Jack in the Box Inc. (JACK) Earnings Call Transcript & Summary

Hello, everyone, and thanks for joining us today. I'm Chris Brandon, Vice President of Investor Relations. It's my pleasure to welcome you to Jack in the Box's 2021 Investor Day. And on a personal note, I am thrilled to be a part of this brand, working alongside this outstanding leadership team. And I'm very much looking forward to continuing to work alongside all of you. We're excited to share with you our important audience of shareholders, our long-term vision for the business and 3- to 5-year strategic plan to generate growth and enhance profitability for Jack and our franchisees. In a moment, Chief Executive Officer, Darin Harris, will kick things off. He'll be followed by Chief Marketing Officer, Ryan Ostrom; and Chief Financial Officer, Tim Mullany. Following their presentations, Darin, Ryan and Tim will also be joined by our new Chief Operating Officer, Tony Darden, for a live Q&A session. You are now looking at our legalese safe harbor statement. I'm sure you'll all read it word for word. One final housekeeping item before we get going. Our third quarter ends on Sunday, July 4. We will enter our normal quarterly quiet period on that day and tentatively plan to announce third quarter results after market close on Wednesday, August 4, and host a conference call at 5:00 p.m. Eastern Time that same day. So let's get started. It's my pleasure to introduce you to the Jack in the Box brand. [Video Presentation]

Jack is a tough act to follow, but I'll do my best. Good morning, everyone, and thanks so much for joining us for our 2021 Investor Day. And while we still find ourselves in a virtual setting for this event, I'm very excited at the idea of meeting and getting to spend time with many of you, in person at events and conferences, in the near future. First, I'm going to kick things off in a pretty simple fashion and take you through why we are here today and what we plan to share. I want to talk a bit about where we've been in our past, a bit more about where we are now and most importantly, how we get to what we know this brand and this business can become. Growth has been a part of the Jack thesis for some time now. We understand that. We also understand that without getting your fundamentals well-positioned for growth. Regardless of white space, strong top line performance and a solid business model, it becomes nearly impossible to grow in a sustained and successful way. It was critical we took a step back and viewed the business holistically and begin addressing the fundamentals. And while we haven't finished the product by any means, we have made substantial progress that I am extremely pleased with, and it will matter greatly in our long game and strategy moving forward. So what are these fundamentals? And in my first year, what have we been prioritizing and addressing, while developing the long-term strategy we will be sharing with you today? Well, first and foremost, we want to create a franchise opportunity like no other in QSR. I've been a franchisee, I understand the challenges. The amount of work, success demands and the things that keep operators and business owners up at night. I've been in their shoes. Well, this experience gave me the knowledge to understand how important the relationship is to our future. I've been able to connect to get to know our franchisees personally, learn about their families, hear their personal Jack story, and I'll tell you, we have an amazing and special collection of operators. They care deeply about each other and Jack. 75% of them started in one of our restaurants, working the fryer and grill, serving guests, managing the drive-thru, eventually becoming managers and learning how to oversee labor, operating with standout service and motivating teams. And then achieving the dream of business ownership with the passion for the Jack brand and expertise within Jack operations. I don't know about you, but from my viewpoint, this is a competitive advantage for Jack in the Box. These homegrown franchisees are themselves ready to grow, driven by something you will hear a lot about today, the relationship, because they care about the brand. They care about each other. They're like a big family. I mean many of them grew up together in the brand and their children followed. We can never underestimate the speed of trust. It's key to our momentum. They're also driven by our relentless focus on franchise profitability, something we, as a uniquely operations and growth-focused management team, will be obsessed with. And the decisions we make will be driven by an effort to maximize 4-wall restaurant economics throughout our system. But beyond just driving profitability and cash-on-cash returns, we must give our franchisees the strong desire to put their cash flow and capital back into the brand. And we will do this by building a strong relationship and serving them well, helping them drive outstanding returns, while growing their enterprise and building Jack brand loyalty, by entering markets, regions and territories where people have yet to be guest of our unique brand experience. My goal is to generate returns so strong that franchisees can't wait to build more Jack in the Box restaurants. And make no mistake, this brand and experience is indeed unique. While we play within most of the largest categories, including burgers, chicken, breakfast and coffee, even snacks. We are anything but just another burger brand. As Ryan will take you through in a few minutes, I am extremely excited about utilizing these unique attributes, such as the character of Jack Box, dayparts, menu variety and our digital innovation opportunities. And bringing them to life for all of our existing new and soon-to-be Jack fans. All of this, coupled with what we believe is a top free cash flow model within the industry, gives us confidence that we are getting much closer to realizing the growth potential many have believed, has been possible for some time. But instead of just relying on the open space and open markets and hoping the growth would come, we are attacking this in a different way, ensuring we and our franchisees are energized, well-equipped and well capitalized to go out and make this happen. Now I can stand here and talk about this business and my excitement around it all day. Without a doubt, this is the most fun I've had in my career. The people I've met, our franchisees, the brand, Jack. I mean, Jack, on my first day, he sent me an autograph picture that said, "Well, this is awkward. I want to make sure this time is a value to you and that you leave today knowing a few things or thinking about a few things differently than you had before." So let's go through some of the highlights we plan to take you today. We will be sharing with you a 3- to 5-year strategic plan, something that, in my view, has been lacking in a simple, clear-cut form for too long. Coupled with this long game strategy, we want to put into numbers how it affects our expectations for the business by sharing a 3- to 5-year guidance target related primarily to same-store sales, restaurant growth and system sales. And lastly, we will be revealing a new restaurant prototype, something that we hope will create even more excitement for our franchisees to continue investing back into the brand. The focus and viewpoint here for you and us as a leadership team needs to shift towards long-term thinking and more about blended growth, system sales via comp and restaurants. And we feel this guidance target couples nicely with the strategy, one that we really haven't communicated in this way before. For us to stress the importance of this internally, we must also commit to it externally with you all. And we are so excited to do so beginning today. With those things in mind, we're confident that today will be worth your time, and I am thrilled you've joined us for what is my first Investor Day with the brand. Now that we've covered why we are here and what we would like to share with you today, I want us to take a few minutes to talk about where we've been. When I joined Jack last June, I knew I was joining a company and a brand that had tremendous opportunities. Over its 70-year history, Jack in the Box had assembled a solid collection of assets that many other companies would be hungry for: committed team members and franchisees, a strong regional footprint, a brand that's differentiated in a competitive growing category, a distinctively broad menu and the operational capabilities required to manage that complexity. And most important, Jack had a passionate guest loyalty, the type that is the mark of a truly iconic brand. Those assets, among many others, had generated a track record of free cash flow that consistently placed Jack at the top of the QSR industry. At the same time, I knew those assets had more potential that was not being fully realized. We were hamstrung by broken franchisee relationships. We needed to continuously improve already strong restaurant economics and make them a priority in order to encourage existing franchisees to grow as well as to attract new franchisees to the system. We lacked a robust, sustainable development process, organization and pipeline. We have become hesitant to invest and innovate. We had gone too long without refreshing our guest segmentation research, and we're making too many important decisions without the benefit of their direct input, and truly knowing why they came to Jack. And although Jack had built a distinctive brand, we needed to communicate more effectively with people so they come to see Jack as far more than just another burger player. And we have a purpose. When you hear the stories of our franchisees today, you will understand this brand serves a purpose. During my first year as CEO, my focus has been on where and how we needed to immediately improve. Our plan involves dialing up Jack's existing strengths and aggressively addressing the franchisee and development opportunities head on, in order to unlock Jack's potential. It's important to acknowledge those challenges because it led to where we are now, which is not yet a perfect finished product. But in my short time, we have made meaningful progress in these critical areas, and I'm so proud of what this team has accomplished. We are addressing our growth fundamentals. The main theme of today, by prioritizing eventual organic growth, starting to grow into white space successfully. You may even see some intentional closures, and that's okay. Putting more stores in the hands of our best operators and creating a more efficient system takes time. However, we know that while company-owned growth and refranchising helps plant the seeds for future growth, it isn't the long-term answer to reaching our potential. We must prioritize organic franchisee growth in existing territories to build momentum to expand into the open white space markets. We have significantly improved franchisee relations, and I have fully incentivized our team to do so, listening, engaging, utilizing franchisee feedback for better decision-making. It's something I wanted to instill in the Jack culture immediately. We have a new commitment to sharing our restaurant level economics as a KPI, both internally and externally. And a bit later, Tim will dive into our new way of talking about this on a more regular basis. We're leaning in on investments related to new talent, building a predictive data discipline, digital, a new guest experience, new restaurants and our systems to drive restaurant-level profitability. And we have the free cash flow and leverage model to do so when and where it's needed. We will make impactful investments to drive the business. We are here to serve our guests, and it requires listening to them more than ever, which helps us in so many aspects of decision-making and how we communicate with them. And lastly, focusing on what makes Jack special. We are more than just another burger player. By crafting a clear brand position, we can take advantage of our brand identity, innovation opportunities, menu and daypart uniqueness and a guest experience like no other to back it up while also serving a purpose. Today begins the process of a more long-term balanced viewpoint on the Jack thesis and demonstrating via our strategy and guidance, our ability to drive system sales growth based on both comps and restaurant growth. This will, no question, be the best way to view growth going forward. So that's where we've been, and that's a glimpse of where we are today. Now on to execution and our blueprint for the future and how we will get there. Earlier, I referenced investments in talent. I spent the past year recruiting a new leadership team and identifying promising internal talent to take us forward. Our leadership team consists of many new faces, with the common thread being great experience and culture fit. With a shared focus on growth, the guest experience and taking Jack into its next chapter differently than ever before, you will likely see and hear us reference this many times going forward. But this foundation and the 4 strategic pillars is the framework for our strategy, both internally as we execute as well as externally when we update our progress. Our ambition, and it is a big ambition, is to be the nationwide leading challenger brand in QSR. And our purpose speaks to what we stand for, giving people a taste of life outside the box. We believe when we're true to who we are, we unbox unexpected moments in life. The unexpected can be a guest experiencing craveable food or variety beyond expectations, a team member experiencing a new career path, or a franchisee pursuing growth in a new market. When you hear the stories of franchisees, you will understand what tasting life outside the box means. For many, becoming a franchisee was unexpected and truly a life-changing moment. If you think about our namesake and a literal Jack in the Box toy, this is exactly what we do daily. By implementing quick drive-thrus, where we consistently delight our guests, innovating our food and guest experience, so that whenever, wherever or however guests want to dine on our craveable food, we'll serve them well and make it easy for them. Franchise owners will be making significant returns and 4-wall EBITDA, and we'll build more restaurants with strong financial returns for both franchise owners and stakeholders. We'll care deeply about our franchisees and employees and we'll expand the reach of Jack in the Box. We're building Jack's future on a solid foundation, deep rooted in servanthood. The bedrock of our strategic foundation is shaping a caring, high-performing culture by serving our people, guests and franchisees well. This leads to innovation and growth. We'll strive to become a great franchisor and employer by implementing the service profit chain, which very simply means to take care of our guests and franchisees, we must take care of our people first by living our values, at every level, through every relationship. Steve Piano, our new Chief People Officer, joined recently to help lead this people-first culture. The top soil in our foundation is leveraging innovation and technology platforms. Innovation is embedded in the Jack in the Box DNA. Jack is known for having many firsts. The first drive-thru, breakfast and full menu all day, every day. Over time, our innovation has become mostly about product variety. However, we're instilling a future-focused 2-speed innovation model that's designed to create breakthrough opportunities beyond product. We must leverage technology to be successful in today's competitive restaurant environment. And we're in the early stages of executing a technology road map and the specific technology solutions and data capability necessary to meet our short- and long-term business needs. As part of our technology road map, digital data is our priority, and we are going all in. By investing in people, innovation and technology, we can accelerate our strategic ambition. All right. Let's stay with this metaphor and continue building Jack's house. Now that the foundation is set, we need to place the pillars and raise the walls. To satisfy our guests and stakeholders, we must excel at these 4 pillars: building brand loyalty, driving operations excellence, growing restaurant profits and expanding Jack's reach. Building brand loyalty is about fostering the relationship we want Jack in the Box guests to have with our food, people and restaurant experience. If we give guests craveable, affordable food so good that guests can't wait for their next Jack in the Box dining experience, we will build brand loyalty. To make this happen, we'll pursue refining our brand position, accelerating our product and packaging innovation pipeline, transforming the future restaurant design and reimaging our existing restaurants. And finally, we'll enhance the digital guest experience. Ryan will be taking you through these objectives in a moment. Our next pillar is driving operations excellence. Operations excellence is for our guests. So they have a consistent service experience and are excited to return to Jack in the Box restaurants again and again and again. To realize this outcome, we must consistently staff and train A-level restaurant players with advanced selection and training platforms. We need to elevate our brand standards by using a new consultative approach. Finally, we'll improve speed consistency by focused execution on the operational initiatives we rolled out in early 2021. These were designed to improve speed as well as introducing new processes, equipment, systems and technology. As most of you know, operations are about consistent execution every day. Our near-term operations focus is taking the new systems we rolled out this year and making sure that we execute at the highest level. Tony Darden, who just joined us, will be focusing on accomplishing these strategic objectives. Our next pillar is growing restaurant profits. We will be discussing this quite a bit today, so I'm not going to go into a lot of detail here, except to mention it is fundamental to our strategy and our entire leadership. We're striving to have not only the category's best economic model, but the tools to achieve it by investing resources into our operations services team. Our last pillar, expanding Jack's reach, defines our quest for growth. And I know everyone here is interested in this topic and how we will achieve it. I will be covering this later today. Ultimately, to accelerate growth, and I mentioned this earlier, we want returns so good that franchisees can't wait to build more Jack in the Box restaurants. These pillars hold the structure of Jack's strategy together, and they won't change much over time. However, the strategic initiatives are what bring our plan to life. The outcome of building brand loyalty is growing same-store sales and transactions. By driving operations excellence, we can improve efficiency and guest satisfaction, focusing on growing restaurant profit enables an increased operating margin. And if we accomplish these, we can expand Jack's reach by opening more restaurants. These strategic objectives will enable Jack in the Box to accomplish our financial goals. This blueprint for the future will help us reach our ambition. So with that as a backdrop, I will now turn things over to Chief Marketing Officer, Ryan Ostrom, to get things started with an update on marketing innovation and his overall vision for how we will best connect with our guests.

Thanks, Darin. It's been a quick 4 months since I've joined Jack, and I'm so excited to be here. I grew up eating Jack in the Box. It was the one QSR restaurant that was in the major 4-cross streets to my house, and I crave that spicy chicken sandwich growing up. And this is relevant. As we look at building brand loyalty, it's all about making Jack more craved. And I'm not just talking about that amazing picture on the slide. In this case, crave means so much more. It is an acronym that we'll use to execute all of our guest touch points from marketing, social, online and in restaurants. So what does crave stand for? Well, first, Cultural. Are we in touch with the cultural trends and what is happening around us? Relevant. are meeting the needs of our guests with our products and our prices? Authentic. Are we being true to who Jack is and what we stand for? Visible. Are we targeting the right people at the right time? Easy. Are we making everything easy to understand and experience? And then finally, Distinctive. Are we executing this in only a Jack way? When we look at building brand loyalty in our key pillars, our goal is to make marketing product, restaurant design and our digital experience more craved. We will explore each of these areas in more detail, showcasing the strength of the Jack brand, while also sharing opportunities to continue our strong growth. So let's start with crave marketing and dive deeper into what it means as we make Jack a more culturally relevant brand. The first step is to make sure we have a clear truth for everyone to follow that starts with our brand architecture. And as Darin mentioned, we recently developed our new brand architecture that will align everyone in our organization from team members to franchisees, in one direction. And when you look at our vision, each word means something like nationwide. We will expand Jack across United States. Leading, we will maintain our innovation and quality with everything we do. And most importantly, Challenger, we will maintain our underdog spirit. In regards to our purpose and belief, my job is to bring this to life across all our touch points. In order to do that, we first must make sure we are being true to ourselves. We must know what it means to be unapologetically Jack. So what does it mean to be unapologetically Jack? You caught a glimpse of that during the opening video, but I wanted to share a mantra as the heartbeat of this organization moving forward. We're Jack in the Box, but we've never stayed in the box. From our menu items, to our employees, to our franchisees, we've always popped out in innovative, fun, unexpected ways. Unapologetically danced to the beat of our own music box. Being the curly fries in the world of regular fries, doing things others don't, serving things others won't, and challenging the status quo. After all, we're Jack, where you can expect the unexpected. And I still get chills every time I read that. And now with renewed focus, driven by our brand architecture, we need to continue to shift and modernize our marketing strategy. And I love this picture as it perfectly shows the opportunity. We are working on improving our brand across all our touch points from digital, social, packaging and restaurants to ensure we provide a consistent brand experience to all our guests, just like each of those perfect pieces of cheesecake. But one of our growth opportunities is shifting our marketing to become more modern, moving more towards authentic integrations and digital-first mindset, relying less on the traditional channels of TV, but engaging with our guests more on their terms, involving cultural moments while also getting closer to the point of hunger. But we are not starting from scratch. Jack is rooted in doing things out of the box and leading in relevant ways, especially how we have authentically integrated in sports. We have many sports sponsorships across our markets, but we have seen the strongest success in instances where the brand is integrated authentically into the game, ranging from the Lakers where we want Taco's chant has been ringing throughout the Raptors for over 15 years, to our most recent activation of the 800-pound Jack Head in Petco Park, a more modern take of our famous Antenna Ball. But Jack hasn't just sat on the sidelines of mainstream sports. Here's one of the first movers in gaming within QSR by sponsoring Team Envy, an esports team out of Dallas that most recently won the Call of Duty championship. However, becoming a culturally relevant brand means going beyond just sports and gaming. We need to show up in everyday culture. It means adopting, moving with the world around and engaging in everyday moments. Like how Jack responded to the COVID crisis through unique activations, including our chicken-scented mask to our leisure wear, perfect for the home office. We even created a Jack mask emoji that has shown up throughout online and social. I even have one on my car. Speaking of our emojies, they're distinctive, ownable brand element that can quickly adapt over all our communication touch points, especially in digital channels in relevant and fun ways. The Jack Box is way more than just a pretty face. He has a distinctive attitude, and we have an opportunity to bring that to life across all our social channels. Like in our latest 4/20 post pictured here, a simple but relevant message that resonates with our core fan base. In addition, culture moves fast. It means we need to be nimble like our ability to jump on the latest trends, like the TikTok quad rack. We drafted off this trend and implemented a new item in restaurant within only 6 weeks. That included churros, cheesecakes, caramel and cinnamon. But as our purpose states, we are going to get people to taste outside the box. We're going to unbox the unexpected. Most recently, we just rolled out our latest campaign featuring Jason Derulo. Not only are we partnering on promoting our window innovation, but we have developed an exclusive Milli Meal for online-only purchases, while also executing a one-of-a-kind Jack and Jason collab via a virtual brand, called One in a Milli. This virtual brand includes something called the BurgerAco, half burger, half taco with an onion ring. You heard that right. I'm just going to let that sink in. But this execution is bringing the cultural trends of mass chefs, virtual delivery brands, celebrities, endorsements, altogether in a Jack way. Now speaking of our amazing food, let's shift gears and go a bit deeper in our offerings that make Jack in the Box a fan favorite. Jack's food has a cult following that goes beyond your average QSR. We have a long list of passionate guests who love to shout out about their Jack cravings. The amazing thing in looking at these quotes is a brand love across such a wide range of products, from tacos to burgers, and that is one competitive advantage about Jack. Our variety is unique. We see Jack as being the curly fries in the world of regular fries, especially when it comes to our variety. Our offering goes beyond just basic of burgers and fries and amazing shakes, but we excel at a wide range of items, like chicken and tacos as well as curly fries and egg rolls. Yes, you heard that right, egg rolls. And if you haven't had them, I so recommend you go try some right after this. This diverse menu becomes a strong competitive advantage, especially digital and delivery become a family staple. Who else can satisfy a wide range of cravings? However, since these images don't really do the food justice, let me play a quick video that is for sure going to wet your appetite. [Presentation]

Now that I've set the mood for a craveable food, I want to share a bit of our winning strategy that is truly driving growth for Jack. The first part is our innovative spirit that has been driving force behind Jack for over 70 years. Our ability to introduce iconic innovation has been keeping our most loyal fans coming back visit-after-visit. Prime examples include the Sourdough Jack, the Buttery Jack and tacos that have been a staple for our guests. Jack created and introduced these items, which have stood the test of time. All of these have laid the groundwork for some of the new cult innovation that has recently hit our menu. Like our sauced and loaded snacking platform, a creative nod to some of our most loyal fans. We have recently launched variations of these ranging from Carne Asada, Carnitas and soon, Taco Fries, combining 2 of our fan favorites. And speaking of Tacos, one of our most recent successful launches is our Tiny Tacos, another snacking platform that provides a variety of opportunity to introduce a new flavor throughout our calendar. And finally, I really can't forget about our entrance into the chicken wars, where we have seen strong success with our CLUCK and Popcorn Chicken. But to be honest, this is only the beginning. The second part of our growth strategy is to focus on value. Value plays a key role in driving traffic to our restaurants and getting guests off the couch to go to our drive-thrus or pick up their phone and order online. And while value offers drive guests to the restaurant and help grow the ticket, it is our premium burgers and chicken sandwiches, which are stealing the show. These premium items are helping drive higher average order value by upselling our current guests, while attracting new guests to Jack in the Box. And finally, the last part of Jack's winning product strategy is our accessibility. We are available 24/7 with an all-day everyday menu. This is one aspect that sets Jack apart from the competition. So if you want tacos for breakfast, we have you covered. You want breakfast for dinner, be our guest. In fact, it is our accessibility that has been helping drive our strong performance, especially during our breakfast and late-night dayparts. Now that we touched on our marketing of food, the next opportunity is to talk about how we are making our restaurants more craved. Darin and Tim will be talking to you in a little bit about the future growth plan and unit economics of our restaurants. I know some of you are really salivating for that information or it could just be the food video that I showed earlier. But right now, I'm lucky enough to share with you how we plan to continue to grow brand loyalty through redesigning and updating the look of our restaurants in authentic and distinctive way. Like many QSRs, some of our 2,200 restaurants are a bit dated. They lack being craved. But you can see how impactful our new restaurant design stands out in the marketplace. And when upgrading our stores, we have achieved high single-digit percentage sales lift. Our goal is to focus on transforming our entire footprint as we are currently finalizing an incentive and an investment plan to drive franchise reimages. It's a large part of our capital allocation going forward, focusing on the drive-thru and exterior of the restaurant. These images will be implementing key elements that make the restaurants more relevant and distinctive. A few key areas to call out is, of course, the big red box. It is a distinctive and iconic asset that will be a beacon for current and future guests. The second is to showcase Jack throughout our restaurant design in a big way. Historically, Jack has never been leveraged on the outside of our restaurant designs, which is especially led to a disconnect if we have entered new markets. Jack will proudly be represented throughout the entire restaurant experience moving forward. Finally, bringing additional distinctive design queue throughout the restaurant experience, like the drive-thru, roll-thru language as well as the outline of Jack's head. The best way to showcase some of these design elements is to show you how they come to life in our new drive-thru-only restaurant. [Presentation]

Now that you've got a glimpse of our current reimage design. Now I want to give you the first look of our next-generation restaurant of the future. This new restaurant prototype features a flexible and modular design, allowing it to fit in a variety of locations, from drive-thru-only, to walk up, to include outdoor and/or indoor dining. This concept also maintains the elements we showcased earlier, but we built with a focus on providing a frictionless digital experience for the online, pick up and drive-thru guests. The goal is to provide the ultimate personalized convenience, while delivering a back-of-the-house focus on speed, accuracy and reduction of labor hours. And of course, with many of our newer stores, we'll maintain our late-night leadership by turning up the purple during the evening. Purple has always been our late-night branding color for many years, and we are fully going to own the night moving forward. The final area of focus and opportunity within Jack is our ability to make the digital guest experience more craved. COVID accelerated the adoption of delivery and online ordering, but we still have some low-hanging fruit within this space. We are dedicated and focused on growing the digital experience, and that is one of the main reasons why I joined Jack. In order to truly transform the guest experience, we first had to develop a clear strategy with data at the core. Our goal is to develop a digital ecosystem across Jack that includes restaurant tech, loyalty, delivery, mobile order and digital marketing that optimizes the guest experience. That ecosystem becomes even more powerful by leveraging data to drive personalization and insights and hence, stronger sales. Even though Jack is in the beginning stage of our journey, we have seen strong growth across delivery and mobile ordering. Digital accounts for nearly 8% of system-wide sales and have increased 135% over the past year. In fact, we have surpassed our entire 2020 digital sales in the first half of 2021. An exciting part is that we haven't seen any slowdown as COVID restrictions relaxed. In addition, we have more upside by shifting our mindset to become more of an e-commerce leader versus just a restaurant who happens to sell online. Despite our early successes, we still have many e-commerce best practices to implement, and that will help Jack grow digital sales to our target of more than 10% of system sales in the next 18 to 24 months. In order to achieve that target, we have laid out a clear road map that will help us accelerate our digital growth. Jack was an early adopter of third-party delivery, and our relationship with delivery providers continues to improve. However, we have an opportunity to provide more culturally relevant online-only products and offers that truly allow Jack to reach a guest at the point of hunger. Our variety allows us to seamlessly develop unique bundles, most like the Jack and Jason collab I talked about earlier. And we have only just started implementing our out-of-the-box offers and have developed a good calendar of activations that will drive significant acquisition and digital sales, not just with third-party, but especially within our own channels. Speaking of our own channels, Jack recently just rolled out in-app ordering, and we plan on following that up quickly with mobile web ordering, which will allow us to target more light consumers to the brand, while seamlessly completing the purchase journey in a more modern way. In addition, we launched a Jack Pack Loyalty Program only 3 months ago, with the goal of providing insights into our best guess, allowing Jack to optimize promotional activations on a more one-to-one basis, while also providing unexpected personalized experience to drive purchases and engagement. We have only just started to activate our acquisition strategy and expect a nearly 5.5 million record count to significantly grow over the next year. We are seeing promising results from our initial online rollout, and we'll be looking to extend the program in restaurants soon. We also continue to enhance the entire digital experience that includes implementing restaurant technology from digital menu boards to kiosks, while keeping our eye on the future and exploring how robotics and AI solutions might impact the future back- of-house. Now we have talked about how we plan on building brand loyalty by making marketing product of restaurants and digital guest experience more craved, let's shift over to what everyone really is craving for. And that's Jack's restaurant growth opportunity and our ability to expand Jack's reach. [Video Presentation]

Now that Ryan has walked you through how we're building brand loyalty, and Jack has shown you the level of customer excitement around the country, let me walk you through how we're expanding Jack's reach. You won't be surprised by the #1 question I've received from the investment community since taking over as CEO here. It related to our ability to increase new restaurant growth, with the close runner-up being, of course, how quickly can we make it happen. We have started by rebuilding a culture of partnership with Jack franchisees and building an organization and the processes necessary to equip franchisees to accomplish meaningful restaurant growth. I'm more convinced than ever that we can do just that and outpace past performance. And as you heard me say earlier, it's about fundamentals. The brand has considerable strengths, an iconic brand, especially the character Jack Box; strong restaurant economics, a strong homegrown base of existing franchisees with 2/3 of that base expressing a desire to grow, a history of strong restaurant sales growth. And we rank #1 or #2 in QSR unit count within 8 of our top 10 existing markets. We have a tremendous amount of white space for growth, both in existing and untapped markets nationwide. We are only in 21 U.S. states, plus Guam, with 9 of them approximately 60% built out. The remaining 13 are at less than 35%. When you compare this to the competition within our same geography, it's clear, we have a tremendous opportunity to expand Jack's reach within all of these open territories. Over the last decade, we opened an average of 21 restaurants per year, lagging the sandwich segment by 1.1%. As a result of the development agreements that were signed during the last re-franchising push in 2017, franchisees opened 27 new stores last year, the most in the past 20 years. 2017 was the last time we had a development agreement-led strategy versus site-led. Development agreements are a lead indicator for future restaurant growth. And unfortunately, we didn't keep this process intact. Consequently, we did not maintain a robust pipeline to enable Jack to continue at that pace. Closure rates have been manageable. And as we discussed last quarter, much of the slight uptick was due to COVID or closures of poor quality sites and buildings that should have closed a while ago. In most cases, we received a commitment to reopen in a better location in the near future, all being done by opening the lines of communication with franchisees, and with a common goal of attracting and keeping guests. And while there were some tough conversations, I know optimizing the portfolio carefully will make us stronger in the long run. Annual net new restaurant growth has been roughly breakeven for the last 10 years, also trailing the Sandwich segment slightly. And frankly, this shouldn't be the case. So how do we change the trajectory? Well, we started by identifying key themes related to why Jack in the Box didn't grow more rapidly or keep pace with the Sandwich segment. First, I want to be clear about the re-franchising effort, both in the short term and long term. We have transitioned the business to an asset-light model over time. Now at 93% franchised. And in order to be less dilutive, the restaurants were sold at high multiples with rent spreads, many to undercapitalized franchisees with intensive capital requirements for remodels and new restaurant development. This led to delays in many of the remodel commitments and new builds that, in too many cases, just didn't come to fruition. We can bend the curve by having a clear development strategy, marketing and human resources dedicated to franchise and site lead generation, prototype innovation, unrestrictive growth policies and processes by updating our restaurant image and lastly, having franchisee alignment. New restaurant growth underperformed for way too long. That's behind us. By focusing on fundamentals, many of which have already seen meaningful improvement, it puts us in a better position than we have ever been. Our franchisees are now well-capitalized. Our relationship with our franchisees is strong, and our business is extremely healthy, leading to franchisees wanting to put capital back into the brand. By focusing on fixing these fundamentals and executing on the key initiatives, we expect restaurant growth to gradually ramp toward a sustainable annual run rate of 4% by 2025. Part of what will get us there is a renewed focus on data analytics and mapping to help us and our franchisees make informed growth decisions. As Ryan mentioned, we use data and analytics to communicate with our guests personally. We also use the information to determine where we should grow. Well, we began by utilizing sophisticated real estate models for market screening and potential expansion across 210 DMAs in the U.S. and prioritizing where to grow based on market attractiveness and overall expansion potential. Using predictive modeling, we have determined the number of restaurants that each market can support. These analytical tools provide mapping, site selection, sales forecasting and competitive analysis that not only make us smarter, but when shared with our franchisees, give them the confidence in knowing that we have a clear strategy for reaching our guests and an ROI that they can get excited about. This is yet another way we build trust with franchisees as they consider putting their hard-earned capital back into the brand. So what have these analytics reveal? We have potential for just over 1,500 restaurants within our existing footprint alone. If you compare this to the competition, it's clear. Growth in our existing footprint is realistic. Our development strategy considers leveraging marketing spend and building brand awareness to attract more guests. By increasing market penetration, we can drive guest conversion and increase marketing dollars with higher impact advertising leading to more sales. Starting with existing well-penetrated markets. Our primary growth strategy is fortressing. Our objective is to reach more guests in markets where we already operate, have strong brand awareness and can capture more market share. Markets like Los Angeles, San Francisco, Houston and Phoenix are examples. In underpenetrated states like Colorado, Kansas and Utah, we'll use a wagon wheel or concentric circle approach. This method benefits from the halo effect of our existing footprint and brand awareness. In areas where Jack has no presence today, we've identified several strategic regional hubs that we can use as anchors for future expansion. This longer-term diversified strategy can be pursued concurrently, when we have gained momentum in our development pipeline. I want to share more findings from our market growth analytics related to the 29 states that lack a Jack in the Box restaurant today. In these states, our screening suggest we could build an additional 2,250 potential restaurants, which means there's a nationwide restaurant count potential of over 6,000. This number does not include the additional opportunity to add nontraditional locations or dark kitchens. While working on our long-term expansion strategy, we've completed the early action items to unlock growth. We've built a leadership team with brand-building experience, and we've communicated a clear market penetration plan. So what do we do next to grow and expand Jack's reach? Build brand loyalty to drive guests to our restaurants and increase same-store sales, drive operations excellence to keep guests coming back. Under Tony's leadership, we plan to standardize operational systems and procedures across the Jack system to improve both consistency and simplicity. And we have a clear plan to make this happen. This way, one of our 30-old restaurants will operate and use the same processes as a brand-new restaurant, leading to more consistent operations and more predictable financial outcomes. Expansion follows proven store level profitability, which is one of the key strategic pillars I shared earlier. The final pillar I want to discuss today as part of my growth commentary is expanding Jack's reach. It starts with the new restaurant prototype innovation. We have created a modular diversified, lower-cost restaurant design. This scalable approach offers a range of solutions for the guest experience of the future and enables us to react to market dynamics, while positioning Jack as an industry leader. Innovation with our prototypes and shifting our mindset opens up growth opportunities. Historically, we limited ourselves to freestanding restaurants and only have a limited number of restaurants in alternative formats and channels. These channels often offer more compelling restaurant level economics. We now have solutions to gain access to more sites and channels, cost-effective real estate, including urban centers, in-cap or in-line conversion and smaller drive-thru-only sites. We can go to captive audience sites, such as military bases, college and universities and travel centers. And now we will have a larger delivery footprint. In fact, we recently signed a test agreement with REEF Kitchens to open 8 dark kitchens in existing, underpenetrated and new markets. One of my key learnings during my first year has been how lean the real estate pipeline had become, some due to the misalignment with franchisees and some because of COVID. We have changed the process to be development agreement-led, dedicating the resources needed to drive growth where we have forward commitments and the market analytics to support them. As a reminder, the process from identifying a site to opening takes on average 18 to 24 months. So filling the funnel with development agreements and approved site is imperative. By working with a clear plan, along with committed franchisees, we can dedicate significant resources toward growth, partner franchisees with capital providers, signal the brokers that Jack is coming to the market with multiple sites, and that we want priority on sites and access to top opportunities. To accelerate openings, our leading indicator is development agreements by year, followed by a full real estate pipeline so we can efficiently build restaurants. Growth in current markets will primarily be with franchisees. Our 5-year development strategy is predicated on the majority of the openings coming from franchisees, but we will absolutely ramp up new company-owned restaurant growth in underpenetrated markets to enhance the pipeline. This company-owned growth supports our franchisee expansion efforts in a few ways. Most importantly, by signaling to our franchisees, that we have skin in the game. Although our strategy is to continue to build company-owned restaurants, we will maintain an asset-light model with company restaurants representing approximately 5% to 10% of the system. Investing in resources and development tools, improving policies and development processes and helping franchisees access capital will help unlock opportunities and fuel growth. We've improved tools for development like market planning, mapping and site modeling. For the first time, we provided all franchisees access to market plans and mapping tools for designated market areas. We've modified the internal policies and practices that were barriers to growth, leading to 80% of franchisees being approved for growth, more than double the number of the recent past. We have added people to support franchise recruitment, marketing for sites and franchise candidates, field real estate personnel and a person dedicated to working with lenders, private equity and family offices. This person will assist in consolidating markets of existing franchisees not wanting to grow. Many prospective new franchisees will benefit by starting with a base of restaurants. In late March, we actively began a marketing and PR effort to drive franchise leads at potential sites. This is in the early stages, but since the launch of our new website, www.jackintheboxfranchising.com, and a new franchise CRM, we've seen an increase of nearly 300% in visitor traffic and lead flow. Since launching, we signed numerous development agreements and have many more out for signature. With all the puzzle pieces coming together, we're signaling to our system that now is the time for growth. We believe we've created one of the most attractive franchise development set of programs in the industry. We are making a clear statement to existing and potential franchisees. Jack in the Box is a partner in growth and committed to putting real skin in the game. But don't just take my word for it, let's hear what our current franchisees are saying about their desire to grow. After that, our CFO, Tim Mullany, we'll walk you through our unit economics and our 3- to 5-year financial strategy, then conclude with our 3- to 5-year financial guidance. [Video Presentation]

Hi. I'm Tim Mullany, Executive Vice President and Chief Financial Officer. Obviously, Jack is very excited about our innovation in new store designs, revitalized partnership with franchisees, geographic white space and outperforming unit economics, and the opportunities they present for growth. And more importantly, so are our franchisees, who represent the brand each and every day with exceptional service and are directly responsible for Jack's industry-leading financial returns. I joined the Jack in the Box team in January because I, too, is intrigued and excited by the opportunity to take a successful, distinctive regional brand and expand it into a successful national brand. Earlier, Darin walked you through Jack's recent history, our business today and our strategy to drive growth. Ryan shared our new strategies around product innovation, restaurant design and our new marketing approach to elevate and modernize the Jack brand. Those compelling financial returns energize our existing franchisees and will attract new franchisees to partner with us as we set, of course, to expand Jack's reach across the United States. As mentioned earlier, for the past 10 years, Jack has been narrowly focused on comps and cost efficiencies to drive growth. And this has been successful to a degree. This quarter, trailing 4 quarter system-wide sales, we'll surpass $4 billion. And in the process, Jack has earned the #1 or #2 QSR market position in 8 of its top 10 markets. But we believe Jack has so much more potential. Jack's strong business fundamentals provide a solid foundation that makes possible the new unit expansion strategy you just heard about. We are energized to add this new unit growth driver to the business. While same-store sales will continue to be an important contributor in the near term, our new strategy is promoting a longer-term focus across the corporate team, franchisee network and our shareholders. So let me walk you through our current unit economics and how we think our new modular store designs and operating initiatives can enhance them even further. Sound unit economics and franchisee profitability are a critical focus of mine and one of the most important parts of a 3- to 5-year strategy. Only with sound unit economics will we be able to achieve our system sales growth targets. Jack system-wide AUVs are highly competitive versus our peer group. In the most recent trailing 4 quarters, system-wide AUV reached approximately $1.8 million. And while strong AUVs are where store-level profitability starts, there has to be flow-through to the bottom line. Our franchisees have consistently produced exceptional store-level profitability for which Jack is known throughout the QSR industry. We think that performance is a direct reflection of their passion for the brand and their deep experience as operators. As we noted, and as a former operator, I love this about our business. 75% of our franchisees started off as a staff member at an individual Jack store and work their way up to become a successful franchisee. They're homegrown, persistent, committed and now we're partnering with them and energizing them with more opportunities to grow. Going forward, we're going to communicate differently about store level profitability, because we know how important it is to our existing franchisees, to prospective new franchisees, to landlords and lenders and to you, our shareholders. For example, rather than bury average unit volumes and store level EBITDA in our annual franchise disclosure document, we will be transparent disclosing those metrics on an annual basis, whether they're good, bad or neutral and providing the context necessary to understand the trends behind them, starting now. For fiscal year 2020, annual franchise 4-wall EBITDA was $188,000 per store, 21% higher than fiscal 2019. And during the most recent trailing 4 quarters through March 2021, that reached $235,000 per store, an increase of nearly 50% year-over-year. So for an average franchisee who operates approximately 20 stores, that rolls up to approximately $4.7 million in annual EBITDA. On average, new store levered cash-on-cash returns produce a payback of initial investment in less than 3 years. Since fiscal 2018, Jack franchisees have opened 63 new units, 43 of these have been opened for at least a full year and have outperformed the rest of the franchise system over the trailing 4 quarters, producing AUVs of $1.8 million and average 4-wall EBITDA of over $400,000 or a margin of 22%. We believe there are very few franchise concepts today that offer such attractive profit potential. This is one of many things that is inspiring existing franchisees to expand as well as attracting new franchisees to join the Jack system. Accelerating franchisee return on investment is a key element of Jack's strategy to accelerate unit growth, which will ultimately drive system sales growth and shareholder returns. One key factor driving franchisee unit-level performance is Jack's development incentive program, which offers reduced franchise royalties during the first 5 years after opening. This new development incentive is available to franchise owners who signed a multiyear, multiunit development agreement. In addition, while Jack controls underlying real estate at more than 85% of its current franchise stores, going forward, franchisees will control the real estate at the majority of the new stores we plan to open, thereby avoiding the rent markups charged on new stores where we control the land. This will further strengthen the future franchisee profitability. To drive franchisee's best-in-class returns well beyond the development incentive period, Jack's leadership team is relentlessly focused on continual operational improvements. For example, we've invested in an operation services team that is entirely focused on financial fundamentals, looking for ways to increase revenue or reduce restaurant costs through more efficient processes, equipment and technology. This year, we've already rolled out more sophisticated restaurant management software for managing food and labor costs. The data we capture gives us the ability to drive costs out of the restaurant level through improvements in inventory management and labor scheduling. Now looking ahead. We are implementing a more comprehensive and thorough operational road map that will provide consistently great guest experiences and further improve profit margins. This road map includes the value-engineered modular prototypes that both Darin and Ryan discussed, strategic sourcing on indirect spend and time and motion studies to improve labor efficiency, restaurant technology and equipment enhancement and reducing complexity. So just to reiterate, our job is to generate financial returns that are so compelling that existing franchisees want to reinvest in additional restaurants and future franchisees are attracted by the opportunity to bring Jack to new markets. So let's take a closer look at our current and projected future unit economics. Today, under the current incentive program, new units cost approximately $1.8 million to build and generate annual EBITDA of between $275,000 and $460,000. This is how franchisees are currently able to achieve a levered 3-year cash-on-cash payback on new stores. In the QSR industry, this represents an ideal payback time frame to motivate franchisees to pursue growth. And our new development team has been working to improve even further on these economics. Our new modular Jack store designs enable franchisees to consider a wider variety of store sites, including drive-thru-only, smaller and streamlined narrower sites in nontraditional sites such as airports, convenience stores and college campuses. We've also developed a new efficient kitchen layout, specifically for drive-thru-only units that can also be used in our new modular stores. Assuming those stores are able to generate similar AUVs and store level EBITDA, their lower construction costs could push 1-year returns north of 25% and shorten the levered cash-on-cash payback period to 2 years. We believe the work we have done to lower the initial build-out costs, together with the projected realization of additional operational efficiencies, will enable us to reduce franchisee incentives and still deliver very attractive ROIs to franchise owners. In short, we believe that reducing build-out costs, coupled with a revised incentive program, offers a much more accessible initial investment that will generate a best-in-class ROI. This, in turn, produces category-leading cash flows to an existing franchise owner and attracts prospective new franchisees. Now I spent the past few minutes talking about Jack's attractive unit economics. But I'd like you to have a chance to hear directly from several of our franchisees who we've had the opportunity to speak with in the last month at our quarterly franchise leadership meeting. [Presentation]

You can see why we're optimistic about long-term growth opportunities before us. We know that Jack can be successful only if our franchisees are successful. It's up to us, the leadership team, to define a sound strategy for success and to lead the organization on a journey to realize the potential of the Jack in the Box brand. So I'd like to spend the next few minutes walking you through our new 3- to 5-year strategy, then wrap everything together into our 3- to 5-year financial guidance extending out through 2025. Here's where we are today. The transition to an asset-light model is complete. Our unit economic model is among the best in this QSR. We've rebuilt our leadership team and reinvigorated our franchisee relationships. We are working together to formulate a plan to expand Jack's reach into significant white space, and we have strong free cash flow and ample borrowing capacity to support growth while maintaining our industry-leading return of capital to shareholders. I also think it's important to provide some historical context to highlight the significance of our new direction. Jack's iconic brand, 2,200 store platform and franchisee-focused asset-light economic model have generated cumulative free cash flow of approximately $450 million over the past 5 years. We believe this is one of the top [ free ] cash flow models within the QSR industry. While our organic cash from operations is more than adequate to cover our strategic growth and operational initiatives, our business model enables us to utilize our debt capacity to maximize return of capital to shareholders. Our financial strategy for the next 3 to 5 years can be packaged into 4 complementary boxes, each of which we've spoken about over the course of the day. First, a relentless focus on unit level profitability; second, drive system sales through unit growth and same-store sales; third, fund high-return investments from free cash flow and strategic use of leverage; and fourth, return excess capital to shareholders to maximize shareholder return. The company's previous financial strategy focused primarily on same-store sales and return of capital to shareholders although it generated attractive EBITDA and returned substantial capital to shareholders, it did not invest to expand Jack beyond its regional footprint or pursue other accretive investments to the business. Moving forward, Jack's new leadership team intends to capitalize on the power of all 4 boxes, investing in expansion and capabilities corporately and across the franchisee network that have the potential to drive growth and industry-leading return on invested capital. Let's unpack Jack's strategy boxes one at a time. Jack's first strategy box contains everything about maintaining and maximizing unit level profitability. I already covered these concepts in great detail a few moments ago so we don't need to spend any more time on this box for now. Jack's second strategy box, system sales growth, continues the most important and significant elements of our new strategy, expanding Jack's reach through accelerated unit growth in existing and new markets. There's a lot inside this box. So I'm going to spend a few minutes unpacking it. Our goal is to position Jack for consistent low to mid-single-digit unit growth over the long term in order to fill the significant white space opportunities across the United States. Part of our development plan remains becoming more efficient even if it means taking on some closures into 2022, which will be necessary to truly prime the development pipeline. And then from there, we expect unit growth to gradually ramp toward a sustainable annual run rate of 4% by 2025. Now over the past year, we've accomplished much of the necessary groundwork to support this element of our strategy as we move forward. The renewed sense of partnership Darin has spearheaded with the franchisees has been very gratifying for all involved. It's those relationships that are going to be so important as we seek to expand Jack's reach through organic unit growth. We've also taken steps on multiple fronts to seed a new store development pipeline. We'll work alongside existing and new franchisees who signed multiyear, multiunit development agreements to determine what approach will accelerate growth and provide the most attractive returns for everyone. In contrast to our last expansion push 10 years ago, our approach to new markets will employ several different strategies to promote success. We'll start by partnering with well-capitalized and operationally experienced franchisees with deep knowledge and history within their markets. We'll utilize analytics and mapping tools in partnership with our franchisees to make well-informed site selection decisions. We'll opportunistically deploy capital to purchase stores from existing franchise operators who don't have the capital or the desire to grow, with the intention to seed markets and drive tempo. We'll continue to work with franchisees to close underperforming stores and where feasible, eventually offsetting those closures with new stores in more profitable locations. In new markets, we'll deploy pre-open marketing sooner and maintain it longer, post-opening, to ensure new stores get off to a strong start. We will also test streamline market-specific menus that will enable us to simplify operations and improve speed of service as well as enhanced product consistency. And finally, we'll partner more closely with our franchisees to provide enhanced operational support. Part of the short-term strategy remains company-owned development, which will eventually end up in the hands of franchisees. Where appropriate, we'll deploy our own capital to build company-owned stores in order to seed new markets and to encourage franchisees to further develop those DMAs. This approach has several advantages. First, we believe it sends a signal of confidence to franchise owners that we believe in the new market and our unit economic model, enough to share the initial risks of expanding. Second, new company-owned units allow Jack to test operational strategies and innovative products so we can promote best practices across the entire franchise system. And lastly, because the franchise incentive program does not apply to company-owned units, they deliver a boost to Jack's corporate earnings faster than franchise units. At the same time, let me be clear and reiterate Darin's earlier comment. While there may be circumstances that weren't temporarily dipping below the 90% franchisee benchmark as we seed markets and new DMAs, over the long term, we fully intend to maintain our franchisee store mix in the low to mid-90% range. And naturally, all of our unit growth initiatives will be complemented by our ongoing efforts to help franchisees drive comps and ultimately, system sales. So bottom line, Jack has more available white space than any of our QSR competitors of similar size and a new management team that is leaning into growth in partnership with our franchisees. We believe this is a powerful combination, and we're confident about the opportunities it presents to expand Jack and deliver attractive return on invested capital over the next several years. Okay. Jack's third strategy box contains our commitment to effectively allocate capital toward high-return initiatives. We generate significant free cash flow and also has significant untapped debt capacity that we can deploy opportunistically, while maintaining our target debt-to-EBITDA multiple of 4x to 5.5x Today, we're at the low end of that range, primarily due to our strong EBITDA performance over the past year, but we're continually monitoring market conditions to potentially refinance our shortest term note ahead of its February 2022 call date in order to increase our financial flexibility and optionality. Regarding the fourth strategic box. Look, we know in the past, this has been the primary focus. And while we have talked a lot about these other strategic boxes, it's important to mention that we are committed to continuing to return capital to you, our shareholders. In fact, in the past 5 years, the company has returned over $1.1 billion to shareholders through share repurchases and dividends. Jack's highly attractive free cash flow model, coupled with the best-in-class unit economics and our new focus on unit growth, suggests that we will be able to continue to outperform in this box. We currently have Board authorization to repurchase an additional $135 million, and we recently raised our dividend 10% to an annualized $1.76 per share. So in summary, our new 3- to 5-year strategy, neatly packaged in these 4 boxes, reflects the plans and the passions that you've heard today from Jack's new leadership team. And that enthusiasm is shared by Jack's team members and our franchisees. Before I hand it back to Darin for his closing thoughts, let me wrap up by providing our 3- to 5-year financial guidance. Our 3- to 5-year guidance assumes same-store sales growth at a 2% to 3% compound annual growth rate. We anticipate unit growth ramping from 1% to approximately 4% by 2025, producing a compound annual growth rate of between 1% and 3%. Combined, these 2 components equate to a system sales CAGR of 3% to 5%. In the near term, EBITDA growth will be driven by system sales growth, improvement in 4-wall operating efficiencies in company-owned stores and disciplined G&A management. Longer term, we expect EBITDA growth to be driven by incremental company-owned store EBITDA and incremental franchise unit royalty streams. The fiscal 2021 guidance that we provided in May still holds. In addition, we're providing our current 2021 CapEx guidance range of $40 million to $45 million. Going forward, we will provide CapEx as a regular part of our annual guidance, along with G&A, commodity and wage inflation. Over the next 3 to 5 years, CapEx will be concentrated in 3 primary buckets. The remodel and refresh program will be the largest component during the first 2 years. Our investments in IT systems and capabilities will be a consistent component of the entire period. And our investments in new company-owned stores will gradually ramp as we seed our franchise unit growth strategy in more markets for the forecast time frame. We envision returning the majority of excess cash to shareholders through repurchases and dividends. As you think about this 3- to 5-year guidance, it's important to keep in mind the few discrete benefits that are already incorporated in our 2021 revenue and EBITDA guidance that we do not expect to repeat, creating a comparability headwind in 2022. First, mark-to-market gains of approximately $6 million in our company-owned life insurance policies, which we don't forecast; next, a 53rd-week benefit of approximately $6 million to $7 million, which will not recur in 2022; and third, approximately $4 million in termination fees related to early franchisee unit closures. And finally, a benefit of approximately $3 million related to favorable insurance programs. So in summary, Jack's new leadership team is excited to attack the growth opportunities we've identified and to deliver on the 3- to 5-year financial guidance I've just laid out. We're energized, we're opportunistic, we're leaning into change in growth. We're relentlessly focused on operational excellence, and we're aggressively pursuing white space to expand Jack's reach. Working together with our team members and our franchisees across the entire system, we're confident that the Jack brand has a bright future ahead as we evolve from a successful regional brand to a successful national brand. All right. Now I'm going to invite Darin back for some closing thoughts before we move into the Q&A segment of today's event. Thank you.

Tim. That was great. I appreciate it. So a quick wrap before we get to the live Q&A. This is a real inflection point for Jack, and I believe a true generational moment for the business. We hope that has come across loud and clear today. I also hope what is loud and clear today is our excitement about the future and our focus on the all-important core growth fundamentals. While we are at the initial stages of our strategy execution and much of it will be gradual and will take time to ramp up, our guidance and outlook reflects our confidence in this next chapter. A chapter that includes new management, a new franchisee relationship, a new strategy, and a new long game way of thinking about balanced growth, and really capitalizing on a franchisee opportunity like no other here at Jack. And with these fundamentals in a much better place than before, it's time for us to go execute. But for the moment, let's get into some live Q&A.

Hi. Thanks for joining us for our live Q&A portion of our 2021 Investor Day here at Jack in the Box. I'm Chris Brandon, Vice President of Investor Relations. And joining us for the live Q&A is Darin Harris, our CEO; Ryan Ostrom, our Chief Marketing Officer; Tim Mullany, our Chief Financial Officer; and Tony Darden, our Chief Operating Officer. Tony has joined within the last month. Do you want to introduce yourself to the audience quickly?

Sure, sure. Chris, thank you. I'm obviously thrilled to join the team here. In my 3 weeks, the fun and the culture has been really evident. I spend the majority of my time in restaurants doing training and looking forward to get through that and get out in the field and start building relationships with our franchise partners and our team members.

Great. Glad you could join us, Tony. Let's get to the Q&A, and our first question is from Brian Bittner with Oppenheimer. Brian, go ahead.

Thank you, Chris, and thank you guys for all the new details and all the disclosures that you've given us today. Darin, my question is for you. You talked at the beginning of this presentation about the company's history, some of the issues that existed before you arrived, which included broken franchisee relationships, something us in the investment community, I think, were all acutely aware of. And then soon after you arrived, the system saw a big surge in sales and improved unit economics, which surely helped improve those relations. But can you talk about what you have done behind the scenes to mend these relationships in a way where you're confident that these improved relationships can sustain even in a scenario where maybe the system goes through a tougher operating environment? Because obviously, the sustainability of these improved relationships is very, very key to the long-term unit growth strategy that you've laid out today.

Brian, thank you for that question. And I'm excited to talk about what we've done with our franchisees because even before I started with the company, I had the opportunity to call like 25 or 30 of our franchisees. And the focus wasn't about the business, it was let's just get to know each other, let's build a relationship because there are going to be times, as you mentioned, where we go through good times, we go through bad times, we go through disagreements and how we see the strategy going forward. So it starts and ends with the relationship. And so part of the whole reason why I was brought here was to take a step back and just focus on the fundamentals, and that fundamental starts with that relationship. So that's where we've tried to start, and it will be a key part of our culture, is treating our franchisees as partners and strategy. And so if you think about the management team we brought in, they have that experience in operations. They have this growth-focused mentality, and they also have this idea of how do we relate with franchisees and build that relationship and connect. And so that's where we spent a lot of our time in changing that culture.

Thank you, Brian. Our next question is from Lauren Silberman at Crédit Suisse. Go ahead, Lauren. Lauren, go ahead. You got us?

Hello?

Now we got you.

So you talked about 75% of franchisees starting in a Jack restaurant opportunity for more than 1,500 units in existing markets. So how are you thinking about the composition of growth from new versus existing franchisees and then in core markets versus adjacent and new markets over the next few years?

I'll start with that. Our focus is let's get the best operators we can find, and right now we have a lot of great operators in our system that we want to help grow. And that's why we're doing things like exposing them to the market mapping, the data that we've done about how to expand, where to expand, also partnering them up with capital providers for some of those that need capital. So our focus is on taking our existing base that are great operators and helping them grow. It's also on attracting new. And 2 months ago, we launched our new FDD. We launched our lead generation. And so we're at the beginning stages of bringing in new franchisees, but we've seen a lot of excitement. And as you think about it, we're -- because we're so relentlessly focused on unit economics and we have a good economic model out there in the marketplace, we will attract new. To the second part of your question as far as going into existing versus new markets, I think we have this -- such a great opportunity of going into our existing markets and fortressing and building it out and maximizing brand awareness and then carrying over into what I call our wagon wheel markets. Areas like Salt Lake City, we partner with existing franchisees, we have 3 other franchisees that have signed agreements that were going into Salt Lake City, and we are also corporately going to invest with them to build out that market and get full penetration more rapidly than we would if we just kind of bounced around to markets all over the country. So we've got a focused strategy around how we're going to grow with both existing and new franchisees.

Great. Thanks, Lauren. Our next question is from Chris Carril at RBC.

Can you hear me okay?

Sure can.

Great. I appreciate all the detail you provided, including the commentary around the focus on development agreements and the 18- to 24-month restaurant development time line. Taking all of that into consideration, including the new focus on company store growth, can you talk a little bit more about how you're thinking about the cadence of that 1% to 3% unit growth outlook you presented in the 3- to 5-year outlook that you noted this morning?

Well, I'll start, and then I'll turn it to Tim. You mentioned development agreements. Just recently, we've signed 64 agreements in just the 2-month period that we've really launched with 16 of our franchisees. So we've got a good start already, and we're at the early stages. That's about 15% of our system have already very quickly said we're in to grow, and we know there's plenty more coming. And so there is a period of time to ramp up, and I'll let Tim take that from here.

Yes, absolutely. So to underscore what Darin is saying, so we're in a rebuild mode as far as the development agreement pipeline is concerned. So the guidance that we gave 3 to 5 year is 1% to 3%, 3- to 5-year CAGR. And that's going to grow and slightly ramp up to -- from 1% to 4% by 2025. So there's certainly going to be a period of time where we build that pipeline and then we get to a very attractive annual run rate of 4% in 2025.

Great. Thanks for that, Chris. Our next question is from Jared Garber at Goldman Sachs. Jared, go ahead.

Darin, you talked a little bit about modifying the internal policies and communications with franchisees and now noting about 80% of the current group is approved for development. Can you talk about what some of the changes that you made and maybe what that threshold for approval looks like? Interested to know kind of how you broaden that scope of availability from franchisees.

Yes. A lot of it became just looking at our policies and understanding why things were done in the past. For example, I mentioned in the presentation about our development policy had been site-led. That's one of the changes in process we made and said we need to be development agreement-led because that enables us to really go into markets and focus with resources and effort how to really build out a market. So that's one example. As far as opening up the funnel, it was really looking at why -- if you think about the past, we were in a refranchising mode. And so that limits the focus on who can grow and who can buy units. And that was a lot of the criteria that was developed on who could buy units and fix them versus who can actually take their existing base who operate really well and add maybe 1, maybe 5 units. And so that was a part of it, is looking at who was operationally expandable, who had the capital, who had the leverage structure that could grow. And we went through this sort and kind of reemphasized where the priorities were and operations first and then do they have the capital availability and the people and willingness to grow. And we found those franchisees and said we can open up this funnel compared to what we did in the past when we were really focused on refranchising.

Thanks, Jared. Our next question is from Andrew Charles at Cowen. Go ahead, Andrew.

Great. Can you talk a little bit more about how you're anticipating franchisees will balance remodels with new store development? These 2 initiatives could be difficult to do in tandem for a business that is likely grow top line 2% or 3% per year amid ongoing labor pressure. It doesn't seem to be abating near term. I guess the question is that, how can you avoid remodel needs getting the way of new store development for existing franchisees?

Sure. Tim, do you want to start with that?

Yes, absolutely. So one of the things that we're doing to allow for that development in parallel is to offer attractive incentive programs. So the new program that Tim Linderman, who's leading our real estate development team, is rolling out is meant to truly incentivize our franchise base to allow for new growth in attractive new markets as well as rolling out a very rich, refresh and remodel program that offers modularity, and it scales up from really cursory sort of remodels to more involved refreshes or older established units. So I think with that dual track, it allows some flexibility for franchisees to pursue the most opportunistic growth.

To add to that, I think some of what we've seen is, because in the past, we had this really focused effort on refranchising, it took a lot of the capital to the franchisees to just buy the stores, let alone commit to development and commit to remodels. Now we're at a point that franchisees are really well positioned. The performance we've had over the last year, and looks like it's going to continue, is tremendous. And so there's cash flow there to invest. They're focused on growth. But as Tim mentioned, we're going to put skin in the game and be partners and strategy with them so we can accomplish both remodels over a reasonable time and also growth. So 3 to 5 years, I think, corporately, we'll remodel our corporate stores. Franchisees, we think that's probably more like a 5- to 7-year period to get the whole system up to kind of the newest image.

And one last point on that, if I could add. So as we mentioned in the presentation, in our CapEx strategy and program in the 3- to 5-year forecast, remodels and refreshes are the majority of our CapEx spend in the first 2 years of that plan. So it's a high priority for us and something we're truly focused on.

Absolutely. Next question is John Glass at Morgan Stanley. John, go ahead.

Tim, I was hoping you'd just fill in a couple of the gaps as you talk about the financial plan. One is how you think about capital expenditures over the next couple of years given the new market entries, the remodel, if there's a corporate contribution to the remodels. How do we think either specifically or just generally about CapEx relative to history? You also talked about some system closures needed to get the system to the right size. How much, either in units or percentage of the system, and over what period of time do you think those closures occur? How do we think about closures in the next 12 to 18 months?

Yes. So a couple of things on that. For our CapEx strategy, we really break that down into 3 segments. So as I mentioned a moment ago, our priority is remodels and refreshes. That will be the bulk in the first 2 years. Over the 3- to 5-year full time frame, we'll continue to invest in IT and systems. And then thirdly, we'll focus on corporate store investment and allocation. So those are the 3 primary pillars, so to speak, of our CapEx strategy. We won't deconstruct it beyond that. And related to closures, we don't have a target or an objective on that. We will lean into it, we're not going to shy away from closing underperforming units. We'll really be looking to have the franchisees reallocate their financial capital as well as human resources towards looking for opportunities in newer markets that may have moved. And we'll work with them to exit out of either underperforming locations that they don't feel that can be supported to be profitable and redeploy that capital to other areas.

As we look to optimize our portfolio, as Tim mentioned, the discussion we're having with franchisees are where we can offset a location. If they're closing, offset what's a reasonable amount of time for that, how do we partner together? Remember, as partners in strategy, we're looking for how do we both win in this scenario. So we want growth or we either want reimages to offset the cost of shutting down a unit. And so -- but we also need to be good business partners. When we have a unit that the market has moved, we need to change along with it, and so that's what we're doing. We're working with our franchisees to make sure that we can do this on a reasonable amount of time.

Great. Up next is Dennis Geiger at UBS. Dennis, go ahead.

Great. Sorry if I just missed it in the Q&A. Great presentation, Darin and team. Just wondering if you could talk a bit more about the investments in some of the ongoing cost to help fund some of the growth opportunities that you're talking about, whether it's on the company-owned side, building those stores out, whether it's the remodels, the technology. Just if there's any kind of framework or directionally how to be thinking about what goes into supporting these next several years of growth, that would be great.

Yes. High level, I'd say, look, this is a best-in-class free cash flow model. Over the last 5 years, we've generated $450 million of free cash flow, and that's allowed us to do quite a few different things. But historically, the primary focus has been a return of capital to shareholders, where we returned $1.1 billion back to shareholders in the form of share repurchases and dividends. As we walked through in our presentation, we're really looking to go beyond that and evolve into a 4-pillar financial strategy. So we want to continue our effort and commitment to return capital to shareholders, but we're also going to look to redeploy some of that free cash flow into other areas of the business that support unit level economics, support top line growth and also support other investments that we feel will be accretive to the business and really grow it into a national brand.

Great. Thanks, Dennis. Our next question is from Jeff Bernstein at Barclays.

Can you hear me okay?

Sure can.

Great. Just two related questions. One on the 3- to 5-year target. You gave some color on the comp and the unit growth leading to the system sales. I'm wondering whether you could talk a little bit about what comes below that, whether you want to share on EBITDA margins for the franchise system or maybe a growth rate on EBITDA and EPS. Just trying to get to more of the middle and the bottom of the P&L. And then if you could share any color in terms of the cost outlook that brings you there. Obviously, in the near term, we're talking a lot about commodities and labor, but any thoughts on that front or your G&A spend or your marketing spend? Anything along those lines to get from that top to bottom line would be great.

Yes, yes. Thank you for that question. That's a great one. So number one, I think we'll say that we're likely not going to comment on the guidance that we gave at the last earnings call. Today, one of the core points that we want to get across is that we're transitioning our guidance that we'll be offering to investors to align more with the broad strategy that Darin and the rest of the team communicated earlier today, and that's really going to be focused on top line and growth, and there's a couple of key elements which you touched on. One is going to be same-store sales, which we gave long-term guidance on. The second is going to be unit growth to expand Jack's reach, which we also gave long-term guidance on. And those 2 will parry into guidance on system-wide sales, which we provided. Now having said that, on an annual basis, we are going to give some extra color on commodity inflation as well as labor inflation. And given that those are the 2 core primary drivers and variable costs associated with our economics to get down to EBITDA, that should allow investors and analysts to impute out, generally speaking, some relative accuracy on forecasted EBITDA. So relative to where we are today with commodity and labor costs, on August 4 at our next earnings call, that will be the time we'll give a little bit more color as far as where we see that going.

And we'll be giving those annual metrics for G&A, CapEx, wage as well as food basket typically in November every year for the annual period that will follow.

Yes. The other thing, we've committed to be very transparent in our unit economics. So we're focused on being relentless to our unit economics. Tim mentioned our desire to take this free cash flow generating model that we have and invest back into the brand. And we believe by doing that, this brand will be in 40 states by 2030, I'm confident we can get there.

Excellent. Thanks for that question. Up next is Chris O'Cull at Stifel.

Darin, can you describe the experience and maybe the financial wherewithal of new franchisees that you've signed or hope to sign? And what I'm looking for is, do they operate other restaurant concepts? How large are the organizations? And maybe how many units do you want them to commit to opening? And also, how many -- how much of the new store growth is expected to come from existing versus new franchisees?

Sure. We're looking at a lot of different ways to grow. And we target -- when we go out and market, we're targeting business owners of multiunit brands, specifically in the restaurants. But we also look at hotels, developers, people who have experience building, growing and operating businesses. And so that's a key part of the thing that we look for when we're out marketing for franchisees and engaging with them as -- but beyond that, are they a cultural fit? Do they want to learn our systems? And as I mentioned earlier, the key in all of this is are they great operators. We have to have great operations. So it doesn't matter to me if it's existing or new as long. As they're focused on operating the business, doing the right things for their people and then investing for growth, then we'll find where the right place is for them to fit into our brand and how many units should they build and where they should build.

Thanks, Chris. Next question is from Jon Tower at Wells Fargo. Go ahead, Jon. Are you there, Jon?

Sorry, guys. I apologize about that. I was just hoping if you could dig a little bit deeper into the CapEx spend. Obviously, the story has changed quite a bit under -- from previous management, and the numbers today that you offered for fiscal '21 of $40 million to $45 million was certainly above the previous target and there was some incentives, or sorry, tenant improvement numbers in there. Just trying to figure out how to put that $40 million to $45 million in the context of how you see that growing over the next 3 to 5 years. Is that going to be multiples of that as you're building new stores? Or can you put some sort of framework around how we should think about the CapEx spend?

Yes, I'd say a couple of things on that. I think we'll be limited in the amount of detail that we'll be willing to provide on that. However, having said that, the $40 million to $45 million is current -- was current year guidance. We do anticipate ramping up the strategy of corporate store seating, which hasn't taken place historically. So I would say that, that $40 million to $45 million is limited in that regard. Also, the rollout of our new remodel and refresh program hasn't been fully deployed yet. So I would say that there is going to be scale associated with that, and that's why we mentioned, over the next 2 years, that component is going to be the primary focus of our CapEx strategy. And then also, as we look at seeding the markets with corporate stores, that's something we're going to be opportunistic with, whether that's taking over some franchise operations that the franchisees shown limited, either financial availability to expand or limited interest in expanding a particular market. We'll go in, reacquire those franchise stores, operate them corporately with the intent of refranchising to a new franchisee that expresses ability to grow. So there's a concerted effort to deploy capital into those areas such as those that have an ROI on them as well. So...

And we, of course, will be guiding on CapEx annually, again, like I said, in November to precede the year that follows. Up next, we have David Tarantino at Baird. David, go ahead.

A couple of questions on the growth outlook. I guess the first is maybe a clarification as you think about getting to net unit growth. Is it still right, I think, to think about that starting in fiscal 2023 based on your comments about '22? And then I guess the second question is, as you think about the ramping up the pace of growth, can you maybe elaborate on how much of that's going to be in the early days related to company-operated development versus franchise development in your current plan?

Yes. I'll touch on the ramp and then turn it over to Darin on composition. So I think when you look at what we guided to, so 1% to 3% as a 3- to 5-year CAGR and then starting closer to 1% on an annual growth rate, growing to 4% in 2025, I think when you look at our historical performance from a net unit growth perspective, that should allow you to sort of get the sense of where we are today and what that scale would look like. Relative to composition, I'll turn it over to Darin.

As far as composition, I think for us, we're focused on -- in order to be ready to grow, we have to be ready to invest, and so our plan will be to invest as needed to get the momentum going in the pipeline. We're fully ready to back off and continue our asset-light model, as we've shared many times, when the franchise pipeline is full. But our initiation of capital into new markets, into existing markets will really help fuel the future growth.

Great. Thanks for that, David. Our next question is from Eric Gonzalez at KeyBanc. Eric, go ahead.

Great, and thanks for all the detail on the go-forward strategy. Just given the strength of your business during the pandemic, I'm wondering if that strength might cause some hesitation on the part of franchisees regarding development. In other words, do franchisees need to see more evidence of sustainability in comps and unit economics before committing? And what evidence do you point to or provide that operator with in order to get them off the sidelines to commit to a multiyear deal?

Yes, Eric, we've seen a lot of excitement from our franchisees ready to grow. I mean like I said, we just launched 2 months, we've already seen 16 franchisees sign up and we're in discussions with many others. So we're confident they're ready to grow. And part of that was, where I started this conversation, I was brought here to really focus on the fundamentals, and that started with the relationship. And when we focused on the relationship, that enabled us to start to build momentum and have discussions about what is the right next step for growth. So our franchisees are ready. They've been ready to grow for a while. They just wanted to understand the fundamentals. They want us to focus on unit economics. They want to know what is our long-range plan and how they fit within it. And then also, Ryan can talk about this further, but how do we think about our guest experience and why they come to us and why they leave and how are we going to communicate. So all those pieces and parts of the fundamentals, they wanted to hear what is our strategy and where we're headed. But all that being said, if we didn't get the relationship right, they weren't going to be ready to grow. And they're at that point now where they're excited about where the brand is headed. They're excited about the performance. And they're stepping up and saying, "Look, we want to invest."

Yes. And I'd like to add on to that as well. So the franchisees are truly excited, right? So in 2020, they had 4-wall EBITDA of $188,000. And then the most recent quarter end, trailing 4-quarter EBITDA grew to $235,000. And then of the most recent store openings that have been opened for at least a year, there's been 40-plus of those, that's grown to about $400,000. So obviously, we have been a COVID beneficiary, which does actually speak to the strength of Jack's brand and the attractiveness, but it's also because the ramp-up in innovation has taken place and really actually launched immediately preceding COVID. So you have a confluence of things that are taking place in driving this, and it's not truly just the result of COVID. So there's some things that you might want to add.

Yes. And I'll jump in there, too, is when we start looking at why performance during COVID is so strong, it is our innovation. It's our variety, our innovation, our tiny tacos, our add-ons, but also our premium burgers, that we are building an innovation pipeline that will sustain for many years and we're working on listening to the guests. But it's also that digital guest experience. The franchisees are excited about how we make that experience as easy as possible for our guests, and we're seeing significant growth in that area. And I think in 2019, we're only 1%, and we're nearly 8% of sales through digital right now, and we see that substantially growing over the next year.

Yes. And obviously, to the earlier point on unit economics, and Darin touched on it in the video, I mean being more proactive and transparent about that on an annual basis is certainly something we're committing to. That's great for you guys, it's great externally for making clear how important that metric is, but it's also great for our franchisees to know that we're being as proactive about that externally as we are internally as far as that really being the key KPI here at Jack. Our next question is from Jake Bartlett at Truist. Jake, go ahead.

Mine was just about the visibility you have at this point into the growth. And you mentioned that you've signed 16 new franchise or 16 new franchise development agreements. How many -- can you share how many stores those account for? As well as also, when you think about your company development, I assume you have more visibility on that, so if you can share maybe what your pipeline for company-owned development is.

Sure. The -- we have 16 franchisees that have signed for 64 units, and that'll be over a period of time, obviously, to grow that. And we have many more agreements out for signature. Again, we're at the early days of just launching our franchise and development strategy. So I feel really comfortable and confident of where we are. I always share that, that development pipeline or that signing of development agreements is a great lead indicator for future unit openings. And Tim, I don't know if you have anything else to add.

Yes. I'd say as we look at our strategy with company-owned units, I think initially, you can anticipate that likely we'll see acquisition of franchise-operated units in underperforming markets or again markets that don't have the financial resources growth. So we'll have some of those probably more upfront. And then as we identify the new markets we want to enter into, we'll start -- Tim Lindeman's team again is already canvassing and using that data strategy that Darin walked through earlier to identify where the actual markets are that we want to seed, and we're starting to look at those currently. So I think you'll see somewhat of a progression from acquisition to organic company units.

And naturally, our corporate pipeline will be similar to franchisees. We have to ramp up our pipeline, but we definitely see that happening sooner for the corporate growth because we're already out in the market looking for sites, and we'll continue to do that.

And as Darin mentioned, all in an effort to get to 40 states by 2030. Great aspirational goal for us. Up next, Jim Sanderson at Northcoast. Jim, go ahead.

I appreciate the detail on the attitude and outlook on partnering with franchisees. I was hoping maybe we could look at a case example. You've got a franchisee in the St. Louis, Missouri marketplace that is in a process of restructuring. Maybe you could guide us on how -- like a case study on how you plan to work with this franchisee and if this could potentially be an area where you would explore further expansion or if you're starting to think about exiting and helping this franchisee wind down the business. Just a little bit of detail on how this partnership strategy could be applied to a case example that's actually live in the marketplace.

Do you want to start or do you want me to...

Yes, I could start. I think one of the reasons that we brought Tony on board is to provide that operational support and further depth and resource to our franchise operators. So I think in the past, there are certain markets that have struggled, whether it's through deferred maintenance and lack of continued investment into those particular markets that have added strain to our -- the top line as well as getting best-in-class operation systems and policies and procedures in place. And again, that's why we have Tony here to lead that effort.

Yes. And it's an unfortunate situation with our franchisee in St. Louis. First of all, there was a death of the franchisee 3 or 4 years ago. Other franchisees helped step in to partner and try to turn the operations around, but it was in a situation that was overleveraged. I think where we are today is we're at a point where we're offering whole another perspective where we're working with the bank, the landlords ourselves to say what's the right thing for this market to go forward where it can sustain growth and prepare for growth. So it's a market that needs to be reimaged. So we are bringing in new capital providers from some franchisees in the marketplace that we know who are interested in helping take this market and accelerate development and accelerate reimaging and just pure operations. And so that's a way that we partner. We've worked with our existing franchises and say how do we help you either restructure or how do we bring in other people that can come in and take over this market and really grow it.

Great. I think again if -- I think we kind of went through our first pass of coverage analysts. So if you have additional questions, feel free to jump back in the queue. I'll just throw out there. I know the first question was kind of around franchisee relations, but Darin, what do you think is kind of the top couple of important things that mending that relationship really fixes, not just for growth, but for morale and kind of all those areas that we needed to fix going forward?

I think I mentioned in the video, the speed of trust is hard to put a number on. It's hard to put a feeling on. But I can tell you that builds momentum. And that momentum, what we're hearing from franchisees, is that something is different about the culture. We have access to the leadership team. We have access to the whole organization. They're aligned around the strategy. We've been a part of the strategy. And so all those things are working synergistically together. And that next stage is continuing to tell the story, just like we told today, about where we're headed. Our franchisee is part of it, are part of it, and we'll do that next week. Next week, the leadership team and many of our team members are going to Nashville to participate in a franchisee conference and they host it in and we're the guest. And so that's the type of relationship, we'll host them, they host us, and we're excited to share the strategy and get into more detail with them on how we're going to move forward. But it'll be our first time in many instances to meet face-to-face with some of these franchisees. And I can tell you, it's one of the most exciting times I've had since I've joined, is getting out and connecting with our franchisees.

That's great. Thanks, Darin. We do -- we will get into round 2 of questions here. So again, feel free to jump in the queue if you have anything additional. Our first is from Jared Garber, Goldman.

Can you guys hear me?

Sure can.

Cool, cool. Darin, you talked a little bit about maybe the shift in the real estate strategy a little bit in terms of the franchisees will kind of own that responsibility going forward, and that's a little bit of a shift in the strategy for you guys where you typically own the real estate and then lease it back. Can you talk a little bit about the strategic shift there and how you're thinking about that? Is that really to just sort of further improve those franchisee relations/economics by eliminating that spread? And then also, is there anything we should be thinking about in terms of your current ownership and maybe looking to change how the current ownership structure works?

Yes. I think the structure is more dictated by us refranchising. And as you think about it, when we were refranchising, it was dilutive to earnings. So some of the spread made up for that dilution. Going forward, we want franchisees to own real estate if they want to own real estate. We want them to lease real estate. We want them to create the best model for them to continue to invest in the brand and grow it. And so it's not our focus on going out and acquiring real estate and then creating a spread for just another revenue stream. We want franchisees to be able to take advantage of this. Our focus on -- the relentless focus we have on unit economics, we want them to benefit from that. And so that's more of the shift. It's just because we're not refranchising.

Great. Thanks, Jared. We have another question from Nick Setyan at Wedbush.

Hey, can you guys hear me?

Sure can.

Great. So just on the company-owned side, obviously, it's going to be a more meaningful part of EBITDA, it sounds like, going forward. And I think you guys said in the near term, something like over 10% of the system can be company-owned. Can you just maybe talk about the time line of when we might see over 10% of the system being company-owned? Could that be FY '22? Could that be FY '23? And then second, can you just remind us what percent of the system you consider remodeled already, including the percentage of the company-owned store that you consider remodeled already? And I guess then we'll know what percentage of company-owned and the rest of the system still needs to be remodeled.

Yes, I could take a first pass at that. So the percentage of store -- so we have roughly 400, 450 locations in our portfolio that need some attention and a remodel or a refresh, and that's made progress from north of 600 not too long ago. Relative to when to expect the 10%, we're not setting a hard number there. We're simply giving a range where we're not going to shy away from going in and acquiring units that -- from franchisees that haven't expressed an interest in growing. So this is not a short-term thing necessarily that we're going to make that change in '22 or '23 necessarily. It's just that's setting the guardrails for us where we want to maintain and are committed to maintaining an asset-light strategy. However, we might flex a little bit into that as needed.

And make no mistake about it. We are an asset-light model. We will continue to be an asset-light model, but we have to be ready to invest to prepare for growth. And if we're not willing to lean in and invest to prepare this brand for growth, then we should continue to focus on being a free cash flow model and just continuing to do what we've been doing. But I think by us showing that we've got skin in the game for both reimaging, for building corporate stores shows that we're partners in strategy and we're going to help our franchisees expand this brand across the country.

Yes. Thanks for that, Nick. Andrew Charles from Cowen. Go ahead.

I had a 2-part question for Tim just on the financials. The first is that within the 2% to 3% same-store sales guidance, how are you catching the cannibalization impact from fortressing development in core markets? Is it likely to be where near-term development will come from before you expand in new markets? And then my second question was on G&A. Are investments in technology or growth expected to push G&A as a percent of system sales in excess of that 1.7% to 1.8% range that was previously targeted? Or is 1.7%, 1.8% still the right range that you guys think about internally in 2022 and beyond?

Yes, absolutely. So relative to your first question, as we look and evaluate new markets and opening new stores, part of that data-driven and financial modeling analysis that we do takes into consideration cannibalization. So the forecast on a new unit basis already bakes that in. So that's fully incorporated in. And the net that we look at has to make sure that there's an ROI on top of that. So even after cannibalization, we need to have that ROI to drive the investment. So that's the first thing. On digital and other investments relative to G&A, currently, the digital investments have been coming out of the marketing funds. So it's had a negligible effect on our EBITDA. And on a go-forward basis, we see the primary investments coming out of that same pool. But should it need to require some additional CapEx investment, we will do that as well. We've seen tremendous growth in that vehicle for sales top line. So it's something we're actually wanting to lean into and invest in, in a go-forward basis.

And having talked quite a bit about fortressing in a previous life, I can echo Tim. The data-driven, mapping-driven nature of that and making sure franchisees understand that fortress proposition and that cash-on-cash proposition for kind of the whole area, obviously, is important. It makes that data-driven nature of it even more important. Up next, John Glass at Morgan Stanley.

Tim, as you think about this brand becoming a national brand, getting to 40 states by 2030 and ultimately national, regional brands have historically had challenges becoming national brands because the advertising and awareness you need to build in doing that, and Sonic many years ago had those challenges, made substantial investments in advertising, which diluted near term some of the impact in their core markets to the better good of providing brand awareness in more markets. How do you think about how Jack in the Box -- that road map to becoming a nationally recognized brand, is it different today than it was years ago because media is different? How do you build a brand? And do you plan on starting to build this brand awareness in new markets in advance of you opening stores to sort of soften the beach, if you will, to help those new units better perform?

Yes. No, absolutely and a fantastic question. So we're very aware of the previous efforts to expand nationally. In 2010, 2012, there's a push to do that. There are some very key learnings on that, and we're going to be very deliberate in how we do enter new markets. Number one, we want to partner with the right franchisees that are not only financially resourceful to expand and get density in a particular market. We also want to provide preopen marketing sooner and longer after post opening to support a market until it achieves a critical mass. Number three, we want to enter a market, not with onesie-twosies. We want to create that density to allow for economies of scale that will also support more efficient supply chains. And then number four, operation's going to come in and provide much more elaborate support in new markets for a longer period of time that will allow for more success as we enter those new markets, and I think Ryan might have a couple of things to touch on as we look at marketing for those markets.

Yes. And as I kind of discussed in our video, one thing we haven't done a great job is how do we bring Jack Box to life in new markets? How do we bring it early before we open up for people know that Jack and Jack Box are related. There was a little bit disconnect between our marketing, but also there's new media technologies out there around social and target that allow us to really go after these markets differently and own that customer within that 3-mile radius of our stores. So we're going to leverage those new solutions. We're going to really talk to the customer in different ways, be distinctive, be more creative, and we know that's really going to work in building the business in new markets.

And it probably doesn't hurt you have a few marketing dollars to spend, right?

Yes. We are sitting on a -- we had great performance during COVID. So I am sitting on a jack load of cash, is I'd like to say right now, so it allows us to really invest and push in these new markets as we expand.

Yes, he said it, jack load of cash. Our next question is from Jeff Bernstein at Barclays. Jeff?

Great. Just a follow-up on that last question, I guess. The 6,000-unit long-term target, take out the behemoth in the industry, and most of your peers kind of get to that 6,000 and then top off. And you showcased where you stand versus peers in many markets. Just wondering if you could talk about what you think maybe the greatest challenges you anticipate for a newcomer maybe above and beyond the marketing. I mean there's definitely that risk that those markets are already fully penetrated, and therefore, there's no room for another brand. We often hear about casual dining peers say, "Well, we're not in this market, so there is an opportunity for us." But maybe that market can handle another restaurant. So I just want to make sure you're not going down the path of matching some of your peers but maybe not anticipating what could be the challenges that you face when you go into those markets that might already have been penetrated fully and therefore no room for a Jack in the Box.

Yes. I'd say that, that's less of a challenge for us relative to our peer set. When you look at many of our peers, they're fully saturated domestically. When you look at ours, there's a lot of white space for Jack in the Box as a brand. So that's number one. I know marketing and how you answer it might be a little bit different.

Yes. Well, I also think when we enter a market, we have a variety that's unique to Jack, and that is something that a lot of players don't have out there between chicken and the tacos. And we're also a scrappy brand. We are going to push that edge a little bit on our marketing. We're going to bring Jack to life in unique ways. Other brands can't do that within our competitive set. So I'm excited to expand in new markets and show that our brand can resonate with all our customers around the United States.

I think there's a few things that are critical, and it goes back to the fundamentals. I mean when we think about we have a unit economic model that works, when we listen to our guests and we communicate, as Ryan said, in different ways effectively to the guests on why they would come to Jack and why they may not come to Jack, it's really important that we get that across when we enter a new market or any market. And then the last piece is you see us going into a market differently with multiple different real estate site opportunities. So we have a flagship restaurant all the way to dark kitchens. There's plenty of ways that we can go into a market and understand performance prior to going full into a market. So as an example, we're going to Chicago right now with a dark kitchen. It's a market that's new, but we're going with dark kitchens and seeing how will the brand respond in a market like that before we fully go in and develop it out from a freestanding standpoint. So there's a lot of new things that we can do differently than what has been done in the past to enter market.

Yes. And one last thing on that, too, is we don't enter markets blindly, obviously. So our real estate models are very analytical and data-driven. So they take into consideration, as they score perspective in these sites, how many of our peers or competitors are in that market, what the cyclographic densities are, who our customers are, who we want to go after and ensure that there's a right fit. And they've been fairly accurate as far as predicting our top line sales as we enter those new markets.

A couple more questions here before we wrap. We have one more from Jon Tower at Wells Fargo.

Great. Hopefully, you can hear me okay. I have one clarification and two separate questions. First, a clarification was on the new store prototype returns you had offered earlier in the presentation. Did those include any of the franchise incentives that you outlined earlier? And then the two questions. First, on capital returns and leverage. Obviously, historically, the shareholder base has been accustomed to a decent amount of buyback and dividend. But today, there wasn't anything necessarily outlined on where you see both of those going over time. Obviously, it sounds like some CapEx is going to be going -- or a higher level of CapEx going forward for growth. But maybe you can offer something around, say, a targeted dividend payout ratio for some of the investors out there. And then lastly, on the marketing side, I believe early in the presentation, you had talked about the idea of different markets having potentially different menus. So I'm curious to hear how you plan on handling that, especially in the context of perhaps creating some customer confusion if a customer goes from a store in, say, Massachusetts to a store in California and what they'd experienced at the different stores and how that could potentially cause a little bit of chaos for the consumer.

Yes, I'll start and then turn it over to Ryan. There's quite a few questions there. All right. So relative to new prototype returns, so when we -- so it does take into consideration the new store incentives when we target a 3-year or less return on initial capital. So it does add that in consideration. Relative to share repurchasing and dividends, as I mentioned, we've been a leader in our peer set in that category. So we've contributed back $1.1 billion in the last 5 years through a combination of repurchases and dividends. We understand that that's important to our investors. That is 1 of our 4 key critical boxes in which we will deploy our capital towards. It also fits very nicely into our target leverage ratios as well. We've just recently shown a commitment to that through our dividend. We increased it 10% in the last quarter, and we have $135 million of remaining Board-authorized share repurchases. So we understand that, that's important to our investor base, and we're committed to contributing.

And on the model, does that include the -- like the drive-through only where it reduced cost or any of the value engineering in the forecast?

That's a great point as well. So as you look at the traditional build-out, which has a sub 3-year return on initial investment, we are looking at -- with -- these various modularities and new prototypes a drive-through only concept, which has a significantly less build-out cost, it's $1.5 million to $1.6 million versus an average of $1.8 million and upwards of previous build-out costs. That, fully levered, would get us to 2 years and under return on initial investment. So we're incredibly excited to roll out these new prototypes, and we think the financial returns are very attractive.

And then I think I will kind of jump in on the menu question. Our goal is to have a consistent menu around the United States as we roll out, but we will explore opportunities to how do we partner really closely with operations to look at builds, to look at our breadth of offering. Now variety, we will always have a variety of categories. That is what makes us strong, that what makes us scrappy, that makes us really our competitive advantage. But do we have an opportunity to stream that -- streamline that slightly to really drive home focused communication in new markets? We do. So we are looking at various solutions there as we expand, and we are testing that through the various models from our digital-only, our drive-through. Each of those will have potentially a variety set of menus, but it will still be the same Jack products everybody loves.

Yes. One of the things -- one of the hypothesis that we had early on when I joined the company was that, is there a different customer base? Or are they coming for different reasons by markets because of the different areas that we had penetrated in the past? And it was clear, there's -- we understand Jack customers are very similar in their behaviors of why they come to us across all geographies. So now it's just how we tell the story and how are we consistent, as Ryan said, and how we deliver the menu to our guests.

Great. And then one more from Jake Bartlett at Truist. Go ahead, Jake.

I just had two follow-ups really, and that was on the cost of a traditional box. And has that -- it didn't really look like that's been value-engineered very much. Maybe if you could kind of clarify what the cost was before the efforts and what the cost is after. And I also had a question, I just want to make sure I understood your comments about debt leverage and your long-term debt, the idea of kind of bringing it from 4x to 5.5x. Traditionally, you would do that by taking on debt and then returning a big slug to shareholders to get that cash off the balance sheet and get the leverage up there. So just if you can kind of clarify your intentions on the debt structure and then the comment about the cost of the box.

Real quick on the box. What I would say is we still have opportunity to value engineer the large freestanding unit. We've focused most of our efforts on this new drive-through only, and we've taken cost out through our value engineering. And the reason why we focus there is because we created a kitchen engine that we can apply a modular approach in the restaurant of the future that Ryan showed you. And so that was where we're saving some dollars, really at the way we've engineered the kitchen to be more effective in delivering the product but also more cost effective. So we still have the opportunity on the large, historic, freestanding building to do some value engineering.

Yes. And then to follow up on the leverage ratio. So look, as I mentioned earlier, we are a leader in free cash flow as a financial model in the QSR space. I think we can comfortably operate within 4 to 5.5x. So not saying that we're going to move from our 4.1 where we sit today to a 5.5 tomorrow. We're saying we can support that range of leverage. And I think we'd be very comfortable at a 5x, right? And it gives us a little half tick if we needed some extra opportunity to pursue something that's accretive, whether it's investing in digital technology or acquiring franchise units or seeding markets with company stores. So that range, I think the model supports very well.

All right. I'm going to wrap it up with one question. We didn't play in this, I promise. But I'm going to call my own number here for a second, guys. I want each of you to answer this, if you don't mind. We've talked a little bit about this idea of being a scrappy challenger brand, and we have this scrappy, innovative, challenger-type culture, which is a big part of the reason I wanted to be here. Can each of you kind of speak to how that impacts how you're going to go about the things you're trying to get done here at Jack? Anything from operations to marketing to just global company culture stuff? I'd love for you to speak to that.

I'll start. One of the reasons I joined the team is this is the most operations-minded, growth-minded management team that I've ever experienced. And so when you think about how we are going to expand and about Jack being scrappy, it's really about making operations as a point of differentiation in all of the markets that we go into. And battles are won in the restaurant industry by being the best operator on the block. And so from my perspective, as we go into those markets, we're going to be that scrappy challenger.

That's going to be tough to follow. Tim, what do you got?

Look, I think that Jack has a unique position in QSR, right? So we are a scrappy brand. We have a lot of white space from expanding our reach point of view to opening new units. We're known to have a very wide menu. So variety is huge. It gives us, in the marketing team, particularly, a lot of options and opportunity to invest in different areas. And then from a financial point of view, we have an incredibly strong balance sheet and P&L that we can deploy that capital in a lot of different ways. So the optionality is certainly very attractive to me.

And we talk about marketing. I think I have the best job, no offense to you guys, but I get a work with Jack Box, amazing character. So at the end of the day, bringing him to life, being unique, kind of doing things differently, we are going to bring that edge back, we are going to push some of those boundaries. The low-hanging fruit is what excites me the most if you start looking at digital. We are just rolling out loyalty. It's just online, but it's going to be in all stores. Capturing that customer data, using that data with personalization, driving one more visit, these are opportunities that excite me because we are just on the cusp of using that where a lot of our competitors might be already there, and so we are going to push fast. We're going to accelerate and that growth opportunity there to leverage that marketing data differently, really excites me on a daily basis. So...

So Chris, I think the way I would answer that is it comes down to people and leadership. And if we shape the culture that we've talked about through that service profit chain, if we take care of our people and our franchisees, they're going to find ways to take care of our guests, and that's how Jack has won historically through the years, is really finding ways to go above and beyond despite not having scale, but connecting with guests, connecting with people in the restaurants that have been there for years. And I think that's where we win. Just taking care of our franchisees and our people, and they'll find a way to help us drive the strategy.

Well, I think those are four fantastic answers, I must say, but thank you for that. I think that's a wrap on our 2021 Investor Day. I really want to thank everybody for tuning in to both the video presentation as well as the live Q&A. Everything will be available on our IR site for replay. So feel free to tune in if you missed anything or need a repeat on anything. But thanks so much for joining us. We will definitely see more and more of you out on the road. We plan to be very active with events and conferences, certainly for the back half of 2021 and beyond. So thanks again for joining us this morning, and that's a wrap on our 2021 Investor Day. Take care.