Krispy Kreme Inc

Results of Operations

The following comparisons are historical results and are not indicative of future results, which could differ materially from the historical financial information presented.

Quarter ended March 30, 2025 compared to the Quarter ended March 31, 2024

The following table presents our unaudited condensed consolidated results of operations for the quarter ended March 30, 2025 and the quarter ended March 31, 2024:

The following table presents a further breakdown of total net revenue and organic revenue growth by segment for the quarter ended March 30, 2025 compared to the quarter ended March 31, 2024:

Total net revenue declined $67.5 million, or approximately 15.3%, from the first quarter of fiscal 2024 to the first quarter of fiscal 2025, primarily due to the $64.3 million reduction associated with the divestiture of a controlling interest in Insomnia Cookies in the third quarter of fiscal 2024. Organic revenue declined $3.6 million, or approximately 1.0%, primarily driven by lower Doughnut Shop transaction volume driven by consumer softness in a challenging macroeconomic environment. The organic revenue decline was partially offset by Global Points of Access growth of 3,168, or 21.4% and increased pricing of approximately 1%.

Our U.S. segment net revenue declined $59.4 million, or approximately 20.1%, from the first quarter of fiscal 2024 to the first quarter of fiscal 2025, primarily due to the $64.3 million reduction associated with the divestiture of a controlling interest in Insomnia Cookies in the third quarter of fiscal 2024. U.S. organic revenue declined $6.1 million, or approximately 2.6%, primarily driven by lower Doughnut Shop transaction volume driven by consumer softness in a challenging macroeconomic environment and the strategic closure of underperforming DFD Doors. The organic revenue decline was partially offset by Points of Access growth of 2,716, or 34.9% and increased pricing of approximately 1%.

Our International segment net revenue declined $5.1 million, or approximately 4.1%, from the first quarter of fiscal 2024 to the first quarter of fiscal 2025, primarily due to foreign currency translation impacts of $8.4 million. International organic revenue grew $1.9 million, or approximately 1.5%, driven primarily by increased pricing of approximately 1% and Points of Access growth of 299, or 6.3%. International organic revenue growth was partially offset by lower transaction volume compared to the first quarter of fiscal 2024, particularly in the U.K. and Mexico.

Our Market Development segment net revenue declined $3.0 million, or approximately 13.7%, from the first quarter of fiscal 2024 to the first quarter of fiscal 2025, primarily due to the $3.6 million impact of franchise acquisitions in fiscal 2024 (the results of acquired franchise businesses are reported within the Market Development segment prior to the respective dates of acquisition, and are reported within the U.S. or International segments, as applicable, following the respective dates of acquisition). Market Development organic revenue increased $0.6 million, or approximately 2.7%, due to the continued expansion of our international franchise business, with focused growth in places like the Middle East and France, among others.

Operating expenses: Operating expenses decreased $6.4 million, or 3.1%, from the first quarter of fiscal 2024 to the first quarter of fiscal 2025, driven mainly by a $29.5 million impact from the divestiture of a controlling interest in Insomnia Cookies partially offset by increases of $23.1 million in operating expenses for the global Krispy Kreme brand primarily due to higher shop and delivery labor expenses, including logistics costs. Operating expenses as a percentage of revenue increased by approximately 660 basis points, from 46.4% in the first quarter of fiscal 2024 to 53.0% in the first quarter of fiscal 2025, primarily due to the impact of lower transaction volumes on operating leverage, and also impacted by an estimated $5 million related to the 2024 Cybersecurity Incident, primarily related to operational inefficiencies.

Selling, general and administrative expense: Selling, general and administrative (“SG&A”) expense decreased $12.2 million, or 17.0%, from the first quarter of fiscal 2024 to the first quarter of fiscal 2025, driven mainly by a $10.2 million impact from the divestiture of a controlling interest in Insomnia Cookies. As a percentage of revenue, SG&A expense decreased approximately 40 basis points, from 16.2% in the first quarter of fiscal 2024 to 15.8% in the first quarter of fiscal 2025, primarily driven by decreased share-based compensation expense by $4.4 million, lower employee cash incentive compensation by $2.6 million, and lower employee compensation from restructuring activity initiated in the fourth quarter of fiscal 2024 by approximately $1.4 million, partially offset by $4.4 million in costs related to remediation of the 2024 Cybersecurity Incident, including fees for cybersecurity experts and other advisors.

Depreciation and amortization expense: Depreciation and amortization expense increased $0.3 million, or 0.9%, from the first quarter of fiscal 2024 to the first quarter of fiscal 2025. As a percentage of revenue, depreciation and amortization expense increased approximately 140 basis points, from 7.6% in the first quarter of fiscal 2024 to 9.0% in the first quarter of fiscal 2025, primarily driven by higher finance lease amortization expense and increased depreciation associated with capital assets placed into service to support the acceleration of our U.S. national expansion.

Interest expense, net: Interest expense, net increased $2.5 million, or 17.9%, from the first quarter of fiscal 2024 to the first quarter of fiscal 2025, primarily driven by a higher average debt balance in the first quarter of fiscal 2025.

Income tax (benefit)/expense: In the first quarter of fiscal 2025, we recorded an income tax benefit of$2.7 million compared to$4.3 million of income tax expense in the first quarter of fiscal 2024. The decrease of $6.9 million was primarily driven by lower pre-tax results in the first quarter of fiscal 2025.

Results of Operations by Segment – Quarter ended March 30, 2025 compared to the Quarter ended March 31, 2024

The following table presents Adjusted EBITDA by segment for the periods indicated:

(1) Refer to “Key Performance Indicators and Non-GAAP Measures” above for a reconciliation of Adjusted EBITDA to net loss.

U.S. segment Adjusted EBITDA decreased $26.7 million, or 62.7%, with margin decline of 770 basis points to 6.7% in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024, primarily driven by lower transaction volumes impacting operating leverage, costs associated with the U.S. national expansion (including McDonald’s), and an estimated $5 million related to the 2024 Cybersecurity Incident, primarily related to operational inefficiencies.

International segment Adjusted EBITDA decreased $5.6 million, or 27.5%, with margin decline of 400 basis points to 12.5% in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024, as lower transaction volumes continued to impact operating leverage for the International equity markets, particularly the U.K.

Market Development segment Adjusted EBITDA decreased $0.9 million, or 7.2%, with margin expansion of 400 basis points to 58.1% in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024, driven mainly by changes in the revenue mix, including less shipments of lower-margin equipment to franchisees.

Capital Resources and Liquidity

Our principal sources of liquidity to date have included cash from operating activities, cash on hand, commercial trade financing including our structured payables programs, and proceeds from the divestiture of a controlling interest in Insomnia Cookies. Our primary use of liquidity is to fund the cash requirements of our business operations, including working capital needs, capital expenditures, acquisitions, and other commitments.

Our future obligations primarily consist of our debt and lease obligations, as well as commitments under ingredient and other forward purchase contracts. As of December 29, 2024, we had the following future obligations:

•An aggregate principal amount of $819.5 million outstanding under the 2023 Facility;

•An aggregate principal amount of $5.0 million outstanding under short-term, uncommitted lines of credit;

•Non-cancellable future minimum operating lease payments totaling $664.3 million;

•Non-cancellable future minimum finance lease payments totaling $97.0 million; and

•Purchase commitments under ingredient and other forward purchase contracts of $98.9 million.

As of March 30, 2025, the principal amount outstanding under our 2023 Facility was $897.0 million. The increase from the 2023 Facility balance as of December 29, 2024 was primarily driven by our need for cash to fund business operations, including impacts from the 2024 Cybersecurity Incident and our U.S. national expansion, as well as payments on structured payables associated with our acquisition of the noncontrolling interest in our consolidated subsidiary Awesome Doughnut, LLC (“Awesome Doughnut”). Refer to Note 8, Long-Term Debt to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for further information.

Additionally, in May 2025, we amended the 2023 Facility. The amendments, among other things, (a) established incremental term loan commitments in an aggregate principal amount of $125.0 million and (b) imposed certain restrictions on the ability to make restricted payments, including dividends, if the leverage ratio under the 2023 Facility exceeds 3.00 to 1.00. The borrowing will mature in March 2028 consistent with the existing balances under the 2023 Facility, and will be subject to an interest rate which is also consistent with the 2023 Facility as described in Note 8, Long-Term Debt to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q. These additional term loan proceeds are expected to be used for general corporate purposes including to pay down a portion of the outstanding revolving credit facility balance under the 2023 Facility.

We had cash and cash equivalents of $18.7 million and $29.0 million as of March 30, 2025 and December 29, 2024, respectively. We believe that our existing cash and cash equivalents and available borrowing capacity under our credit facilities discussed above will be sufficient to fund our operating and capital needs for at least the next twelve months. Our assessment of the period of time through which our financial resources will be adequate to support our operations could vary because of, and our future capital requirements will depend on, many factors, including our growth rate, the growth of our presence in new markets, and the expansion of our omni-channel model in existing markets. We may enter into arrangements in the future to acquire or invest in complementary businesses, services, and technologies. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, and financial condition would be adversely affected.

Dividend Policy

In order to more closely align our capital allocation priorities with our growth strategy, we no longer expect to pay quarterly cash dividends to holders of our common stock. This represents a change to our dividend policy previously disclosed in Part II, Item 5 of the Company’s Annual Report on Form 10-K for the year ended December 29, 2024.

Cash Flows

We have historically generated cash from operations and have credit availability and capacity to fund operating and discretionary spending such as capital expenditures and debt repayments. Our requirement for working capital is not significant because our consumers pay us in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the vendors for the various inputs to such items. The following table and discussion present, for the periods indicated, a summary of our key cash flows from operating, investing, and financing activities:

Operating Activities

Cash used for operations totaled $20.8 million for the first quarter of fiscal 2025, an increase of $3.1 million compared with the first quarter of fiscal 2024, primarily due to less operating income generated in the first quarter of fiscal 2025, partially offset by the intentional paydown of obligations due under our SCF programs (discussed in Note 7, Vendor Finance Programs to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q) in the first quarter of fiscal 2024.

Investing Activities

Cash used for investing activities totaled $25.8 million for the first quarter of fiscal 2025, a decrease of $3.2 million compared with the first quarter of fiscal 2024, primarily due to less cash used for capital expenditures.

Financing Activities

Cash provided by financing activities totaled $36.8 million for the first quarter of fiscal 2025, a decrease of $6.8 million compared with the first quarter of fiscal 2024, primarily due to draws on our 2023 Facility in the first quarter of fiscal 2024 used in part to fund the intentional paydown of obligations due under our SCF programs. These draws on the 2023 Facility in the first quarter of fiscal 2024 exceeded the draws on the 2023 Facility in the first quarter of fiscal 2025 used to fund business operations, including impacts from the 2024 Cybersecurity Incident and our U.S. national expansion, as well as payments on structured payables associated with our acquisition of the noncontrolling interest in our consolidated subsidiary, Awesome Doughnut.

Debt

Our long-term debt obligations consist of the following:

2023 Secured Credit Facility

As of March 30, 2025, the 2023 Facility consisted of a $300.0 million senior secured revolving credit facility and a term loan with an original principal amount of $700.0 million. Subsequent to March 30, 2025, the Company amended the 2023 Facility. Refer to Note 8, Long-Term Debt and Note 16, Subsequent Events to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for further information.

Under the terms of the 2023 Facility, we are subject to a requirement to maintain a leverage ratio of less than 5.00 to 1.00 as of the end of each quarterly Test Period (as defined in the 2023 Facility) through maturity in March 2028. The leverage ratio under the 2023 Facility is defined as the ratio of (a) Total Indebtedness (as defined in the 2023 Facility, which includes all debt and finance lease obligations) minus unrestricted cash and cash equivalents to (b) a defined calculation of Adjusted EBITDA (2023 Facility Adjusted EBITDA) for the most recently ended Test Period. Our leverage ratio was 3.94 to 1.00 as of the end of the first quarter of fiscal 2025 compared to 3.91 to 1.00 as of the end of fiscal 2024.

We were in compliance with the financial covenants related to the 2023 Facility as of March 30, 2025 and expect to remain in compliance over the next 12 months. If we are unable to meet the 2023 Facility financial or other covenants in future periods, it could limit our ability to draw on the revolving credit facility, could result in the lenders accelerating the maturity of such indebtedness and foreclosing upon the collateral pledged thereunder, and could require the replacement of the 2023 Facility with new sources of financing, which we may be unable to secure on favorable terms or at all, any of which could negatively impact our liquidity.

Short-Term Lines of Credit

We are party to two agreements with existing lenders providing for short-term, uncommitted lines of credit up to an aggregate of $25.0 million. Borrowings under these short-term lines of credit are payable to the lenders on a revolving basis for tenors up to a maximum of three months and are subject to an interest rate of adjusted term SOFR plus a credit spread adjustment of 0.10% plus a margin of 1.75%.