Chipotle Mexican Grill Q4 2023 Earnings Call Transcript

Presentation

[Operator]

Good afternoon and welcome to the Chipotle Fourth Quarter and Fiscal Year End 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Cindy Olsen, Head of Investor Relations and Strategy. Please go ahead.

[Cindy Olsen, Head of Investor Relations and Strategy at Chipotle Mexican Grill]

Hello everyone, and welcome to our fourth quarter and fiscal year-end 2023 earnings call. By now, you should have access to our earnings press release. If not, it may be found on our Investor Relations website at ir.chipotle.com.

I will begin by reminding you that certain statements and projections made in this presentation about our future business and financial results constitute forward-looking statements. These statements are based on management's current business and market expectations, and our actual results could differ materially from those projections in the forward-looking statements. Please see the risk factors contained in our Annual Report on Form 10-K and in our Form 10-Q for a discussion of risks that may cause our actual results to vary from these forward-looking statements.

Our discussion today will include non-GAAP financial measures. A reconciliation to GAAP measures can be found via the link included on the presentation page within the Investor Relations section of our website.

We will start today's call with prepared remarks from Brian Niccol, Chairman and Chief Executive Officer; and Jack Hartung, Chief Financial and Administrative Officer, after which we will take your questions. Our entire Executive leadership team is available during the Q&A session.

And with that, I'll turn the call over to Brian.

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Thanks Cindy. And good afternoon everyone. We delivered outstanding results this year driven by our focus on exceptional people, exceptional food and exceptional throughput. This is driving a much better experience for our teams and our guests and resulted in accelerating transaction growth throughout 2023. For the year, sales grew 14% to reach $9.9 billion, driven by a 7.9% comp. Digital sales represented 37% of sales, restaurant level margin was 26.2%, an increase of 230 basis points year-over-year, adjusted diluted EPS was $44.86, representing 37% growth over last year and we opened a record 271 new restaurants including 238 Chipotlane. We also ended the year with a lot of momentum as demonstrated by our fourth quarter results. Our restaurant teams are making terrific progress in building a strong foundation around throughput and the return of carne asada as a limited time offer outperformed our expectations.

For the quarter, sales grew 15% to $2.5 billion, driven by an 8.4% comp. Digital sales represented 36% of sales. Restaurant level margin was 25.4%, an increase of 140 basis points year-over-year. Adjusted diluted EPS was $10.36, representing 25% growth over last year and we opened a record 121 new restaurants, including 110 Chipotlane.

As a reminder, we are returning to our pre-pandemic practice of only providing annual comp guidance. While January was impacted by weather throughout much of the country, as weather has normalized, our sales trends have strengthened. For the full year, we anticipate comps in the mid single digit range as we continue to focus on the same five key strategies that help us to win today while we grow our future.

Now, let me provide an update on each of these strategies, which include number one, sustaining world class people leadership by developing and retaining diverse talent at every level; number two, running successful restaurants with a people accountable culture that provides great food with integrity while delivering exceptional in restaurant and digital experiences; number three, making the brand visible, relevant and loved to improve overall guest engagement; number four, amplifying technology and innovation to drive growth and productivity at restaurants, support centers, and in our supply chain; and number five, expanding access and convenience by accelerating new restaurant openings in North America and internationally.

Starting with our world class people. I'm excited to share that Ilene Eskenazi joined my executive leadership team in November as our Chief Human Resources officer with over 25 years of experience in leading human resources and legal functions across a wide range of industries. I'm confident Ilene will be instrumental in helping Chipotle develop and retain talent at every level of the organization and enhance the support we provide to our people, both in our restaurants and at our support centers. Strengthening Chipotle as a best-in-class employer. As I've said in the past, we want to attract and retain the best people that we can develop and grow. Part of this includes listening to their needs and investing in ways that will help our employees thrive, both professionally and personally. This is why we recently added new benefits to our industry leading benefits platform like enhanced mental healthcare, a student loan retirement match, and additional financial wellness tools for our workforce.

In addition to our benefits, our long term growth opportunity and promote from within culture provides a path for team members to advance quickly within Chipotle. In fact, in 2023, we've promoted over 24,000 people and over 90% of all restaurant management roles were internal promotions. This includes 87% of field leader positions, which is one of the biggest jumps for our teams, going from running one restaurant to an average of eight restaurants. The ability to achieve this rate of internal promotions is a result of our strong restaurant leaders, many of whom started as crew members and who are committed to training and developing our future leaders.

A great example is one of our field leaders in New York who has been with Chipotle for over 16 years. He helped to develop and promote over 40 team members who have grown within Chipotle and have gone on to become some of our best general managers, field leaders, team directors and even one of our regional Vice Presidents. This is the type of person who will help us to deliver on our goals of running great restaurants, delivering industry leading economics, and expanding to 7000 restaurants in North America longer term. Great people executing great culinary and throughput results in a terrific guest experience and drives performance.

This brings me to our operations. Strong leadership is the key to running successful restaurants with fast throughput. So it is no surprise that the restaurants with the most tenured general managers are executing the best. The good news is our GM turnover is at some of the lowest levels that I have seen since I joined Chipotle, and over the last couple quarters, we have put the building blocks in place to deliver great throughput. As we mentioned last quarter, we have adjusted the cadence of orders on the digital makeline to achieve a better balance of labor between the two lines. Additionally, we began collecting data on the execution of the four pillars of throughput in our restaurants and providing feedback and coaching on a weekly basis. This is allowing our restaurant teams to see progress, which is energizing and motivating as the experience of winning catches momentum.

And finally, our teams now have real time access to their max 15 throughput results in the moment so our GMs can coach and recognize great throughput while it is happening. Since we put these coaching tools in place in the third quarter, we have seen the number of restaurants with at least four crew members on the front line during peak periods improve from 30% to around 50%. This is driving the acceleration in our throughput performance as the number of entrees in our peak 15 minutes improved by a full point in the fourth quarter compared to last year. I'm thrilled to see the progress we are beginning to make and continuing this momentum is critical as we approach our peak burrito season in mid-March.

We will also further strengthen our industry leading value proposition, which consists of delicious culinary made with real ingredients that is customizable, convenient, served quickly, and at accessible price point. When we are executing on all parts of our value proposition, we are providing a great customer experience what helps all other drivers of sales to perform better such as menu innovation. And last year Chicken al Pastor and Carne Asada both surpassed our expectations and drove incremental transactions. This is a testament to the cross functional effort by our marketing, culinary, supply chain and restaurant teams that do an outstanding job innovating as well as bringing back past favorites that are more delicious each time and are executed seamlessly.

2024 will be another exciting year for menu innovation, including one to two limited time offers and rolling out creative ways to shine a spotlight on our core menu throughout the year. As part of highlighting the core, we recently launched our latest lineup of lifestyle bowls, which shows how the customization of our real ingredients allows Chipotle to embrace all interpretations of wellness, whether it be plant based, high protein, keto, paleo and more. In connection with the launch, we announced a partnership with Strava, the leading digital community for active people with more than 120 million athletes, to encourage and reward healthy habits with a chance to earn free lifestyle goals. This is giving our fans the right tools to sustain healthy habits in 2024 and beyond.

In addition to menu innovation, our marketing team continues to do a fantastic job of making the Chipotle brand more visible, more relevant and more loved to drive difference, culture and drive a purchase. Our Behind the Foil campaign is a great example as it highlights key differentiators of Chipotle. This includes our restaurant teams preparing our real ingredients made fresh every day using classic culinary techniques such as dicing onions and jalapenos, hand mashing our signature guac, and grilling our adobo chicken, steak and fajita veggies on the plancha. We will continue to evolve the Behind the Foil campaign in 2024 and it's really exciting to see that our best performing ads are an authentic behind the scenes look into a day in the life of a Chipotle team member. This certainly demonstrates one of our core values, which is authenticity lives here. Our food is real and so are we.

Shifting to amplifying technology innovation. We have made a lot of progress this year on improving the digital experience. We made several enhancements to our app functionality, including order readiness messaging, wrong location detection, reminders to scan for points at checkout, prior order history, and more. This has helped to reduce friction points and improve the overall experience for guests. We also launched Freepotle for our rewards members, which was success in driving engagement and enrolling new members as we were able to surprise and delight our guests with free rewards such as guac, a beverage, or double meal. From the Freepotle drops, we were able to learn more about our rewards members to improve our ability to deliver relevant experiences in the future.

Finally, we recently rolled out suggestive upsell on our app at checkout, based on data we have on our rewards members, including prior order history. Going forward, I believe we are on a multi-year path to commercializing our customer data and insights into more targeted marketing campaigns and improving the overall digital experience that will drive increased frequency and spend over time.

I also wanted to spend a few minutes providing an update on our Cultivate Next fund, which launched two years ago with an objective of making early stage investments into strategically aligned companies that further our mission to cultivate a better world and accelerate our strategic priorities. Since launching this fund, the amount of innovation that we have seen across the food tech landscape has surpassed our expectations and encompasses everything from farming to supply chain to alternative proteins and oils, to in restaurant automation and more.

We have reviewed hundreds of innovative companies and have made seven investments, of which there are many opportunities for commercial engagements. This includes Hyphen, which we are partnering with to develop our automated digital makeline, and Vebu, which we are partnering with to develop Autocado that cuts, cores and scoops avocados. Both Hyphen and Autocado could help to improve the overall experience for our teams by removing less favorable tasks and for our guests by providing on time, accurate and delicious food. We continue to work on iterations of each technology at our cultivate center, and the good news is that we plan to pilot the automated digital makeline and Autocado in a restaurant in 2024 as part of our stage gate process.

Last month, we announced two more investments in Greenfield Robotics and Nitricity. Greenfield Robotics provides regenerative agriculture solutions without chemicals using fleets of autonomous robots to weed fields. And Nitricity uses technology to tackle greenhouse gas emissions by creating natural fertilizer products that are better for fields, farmers and the environment. We believe both Greenfield Robotics and Nitricity could play an important role in ensuring a more sustainable future for farms within our supply chain. Our suppliers are a key enabler of Chipotle's growth and help us to further our purpose of cultivating a better world. We will continue to find innovative ways to support their ability to grow, harvest and supply the high quality, sustainably raised real ingredients that Chipotle serves.

Our final strategic pillar is expanding access, and our development team has done an incredible job of meeting our development targets, despite the timeline challenges we continue to see. In the fourth quarter, we opened 121 new restaurants and for the full year, we opened 271 new restaurants, which is the highest number of openings in the company's history in a single quarter and in a single year. We have now surpassed 800 Chipotlane and continue to see very strong results with Chipotlane driving higher new restaurant productivity, margins and returns. Additionally, this year we had some fantastic openings in new markets with our first restaurant in Calgary breaking an opening day record and sustaining very high volumes post-opening day. When we serve delicious food with exceptional operations and execute great local marketing, our brand gains traction quickly and Canada is a testament to this. We will continue to accelerate our growth in Canada in 2024 with 10 to 14 new restaurant openings planned, representing 25% to 35% growth for the country. And in total we continue to target 285 to 315 new restaurant openings in 2024, mostly in North America with over 80% including a Chipotlane.

So to conclude, I want to thank our 115,000 employees for their hard work, which drove strong results in 2023. We hit some big milestones including surpassing 3,400 restaurants, 800 Chipotlane, $3 million in AUVs and forming our first international partnership. As I look forward, I see the opportunity longer term to more than double our restaurants in North America, increase our penetration of Chipotlane, surpass $4 million in AUVs, expand our industry leading margins and returns, and further our purpose of cultivating a better world globally. As I mentioned in the beginning, this ambitious plan will require exceptional people, exceptional food, and exceptional throughput. The good news is that I'm certain we have the right people and the right strategy to achieve it.

So with that, I will turn it over to Jack.

[John R. Hartung, Chief Financial and Administrative Officer at Chipotle Mexican Grill]

Thanks Brian and good afternoon everyone. Sales in the fourth quarter grew 15% year-over-year to reach $2.5 billion as comp sales grew 8.4%, driven by over 7% transaction growth. Restaurant level margin of 25.4% increased about 140 basis points compared to last year and earnings per share adjusted for unusual items was $10.36, representing 25% year-over-year growth. The fourth quarter had unusual expenses related to elevated appreciation and changes to a legal contingency.

Looking to fiscal 2024, we anticipate comps in the mid single digit range for the full year. As a reminder, we were impacted by unusually cold weather throughout the country in January. As the weather has normalized, our underlying sales trends remain strong and they support our full year guidance range. Additionally, Q1 will include the benefit of an extra day due to leap year, but this will be offset by Easter shifting into Q1 this year compared to Q2 of last year.

I'll now go through the key P&L line items beginning with cost of sales. Cost of sales in the quarter were 29.7%, an increase of about 40 basis points from last year. A larger mix shift to beef due to the success of carne asada as well as elevated costs across the board, most notably beef produce and queso, was partially offset by the benefit of menu price increases and lower paper costs. For Q1, we expect our cost of sales to be in the low 29% range as the benefit of the mix shift out of carne asada will be partially offset by higher costs across several line items, most notably avocados and tortillas. We anticipate cost of sales inflation to be in the low to mid single digit range for the full year.

Labor costs for the fourth quarter was 25%, a decrease of about 60 basis points from last year. The benefit of sales leverage and better labor execution more than offset wage inflation and higher performance based compensation. For Q1, we expect our labor costs be in the low 25% range, with wage inflation in the low to mid single digit range, and we anticipate wage inflation will tick up to the mid single digit range as California wages go up around 20% in April this year.

Other operating costs for the quarter were 14.7%, a decrease of about 100 basis points from last year. The decrease was driven by sales leverage as well as lower marketing and promo costs, which were 3.1% of sales in Q4, a decrease of about 30 basis points from last year. In Q1, we expect marketing costs to be in the low 3% range, with full year to come in right around 3%. In Q1, our operating costs are expected to be in the high 14% range.

G&A for the quarter was $169 million on a GAAP basis or $170 million on a non GAAP basis, excluding about $1 million change in a legal contingency. G&A also includes $122 million in underlying G&A, $36 million related to non-cash stock compensation, $10 million related to higher bonus accruals and payroll taxes on equity vesting and exercises, and $2 million related to our upcoming all manager conference, which is scheduled for Q1 of this year. We expect our underlying G&A to be around $127 million in Q1 and stuff up each quarter as we make investments in people and technology to support our ongoing growth.

We anticipate stock comp will be around $32 million in Q1, although this amount could move up or down based on our actual performance and is subject to the final 2024 grants, which are issued in Q1. We also expect to recognize around $7 million related to employer taxes associated with shares that vest during the quarter and $21 million for costs associated with our biannual all manager conference in March, bringing our anticipated total G&A in Q1 to around $187 million.

Adjusted depreciation for the quarter was $79 million, or 3.1% of sales. And for 2024, we expect it to remain right around this level as a percent of sales. Our effective tax rate for Q4 was 26.2% for both GAAP and non GAAP. And for 2024, we continue to estimate, our underlying effective tax rate will be in the 25% to 27% range, though it may vary based on discrete items.

Our balance sheet remains strong as we enter the quarter with $1.9 billion in cash, restricted cash, and investments with no debt. And during the fourth quarter, we repurchased $144 million of our stock at an average price of $1,936. For the full year, we repurchased a total of $590 million at an average price of $1,827. And going forward, we'll continue to opportunistically repurchase our stock. During the quarter, our Board authorizing an additional $200 million to our share authorization program. And at the end of the quarter, we had $424 million remaining.

We opened a record 121 new restaurants in the fourth quarter, of which 110 had a Chipotlane. And as we mentioned last quarter, we anticipate opening between 285 and 315 new restaurants in 2024, with over 80% having a Chipotlane. We continue to see developers delaying projects due to macro pressures and high interest rates, along with permitting, inspection and utility installation delays. The midpoint of our guidance range assumes these challenges persist, and we remain on track to move towards the high end of the 8% to 10% range by 2025, assuming conditions do not worsen.

In closing. Chipotle is a purpose driven company that's been able to scale over the last 30 years into one of the largest restaurant brands in the world. The exciting part is that we still have a long growth runway in front of us. Our strong economic model gives us a high degree of confidence that our ambitious growth objectives are achievable, if not beatable. And as we continue to protect and strengthen our economic model, our long term growth opportunity will only expand just as it has over the last 30 years. So thank you to all of our employees for their hard work and their dedication to Chipotle, and let's keep the momentum going in 2024.

With that, we'll open the lines for your questions.

Questions and Answers

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Andrew Charles with TD Cowan. Please go ahead.

[Andrew Charles, Analyst at Cowen]

Great, thanks. Brian, I appreciate the ambition that you talked about for $4 million AUVs and I think the same drivers that were used to reach the $3 million level are still the largest drivers to get to the $4 million level, which includes operations, marketing, loyalty Chipotlane [Phonetic], and menu innovation. But if you look back from several years from now, when you get to that $4 million fast and expected, what driver do you think could work better than it has in recent years? Or maybe you think about it differently, are there new drivers that will help you get to the $4 million level, such as catering, breakfast or automation? And then, Jack, I have a follow up.

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, thanks for the question. Look, I do believe at the end of the day the thing that will get us to $4 million and probably beyond that is going to be great execution in the restaurant. Meaning focusing on great culinary, great people, and great throughput. I think we're very fortunate that it doesn't require another day part. It doesn't require something that we aren't currently doing today to achieve that result. I do think things like automation, like Hyphen and Autocado and continuing to do things with our rewards program, the menu innovation, the marketing, will obviously be things that push us further and further. But one thing I think that we demonstrated this last quarter is when we perform better on the operation front, all those things I just listed off have a I would call it almost like a multiplying effect. So the good news is we still have a lot of headroom to go on, operational execution, and I think we've got the right things in place for the long term to get us to that $4 million and beyond.

[Andrew Charles, Analyst at Cowen]

Helpful. And then, Jack, my question is around the mechanics to get to that $4 million level. I mean, do you expect to sustain mid single digit same store sales to get there, or do you think the law of large numbers kicks in at some point in the out years that low single digits is the right rate of same store sales growth? And similarly, what kind of margins do you think the business can support at $4 million volumes, assuming normalized commodity and labor inflation?

[John R. Hartung, Chief Financial and Administrative Officer at Chipotle Mexican Grill]

Yeah Andrew, it's really hard to predict over a long period of time into the future what comps are going to do. I think for the foreseeable future, our guidance next year in the mid single digits, I think makes sense but if you look at our history, we have a history of having outsized comps when the economy is going well, when our operations are going well. I would argue even the acceleration we saw in the fourth quarter was we had a great combination of demand being created by carne asada, what's become a favorite of our customers, and throughput allowing those sales to flow through and those are the and -- I would expect those things to happen in the future. They're very hard to predict how and when they're going to happen Andrew, but those are the things that Chipotle has seen in the past, and I think that will likely happen in the future as well. But keep in mind, at these volumes, every time you add in a mid single digit, you're talking about $150,000 layer, and it keeps growing over time. So the $4 million, while it's an aspirational goal, it certainly is something we think we definitely will get there.

In terms of margins, I would expect margins to continue to expand. We still expect to see a pass through every time we grow our transaction grower sales through additional customers, about a 40% flow through. As that 40% gets averaged in against the 26% we delivered last year, I would expect the margins to go up. And as we get up to $4 million, I would expect we'd be in the high 20%, maybe even in the 30% range. Again, you're talking about predicting something over a very long period of time. But our margins will definitely get stronger over time, which means our returns will get stronger as well as we move from $3 million to $4 million.

[Andrew Charles, Analyst at Cowen]

Very helpful. Thank you both.

[Operator]

The next question comes from David Tarantino with Baird. Please go ahead.

[David Tarantino, Analyst at Robert W. Baird]

Hi, good afternoon. Congratulations on a great 2023. My question is really about the unit growth, and I've got two parts to that. I think you've been talking about 7,000 restaurants in North America for a while and as you build more and more Chipotlane and see the returns you're getting, I'm just wondering if that number could prove low in your mind, is there upside to the 7000 over time? And then I guess the second part of the question is, I know you want to grow faster, and Jack, you mentioned getting to 10% unit growth next year is a goal. I'm just wondering what line of sight you have to that at this point that you can share with us. Thanks.

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, why don't I go ahead and get started, David, and then I'll let Jack fill in. Look, the way we've come to the 7000 number is we've looked at what our penetration levels are. And in some of the places where we have the most penetration, we continue to build restaurants with success, which then gives us the confidence to do the exercise to say, okay, we'll just apply that math to the rest of the country, we quickly add up to 7000. So we think it's a very practical goal. Some might say conservative, but we definitely think it's a practical goal. And probably as we get closer, I think Jack's talked about this in the past. I think at one point we were talking about having 3000 Chipotlane, then we said 4000, then we said 5000, here we are at 7000. I hope it does prove to be conservative. I think the brand's got a lot of upside in it, but that's how we get to the 7000.

[John R. Hartung, Chief Financial and Administrative Officer at Chipotle Mexican Grill]

Yeah then David, on how do you get to 10%? Our visibility is quite good. Our inventory building that the teams have been doing is really strong. In fact, the team has had to build more inventory than we normally would need to basically offset these timelines. These timelines have really delayed everything so that you're talking about instead of 15 months, 16 months from when you get a deal to open, it's now more like 21 months, 22 months or so. But each year the team builds a stronger inventory. The results of the new openings has been outstanding. So the quality has been very high. So the inventory itself looks really, really good. And if we get any break in terms of timelines, with developers moving a little bit faster, with local authorities in terms of utilities, in terms of permitting, if that was a little bit faster, we actually can get to that clip even a little sooner. But we built in the exact same extended timeline that we're seeing today with the current very robust inventory. And that will get us, if not all the way very close to that 10% figure.

[David Tarantino, Analyst at Robert W. Baird]

And just a quick follow up. Jack, are you seeing any signs at all that the timelines could be getting a little bit shorter. Any signs of the life there?

[John R. Hartung, Chief Financial and Administrative Officer at Chipotle Mexican Grill]

Not anything sustained, David. So, I mean, our teams are working really hard at it. The most recent challenge has been developers with high interest rates. They're pausing a little bit. I do think if interest rates improve this year, I do think that will help. But nothing that I would bank on right now. We're certainly working hard at it, though.

[David Tarantino, Analyst at Robert W. Baird]

Great. Thank you very much.

[Operator]

The next question comes from Lauren Silberman with Deutsche Bank. Please go ahead.

[Lauren Silberman, Analyst at Deutsche Bank Aktiengesellschaft]

Thank you. I wanted to ask one on throughput, clearly a big area of focus driver of traffic this year. Can you talk about how you see the potential traffic opportunity in '24 driven by throughput and just the priorities to get there to further unlock that opportunity?

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, well obviously, we're really delighted to see over seven points of transaction growth in the fourth quarter. I think that's a testament to our operations teams in the field having a focus on getting great throughput. And we talked about this quite a bit. Now there's the four pillars of great throughput. I'd say we're kind of still in the early stages of this because we're just getting people in position. So I think you heard my comments about, hey, we now have four people on the frontline almost 50% of the time. That's only one component of the four pillars, you really think about it, right? It's -- that's part of our idea of [Indecipherable]. Like we want to be prepared, people in position, ready to go. So we still have a lot of upside on making sure that we have the expo, the linebacker in position and ready to go. So we still think we're early, early days on this. There's a lot of upside to it. I am delighted to see the progress though. We've increased our MAX 15 pretty much every month throughout 2023 and saw some of our best results in December, and those trends continued into January. So lots of space to still grow into, but the thing I love is that the teams are laser focused on getting after it. I think we've now given them more tools that they have better visibility on how they're performing real time. And when I get to visit restaurants, it's the first thing that's on people's minds how we're doing on our throughput, how we're doing on culinary and how we're doing with the people and culture. So it's nice to see.

[Lauren Silberman, Analyst at Deutsche Bank Aktiengesellschaft]

Great, thank you. And if I could just ask on -- a quick one on menu innovation, how you're thinking about it. I know you mentioned one to two this year. I know you typically do an LTO on chicken in the spring and then beef later in the fall. Any change to how you're thinking about cadence, especially as you consider sort of throughput in operations?

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, I mean look, I think what we've demonstrated this past year is that's definitely a cadence that our operators can execute great throughput with. So they delivered Pollo Asado with excellence. And then we did the same thing -- I'm sorry, Chicken al Pastor with excellence and then followed that up with carne asada. So we feel really good about doing one or two a year. I think you're also going to see us this year do a little bit more spotlighting even on the core menu, which we're doing right now with our Lifestyle Bowls. And then you'll see us do that as well during the year. So we think we've got the right cadence. We think we've got the right innovation pipeline. And also the things that we've done in the past, we've demonstrated we can revisit those with success as most recently with carne asada.

[Lauren Silberman, Analyst at Deutsche Bank Aktiengesellschaft]

Okay. Thanks so much.

[Operator]

The next question comes from Brian Harbour with Morgan Stanley. Please go ahead.

[Brian Harbour, Analyst at Morgan Stanley]

Yes, thanks good afternoon. Brian, you mentioned just suggestive upsell at checkout. And I was curious on that theme or maybe just a bar theme. What are some things that you think you could do to drive check, right? I think we've talked a lot about transactions, but what do you think could be check drivers as we think about this year and beyond?

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah look, I think one of the things that's been really nice to see is the incidence of our size has continued to go up like queso and chips and salsa. We're continuing to see people adding on to their entrees. And I think that has a lot to do with what we're able to do digitally, both at the point of checking out as well as how we communicate with people through our rewards program, right? So the suggestive sale example I'm talking about, we've now turned that into a smart suggestive sales. So I'll give you the best example or a really simple one. Historically, you get a Mexican Coke with your order. When you get to check out, if you don't have Mexican Coke in your basket, we will serve your suggestive sale of, hey, you forgot your Mexican Coke versus before, we might have just been saying, hey, maybe you should think about chips and queso. So what we're seeing is that type of insight into the individual results in more commercialization or higher check as they check out because we're serving a lot of things that they historically have usually added to their ticket. So we're seeing that make great progress. And then obviously, I think our queso, chips and guac are pretty darn special. So the more people learn and experience it, the more they want to add it to their check.

[Brian Harbour, Analyst at Morgan Stanley]

Okay, great. Thank you. Jack, are you willing to comment just on kind of the levels of -- I guess 1Q, maybe it looks similar to the fourth quarter, but are you willing to comment on the level of pricing you'll see just factoring in kind of California as we start to think about perhaps the second quarter?

[John R. Hartung, Chief Financial and Administrative Officer at Chipotle Mexican Grill]

Yeah, Q1 will be similar call it, in that 2.5% to 3% range in Q1. We haven't made a final decision in terms of pricing with FAST Act. We know we have to take something at a significant increase when you talk about a 20%-ish increase in wages. And I think we talked in the past that there's one approach where you would cover the profitability so you would break even from a profitability standpoint but not protect margins. So in other words, margins would go down, profitability would not or you take a higher price increase and you protect margins as well. We haven't decided within that range. We'll wait and see just what the landscape looks like, what the consumer sentiment is, what other companies are going to do. So I would say in terms of the impact, California represents about 15% of our restaurants. So depending on where we end up, there'll probably be an extra 80-ish, 90-ish basis points to maybe something over 100 basis points in terms of additional menu price across all of our 3,400 restaurants, just to give you kind of an order of magnitude.

[Brian Harbour, Analyst at Morgan Stanley]

Okay. Thank you.

[Operator]

The next question comes from John Ivankoe with JP Morgan. Please go ahead.

[John Ivankoe, Analyst at JP Morgan Cazenove]

Hi, thank you. I was thinking about the amount of time, attention, labor hours that you spend in morning prep every day at the store level. And as the system grows, gains scale, potentially benefits from more equipment, more technology, more automation, maybe some more centralization, I was wondering for you to talk about opportunities to maybe reallocate some of this prep labor that you may have longer term, how big of a bucket is that. And obviously, Autocado was one identified solution. How much more is there? And how much more could that mean to the overall business model of the future?

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, Look thanks for the question. Obviously, prep in the morning is a critical piece of the puzzle. If we get our prep done correctly, we usually have a great lunch. Actually, we always have a great lunch when you get the prep time correctly. Usually, where we run into problems is if we're running behind on prep. So things like Autocado, other robotics to help us like cut the onions and the jalapeno, these things would be huge enablers. That's why you continue to see us look at all these cobotic ideas to make prep even more efficient. One thing I know for sure is if we could get every restaurant 100% of the time to have their prep done on time and ready to roll, our throughput will go up. So we're going to do everything we can to ensure we're investing in prep both more efficiently and then also effectively to get it done. How you reallocate that time, we'll figure that out as we get closer to it, and that's probably the reason why we're using the stage-gate process. As we put Autocado into stores, we will see how that plays out, but you mentioned centralizing kitchens on this. That's something we're not contemplating. We believe to keep the freshest food, the best culinary, it needs to happen in the restaurant.

[Operator]

The next question comes from Sara Senatore with Bank of America. Please go ahead.

[Sara Senatore, Analyst at Bank of America]

Thank you. A couple of follow-up questions. The first is I wanted to go back to your comment about restaurants with following the makeline going from 30% to 50% is still a long way to go. I'm wondering if you can maybe quantify what the contributions to that -- to that increase of transaction growth, which is to say, presumably, it's not like every 20 points of staffing improvement gets you seven points of transaction growth. But if you could just maybe rank order, is it staffing or are there other things that are also going into this? And parallel that, perhaps is what you saw in the last decade when you also saw a real focus on the four pillars and improvement in throughput.

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, so great question. Here's what I'll tell you is, for sure, you've got to be staffed, you got to have stability in the teams, right. That's how we get the reps so that we execute better every time. The other thing I'll say is when we looked back and we were doing maybe our best throughput, these numbers can easily go from 50% to 60%, 70-some-odd percent in execution. So it's not unrealistic for us to believe we can get better than where we are today. And I think the teams know that. The other thing that I think is also helping the teams is to have the visibility so they know how they performed in their 15 minutes allows them to course correct real time versus finding out what happened that day. And then they kind of missed out on being able to course correct for a later part of lunch or dinner time. How it contributes to the comp, here's one thing I'll tell you is we're executing better.

And when we're executing better, people feel better about the food, they feel better about the brand. We just got back some brand metrics that frankly are just terrific. And I think that shows up in our value scores, and it shows up in the way that people are feeling about the brand. So the brand has got really strong perceptions. I think our team members feel really good about the success they're having, which is also really important, right? When the crew feels like they're going fast, they're giving people what they want, they feel better, which then I think in result turns into like kind of this ongoing system where everybody believes they're now achieving and getting what they want. So our customers are happier, the team members are happier, the brand is stronger. And I think these are all the things that contribute to seven points of transaction growth or said another way, really strong value proposition that we've got in today's environment.

[Sara Senatore, Analyst at Bank of America]

Got it. Okay. And then just on the carne asada, I mean, I know in the past you've gotten questions about how do you lap a really successful LTO, but here you have it for like the third time and it was better than you expected. Is that marketing? Is that digital? Because you actually as a percentage of revenue spent less year-over-year. So I'm just trying to understand again what the runway is for these already very successful LTOs.

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, look I think our teams executed carne asada better than we ever have. I thought the experience of carne asada was terrific. I also do think the advertising and the communication around it was really good. So I think our ads are communicating what makes Chipotle special, which is this team member that's committed to doing great culinary in the restaurant. And then when you layer in a great product like carne asada that gets executed with excellence, good things happen. And it was kind of, I think Jack mentioned this earlier, great demand generation with the advertising the carne asada initiative. And then the folks in our restaurants were doing a really terrific execution so that people got down the line faster, they experienced great culinary and they got exactly what they wanted. So I think it's the combination of really having compelling menu news with great advertising and our operations team executing the fundamentals really well.

[Sara Senatore, Analyst at Bank of America]

Great. Thank you very much.

[Operator]

The next question comes from Danilo Gargiulo with Bernstein. Please go ahead.

[Danilo Gargiulo, Analyst at Sanford C. Bernstein]

Thank you. Can you please provide me with some color on the key drivers of the traffic comp in 4Q by income cohorts or maybe by channels? And if you can also comment on the average check, how much was the contribution from pricing versus contribution from mix? And what's your expectation given that the delivery mix impact should be normalizing at this point?

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, so look one of the things that we're really delighted to see is every income cohort, we saw sales grow. So whether that's below $40,000 between $40,000 and $100,000, over $100,000, we saw progress with every income cohort. So clearly, the brand is resonating in a meaningful way. What was the other part of his question?

[John R. Hartung, Chief Financial and Administrative Officer at Chipotle Mexican Grill]

The channels and in-store was by far the strongest channel which supports the throughput that we saw.

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, in-store was the strongest, order ahead was next and then delivery was third. And I think Jack just mentioned this, the in-store experience, when we have the culinary ready to go and you go down the line, it's tough to beat. I mean there's no better experience in walking down the line, seeing the rise in chicken that you want and then giving one of our team members to look like how about a little more, and they do it. So that's how you end up with these big bowls and big burritos. And so I think the value proposition is just really strong in store, especially when we're executing great culinary and great speed.

[John R. Hartung, Chief Financial and Administrative Officer at Chipotle Mexican Grill]

And then, Danilo, just on the check, the check impact was a 1% -- plus 1%. That's about 2.5% price, offset by about 1.5% on the mix, and the mix is driven by group size.

[Danilo Gargiulo, Analyst at Sanford C. Bernstein]

Got it, thank you. And then you recently significantly improved the benefits, and you really are offering a very strong employment value proposition to your employees. Can you talk about the labor cost and maybe productivity improvement implications that you're expecting from that initiative? And it would be great if you can maybe frame where you are in turnover levels today relative to the rest of the competition in the fast casual industry?

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, look I appreciate you taking notice. We -- it's really important to us to make sure that we surround our employees with the right pay, the right growth opportunities and the right benefits. And I do think some of the things that we've added, like being able to help people or incentivize people to pay off student loans and then match them with a 401(k) contribution, I think is a really good idea for the generation of people that we're hiring, the Gen Zs, and also the growth opportunity. Folks can join our company in crew and in three years, four years, quickly find themselves leading one team and in some cases, being a multiunit leader. So I just had the opportunity to meet a young lady. I think she was like 24, field leader, newly promoted. She was at one of our Cultivate University sessions. And the young lady is very ambitious. I could see she'll be a TD the next time I see her. So I'm excited to have these growth opportunities for people surround with great benefits and I think a great culture.

How does that play out in stability? We're seeing some of the best stability we've seen, frankly, in my time at Chipotle. If you go back and look, the fact that we've got general manager turnover in the low 20s, crew turnover kind of in the low 100s, that's really good. And relative to the industry, I think that's ahead of the industry. But I don't know those numbers for sure. But what I do know is we're getting more stability, we're seeing less turnover. And what we hear back from people is they love the purpose, they love the culture, and they love the growth opportunity. And that's what we're going to continue to provide people.

[Danilo Gargiulo, Analyst at Sanford C. Bernstein]

Thank you.

[Operator]

The next question comes from Jon Tower with Citigroup. Please go ahead.

[Jon Tower, Analyst at Smith Barney Citigroup]

Great. Thanks for taking the question. I'm just curious, Brian, you had mentioned earlier the idea that suggestive selling is starting to work pretty well within the app in terms of getting some incremental attach for orders. But I'm curious if you're doing anything within the stores coaching people up to kind of work that as well, especially, it looks like your digital sales mix, while not slowing remarkably, is coming down quite a bit. So thinking about kind of the check growth from this point forward. Are there means for you to be able to encourage greater attach for consumers in the store? And is there anything you're doing now?

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Look, I think in the restaurant, just the simple fact that I think our teams are doing a much better job of having chips and queso and guac all the way until close is making a big impact. I think we talked about this, six, nine months ago, we weren't as good as we should have been, call it, after 6:00, 7:00 at night with being ready to go with chips, guac and queso, and now we are. And our teams are very aware that they should be ready to go with those side items. And I think as a result, you're seeing more people attach them. We aren't doing anything out of the ordinary other than making sure we've got great product ready to go. And when people know it's there, they order it. And when our crew knows they have it, they're more willing to say, hey, we need chips with this order. If it's 7:00, 8:00 at night, you don't have chips, you usually don't say to somebody, do you need chips with that? When you do, it becomes pretty natural in the conversation to say, hey, do you need chips to go with that? Or do you need queso to go like that? So it's really been more focus on executing great culinary available from open to close.

[Jon Tower, Analyst at Smith Barney Citigroup]

Got it. And then just flipping to delivery a little bit. It looks like that might be moving lower as a percentage of your sales as well. And I'm just curious if from your perspective, you're getting any indication from those consumers that this is the way that they're better managing their own spend at the store, effectively trading that higher-cost channel for a lower-cost channel going directly to you. And actually, could you provide the delivery mix as well?

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, look I think intuitively, I think the answer is yes, right. If you're tighter on money, the most expensive way to experience Chipotle is through delivery. So I think consumers know that, and they manage accordingly. But I will say the delivery channel has been pretty stable for the most part. It's in that 14%, 15% range for marketplace and then like 4% or 5% for white label. So you get to like 20% delivery but it's been pretty stable. And at the end of the day, though, if you need to manage your money, yes, delivery is the most expensive access point.

[John R. Hartung, Chief Financial and Administrative Officer at Chipotle Mexican Grill]

[Indecipherable] we have is Chipotlane. Chipotlane is one example where when you offer the convenience of Chipotlane and the values at Chipotlane, the customization at Chipotle, you normally would expect to get. You do see that the delivery will drop like 10 points, so it will drop to the low, call it 10%, 12%, something like that, several to 10 points, and then our order ahead and pickup will move up in the high 20s. So to us, that's a clear indication that if we offer extreme convenience along with the value that Chipotle has that people will choose that access channel as opposed to delivery.

[Jon Tower, Analyst at Smith Barney Citigroup]

Awesome. Thanks for the time.

[Operator]

The next question comes from Dennis Geiger with UBS. Please go ahead.

[Dennis Geiger, Analyst at UBS Group]

Great. Thank you. Brian, just wanted to follow up on sort of the strength across income cohorts and the strength in the brand's value scores. Any other commentary sort of on how you think that the strength in those value scores maybe is having, I don't know, an outsized impact perhaps on the customer, on traffic that you're seeing, particularly in this environment where we're hearing about some softness in various parts of the consumer cohort? Any commentary on that based on data that you guys have relative to those value scores?

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, I mean look I think it's the thing we've always talked about, which is relative to I would say, our peer food offerings, right so other fast casual folks have the same or attempt to have the same quality food as us, we're usually 20% to 30% less expensive. And then when you look at some of these other categories where you traditionally view them as more value and convenience, the price delta that you have to pay in order to get our quality, our convenience, our customization, it's not that big of a leap up. So I think that's why we're positioned really well. If you want to move up, it's not a crazy leap up. And then when you look across, we're at a nice value relative to alternatives. So I think that's why our value scores are as strong as they are. And we're very fortunate that we've been able to maintain that through the last couple of years. And look, that's why we're maybe a little bit slower sometimes to take price but when we took it, we thought it was because now the time was right, inflation warranted doing it. But we've always wanted to do it from a standpoint of protecting our value proposition, and I think we've navigated that one pretty well, at least where we are right now. So we'll see what is in store for us, but I think we've talked about this all the time. Maintaining that value is a really important piece of the puzzle for us. And I just love the fact that we've got quality, we've got value and we've got speed, and we've got customization. We'll protect all those things. And I think we're going to continue to do very well and -- regardless of what the environment is.

[Dennis Geiger, Analyst at UBS Group]

That's great. And then just quick, Jack, anything more on mix on kind of looking ahead to '24, even at a high level, how to think about the mix component of the check and how that might trend? Thank you.

[John R. Hartung, Chief Financial and Administrative Officer at Chipotle Mexican Grill]

Yeah, hard to predict because we're in kind of uncharted territory here. I would expect to see a similar mix going forward that the pricing I already talked about what the pricing will be. And I still think there's going to be continued adjustment to the group side for the next several quarters. I would expect it to just ratchet down. It's been ratcheting down over the last several quarters. So I'd expect it to ratchet down from the 150 [Phonetic], but hard to predict. I don't know exactly like what quarter will be like at bays and that we won't be seeing the group size decline at all. But it's down to, I think, a very manageable amount, this 150 [Phonetic]. I think the fact that it's combined with a 7.4% transaction growth and we've got very modest pricing, we think it's a really healthy balance right now.

[Dennis Geiger, Analyst at UBS Group]

Great. Thanks guys.

[Operator]

The next question comes from Brian Bittner with Oppenheimer & Co. Please go ahead.

[Brian Bittner, Analyst at Oppenheimer]

Thank you. On Chipotlanes, I mean, you have over 800 Chipotlanes in your portfolio now. I think you built a record 238 of these in 2023. So the prototype is really starting to gain some scale here, and so now your learnings are so much deeper on these assets. So can you just update us on maybe the margin profile now of the Chipotlane portfolio maybe versus the rest of the system? And are we at a point where there's enough Chipotlanes and enough being built in the future, where as they continue to increase as a percentage of the business that they can actually have an impact on the overall company's restaurant margin?

[John R. Hartung, Chief Financial and Administrative Officer at Chipotle Mexican Grill]

Well, they're already having that impact. But to your point, it's relatively small because 800 is still, what is that, maybe a quarter of our system. But it's hundreds of basis points of higher margin, if you compare it to our non-Chipotlane. The volumes have actually come pretty close. They're still a little bit higher for the Chipotlane versus non-Chipotlane. They've closed the gap a little bit. It was much, much higher during the pandemic. But when you combine volumes that are a little bit higher with margins that are hundreds of basis points higher and the investment costs are virtually identical, it's a much higher return. So from a shareholder value standpoint, as we open up, as we grow from the 3,400 towards 7,000, the cash-on-cash returns we're getting from the 80% or 85% of our new restaurants that have a Chipotlane is much, much, much higher. So it does have an accretive impact on our margin. It has an even more meaningful accretive impact on our returns. And you'll just see it every time we open up new restaurants, you'll see that our margins are going to -- they're going to continue to expand as long as our existing comp transactions grow. And these new restaurants coming on board are just going to add fuel to the fire.

[Brian Bittner, Analyst at Oppenheimer]

Thanks for that. And just a follow-up on labor margins. In the fourth quarter, your labor margins ended up being much better than you had guided to originally. So I'm curious what positively surprised you on that line item. Was it just the higher sales and the flow through from that? And then as we look towards 1Q, you are guiding to some deleverage on the labor line year-over-year. Is that mostly just driven by the softer January or is labor leverage just going to be much more challenging this year as we move forward?

[John R. Hartung, Chief Financial and Administrative Officer at Chipotle Mexican Grill]

Yeah, no, really, the thing that happens when you turn the calendar, you have taxes because you have people that are getting tax levels. So you kind of reset, and this happens every year where our tax in Q4 are lower then they step up in Q1. So that's the only deleverage that you're seeing. The leverage that we saw in the fourth quarter is a couple of things. One, when our volumes do -- when our comps accelerate, we do leverage that line as we saw leverage on that line. Two, the ops teams did a good job of managing labor. And then the third thing is our teams did a better job of managing through dealing with like sick time and vacation time at the end of the year. That was a little bit of a negative surprise to us the year before, and our teams did a much better job this year at just getting ahead of that. So those are the three contributors. But you should expect that as we grow transactions next year, as long as wage inflation stays relatively benign, we should still continue to be able to lever the labor line.

[Brian Bittner, Analyst at Oppenheimer]

Thanks.

[Operator]

And the last questioner today will be Sharon Zackfia with William Blair. Please go ahead.

[Sharon Zackfia, Analyst at William Blair & Company]

Hi, just under the wire. I guess I wanted to talk about how your most loyal customers are using Chipotle at this point, maybe if there's a way to contrast the frequency of those customers versus five years ago when rewards even didn't exist or was very nascent? And then by the same token, kind of talk about how new customers today are entering the Chipotle ecosystem and how they progress in frequency, maybe relative to what you would have seen pre-pandemic?

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, well the one thing that definitely is clear is if you're in the rewards program, you have higher frequency and higher check. And so obviously, one of the things we're trying to do is both existing customers and new customers continue to drive engagement within our rewards program. And so that continues to work really well. I think we're now like 38 million or almost 40 million people in the program. So that is really powerful. And we didn't have that five, six-- well, I guess, seven years ago, we didn't have that. And then when you think about pre-pandemic, one of the things that was kind of interesting is the pandemic kind of helped us move people into the digital system and get them going in the rewards program. So over and over again, what we see is whether you're a light, medium or heavy user, when you're in the rewards program, you come more frequently and you spend more. And so it's a really powerful tool. And even when people are redeeming entrees, what we're seeing is they're still buying sites. They're still adding other items. So it's not just one of these things where when you accrue a free entree, you just show up and walk with a free entree. So we're feeling really good about how the rewards program is working with all these different, I guess, frequency users. And then obviously, as we continue to, I think, drive the Chipotle message, we're continuing to attract new users, right. I don't know if you've seen the ads, Sharon, but I think some of the advertising we're running right now is the best we've done, and I think that's also helping to bring in new users. And then these new users are experiencing, what I think is a great experience, great culinary, great throughput, great customization. So we've kind of got the system still early days. I think it could be better, but the system is working. So we'll probably never be finished working against making everything better, but the system seems to be working right now.

[Sharon Zackfia, Analyst at William Blair & Company]

Can I ask a follow-up on LTOs, do those overarch towards kind of improving existing customer frequency or are they a real driver of new customers coming to Chipotle?

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

You know they've actually been a really good driver of new customers. So -- and that's one of the things we look for when we do our testing is how well are they at bringing in new customers. And they've been a really nice tool to bring in new customers. And unfortunately, even when we had the LTO walkaway, people are really hooked on the experience, that being culinary, right, the quality, the convenience, the speed, the customization. So it's been a really good tool.

[Sharon Zackfia, Analyst at William Blair & Company]

Okay, thank you.

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

Yeah, thank you.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Brian Niccol for any closing comments.

[Brian Niccol, Chairman and Chief Executive Officer at Chipotle Mexican Grill]

All right. Thank you. And thanks, everybody, for joining the call and the questions. I do want to start off with, again, thanking our 115,000 team members. We had an outstanding 2023. And without a doubt, it was because we led with, I think much better performance in the restaurants. And this is a real testament to our employees staying focused, getting after the basics and working towards hitting our standards. So we had some really big milestones, right? We surpassed 3,400 restaurants, we opened 800 Chipotlanes, we got past $3 million in average unit volumes. And now we're really excited about where we go next on this journey, which is we'll be even better at throughput, we'll be even faster, we'll be even better on the culinary. And I think that's going to result in us achieving this 4 million average unit volumes and our 7,000 restaurants in the future. So again, a big thank you to our team. And obviously, we're excited about what's next. So we'll talk to you all here in the next couple of months. Thanks.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Cindy Olsen, Head of Investor Relations and Strategy
• Brian Niccol, Chairman and Chief Executive Officer
• John R. Hartung, Chief Financial and Administrative Officer

Analysts

• Andrew Charles, Cowen Inc
• David Tarantino, Robert W. Baird
• Lauren Silberman, Deutsche Bank Aktiengesellschaft
• Brian Harbour, Morgan Stanley
• John Ivankoe, JP Morgan Cazenove
• Sara Senatore, Bank of America Co.
• Danilo Gargiulo, Sanford C. Bernstein
• Jon Tower, Smith Barney Citigroup
• Dennis Geiger, UBS Group AG
• Brian Bittner, Oppenheimer Holdings Inc.
• Sharon Zackfia, William Blair & Company