okay, perfect. All right. I got I got that. Maybe I missed it.

Yeah, and okay, perfect Alright, I got I got that maybe I missed it and then secondly, if 40%.

Jonathan Neman: And then secondly, if 40% of units open in the 2nd half, we'll have an infinite kitchen. Is it fair to assume that a number like that would be the mix going forward? Do you expect it to kind of tick up even higher?

Percent of units to open in the second half will have incident kitchen is it fair to assume that a number like that would be the mix going forward do you expect it to kind of tick up even higher.

Okay.

Jonathan Neman: We'd expect over time for it to pick up, especially as we're able to bring down the cost of those units. So we, you know, over time, we'd like them to be as many restaurants as possible. We've seen such benefits, you know, in terms of lower turnover, more consistent customer experience, in many places, and much higher throughput. And so we hope that we can get it; we can eventually put it in as many places as possible, but we want to make sure it makes sense from a capital allocation perspective. So, the answer is, yeah, hopefully, yes. Your next question is from a line by Andrew Charles with TD Cowan. Hi, congratulations on the hiring of Roxanne. I'm curious; can you help me understand what her priority is going to be? Is it more on the throughput side? Is it on infinite kitchen? Margin improvements? I just love your thoughts.

We would expect over time for it to tick up higher, especially as we're able to bring down the cost of those unit. So over time, we'd like them to be as in men as many restaurants as possible we've seen such benefits in terms of lower turnover more consistent customer experience in many places much higher throughput.

And so we would hope that we can get it eventually put it in as many places as possible, but we want to make sure. It makes sense from a capital allocation perspective. So the answer is yes, hopefully yes.

Okay.

Your next question is from the line of Andrew Charles TD Cowen.

Hi, Congrats on the hiring of Russ and I'm curious can you help me understand what's your priority is going to be is it when the throughput side is it on into the kitchen margin improvements just would love your thoughts.

Jonathan Neman: Sure, Rossanne, we're really pleased to have her join us. The role she's taken on is COO, and so she'll be leading our field operations, our operations services team, our store development team, and our supply chain team, so really giving her a lot of ownership around the four walls of our business. Key priorities for her will be driving transaction growth through great operations and great customer experiences in restaurants. That's probably number one. Number two would be re-accelerating our pipeline with great unit economics, so driving down the capex of our stores and figuring out the smaller format units that can help us with that acceleration. And of course, in all of that, also driving margins is a huge part of it, between both owning the supply chain as well as the in-store experience. We think there's a lot of opportunity for margin expansion at the restaurant level. Got it. Thank you very much.

Sure. So Roxanne, we're really pleased to have her join that she's the role she's taken on as the COO and so she'll be leading our field operations, our operation services team our development our store development team and our supply chain teams are really giving her a lot of ownership around the four walls of our business.

Key priorities for her will be driving transaction growth through great operations and great customer experiences in restaurants, it's probably number one number two would be re accelerating our pipeline with great unit economics are driving down the capex of our stores figuring out the smaller.

And a smaller format units that we can that can help us with that acceleration.

And of course in <unk>.

All of that also driving margins is a huge part of it between both owning supply chain as well as the as well as the in store experience. We think there's a lot of opportunity for margin expansion at the restaurant level.

Got it thank you very much.

Operator: Your next question is from John Tower with Citigroup. Great, thanks. I appreciate taking the questions.

Your next question is from the line of Jon Tower with Citigroup.

Great. Thanks, I appreciate you taking the questions first maybe circling back to the conversation on EBITDA kitchen, just curious you mentioned youre seeing so far.

Mitch Reback: First, maybe circling back to the conversation on Infinite Kitchens. Just curious, you mentioned you're seeing so far, a 10% or so bump on checks at stores, a couple of stores that you have, the Infinite Kitchen. And I'm just curious, is that kind of when you think about the AUV potential of these new stores with the Infinite Kitchen, like how are you penciling those out for targeted return? Hey, John, thank you for the question.

At 10% or so bump on checks at stores a couple of stores that you have.

The kitchen and I'm, just curious is that kind of when you think about the <unk> potential would be these new stores with the kitchen like how are you penciling those out.

Targeted returns.

Okay.

Hey, John Thank you for the question, we are seeing about a 10% bump into two stores that have the Ik. We believe that that's largely coming from our kiosk ordering that those stores have.

Mitch Reback: We are seeing about a 10% bump in the two stores that have the IK. We believe that that's largely coming from the kiosk ordering that those stores have. We have not modeled that into any of our IK calculations at this point.

We have not modeled that into.

Any of our rights K calculations at this point, we kind of consider that more or less a second order benefit.

Mitch Reback: We kind of consider that more or less a second order benefit. Got it. Thank you. I appreciate that.

Got it. Thank you I appreciate that and then in terms of you mentioned.

Jonathan Neman: And then in terms of what you mentioned, John, the idea of getting into smaller format units and such, can you just talk about the opportunity you believe there is for, you know, driving down the new build costs? Obviously, you'll be adding infinite kitchens to a number of these, which will bring them up relative to the historic base. But you know, I think there's the historical target of about 1.2 million and build out costs, net of TI. So, you know, how much further lower do you feel like you can get that? Yeah, so pre-IPO, pre-all the inflation that we saw, we were targeting about $1.2 million per store for a classic restaurant, net of TI. Today, we're seeing that number closer to $1.5 million.

On the idea of getting into smaller format units and such can you just talk about the opportunity you believe there is for <unk>.

Driving down the Newbuild cost, obviously youll be adding into the kitchen as to a number of these which will bring him up relative to the historic base, but I think there is.

<unk> targeted historically about $1 2 million in build out costs.

Net of Ti so.

How much further lower do you feel like you can get that.

Yes, so the historic pre pre IPO pre all of the inflation that we saw we were seeing we were targeting about $1 2 million per store for a classic restaurant net of Ti today, we're seeing that number closer to $1 $5 million.

Jonathan Neman: We are working very aggressively to bring that number down. I'm not going to guide you to exactly what that is, but it's a very big priority for us to bring that capex number down partially through smaller units, partially through other value engineering and optimizations. And of course, with any of those, if it's an infinite kitchen store, you have to add the incremental cost of the infinite kitchen, which again, with scale, the cost will come down from that $450 to $550 level we described. Your next question is from the line of Katherine Griffin with Bank of America. Hi, thanks for the question. I wanted to ask just a clarifying question on the retrofitting retrofitting restaurants with IK.

We are working very aggressively to bring that number down I'm not going to guide exactly what that is but it's a very big priority for us to bring that that capex number down partially through smaller units, partially through other value engineering and optimization and then of course.

If any of those yet if its an infinite kitchen story.

The incremental cost of the infinite kitchen, which again with scale cost will come down some from that $4 50 to $5 50 level, what we described.

Your next question is from the line of Catharine <unk> with Bank of America.

Hi, Thanks for the question.

Wanted to ask just like a clarifying question on the on the retro fit.

Retrofitting restaurants with Ik.

Jonathan Neman: How should we think about what that means for throughput and a lift in sales at those stores? You know, it's 1 of the things we're really looking to test in the restaurants. The infinite kitchen can handle about 500 bowls per hour. So, it is very, very fast in the stores that are there today. They're in 2 suburban deployments.

How should we think about what that means for throughput and lift to sales at those stores.

It's one of the things, we're really looking to test in the in those restaurants. The infinite kitchen can can can handle about 500 bowls per hour. So it is very very fast in the stores that are that they are true today theyre into suburban deployment. So we're not seeing that level of demand, but some of the places that we're going to be.

Jonathan Neman: So we're not seeing that level of demand, but some of the places that we're going to be testing it this year are going to be those heavy urban environments where it does have that. So, we do expect a sales list in those restaurants. We're not going to, we're not ready to say exactly what, but that's 1 of the key things we're trying to understand.

Testing. It this year are going to be those heavy urban environments, where it does have that so we do expect a sales lift in those restaurants.

We're not ready to say exactly where but that's one of the key things. We're trying to understand as we've mentioned we've been able to learn a lot about customer experience.

Mitch Reback: As we mentioned, we've been able to learn a lot about customer experience, savings on labor, savings on, you know, getting things more accurate, lower turnover costs, less hiring because the teams are just smaller. But the throughput and the greater capture of revenue is something that we'll be able to talk a lot more about later this year. Okay, thank you. And then just another question on IK, just on the margin benefits that you're seeing, I think it's clear, definitely on the labor side, sort of where you're getting the benefits, but I'm curious if there are any other areas in the restaurant operating costs where you're seeing some benefits from IK versus the traditional stores. Whether it's COGS or anywhere else, yeah. Thanks, Katherine.

Savings on labor savings on getting things more accurate lower turnover cost.

Less hiring because the teams are just smaller but the throughput and the <unk>.

Later capture of revenue is something that we'll be able to talk a lot more about it later this year.

Okay. Thank you and then just another question on I K just on the margin benefits that Youre seeing I think it's clear it definitely on the labor side sort of where you're getting the benefits, but I'm curious if there are if there's anywhere else you know in our restaurant operating costs, where youre seeing some.

Some benefits from my K versus that traditional stores.

Whether its cogs or anywhere else yet.

Thanks, Catherine the majority of it of course is labor, but there is an improvement of Cogs that comes from perfect portion.

Mitch Reback: The majority of it, of course, is labor, but there is an improvement in cogs that comes from perfect portioning. Yeah. You're next.

Yes.

Yes.

Yeah.

Operator: Our next question is from the line of... Our next question is from Brian Harbour with Morgan Stanley. Yeah, thank you. Good afternoon, guys.

Our next question is are your lineup.

Our next question is from Brian <unk> with Morgan Stanley.

Yes. Thank you good afternoon guys.

Jonathan Neman: John, could you elaborate maybe just on your comments about SweetPass? Is the reason there hasn't been an impact yet just because the cost of it isn't yet offset by the benefits? Or has sort of frequency, what you've seen with frequency, been different than what you might have expected? And you know, what do you think kind of needs to change with that to see more of those benefits over time? Yeah, so when we talk about SweetPass, we're talking about the overall program, both the membership, the SweetPass Plus, and the core SweetPass program.

John could you elaborate maybe just on your comments about sweet pass.

Is the reason there hasn't been an impact just because sort of the cost of it isn't yet offset by the benefits or have sort of frequency and what you've seen with frequency been different than what you might've expected.

What do you think needs to change with that to see more of those benefits over time.

Yes, so when we talk about <unk>, we're talking about the overall program. Both the membership the C pass plus and of course, we pass program.

Jonathan Neman: The Plus program, we are seeing some incrementality out of those guests, but it's not a huge, you know, it's not a huge member base, so it's not really driving the overall transaction growth in a big way. When I speak to the overall optimization of SweetPass, I'm talking about the core rewards program, and I think there are a lot of things we can do to improve it. You know, rewards that are simpler, a better experience in the app, more one-to-one personalization on a lot of that, and I think there's a lot we can do around, you know, CRM and campaigns to drive that incremental visit. So, look for some pretty significant changes and optimizations coming that we will be working on.

This program, we are seeing some increment holiday out of those out of those guests, but it's not a huge it's not a huge member based so it's not really driving the overall the overall transaction growth in a big way when I speak to the overall optimization of Sui pass I'm talking about.

The core rewards program and I think Theres a lot of things, we can do to improve it rewards that are simpler the better experience in the app more one to one personalization of a lot of that and I think there's a lot we can do around CRM and campaigns to drive that incremental visit so.

So look for some pretty significant changes in optimizations coming.

That we that we will be working on and we do think it can be a really big transaction driver for us as well as the customer acquisition driver for us so.

Jonathan Neman: We do think it can be a really big transaction driver for us, as well as a customer acquisition driver for us. So, the good news, as I mentioned, is that we built the technology, the tech stack is there, you know, and there's a pretty long time and investment in order to get that, and we're able to use the foundation in order to make this program work for us. Okay, thanks. And then, you know, your comments about, sort of, Infinite Kitchen can do 500 bowls per hour.

Good news as I mentioned is we built the technology the tech stack is there.

There's a pretty long time and investment in order to get that and we're able to we're able to use the foundation in order to improve this program to work for us.

Okay. Okay. Thanks for that.

And then your comments about sort of.

Infinite kitchen can do 500 boes per hour.

Jonathan Neman: Do you have a lot of stores where that you think are in fact kind of throughput constraints? And I guess my question is, you know, does it make sense to put that in the majority of stores or, you know, or some suburban stores, for example? You know, maybe it's not warranted, right?

Do you have a lot of stores that you think are in fact kind of throughput constraints and I guess my question is.

Does it makes sense to put that in the majority of stores or.

Some suburban stores for example.

Maybe it's not warranted right I guess I'm, just curious where you think it's kind of more impactful versus perhaps less impactful to a given store.

Jonathan Neman: I guess I'm just curious where you think it's kind of more impactful versus perhaps less impactful to a given store. Yeah, so the technology obviously works best in higher volume, high throughput locations. That's where you see the most leverage. But also, I mean, the 2 places that we've been testing it in are kind of average for our fleet, average locations in suburban and suburban neighborhoods. And we intentionally tested it there because we wanted to make sure that it would work, not just in these urban locations but really all over the country. So, the throughput is an extra benefit in these super-high volumes. The stores think about the Midtown New York type of restaurants, but we also have a lot of confidence that it will work in suburban neighborhoods. You may not hit that 500 per hour peak, but you still get all of the other benefits around less labor, less turnover, less CX costs, and better portioning. I mean, the food quality is better.

Yes, so the technology, obviously works best in higher volume high throughput locations Thats, where you see the most leverage but it also I mean, the two places that we've been testing it in our kind of average for our fleet average location in suburban and suburban neighborhoods.

We intentionally tested it there because we wanted to make sure that it would work not just in these urban locations, but really all over the country. So the throughput as an extra benefit in those Super high volume the stores think about the Midtown New York type of restaurants, but we also have a lot of confidence that it will work in suburban neighborhoods you may not hit that 500.

Per hour peak, but you still get all of the other benefits around.

Less labor less turnover less CX costs better portion and then the food quality better. Many of you have been there and tried it but we think that there's a ton of opportunity for this over time.

Jonathan Neman: Many of you have been there and tried it, but we think that there's a ton of opportunity for this over time. Your next question is from the line of Brian Mullan with Piper Sattler. And thank you. Just another question.

Yes.

Okay.

Your next question is from the line of.

Brian Mullan with Piper Sandler.

And thank you just another question.

Mitch Reback: In the prepared remarks, Mitch, I think you said it would be a 7% benefit to margins. But just for clarification, what is that 7% list related to? Is that related to your current store margins? Or is that list relative to maybe the 20% target that you have for the existing base of stores? That 7 points is relative to the current fleet. Okay, thank you for that. And then, can you just talk about how things are progressing with your manufacturing partner? You know, are there complicating factors that come up along the way?

In the prepared remarks, Mitch I think you said it would be a 7% benefit to margins, but just a clarification.

What is that 7% lift related to is that related to your current store margins or is that with relative to maybe the 20% target that you have from the existing base stores.

Okay.

Of that 7% seven points is relative to the current fleet.

Okay. Thank you for that and then.

Could you just talk about how things are progressing with your manufacturing partner are they're complicating factors that come up on along the way are things going smoothly generally speaking and then just as it stands today, what kind of lead time do they require from you. If you wanted to order new units.

Mitch Reback: Are things going smoothly, generally speaking? And then, just as it stands today, what kind of lead time do they require from you if you want to order new units? So it's been a very smooth process. We feel very good about the manufacturing and the supply, and we're excited to get these new units up and deployed. There is a bit of a lead time for new units, but we do have supply that will last us for quite a while, and we do have confidence that we can, you know, we will be able to put in the orders to be able to scale this in the way we need. So we don't see manufacturing being a huge issue for us at this point. A lot of it has been de-risked in our minds. And as I mentioned, we do see a lot of cost savings as we're able to as we're able to build more units. We do see economies of scale in order to in our ability to bring the cost down.

So <unk>.

It's been a very smooth process, we feel very good about.

The manufacturing and the supply and we're excited to get these new units up and deployed there is a a bit of a lead time for new units, but we do have supply lasting us for quite a while and and we do have confidence that we can.

We will be able to put in the orders to be able to scale. This in the way we need so we don't see manufacturing being being a huge issue for us at this point a lot of it has been derisked in our mind.

And as I mentioned, we do see a lot of cost savings as we are able to as we were able to build more units. We do see economies of scale in order to and in our ability to bring the cost down.

Operator: This does conclude today's call. Thank you for joining us. You may now disconnect your line.

This does conclude today's call. Thank you for joining you may now disconnect your lines.

Yeah.

Yeah.

Yeah.

Yeah.

Yeah.

[music].

Yeah.

Yeah.

[noise].