Portillo's Inc. (PTLO)

Investor Day 2022

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Nov 8, 2022

Hi, everybody. Welcome. We're so happy to see you here. Welcome to Portillo's inaugural Investor Day. We have a really great day planned for you. We're gonna start off doing a few presentations from the management team, and then we're going to kick off lunch with the Beef Bus, which is right outside in Times Square. It's gonna be a really great time, and we're really excited to see you. I'm Barb Noverini, the Director of Investor Relations. I just started back in February 2022, so in the short time that I've been here, I've eaten my way through the menu, and also gotten to know many of you in the room, and as well as many who are undoubtedly dialing into the webcast today. Welcome as well. You'll see these onion rings in the background. These are actually my daughter's favorite item on the Portillo's menu, and of course, she's been indoctrinated into the Portillo's family, much like I have. We've got our agenda for you today. Again, we'll be hearing from all of our extended executive leadership team today. We thought that it would be interesting for you to hear from them in their own words on what their strategies are like, and how they fit together to form the various aspects of our longer term growth algorithm. Of course, here are our cautionary statements for you, which you can review at your leisure later on in the presentation. With that, I'd like to introduce Michael Osanloo, our CEO and President. Thank you, Barb. Thanks. We're supposed to talk about what our favorite food item is at Portillo's, and I feel like that's like saying which one of your kids is your favorite kid. I love this sandwich, but what I'm gonna talk to you about is my love affair with this brand began, no joke, when I was 16 years old. I got my driver's license, and the very first thing I did is I took my parents' big old Pontiac Bonneville station wagon. For those of you who are older like me, it had the sweet wood siding, and I went to a Portillo's. That was the very first place I ever drove when I got my driver's license. You know, 40 years later, I'm 56. 40 years later, I get to run this company. It's been an incredible journey, and I'm super excited by this. I'm gonna give you an overview of who we are and how we're scaling a very, very solid foundation. There's a couple words in that first sentence that I really wanna hone in on. One is durable. You'll hear about the durability of this brand. Second is obsessed fan base. Then the third piece of that first statement is that unmatched value proposition. We take that very seriously. I think we have the best value proposition in the restaurant industry, and we carefully protect that. We have a track record unlike most restaurant companies. I'm not gonna talk to you, Michelle's not gonna talk to you about when we're gonna be profitable or when we generate cash. We make a lot of money. We're self-financing, we're self-funding. We can build plenty of restaurants with our own cash flow. We have a huge opportunity ahead of us. While we are almost 60 years old as a brand, we're very much in our infancy in terms of scaling up nationally. Mike Ellis will talk about that and why our future looks so incredibly bright from the standpoint of growth. You know, we have built a very capable leadership team. You get to meet them, you'll hear from them, you'll talk to them. I'm exceptionally proud of my colleagues who will be talking to you today. I think that, you know, as we were building this team, we weren't building for a small regional company. We were attracting talent and bringing people in that we said, "We can scale this business to be a big cap, major U.S. restaurant company." Then this will be a theme throughout the presentation, this last point. I will talk about it. Jill, our People Officer, will talk about it. Derek, our CEO, will talk about it. People genuinely are the heart of Portillo's. We collectively believe in a servant leadership model, which means we take great care of our team members, our team members take great care of our guests, our guests take care of our investors. That is the flywheel that makes Portillo's an exceptional and unique brand. Who are we in a snapshot? First, founded in 1963. Think of how many restaurant companies you know that have that type of longevity. It's gonna be a very, very small number. I love this fact that we went public last year, right here actually, a year ago. We're almost 60 years old, but we're still brand new. We're babies when it comes to public markets. Our AUVs of $8.4 million, those are pretty gaudy by any account. Our $1.9 million of adjusted EBITDA generated per restaurant is incredible. 23.6% restaurant-level EBITDA margins. That's a serious business right there. Like, if I just showed you some of these numbers, you'd think, "Geez, high-end steakhouse." No, we're a fast casual restaurant chain, and we're growing. We have a very, very strong core in Chicagoland, but we've burst those seams. We're across the Midwest now, and we have a very strong presence in Florida, Arizona. We're building our first restaurant in Texas, and we're in California. We now have 71 restaurants across 9 states. It'll be 72 as of next week when Schererville, Indiana opens up. That picture on the far left, I don't know if you can all see it's probably in your decks. This is the original doghouse. This is what Dick Portillo founded. You can actually see Dick peeking out from the side door in this picture. That's just a shack with no running water, and he started the vision for this business 59 years ago in the doghouse. It was Chicago centric. It was hot dogs. It was soda. It was fries. By 2022, you can see we're now in 71 locations. We've expanded on the doghouse a little bit. We build beautiful, engaging, vibrant restaurants. We'll talk about that. We have grown up. We will actually get to 3 to 100 restaurants over the next 3 years. You can see that most of that growth will come in Texas, Florida, and Arizona. We'll continue to build scale in the markets that we're in. Michelle will talk about this, but scale is very important. Local scale really drives our economics, and you can see a tipping point when you get past 1 or 2 restaurants. When you get to 4, 5, and 6, margins improve significantly. It's not lost on us. This is what it is. That point in the bottom, you know, we really should have this with, like, neon sign. Never closed a restaurant in 59 years. Think about how many restaurant companies you know of that have never closed a restaurant, and think about how many restaurant companies that have been around for 59 years that have never closed a restaurant. That speaks to the durability of this brand. Here's how we think about our competitive advantages, and I'm gonna walk through these in the next few slides. We're a values-driven, people-centric culture. It's hugely important to all of us. That values-driven piece, that's a differentiator. That's how you get great team members. We have an iconic, beloved brand with obsessed fans. Our menu, I like to use the term veto-proof. You guys have all experienced a situation where you wanna go to dinner somewhere, and somebody in your family says, "Well, I don't wanna eat there. There's nothing I like there." That's not us. We've got something for everyone, and we're continuing to get better at that. We have beautiful restaurants. Sometimes people ask us, "Your restaurants are expensive to build." They are. They're balance sheet marketing. We build beautiful, engaging, vibrant restaurants. They're not some soulless box that, but for the name, you have no idea where you are. They're fun to go to. It allows us to compete with casual dining. It attracts families. It attracts all kinds of diverse people. This robust multi-channel sales capability, we were multi-channel before multi-channel was a thing. We have powerhouse drive-throughs. I would, you know, I'm biased. I think we run the best drive-throughs in the country. The fine people at Chick-fil-A have told us that they have come and studied our drive-throughs to see how to do it. They do an amazing job. We run machines in our drive-throughs. We have an off-premise business that is phenomenal. We have a shipping business that's amazing. Talk about all this, but we have a multi-channel capability, and it's one of the things that protected our revenue so well during COVID downturn, during economic downturns. However consumers want to use us, we're there for them. We have an incredible everyday value proposition. There's a number I wanna put in your head. It's $9.75. $9.75 is what the average person at Portillo's is spending. You can't go out there and get a bagel for $9.75, okay? It is an incredibly sharp value proposition. We protect that very, very carefully. Proven portability and strong unit economics. To my analyst friends out here, every one of you says if there's a question about Portillo's, is it portable? Can it translate? I'm gonna show you a slide that I think, for me, definitively answers that question, but you will judge for yourselves. Then, it sounds braggy, but we have a good leadership team. I feel really, really great about the team that we've assembled and the journey we're on. Values-driven. When I first got here, we went on a journey of defining our mission, purpose, and values. I didn't want this to be something that a bunch of fifty-year-old executives sitting in a boardroom did. It's something that we invited hourly team members. We had two-day sessions, hundreds of team members, and these are their words. These values, family, greatness, energy, fun, I love those words, but I can't actually take any credit for them. Those are not my words. Those are the words of hourly team members in the front line. They said, "This is what we want to stand for. This is who Portillo's is. This is the truthiness of this brand that we wanted to tease out." As crazy as it sounds, in some ways, COVID was a blessing for us because it allowed us to live up to our values. What did we not do during COVID? We didn't lay a single person off. Not one. We cross-trained people. If you knew how to do the beef station, we taught you to work over here and do table, which is where you make hot dogs. If you knew how to do inside order taking, we taught you how to do it outside. We did deep cleaning. We cross-trained. We invested in our people. We absorbed some extra costs, so that we didn't have to lay off team members because that's not what family does. You take care of each other. We did a whole host of other things that Jill will talk about, but I'm incredibly proud of what we did as an organization, and our team members paid that back to us in spades. You see it in the productivity numbers that Derek will discuss, right? They became super productive. Happy people are better team members. It's just the truth in this business. Greatness. We launched a leadership program this past year that I love. It's called the Ignite program. This is not teaching you, hey, here's the perfect way to make a beef sandwich. It's taking people and teaching them about the next level of leadership skills. It's teaching them, here's how you have a tough conversation with someone. Here's when you coach someone and when you just let them do it. Here's how to be a great leader. When I meet with the folks in Ignite, I tell them that this is the truest sense of love a company can have for you. We're teaching you stuff that is totally portable. We're teaching you how to be amazing leaders, and whatever else you do in life, these lessons will behoove you, right? It's gonna help you no matter what. This is a company who's helping you be better with no strings attached. That's an awesome thing. Team will talk about some of these other things, but we are values-driven. These are the things that matter. It's how we recruit. It's how we evaluate. It's how we review each other. Do you live up to our values? The brand is crazy. I've never experienced anything like this brand. My favorite little anecdote is the series of tweets on the far right. For those of you who, you know, follow the WNBA, Candace Parker had come back to Chicago, and she was playing for Chicago, and so we tweeted at her, right? We said, "Just welcome home, Candace Parker." You see Candace Parker's response. "Mama, I made it. Anything is possible." KG, Kevin Garnett voice. "Portillo's just tweeted at me, y'all." That's gold. You know what made it even crazier? Is then Dwyane Wade retweeted that, and he says, "Hey, Portillo's, my name is Dwyane Wade, and I'm Candace Parker's friend, and I love you guys as well." Literally, we can't afford to pay D. Wade or Candace Parker for that. They're out of our price league. We get that because that's who Portillo's is. That's the kind of social media frenzy that we get every time we post something. You know, Nick likes to say this, is, "Look, we may not be the biggest on Twitter, but we punch way above our weight." When you think about 71 restaurants and the shadow that we cast on social media, it's extraordinary. We have amazing fans. Now, I have mixed feelings about this slide because we did this a year ago and we were number one. We leaked a little bit, and Chick-fil-A got even better. Gosh darn them. They are a very good company. I'm still proud of the fact that our Net Promoter Scores are this high. For those of you who track Net Promoter Scores, these are all actually really good scores. You know, they're all really good scores. Ours is really, really good in an industry that is battered by challenging customer dynamics. I'm also especially proud of the fact that whether it is in our core market or outside of our home market, our scores are equally good. What this tells me, right, it's not just Chicagoland people who think that Portillo's is great. It's people in Chicagoland, but it's also everywhere else that we are. The delta between our home market and our outside market is one point. Some of these other very, very good companies, all great companies, tend to have slightly different scores in their core and outside their core. We're proud of this. I wanna see these scores get better. My team knows that being second to me is just first loser. Our menu is extraordinary. There's, you know, there's a pro and a con to this. The pro is this creates a veto-proof menu. My wife, God bless her, eats salad like, you know, 24 meals a week, and she loves Portillo's Chopped Salad. Our Chopped Salad is freshly made. You customize it. You add whatever you want. You take away whatever you want. It is literally an amazing fresh salad. She craves it, asks me to bring it home, which is wonderful. I can take any friends or family to a Portillo's, and there's something for everyone. That's really an awesome thing. It's crazy to say this, but our average restaurant does $600,000 of salad sales. Just think about that for a second. That's a salad concept in and of itself, buried within an amazing restaurant that does all these other things. We're very, very proud of this mix. There's something for everyone. Now, the con is, you know, it does create some operational complexity, right? Derek and his team have to work frenetically to make all of this work seamlessly without too much labor expense. It does create a competitive moat 'cause it's hard to knock us off. We're not just a better burger or a taco joint. We do a lot of different things. We're very, very hard to copy. Our food is ridiculously good. If I was doing this in an hour, I'd feel guilty 'cause I'm going to taunt you with this. Look, that beef sandwich. So that beef is slow-roasted for four hours. It's thinly sliced. When it's served, it's simmering in a warm bath of gravy. That gravy is ridiculously good. When you put it on the French bread, there's an art to putting the beef on the bread. When you eat your sandwiches out there, they should be a little moist, a little damp because that gravy is flavor, and it soaks into that fresh bread. The bread should be crunchy on the outside, soft on the inside. I like mine with hot peppers. It is just a mouthful of heaven. It's unbelievable. Our hot dogs, you know, if you've never tried a Chicago-style hot dog, you should try it. Garrett, our friend here who runs culinary, is a legitimate culinarian as well as a big brain, but he will argue that the Chicago-style hot dog is the greatest food in American gastronomy. Okay. Those are his words. He'll use the greatest food in American gastronomy. It has seven ingredients, right? It's gotta be perfectly placed. Even little things like when we do the celery salt, it should actually go right on the tomatoes 'cause it enhances the flavor of the tomatoes. But when you get a Chicago-style hot dog like this, that combination of smoky and sweet and spicy, the different textures, the different mouthfeel, every bite is like this little magical melange of flavors. It's ridiculously good. Our fries, you know, I think our fries are the best fries in the industry. I think the science actually backs me up, right? 'Cause one, they are the best potatoes you can buy. They're a special breed of potatoes produced largely in Idaho or anything else on that lateral. The crinkle cut allows the surface area to get crispy on the edges but with a soft pillowy interior, right? It's not a secret 'cause we tell everyone about it, but it's expensive to do. We cook our fries in beef tallow. That's old school. Right? You remember back in the day when everybody used to cook in beef tallow? Beef tallow became expensive, so now that everybody cooks in some Frankenstein mixture of oils versus beef tallow. They're delicious French fries. You will never have a better French fry than a Portillo's crinkle cut when it's right out of the fryer. Our food is great. It's made to order. Nothing is sitting there waiting for you. You order, we make your food, we serve it to you. You eat, you drool. Our restaurants are really beautiful. Honestly, I still don't think these pictures do it justice, but they're gorgeous. One of the first things, Dick Portillo told me when I joined was, he said, "Don't let them screw up these restaurants, Michael. A Portillo's restaurant should appeal to all your senses." Our restaurants do. There's lights, there's sounds, there's smell, there's noise, and it should appeal to everything. It's purposeful that way. I think of our restaurants as balance sheet marketing. You build a gorgeous restaurant. You give people delicious food at a really sharp price point. I don't need to pound you with marketing and beg you to come back again. I don't need you to try to forget your last food experience and convince you to give us another shot. You wanna come back 'cause you had a great experience, 'cause the food was great. The marketing that we do is via operations and development and what we build. That's the best marketing in the restaurant business. Think of when you go to a restaurant, are you going because you said, "Hey, I saw an ad"? No, you're going because you said, "Last time, I had an amazing experience," or, "I'm just craving that Portillo's beef sandwich." That's what we do. We build gorgeous restaurants that appeal to the senses but are also balance sheet marketing. Multi-channel. Just highlight a couple things here. Our average drive-through in the latest nine months of 2022 has done $3.9 million. Think about that. That's three times a McDonald's drive-through. We do $3.4 million inside the restaurant. That's equal to Chipotle's total AUV. We do almost a Domino's worth of delivery, and we've been doing delivery for five, six years. In one Portillo's box, you're getting the equivalent of a McDonald's drive-through, a Chipotle, and a Domino's. That's how to think about us. The flexibility of that multi-channel capability is extraordinary. We also have a ton of off-premise business. We have catering, carryout, and this direct shipping business, which is a sneaky important business because it's a line of sight to where consumers are, where they love us, where they want us. It probably wouldn't surprise you that 10 years ago, the number one place that we shipped food to was Arizona. We built restaurants there. Currently, the number one place we ship food to is Texas, so we're building restaurants there. We have been multi-channel before that term was anything in the restaurant industry. The value proposition, $9.75 per person. These are the actual prices of our meals. $12.27 for that Italian beef sandwich, $10.97 for a third-pound burger. Our small fries are actually still pretty big, and a soft drink. That is an exceptional value proposition. Exceptional value proposition. We carefully measure ourselves against the leading competitors in our industry. This is. We took one particular restaurant, looked at all of the competitors nearby, and said, "Our most popular meal versus their most popular meals." Our Italian beef, small fries, soft drink versus Shake Shack, Potbelly, Sweetgreen, Panera, Five Guys and Chipotle. No matter who it is, we're less expensive. I don't wanna even get into the fact that our beef sandwich is a quarter pound. Our fries are voluminous. They're bigger than most people's large fry. The volume and the quality of what we do in and of itself would allow us to charge a higher price, but we create great value proposition. The quality's amazing. It's made fresh and fast. It tastes great. It's a great experience, and the price point is really, really low compared to other leading fast casuals. We're very proud of this. We protect this. Now, I have gotten some feedback from some analysts implying that, "Hey, you guys are crazy with this price lagger strategy. What are you doing? Take more price." Let me show you what the price lagger means, 'cause that's what we do. We're a price lagger. It doesn't mean we don't price. It means we allow competitors, everybody else to price, and then we follow. We would prefer to keep taking traffic and protect our value proposition than gouge the consumer. Here's a perfect example. This is a great company. Shake Shack is a great company. They do so many things well. You can see they price. Portillo's follows pricing couple, three months later. They price, we wait for that cross-elasticity effect, we wait until some of their guests give us a try, and then we price. That's what we do. Our pricing doesn't lag competitors for very long. It's a short period of time that we lag, but we always catch up on our pricing. That's what we do. You can see the impact it's had on consumers on the right side of this chart. Overall, U.S. consumer sentiment in terms of satisfaction, you can see that decline. Pretty consistent decline over the course of the last two years. That red bar is how consumers think about our value proposition, value for the price paid. Over the course of the last two years we've still taken pricing. Our value scores have improved. We like that positioning. We will, of course, protect our margins, but we will do it over a slightly longer arc than perhaps some of our competitors because we want that traffic, we wanna protect the value proposition, and we're here for the long haul. We're not going to whipsaw this business in any given quarter. A lot of you ask about the portability of Portillo's. Can you perform outside your core market? I thought this was a compelling slide. You can see vertical axis is restaurant-level EBITDA margins. Horizontal axis is average unit volume. These are great. Shake Shack is a great company. Chipotle is a great company. Sweetgreen, great company. You can see where they play. This is where we are. Chicago, outside Chicagoland. This is our total outside Chicago. Those of you, "Can you guys succeed outside Chicagoland?" Yeah. We do pretty good. $5.8 million AUVs, 19.2% restaurant-level margins. That's all of our outside Chicagoland. There's a lot of people who are like, "Well, sure, but you can succeed in the Midwest. Can you succeed further away from the Midwest?" This is Portillo's Arizona, Florida, and California. $6.4 million AUVs, 20.5% margins. Florida, California, and Arizona. That's not close to the Midwest. We feel like that's a really good indicator of that we can succeed. The only reason people question how well we perform outside Chicagoland is 'cause Chicagoland is absurdly good for us, right? At $9.9 million AUVs and 30% restaurant-level margins. The truth is that if you were all just looking at investing in a restaurant company, truthfully, wouldn't you invest in the in this company or this company? I think those individually, if we just said Portillo's outside Chicagoland, it would be a rockstar investment for investors. Our Chicago units do remarkably well. They have the benefit of 50 years of history behind them and the scale that comes with that. Our leadership team, lot of, relatively recent faces. I'm exceptionally proud of every one of these folks. You're gonna talk to them, but you can see based on their experiences and where they've been, this is not, you know, this is not like and I love the fact that we have some, you know, legacy experiences as well as new experiences, but this is a team that is created for the future. This is a team that is here to help scale this business to be one of the best restaurant companies in America. Our board is equally fantastic. We have a very, very talented, diverse board with great experiences. We'll continue to build our board up. You know, Noah Glass is sitting here. I get a lot of questions from investors about, "What are you guys doing on digital? Do you know how to do off-premise? Have you worked with people like Olo?" Yes, yes, and yes, and in fact, founder and CEO of Olo sits on our board. G.J. Hart, who knows more about the restaurant business, or has forgotten more than I'll ever know, is a friend and mentor and sits on our board. We have just a rich, diverse board that adds so much value. I feel great about both our teams. Our strategies are actually quite simple. It's not super complicated. We prioritize people, right? Everything begins with that frontline team member. If somebody has a great experience at Portillo's, it's really. It has nothing to do with our executive team. It's because the person at front cash smiled and helped them curate their order. It's the person making their food was working fast, and there's a little bit of theater in our restaurants where you see someone making food. It's when the person who pushed your food did it with a fun rhyme. You know, "Number 55, look alive." That's what gives you a great experience. It's the frontline hourly team members. Our job is to take great care of them. They take care of our guests. We're growing our core business. We have so much opportunity. Such a great company, but we're still in our infancy when it comes to things like operational improvement, getting world-class supply chain. All these fundamentals, we're in our infancy. We get better every single day, and that's our goal, right? Continuous improvement. Expanding new frontiers. There's a lot of runway for Portillo's. Mike will talk about this. He's gonna talk about basic restaurants, full-service restaurants. He's not gonna really talk much about our drive-through concept or smaller footprints or doing things in airports or universities. That's all above and beyond what he's gonna talk about. There is a ton of opportunity for us going forward. Our long-term growth algorithm, Michelle will go through this in more detail, but look, we have committed to our investors 10% unit growth per year. Our same-restaurant sales, we're targeting low single digits, high single- to low double-digit % for revenue growth, and an adjusted EBITDA growth in the low teens. That's what we think is very, very viable for this business over the longer arc. Durable, obsessed fan base, unmatched value proposition. That first bullet is hugely important to me. We have a history of doing what we say we're gonna do. We make money. This is not a concept that you value on multiples of revenue. We make money. We can fund ourselves. We have a ton of growth ahead of us. We're building restaurant 72, opening it next week. 600 is sort of the minimum TAM for us. We have a leadership team that is scaled to do this, and people really are the heart of what we do. It's built into all of our DNA. With that, let me introduce my friend and our Chief Operating Officer, Derrick Pratt. Derek. Thank you, Mike. All right. I hate following Michael Osanloo. How did I get this job? Take a look. Maxwell Street Polish. This is my current favorite. Look at the caramelized onions, the tangy mustard. The juicy pork, the poppy seed roll, it's absolutely amazing. If you haven't tried it, you gotta try it. It will not be in our Beef Bus, I apologize, but you'll get wonderful samples of other products that we have. I am proud to be the Chief Operating Officer of now, it's getting close to almost 8,000 people. We're growing, and it makes me proud. I came to this company. Actually, I was working for Starbucks, and I remember having conversations with Jill and Michael. At the time, I was responsible for labor in U.S. and Canada. It was literally the middle of the pandemic. We were in a situation where we were just about to furlough 22,000 people, and my responsibility was to come up with a deployment scheme that would allow the company to do that and keep the operations flowing. We were down 45% at the time, and I'm having conversations with Jill and Michael, and they're talking about a values-based company. What they're doing, what they just codified in those values and the purpose of the company. Oh, by the way, they were very proud to show me that they were comping at the time, get this, they were down 4%. I said, "Whoa, whoa, what?" On top of falling in love with the company back in 1997 when I joined McDonald's, this company was down 4%, Starbucks was down 45%. We were gonna furlough 22,000 people, and Portillo's didn't lay off anybody. What the hell? I had to make this move. I moved twice during the pandemic. Who does that on purpose? Who does that? For this company, I did that, and I'm proud about it. Very proud. I'm gonna talk to you a little bit about how we do what we do from an operations perspective. Operations excellence is at the core of this company. Michael talks about it all the time. Our brand affinity is built by our team members who show up every single day, proud to do what we do. We are an accountable organization. I say accountability is care, right? If you really love something, you care about it deeply, you hold yourself and all those who are connected to it accountable. I'm gonna talk to you about relentlessly creating efficiencies, right? By reducing complexity. Quick story. If you ever read Dick Portillo's book, part of it was predicated, part of his establishing this moat, this competitive protection was creating complexity that Michael talked about that cannot be duplicated. Well, our brand affinity, our product, our great people, have already built something that is very special. The fandom is incredible. People would always show me love when I said I worked for Starbucks when I got on an airplane. If I wear my garb at the airport, Portillo's, it is ridiculous because they wanna know when are we coming to town. It's fandom. Today, we don't need that kind of complexity. We can actually build efficiencies, make it easier to do the job, and I'm gonna talk about that. As important, our new restaurant operating apparatus has to be really strong enough to build consistency in our culture and open restaurants from a capability standpoint simultaneously. Michael talked about the flywheel. Important to us, team member engagement. We coach them up, we train, we develop, we recognize, we make sure that people are steeped in who we are, what we do, and why we do it, most importantly. Our why is extraordinarily compelling. Unrivaled food and experiences. We improve operating efficiency, I'll talk about that, so it's easy to do the job right. They become engaged in who we are. The work's not killing them. They satisfy our guests. We drive AUVs, restaurant-level EBITDA, adjusted EBITDA. We can fund our growth. We are a profitable company, and this is the way we do it. I wanna talk to you about the recipe a little bit, right? And here's the way I like to think about being brilliant at our basics. You've heard that term before, brilliant at the basics. Our basics are tried and true, almost 60 years. I'm not here to reinvent this wheel. I'm just trying to get it to turn more true. I'm not trying to reinvent it. I want it to turn more true and pick up momentum. I like to think about the top being our you know our bun. It's our unrivaled food experiences, right? That's the wrapping, right? Our core values and our continuous improvement mindset, greatness is a value of ours, kind of holds it together from a base and foundation standpoint, but in the middle, our operational excellence, and I call it the meat. I call it the meat of this whole thing, is flawless execution, running great shifts every single day. You know, when I left Starbucks, they were doing $30,000-$35,000 a week. We do $25,000-$30,000 a day. When you're doing that kind of volume, showing up and running a great shift is actually extraordinarily important. Guess what? Our company has codified how it's done. It is not a secret. We just had to synthesize it and make it clear communication for everyone to follow very clearly, right? Writing great schedules using tools that we have. Shift planning in advance. A shift at Portillo's could be 25-50 people a shift, right? You've gotta plan for that from a deployment standpoint in advance. We have codified routines and checklists that help us in an 8,000- as big as 15,000 sq ft building, ensure that everything is running just so, and it's in the right place. Our pre and post meals. This is communication. Across this organization, I can tell you right now, today, everybody's focused on the same thing, same goals, same communication from here to California. Right? Codified, indoctrinated, understood, believed in, and communicated. Training execution. You can't have that many people on shift not being trained and coached shoulder to shoulder to make things happen. If we don't see it, we coach to that. You'll hear me talk about zone leadership. We operate four channels clearly. We operate four zones. There could be 8, 7, 10, 12, 15 people in a zone. You need leaders leading people by zone to run channels that do as much as $3.4 million, $3.9 million, $1.6 million. These are channels of business inside of our operations. Very critical to building this beautiful bacon double cheeseburger, right? Consistently, every single day. I talked about we hold ourselves accountable because we care deeply. These are some of the metrics that we look at. When you hear from Jill, you'll hear those that underpin our team member engagement and how we look at that, but we're proud of our results. Our team member engagement is up significantly year-over-year, while across the U.S. in the industry, it's falling. Our operating efficiency is unmatched. If I were achieving this kind of operating efficiency in previous companies that I worked for, there would be a revolt. There would literally be a revolt. We're finding ways to make the job easier to do right every single shift. We've reduced our labor hours 20% since 2019. 20%. We've increased our items per labor hour, our productivity. This is how we measure productivity, over 14%. Michelle's gonna talk to you about what we've done since March of this year in the face of rising commodities. We're picking up leverage on increased efficiencies. Now, the question is, when you reduce hours, you increase efficiency. Are people working hard to the point that, "Ugh, what am I gonna do?" Are our guests getting the service and the experience that our brand portends? Well, if you look at our team member engagement, if you look at our overall satisfaction and speed of service, it's all working well together. Very important to us to triangulate these metrics and to uphold the experiences that we commit to. I'm gonna try to explain our multi-channel business a little bit. Right? If you don't have context, this is a little harder. You could see in our drive-throughs at number one, there are double-lane drive-throughs. This is predominantly for stackability during our peak. If you're gonna do $4 million in a drive-through, you've gotta have at least 2 lanes, and you only have a finite amount of real estate, you've gotta be able to get people through. We put people outside to intercept and to get orders in queue early, and we put people outside to run those orders out to cars so that they can move into a pass lane and be on their way. People intercepting people to curate orders, to create throughput and capacity. Number 2, our themed entrances. They really portend what the experience could be all about. They excite our guests before they walk in. Our online order and pickup, it's a $1.6 million business between catering and pickup. We have a segmented area at number 3 that allows us to pull orders together from the online perspective, assemble them, and convey them to our guests, whether it be on a shelf for a delivery driver, or catering is being picked up, or catering is being delivered by us and set up. Number 4, we extend our outdoor dining areas for our guests, 40-50 seats with music that you get that sound and that experience. Our energetic and amazing dining areas, all of those create one zone for us. 5, 4, 3, that's our guest service zone. Our drive-through zone. All require a level of leadership. Number six, we have two people in number six. Our kitchens are about 3,000-plus sq ft. Between production and expediting requires two managers to run that business. Our guests can walk down the line and watch that perfectly made hot dog or that Italian Beef sandwich being prepared just for them before they move to our expedite area to pick up. I'm gonna talk about this efficiency and reducing complexity piece, but I wanna talk about it through the lens of our guardrails. First, we wanna make sure that we ensure better quality when we do this. We're not trying to substitute anything or break things down or be cheaper. We wanna make it easier. We wanna eliminate the pain points for our guests, pain points for our team members. We talk to them to understand where it's harder to do the work. We wanna reduce motion. Why? Reducing motion reduces fatigue. Reducing fatigue reduces delay. Throughput is very important to us. We've invested in enhanced workforce tools. We've reduced the amount of time it takes our managers to do a schedule by 75% from 6-8 hours to 1-2 hours. The scheduling apparatus allows us to pick up micro improvements and labor change. It used to be that you had to remove a body to get hours out of a shift. We can now make micro adjustments to hours and remove labor. Our Portillo's pickup, we've invested energy, operations, technology to make sure that this is a seamless and frictionless experience for both our team members and guests. I'm gonna talk more about repurposing our legacy salad bowl area in a few demonstrations, and then what we're learning there from our team members in our new design. This isn't a think tank, kind of, let's come up with a design for Kitchen 23 that's gonna make it better for Portillo's. We heard from our team members. We've heard from our guests. If you fix these pain points, it'll be easier for us to do the job right, and we've incorporated those into our kitchen design called Kitchen 2023. Let me give you this case study for what happened in our salad bowl, right? Before, it was very inefficient. We call this kind of the triangle of confusion. A guest would come in, there's two or three registers. You're lined up, you're queued to two. They're trying to figure out who should go next because they're standing next to each other. The salad bowl, where we used to make 11 different salads, we now make five, right? We reduced that menu, reduced the SKUs, we make five. You could place an order, especially if you had a group, that contained a salad, a beef sandwich, a fry, and a beer. You would go from point of sale, maybe to pickup, or if the salad was ready sooner, maybe somebody would go to a salad to pick up. That person, if they had a beer, they would cross about 140 feet onto the other side of the restaurant to pick up the beer. Oh, and if they wanted something to take and make home or a dessert, they might pick it up from there. We call this the triangle of confusion. One point of order, three points of pickup, right? We had some goals after hearing from our team members. Enhance the guest ordering and pickup experience. Create better work environment for our team members. Drive pre-transaction awareness of our menu. I started and fell in love with Portillo's back in 1997. Didn't know they served beer and chocolate cake until I joined the company in 2020. You feel me on this? This doesn't make a lot of sense to me, right? We took these goals, and we created something different. We created a square of certainty. We moved salad production back into production. We started thinking about what if we took beer, take and make, and all of those grab-and-go items that we sell that I didn't know anything about, and I guess I'm not the only one. I ain't dumb, right? What if we move those into line of sight during the customer journey? What if we change this feeling of unfairness as to who goes next to something that everybody understands instinctually? During that journey, they could look at salads and merchandise and cookies. I mean, all the things that we offer, right? Wouldn't that be amazing? If I could order my beer where I placed my order, take a sip, and all of a sudden, I feel better about my entire experience. Wouldn't that be amazing? Well, we're doing it. We just opened this one. On the left side is the salad bowl. It almost looks sad. It's like, it looks like a place where salad didn't go to live. It went to die, right? 11 salads down to five. We couldn't even fill up all of these pans. It wasn't anything we were proud of visually, right? What if we created a merchandising zone, a guest journey, fairness in how orders are placed, pick up at the point of purchase, right? We moved actually beverages out into our patios so that our guests could either drink a beer or go fill their beverage and find a seat. Once these things begin to happen, the perception of service, better service and speed all changes, and awareness of our products will inevitably be good for our business. Guess what? It's easier for our teams to execute. Remember, the hypotenuse in that crazy triangle is 139 feet. Who is sharing that work? No one. They're working independently. We cannot be more efficient when that happens. We have to be able to share the work. We've incorporated this into Kitchen 2023, and we will begin to build them in Texas. No context for you if you've never seen a kitchen design or our kitchen design. I wanna tell you how we get more efficiency in everything that we do. Bless you. In everything we do. First, the results. Our Kitchen 2023 is 17 feet shorter, from 129 feet to 112 feet. Our equipment costs $100,000 less, 2 less minimum staffing in terms of team members, and guess what? We've increased productivity. We've increased capacity. We spend less, we have less, we do less, and we are more capable. How did we do it? We took things that were long, and we turned them perpendicular, and we created triangular work zones. This is expo for dining. This is expo for pickup, takeout, catering. This is expo for drive-thru. This is the beverage station. From here, it would've been over here. It's now here. French fries. French fries would've been elongated over here. We turned them perpendicular. Drive-thru, takeout, dine-in, right? This work triangle is expo drive-thru. If I'm expo-ing here for dine-in, I can easily walk through and help expo over here for drive-thru. We can share the work. We need less people. We've taken what would've been a production area right here. These folks would've been working with their backs to these people in the center line. You can't share that work. We've moved it to one center line production, removed 10 wells, created better work together zones, reorganized our capacity for products we serve. More beef sandwiches, 600+. Hot dogs, 500+. We have more beef wells. Didn't need more hot dog wells. I have more capacity for things that I sell. We've made it easier to do right. We've taken our cooking, prepping, and sautéing, and we moved it from way over here to in line with where we produce. Common sense things that our team members tell us they needed, they wanted, we're doing it so they can be more productive. They can do it right the first time. Less motion, less fatigue, less delay. This is who we are. This is what we're doing. Quickly on our NRO, I call it the triad of effectiveness in terms of opening new restaurants. Our operations team, that's our core NRO team. This is their letterman jacket they get after they open 10. This is Luan, he's opened 40. He's a part of the expertise that leads our core NRO team. Our operations team, they own talent training development. The NRO team owns the playbook and the project. We built flexible talent capability in markets that we already operate. We don't have to fly people all over the place to Arizona, we can scale Arizona. We don't have to fly people down to Florida, we can scale Florida. Our next scale area will be Texas. Our next NRO flex team will be in Texas because we're gonna build out Texas. We have the capability to open 4, 5 restaurants currently, simultaneously with this team working in flex, and we have the playbook to do it. The future for us is doubling down on what we've already done, running great shifts through 6 critical behaviors. These are our metrics. We are very accountable to them. Leading with intent, making sure that we create clarity in roles and expectations. People development, Jill's gonna talk about that. It is a core love of mine, and I believe it does create the heart of Portillo's. This is who we are, 2023 and beyond. What did I tell you? Ops excellence through our team members. We're accountable to metrics that matter and drive our business and underpin our core values. We're relentlessly focused on creating efficiencies and simplicity because we want people to be able to do things right the first time and be connected to our brand. Our new opening restaurant teams have to be capable enough to open simultaneously while transporting our culture and our values. It's who we are. Thank you so much. I'm gonna bring up Mike Ellis, our Chief Development Officer. You want a pointer? No. No? Okay. Good morning, everyone. That is a chili cheese dog, and that is a little slice of heaven on Earth. That is my favorite item at Portillo's. I've been with the company just a little over 60 days. Super excited about the opportunities. Have been a Portillo's fan since the early 1990s. One of the first markets when I got into real estate was of the Chicagoland market. I did deals, and I was just amazed at restaurants in the early 1990s of our size doing drive-thru and the amount of traffic they did. Have been a huge fan forever, was extremely excited when contacted 'cause I just realized what a great opportunity this brand provides. I've been in the restaurant space for 35+ years. Started the first 6 years in FP&A. The last 30+ in development, had the opportunity to run Olive Garden development, Darden development, and most recently at Cracker Barrel. As Michael talked about, we have significant white space to grow this business, excuse me. We're gonna achieve that growth to 600+ restaurants by scaling in the Sun Belt, continuing to grow in our Midwestern markets, and identifying new frontier markets that meet our return hurdles. We're gonna do that by leveraging a disciplined approach to development. One of the things that my team has heard many times over the last two months, sustainable replicatable business model. How do we say what we do what we say, and hit our timelines as we move forward? We're going to focus on the things that we can control and have a robust pipeline to deliver a 25% cash-on-cash return by year three. If you look at our foundation for growth, Michael talked a little bit about it, Nick talked about it, we have. We punch way above our weight. I can tell you, when I accepted this role, I thought I was a raving fan. The people that had contacted me from outside our organization that are huge fans of Portillo's, we are set up well for growth. We've got a long established history of growth. Since the Berkshire acquisition in 2014, we've grown at a compounded growth rate of about 8.4%. We've talked about we'll grow at 10%+ as we move into the future. When you look at our white space, and Michael had a similar chart. This shows where we currently are. We're opening additional restaurants before year-end in Arizona, in Indiana, and in Florida, which talks about a little bit about that Sun Belt growth and growing in the Midwest, and we're extremely excited to enter the Texas marketplace. Texas has been a great market for restaurants. It's been our top Shop and Ship location. You know, we'll be opening next month at the Grandscape in Colony, a suburb of Dallas, and very excited about that opening. It's got attributes from our portfolio that I don't think anything else has in terms of traffic generation, eyes on that business, and a way to really grow our fan base and expose a tremendous amount of people to the Portillo's experience. Again, sustainable model for growth. This is something that we'll work with on the team as we continue to do it. We're gonna expand aggressively in the Sun Belt. We're gonna build local scale in our Midwestern markets, and we're gonna identify those new frontier markets for our growth as we move forward. Let's talk a little bit about scaling the Sun Belt. We have a very disciplined approach to our growth. We use external tools, external partners in terms of Foursquare Analytics to understand the market opportunities. Our Shop and Ship, I think Michael mentioned it, back in 2012, was we went into the Arizona market. That was our top Shop and Ship market. It's now Texas. Not surprisingly, we're going to Texas, and we're extremely excited about that. If you look at our pipeline in 2022, you see that Arizona, that Sun Belt growth. In 2023, our pipeline, 70% of that is gonna be made up of that Sun Belt. That is gonna be a huge market that we'll continue to grow in and drive our business forward, as we move into the future. Building scale in the Midwest. Michelle will talk a little bit about this as well, and I think Michael had mentioned it. We know we hit the sweet spot in our markets when we get 6-plus restaurants in terms of margin and improvement in margin. It's important to us to continue to penetrate and grow in that Midwest, those Midwestern markets and give us that scale and those efficiencies from an operational standpoint for Derek and the margin returns that it gets us. Site selection is always the key. We've continued to add restaurants. The 2021, 2022 class includes 3 additional restaurants in the Indiana marketplace, which pushes us over that edge and provides us with that margin improvement that we'll get that Michelle will cover a little bit further in her presentation. We still have opportunities in Sweet Home Chicago. Michael talked about our high restaurant volumes in Chicago. It is a very robust market for us. We still feel we have significant opportunities. If you look at our highest volume restaurants from the Chicagoland marketplace, Canal & Taylor opened up in 2016, Addison and Kimball in 2020, and in that short time, it's moved to our second highest volume restaurant in the system. We will continue to exploit opportunities in the Chicagoland market, opening one or two restaurants per year as we move forward. Our approach in new frontier markets. Again, we're very data-driven. Our Shop and Ship data, Foursquare Analytics, Placer.ai data, as we get all these, put these together, demographics, we lay out and look at new markets. Whether it's a frontier market, an existing market, we have strategic growth plans for each market where we lay out tier one opportunities, tier two opportunities. What is our roadmap for growth in these individual markets? A look at that is really how we've developed the Arizona marketplace. We opened two restaurants in Arizona, which was in 2012, our top Shop and Ship location. We opened in Scottsdale and Tempe. We've since added Avondale and Glendale, so we're at four. Part of our Sun Belt strategy, if you look, here's what we're adding in the bulk of this year and into next year. We're in Chandler, we'll be going to Surprise, we're going in Tucson. As we get to the end of the year, early next year, we will be at that 6, 7 number in the Arizona marketplace, which then drives that efficiency from a margin standpoint. That will be our plan as we enter new markets. Let's identify where we have the opportunities, how quickly can we get to scale so we get efficient in those markets and plan accordingly. Here when we talk about existing restaurants, the pinks are tier one markets, and then we'll finish our development in tier two markets or the gray areas. We'll have 10+ restaurants in that Arizona marketplace when our development pipeline is completed. As we talk about a sustainable replicable business model, development really, there's 3 areas that it impacts, ROI, that can have a favorable impact on ROI. It starts with our site selection. It's also around our design and construction, and then most specifically owning that timeline. Time is like water, it will fill any void you give it. We are driving time to deliver these restaurants on time, on budget, so Derek's team can take them over and run them successfully. When you talk about new restaurant site criteria, it's a little different when you look at Chicagoland versus outside Chicagoland. First and foremost, we start with a drive-through. That is we are a drive-through business that needs to have the proper car stack. You need to be able to logically understand how you get in and out of the drive-through. It needs to be set up so Derek's team can execute that for our guests, and we get them in and out. We always start with a drive-through. If you look at markets outside Chicago, what I like to talk about it as pristine real estate, right? We can have no misses on real estate as we go outside our Chicagoland area. I wanna be where people trade in traffic, where I've got multiple eyes on our restaurant, so we can expose as many people as possible to Portillo's brand. I talked a little bit earlier about Grandscape in Texas. There's a Nebraska Furniture Mart that draws 10 million plus people a year to that event. We're on George Bush Freeway, which drives 150,000 cars per day going by us. The exposures and the eyes on that opportunity in Grandscape is like nothing we've seen before. I want that exposure to kind of drive that Portillo's name and get people exposed to our business. Traffic generators are critically important as we go outside Chicago. We need to have visibility, access, parking, all those are critical. We always look to gravitate where the highest volumes are from a competitive set, what's the most robust from a population, from a retail sales perspective, and that's where we'll look to locate our restaurants. Really from a cannibalization standpoint, not a big consideration at this point as we go outside the Chicagoland market. In Chicago, from a traffic generator standpoint, we've already got 39 restaurants in Chicago. We've been there for 59 years. People know who we are. I'm less worried about driving, having traffic generators. We'll drive our own traffic in those markets, as you can see from our sales and our results. It, it's visibility, it's access. Cannibalization in the Chicago market is a filter that we look at and is much more important as we move forward and we add those 1-2 restaurants a year to make sure they fit in well, they don't damage other restaurants in their area, and it's creative and adds to our portfolio in the Chicago market. We take a couple different approaches depending on the markets that we're in. This is by far my favorite slide in the deck. I look at development, we're on a continual journey of improvement, right? If you look at kind of where we are from a design and architecture, the top row is kind of where we've been. 10,000+ sq ft restaurants, multi-level floors, unique designs on every one, unique kitchen layouts on every building that we looked at. Derek talked a little bit about Kitchen 23. The kitchen, in my mind, is the most important part. It's our largest single investment inside the restaurant. It is the engine, it is the plant that works. If you look at kind of our top row, kind of where we've been, if you're a market manager and you have six to eight restaurants that you're responsible for, previously you would be managing six to eight different businesses, right? Whereas we move forward, it'll be one kitchen, you'll be managing six to eight businesses one time. It'll improve our efficiencies, it'll help us measure our performance better. It'll be much more efficient from a construction and design standpoint. As we go back down to the bottom row, that's what we're building now. We'll really start with two basic templates, whether it's a diner or a garage style restaurant. We are an experiential brand. You saw, I think in Michael's presentation, he had the St. Pete restaurant, the interior, it's engaging, the guest loves it. Derek, I think, showed Orlando, that entrance that as you look in, we need to keep that experiential nature of the brand, but I think there's ways we can do it and be more efficient by starting with base buildings, really working on the decor and some architectural embellishments to drive it, but standardize what we do and how we do it as we move forward to improve our efficiencies and get some cost savings. The real estate model. Again, we drive a lot of traffic to the restaurants. I'm a big fan of getting information early on in the process so that we can affect the negotiations. We need to be making deals, not taking deals. We drive, even in specifically in Chicago and other markets, given our volumes, what we do, we drive a lot of traffic to centers. We are an important anchor for other retailers, so we need to be in a position to make strong deals. We should be kind of leading that, driving that, getting those competitive rents, getting those TI dollars that we need, and structuring good deals for the business 'cause we add a lot to every center that we go in. Lastly, value engineering. We don't like that term. Reimagine on what we do is what I like to call it. It's really, we've simplified our structural design. We're looking at what materials we use. Derek and I have talked about this a few times. How do we transfer money where we're not getting value, and how do we put that money in different items that are gonna improve the team member experience that's then gonna improve the guest experience? How do we reimagine what we do, and how do we think about how we spend money, and what can we do to drive value inside the building? Then owning the construction timeline. In the world that we've specifically been in over the last couple years, there's a lot of things out of our control. When that happens, we need to do a great job of controlling what we can control. That really starts with the construction model. I will tell you. From a materials standpoint, the team has done an outstanding job in terms of managing equipment shortages, material shortages. It has not caused us delays on any of our 22 openings. We've had some city issues, but from a materials standpoint, they did a great job in managing that and ensure that we've got the materials and the equipment we need when we need it to open those restaurants. The construction model, I like as we build out these restaurants, I like to have as many tools in my box as I can. Currently, we've historically as we've looked in Chicago, that's been more a self-GC. We'll manage our own construction, right? We've got 59 years of experience. We have a number of trades that we know and have those relationships. We can manage that construction. That helps us from a cost-saving standpoint. It kind of cuts out the middleman. We can self-manage those jobs. That's important. More critically important is, and we're in that process now, and we'll continue to develop a robust group of outside general contractors that will do our openings in the Sun Belt and give us scale. A lot of those groups are going through their first Portillo's build right now, and there's always newness and a little hesitation on what it takes. As they get one or two restaurants under their belt, they understand, they kind of get over their fear factor, our pricing and costs tend to get better. By this time next year, we'll get that group together 'cause it's a relatively small group, 6-10, that build a lot of the national restaurants kind of across the country. You know, whether it's an Olive Garden, whether it's whatever it is, they've got that experience. We'd like to bring those people in, and we'll look to bring them in in about a year from now. Once they have two Portillo's under their belt, they've built tons of restaurants in the industry from all different brands and look at, okay, what can we do better. Where are we making mistakes. How do we look at our design, our staging of the construction. Let's learn from their experience to shorten our timeline, to lower our costs, and give us the ability to move forward in a more cost-effective and time-effective way because we save money on the construction side, fewer weeks on the job is less general conditions, so that's all a win for us. We're in uncharted waters in terms of cities and how they work. We've painstakingly built the 23 pipeline with additional weeks in to account for that. We need to, our hope is the world normalizes as we get into the first quarter, but we're not counting on that. We're planning for that in our builds, in our construction schedules that we've got that accounted for. Some will probably won't need it, some will need more than we have. On balance, we've got that in and built in, so there's no surprises from a construction standpoint. In closing, we're gonna accelerate our growth by capturing the significant white space we have to get to 600+ restaurants. We'll have that growth mainly occurring in the Sun Belt, our Midwestern markets, and as we identify new frontier markets for our growth that have our returns. We'll be utilizing a disciplined development, sustainable, replicatable model to deliver this growth to ensure that we give the returns of a 25% cash-on-cash return at the end of year three. Thank you. All right. We're gonna take about 10 minutes for Q&A, and I'm just gonna invite Michael and James back on stage. We are gonna have some microphones, moving around, so when you get your mic, please identify yourself and ask your question. Hi. Thanks. Sharon Zackfia with William Blair. I'm intrigued by the square of certainty, and it seemed like it was kind of a no-brainer, and you have it at least in one location already. Yeah. You refer to it as a test, the 23 layout. Maybe that was more the kitchen layout than the front of house layout. Can you kinda talk about the rollout for the front of house, where it seems like that could benefit attach and improve customer satisfaction and maybe even speed, and if that's in the plan for all 23 units. Is there a possibility to retrofit existing units to get rid of the triangle of confusion. Yes, it's a great question. Thank you. The reason I'm calling it a test is because it's been like a little over a month, and we're still learning both the guest behavior, how people react to it, what they're looking at when they kind of work through the journey from a merchandising standpoint. We're stockers, we're not merchandisers. That's a muscle that we have to build, right? Front-facing, full, ready to sell. Our schemes for actually how to replenish to get that timing right, who's gonna zone that area, have eyes on that, and then impact it. What happens in the guest journey in terms of purchase of beer? What do they rather do? Would they rather order here or grab here? The assortment is all these things we're learning, but we can scale and learn that fast, right? We're working through that. We have right now 41, including our Barnelli's, which is kind of the pasta concept. We have 41 that we can convert, right? We believe right now, based on the operations experience, the guest experience, and the team member experience, that this is scalable, replicatable, and we can do it, I believe, fairly quickly based on what we did at our Bolingbrook site in building it out. You know, we're happy about the results today, but as we move forward in our Texas market, we wanna kinda consolidate everything that we've learned, incorporate it in Kitchen 2023, while simultaneously putting a plan together to scale in our remaining 40 restaurants, right? This is our plan going forward. We really like what we see from a guest experience. We really like what our team members are telling us, and we like the awareness to our product as I talked about, right? That's really working well for us. Thanks. Hi. This is Sara Senatore from Bank of America. Do you hear me? Not really. You, we can hear. We'll repeat the question. Sara Senatore from Bank of America. Good. All right. Yeah. I have a question that you both might have mentioned the idea of getting to scale at, like, certain states. Can you talk about where the benefits are? Are they at the GA level? Is it at the store manager or is this actually at the unit level? Is it about hiring, the labor availability, your real estate, your landlords knowing you? If you could just talk a little bit more about essentially how we see that in the P&L as you hit those. Yeah. targets and sort of presumably that's within a certain limited trade area that you're talking about. Yeah. For those of you on the simulcast, the question is, the getting to scale, 6, 7 restaurants, where in the P&L does that benefit show up? Right. I'll take the first crack at that. You actually see it all across the P&L. It's exactly what you described. In a market like Arizona, we have field marketers. For a long time, those field marketers were working with 2 restaurants. They were doing some amazing things, like vending at the Arizona Diamondbacks Stadium at Arizona State University, doing all this great stuff, building brands, building awareness. All of their efforts were for 2 restaurants. When you get to 6, 7, all their efforts six, 7 restaurants. Any marketing that you do now affects 6, 7 restaurants. You have a regional person, a market manager we call multi-unit person. Historically, we had one person for 2 restaurants. That person is scaled. They now work for six, seven restaurants. Staffing becomes infinitely easier because if you have two managers, you know, you have a manager on vacation, you have a manager who's on maternity leave, another one paternity leave, in Tempe, you can repurpose managers from the other restaurants and move them there. Supply chain gets more efficient. You get better drop sizes. It's easier to get product to all your restaurants. Literally, it's bits and pieces across the entire P&L that are positively impacted by achieving scale. Michelle will show mathematically what happened over time, but it's Sara, it's literally across the entire P&L. You get a demonstrative benefit at six or seven, and then beyond that, it's just a little bit of diminishing returns. Right. Yeah. I think from a real estate side, it definitely gets easier as we make a presence and as we go into Texas and get a couple of restaurants open, and we demonstrate the traffic that we drive, that's gonna give us more opportunities from real estate as we go, because, again, we drive a lot of traffic to centers, so we get efficiencies there as well. Thanks. It's Chris O'Cull with Stifel. Mike, you've worked with some fairly sophisticated companies in the restaurant industry in the past in terms of development. I'm just wondering, when you joined Portillo's, what did you see as the biggest opportunities to kind of raise the bar for either the development or the construction process, the development process? If you could just shed some light on the biggest opportunities. Yeah, I mean, I think it's just exposing. We only know what we know, right? From an experience standpoint. I think I look at just the whole approach to development, the cost of kind of getting to. What I talked to the team about is we need to remove the cost of what it takes to get a Portillo's built into that money, right? By expanding architects, by leveraging relationships in the past, by managing time. You know, you know, we've self GC'd significantly in the past. Building that muscle and that GC network is gonna help us be more efficient, save costs. It's just leveraging those different looks at the business and bringing new eyes on the business to kind of shed light on where we can get better and pick up some efficiencies. I think Nicole's had a question. Good morning. Thank you. Nicole Miller, Piper Sandler. The first question is on the Kitchen 23. Would you remodel the fleet, the current installed base? Now with Mike on board, Michael, has the process for store signing off on stores, your real estate meeting, has that veto process changed at all? Yeah. Two great questions. I don't... I'll leave it to bigger brains than mine, but I don't think it's viable to reconfigure the fleet with the Kitchen 23 design. I think that's a go-forward strategy because I think the expense in moving everything would just be onerous. I don't know if, Derek, you think we can reconfigure existing restaurants or not. The second question was the process in approving restaurants. We have a fairly involved process. We have a real estate committee where literally every one of my direct reports, we sit around the table and everybody signs off on a restaurant. You know, Mike's gonna pitch the restaurant. Derek's got to say, "Yes, I can run this restaurant efficiently." Jill's got to say, "Yes, we can hire the talent for this restaurant." Michelle says, "Yes, all this math makes sense. This is not BS. We're not overcooking the numbers. We can return an investment to shareholders. We stick with that process. I want, you know, if I don't know. I think I'd get in trouble if I made them sign in blood, but I would have them sign in blood that yes, this restaurant is going to be successful. It has. You know, we're not at a stage where we're building 30, 40 restaurants where you can afford a couple of mistakes. We're building, you know, 7, 9. We don't want any mistakes. It's too expensive. It's too time-consuming. It's very important to me that we have a lot of critical thinking. Yeah. Challenging going into building every restaurant. Yeah. Just to add a perspective on remodel or retrofit of Kitchen 23. We can do it, but Michelle wouldn't like the returns if we did it. There are elements of it that are guest-facing and team member accretive that we can actually put into over 40 of our existing restaurants, and then the go forward on kind of our remaining builds. We're already thinking about and looking at restaurant of the future that will take into account different ways that people want to engage us from a digital perspective, and then build in even more efficiencies. I think there's just a lot to get and gain, and it's not going back into our existing and kind of trying to mess with all of those iterations of the restaurant. Just a quick follow-up pivot to value proposition, but also thinking about affordability, and it seems like you might be one of the very few brands that have both. You had a slide early on in the presentation about the highly satisfied, despite the population, the consumer, and the entire population breaking down in terms of confidence. But I noticed the definition was the most highly satisfied. If you looked across the average or the most satisfied, can you just validate that the breakdown in their less satisfaction is not the price? It could be something else. It could be service or flavor or, well, it could be anything, but I'm just curious if you take that top cohort, expand it down to the next, are they price-sensitive? I don't know the answer to that off the top of my head. We have all that research, and we'll look into that. I think, you know, what I would reiterate, though, is that the value proposition matters, right? Our value proposition scores have improved over the course of the last two years. Let's just think about that for a second. Inflation has been running 8%+ over the course of the last year. Prices, most restaurant companies have probably priced somewhere in the neighborhood of 15%-16% over the last two years. Our value scores have improved during this timeframe. That's really the key takeaway for me, that what we're doing is working with the guests. They think that we're doing better than we did two years ago in terms of value in a world where overall satisfaction is plummeting. I think so for me, that's a really good place to be. I think we have time for what? A couple more questions. We can take one more. Okay. Andy Barish. There'll be a mic there. I'll repeat your question for the people online. Thanks. Good morning. Just on the development side of things, a couple of things on cannibalization, which I think is, you know, really important point in the Chicagoland market. Can you give us an example? Addison and Kimball is now number two. Did that touch anything, you know, in the system in terms of impact? Joliet, I think, is a test near another high volume store. What's going on there? And just finally, I didn't see Ohio on the development plan for 2023, which I thought was initially talked about. Is that just getting pushed off a little bit? Yeah. I mean, I can speak definitely to Ohio. I mean, we're looking at a number of markets as we build and evaluate. One of the things that we wanna look at as we enter new markets is kinda what we've talked about. How quickly can I get to scale? How quickly can I get to that 6-8 restaurants? We have a tremendous amount of white space. If I kind of stack as we extend in the Midwest or we continue to build out in the Sun Belt, how do I prioritize markets? What can I get? What's gonna get me to scale faster, and how do we prioritize those and then build the ones in behind it from a pipeline so that as they hit in, whether it's 2024 or 2025, I can make a push into the market, get efficiently quickly and go. That's some of the work we're starting to look at kind of throughout our opportunities so that we can kinda rank them in terms of speed to efficiency and how does it fit our growth profile and kind of our metrics. We'll evaluate a number of markets and obviously it's early in that process with 60 days, but we'll look at that and how we kind of tip over the next domino in the next market we enter. Yeah. Andy, the first part of your question, the cannibalization issue, particularly in Chicagoland. Here's how I think. It's honestly more of an optics issue than anything else because it's real incremental sales and it's real incremental margin. Addison and Kimball is a perfect example. It's gonna end up being a $16 million-ish restaurant, right? It's printing money for us. It probably did cannibalize one of our local restaurants, Harwood Heights, by about $1 million. Okay, so it's $15 million incremental. It's still ridiculous levels of EBITDA. What we need to be thoughtful about is that when you have Addison and Kimball and you have Joliet, which will cannibalize a little bit, it creates a little bit of comp headwind that people might misunderstand. We can absorb a little bit of comp headwind in the near term because these restaurants pick right back up again. We have to be thoughtful about how much comp headwind we want to absorb in the core market. When we build I mean, like, we're not gonna stop building Addison and Kimballs. At the economics of those units are such that, you know, I would take two of those every single year and happily absorb the cannibalization. You just have to be aware that there's a little bit of cannibalization. It might slow your comp growth a little bit, and you have to explain it. Yeah. Typically, my experience with cannibalization, it's really more in the first few years. Yeah. People wanna try the new thing. They change their patterns. They go, and then they kinda fall back to their normal pattern. It's usually more prevalent in the first couple of years as you drive trial to try the new restaurant, the new, you know, the new drive-thru, and then it tends to kinda equalizes as you move into time. Barb, were you saying, waving me off, no more? Okay. Good. All right. Thank you very much. We'll be back in the room at 10:35 A.M. for presentations. We have a cake break now, so please go grab some cake. I'm gonna plug this. If you have not tried a Portillo's chocolate cake, you owe it to yourself to go get a slice of chocolate cake. It's a life-changing piece of cake. What? All right. Yeah. Dude. All the misery was emptiness everywhere. What is it love? Yes, I know. Yes, I know. Girl, I know. She told me don't worry about it. She told me don't worry no more. We both know we can't go without it. She told me you'll never be alone. Oh. Oh. I can't feel my face when I'm with you. But I love it. But I love it. Oh. I can't feel my face when I'm with you. I can't feel my face. But I love it. But I love it. But I love it. I can't feel my face. I can't feel my face when I'm- Oh, God, I love it. God, I love it. God, I love it. God, I love it. Oh. She told me don't worry about it. She told me don't worry no more. We both know we can't go without it. She told me you'll never be alone. Woo. I can't feel my face when I'm with you. I can't feel my face. I love it. I love it. I love it. Oh, I love it. Oh. I can't feel my face when I'm with you. I can't feel my face. I love it. I love it. I love it. I love it. Oh. I can't feel my face when I'm with you. Oh, God, I love it. God, I love it. I love it. Don't you think I do? I can't feel my face when I'm with you. I can't feel my face. I love it. When I'm with you, baby. I love it. When I'm with you, baby. I wanna dance by water 'neath the Mexican sky. Drink some margaritas by neon blue lights. Listen to the mariachi play at midnight. Are you with me? Are you with me? Are you with me? Are you with me? Listen to the mariachi play at midnight. Are you with me? Are you with me? I wanna dance by water 'neath the Mexican sky. Drink some margaritas by neon blue lights. Listen to the mariachi play at midnight. Are you with me? Are you with me? Are you with me? Are you with me? I wanna dance by water 'neath the Mexican sky. Drink some margaritas by neon blue lights. Listen to the mariachi play at midnight. Are you with me? Are you with me? I don't like walking around this old and empty house. Hold my hand, I'll walk with you, my dear. The stairs creak as you sleep, it's keeping me awake. It's the house telling you to close your eyes. Some days, I can't even dress myself. It's killing me to see you this way. 'Cause though the truth may vary, this ship will carry our bodies safe to shore. There's an old voice in my head that's holding me back. Well, tell her that I miss our little talks. Soon it will be over and buried with our past. We used to play outside when we were young and full of life and full of love. Some days, I don't know if I am all right. Your mind is playing tricks on you, my dear. 'Cause though the truth may vary, this ship will carry our bodies safe to shore. Don't listen to a word I say. The screams all sound the same. Though the truth may vary, this ship will carry our bodies safe to shore. You're gone, gone away, I watch you disappear. All that's left is a ghost of you. Now we're torn, torn apart. There's nothing we can do. Just let me go and meet again soon. Now wait, wait for me. Please hang around. I'll see you when I've won, I've seen. Don't listen to a word I say. The screen calls on the sand. Though the truth may vary, this ship will carry our bodies safe to shore. Don't listen to a word I say. The screen calls on the sand. Though the truth may vary, this ship will carry our bodies safe to shore. Though the truth may vary, this ship will carry our bodies safe to shore. Though the truth may vary, this ship will carry our bodies safe to shore. I feel so close to you right now, it's a force field. I wear my heart upon my sleeve like a big deal. Your love pours down on me, surround me like a waterfall. There's no stopping us right now. I feel so close to you right now. I feel so close to you right now. It's a force field. I wear my heart upon my sleeve like a big deal. Your love pours down on me, surround me like a waterfall. There's no stopping us right now. I feel so close to you right now. There's no stopping us right now. There's no stopping us right now. There's no stopping us right now. I feel so close to you right now. I stay out too late. Got nothing in my brain. That's what people say, mm-mm. That's what people say, mm-mm. I go on too many dates. I can't make 'em stay. At least that's what people say, mm-mm. That's what people say, mm-mm. I keep cruising. Can't stop, won't stop moving. It's like I got this music in my mind. Saying it's gonna be alright. 'Cause the players gonna play, play, play, and the haters gonna hate, hate, hate. Baby, I'm just gonna shake, shake, shake. I shake it off, I shake it off. Heartbreakers gonna break, break, break, and the fakers gonna fake, fake, fake. Baby, I'm just gonna shake, shake, shake. I shake it off, I shake it off. I never miss a beat. I'm lightning on my feet. That's what they don't see. That's what they don't see. I keep cruising. Guess I won't stop grooving. It's like I got this music in my mind saying it's gonna be all right. 'Cause the players gonna play, play, play, and the haters gonna hate, hate, hate. Baby, I'm just gonna shake, shake, shake. I shake it off, I shake it off. Heart-breakers gonna break, break, break, and the fakers gonna fake, fake, fake. Baby, I'm just gonna shake, shake, shake. I shake it off, I shake it off. I shake it off, I shake it off. I, I shake it off, I shake it off. I, I shake it off, I shake it off. I, I shake it off, I shake it off. Hey, hey. Just think, while you've been getting down and out about the liars and the dirty cheats of the world, you could have been getting down to this sick beat. My ex-man brought his new girlfriend. She's like, "Oh, my God." but I'm just gonna shake. To the fella over there with the hella good hair, won't you come on over, baby? We can shake, shake. Yeah. 'Cause the players gonna play, play, play, and the haters gonna hate, hate, hate. Baby, I'm just gonna shake, shake, shake. I shake it off, I shake it off. Heart-breakers gonna break, break, break, and the fakers gonna fake, fake, fake. Baby, I'm just gonna shake, shake, shake. I shake it off, I shake it off. I shake it off, I shake it off. I shake it off. We're gonna get started in just about a minute if everyone can find their places. I shake it off, I shake it off. I, I, I shake it off, I shake it off. I, I, I shake it off, I shake it off. I, I, I shake it off, I shake it off. I know you're tired of loving with nobody to love. Nobody. You're scared somebody's gonna leave this party with nobody to love. Nobody. I know you're tired of loving All right, welcome back, everybody. I am pleased to introduce Rick Cook, our next presenter. He is our SVP of Information Technology. Come on up, Rick. All right. Thanks, Barb. Hey, everybody. Good morning. You know, Derek said it was hard to follow Michael, but I have to follow Cake. Hopefully it'll be distracting enough while I'm talking. Barb mentioned I'm Senior Vice President of Technology for Portillo's. You'll see here the delectable cheeseburger. I personally believe that it's our most slept-on menu item. It is absolutely delightful. It will forever change your perspective as far as burgers are concerned. So if you haven't had that, I recommend that you do in the very near future. I've been with Portillo's about three years at this point. Came from McDonald's, where I managed the United States point of sale, so that was about 14,000 locations. They have a proprietary solution which will become meaningful here in a little bit. I worked with a digital startup, and prior to that, I was in the Army for 10 years as an armor officer and network engineer. That is my background. Happy to be here. What do we do at Portillo's as far as technology is concerned? Well, I want your macro takeaway to be that we are not a technology company. We leverage technology to drive operations. We're an operations company first and foremost. What do we do with technology to drive operations? Well, we leverage it to facilitate consistent experiences for our team members and our guests. We drive greater throughput and guest engagement through practical innovation. I'll touch on that a little bit more as well. We implement proven digital capabilities to strengthen our brand and deliver consistent long-term growth, proven solutions. We are fast followers of solutions that make a difference operationally. These are the principles of our IT organization. When people talk about us being a people-centric organization, we are the same way in IT, and it's not lost on us that technology is there to drive operations and make operations more efficient and effective for our team members and our guests. How do we do that? Well, first, we've gotta know our customer. Our customer in technology is the restaurants and the support center. Operations customer is the guests. We make sure that we enable our operations folks to perform flawlessly so that the guest experience is flawless. We have to care because we do care, not because we have to care. If you are a people-centric institution, then you are sad when something is not working in the restaurant, and you have to respond to that with a sense of urgency. I stole this one from Derek shamelessly, 'cause I think it's great. You gotta be brilliant at the basics. If you don't do the simple things well, no one's gonna trust you to do the big things with any real effect. Accountability and ownership. Working in these restaurants can be a stressful proposition. There's a lot of moving pieces. You've learned about the complexity of our operations, even when we are de-complexifying them. If some piece of technology that a team member relies on goes down, they become infinitely more stressed out, and that translates directly into a reduced guest experience. We are maniacally focused on that guest experience, and what that means from technology is being maniacally focused on what that technology does to benefit operations and our team members. You know, I like to say it, the restaurants aren't there because of technology, right? It's quite the opposite. The only reason we get to support Portillo's is because our team members are making great food and presenting it to our guests in an engaging way. How do we leverage technology? I mentioned the maniacal focus on the guest experience. You know, a happy guest is a returning guest. How are we thinking about it? Well, we're thinking about it in this sort of three-pronged approach. These are some initiatives that I'm gonna cover in a little bit more detail here momentarily, but we wanna focus on increasing restaurant throughput, top line. We wanna drive guest digital engagement. Not only do we wanna make operations simpler for our team members, we wanna make it simpler for our guests to engage with Portillo's in the way that they want. We wanna leverage data and insights that we have from our sales and guest interactions to optimize how we drive these restaurants every single day. Here's an example of some practical innovation. This was our legacy point of sale. You can't really see our new design, but it's incredibly intuitive. The reason I have this one blown up is because I call it a cacophony of colors with an anachronistic shorthand labeling system. What does that mean? Well, this is kind of, you know, not to overstate, but I find the way this looks kind of disgusting and distracting. I'll give you an example of what we went to and what we came from. To learn this system took anywhere from 7 to 14 days to train. That's because they had to learn what this shorthand meant and what that meant in terms of what the guest wanted. We got rid of the shorthand, turned it into language that humans use. That was pretty innovative. We changed screen transitions by 3 times. No longer did they have to engage with 4 screens for one item. They can engage with 1, sometimes 2. I'll give you an example. Up here is the letter E. The reason there's a letter E is because back in the day, you would place your order by getting it written on a bag, and E was shorthand for Every Dog. That's a Chicago Dog. The person at the point of sale had to know, "Okay, E, that's an Every Dog." They would have to go and hit E. They were doing this conjugation. If you wanted to change it, they had to take things off, and then they would put the order in, and then the shorthand would go to the KDS, and then the person making the food would have to conjugate it. It was just unnecessarily complex. What that does is it reduces the engagement that that team member has with the guest, right? What we did was we changed E to hot dog. Okay? Now when a guest orders a hot dog, they say, "I would like a hot dog with onions and mustard." Now, what the team member does is they hit hot dog with onion, mustard. "What else would you like?" Right? It's about removing that stress for the team member to improve their engagement with our guests. Oh, and now the training time went from 7 to 14 days to usually an hour or two, and the manual was reduced from about 45 pages to one-pager. All right, I wanna talk about distributed network connectivity, which is IT fancy way of saying internet and the next-gen tablet point of sale. The way it worked today is we have a handheld order taker that is not the same as far as an interface as the front counter point of sale. What does that mean? It means you have a bifurcated training approach. You have people that are efficient on front counter and people that are efficient with the handheld device. We got rid of that. We flattened the interface so that it's exactly the same in the drive-thru as it is at the front counter. That gives you basically a virtual increase in team member resource availability. If you can work the front counter, you can work the drive-thru, and they look exactly the same. What this also allowed us to do was everybody's probably familiar with tap-to-pay. You tap with your card, you tap with your phone, contactless payments. We now have extended Wi-Fi, so they can reach further back in the drive-thru line. The point of sale is exactly the same as it is inside, and customers can pay how they want. They can use Apple Pay, Google Pay, tap-to-pay. We're working this out right now. We've got it in 10 restaurants. All indications are positive. All team members that have used the handheld order takers that we're transitioning to refuse to go back to the legacy solution. I think that's a pretty good indicator. Digital menu boards. This is being deployed right now on track for this to be complete by the end of the year. It modernizes the experience. It brings Portillo's into the modern day, and it also enables Nick and his marketing team to engage with customers in a more meaningful way. In the drive-thru now, this drives add-on sales. We're able to show pictures of delicious food that maybe people haven't tried before that could be higher margin, that maybe they'll order that time or next. The thing that I love, because again, we're very operations centric, the thing that I love is the menu is always right. The prices are always right. Seasonal offerings, always right. We don't have team members going outside at 7, 8 in the morning in the winter in Chicago to make changes to the analog menu. It's done. They don't have to think about it. It's those bits and pieces that Derrick was talking about, eliminating overhead to allow us to focus on operations and the guest experience. Oh, let me go back. Sorry, I missed one. Digital gift cards. This would have been real bad if I missed this one. All right, so digital gift cards, this is something we implemented in the last few months, relatively new. Our gift cards now have barcodes on the back, so they can be scanned at all of our front counters or all of our drive-thrus. Before it was a mag stripe, which was a pain point, particularly in the drive-thru. Since introducing digital gift cards on portillos.com, our gift card sales online have doubled, and digital gift cards now account for 68% of total gift cards sold online. That's a meaningful impact, and it's meaningful for the guest. Here you're looking at a schematic that is intentionally similar to Derek's because the way we look at things is technology doesn't drive innovation. Operations drives innovation. Operations defines the play, and IT figures out what tools we can leverage to enact that play. In this case, we wanted to increase guest engagement. We do that with the digital menu boards. We wanted to enable orders to be taken further back in the drive-thru. We wanted guests to be able to pay how they prefer. I touched on contactless payment, that EMV, which is, you know, tech speak for chip and PIN, that enables guests to pay how they want with that contactless approach. These tablets can also be used indoors to line bust. If our lines get too long, which they do, the tablet allows those lines to be busted. I wanna touch on one thing here that again reflects the legacy of our old solution. If you look right here, this is the antenna for our old handheld order taker, okay? To, again, nerd out just a little bit, that's what's called radio line of sight. Imagine you have an antenna here for the drive-thru. Sorry, an antenna here for the drive-thru. You can't go beyond this point to take orders. Wi-Fi is omnidirectional, so that's what's gonna enable us to go further back in that drive-thru line and take orders from guests. Nick, our marketing guru, wearing Portillo's Crocs, was instrumental in this. We changed our app and website back end. We did that with completely off-the-shelf solutions. What that did is it increased what we call cart conversion. The amount of people that start to place an order, either through the app or online, it increased cart conversion from 30% to 60% basically overnight. The retail average is 30% and remains 30%. We had said at the beginning of the year, "You know what? Let's invest in a new app. Let's invest in a new website." But we said, "You know what? Why don't we just see what this off-the-shelf solution does first?" We doubled our return. We decided, "Hey, let's not do the app. Let's use that money for other initiatives." Because we don't just do technology for technology's sake. If it has a positive impact on guest experience, top-line revenue, or our team members, that's what we invest in for technology. We maintain a fixed approach in buy versus build. I've been part of organizations that built their own solutions, be it point of sale or content management, any number of things, and that introduces a lot of maintenance overhead. We don't wanna embrace that maintenance overhead, and we look for almost exclusively off-the-shelf solutions. Another thing that we do is when we're engaging with a new supplier or service provider, we make it a point to have a component of the agreement be that we get a seat on their customer advisory board. Nick's on the advisory board of Olo. Another colleague is on Cartwheel. I'm personally on two of our strategic service providers' advisory boards. What that does is that allows us to define what their off-the-shelf solution looks like, so it's maintained as part of their broader offering as opposed to some bespoke offshoot that we have to maintain individually or pay to be maintained separately. Again, just to tell you what I told you again, the macro perspective here is that technology at Portillo's facilitates operations. We leverage technology to facilitate consistent and frictionless experience for our team members and, by association, our guests. We wanna drive throughput and guest engagement through practical innovation. Think back to that point of sale change that we put in place. We wanna implement proven digital off-the-shelf solutions to drive operations and business. With that, I will introduce Nick from marketing. Well done, Rick. Hi, everybody. My name is Nick Scarpino, and I have the pleasure of leading our marketing and off-premise dining businesses. This is a picture of me from 1999 when I was a cashier at Portillo's. I worked at the Naperville location. We have two Naperville locations. This is the one on Jefferson Street for anybody who's familiar. I came back to Portillo's. I left after high school and in college. I was a cashier during summer and winter break. I left, came back eight years ago to be the first ever person who's in charge of the marketing team, and I have the world's greatest job. I brought some custom Crocs. I don't know if you can see them. They are Portillo's custom Crocs. I brought them just so I could say this next line, so bear with me. I don't just wear my love for Portillo's on my sleeve, I also wear them on my feet, and thank you for letting me deliver that line. We'll talk about the Crocs more in a second. I owe Rick and his team a big debt of gratitude because, when I was a cashier and was outside in the drive-thru line and freezing in way back then, I had to learn that E meant hot dog. I had to learn all the different shortcuts that I would write with a pencil on a piece of paper, and my hands would freeze. I'm very grateful on behalf of all of our team members that we don't have to do that anymore. My favorite menu item is the Beef & Cheddar Croissant. If you have not tried it, all the wonderful things that Michael said about the beef sandwich are true about it. It's just on a flaky, buttery croissant, and if you haven't had one, you really just haven't lived until you've had one of these things. All right. What are we gonna talk about? We are gonna talk about three things. The first one is that Portillo's is a social media and PR machine. We are agile, we are gritty, and we don't spend a lot of money. We spend 0.5% of our sales on advertising, and as everybody keeps saying, we punch above our weight. We have ravenous fans. They love us. We let them do the work for us. I'm gonna talk a little bit about our approach to new restaurant openings. You will see our secret weapon, the food truck that we call our Beef Bus, later today. It is a huge advantage for us, and I don't know that anybody else is doing anything like this. Lastly, I wanna talk about our Darwinian approach to menu. We call it Darwinian because it is survival of the fittest. We do innovate our menu. We do introduce new items. When we do it, we take something else off, and we will talk about that. All right. Marketing at Portillo's is a really fun job because our guests love us. I know that lots of brands say that their guests love, that their guests love them. I'm gonna prove it to you. We have a wonderful social media following that you can see here. We also do really well on TikTok. I just wanna remind you that we only have 71 restaurants. I would put our numbers against any other brand per restaurant and tell you that we beat all of them in terms of the numbers of people who follow us, like us, and share our content. What's not shown here is we have 1.1 million members of our Portillo's Birthday Club. That's our version of a loyalty program. 1.1 million for 71 restaurants. It's a lot of people per restaurant. When we do fun things, like partner with Crocs on these ridiculous shoes, ridiculously awesome, people go nuts. We worked with Crocs. We said, "Let's produce 100 pairs of Crocs and let's give them away as a sweepstakes." We had 30,000 people enter the sweepstakes. I had to wrestle these away from one of my team members on Sunday just so I could wear them here today, and I told her I would give them back. People spread the word on our behalf. When these Crocs started selling on eBay for $300, we knew we had something special, and we're gonna bring them back out, actually next week. We're gonna start selling them. Crocs is gonna let us make some more. We take an experiential approach to marketing. Michael mentioned earlier that we have field marketers. We have people who live in all the different markets where we have restaurants, and their job is to put food in people's mouths. We partner with Yelp and Yelp influencers. They call them the Yelp Elite events. We partner with social media influencers. We partner with the media. Our strategy is give them our food and let them talk about it. In many ways, we are a very big brand that gets to do things at a local level. An example here is, we get to put people's faces, our biggest fans, in our restaurants. When we announced that we were coming to Texas, we told our social media audience, "Tell us who is the biggest Portillo's fan, and whoever we choose, we will draw your face into a wanted poster in our Texas restaurant." It's cowboy-themed, right? We had tons and tons of people enter to win this, and one lucky winner is gonna have their face forever in our restaurants. We do this kinda thing all the time because we're a big brand, but we can compete at a local scale. The last thing on here is the Beef Bus. You will sample some food later. It's gonna be fantastic. It is our ultimate weapon, and we're super excited about how we use it. I'm gonna go through an example here for you. When we announce a new market, we've talked a little bit about our Shop and Ship business, right? We ship frozen food to all 50 states. We've been doing this for 20 years. We have a big database of guests who have already told us by buying food and shipping it to themselves or someone that they love that they're interested in Portillo's. We leverage that database, and we spread the word that we're coming to a new location. In this case, this example is all about the Beef Bus tour that we did for 2 weeks in Texas. We just wrapped it up. We went to 20 different locations, including The Colony, where we're gonna open our first restaurant, but also including the next three locations that we're going to open. It was a PR machine. I'm gonna show you a video in a second. You can see the lines. You will see lines. It was like that every single day. We had social media influencers come, traditional press, 3 million earned social media impressions, 350 million press mentions. Oh, by the way, we also sold food. It's a self-funding advertising model. It's wonderful. I think most important to me and to the company, and especially to Jill, our Chief People Officer, is that we spread the word about why we are an employer of choice. We have already hired in Texas before opening our first location 15 crew chiefs, which means that we're staffed for the next three locations. We can train them up in the first one and get them into the next number two and number three, and we're extremely proud of that. Like I mentioned, the Beef Bus is a PR machine. We're taking it later today. We're gonna go have Jim Cramer from Mad Money. He will be on the Beef Bus. We're taking it to the Fox Business Plaza tomorrow. It really is our secret weapon, and we're really, really proud of it. I'd like to show a video, it's a 1-minute video, about all the hoopla that happened just on the very first day that we were in The Colony that will illustrate everything that I'm talking about. Oh, this is wonderful. Oh my gosh, this is so wonderful. I've been waiting forever. Right now we're at The Grandscape in The Colony, where our very first restaurant is gonna be right across the street. We brought our Beef Bus down so that some of our obsessed guests could get a taste of Portillo's. As you can see, they've definitely shown up to get a taste of our famous Chicago-style street food. I could not be more excited to be here, where we're gonna open our first location in Texas. Out here so they can try our food and see really what all the fandom is about. I got number 9. Number 9. Come to Texas, Portillo's. We love you. Okay. Way to Dale. Welcome to Texas, Portillo's. Just like I remembered. I just wanna say it one more 'cause it bears repeating. We paid $0 to promote that entire tour, right? Everybody came. We have a great database, the people who love us. All right, so what are all those people standing in line for? We've talked about this a bunch, but they're standing in line for our food. We're extremely proud of it, as you know. I wanna talk about how we approach innovation to the menu because we do evolve, and we do new things. When we are going to add something to our menu, we take a look at 3 criteria, and they're listed on the left-hand of this slide. We wanna drive traffic and sales, we wanna make something that's uniquely ownable, and we wanna reduce complexity or at least maintain the amount of complexity that we have. There's two good examples that are shown on this slide, and I'll walk through both. Last year, we introduced a Spicy Chicken Sandwich. Spicy Chicken Sandwich is not new to the industry. We made sure that it wasn't a fad. We do believe that this is something that's gonna last into the future. What we did, though, is we wanna make something uniquely ownable that wasn't just like everybody else's. We've talked a little bit about our giardiniera relish. We call it hot peppers. You'll try it on the Beef Bus later. That's what we put in our beef sandwich. We took the giardiniera relish, we blended it up, added some other things, and we created our own unique sauce. We call it a Portillo sauce or a spicy giardiniera sauce. That made it really our own. It also replaced an item that was the lowest satisfaction in terms of our chicken category. The Spicy Chicken Sandwich has, in just a little over a year, become our number one seller in our chicken category, so it's a tremendous success. Later, I will tell you that the fourth criteria is that we have to be able to promote it in an extremely creative, agile, gritty way without spending a lot of money. On the right-hand side, you see our Garden Dog. This is our first ever foray into the plant-based category. Many restaurants have plant-based hamburgers. We felt like we could really own a plant-based hot dog. The only unique SKU here is the actual hot dog itself. Everything else, it's built exactly like a Chicago-style hot dog. We thought we could own it, and it also reduced complexity. We also thought Michael talked a little bit about the veto vote. We think that this is something that makes us increasingly veto-proof, right? It's it happens to be vegan as well as tasting delicious. If you want to try a Garden Dog, we actually have them on the Beef Bus, and you can try it as well. The way we market these things matters. Again, we are not going to go out and spend a whole bunch of money on TV ads, radio ads, that kind of stuff. We have to get scrappy. We have to get innovative. I'm really proud of the work that the team did, especially on the Spicy Chicken Sandwich. For anybody who's ever heard of the company called Cameo. Have you guys heard of Cameo? You can get celebrity shout-out videos, right? We were the first ones to ever, in the retail space, to use a product that they called Cameo for Business. We went out, and we got a bunch of celebrities like Erin Andrews, Lance Bass, Brian Baumgartner, 25 different celebrities. The hook was, it's the Portillo's Spicy Chicken Sandwich featuring our new giardiniera sauce, but nobody knows how to say the word giardiniera. We actually wanted them to butcher the name if they didn't know what it was, and the hook was, no matter how you say it's good. We were able to spend a very little amount of money and get a ton of social reach and influence just by doing this one campaign. I'll talk about the Garden Dog in a second, but I thought I'd bring a one-minute video that you can see one of the creative executions of this campaign. Hello, Portillo's fans. Got some exciting news for you from one of my favorite places. Did you guys know that they're launching a new Spicy Chicken Sandwich? They're launching this new chicken sandwich with a lovely, creamy giardiniera sauce tomato on it, all right? They have a new Spicy Chicken Sandwich with a creamy giardiniera sauce. Is this like a song? Giardiniera. You know, because I'm a G, I should be able to pronounce any word that starts with G. Giardiniera. Giardiniera Spicy Chicken Sandwich? Oh, that's gonna be hot. Of course, I know how to pronounce it. It's giardiniera. I went to high school with Johnny Giardiniera. Giardiniera. No matter how you say it's good. Order the new Spicy Chicken Sandwich with Hot Giardiniera Sauce at portillos.com or visit your local Portillo's. Good. We felt really good about ourselves after this launch, and we decided, this past year, what can we do to push the envelope a little bit more when we launched our Garden Dog for the very first time? We thought, let's take a risk. Previously, if you ordered a vegetarian hot dog at Portillo's, we gave you a bun, all the toppings, and no hot dog. A lot of people thought because we put a pickle spear in the middle of a hot dog, that we were giving them a pickle with a bunch of toppings. We got made fun of a lot on social media for this, right? We took a risk, and we said, what if, as part of launching our new plant-based Garden Dog, we invited all the people who have hated on us on social media and told them that we had a new product that we wanted them to try. We didn't warn them ahead of time. We just sat them down in front of a camera, and this is the result. This does not taste like a vegan hot dog. This tastes like some real meat. I tweeted, "A veggie dog from Portillo's is just a bun with the toppings in it. I am dying. One day I will be able to order a Chicago-style veggie dog at Portillo's. At Portillo's Hot Dogs. Add a veggie dog, bro. It's 2020. I just wanna say Portillo's Hot Dogs is trifling because why did I have to put my own veggie hot dog from home in this veggie hot dog? Oh my God. Oh boy. I don't know, it looks kinda real. That's delicious. That's definitely really good. That's good. It tastes like a real hot dog. Okay. How? Tastes a lot like a regular Portillo's dog. It's just a Chicago-style hot dog, vegetarian. That is all I wanted. I'm very happy for all of my vegetarian friends. Thank you, Portillo's. It's finally 2022, and we have a veggie dog. Y'all not playing with me. This like, y'all for real? This is legit. This is good. I would say that this is a good representation of a good Chicago dog. I can't believe this is not meat. Like, seriously, like, I'm eating it, and it tastes like I'm tasting a real hot dog. Missing the carbs, for sure. That was from our Chicago event that we held, but we also held six events also around the country in our different markets, and they were equally well-received, and it was a really big win for us. Okay, in summary, what did we talk about? We are a social media and PR machine. We love our fans, they love us, and they help us do the work for us. We have a very unique, impactful approach to new restaurant openings that we are all particularly proud of, especially because it helps promote us as an employer brand of choice. We take that Darwinian approach to the menu. It is survival of the fittest, but when we do something new on the menu, it is a success. Thank you very much, and I want to introduce our Chief People Officer, Ms. Jill Waite. All right. How do you follow Nick, who's wearing Crocs, other than being able to talk about our people? I am Jill. I have been with Portillo's now for 3.5 years, and similar to Derek, I was living on the West Coast when I opened an email that said CHRO role in Chicago. I'm in Northern California. It is sunny, it is warm, it is beautiful. I open it, and it says Portillo's, and I'm like, "Oh. There's only one company that could ever get me, my two boys, and my husband out of sunny, beautiful, warm California," and that is Portillo's. It is because I am from Chicago. I left when I was nine, but I had so many memories of being a Shop and Ship. I would buy the food all the time. I would drive 40 minutes out of my way in Southern Cal to find the local Portillo's at Buena Park to get my Portillo's fix. When I landed in Chicago to see my family, I would stop at our Bolingbrook location, order a hot dog, a beef, a large fry, eat it in my car on the way to my cousin's and not feel guilty about it. Which is part of the reason why the Chicago-style hot dog is my favorite. It has the snap of the hot dog, all the toppings. It is just mouth-watering. Yes, there is no ketchup on a hot dog, which I had to teach my sons, not living in Chicago, why you don't put ketchup on a hot dog. It is an honor today to be able to speak about our team members. This work isn't HR's work, it is all of our work. It is about having a value-centered, people-centered company who truly cares not only about our guests but our team members. Today, we're going to show you how we do that and also the proof points that support it. Team members and the workforce are looking for a differentiated experience. They have so many choices, and we're excited to be able to offer an unrivaled team member experience through all the different senses when you walk into our Portillo's. Last but not least, we are growing. Not only are we growing by opening new restaurants, but we are growing personally and professionally as individuals within the organization. How are we doing it? Michael spoke earlier about a journey we started three and a half years ago. The journey three and a half years ago was just to codify what the company already was. It was an organization that truly cared about creating lifelong memories with unrivaled food and experiences by igniting the senses, with values such as family, greatness, energy, and fun. As Michael said, this was not developed by a bunch of executives sitting around a table. This was developed and established by our team members for our team members. It didn't stop there. We knew that in order to truly show up living our purpose and values, we had to establish behaviors that reflected what does it truly mean to be a family member? What does it truly mean to bring energy and fun and greatness to Portillo's? We established leadership traits that we all hold ourselves to and live each and every day. It shows. We believe that doing the right thing for our people is what allows us to become an employer of choice. In the beginning of the pandemic, one of the things that we learned was many of our team members were the only source of income that their family had. Think about being 17 years old, and your parents were laid off or furloughed, and they were the only source of income. It was June of 2020 that we established our Heart of Portillo's Fund. Two years later, we have raised over $800,000 and have provided $200,000 of 100 grants to our team members. This was all raised by our team members. The Frost for the Fund was the way we created engagement and fun in the restaurants. Who knew that you can frost one of those cakes that you guys just ate today in 24 seconds? It actually looked like a good cake to eat. Some of us tried, it didn't look like a cake you'd wanna eat, and that went into the cake shakes. That's okay. Greatness. We are a pay-for-performance organization. We have to deliver financial results, and we included our shift leaders who are hourly a part of our performance bonus that we award on a quarterly basis for achieving key metrics. There's an energy about when we bring our general managers together. We bring them together to celebrate their successes from a financial performance, but also how they got the work done. People do not like to work with jerks. They like to work with people who embody the heart of Portillo's and get the result that we need to perform. Fun. Yes, I don't have the snazzy shoes that Nick has or some of the cool videos, but we do have a little fun called the Franks a Lot fun. We do bring some puns into the people side of the business. Our general managers told us it was important that locally they wanted to celebrate their team members. We had a GM that during their senior year of graduation, he created yard signs to put in the drive-thru. All of the local community could recognize those graduating seniors because they had served the community during their time at Portillo's. Our team members told us it mattered to them. We improved engagement in a time when national engagement has declined the first time in ten years. First time. We bucked that trend. We truly believe it is the dedication to our purpose, our values, and how we show up each and every day for our guests and our team members that has contributed to this. Our general managers, with their servant leadership mindset, has created an environment in our restaurants where our team members feel like they can do their best every day and bring their strengths to work. They feel like someone has given me feedback on how I'm performing, and you can see me. I'm of value, and I matter. When I feel value and I matter, I will show that same value and matter to our guests, which is part of the reason we believe our financial results, the guest satisfaction, and the speed of service results are some of the highest we've seen in years. It is due to this engagement of our team members that reflect this. How? How does this happen? An unrivaled team member experience. Our team members get to come to work, and they get to rhyme. They're on stage. If they don't know a rhyme, they ask a guest. "All right, I'm new. What's your number? 8? What can we do? Number 8, wanna go on a date?" You know, they come up with them, so they have fun. They bring who they are to work, their authentic selves. Limitless opportunities. Working at Portillo's, whatever you wanna accomplish is in their hands, personally and professionally. We'll show you a couple ways of how we're doing that. We got their back. Team members tell us that they wanna have a flexible schedule, whether they're retired, and they just wanna hang out with some guests or team members, or they're going to school, and they want to be able to continue their education but yet work somewhere they care about and serving our communities. Team members want to be a part of something bigger than themselves, giving back to one another through our fund or in the local community during using fundraisers. It is an honor that most recently we were identified as QSR's Best Brand to Work For this year just a couple weeks ago. How does this happen? It is an entire total reward experience. It is about having a multigenerational workforce that is diverse and reflects the communities that we serve. It is about having industry-leading compensation packages for our restaurant leadership. Our general managers are all owners of Portillo's stock, and that is an honor. They will continue to get our stock each and every year because we believe in the work that they do. Our team members have also told us if you're on TikTok, they get a little bored, so they want to learn more. The more they learn, the more they earn. It's not just about getting money for money's sake, but they will continue to grow their career as well as their financial wealth with our organization. How does this show up? We have industry-leading retention. Our hourly turnover is 25% better than the industry. Our management turnover is 10% better than the industry, and our general managers are stable. That is a key part of our business because we all know turnover has hard costs and soft costs. When we have a stable team of team members who are passionate about serving our guests and delivering the experience, we're able to have the efficiencies that we have put into place. We're able to deliver the financial results that we just delivered, and it allows us to grow into all these new states that we're looking to move into. It doesn't stop. Our talent acquisition. Our team members on our engagement survey told us that they have a best friend at work. Our recruiting strategy, our talent acquisition strategy, along with Nick, has really been focused on our external and internal pipeline. Our best recruiters are our team members. We hire over 31% of our new hires are referrals from our team members. They wanna work with friends and family. We showcase our story. Our Beef Bus is a secret weapon when we go into Texas into new markets 'cause it's cool, it's fun, and, oh, it smells so good, and you get to taste all the amazing food. Then how we select our talent, it is about our values. We will teach people how to make the perfect beef sandwich, and we will not hire everybody, and it is okay, but we will welcome them with open arms as guests. Because being a Portillo's team member is very special, and you have to wanna deliver the experience and how we deliver the experience. DJ. Gracing the scene today is Andre "DJ A-Flat" Russell, Manager at Portillo's in Peoria, Illinois, store 55. I've been at Portillo's for about two and a half years. I'm coming in, trying to bring the energy. I'm just trying to get my fellow team members ready for the day and just be great together. Outside of these walls, I'm an entertainer, DJ A-Flat, artist, producer, recording engineer. I do everything. I do too much, to be honest. You know, I really do enjoy it. I've been doing it most of my life, singing in the choir, playing drums in the church, playing instruments in band. Being a DJ, you really control the crowd. You control the people for the night. You control their emotions, their feelings. It's really a dope and awesome feeling. I really can't explain it. My GM and my AGM and co-managers, they're very supportive. Like, I got a gig coming up this weekend and I need to get off early, so they definitely do work with me. Working at Portillo's has definitely helped my leadership skills, but there's so many things that you can learn about teamwork, even evolving yourself mentally, you know? It takes a lot of work sometimes, but it's fun. Our famous DJ is someone you'll see again in a couple of minutes. He's a perfect example of how you can be a Portillo's team member by day and a rocking DJ by night, and you'll see him in a couple of slides again. We believe in identifying, nurturing, and promoting our talent. At Portillo's, it is all of our responsibilities to develop ourselves and to develop the people around us. We plan in advance for all of our restaurants that we're opening, and we plan for the successors that we need to have. We also take into account when our restaurants are opening and how we're gonna make sure we have the talent to get there. Through different career pathing or experiences, you can go up the French fry or you can dip into some of these other experiences that we have. It doesn't stop there. We believe that developing our people can happen a few different ways. Learning has changed. It is about preparing people for the role that they're going to be moving in through our Ignite program, which you'll see that in a minute. We also believe in continuing education, that creating an environment of continuous improvement is the core of who we are. Through LinkedIn Learning, we provide that to all of our crew chiefs or shift leads, and we also have invested in virtual coaching for our general managers. Conversations today are very different, and so being able to have a holistic view of how we invest and develop our people is really critical. What does Ignite look like for us? Ignite is an accelerated leadership program that allows us to have predictable graduates who are prepared for the job that they are going in, not the job that they are in. We used to promote people, and then we would train them how to do their job. Someone would be promoted to a general manager, give them the keys to a $50 million location, and then we would train them how to run the location. Today, you go through our Ignite program, and the Ignite program has created a buzz and energy in our restaurants where everyone is like, "When am I next? When can I become the next restaurant manager?" Because they know they're learning leadership traits. How do I have courageous conversations? Derek says accountability is care, but those are not easy conversations, so we teach those in advance. We also teach the Portillo's way. Many of the questions that have come up have been, "How do you bring Portillo's from Chicago to Texas? How does the operation still feel the same?" That's through the Portillo's way. We teach our heritage, our legacy, the words we use. We call our team members, team members, not employees. We call our restaurants, not units, because these words matter to our culture, and it is embedded in how we go about developing our leaders. It has created an 87% internal promotion rate, which we're extremely proud of. Here's an example. Meet The Colony. This has been 12 months of work that we planned for once we heard we were moving to Texas. Well, not moving, but moving into Texas, where we ask and have a career goals survey. We ask our team members, "Are you able to relocate? If so, when? Where do you wanna go? Are you bilingual? What languages do you speak? What's your experience?" Because as we are putting together a team, very much like a football team or a soccer team, you wanna make sure you're bringing a bunch of different experiences that are diverse, you're being inclusive, and that you are rounding out and having a holistic team. What you'll see here is a very diverse team. Does anyone look familiar, the DJ? He's right up there three years. He moved from Peoria, and he is now moving to Texas, and he is in line to move into one of our other Texas locations in the future. We also know we can't do this with just internal talent. We hire talent from the local markets for leadership positions. Just like we do for our team members, we hire based on values, and we hire based on our purpose. We do that for our leadership team. But we teach them the Portillo's way. We teach them how do you lead four zones because that's very different than what someone would see at Corner Bakery or Whataburger. We have 87 team members in an average Portillo's, 87. In fast casual, the average is 28. So our leaders, when they come inside, come externally into Portillo's, we teach them how do you lead? How do you lead leaders? How do you lead team members? We couldn't bring all 70+ GMs and market managers to New York as much as I know they all would have wanted to be here. But we wanted to bring our family here to meet each and every one of you. I'm proud to also say all of our restaurants have a current GM, and we have GMs planned for all of our restaurants into 2023. All of our new restaurants are opened with seasoned Portillo's GMs, and we have successors behind all of them. These individuals you see here today are the heart of Portillo's. They are what makes the magic work, and they are what makes us unique and different. Today, I hope one of the things that you take away is that we are a committed leadership team to a people value-centric culture. Culture cannot be owned by HR or people. It has to be owned by 8,000 team members that are truly passionate about bringing this to life. It can't be soft and squishy, I get that. We have to deliver financial results, and we have to create the right guest experience, so they keep coming back again, and they tell their friends and family about. We have to create experiences. Our workforce have so many choices today. Everyone is hiring. For Portillo's, we have to create this unrivaled experience to where they tell their friends and family to come work. The last but not least is empowering our team members to achieve whatever it is that they desire, and it also helps us to grow our business and to fill the pipeline of talent, not only that we need for today, but that we need for our future. Thank you. Being an honor, being able to share this with you today. I'm going to call up Michelle Hook, our CFO. I'm not clapping for you. Sorry. I know. I had to clap for Michelle. Yeah. Thank you. Happy to see a lot of familiar faces today, and happy that a lot of you could make it to be here in person. Actually I'm gonna go back. I have been with Portillo's now. I will be celebrating my two-year anniversary actually next month. In December of 2020, I joined this fantastic brand. I started my career in public accounting, but did spend the bulk of my career and my experience within restaurants. I grew up with a brand you probably all know called Domino's. I did spend the bulk of my career there. I'm a Midwestern gal, so I'm a Michigander. Spent a lot of time coming to Chicago and experiencing Portillo's, so I had a deep love of the brand and of the food. What you see here is my favorite item on the menu, which is a beef sandwich. I like mine with hot and sweet peppers. If I'm dining inside our restaurant, I like to get my sandwich dipped, which is amazing, so I would suggest that. If I get my sandwich to go or I get it delivered, I get a side of gravy, so I can douse my sandwich with gravy when I'm eating or enjoying it in the office or at home. What I'm here to talk to you about today, I have four main takeaways for you today. You heard from all of our fantastic leaders today, so I'm here to wrap it up and talk to you about how all this plays into executing our financial game plan. We are an almost 60-year-old brand, so we have decades, right? We have decades of track record that shows that this is a proven concept. We generate healthy and strong cash flow that gives us the ability to build new restaurants. When we build those new restaurants, they deliver fantastic unit economics. We have potential for upside, and we'll talk about that, and you've heard from our leaders as we continue to build local scale and how we can see expansion in that upside. We'll take a look at our balance sheet. Our balance sheet gives us the flexibility that we need as we move forward to fund our growth. Here you see I've snapshotted for you 16 years of comps history, right? You really see that durability of the brand. A couple points that I want you to take note of on this slide. You can see during the Great Recession that we comped positive, right? I think that's a good proof point that, again, the durability during all economic cycles. The second point I'd make is look at our performance more recently. When you look at post that COVID time period, you can see our same restaurant sales were up 10.5% last year, and over the last 12 months, we're up 6.4%. If you listened to our earnings call last week, you'll note that the most recent quarter, we were up 5.8%. Continuing to comp strong in this challenging environment. We have a very strong financial profile. I'll start with the revenue. When you look at our revenues, you see the growth that we've experienced post that COVID time period. Now, our growth is gonna come from two spots from a total revenue growth standpoint. We're gonna grow through comp growth, so growing sales at existing restaurants, and we're gonna build new restaurants. You've seen that our long-term growth algorithm is to grow new units at least 10% annually. Those leading AUVs, the AUVs that everyone has talked about, that leads to the margin profiles that you see at the bottom here. It's leading to that strong restaurant-level adjusted EBITDA margins and dollars. I'm gonna talk about in a little bit some of the strategies that we have in place to combat the current inflationary environment. Our strength is not just within the core, and Michael talked about this. He snapshotted for you what our profile looks like both in Chicagoland and outside of Chicagoland. What I wanted to do is at least give you all a sense for the trends within those markets. You can see what's consistent post that COVID time period is you see the AUVs continuing to grow, right? Both in Chicagoland and outside of Chicagoland. As Michael talked about, when you break out those non-Chicagoland units even further, and you look at the Midwest, and then you look at what I'll call non-Midwest markets, California, Arizona, Florida, those non-Midwest markets actually have a higher AUV profile. When we look at these points, this is just another proof point to me that we are a national brand. This is a brand that already has proven that, and you definitely see that in these data points. We all know this year we've seen unprecedented inflation, both within labor, within commodities. We're trending up 15% alone on commodities this year, but what are we doing about that? We talked about things that we can control. These are some examples that you've heard from our leaders today talk about. First, you've heard Derek talk extensively about things that we've done in 2022 to drive those operational efficiencies and lead to that 16% items per labor hour increase, which is our efficiency metric that we're measuring. That's not just us making numbers up. That's data and facts that support we are driving through operational efficiencies within our restaurants. Not just in 2022, but he talked about other things that we're doing beyond in 2023 and beyond to continue to have that mentality of continuous improvement. When we look at our supply chain, we're doing what we can to mitigate the risk in that area. This year, we took positions on our beef flats, which is the beef used to make our Italian beef. That's about 20% of our overall commodity basket, and we have fixed pricing on that line item for this year, and we're taking positions into early 2023 as well. Not only are we trying to mitigate some of the risk around the cost, but we're also ensuring continuity of supply. We're a concept that we haven't had to close hours of operation or close channels down because of our ability to manage these type of risks. Michael talked about our price laggard strategy, which I'll talk about a little bit in a minute. That really sharp price point of $9.70 per person average really is helping to drive that relative value score. It's a component of that and we do remain focused on that extensively. The price laggard strategy. Michael described it, so I won't get into those details, but I wanted you to see some of the data around that. When you look at how that looks this year, you're gonna see Portillo's pricing strategy on the red line, and then you'll see a couple inflationary indexes. You'll see overall CPI, and then you'll see the food inflation index. We also put together a peer index, which you see here. In all of those cases, you see Portillo's is pricing below those inflationary indexes and below our peers. Again, why do we think this is working? It's because of what Michael showed, which is that relative value score, right, is the highest it's been in three years. Our financial profile and the strategies that we talked about are all driving free cash flow. A couple points of note you see on the right here. Our new restaurants cash flow immediately. This isn't a concept where, you know, it takes an extreme amount of time to ramp up. When they open, they're cash flowing. That's gonna continue to drive incremental cash flow as we continue to open those new restaurants. I'll talk about in a minute where we're deploying capital, but you're gonna see that the bulk of the capital we're deploying is for that new restaurant growth. When you look at over the long run, to the extent that we have excess free cash flow, we're gonna deploy that in the best interest of shareholders. In my mind, that could be we continue to delever, we can look at dividend programs, we can look at buyback programs. That's again, over the long run. In the short to medium term, we're gonna be using our cash flow to fund the growth that you heard about. Where are we spending our capital? You can see the bar here. We're guiding to $60 million-$65 million of CapEx spend this year. As you'll see, the vast majority of that is going to be on our new restaurant openings, which we've said publicly is back-end loaded into this year. You'll see the bulk of that spend coming through in the fourth quarter this year. The second area we're spending capital is maintaining existing restaurants, and you can see the rough percentage that we're spending there. I will say this, Portillo's, when we build those new restaurants, these restaurants are built to last. We have 40+-year-old restaurants in Chicagoland that you would walk into and not think they were there for 40 years. This is not a brand that has to go through a brand refresh every 5-10 years and deploy a bunch of capital into the system to refresh the brand. That's not Portillo's. You'll also see us spend an amount of CapEx in other discretionary areas. Think about this year as an example. Rick talked about digital menu boards. He talked about deploying the new tablets in the drive-thru, right, the POS refresh. That's where we're spending discretionary CapEx. Derek talked about the Grab & Go pilot, right, that we have in Bolingbrook. That goes into the discretionary CapEx. I feel very comfortable with this profile, which is gonna continue as we go into 2023 and beyond of deploying most of our capital into new restaurant builds, but still having the ability to do the other things that we want that you've heard about today. Okay, I think this, for me, is an extremely important slide that I wanna make sure you all understand. On the left here, you're gonna see what we are targeting as year three returns. For those of you that followed us a year ago during the IPO, you're gonna see that those targets are not. They're unchanged. Yes, we've experienced some changes in build costs, et cetera, but that is a year three target. When you think about year one, you're generally gonna see higher AUVs, and you're gonna see a lower margin percent, roughly high teens margin in year one. Year two, your AUVs are going to dip because we have a honeymoon curve. It's the reason why our restaurants don't go into the comp base until after 24 months because of that honeymoon curve. You're gonna see a little bit of margin improvement in year two. By the time we get to year three, we expect these restaurants, and when I say these restaurants, think about them as a class of restaurants, not one specific restaurant. By year three, we expect the class of restaurants to be at $5.8 million AUVs. That one point three million of restaurant-level adjusted EBITDA dollars. The build-out costs, we expect to normalize, as Mike Ellis talked about, to deliver those year three cash-on-cash returns. What I wanted to show you is, well, where does the current class stand? We have five restaurants that are in the class of 2021, and we have two restaurants that we opened earlier this year that are in the class of 2022. When you roll those up, you can see the current performance. We're not gonna know where those restaurants stand until 2024 and 2025, but I can tell you, I'm extremely happy with the performance of these restaurants and that they are on track. Why do we think that we have upside to the targeted returns you just saw? Well, you've heard from the team today, so I'm gonna walk through these to make sure you hear from my perspective why I think that we have upside. First, when you look at the AUVs, you heard from Mike that we're building in growth markets. We're building in markets that have growing populations that have natural comp tailwinds. There's proof points. You saw the AUVs, as Michael showed in California, Arizona, and Florida, are trending higher, right, than the average. That has potential. When we look at the margins, we talk about getting that local scale and that ability to expand margins, and I'm gonna show you a case study here in a minute. Sara, you asked the question on, "Well, how do you do that? How do you expand the margins?" Right? You're leveraging your distribution, you're leveraging that marketing, you're leveraging that multi-unit manager, right? All those things come together when you get that local scale. Again, I'll give you an example in a minute. Then the build-out costs. We know build-out costs are elevated this year, but we also know, as Mike talked about, we're controlling the things that we can control. As we build Kitchen 23 next year, you heard from Derek that, you know, we can pull out $100,000 of equipment just in the kitchen alone. I know you hate using value engineer, but as we take costs out of the build, right, that's gonna drive those build costs down even further as we move into the future. When you combine all those together, that's why, to me, I look at, you know, the upside that we have to that 25% targeted return you saw on the previous slide. Okay, I wanted to give you Arizona. Again, Mike showed you Arizona in terms of a case study of how we approach the market. Here's what the market's doing as we sit here today. We opened up Scottsdale and Tempe in 2013. We had a number of years go by, and then we opened Avondale in 2019 and then Glendale more recently, just over a year ago. Over that period of time, you can see the margin improvement of 370 basis points. We're not even at scale yet in this market. Remember, scale for us is roughly around 6-7 restaurants. We have two more opening in the fourth quarter this year in Tucson and Gilbert, and we have more in the pipeline in 2023 and beyond. For me, I look at the performance just over this time period. Remember, Glendale is still new, right? Glendale isn't even at that three-year target, right? It's not, you know, in its maturity stage yet. We still, you know that there's time to get this up to scale. What I love to see is that margin improvement over time as we started to add new restaurants. Balance sheet. Right-hand side, you see our available liquidity. As of the end of the third quarter, we had $46.5 million of cash on the balance sheet. We have $45 million available under our $50 million revolver. We have that as available liquidity today. When you look at our debt structure today, we're in a much better position than we were pre-IPO. For those that know us, know that we carried a heavier debt load, and we used the proceeds from the IPO last year to delever. Right now, where you see our debt-to-EBITDA ratio at 3.5 times, I'm extremely comfortable operating with that leverage ratio. We have plenty of cash to service our debt and fund our future growth. That gives me comfort that, again, as we continue to add on new restaurants that are gonna cash flow immediately, that's gonna continue to help fund our growth without even needing to tap into a revolver as an example. We're not managing this business for short-term growth. I think one of the things you'll notice about us is that we're not gonna come out and give you comp guidance every quarter or EBITDA guidance every quarter. We'll guide to certain things in a given year that we do believe are important, but we're managing this business for the long term, and that's what you see here in the long-term growth algorithm, which myself and the rest of the team that you met today are extremely confident in this algorithm, which is the 10% new unit growth, the low single-digit comp growth. Those two add up to create the high single- to low double-digit revenue growth. You see the flow through, and we feel comfortable that, again, over the long run, we can deliver that low teens adjusted EBITDA growth. For me, the takeaways again are this is a almost 60-year-old brand, right? This is not a new brand. We have a long history. I've given you a snapshot of some of that history that this brand can operate in all economic cycles. Whatever happens next year and beyond, we're gonna be fine. We're gonna be able to manage through that, and we know that, and we've proven that. That durability helps us to generate those cash flows to self-fund our growth. When we grow, again, those unit economics are attractive, and we're gonna be able to self-fund that growth. Our balance sheet is strong, so we have flexibility as we move forward to fund both our new restaurant growth and the other things that you heard today that we wanna do as we continue to move this brand forward. With that, I think, Barb, we're gonna do some Q&A, and I think the rest of the team is gonna come up for Q&A. Great job. Good. Before we dive into Q&A, Nick, do you wanna just tell everyone logistics about getting lunch and the Beef Bus? Yes. Okay. The Beef Bus is in the middle of Times Square. You cannot possibly miss it. Sarah, can you raise your hand? Sarah has a ticket for you. Please, as you're exiting, grab a ticket from her. She will. That ticket is required to get in there. We have six security guards down there making sure that other people aren't eating at it, so that you can. The menu is a mini Italian Beef, a full-size Chicago-style hot dog, and a large cheese fries. There are drinks in coolers that you can also just self-serve. Go ahead and grab those. If you would like to try a plant-based Garden Dog, just please let somebody on the team know. We will make one special for you. If you want more of anything, we have plenty. Please feel free to eat as much as you would like. Did I get it all? Everything? Was there a question? Yeah. No. Okay, good. Good. Thank you. Miles, that means you can have as many beef sandwiches as you want. Hi, guys. Dennis Geiger, UBS. Thanks for putting this great presentation together for us. Michelle, maybe Michael, wondering if you could talk a little bit more about the 2021, 2022 open slide that you mentioned. Strong returns on good pace right now that the average that you mentioned. Any notable deviations from that average across 2021, 2022 that you're willing to kinda touch on, either from an AUV or from a margin perspective? Again, at this early juncture for those opens, any learnings that you would pass along there? Yeah, I think, Dennis, what I'd say is the data points that you saw that for the non-Midwest markets, so think, you know, Florida, you have Orlando in the class of 2021, you have St. Pete in the class of 2022. Those generally are gonna outperform at a higher level because they're in those growth markets, right? When you look at some of the other markets, we opened our first restaurant in Michigan in Sterling Heights. It's doing extremely well. We have a restaurant in Indiana. We have a restaurant in in West Madison, Wisconsin, that's more in that Midwest market mold. I'd say that profile still holds true for me when you think about those non-Midwest markets performing above the Midwest markets. It also, you know, it informs why we're going so heavy along the Sun Belt, right? Those restaurants come out of the gate really strong, and they scale really quickly. I think you showed the slide- Mm-hmm. Mike did as well. Like, 70% of our build for 2023 is going to be in the Sun Belt, so we're very optimistic about that. Greg. You got Greg back there, too, who's had his hand up. Hi. Me next. Hi, guys. Brian Harbour from Morgan Stanley. Yeah. Just maybe on the build cost, how much of that is associated with kind of the stuff that Mike talked about in terms of standardizing design and stuff like that? How much of it is, like, hoped for kind of cost reduction just based on materials or labor or whatever? How much of it is perhaps influenced by where you're gonna be building? Yeah. Well, hope's not a very viable strategy, so that's not part of what we do. What it is, we have taken a really serious look at standardizing, right? Mike talked about this. Every restaurant we used to build was fairly unique. Now they're cookie cutter in terms of the kitchen and the equipment. The decor, we try to get it to reflect the local ambiance. We've gotten really good, I think. We don't like. I don't like the term value engineering. It has, like, a negative connotation 'cause we take costs out that's not positive for the guest experience or the team member experience. Kitchen 23, we shrunk the kitchen. We took $100,000 of equipment out. There's a whole bunch of second-order benefits to that. We don't need quite as big of a footprint. We don't need the same electrical grid because we're switching certain things from electricity to gas. There's a whole bunch of second-order things that make the build-out much, much more efficient. When we're talking about the build cost, there's a bunch of things that we have banked that we know about. We don't know what happens to all the different materials in 2023, 2024, and beyond. We know that we can flex our build style based on material advantage. Yeah, I would say, and Mike touched upon this too, I don't think that we're going back to a world that we saw before the crazy inflation hit this year. But I do think, and Mike, you could probably attest to this, that there is some easing that you're seeing right on the input cost to build, right, that, you know, is real, but it's not going back to what it was that we saw, you know, pre that time period. I think that's probably fair to say, Mike. Yeah. We've just gotten some bids in, and we're kinda qualifying right now. The first look, it looks like it's eased a little bit. In terms of saving, we've been able to. Going forward, we'll cut our design fees in half simply because we're not designing something different every single time. It's off a base building, so we'll get a lot of savings and just efficiency off standardizing the kitchen, the frame of the building, the structure of the building, and putting decors or putting in unique decor for each market or some architectural embellishments don't really deal with structure and civil engineering and all those things, so we get much better and much more efficient from that standpoint. Hey, this is Greg. My question is, Michelle, helpful details on the new stores. Can you talk about maybe how the stores in Chicagoland or in the Midwest versus outside are honeymooning and if there's a difference in terms of if you're seeing big year one sales that maybe are coming down versus year one that are building, and if that's performing different in Florida and Arizona versus other parts of the country? Thanks. Yeah. I'd say, Greg, you know, I'm not seeing noticeable differences from a honeymoon standpoint. Remember, we tried to do what we could within the process to prevent, you know, a drastic decline from that first opening, right? Where you historically would see openings opening up huge, and then you'd see a massive drop. Well, as you know, and we've talked about this with some other folks, you know, we're trying to get to a point in the process where we do soft openings, so we kind of let out some of that demand early on, right? And you make sure that, one, you're not killing your team members in the restaurant because we found that to be detrimental to the team members in the restaurant that, you know, put a lot of strain on that. We definitely in both situations, Greg, whether it's in Chicagoland or outside of Chicagoland, you still have the honeymoon curve, but it's a lot less drastic than what it was before. Yeah. That's kinda what we're modeling in our profile. Yeah. I think, you know, the intentionality around making sure that we're balancing, you know, the desired Portillo's experience with what we want our team members to experience given our volume as we kinda go through this incredible sales ramp is really important. We start off with, you know, two days of practice just so that we can build, you know, that kind of, that muscle memory and a level of proficiency and comfort Right? We shut down for a day, kind of get everybody reset, recharged, communicated with, supported at the levels that they need, and then we open up soft, right, on Thursday, Friday. We get through a weekend, right? We don't have a grand opening until the following week. We're not really looking to drive these, what I call boom splash, right? What we're looking to do is create a consistent experience where our guests are greeted by team members that feel accomplished, that they can get this volume under their belt and deliver. We got really intense around this in Orlando, right? Where we saw a boom, but not the splash. We started to pick up, and the momentum and the trajectory of that business is incredible. We've learned a lot. We're implementing it from an execution standpoint, and I think we're gonna see a longer leg of success. Thank you. Thank you, sir. Brian Mullan from Deutsche Bank. We haven't touched on it much today, but you've been speaking positively about Joliet, the pickup-only location. My question is, would those only work in the Chicagoland area because of the consumer recognition of the brand, or is that something you could envision over time having in other parts of the country? How do you think about that over the long term? Yeah. Great question. The question's about Joliet and the pickup-only location. It is a drive-through only and pickup, so you can do third-party pickup, catering pickup, and then the drive-through lane. It's an experiment to see what it does. I love it so far. It's doing everything that we would have wanted. It's, you know, it's 60% of the cost of a regular build with more than that of its revenue. It looks like it's a very viable format for us. I'm less eager to try to do it outside of Chicagoland right now because I don't think you want that to be the guest's first experience with Portillo's. We really want the guest's first experience with Portillo's to be a mainline restaurant with all the beautiful tchotchke, the service, the noise, the rhyme when you get your food. We want that to be the foundational experience. Once you have that, and you've saturated a market, and you have some scale, then I think these pickup locations are very, very viable. There's certainly a bunch more in the Chicagoland market, and I can imagine doing them in other markets once we achieve scale and saturation. Yeah, I think the beauty around the pickup-only concept is what we've learned. We learned a lot about signage, the size of the kitchen. We don't need three lines of production. We could actually incorporate- Yeah. Some of the 2023 elements in there reduce the cost footprint. 3 lanes for stackability not necessary, right? The real estate footprint gets a little tighter. The amount of conveyance that we have outside is the definition of fatigue and delay. We've learned enough to get the efficiencies right, bring the cost down, the operating cost down, and really do a nice job in the Chicagoland area. If you look at from a development of Tier Two perspective, as we fill up these markets and look at Tier Twos, there's gonna be markets we're gonna wanna exploit that we're gonna have a very difficult time getting 2-2.5 acres. I mean, the land's just not available. It gives us something that's smaller to fit in to kind of augment what we do once we are established in the market. Hi. It's Sharon Zackfia with William Blair. I'm just curious how you think about the opportunity for other day parts or extended hours. How do we think about the timeline to when you would consider licensing in airports or internationally? Derek is gonna punch me after this. Look, I think a breakfast day part is a very viable thing for us. You're, you know, you're a Chicagoan, right? We have pepper and eggs. During the Lenten seasons, we have pepper and egg sandwiches. People love them. It's like one of the biggest complaints we get from guests is, "Why don't you do breakfast?" You know, in the middle of COVID, with staffing issues, we're not gonna try to tackle yet another day part. Eventually, right, we have an asset that's really attractive. There's a natural day part for us that we've already proven we have relevance with our guests. I mean, it's a very logical next step. It's really a question of when, not if. Don't model it next year or the year after. It's an opportunity for us to leverage an expensive asset and drive revenue. Of course, we're gonna look at that. We certainly have airport concessions reaching out to us, and we certainly are considering those things, but it's very important to us as a team to protect our brand. I'm not sure we like the idea of somebody else operating Portillo's domestically. It's a complicated experiment, and our brand is too important to us to let somebody else operate it, so we wanna operate it. We need to make sure that it's very accretive to our shareholders before we do something like that. There are great airport relationships that make a lot of sense for us. There's a whole host of alternative relationships that make sense for us, right? Universities make sense for us. International franchise makes sense for us. Mike's focus right now is the lowest hanging fruit, right? We're building restaurant 72. Until he gets to like 150, 200, let's just keep banging out these great restaurants in A+ locations that print money from go. I think Andy has a question. Mr. Barish. Yeah. Thanks, Michael. Yeah, in terms of Andy Barish, Jefferies. In terms of dovetailing on that, printing money to get from the get-go. One, wanted to dive into the slide Michelle's shown a couple of times just in terms of the maturation curve, and wondering if there's a way to kinda tease out those, you know, productivity elements that improve margins as you scale in a market versus kind of the way, you know, newer units are gonna hold back profitability. The bottom line of the question is, are more mature units in those markets kind of capable of getting to that mid-20s% sort of margin that we've all kind of bounced around since this process, you know, began? Yeah. Andy, I would say that yes, those restaurants in those markets that have more years under them are absolutely capable of getting to mid-20%, and we have specific restaurant examples of that, right, that we know exist. Absolutely, yes, I can tell you that that is the case. I will say this even, you know our numbers for this year, right? We know that in this current year, right, that we're taking some short-term margin hits, right, to keep that value proposition in place and to make sure that, you know, we don't get in over our skis on pricing, as we've talked about today. That has been purposeful. As you look and we come out of, right, this environment, I think there's even more upside, you know, as we get out of this significant inflationary environment. Yes, we have restaurants that do mid-20s. Thanks. Very helpful. Nick, anything on the sixtieth anniversary or, you know, from a marketing perspective we should look at? Stay tuned. We have big plans. You'll love them. Crocs for all. It's like Oprah. Everybody gets a pair. Okay. Thank you. Hi, it's Nicole from Piper Sandler. Okay, green light. Jill, on one of the slides, you had your turnover versus industry turnover, and the third quarter numbers were not that materially unchanged, but it was a slight tick up in turnover for the industry, I don't think for you. Just wondering if you could speak to what would be driving that possibly when it seems like the employee really should be going back to work, not the opposite. What kind of total benefits package do you have for your employees in the field today? We hear things like wanting to work less hours or more flex or getting paid the same day versus just being paid more. Yeah. Q3 always sees a tick up as it relates to turnover because individuals are going back to school. A lot of organizations see college students or even high schoolers work a lot during the summer, and then they go back to school. For us, we have a lot of college students that come back, and then they come back again during the holiday season. We have a lot of repeats that essentially stay with us. Or they'll go back and forth between Springfield, the University of Illinois or different colleges. I also think it is attributed to the work that our general managers have been doing. We've been able to stabilize our workforce in a way where they feel very invested in for who they are as individuals, but also to the benefits package that you're referencing. I think on the last earnings call, we mentioned we did just provide a pay increase, and we do daily pay. We also have enhanced our PTO benefits for our leadership team. And when I mentioned earlier about LinkedIn Learning for crew chiefs or shift leaders, one of the things that we've been hearing is college admissions are down, so not everyone is wanting to go back to college, but they do wanna continue their learning. LinkedIn Learning is a way that we're investing in our team members, and they see it as a benefit. And wellness is another place. Financial wellness, mental health is something that is near and dear to our hearts with our team members. We invested in an app called Gympass that allows them to have physical well-being, financial well-being, as well as mental health well-being as well. Thank you. You're welcome. Okay. Pass. Sorry. Hi, it's Sara from BofA again. I just wanted to ask about the price lagging strategy. You know, I think in that chart, you know, Michelle showed it sort of converged recently. I guess, how should I think about the sort of lagging but ultimately catching up? Is the idea that, you know, you sort of keep the people who have developed this value perception and it's sticky, and so even now as maybe you're taking the same amount of price, that doesn't change the relative value. Is it sort of a cumulative pricing impact? Sort of thinking about, you know, how much traffic you get by lagging, if ultimately you kind of close that gap. Yeah. Let me take a crack at that, and I'll let you. Look, there's a real elasticity effect when people take price. There's a cross-elasticity effect when your competitors take price and you don't take price. What we're allowing to happen is let competition take pricing. There are competitors out there who price 15% year-over-year right now. It's great. Their businesses can handle that. I love that then guests turn to us, and they see the value that we have. We're gonna let everybody else price. Let the cross-elasticity effect happen. You know, let everybody who prices really high lose a little bit of volume. Michelle said this, we grew people count in the third quarter. Third quarter is a tough quarter. We grew people count. We feel really good about that. Once that elasticity has sort of manifested itself and people have become inured to the pricing, then we can price, and then you get less of an elasticity effect because you're just tailing on what everybody else has already done. That's our fundamental strategy. Doesn't mean we don't price. It doesn't mean we don't protect our margins. It just means that when everyone else is pricing really aggressively, we're gonna take traffic. Once they're done pricing, then we'll catch up, and we won't lose that traffic. Yeah. I would just add to Michael's point, just a reminder that we're not a brand that discounts, right? Once we take price- Yeah. That's price. Right? There are other brands out there that can do value menus, et cetera, and do different forms of discounting, essentially. We don't do that. We have to be very mindful of when we pull that pricing lever because to Michael's point, that value proposition is super important to us. I love that we grew that traffic in Q3. We talked about our relative value score is the highest in three years. Our overall guest satisfaction score is the highest they've been in several years as well. All those factors are leading indicators to me that we're gonna grow this business, to Michael's point, you know, the way we wanna grow this, which is through traffic growth versus just growing strictly through price. I think one of the things that we haven't really mentioned as it relates to value is, you know, every time Michael talks about price or Michelle talks about price, we talk about the experience, right? Directionally, where's our speed of service? Directionally, where's our overall satisfaction? Directionally, where's our percent of problems experienced at the restaurant? If we're better than stable and growing trend-wise, and you saw the trends that I shared, then it makes it easier to really maintain the price leader strategy. Janus. Yeah. Thank you. Derrick, I want to ask a bit more about the operational efficiencies and the labor efficiencies that I think you spoke to. I think the numbers were, you know, 20% reduction in labor hours since 2019. Michelle, I think you spoke to the items per hour that Michael has highlighted quite a few times over the last 12-plus months or so. Where are we now, though, Derrick, on that? Or where can we go, I should say, from where we are now? Can we get more efficient from an items per hour perspective from a reduction in labor hours? How do you think about balancing that versus kind of just, you know, fully restaffing, which I think you generally are, but, you know, just the importance of staffing and keeping the teams working together. Just kinda marrying up those two dynamics, if you could? Yeah. I think the most important. It's a great question. I think the most important thing to remember is kinda baked in our DNA right now is a certain amount of rigor around looking for ways to get better from an efficiency standpoint, right? You know, greatness kinda being built into our DNA. We're always looking for ways to root out pain points for our guests and our team members. I want you to think about this. We have 27 job work roles. We have 25 stations we deploy to. We have over 3,000 square footage in our kitchens alone. You ask me a question, is there more to get? I think you can answer the question. I'm not gonna put a number on it into the future. However, I will say that our rigor and the way we look at it and the way we keep our ear to the ground relative to our team members and guests puts us in a good position, and we're nimble as a company. I talked about, you know, some of the improvements in efficiency coming off the backs of a surprising impact to the rise in commodity costs. We were able to turn on a dime and actually implement some of those efficiencies. We have rigor around how we look at our menu. We've reduced our menu and SKUs by over 37%. When that happens, I can automatically move into changing the operating model, which actually feeds the labor model, and we have technology that feeds our capability to do that. I think with this rigor we have in place and our methodical processes, I think, you know, there's a really good look into the future. Yeah. You know, I would add to that. It's fascinating sort of, you know, as a student of business, looking at this company and its evolution, right? When Berkshire Partners invested in this business in 2014, they invested in a business where order taking was done with paper and pencil on bags. When Nick joined this company as its first marketing officer, he goes into his desk, he goes into his office, and there's a fax machine. He said, "Could I have a laptop?" Like, "What do you need a computer for? Just send out coupons." I'm not. It wasn't that long ago. There are a lot of opportunities for us from a continuous improvement, from operational excellence, from professionalizing this business still ahead of us, right? It's in some ways, we're a 60-year-old company that's still really immature and in its infancy. Don't forget, we still print money. We can do even better. Thank you. Hi, it's Nicole Miller from Piper Sandler. Michelle, in passing, you talked about the strong cash flow, and I understand the spirit of the comment about returning capital, but I was just taking a look at the cash flow statement the other day, and cash flow from ops pretty much equals CapEx, more or less, and my forward projections, not yours, same thing, more or less. To ratchet up development, you have the human capital, but you would have to draw on a facility. You could not pay down debt. You'd have to pull back on development. You wouldn't do that. It's obvious that it's self-funded development, but it's not obvious it could go a lot faster, and it's not even necessarily obvious why you would even talk about capital deployment back to shareholders, I guess. It might have just been, again, in the spirit of. Yeah. 5 to 10 years down the road. Yep. Just wanted to hear what you thought about that. No, you're absolutely right, Nicole. The spirit was in the long term, right? When you get to a point, right, that your restaurants start to mature, right, and as they continue to grow in their maturation and continue to generate, growth, right, in those cash flow metrics, right? You could be in a position, like you said, over the long term, right, where you have capital that you're not gonna sit on, right, that you have to deploy. The first and foremost, right, I think we want to put cash back into the business, right? We want to grow this brand. We know, as Michael said, these restaurants print money, right? I wanna make sure that we're in a position that if we want to dial up growth, right, that we have a strong cash position to do so. Again, as we open up these new restaurants, and this year you saw, right? You're seeing a back-end loaded development plan, right? You're seeing capital come through the restaurants. The vast majority for the class of 2022 are yet to be open this year. That will start to come into the pipeline and generate the cash flows from that class. You're seeing some of that timing, I'll say, right, in this current year, but very comfortable as we move forward. Again, as the restaurants start to mature in some of these outer markets, the ability to contribute to the cash. Which, you're totally right. For the near term, five years, clearly the best thing we can do is build new units. That's what we're gonna do. Build new units. Yep. Barb, while we wait, can I just give one more point about when we go downstairs? Your ticket, in case I didn't say this before, has a number on it. You do not need to order food. If you don't order anything, you're getting a beef sandwich, a hot dog, and cheese fries. We will just call your number with a rhyme as if it was like in the restaurant. We just wanted to take the ordering element out of it so we could get you through faster. Your number is equal to an order that's already been placed on your behalf. If you want a Garden Dog, just let us know. You want more, let us know. Great. You're making me hungry. I know. I'm watering. Seriously. Cheese fries. Great. Well, thank you all for attending. Really appreciate the engagement, the questions. As you can tell, we're really excited about this brand. We collectively, as a leadership team, you know, we love this brand, we love this business, and I think our best days are ahead of us. Thank you very much. Thank you. Thank you.

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