The Wendy’s Company (NASDAQ:WEN) Q4 2022 Preliminary Earnings Conference Call January 13, 2022 8:30 AM ET
Company Participants
Kelsey Freed – Director of Investor Relations
Todd Penegor – President and Chief Executive Officer
Gunther Plosch – Chief Financial Officer
Conference Call Participants
Brian Bittner – Oppenheimer & Co. Inc.
Andrew Charles – Cowen & Co.
Dennis Geiger – UBS Securities
Christopher Carril – RBC Capital Markets
Jeffrey Bernstein – Barclays Capital, Inc.
Danilo Gargiulo – Bernstein
Chris O’Cull – Stifel, Nicolaus & Company, Inc.
John Ivankoe – JPMorgan Chase & Co.
Gregory Francfort – Guggenheim Securities
David Palmer – Evercore ISI
Eric Gonzalez – KeyBanc Capital Markets Inc.
Alexander Slagle – Jefferies LLC
Joshua Long – Stephens Inc.
Lauren Silberman – Credit Suisse
Peter Saleh – BTIG
Jake Bartlett – Truist Securities
Nick Setyan – Wedbush Securities, Inc.
Jim Sanderson – Northcoast Research
Jared Garber – Goldman Sachs
Operator
Good morning. Welcome to the Wendy’s Company Preliminary Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.
Kelsey Freed, Director of Investor Relations, you may begin your conference.
Kelsey Freed
Thank you, and good morning, everyone. Today’s conference call and webcast includes a PowerPoint presentation, which is available on our Investor Relations website, irwendys.com.
Before we begin, please take note of the safe harbor statement that appears at the end of our earnings release. This disclosure reminds investors that certain information we may discuss today is forward-looking. Various factors could affect our results and cause those results to differ materially from the projections set forth in our forward-looking statements.
Also, some of today’s comments will reference non-GAAP financial measures. Investors should refer to a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures at the end of this presentation or in our earnings release.
On our conference call today, our President and Chief Executive Officer, Todd Penegor; and our Chief Financial Officer, Gunther Plosch, will briefly review our preliminary Q4 and full-year 2022 results and provide an update on our capital allocation actions. From there, we will open up the line for questions.
With that, I will hand things over to Todd.
Todd Penegor
Thanks, Kelsey, and good morning, everyone. I’m pleased to speak with all of you a bit earlier this quarter to announce our preliminary fourth quarter financial performance and revisit our capital allocation policy. Before diving into our strong results, I did want to take a moment to comment on Trian Partners amended 13D that was filed this morning. We look forward to continuing our partnership with Trian Partners with a shared goal of delivering value for all shareholders.
Wendy’s continues to make meaningful progress against our three strategic growth pillars, and we are pleased with Trian Partners confidence in our growth strategy. Today’s call will be focused on our preliminary fourth quarter and full-year 2022 results and the capital allocation actions we announced earlier this morning. I look forward to sharing the detailed drivers of our 2022 results and providing our 2023 and long-term financial outlook as part of our full earnings release on March 1.
Now let’s turn to our preliminary fourth quarter and full-year 2022 results, which highlight the strength and resiliency of the Wendy’s brand as we continue to deliver compelling growth. 2022 global system-wide sales grew 6.8%, supported by a second consecutive year of double-digit two-year global same-restaurant sales as well as over 275 new restaurants we opened across the globe.
This sales strength, along with the step-down in inflationary pressures, underpinned the almost 300 basis point improvement in company-operated restaurant margin over the course of the year. This momentum alongside the hard work and dedication of our restaurant crews, franchisees and support center staff drove our full-year adjusted EBITDA of approximately $498 million, a 6.6% improvement versus the prior year.
The strength we are driving in the business alongside our robust liquidity position supports the capital allocation actions we announced this morning. We have achieved our 12th consecutive year of global same-restaurant sales growth, which is a streak we plan to keep alive in 2023 and beyond.
2022 also marked our second consecutive year of double-digit global same-restaurant sales on a two-year basis, which is truly remarkable. This growth extended across the globe with double-digit two-year same-restaurant sales in both our U.S. and International segments. Our sales results have enabled the Wendy’s system to weather the unprecedented headwinds over the last few years and set us up for further growth next year. Our sales momentum picked up even further to close the year as our two-year same-restaurant sales results accelerated in Q4 versus the prior quarter.
Our international business continued to achieve outstanding results supported by growth across all our regions. This sales strength further bolsters our confidence in accelerated international expansion in the coming years. The acceleration in our U.S. business, same-restaurant sales was supported by our strategic mix of craveable innovation and compelling price points across a variety of occasions.
We launched the decadent Italian Mozzarella sandwiches and garlic fries, delivered another exciting extension of an iconic product with the Peppermint Frosty and continue to promote our ownable $5 Biggie Bag. At the breakfast daypart, we enticed trial with our $3 croissant promotion and continue to see our French Toast Sticks resonate with customers. I’m excited to share more about our strong sales results, including updates on our breakfast and digital billers at our full earnings call in March.
I am proud of the new net unit growth our team was able to deliver in 2022 despite ongoing development challenges across the industry. We opened over 275 new restaurants globally, reaching 2.1% net unit growth and marking a second consecutive year of net unit growth acceleration. This growth was spread across the globe with the U.S. and International segments making up approximately 40% and 60% of our net unit growth, respectively.
Turning to the UK. We have grown the market to a footprint of almost 30 restaurants and well under two years. As of year-end, this includes 12 company-operated restaurants as well as our first traditional franchise-operated restaurant. We are excited for all the growth that’s ahead for this market in 2023 and beyond, including our first drive-thru restaurant expected to open in the coming weeks.
Finally, our focus on franchise recruiting has paid off with nearly 40 new franchisees joining the Wendy’s family across the globe in 2022. This signals just how much excitement there is in the investment opportunity of the Wendy’s brand. In addition to the new development commitments that come along with these new franchisees, we are excited by the wealth of experience and growth mindset that they bring to the system.
We are committed to bringing Wendy’s to more of our fans and are excited about the strong foundation we set for further growth ahead. We remain committed to driving accelerated growth across our three strategic pillars, building our breakfast daypart, accelerating our digital business and growing our global footprint.
Before turning it over to GP to walk through our capital allocation updates, I want to take a moment to comment on the redesign of the company’s organizational structure that we communicated this morning. The redesign is being made in an effort to better support the execution of our long-term growth strategy by maximizing organizational efficiency and streamlining decision-making.
Following this change, we intend to embark on a broader redesign of our organizational structure as we see an opportunity to operate as a fully global brand with a unified voice, approach and operating model. We anticipate that our 2023 and 2024 G&A will be relatively flat versus 2022 despite elevated inflationary pressures as a result of the redesign, we are now beginning in service of accelerating our growth even further.
With that, I’ll turn it over to GP to walk through our capital allocation actions.
Gunther Plosch
Thanks, Todd. As Todd mentioned in his opening remarks, our Board of Directors recently had the opportunity to revisit our capital allocation plans in order to address our cash balance, which remained elevated at approximately $780 million as of year-end 2022. Our capital allocation policy is unchanged and our first priority remains investing in the business for growth, which we will continue to do while remaining true to our asset-light model.
Second, we are committed to maintaining an attractive dividend. Our continued business momentum, supported by the large investments in our strategic growth pillars over the last several years, and our strong liquidity position support a 100% increase in our quarterly dividend to $0.25 per share. We expect the full-year dividend to reach $1 per share and anticipate similar strong dividends moving forward as supported by our expected strong free cash flow growth and other factors subject to the discretion of our Board of Directors.
Lastly, we will utilize excess cash to repurchase shares and reduce debt. We announced today a new $500 million share repurchase authorization expiring in February of 2027. This replaces the previously approved $250 million share repurchase authorization, which was set to expire in February of 2023. Additionally, we repurchased $20 million of our debentures so far in the first quarter under an existing Board authorization.
We will continue to assess opportunities to reduce our debt in alignment with our capital allocation policy. We continue to deliver on our simple, yet powerful formula via an accelerated, efficient growth company, and we are committed to returning cash to shareholders as the momentum in our business continues to grow.
With that, I will hand things back over to Kelsey.
Kelsey Freed
Thanks, GP. Please note that we plan to report our audited fourth quarter and full-year earnings on March 1 and host a conference call that same day. At that time, we will answer questions regarding our 2022 results and share our 2023 and long-term outlook.
As we transition into our Q&A section, please keep questions focused on the capital allocation actions that were announced this morning. Additionally, due to the high number of covering analysts, we will once again be limiting everyone to one question only.
With that, we are ready to take your questions.
Question-and-Answer Session
Operator
Certainly. [Operator Instructions] Our first question comes from the line of Brian Bittner with Oppenheimer. Brian, your line is now open.
Brian Bittner
Thank you. Good morning. Good morning and thanks for the question. So as we focus on the capital allocation strategy and clearly, the significant increase in your capital returns to shareholders that you’ve announced this morning. It seems like a pivot from the last couple of calls, GP when it sounded like you were pretty focused on putting capital towards deleveraging the balance sheet. So could you just talk about how the Board came up with this balance and to increase the dividend so dramatically? And on the buybacks, it’s a long tail on the buybacks going out to 2027. But can you talk about maybe the near-term buyback strategy? Are you looking at doing some sort of ASR, particularly with that cash balance being so heavy still? Thank you.
Gunther Plosch
Good morning, Brian. There were a lot of questions in there. So again, the first and most important point is our capital allocation policy is unchanged. Yes, what we have definitely decided with the elevated cash balance we had of around $780 million. It’s obviously time now to put this cash to work and return it back to shareholders.
Our second most important priority was always to issue attractive dividends. So we felt with the high cash balance we have, the high visibility we have in growth, the high visibility we have in future strong cash flow growth, but it is the right action to actually be a little bit more attractive on the dividend side. We are balancing that with our third priority, which is returning cash to shareholders through share repurchases and to debt reduction.
On the share repurchase side, the $500 million, you’re right, it goes out for four years. We’re not going to comment how that is going to phase out annually. You can expect for us that we’re at least going to spend about $70 million a year to manage our dilution. The rest is going to be on our discretion. We will see how things develop over the next couple of years.
Operator
Our next question comes from the line of Andrew Charles with Cowen. Andrew, your line is now open.
Andrew Charles
Great. Thanks. I know the lines of questions you want to be capital allocation related. But Todd, I was wondering if you could help contextualize your strong 4Q U.S. sales results relative to QSR for category dollar share you typically do that with earnings calls and just given your released 4Q comps, I think that would be helpful.
My other question, though, just on capital allocation was for GP. And could you just speak to your ability in meeting your growth priorities while reducing or limiting G&A, keeping those dollars flat from 2023 and 2024 and just your confidence and your ability to really reach – achieve your priorities, while keeping those dollars flat.
Todd Penegor
Andrew, on the sales front, I’m a little too early to have all of the fourth quarter share data. So we’ll share a lot of our share performance as we get together on March 1 with our full earnings release. But when you look at the momentum that we had in the third quarter and the step-up in momentum that we had on a two-year basis into the fourth quarter, both U.S. and international, my sense is we performed very well relative to competitors within our space. I mean we had a strong calendar.
As I said on the prepared remarks, our breakfast business behind the continued momentum on French Toast Sticks, the $3 breakfast deal to drive trial. We did all of that lapping the basket promotion from a year ago to put those strong numbers in place. And then you look at the rest of our day calendar, very balanced with the $5 Biggie Bag on the value side, iconic Peppermint Frosty out there, and the continued success of Made to Crave with the Pretzel Bacon Cheeseburger and Italian mozz have done a nice job balancing that calendar and QSR continues to be placed – place to be, and we’re performing well within that segment. GP?
Gunther Plosch
Yes. So on your G&A question, yes, we are confident that we can keep G&A relatively flat versus 2022 in both 2023 and 2024. I mean there will be some inflationary pressures. As you know, we are an efficient company. We ended 2022 with about 1.9% of global sales. And I think with the redesign actions to streamline our decision-making, I will give us enough tailwinds in our G&A to offset our inflationary pressures and keep as a result of it, G&A relatively flat over the next two years.
Operator
Our next question comes from the line of Dennis Geiger with UBS. Dennis, your line is now open.
Dennis Geiger
Great. Thank you. Another one that maybe strays a little bit from capital allocation, but just wondering if you’d be able to speak a bit more to the organizational restructuring and any kind of additional detail on some of the benefits that you spoke to as it relates to streamlining decision-making and sort of how that enhances growth potentially going forward, guys. I’d appreciate it. Thank you.
Todd Penegor
Great news is we’re starting from a position of strength, right? We got a lot of momentum in our business to finish the year. We feel like we have strong plans in place that we’ll share as we get into the March 1 discussion around 2023 guidance and our longer-term guidance. But as you think about where I wanted to go to evolve the org structure, it was really around how do we actually think more global in all we do. How do I really make sure that we’re focused on driving global unit growth? Are we driving more of a focus on digital activation leveraging our technology with a global mindset?
And as you take some layers out of the organization, it allows us speed of decision-making, it can drive focus, it will drive efficiency, it will drive productivity. And as GP just commented, also helps us on the G&A front, too. But ultimately, the way the resources will be reallocated and focused, it is around driving traditional new restaurant development without any distractions and things that we chase during the course of this past year. Continue to drive more digital demand and really raises the bar on the operational excellence of everything we do at the restaurant level, where we continue to build our breakfast business. So it’s as simple as that.
Operator
Our next question comes from the line of Chris Carril with RBC Capital Markets. Chris, your line is now open.
Christopher Carril
Hi. Thanks for the question. Could you expand a bit more on your latest thinking on the long-term development outlook? And then would you expect the org redesign to result in any changes to the development strategy, pacing or targets? I think you touched on that a little bit, Todd, just now, but any other further details would be great. Thanks so much.
Todd Penegor
Yes. On the long-term development outlook, unfortunately, we’ll have to wait until we get guidance put out there on March 1. So we’ll talk through that in the context of our guidance for 2023 on March 1. We will give you a little more flavor on an update to our long-term targets as we get to that date also. But as we think about the org redesign, we did test and learn in a lot of places during the course of this year. We’ve looked at REEF Kitchens. We did some things around hamburger stands and frosty cards. What I really want to do is make sure that we got a dedicated focus to drive the U.S. development plan, drive the international development plan with most of our time energy effort on traditional new units with our global next-gen 2.0 design, which we’re really excited about.
Operator
Our next question comes from the line of Jeffrey Bernstein with Barclays. Jeffrey, your line is now open.
Jeffrey Bernstein
Great. Thank you very much. Just following up on that org structure redesign, similarly encouraging to be the whole G&A flat in this environment over the next few years. But Todd, I presume this means you’ll be more intimately involved perhaps in the day-to-day as you’re removing a layer of management in there. I’m just wondering if you could share any color in terms of any changes expected in terms of primary focus or initiatives or what we can expect from that perspective as you presumably streamline the global structure. Thank you.
Todd Penegor
Great question, Jeff. As we sit around the table operating as a senior leadership team, the last couple of years, I had two business unit presidents that had a lot of autonomy that were driving their business. And it served us well. I mean we’ve got a lot of success in the U.S., a lot of success in international. But we do need to have that global mindset, and it will put me a lot closer to the business. And as we sit around the table as a senior leadership team, having a global marketing mindset, talking about operations with a focus on the U.S. and international, it will help speed to decision-making. We’ll make sure that we got one message to the entire organization, both U.S. and international. And I do think it will make us a lot more effective, so we can go faster to continue to drive and accelerate the results that we’ve seen behind our key strategic growth pillars that we’ve been very focused on the last couple of years. So I see a lot of benefit from all of that.
Operator
Next question comes from the line of Danilo Gargiulo with Bernstein. Danilo, your line is now open.
Danilo Gargiulo
Hi, good morning. I was just wondering if you can comment on the timing of the announcement. Essentially, your comps are still continuing to see outperformance. The G&A seemed to be relatively more relevant compared to last quarter. But I’m wondering what was propelling your decision to announce the organization redesign today when you’re seeing kind of sales continue to be elevated.
Todd Penegor
I think just a function of how we’re looking at managing our business moving forward. As we start the year fresh here in 2023, but I personally thought it would be good to have a fresh look on how we operate as a leadership team. And as we embark on some of the work to make sure that we can hold our G&A relatively flat in 2023 and 2024, as GP just alluded to, having the senior leadership design in place certainly helps enable that work. So as we work through what that next layers look like, how does the org design flow out, what does our G&A actually come out to look like, we’ll have all of that work done to be able to share with you as part of our 2023 guidance and our longer-term outlook when we reestablish that on March 1.
Operator
Our next question comes from the line of Chris O’Cull with Stifel. Chris, your line is now open.
Chris O’Cull
Thanks. My question is regarding the capital allocation. The companies use more capital to repurchase stock and pay dividends on average, I guess, over the past several years that looks like it’s going to change going forward. Could you talk a little bit about how the company came to this decision? And then I had a follow-up.
Todd Penegor
Good morning, Chris. Yes, it’s obviously an active dialogue with our Board of Directors. There’s different point of use that we discussed in terms of what options do we have to return the excess cash that we currently are sitting on to shareholders. And at the end of the day, what I think we decided is in line with the capital allocation policy. Number two is an attractive dividend. Now obviously, at the stance we are taking on dividend is very, very attractive. And we want to signal to the financial markets that we have high confidence in growth, high confidence in high cash flow generation, and that’s basically a little bit the adjustment that we made on the dividend side of things. Again, all combined, if you do the calculation, you’re getting to capital returns over the next several years of more than $1 billion. So we are signaling that our cash flow generation is going to stay very strong.
Operator
The next question comes from the line of John Ivankoe with JPMorgan. John, your line is now open.
John Ivankoe
Hi, thank you. The question is on the comp, if I can, in the fourth quarter. I mean, can you talk about how much of that was price? How much of that was ticket if you are kind of seeing different consumers behave different ways with the brand, if you think there’s anything really instructive in the data that you’re seeing in the fourth quarter specifically? And I guess I’ll be a little cheeky and see if you’ll address this. I mean, can you talk about what you think your average pricing will be for 2023, if you think you might take more pricing? And there have been so many movements in commodities since we’ve last spoken if there’s even a soft update that where we can kind of consider commodity inflation relative to pricing for 2023, if you’re willing to address that. Thanks so much.
Todd Penegor
Hey, John, a lot of good questions in there, and I won’t address those today. We’ll save a lot of that detail and discussion for our March 1 release when you start to think about where we are on price, where we are in customer counts, what we’re seeing on mix. How we’re looking at the health of the consumer. I mean we continue to see a consumer that’s a little more strapped. We’re in the right segment of the restaurant business. QSR continues to place – be the place to be. There is continued trade down into our category. And as you see from our results on a one- and two-year basis, we’re competing and performing very well. So we’re happy with that.
Gunther Plosch
Yes. Just to add on this, John, right? And we are really happy about quarter four, right? We told you in quarter three that we’re going to grow double-digit on a two-year basis across all segments. And we have done that actually exceeded that with more than 13% growth on a two-year basis in the fourth quarter.
Operator
Our next question comes from the line of Gregory Francfort with Guggenheim. Gregory, your line is now open.
Gregory Francfort
Hey, thanks for the question. I just had one on the unit growth on the U. S. side. It looks like you guys had a bit of outsized closures. I mean, is that something we should read into on a go-forward basis? Or was there anything specific to the quarter just in terms of – I think it was the first quarter in a while with net closures during the quarter. Just figure out and I ask the question. Thanks.
Todd Penegor
Good morning, Greg. Yes, we are happy with our outlook EBITDA performance on the units, right? We told you it’s going to be 2% to 2.5% for this year and we ended up in that range. Secondly, I would say the split between growth is 40% in the U. S., 60% in international. We kind of told you, as we worked ourselves through the year, that we will have elevated closures this year.
We told in the past between 130 and 140, which is definitely elevated versus what you have seen in the past from us. That’s what basically happens this year. As you might remember, a lot of it has to do with REEF and cleaning that adventure up for us. I’m not going to comment on closure rates on a go-forward basis. We do that beginning of March.
Operator
Our next question comes from the line of David Palmer with Evercore ISI. David, your line is now open.
David Palmer
Thanks. I don’t know if you’ve mentioned this, but what is your leverage target now? And then I’m just curious how you perhaps weighed using cash for buying back stock against debt reduction or other sort of business-related spending, perhaps incentivizing unit growth or even if that cash is used on an expense basis, I’m wondering how you weighed those options? Thanks.
Todd Penegor
Good morning, David. From a leverage ratio point of view, we haven’t really issued a target. As you know, at the end of the third quarter, we were about 5x levered. We’ve gone to do the final numbers once we issue the full audited results. From a debt structure, as you know, we have securitized debt that is really nicely levered. The first time we need to get into kind of refinance mode is probably in 2025 or 2026. So we have some time to think about it.
Optimistically, we definitely are taking debts down in line with our capital allocation policy, right? You’ve seen it. We have bought back in the quarter already $20 million of our debentures. As you know, they are due for repayment in December of 2025. So there is $70 million to go. And we’ll see whether we can reduce debt on a go-forward basis. It’s the balancing act between the share repurchases and debt, because I think we are demonstrating that we are doing both.
Operator
Our next question comes from the line of Eric Gonzalez with KeyBanc. Eric, your line is now open.
Eric Gonzalez
Hey, thanks for the question and good morning. I’d like to ask what about sales if I can. One of your biggest competitors has been on air quite a bit lately. It’s been mostly brand messaging, but also a little bit of value. And from your strong fourth quarter results, it does seem like it didn’t have much of an impact or perhaps even benefited from the higher level of media attention on the category.
So maybe if you can comment on how you think the heightened competitive messaging affected your business in the fourth quarter and what it can mean for the trend going forward in 2023?
Todd Penegor
Yes, I think we continue to do a great job of having a very balanced calendar. When you think about what we continue to do on $5 Biggie Bag to bring folks in for affordable great tasting food, that’s a great offer. The news we continue to bring on Made to Crave continues to allow folks to trade up and through their purchase cycle in the course of the month, you can buy on the low side of the menu and the high side of the menu.
And things like bringing Peppermint Frosty into the restaurant really is something that drives our iconic Frosty brand, but actually a great halo to the rest of Wendy’s. There is a lot of activity, a lot of folks out on air, no different than we’ve always seen. We’re out there on air actively at the moment. We’ve got strong messaging going on as we start the year. So we feel like we’re really well positioned to continue to compete, both from the perspective of where our momentum was as GP just commented on the fourth quarter. But with the plans that we have in place moving forward, we feel really strong that we’re well positioned to continue to win in the category.
Operator
Our next question comes from the line of Alex Slagle with Jefferies. Alex, your line is now open.
Alexander Slagle
Hey, thanks. Good morning. Just looking for any additional color on the org redesign, so on the timing, what led the realization that there was a more efficient path. I’m sure there’s something continually you’ve been reviewing and then back on the confidence you can contain the cost, if you could just reflect on where you stand now with building up the teams and capabilities to deliver on the digital and growth plans, just comfort that you’re sort of cresting the peak of investments here?
Todd Penegor
Yes, back to – as I said a little bit earlier, the timing was one that we had to make some of the senior structural changes first to get that out, so we can continue to do the work to look at the organizational redesign that we said we were embarking on to make sure we can lock down our plans over the next 30, 45 days.
So we can kind of share all of that outlook as part of our 2023 guidance and have that thinking factored into our longer range targets. But we’re absolutely committed to holding our G&A relatively flat in 2023, 2024. We think we can reallocate a lot of those resources to ensure that we’ve got the right focus on traditional net unit development across the globe. We think we can leverage a lot of our great marketing thinking even better across the globe.
And clearly, we can continue to drive digital with a global mindset, which we’ve had to date, but I think we can be even more focused on it. So I think all of those things set ourselves up to build off of a very strong foundation and a business that has a lot of momentum to take us to a whole new gear of growth.
Operator
Our next question comes from the line of Joshua Long with Stephens. Joshua, your line is now open.
Joshua Long
Great. Thanks for taking the questions. I was just curious within the context of the new capital plan, how you think about carrying your cash balance going forward? Obviously, we can work through the implications for the share buyback and the dividends. But just curious as you think holistically or maybe philosophically, just about the amount of cash that you would like to carry on your balance versus historical periods?
Gunther Plosch
Good morning, Josh. Right. As you know, the last several quarters, obviously, we are very elevated from a cash balance point of view. As I said in the prepared remarks, we ended up this year with about $780 million. Obviously, with the actions that we are taking now that cash balance is going to get reduced, it will take a little time to kind of work this down.
As you know, we can run our business very conveniently at about $300 million of cash. Definitely believe that we’ll stay a little bit elevated over the next couple of months. Why is that? We’re heading into kind of uncertainty and volatility from a macroeconomic point of view. So we definitely believe to be a little bit more prudent on cash balances is appropriate.
Operator
Our next question comes from the line of Lauren Silberman with Credit Suisse. Lauren, your line is now open.
Lauren Silberman
Thank you very much. Thanks for the time. My question is on the organizational restructuring keeping G&A flat. Are the efficiencies primarily going to be realized through headcount? Are there any other projects or investments you might pull back in? Are you considering things like more outsourcing of technology? Thank you.
Todd Penegor
Yes, Lauren, a lot of work to do on the org redesign. And we had contemplated several investments that we would put in place the last of years and we’re thinking about an investment posture on some of the G&A for the next few years. But as we ran into this economic cycle, we’re relooking at where we’re placing some of those resources. We’re looking at some of the existing headcount in light of the org changes that were announced this morning with the senior team on the U. S. side and with a few folks moving on. All of that is yet to come.
So we got a lot of work to do now to really define how do we get to those savings, how do we make sure that they’re structural, so they stick and hold us relatively flat on the G&A in the next couple of years. But most importantly, we got to make sure our resources are focused where they matter the most as I continue to say driving traditional new unit development, driving our digital demand, raising the bar on operational excellence and continuing our momentum in breakfast.
Operator
Our next question comes from the line of Peter Saleh with BTIG. Peter, your line is now open.
Peter Saleh
Great. Thanks. Thanks for taking the question. Just two quick ones. I want a clarification. Just want to clarify that the G&A guidance is for flat dollars going forward in 2023 and 2024? And then just on CapEx, any color on CapEx in 2023 and 2024, is there any – are there any expenses that we should be expecting to be shifting out of G&A into CapEx? Or is CapEx relatively consistent on a go-forward basis as well? Thanks.
Gunther Plosch
Good morning. So as you know, we finished G&A in 2022 at $255 million. We are saying flat, relatively flat. So we’re not saying flat. So there’s going to be a little bit of inflation there is the one clarification I have. On capital, I’m not yet ready to give you any color on it. As you have noticed, we actually not yet done with even the cash flow for this year. So that needs to settle and we’ll purchase that one and beginning of March, we’ll give you a little bit more color how that number develops.
Operator
Next question comes from the line of Jake Bartlett with Truist. Jake, your line is now open.
Jake Bartlett
Great. Thanks for taking the questions. And I have two follow-ups, which I hope just equal one question. The first is, could you just give us an update on where you stand with the REEF closures? I’m wondering how many closed for instance maybe in 2022 or the fourth quarter and how many you expect to close in the next year?
And then I had a question on the dividend payout. So as I calculate, it looks to be about over 100% payout. I think, GP, you made the comment that this is going to be a consistent given. So I think that would mean that you’re going to grow it from here. But if you could just comment on the targeted payout things obviously but double as I’m kind of calculating what you had previously talked about?
Gunther Plosch
Good morning. So on your REEF questions, we finished the year with about 50 REEF units across the globe kind of equally split roughly between the UK, Canada and the U.S. Again, as we said, the partnership is [Life and Active]. You will hear more how that develops at the beginning of March when we do our unit guidance.
In terms of dividends, again, the exact payout ratios and what have you, we’re obviously going to declare when we issue our guidance for next year. And as you note, it’s clearly well north of 50%. I also want to make sure that people absolutely understand that this is not a special dividend, it’s a regular dividend increase. And again, you can also expect that dividend will annualize to $1. And you can also expect that similar elevated dividends will be paid out in the coming years. Obviously, that is all subject to the discretion of the Board of Directors.
Operator
Our next question comes from the line of Nick Setyan with Wedbush Securities. Nick, your line is now open.
Nick Setyan
Thank you. Obviously, just given the long tail on the buyback through 2027, how are you thinking about the timing across, I guess, the next four years or so? Is it going to be relatively balanced? And then also what was the unit level margin ex the UK?
Gunther Plosch
Good morning, Nick. So yes, you’re right. The authorization is for four years. It gives us a little bit flexibility. As I said, at a minimum, you can expect us to spend $70 million a year just to simply manage dilution in terms of how we then manage the rest, which I would call discretionary share repurchases is going to be the function in terms of what is our outlook on the fair value of the company. What is the timing when it makes sense for us to make the share repurchases. So we are going to make that decision on a quarterly basis and decide together with the Board how we’re going to pace and sequence those share repurchase programs. I didn’t fully understand. So can you repeat that one, second part?
Kelsey Freed
All right. I think we can move to the next question.
Operator
Certainly. Our next question comes from the line of Jim Sanderson with Northcoast Research. Jim, your line is now open.
James Sanderson
Thanks for the question. I wanted to follow-up on the cash balance issue. You mentioned about a $300 million minimum cash level necessary. How has that changed? And given the lower G&A spend and the stronger sales, shouldn’t that start to narrow or improve going forward potentially freeing up more discretionary cash flow for share repurchases?
Gunther Plosch
Yes, Jim, you’re not wrong, right. If you step back, pre-COVID, if you go back to a balance sheet pre-COVID, you would manage the company at around $200 million in cash and obviously COVID happened. Remember, we had to do the famous relief, working capital relief package for franchisees and we realized maybe we’re living in the volatile world and basically say, you know, what, we want to be a little bit more prudent and try to target around $300 million. If volatility comes down, we’re moving through something between $200 million and $300 million to comfortably manage what we need to manage is definitely an option and you’re absolutely right. I think clearly means there is a little bit more cash available for capital allocation actions.
Operator
Our final question comes from the line of Jared Garber with Goldman Sachs. Jared, your line is now open.
Jared Garber
Great. Thanks for the question and squeezing me in. You kind of mentioned it, but just wanted to get a sense of on the dividend. Was there a discussion around doing a special dividend in the fourth quarter and the first quarter here? And maybe how you came to the decision to increase at a 100% versus maybe doing a special? And then just a quick follow-up on the company-restaurant margins. Maybe you can help frame where you saw a little bit more favorability in the quarter? Was it lower beef costs, better labor? Just any incremental color on the line items there would be helpful. Thanks so much.
Todd Penegor
Good morning, Jared. Yes. So I don’t want to get into the details of the working discussions on Board level, special dividend versus regular dividend versus share repurchases. I think collectively with the Board, we landed on a very attractive, I think, capital allocation action basically increasing the dividend to 100% and making this regular dividend action and do the famous $0.5 billion of share repurchases. So yes, I don’t want to get into the discussions around all the details how we got there. But I think the outcome is positive.
On the restaurant margin, really happy. As you have seen in the consolidated numbers, we are landing flat on prior year. If you actually peel this back a little bit, the U. S. company restaurants landed actually at 15.2% and they were actually favorable, so up versus prior year’s quarter by about 20 basis points. So that went well. So that tells you we are really starting to truly approach pre-COVID margin levels. I might remind you that was in 2019, our U. S. company-restaurant margin was 15.5%, and that despite really still relatively elevated inflationary pressures we had in the fourth quarter. More detail in terms of what happens to labor, pricing mix, we’ll give all of that out when we are fully analyzed in detail our results beginning of March.
Operator
Thank you, Jared. That was our last question of the call. Thank you, Todd and GP, and thank you, everyone, for participating this morning. We look forward to speaking with you again on our call in March. Have a great day. You may now disconnect.
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