Delaware (I.R.S. Employer Identification incorporation or organization) number) Title of each class: Trading Symbol Name of each exchange on which registered: Common stock, $0.01 par value PZZA The NASDAQ Stock Market LLC Smaller reporting company ☐ Emerging growth company ☐ March 27, December 26, (In thousands, except per share amounts) 2022 2021 (Unaudited) Assets Current assets: Cash and cash equivalents $ 80,669 $ 70,610 Accounts receivable, net 81,229 81,370 Notes receivable, current portion 9,108 12,352 Income tax receivable 10,537 9,386 Inventories 38,992 34,981 Prepaid expenses and other current assets 46,461 46,310 Assets held for sale 19,273 — Total current assets 286,269 255,009 Property and equipment, net 216,253 223,856 Finance lease right-of-use assets, net 20,159 20,907 Operating lease right-of-use assets 177,767 176,256 Notes receivable, less current portion, net 22,634 35,504 Goodwill 71,593 80,632 Deferred income taxes 6,535 5,156 Other assets 84,416 88,384 Total assets $ 885,626 $ 885,704 Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit Current liabilities: Accounts payable $ 35,434 $ 28,092 Income and other taxes payable 27,973 19,996 Accrued expenses and other current liabilities 156,203 190,116 Current deferred revenue 19,649 21,700 Current finance lease liabilities 5,190 4,977 Current operating lease liabilities 20,938 22,543 Liabilities held for sale 13,247 — Total current liabilities 278,634 287,424 Deferred revenue 12,381 13,846 Long-term finance lease liabilities 15,696 16,580 Long-term operating lease liabilities 164,738 160,672 Long-term debt, less current portion, net 528,088 480,730 Deferred income taxes — 258 Other long-term liabilities 89,210 93,154 Total liabilities 1,088,747 1,052,664 Redeemable noncontrolling interests 5,323 5,498 Stockholders’ deficit: Common stock ($0.01 par value per share; issued 49,074 at March 27, 2022 and 49,002 at December 26, 2021) 491 490 Additional paid-in capital 436,225 445,126 Accumulated other comprehensive loss (9,316) (9,971) Retained earnings 181,124 183,157 Treasury stock (13,399 shares at March 27, 2022 and 13,205 shares at December 26, 2021, at cost) (832,603) (806,472) Total stockholders’ deficit (224,079) (187,670) Noncontrolling interests in subsidiaries 15,635 15,212 Total Stockholders’ deficit (208,444) (172,458) Total liabilities, Redeemable noncontrolling interests and Stockholders’ deficit $ 885,626 $ 885,704 Three Months Ended March 27, March 28, (In thousands, except per share amounts) 2022 2021 Revenues: Domestic Company-owned restaurant sales $ 198,765 $ 197,234 North America franchise royalties and fees 34,268 32,715 North America commissary revenues 209,679 184,878 International revenues 34,617 34,607 Other revenues 65,363 62,312 Total revenues 542,692 511,746 Costs and expenses: Operating costs (excluding depreciation and amortization shown separately below): Domestic Company-owned restaurant expenses 161,661 155,888 North America commissary expenses 197,090 170,684 International expenses 19,914 19,618 Other expenses 60,555 55,807 General and administrative expenses 65,937 50,011 Depreciation and amortization 11,940 12,876 Total costs and expenses 517,097 464,884 Refranchising and impairment loss (11,160) — Operating income 14,435 46,862 Net interest expense (4,264) (3,647) Income before income taxes 10,171 43,215 Income tax (benefit) expense (1,256) 7,932 Net income before attribution to noncontrolling interests 11,427 35,283 Net income attributable to noncontrolling interests (933) (1,400) Net income attributable to the Company $ 10,494 $ 33,883 Calculation of net income for earnings per share: Net income attributable to the Company $ 10,494 $ 33,883 Dividends paid to participating securities (60) (3,527) Net income attributable to participating securities — (3,243) Net income attributable to common shareholders $ 10,434 $ 27,113 Basic earnings per common share $ 0.29 $ 0.83 Diluted earnings per common share $ 0.29 $ 0.82 Basic weighted average common shares outstanding 35,927 32,756 Diluted weighted average common shares outstanding 36,236 33,090 Dividends declared per common share $ 0.350 $ 0.225 Three Months Ended March 27, March 28, (In thousands) 2022 2021 Net income before attribution to noncontrolling interests $ 11,427 $ 35,283 Other comprehensive income, before tax: Foreign currency translation adjustments (861) 1,059 Interest rate swaps (1) 1,712 1,795 Other comprehensive income, before tax 851 2,854 Income tax effect: Foreign currency translation adjustments 198 (244) Interest rate swaps (2) (394) (413) Income tax effect (196) (657) Other comprehensive income, net of tax 655 2,197 Comprehensive income before attribution to noncontrolling interests 12,082 37,480 Less: comprehensive (income), redeemable noncontrolling interests (510) (787) Less: comprehensive (income), nonredeemable noncontrolling interests (423) (613) Comprehensive income attributable to the Company $ 11,149 $ 36,080UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-Q(Mark One)x☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended March 27,September 25, 2022ORoOR☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934Commission File Number: 0-21660PAPA JOHN’S INTERNATIONAL, INC.Delaware61-120332361-1203323 (State or other jurisdiction of 2002 Papa John’s BoulevardLouisville,, Kentucky KY 40299-2367(Address of principal executive offices)(502) (502) 261-7272Securities registered pursuant to Section 12(b) of the Act:Securities registered pursuant to Section 12(b) of the Act:Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ⌧x No ◻oIndicate by check mark whether the registrant has submitted electronically every interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧x No ◻oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Large acceleratedAccelerated Filer xAccelerated filer ☒oAccelerated filer ☐Non-accelerated filer ☐oIf an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o◻Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐o No ☒xAt April 29,October 28, 2022, there were outstanding 35,794,90635,328,153 shares of the registrant’s common stock, par value $0.01 per share.Page No.Page No.345689253839393940412iItem 1. Financial StatementsCondensed Consolidated Balance Sheets(In thousands, except per share amounts) September 25,
2022December 26,
2021(Unaudited) Assets Current assets: Cash and cash equivalents $ 36,618 $ 70,610 Accounts receivable, net 95,855 81,370 Notes receivable, current portion 7,556 12,352 Income tax receivable 10,533 9,386 Inventories 42,448 34,981 Prepaid expenses and other current assets 46,514 46,310 Total current assets 239,524 255,009 Property and equipment, net 230,894 223,856 Finance lease right-of-use assets, net 22,692 20,907 Operating lease right-of-use assets 167,470 176,256 Notes receivable, less current portion, net 17,397 35,504 Goodwill 69,476 80,632 Deferred income taxes 4,969 5,156 Other assets 77,326 88,384 Total assets $ 829,748 $ 885,704 Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit Current liabilities: Accounts payable $ 44,263 $ 28,092 Income and other taxes payable 18,171 19,996 Accrued expenses and other current liabilities 152,893 190,116 Current deferred revenue 19,925 21,700 Current finance lease liabilities 6,072 4,977 Current operating lease liabilities 22,403 22,543 Total current liabilities 263,727 287,424 Deferred revenue 22,987 13,846 Long-term finance lease liabilities 17,468 16,580 Long-term operating lease liabilities 155,952 160,672 Long-term debt, less current portion, net 548,753 480,730 Deferred income taxes 362 258 Other long-term liabilities 77,912 93,154 Total liabilities 1,087,161 1,052,664 Redeemable noncontrolling interests 1,206 5,498 Stockholders’ deficit: Common stock ($0.01 par value per share; issued 49,112 at September 25, 2022 and 49,002 at December 26, 2021) 491 490 Additional paid-in capital 444,643 445,126 Accumulated other comprehensive loss (13,868) (9,971) Retained earnings 187,286 183,157 Treasury stock (14,047 shares at September 25, 2022 and 13,205 shares at December 26, 2021, at cost) (892,818) (806,472) Total stockholders’ deficit (274,266) (187,670) Noncontrolling interests in subsidiaries 15,647 15,212 Total Stockholders’ deficit (258,619) (172,458) Total liabilities, Redeemable noncontrolling interests and Stockholders’ deficit $ 829,748 $ 885,704 See accompanying notes.31Condensed Consolidated Statements of Operations(Unaudited)Three Months Ended Nine Months Ended (In thousands, except per share amounts) September 25,
2022September 26,
2021September 25,
2022September 26,
2021Revenues: Domestic Company-owned restaurant sales $ 166,050 $ 191,584 $ 536,226 $ 584,942 North America franchise royalties and fees 33,712 31,933 102,897 97,123 North America commissary revenues 216,115 189,224 645,177 560,743 International revenues 30,735 38,408 97,310 110,629 Other revenues 63,900 61,633 194,259 186,099 Total revenues 510,512 512,782 1,575,869 1,539,536 Costs and expenses: Operating costs (excluding depreciation and amortization shown separately below): Domestic Company-owned restaurant expenses 138,299 155,477 441,986 465,658 North America commissary expenses 203,129 175,399 604,689 518,310 International expenses 18,196 21,743 57,346 62,791 Other expenses 59,249 56,039 180,452 168,092 General and administrative expenses 57,935 54,070 168,519 157,779 Depreciation and amortization 13,338 11,477 38,012 36,830 Total costs and expenses 490,146 474,205 1,491,004 1,409,460 Refranchising and impairment loss (905) — (12,065) — Operating income 19,461 38,577 72,800 130,076 Net interest expense (7,623) (3,979) (17,967) (11,275) Income before income taxes 11,838 34,598 54,833 118,801 Income tax expense 3,374 4,057 9,212 19,387 Net income before attribution to noncontrolling interests 8,464 30,541 45,621 99,414 Net income attributable to noncontrolling interests (133) (1,285) (1,363) (4,021) Net income attributable to the Company $ 8,331 $ 29,256 $ 44,258 $ 95,393 Calculation of net income (loss) for earnings per share: Net income attributable to the Company $ 8,331 $ 29,256 $ 44,258 $ 95,393 Dividends on redemption of Series B Convertible Preferred Stock — — — (109,852) Dividends paid to participating securities (86) (137) (228) (5,964) Net income attributable to participating securities — (158) (34) — Net income (loss) attributable to common shareholders $ 8,245 $ 28,961 $ 43,996 $ (20,423) Basic earnings (loss) per common share $ 0.23 $ 0.80 $ 1.23 $ (0.59) Diluted earnings (loss) per common share $ 0.23 $ 0.79 $ 1.22 $ (0.59) Basic weighted average common shares outstanding 35,259 36,387 35,602 34,619 Diluted weighted average common shares outstanding 35,448 36,719 35,840 34,619 Dividends declared per common share $ 0.42 $ 0.35 $ 1.12 $ 0.80 See accompanying notes.42Condensed Consolidated Statements of Comprehensive Income(Unaudited)Three Months Ended Nine Months Ended (In thousands) September 25,
2022September 26,
2021September 25,
2022September 26,
2021Net income before attribution to noncontrolling interests $ 8,464 $ 30,541 $ 45,621 $ 99,414 Other comprehensive (loss) income, before tax: Foreign currency translation adjustments (4,849) (1,113) (9,819) 383 Interest rate swaps (1)1,169 1,535 4,758 5,147 Other comprehensive (loss) income, before tax (3,680) 422 (5,061) 5,530 Income tax effect: Foreign currency translation adjustments 1,114 256 2,258 (88) Interest rate swaps (2)(268) (353) (1,094) (1,184) Income tax effect 846 (97) 1,164 (1,272) Other comprehensive (loss) income, net of tax (2,834) 325 (3,897) 4,258 Comprehensive income before attribution to noncontrolling interests 5,630 30,866 41,724 103,672 Less: comprehensive (income), redeemable noncontrolling interests (31) (692) (559) (2,192) Less: comprehensive (income), nonredeemable noncontrolling interests (102) (593) (804) (1,829) Comprehensive income attributable to the Company $ 5,497 $ 29,581 $ 40,361 $ 99,651 _______________
| (1) | Amounts reclassified out of accumulated other comprehensive loss into net interest expense include | ||||
| (2) | The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $371 and $416 for the three and nine months ended September 25, 2022, respectively, and $368 and $1,139 for the three and nine months ended September 26, 2021, respectively. | ||||
See accompanying notes.
5
| Papa John’s International, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | Common Stock Shares Outstanding | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Noncontrolling Interests in Subsidiaries | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||||
| For the three months ended September 25, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 26, 2022 | 35,248 | $ | 491 | $ | 442,255 | $ | (11,034) | $ | 193,934 | $ | (875,205) | $ | 15,761 | $ | (233,798) | |||||||||||||||||||||||||||||||||||
Net income (1) | — | — | — | — | 8,331 | — | 102 | 8,433 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss), net of tax | — | — | — | (2,834) | — | — | — | (2,834) | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends on common stock | — | — | 57 | — | (14,906) | — | — | (14,849) | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 16 | — | 823 | — | — | — | — | 823 | ||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Company common stock | (229) | — | — | — | — | (19,529) | — | (19,529) | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 5,146 | — | — | — | — | 5,146 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 50 | — | (1,671) | — | — | 1,760 | — | 89 | ||||||||||||||||||||||||||||||||||||||||||
| Tax payments for equity award issuances | (22) | — | (1,900) | — | — | — | — | (1,900) | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | (216) | (216) | ||||||||||||||||||||||||||||||||||||||||||
| Other | 2 | — | (67) | — | (73) | 156 | — | 16 | ||||||||||||||||||||||||||||||||||||||||||
| Balance at September 25, 2022 | 35,065 | $ | 491 | $ | 444,643 | $ | (13,868) | $ | 187,286 | $ | (892,818) | $ | 15,647 | $ | (258,619) | |||||||||||||||||||||||||||||||||||
| For the nine months ended September 25, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 26, 2021 | 35,797 | $ | 490 | $ | 445,126 | $ | (9,971) | $ | 183,157 | $ | (806,472) | $ | 15,212 | $ | (172,458) | |||||||||||||||||||||||||||||||||||
Net income (1) | — | — | — | — | 44,258 | — | 804 | 45,062 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss), net of tax | — | — | — | (3,897) | — | — | — | (3,897) | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends on common stock | — | — | 153 | — | (40,102) | — | — | (39,949) | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 55 | 1 | 2,730 | — | — | — | — | 2,731 | ||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Company common stock | (982) | — | — | — | — | (95,000) | — | (95,000) | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 14,246 | — | — | — | — | 14,246 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 279 | — | (8,122) | — | — | 8,210 | — | 88 | ||||||||||||||||||||||||||||||||||||||||||
| Tax payments for equity award issuances | (92) | — | (9,426) | — | — | — | — | (9,426) | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | (366) | (366) | ||||||||||||||||||||||||||||||||||||||||||
| Other | 8 | — | (64) | — | (27) | 444 | (3) | 350 | ||||||||||||||||||||||||||||||||||||||||||
| Balance at September 25, 2022 | 35,065 | $ | 491 | $ | 444,643 | $ | (13,868) | $ | 187,286 | $ | (892,818) | $ | 15,647 | $ | (258,619) | |||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
| | Papa John’s International, Inc. | | | | | | | |||||||||||||||
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| Accumulated |
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| | Stock | | | | | Additional | | Other | | | | | | | | Noncontrolling | | Total | ||||
(In thousands) | | Shares | | Common | | Paid-In | | Comprehensive | | Retained | | Treasury | | Interests in | | Stockholders’ | |||||||
For the three months ended March 27, 2022 | | Outstanding | | Stock | | Capital | | Loss | | Earnings | | Stock | | Subsidiaries | | Deficit | |||||||
Balance at December 26, 2021 | | 35,797 | | $ | 490 | | $ | 445,126 | | $ | (9,971) | | $ | 183,157 | | $ | (806,472) | | $ | 15,212 | | $ | (172,458) |
Net income (1) | | — | | | — | | | — | | | — | | | 10,494 | | | — | | | 423 | | | 10,917 |
Other comprehensive income, net of tax | | — | | | — | | | — | | | 655 | | | — | | | — | | | — | | | 655 |
Cash dividends on common stock | | — | | | — | | | 47 | | | — | | | (12,655) | | | — | | | — | | | (12,608) |
Exercise of stock options | | 17 | | | — | | | 741 | | | — | | | — | | | — | | | — | | | 741 |
Acquisition of Company common stock | | (301) | | | — | | | — | | | — | | | — | | | (32,709) | | | — | | | (32,709) |
Stock-based compensation expense | | — | | | 1 | | | 4,175 | | | — | | | — | | | — | | | — | | | 4,176 |
Issuance of restricted stock | | 228 | | | — | | | (6,369) | | | — | | | — | | | 6,369 | | | — | | | — |
Tax payments for equity award issuances | | (69) | | | — | | | (7,461) | | | — | | | — | | | — | | | — | | | (7,461) |
Other | | 3 | | | — | | | (34) | | | — | | | 128 | | | 209 | | | — | | | 303 |
Balance at March 27, 2022 |
| 35,675 | | $ | 491 | | $ | 436,225 | | $ | (9,316) | | $ | 181,124 | | $ | (832,603) | | $ | 15,635 | | $ | (208,444) |
At March 27,September 25, 2022, the accumulated other comprehensive loss of $9,316$13,868 was comprised of net unrealized foreign currency translation loss of $5,533$12,430 and net unrealized loss on the interest rate swap agreements of $3,783.
$1,438.
Papa John’s International, Inc. and Subsidiaries Papa John’s International, Inc. Common Accumulated Stock Additional Other Noncontrolling Total (In thousands) Shares Common Paid-In Comprehensive Retained Treasury Interests in Stockholders’ For the three months ended March 28, 2021 Outstanding Stock Capital Loss Earnings Stock Subsidiaries Deficit Balance at December 27, 2020 32,545 $ 453 $ 254,103 $ (14,168) $ 219,158 $ (741,724) $ 15,239 $ (266,939) Net income (1) — — — — 33,883 — 613 34,496 Other comprehensive income, net of tax — — — 2,197 — — — 2,197 Cash dividends on common stock — — 31 — (7,435) — — (7,404) Cash dividends on preferred stock — — — — (3,412) — — (3,412) Exercise of stock options 41 — 2,298 — — — — 2,298 Acquisition of Company common stock (15) — — — — (1,267) — (1,267) Stock-based compensation expense — — 4,113 — — — — 4,113 Issuance of restricted stock 104 — (5,371) — — 5,371 — — Tax effect of restricted stock awards — — (3,834) — — — — (3,834) Distributions to noncontrolling interests — — — — — — (570) (570) Other 6 — (55) — (75) 352 — 222 Balance at March 28, 2021 32,681 $ 453 $ 251,285 $ (11,971) $ 242,119 $ (737,268) $ 15,282 $ (240,100) At $6,411. Three Months Ended March 27, March 28, (In thousands) 2022 2021 Operating activities Net income before attribution to noncontrolling interests $ 11,427 $ 35,283 Adjustments to reconcile net income to net cash provided by operating activities: Provision (benefit) for allowance for credit losses on accounts and notes receivable 15,167 (1,098) Depreciation and amortization 11,940 12,876 Refranchising and impairment loss 11,160 — Deferred income taxes (1,817) 2,586 Stock-based compensation expense 4,176 4,113 Other (2,135) 325 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (2,503) 13,349 Income tax receivable (1,151) 566 Inventories (4,731) 2,721 Prepaid expenses and other current assets 77 711 Other assets and liabilities (654) (7,901) Accounts payable 7,359 (5,350) Income and other taxes payable 8,013 15,045 Accrued expenses and other current liabilities (29,469) (9,736) Deferred revenue (1,465) (273) Net cash provided by operating activities 25,394 63,217 Investing activities Purchases of property and equipment (10,233) (7,076) Notes issued (272) (3,417) Repayments of notes issued 3,432 4,864 Acquisitions, net of cash acquired (1,250) (699) Other 8 29 Net cash used in investing activities (8,315) (6,299) Financing activities Net proceeds of revolving credit facilities 47,000 5,000 Proceeds from exercise of stock options 741 2,298 Acquisition of Company common stock (32,709) (1,267) Dividends paid to common stockholders (12,608) (7,404) Dividends paid to preferred stockholders — (3,412) Tax payments for equity award issuances (7,461) (3,834) Distributions to noncontrolling interests (685) (1,705) Repayments of term loan — (5,000) Other (1,065) (756) Net cash used in financing activities (6,787) (16,080) Effect of exchange rate changes on cash and cash equivalents (233) 230 Change in cash and cash equivalents 10,059 41,068 Cash and cash equivalents at beginning of period 70,610 130,204 Cash and cash equivalents at end of period $ 80,669 $ 171,272 See accompanying notes. Papa John’s domestic restaurants, both Company-owned and franchised, participate in Papa John’s Marketing Fund, Inc. (“PJMF”), a nonstock corporation designed to operate at break-even as it spends all annual contributions received from the system. PJMF collects a percentage of revenues from Company-owned and franchised restaurants in the United States for the purpose of designing and administering advertising and promotional programs. PJMF is a variable interest entity (“VIE”) that funds its operations with ongoing financial support and contributions from the domestic restaurants, of which approximately Papa John’s has the Company and the interests of the noncontrolling owners, including a disclosure on the face of the Condensed Consolidated Statements of Operations of net income attributable to noncontrolling interests. Three Months Ended March 27, March 28, 2022 2021 Papa John’s International, Inc. $ 1,621 $ 2,349 Noncontrolling interests 933 1,400 Total net income $ 2,554 $ 3,749 Type of Joint Venture Arrangement Location within the Balance Sheets Recorded Value Joint ventures with no redemption feature Permanent equity Carrying value Joint ventures with option to require the Company to purchase the noncontrolling interest - not currently redeemable or redemption not probable Temporary equity Carrying value Carrying Fair Value Measurements (in thousands) Value Level 1 Level 2 Level 3 March 27, 2022 Financial assets: Cash surrender value of life insurance policies (a) $ 34,205 $ 34,205 $ — $ — Financial liabilities: Interest rate swaps (b) $ 1,528 $ — $ 1,528 $ — December 26, 2021 Financial assets: Cash surrender value of life insurance policies (a) $ 41,904 $ 41,904 $ — $ — Financial liabilities: Interest rate swaps (b) $ 5,536 $ — $ 5,536 $ — See accompanying notes.64Condensed Consolidated Statements of Stockholders’ Deficit (continued)(Unaudited)Papa John’s International, Inc. (In thousands) Common
Stock
Shares
OutstandingCommon
StockAdditional
Paid-In
CapitalAccumulated
Other
Comprehensive
LossRetained
EarningsTreasury
StockNoncontrolling
Interests in
SubsidiariesTotal
Stockholders’
DeficitFor the three months ended September 26, 2021 Balance at June 27, 2021 36,215 $ 489 $ 435,608 $ (10,235) $ 154,769 $ (743,819) $ 15,290 $ (147,898) Net income (1)— — — — 29,256 — 593 29,849 Other comprehensive income, net of tax — — — 325 — — — 325 Cash dividends on common stock — — 48 — (12,845) — — (12,797) Exercise of stock options 51 1 3,111 — — — — 3,112 Acquisition of Company common stock (103) — — — — (12,367) — (12,367) Stock-based compensation expense — — 4,317 — — — — 4,317 Issuance of restricted stock 15 — (873) — — 873 — — Tax payments for equity award issuances — — (1,423) — — — — (1,423) Distributions to noncontrolling interests — — — — — — (594) (594) Other 5 — (46) — 198 278 — 430 Balance at September 26, 2021 36,183 $ 490 $ 440,742 $ (9,910) $ 171,378 $ (755,035) $ 15,289 $ (137,046) For the nine months ended September 26, 2021 Balance at December 27, 2020 32,545 $ 453 $ 254,103 $ (14,168) $ 219,158 $ (741,724) $ 15,239 $ (266,939) Net income (1)— — — — 95,393 — 1,829 97,222 Other comprehensive income, net of tax — — — 4,258 — — — 4,258 Repurchase and conversion of Series B Convertible Preferred Stock 3,489 35 174,631 — (110,498) — — 64,168 Cash dividends on common stock — — 110 — (27,750) — — (27,640) Cash dividends on preferred stock — — — — (4,121) — — (4,121) Exercise of stock options 199 2 11,209 — — — — 11,211 Acquisition of Company common stock (187) — — — — (20,555) — (20,555) Stock-based compensation expense — — 12,519 — — — — 12,519 Issuance of restricted stock 125 — (6,538) — — 6,538 — — Tax payments for equity award issuances — — (5,310) — — — — (5,310) Distributions to noncontrolling interests — — — — — — (1,779) (1,779) Other 12 — 18 — (804) 706 — (80) Balance at September 26, 2021 36,183 $ 490 $ 440,742 $ (9,910) $ 171,378 $ (755,035) $ 15,289 $ (137,046) (1) Net income to the Company for the three and nine months ended September 26, 2021 excludes $692 and $2,192 allocable to the redeemable noncontrolling interests for our joint venture arrangements.(1)Net income to the Company for the three months ended March 28, 2021 excludes $787 allocable to the redeemable noncontrolling interests for our joint venture arrangements.March 28,September 26, 2021, the accumulated other comprehensive loss of $11,971$9,910 was comprised of net unrealized foreign currency translation loss of $2,977$3,499 and net unrealized loss on the interest rate swap agreements of $8,994.See accompanying notes.75Condensed Consolidated Statements of Cash Flows(Unaudited)Nine Months Ended (In thousands) September 25,
2022September 26,
2021Operating activities Net income before attribution to noncontrolling interests $ 45,621 $ 99,414 Adjustments to reconcile net income to net cash provided by operating activities: Provision (benefit) for allowance for credit losses on accounts and notes receivable 18,576 (920) Depreciation and amortization 38,012 36,830 Refranchising and impairment loss 12,065 — Deferred income taxes 519 (5,113) Stock-based compensation expense 14,246 12,519 Other (466) 1,052 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (19,584) 5,955 Income tax receivable (1,146) 674 Inventories (8,185) (3,217) Prepaid expenses and other current assets 2,065 11,277 Other assets and liabilities (4,919) (8,627) Accounts payable 16,188 5,014 Income and other taxes payable (1,789) 15,958 Accrued expenses and other current liabilities (32,404) 24,001 Deferred revenue (2,246) (1,193) Net cash provided by operating activities 76,553 193,624 Investing activities Purchases of property and equipment (48,424) (41,328) Notes issued (2,248) (14,637) Repayments of notes issued 8,125 15,352 Acquisitions, net of cash acquired (1,346) (699) Proceeds from refranchising, net of cash transferred 13,588 — Other 76 121 Net cash used in investing activities (30,229) (41,191) Financing activities Proceeds from issuance of senior notes — 400,000 Net proceeds of revolving credit facilities 66,999 15,000 Debt issuance costs — (9,179) Proceeds from exercise of stock options 2,730 11,211 Repurchase of Series B Convertible Preferred Stock — (188,647) Acquisition of Company common stock (95,000) (20,555) Dividends paid to common stockholders (39,949) (27,640) Dividends paid to preferred stockholders — (6,394) Tax payments for equity award issuances (9,426) (5,310) Distributions to noncontrolling interests (1,090) (2,914) Repayments of term loan — (340,000) Other (3,480) (2,630) Net cash used in financing activities (79,216) (177,058) Effect of exchange rate changes on cash and cash equivalents (1,100) 234 Change in cash and cash equivalents (33,992) (24,391) Cash and cash equivalents at beginning of period 70,610 130,204 Cash and cash equivalents at end of period $ 36,618 $ 105,813 86Notes to Condensed Consolidated Financial Statements (Unaudited)March 27,September 25, 20221.Basis of Presentation1. Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 27,September 25, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 25, 2022. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for Papa John’s International, Inc. (referred to as the “Company”, “Papa John’s” or in the first-person notations of “we”, “us” and “our”) for the year ended December 26, 2021.2.Significant Accounting Policies2. Significant Accounting PoliciesUse of EstimatesThe preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant items that are subject to such estimates and assumptions include allowance for credit losses on accounts and notes receivable, intangible assets, contract assets and contract liabilities, including the online customer loyalty program obligation and gift card breakage, right-of-use assets and lease liabilities, insurance reserves, and tax reserves. Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could significantly differ from these estimates.Variable Interest Entity80%85 percent are franchised, (85% following the divestiture of the Company’s interest in 1 joint venture subsequent to the end of the first quarter that included 90 restaurants as discussed in Note 10) and does not have sufficient equity to fund its operations without these ongoing financial contributions. Based on an assessment of the governance structure and operating procedures of PJMF, the Company determined it has the power to control certain significant activities of PJMF, and therefore, is the primary beneficiary. The Company has consolidated PJMF in its financial results in accordance with Accounting Standards Codification (“ASC”) 810, “Consolidations.”Noncontrolling Interests 4 joint venture arrangements in which there are noncontrolling interests held by third parties that includeinclude 98 and 188 restaurants at March 27,September 25, 2022 and March 28, 2021. Subsequent toSeptember 26, 2021, respectively. As further described in Note 10, we divested our 51 percent interest in one joint venture that owned 90-restaurants in the second quarter of 2022. The assets and liabilities associated with this joint venture arrangement were classified as held for sale at the end of the first quarter the Company divested its interest in 1 joint venture that included 90 restaurants. See Note 10 for additional information.of 2022.Consolidated net income is required to be reported separately at amounts attributable to both the Company and the noncontrolling interests. Additionally, disclosures are required to clearly identify and distinguish between the interests of97Net income attributable to these joint ventures for the three and nine months ended March 27,September 25, 2022 and March 28,September 26, 2021 was as follows (in thousands):Three Months Ended Nine Months Ended September 25,
2022September 26,
2021September 25,
2022September 26,
2021Papa John’s International, Inc. $ 314 $ 2,171 $ 2,642 $ 6,816 Noncontrolling interests 133 1,285 1,363 4,021 Total net income $ 447 $ 3,456 $ 4,005 $ 10,837 The following summarizes the redemption feature, location and related accounting within the Condensed Consolidated Balance Sheets for these joint venture arrangements:Deferred Income Tax Accounts and Tax ReservesWe are subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining Papa John’s provision for income taxes and the related assets and liabilities. The provision for income taxes includes income taxes paid, currently payable or receivable and those deferred. We use an estimated annual effective rate based on expected annual income to determine our quarterly provision for income taxes. The effective income tax rate includes the estimated domestic state effective income tax rate and applicable foreign income tax rates. The effective income tax rate is also impacted by various permanent items and credits, net of any related valuation allowances, and can vary based on changes in estimated annual income. Discrete items are recorded in the quarter in which they occur.Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets are also recognized for the estimated future effects of tax attribute carryforwards (e.g., net operating losses, capital losses, and foreign tax credits). The effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax rate is enacted. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize.Tax authorities periodically audit the Company. We record reserves and related interest and penalties for identified exposures as income tax expense. We evaluate these issues on a quarterly basis to adjust for events, such as statute of limitations expirations, court or state rulings or audit settlements, which may impact our ultimate payment for such exposures.10The Company determines the fair value of financial assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following three categories:•●Level 1: Quoted market prices in active markets for identical assets or liabilities.●Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.●Level 3: Unobservable inputs that are not corroborated by market data.Level 1: Quoted market prices in active markets for identical assets or liabilities.•Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.•Level 3: Unobservable inputs that are not corroborated by market data.8Fair value is a market-based measurement, not an entity-specific measurement. Considerable judgment is required to interpret market data to estimate fair value; accordingly, the fair values presented do not necessarily indicate what the Company or its debtholders could realize in a current market exchange.Our financial assets and liabilities that were measured at fair value on a recurring basis as of March 27,September 25, 2022 and December 26, 2021 are as follows:Fair Value Measurements (in thousands) Carrying
ValueLevel 1 Level 2 Level 3 September 25, 2022 Financial assets: Cash surrender value of life insurance policies(a)$ 28,488 $ 28,488 $ — $ — Interest rate swaps(b)$ 1,355 $ — $ 1,355 $ — December 26, 2021 Financial assets: Cash surrender value of life insurance policies(a)$ 41,904 $ 41,904 $ — $ — Financial liabilities: Interest rate swaps(b)$ 5,536 $ — $ 5,536 $ — _______________(a)(a)Represents life insurance policies held in our non-qualified deferred compensation plan.(b)The fair value of our interest rate swaps is based on the sum of all future net present value cash flows. The future cash flows are derived based on the terms of our interest rate swaps, as well as considering published discount factors, and projected London Interbank Offered Rates (“LIBOR”).
The fair value of certain assets and liabilities approximates carrying value because of the short-term nature of the accounts, including cash and cash equivalents, accounts receivable, net of allowances, and accounts payable. The carrying value of notes receivable, net of allowances, also approximates fair value. The Company’s revolving credit facilities under its credit agreement approximate carrying value due to its variable market-based interest rate. The Company’s 3.875%senior notes are classified as a Level 2 fair value measurement since the Company estimates the fair value by using recent trading transactions, and has the following estimated fair values and carrying values (excluding the impact of unamortized debt issuance costs) as of March 27,September 25, 2022 and December 26, 2021, respectively:
| | | | | | | | | | | | |
| | March 27, 2022 | | December 26, 2021 | ||||||||
| | Carrying | | Fair | | Carrying | | Fair | ||||
(in thousands) | | Value | | Value | | Value | | Value | ||||
3.875% Senior Notes | | $ | 400,000 | | $ | 362,000 | | $ | 400,000 | | $ | 396,000 |
11
| September 25, 2022 | December 26, 2021 | |||||||||||||||||||||||||
| (in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||
| 3.875% Senior Notes | $ | 400,000 | $ | 328,000 | $ | 400,000 | $ | 396,000 | ||||||||||||||||||
| | | | | | |
| | | | |||
(in thousands) | | Accounts Receivable | | Notes Receivable | ||
Balance at December 26, 2021 | | $ | 2,364 | | $ | 1,500 |
Current period provision for expected credit losses (1) | | | 2,613 | | | 12,560 |
Write-offs charged against the allowance | | | (126) | | | — |
Recoveries collected | | | — | | | (6) |
Balance at March 27, 2022 | | $ | 4,851 | | $ | 14,054 |
| (in thousands) | Accounts Receivable | Notes Receivable | ||||||||||||
| Balance at December 26, 2021 | $ | 2,364 | $ | 1,500 | ||||||||||
Current period provision for expected credit losses (a) | 5,052 | 13,524 | ||||||||||||
| Write-offs charged against the allowance | (303) | — | ||||||||||||
| Recoveries collected | — | (14) | ||||||||||||
| Balance at September 25, 2022 | $ | 7,113 | $ | 15,010 | ||||||||||
| (a) | The Company recorded $14.6 million of one-time, non-cash reserves in the first quarter of 2022 for certain accounts receivable and notes receivable primarily associated with a master franchisee with operations principally in Russia. The Company recorded $3.2 million of one-time, non-cash reserves in the third quarter of 2022 for certain accounts receivable and notes receivable primarily associated with the termination of a significant franchisee in the United Kingdom. | |||||||
Operations.3. LeasesLessor Operating LeasesWe sublease certain retail space to our franchisees in the United Kingdom which are primarily operating leases. At March 27,September 25, 2022, we leased and subleased approximately 430444 Papa John’s restaurant properties to franchisees in the United Kingdom. The initial lease terms on the franchised sites in the United Kingdom are generally 15 years. The Company has the option to negotiate an extension toward the end of the lease term at the landlord’s discretion. Rental income, primarily derived from properties leased and subleased to franchisees in the United Kingdom, is recognized on a straight-line basis over the respective operating lease terms. We recognized total sublease income of $3.0 million and $2.8$9.0 million for the three and nine months ended September 25, 2022, respectively, and $2.9 million and $9.0 million for the three and nine months ended September 26, 2021, respectively, within Other revenues in the Condensed Consolidated Statements of Operations for the three months ended March 27, 2022 and March 28, 2021, respectively.Lease GuaranteesAs a result of assigning our interest in obligations under property leases as a condition of the refranchising of certain restaurants, we are contingently liable for payment of approximately 6555 domestic leases. These leases have varying terms, the latest of which expires in 2036. As of March 27,September 25, 2022, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was $10.8$9.8 million. This contingent liability is not included in the Condensed Consolidated Balance Sheet as it is not probable to occur. The fair value of the guarantee is not material.Subsequent to quarter-end, we refranchised 90 Company-owned restaurants held in a consolidated joint venture in Texas through the sale of our 51% ownership in the joint venture, as discussed in Note 10. As part of this transaction, we are contingently liable for payment of 12 of the 90 domestic leases, and the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees for these stores is approximately $1.6 million. 12
| Nine Months Ended | ||||||||||||||||||||||||||
| (in thousands) | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||||||||
| Operating cash flows from finance leases | $ | 754 | $ | 864 | ||||||||||||||||||||||
| Financing cash flows from finance leases | 3,854 | 3,358 | ||||||||||||||||||||||||
| Operating cash flows from operating leases (a) | 26,771 | 28,830 | ||||||||||||||||||||||||
| Right-of-use assets obtained in exchange for new finance lease liabilities | 5,980 | 9,190 | ||||||||||||||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities (b) | 43,639 | 52,462 | ||||||||||||||||||||||||
| Cash received from sublease income | 8,251 | 8,728 | ||||||||||||||||||||||||
(a)Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease right-of-use asset amortization and lease liability accretion. | ||||||||||||||||||||||||||
(b)Includes right-of-use assets of approximately $21.8 million for the nine months ended September 26, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office. | ||||||||||||||||||||||||||
| | | | | | |
| | Three Months Ended | ||||
(in thousands) | | March 27, 2022 | | March 28, 2021 | ||
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
Operating cash flows from finance leases | | $ | 262 | | $ | 278 |
Financing cash flows from finance leases | | | 1,241 | | | 1,059 |
Operating cash flows from operating leases (a) | | | 9,612 | | | 9,483 |
Right-of-use assets obtained in exchange for new finance lease liabilities | | | 569 | | | 7,014 |
Right-of-use assets obtained in exchange for new operating lease liabilities (b) | | | 20,801 | | | 28,428 |
Cash received from sublease income | | | 3,092 | | | 2,987 |
| | | | | | |
(a) Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease right-of-use asset amortization and lease liability accretion. | ||||||
(b) Includes right-of-use assets of approximately $14.5 million for the three months ended March 28, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office. | ||||||
| | | | | | |
| | | | | | |
| | March 27, | | December 26, | ||
| | 2022 | | 2021 | ||
| | | | | | |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 24,136 | | $ | 24,481 |
Accounts receivable, net | | | 13,078 | | | 14,150 |
Income tax receivable | | | 44 | | | 300 |
Prepaid expenses and other current assets | | | 2,148 | | | 1,718 |
Total current assets | | | 39,406 | | | 40,649 |
Deferred income taxes | | | 604 | | | 614 |
Total assets | | $ | 40,010 | | $ | 41,263 |
| | | | | | |
| | | | | | |
Liabilities | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 2,868 | | $ | 140 |
Income and other taxes payable | | | 2 | | | 2 |
Accrued expenses and other current liabilities | | | 35,131 | | | 40,154 |
Current deferred revenue | | | 4,320 | | | 4,317 |
Total current liabilities | | | 42,321 | | | 44,613 |
Deferred revenue | | | 1,399 | | | 2,478 |
Total liabilities | | $ | 43,720 | | $ | 47,091 |
13
| September 25, 2022 | December 26, 2021 | |||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 4,349 | $ | 24,481 | ||||||||||
| Accounts receivable, net | 23,677 | 14,150 | ||||||||||||
| Income tax receivable | 44 | 300 | ||||||||||||
| Prepaid expenses and other current assets | 2,512 | 1,718 | ||||||||||||
| Total current assets | 30,582 | 40,649 | ||||||||||||
| Deferred income taxes | 587 | 614 | ||||||||||||
| Total assets | $ | 31,169 | $ | 41,263 | ||||||||||
| Liabilities | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 24 | $ | 140 | ||||||||||
| Income and other taxes payable | 3 | 2 | ||||||||||||
| Accrued expenses and other current liabilities | 30,139 | 40,154 | ||||||||||||
| Current deferred revenue | 3,319 | 4,317 | ||||||||||||
| Total current liabilities | 33,485 | 44,613 | ||||||||||||
| Deferred revenue | 1,892 | 2,478 | ||||||||||||
| Total liabilities | $ | 35,377 | $ | 47,091 | ||||||||||
revenue, compared to $9.2 million and $27.3 million for the three and nine months ended September 26, 2021.
| | | | | | | | | |
| | Contract Liabilities | |||||||
| | | March 27, 2022 | | | December 26, 2021 | | | Change |
Franchise fees and unredeemed gift card liabilities | | $ | 18,731 | | $ | 20,410 | | $ | (1,679) |
Customer loyalty program obligations | | | 13,299 | | | 15,136 | | | (1,837) |
Total contract liabilities | | $ | 32,030 | | $ | 35,546 | | $ | (3,516) |
| Contract Liabilities | ||||||||||||||||||||
| September 25, 2022 | December 26, 2021 | Change | ||||||||||||||||||
| Franchise fees and unredeemed gift card liabilities | $ | 29,469 | $ | 20,410 | $ | 9,059 | ||||||||||||||
| Customer loyalty program obligations | 13,443 | 15,136 | (1,693) | |||||||||||||||||
| Total contract liabilities | $ | 42,912 | $ | 35,546 | $ | 7,366 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | Performance Obligations by Period | ||||||||||||||||||
| | Less than 1 Year | | 1-2 Years | | 2-3 Years | | 3-4 Years | | 4-5 Years | | Thereafter | | Total | |||||||
Franchise fees | | $ | 2,011 | | $ | 1,783 | | $ | 1,601 | | $ | 1,390 | | $ | 1,127 | | $ | 2,134 | | $ | 10,046 |
| Performance Obligations by Period | ||||||||||||||||||||||||||||||||||||||||||||
| Less than 1 Year | 1-2 Years | 2-3 Years | 3-4 Years | 4-5 Years | Thereafter | Total | ||||||||||||||||||||||||||||||||||||||
| Franchise fees | $ | 3,135 | $ | 2,945 | $ | 2,768 | $ | 2,552 | $ | 2,253 | $ | 7,503 | $ | 21,156 | ||||||||||||||||||||||||||||||
The Company applies the practical expedient in ASC 606-10-50-14606, "Revenue Recognition" and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
14
| | | | | | | | | | | |
| | | | | | | | | | | Maximum Dollar |
| | Total | | | Average | | | Aggregate | | | Value of Shares |
| | Number | | | Price | | | Cost of | | | that May Yet Be |
(in thousands, except average price per share) | | of Shares | | | Paid per | | | Shares | | | Purchased Under the |
Three Months Ended | | Purchased | |
| Share | | | Purchased | | | Plans or Programs |
March 27, 2022 | | 301 | | $ | 108.76 | | $ | 32,709 | | $ | 392,091 |
March 28, 2021 | | 15 | | $ | 84.63 | | $ | 1,267 | | $ | 71,031 |
Subsequent to March 27, 2022, we acquired an additional 223,000 shares at an aggregate cost of $23.0 million and an average price of $102.97 per share. Approximately $369.1 million remained available under the Company’s share repurchase program as of April 29, 2022.
| (in thousands, except average price per share) | Total Number of Shares Purchased | Average Price Paid per Share | Aggregate Cost of Shares Purchased | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||
| September 25, 2022 | 229 | $ | 85.15 | $ | 19,529 | $ | 329,800 | |||||||||||||||||||
| September 26, 2021 | 104 | $ | 119.47 | $ | 12,367 | $ | 51,743 | |||||||||||||||||||
| (in thousands, except average price per share) | Total Number of Shares Purchased | Average Price Paid per Share | Aggregate Cost of Shares Purchased | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||
| September 25, 2022 | 982 | $ | 96.71 | $ | 95,000 | $ | 329,800 | |||||||||||||||||||
| September 26, 2021 | 187 | $ | 110.00 | $ | 20,555 | $ | 51,743 | |||||||||||||||||||
Dividends
The Company recorded dividends of approximately $12.6approximately $39.9 million ($0.351.12 per share) infor the first quarter ofnine months ended September 25, 2022. On April 26,October 27, 2022, our Board of Directors declared a secondfourth quarter dividend of $0.35$0.42 per common share (approximately $12.6$14.9 million in the aggregate), which will be paid on May 27,November 25, 2022 to stockholders of record as of the close of business on May 16,November 14, 2022. The declarationdeclaration and payment of any future dividends will be at the discretion of our Board of Directors.
15
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| Basic earnings (loss) per common share (in thousands, except per share data) | |||||||||||||||||||||||
| Net income attributable to the Company | $ | 8,331 | $ | 29,256 | $ | 44,258 | $ | 95,393 | |||||||||||||||
| Dividends on redemption of Series B Convertible Preferred Stock | — | — | — | (109,852) | |||||||||||||||||||
| Dividends paid to participating securities | (86) | (137) | (228) | (5,964) | |||||||||||||||||||
| Net income attributable to participating securities | — | (158) | (34) | — | |||||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | 8,245 | $ | 28,961 | $ | 43,996 | $ | (20,423) | |||||||||||||||
| Basic weighted average common shares outstanding | 35,259 | 36,387 | 35,602 | 34,619 | |||||||||||||||||||
| Basic earnings (loss) per common share | $ | 0.23 | $ | 0.80 | $ | 1.23 | $ | (0.59) | |||||||||||||||
| Diluted earnings (loss) per common share (in thousands, except per share data) | |||||||||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | 8,245 | $ | 28,961 | $ | 43,996 | $ | (20,423) | |||||||||||||||
| Weighted average common shares outstanding | 35,259 | 36,387 | 35,602 | 34,619 | |||||||||||||||||||
Dilutive effect of outstanding equity awards(a) | 189 | 332 | 238 | — | |||||||||||||||||||
| Diluted weighted average common shares outstanding | 35,448 | 36,719 | 35,840 | 34,619 | |||||||||||||||||||
| Diluted earnings (loss) per common share | $ | 0.23 | $ | 0.79 | $ | 1.22 | $ | (0.59) | |||||||||||||||
| | | | | | |
| | Three Months Ended | ||||
| | March 27, | | March 28, | ||
| | 2022 |
| 2021 | ||
Basic earnings per common share (in thousands, except per share data) | | | | | | |
Net income attributable to the Company | | $ | 10,494 | | $ | 33,883 |
Dividends paid to participating securities | | | (60) | | | (3,527) |
Net income attributable to participating securities | |
| — | |
| (3,243) |
Net income attributable to common shareholders | | $ | 10,434 | | $ | 27,113 |
| | | | | | |
Basic weighted average common shares outstanding | |
| 35,927 | |
| 32,756 |
Basic earnings per common share | | $ | 0.29 | | $ | 0.83 |
| | | | | | |
Diluted earnings per common share (in thousands, except per share data) | | | | | | |
Net income attributable to common shareholders | | $ | 10,434 | | $ | 27,113 |
| | | | | | |
Weighted average common shares outstanding | |
| 35,927 | |
| 32,756 |
Dilutive effect of outstanding equity awards (a) | |
| 309 | |
| 334 |
Diluted weighted average common shares outstanding (b) | |
| 36,236 | |
| 33,090 |
Diluted earnings per common share | | $ | 0.29 | | $ | 0.82 |
| (a) | Excludes | ||||
16
|
|
Long-term debt, net, consists of the following (in thousands):
| | | | | | | |
| | | | March 27, | | | December 26, |
| | | | 2022 | | | 2021 |
Senior notes | | | $ | 400,000 | | $ | 400,000 |
Revolving facilities | | | | 137,000 | | | 90,000 |
Outstanding debt | | | $ | 537,000 | | $ | 490,000 |
Unamortized debt issuance costs | | | | (8,912) | | | (9,270) |
Total long-term debt, net | | | $ | 528,088 | | $ | 480,730 |
| September 25, 2022 | December 26, 2021 | ||||||||||
| Senior notes | $ | 400,000 | $ | 400,000 | |||||||
| Revolving facilities | 157,000 | 90,000 | |||||||||
| Outstanding debt | $ | 557,000 | $ | 490,000 | |||||||
| Unamortized debt issuance costs | (8,247) | (9,270) | |||||||||
| Total long-term debt, net | $ | 548,753 | $ | 480,730 | |||||||
The remaining availability under the PJI Revolving Facility was approximately $443.0 million as of September 25, 2022.
17
The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, require customary reporting obligations, and restrict, subject to certain exceptions, the incurrenceoccurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates. In addition, theThe Company will beis also subject to the following financial covenants: (1) a maximum Leverage Ratio of 5.25 to 1.00, subject to the Company’s election to increase the maximum Leverage Ratio by 0.50 to 1.00 in connection with material acquisitions if the Company satisfies certain requirements, and (2) a minimum interest coverage ratio defined as EBITDA plus consolidated rental expense to consolidated interest expense plus consolidated rental expense of 2.00 to 1.00. We were in compliance with these financial covenants at March 27,September 25, 2022.
| | | | | | | |
Effective Dates |
| Floating Rate Debt |
| Fixed Rates |
| ||
April 30, 2018 through April 30, 2023 | | $ | 55 | million | | 2.33 | % |
April 30, 2018 through April 30, 2023 | | $ | 35 | million | | 2.36 | % |
April 30, 2018 through April 30, 2023 | | $ | 35 | million | | 2.34 | % |
January 30, 2018 through August 30, 2022 | | $ | 100 | million | | 1.99 | % |
January 30, 2018 through August 30, 2022 | | $ | 75 | million | | 1.99 | % |
January 30, 2018 through August 30, 2022 | | $ | 50 | million | | 2.00 | % |
Our
| Effective Dates | Floating Rate Debt | Fixed Rates | ||||||||||||
| April 30, 2018 through April 30, 2023 | $ | 55 million | 2.33% | |||||||||||
| April 30, 2018 through April 30, 2023 | $ | 35 million | 2.36% | |||||||||||
| April 30, 2018 through April 30, 2023 | $ | 35 million | 2.34% | |||||||||||
18
The following table provides information on the location and amounts of our swaps in the accompanying condensed consolidated financial statements (in thousands):
| Interest Rate Swap Derivatives | ||||||||||||||
| Balance Sheet Location | Fair Value September 25, 2022 | Fair Value December 26, 2021 | ||||||||||||
| Other current assets | $ | 1,355 | $ | — | ||||||||||
| Other current and long-term liabilities | $ | — | $ | 5,536 | ||||||||||
| | | | | | |
| | Interest Rate Swap Derivatives | ||||
| | Fair Value | | Fair Value | ||
| | March 27, | | December 26, | ||
Balance Sheet Location | | 2022 | | 2021 | ||
Other current and long-term liabilities | | $ | 1,528 | | $ | 5,536 |
The effect of derivative instruments on the accompanying condensed consolidated financial statements is as follows (in thousands):
| | | | | | | | | | | | |
| | | | | | | | | | | ||
| | | | Location of (Loss) | | Amount of (Loss) | | | ||||
Derivatives - | | Amount of Gain or | | or Gain | | or Gain | | Total Net Interest Expense | ||||
Cash Flow | | (Loss) Recognized | | Reclassified from | | Reclassified from | | on Condensed | ||||
Hedging | | in AOCL | | AOCL into | | AOCL into | | Consolidated Statements | ||||
Relationships | | on Derivative | | Income | | Income | | of Operations | ||||
Interest rate swaps for the three months ended: | ||||||||||||
March 27, 2022 | | $ | 1,318 | |
| Interest expense | | $ | 535 | | $ | (4,264) |
March 28, 2021 | | $ | 1,382 | |
| Interest expense | | $ | (1,709) | | $ | (3,647) |
| Derivatives - Cash Flow Hedging Relationships | Amount of Gain or (Loss) Recognized in AOCL on Derivative | Location of (Loss) or Gain Reclassified from AOCL into Income | Amount of (Loss) or Gain Reclassified from AOCL into Income | Total Net Interest Expense on Condensed Consolidated Statements of Operations | ||||||||||||||||||||||
| Interest rate swaps for the three months ended: | ||||||||||||||||||||||||||
| September 25, 2022 | $ | 901 | Interest expense | (1,650) | $ | (7,623) | ||||||||||||||||||||
| September 26, 2021 | $ | 1,182 | Interest expense | (1,644) | $ | (3,979) | ||||||||||||||||||||
| Interest rate swaps for the nine months ended: | ||||||||||||||||||||||||||
| September 25, 2022 | $ | 3,664 | Interest Expense | (1,850) | $ | (17,967) | ||||||||||||||||||||
| September 26, 2021 | $ | 3,963 | Interest Expense | (5,084) | $ | (11,275) | ||||||||||||||||||||
|
|
Litigation
The Company is involved in a number of lawsuits, claims, investigations and proceedings, including those specifically identified below, consisting of intellectual property, employment, consumer, commercial and other matters arising in the ordinary course of business. In accordance with ASC 450, “Contingencies” the Company has made accruals with respect to these matters where appropriate, which are reflected in the Company’s condensed consolidated financial statements. We review these provisions at least quarterly and adjust them to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.
In re Papa John’s Employee & Franchise Employee Antitrust Litigation is a putative class action filed in December 2018 in the United States District Court for the Western District of Kentucky. The suit alleges that the “no-poaching” provision previously contained in the Company’s franchise agreement constituted an unlawful agreement or conspiracy in restraint of trade and commerce in violation of Section 1 of the Sherman Antitrust Act. On April 14, 2022, the parties reached a settlement (the “Legal Settlement”) in principle to resolve the case. Pursuant to the terms of the proposed settlement, in exchange for the Company’s payment of a total aggregate settlement amount of $5.0 million and other non-monetary consideration, all claims in the action will be dismissed, the litigation will be terminated, and the Company will receive a release. The settlement amount was recorded in General and administrative expenses in the Condensed Consolidated Statements of Operations in the first quarter of 2022. The proposed settlement is subject to approval by the District Court and contains certain customary contingencies. The Company continues to deny any liability or wrongdoing in this matter.
Durling et al v. Papa John’s International, Inc., is a conditionally certified collective action filed in May 2016 in the United States District Court for the Southern District of New York, alleging that corporate restaurant delivery drivers were not properly reimbursed for vehicle mileage and expenses in accordance with the Fair Labor Standards Act. In July 2018, the District Court granted a motion to certify a conditional corporate collective class and the opt-in notice process has been completed. As of the close of the opt-in period on October 29, 2018, 9,571 drivers opted into the collective class. On September 30, 2022, the parties reached a settlement in principle to resolve the case. Pursuant to the terms of the proposed settlement, in exchange for the Company’s payment of a total aggregate settlement amount of no more than $20.0 million subject to a claims-made process, all claims in the action will be dismissed, the litigation will be terminated, and the Company will receive a release. The proposed settlement also includes resolution of a companion case, Hubbard, et al. v. Papa John’s International, Inc., pending in the United States District Court for the Western District of Kentucky. The proposed settlement is subject to a claims-made process whereby unclaimed funds revert to the Company, and the
19
| | | |
|
| | |
| | | March 27, 2022 |
Current assets | | $ | 1,632 |
Property and equipment, net | | | 7,030 |
Operating lease right-of-use assets |
| | 8,924 |
Goodwill | | | 9,908 |
Other assets | | | 191 |
Loss on impairment | | | (8,412) |
Total assets held for sale | | $ | 19,273 |
| | | |
Accounts payable, taxes payable, accrued expenses and other | | $ | 1,632 |
Current deferred revenue | | | 1,930 |
Current operating lease liabilities | | | 2,338 |
Long-term operating lease liabilities | | | 7,097 |
Other long-term liabilities | | | 250 |
Total liabilities held for sale | | $ | 13,247 |
Upon reclassification of assets and liabilities held for sale,divestiture, we recorded a one-time, non-cash charge of $8.4 million as a Refranchising Loss in the Condensed Consolidated Statement of Operations, which reflects net sale proceeds of $14.0 million, the noncontrolling interest of $4.2 million, and the recognition of an unearned royalty stream of $12.2 million to be recognized as revenue over the 10-year term of the franchise agreement executed concurrent with the disposition in accordance with ASC 810, “Consolidation.
20
|
|
We have 4four reportable segments: domesticDomestic Company-owned restaurants, North America franchising, North America commissaries, and international operations. The domestic Company-owned restaurant segment consists of the operations of all domestic (“domestic” is defined as contiguous United States) Company-owned restaurants and derives its revenues principally from retail sales of pizza, Papadias, which are flatbread-style sandwiches, and side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages. The North America commissary segment consists of the operations of our regional dough production and product distribution centers and derives its revenues principally from the sale and distribution of food and paper products to domestic Company-owned and franchised restaurants in the United States and Canada. The North America franchising segment consists of our franchise sales and support activities and derives its revenues from sales of franchise and development rights and collection of royalties from our franchisees located in the United States and Canada. The international segment principally consists of distribution sales to franchised Papa John’s restaurants located in the United Kingdom and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our international franchisees. International franchisees are defined as all franchise operations outside of the United States and Canada. All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as “all other,” which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of printing and promotional items, franchise contributions to marketing funds and information systems and related services used in restaurant operations, including our point-of-sale system, online and other technology-based ordering platforms.
21
Our segment information is as follows:
| | | | | | | |
| | | Three Months Ended | ||||
| | | March 27, | | March 28, | ||
(In thousands) | |
| 2022 |
| 2021 | ||
Revenues: | | | | | | | |
Domestic Company-owned restaurants | | | $ | 198,765 | | $ | 197,234 |
North America franchising | | |
| 34,268 | |
| 32,715 |
North America commissaries | | |
| 209,679 | |
| 184,878 |
International | | |
| 42,707 | |
| 42,604 |
All others | | |
| 57,273 | |
| 54,315 |
Total revenues | | | $ | 542,692 | | $ | 511,746 |
| | | | | | | |
Intersegment revenues: | | | | | | | |
North America franchising | | | $ | 1,053 | | $ | 1,060 |
North America commissaries | | | | 58,507 | | | 52,070 |
All others | | |
| 19,379 | |
| 19,148 |
Total intersegment revenues | | | $ | 78,939 | | $ | 72,278 |
| | | | | | | |
Operating income: | | | | | | | |
Domestic Company-owned restaurants (1) | | | $ | 1,989 | | $ | 15,324 |
North America franchising | | |
| 32,137 | |
| 30,443 |
North America commissaries | | |
| 9,334 | |
| 9,713 |
International (2) | | |
| 4,455 | |
| 8,364 |
All others | | |
| 3,719 | |
| 6,118 |
Unallocated corporate expenses (3) | | |
| (37,111) | |
| (23,162) |
Elimination of intersegment (profits) losses | | |
| (88) | |
| 62 |
Total operating income | | | $ | 14,435 | | $ | 46,862 |
| | | | | | | |
Property and equipment, net: | | | | | | | |
Domestic Company-owned restaurants | | | $ | 220,357 | | | |
North America commissaries | | | | 149,503 | | | |
International | | | | 14,857 | | | |
All others | | | | 112,037 | | | |
Unallocated corporate assets | | | | 234,115 | | | |
Accumulated depreciation and amortization | | | | (514,616) | | | |
Total property and equipment, net | | | $ | 216,253 | | | |
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (In thousands) | September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | |||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Domestic Company-owned restaurants | $ | 166,050 | $ | 191,584 | $ | 536,226 | $ | 584,942 | |||||||||||||||
| North America franchising | 33,712 | 31,933 | 102,897 | 97,123 | |||||||||||||||||||
| North America commissaries | 216,115 | 189,224 | 645,177 | 560,743 | |||||||||||||||||||
| International | 37,707 | 46,880 | 119,696 | 135,761 | |||||||||||||||||||
| All others | 56,928 | 53,161 | 171,873 | 160,967 | |||||||||||||||||||
| Total revenues | $ | 510,512 | $ | 512,782 | $ | 1,575,869 | $ | 1,539,536 | |||||||||||||||
| Intersegment revenues: | |||||||||||||||||||||||
| North America franchising | $ | 996 | $ | 1,037 | $ | 3,097 | $ | 3,138 | |||||||||||||||
| North America commissaries | 51,330 | 53,454 | 162,591 | 158,952 | |||||||||||||||||||
| All others | 15,562 | 18,522 | 50,830 | 56,613 | |||||||||||||||||||
| Total intersegment revenues | $ | 67,888 | $ | 73,013 | $ | 216,518 | $ | 218,703 | |||||||||||||||
| Operating income: | |||||||||||||||||||||||
Domestic Company-owned restaurants(a) | $ | 3,667 | $ | 9,480 | $ | 11,579 | $ | 40,165 | |||||||||||||||
| North America franchising | 31,464 | 29,830 | 96,225 | 90,791 | |||||||||||||||||||
| North America commissaries | 8,425 | 9,598 | 28,717 | 29,089 | |||||||||||||||||||
International(b) | 1,136 | 9,618 | 12,897 | 26,665 | |||||||||||||||||||
| All others | 2,037 | 3,848 | 7,943 | 14,860 | |||||||||||||||||||
Unallocated corporate expenses(c) | (27,684) | (23,158) | (84,138) | (70,937) | |||||||||||||||||||
| Elimination of intersegment (profits) losses | 416 | (639) | (423) | (557) | |||||||||||||||||||
| Total operating income | $ | 19,461 | $ | 38,577 | $ | 72,800 | $ | 130,076 | |||||||||||||||
| Property and equipment, net: | |||||||||||||||||||||||
| Domestic Company-owned restaurants | $ | 229,480 | |||||||||||||||||||||
| North America commissaries | 153,604 | ||||||||||||||||||||||
| International | 14,601 | ||||||||||||||||||||||
| All others | 122,927 | ||||||||||||||||||||||
| Unallocated corporate assets | 246,006 | ||||||||||||||||||||||
| Accumulated depreciation and amortization | (535,724) | ||||||||||||||||||||||
| Total property and equipment, net | $ | 230,894 | |||||||||||||||||||||
| (a) | Includes a one-time, non-cash charge of $8.4 million associated with the refranchising of the Company’s ownership interest in a 90-restaurant joint venture, recorded as Refranchising and impairment | ||||
| The three months ended September 25, 2022 includes a charge of $4.1 million related to the reserve of certain accounts and notes receivable and operating lease right-of-use assets impairment associated with the termination of a significant franchisee in the United Kingdom. The nine months ended September 25, 2022 also includes $3.5 million of one-time, non-cash reserves for certain accounts receivable and impairments of reacquired franchise | |||||
| (c) | Unallocated corporate expenses includes $10.0 million for certain legal settlements for the three months ended September 25, 2022. For the | ||||
22
| Reportable Segments | |||||||||||||||||||||||||||||||||||
| Three Months Ended September 25, 2022 | |||||||||||||||||||||||||||||||||||
| Major Products/Services Lines | Domestic Company-owned restaurants | North America franchising | North America commissaries | International | All others | Total | |||||||||||||||||||||||||||||
| Company-owned restaurant sales | $ | 166,050 | $ | — | $ | — | $ | — | $ | — | $ | 166,050 | |||||||||||||||||||||||
| Franchise royalties and fees | — | 34,708 | — | 11,619 | — | 46,327 | |||||||||||||||||||||||||||||
| Commissary sales | — | — | 267,445 | 19,116 | — | 286,561 | |||||||||||||||||||||||||||||
| Other revenues | — | — | — | 6,972 | 72,490 | 79,462 | |||||||||||||||||||||||||||||
| Eliminations | — | (996) | (51,330) | — | (15,562) | (67,888) | |||||||||||||||||||||||||||||
| Total segment revenues | $ | 166,050 | $ | 33,712 | $ | 216,115 | $ | 37,707 | $ | 56,928 | $ | 510,512 | |||||||||||||||||||||||
International other revenues(a) | — | — | — | (6,972) | 6,972 | — | |||||||||||||||||||||||||||||
| Total revenues | $ | 166,050 | $ | 33,712 | $ | 216,115 | $ | 30,735 | $ | 63,900 | $ | 510,512 | |||||||||||||||||||||||
| Reportable Segments | |||||||||||||||||||||||||||||||||||
| Three Months Ended September 26, 2021 | |||||||||||||||||||||||||||||||||||
| Major Products/Services Lines | Domestic Company-owned restaurants | North America franchising | North America commissaries | International | All others | Total | |||||||||||||||||||||||||||||
| Company-owned restaurant sales | $ | 191,584 | $ | — | $ | — | $ | — | $ | — | $ | 191,584 | |||||||||||||||||||||||
| Franchise royalties and fees | — | 32,970 | — | 14,031 | — | 47,001 | |||||||||||||||||||||||||||||
| Commissary sales | — | — | 242,678 | 24,377 | — | 267,055 | |||||||||||||||||||||||||||||
| Other revenues | — | — | — | 8,472 | 71,683 | 80,155 | |||||||||||||||||||||||||||||
| Eliminations | — | (1,037) | (53,454) | — | (18,522) | (73,013) | |||||||||||||||||||||||||||||
| Total segment revenues | $ | 191,584 | $ | 31,933 | $ | 189,224 | $ | 46,880 | $ | 53,161 | $ | 512,782 | |||||||||||||||||||||||
International other revenues(a) | — | — | — | (8,472) | 8,472 | — | |||||||||||||||||||||||||||||
| Total revenues | $ | 191,584 | $ | 31,933 | $ | 189,224 | $ | 38,408 | $ | 61,633 | $ | 512,782 | |||||||||||||||||||||||
| Reportable Segments | |||||||||||||||||||||||||||||||||||
| Nine Months Ended September 25, 2022 | |||||||||||||||||||||||||||||||||||
| Major Products/Services Lines | Domestic Company-owned restaurants | North America franchising | North America commissaries | International | All others | Total | |||||||||||||||||||||||||||||
| Company-owned restaurant sales | $ | 536,226 | $ | — | $ | — | $ | — | $ | — | $ | 536,226 | |||||||||||||||||||||||
| Franchise royalties and fees | — | 105,994 | — | 37,097 | — | 143,091 | |||||||||||||||||||||||||||||
| Commissary sales | — | — | 807,768 | 60,213 | — | 867,981 | |||||||||||||||||||||||||||||
| Other revenues | — | — | — | 22,386 | 222,703 | 245,089 | |||||||||||||||||||||||||||||
| Eliminations | — | (3,097) | (162,591) | — | (50,830) | (216,518) | |||||||||||||||||||||||||||||
| Total segment revenues | $ | 536,226 | $ | 102,897 | $ | 645,177 | $ | 119,696 | $ | 171,873 | $ | 1,575,869 | |||||||||||||||||||||||
International other revenues(a) | — | — | — | (22,386) | 22,386 | — | |||||||||||||||||||||||||||||
| Total revenues | $ | 536,226 | $ | 102,897 | $ | 645,177 | $ | 97,310 | $ | 194,259 | $ | 1,575,869 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | Reportable Segments | ||||||||||||||||
| | Three Months Ended March 27, 2022 | ||||||||||||||||
Major Products/Services Lines | | | Domestic Company-owned restaurants | | | North America franchising | | | North America commissaries | | | International | | | All others | | | Total |
Company-owned restaurant sales | | $ | 198,765 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 198,765 |
Franchise royalties and fees | | | - | | | 35,321 | | | - | | | 13,435 | | | - | | | 48,756 |
Commissary sales | | | - | | | - | | | 268,186 | | | 21,182 | | | - | | | 289,368 |
Other revenues | | | - | | | - | | | - | | | 8,090 | | | 76,652 | | | 84,742 |
Eliminations | | | - | | | (1,053) | | | (58,507) | | | - | | | (19,379) | | | (78,939) |
Total segment revenues | | $ | 198,765 | | $ | 34,268 | | $ | 209,679 | | $ | 42,707 | | $ | 57,273 | | $ | 542,692 |
International other revenues (1) | | | - | | | - | | | - | | | (8,090) | | | 8,090 | | | - |
Total revenues | | $ | 198,765 | | $ | 34,268 | | $ | 209,679 | | $ | 34,617 | | $ | 65,363 | | $ | 542,692 |
| | | | | | | | | | | | | | | | | | |
| | Reportable Segments | ||||||||||||||||
| | Three Months Ended March 28, 2021 | ||||||||||||||||
Major Products/Services Lines | | | Domestic Company-owned restaurants | | | North America franchising | | | North America commissaries | | | International | | | All others | | | Total |
Company-owned restaurant sales | | $ | 197,234 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 197,234 |
Franchise royalties and fees | | | - | | | 33,775 | | | - | | | 12,208 | | | - | | | 45,983 |
Commissary sales | | | - | | | - | | | 236,948 | | | 22,399 | | | - | | | 259,347 |
Other revenues | | | - | | | - | | | - | | | 7,997 | | | 73,463 | | | 81,460 |
Eliminations | | | - | | | (1,060) | | | (52,070) | | | - | | | (19,148) | | | (72,278) |
Total segment revenues | | $ | 197,234 | | $ | 32,715 | | $ | 184,878 | | $ | 42,604 | | $ | 54,315 | | $ | 511,746 |
International other revenues (1) | | | - | | | - | | | - | | | (7,997) | | | 7,997 | | | - |
Total revenues | | $ | 197,234 | | $ | 32,715 | | $ | 184,878 | | $ | 34,607 | | $ | 62,312 | | $ | 511,746 |
| | | | | | | | | | | | | | | | | | |
| Reportable Segments | |||||||||||||||||||||||||||||||||||
| Nine Months Ended September 26, 2021 | |||||||||||||||||||||||||||||||||||
| Major Products/Services Lines | Domestic Company-owned restaurants | North America franchising | North America commissaries | International | All others | Total | |||||||||||||||||||||||||||||
| Company-owned restaurant sales | $ | 584,942 | $ | — | $ | — | $ | — | $ | — | $ | 584,942 | |||||||||||||||||||||||
| Franchise royalties and fees | — | 100,261 | — | 39,396 | — | 139,657 | |||||||||||||||||||||||||||||
| Commissary sales | — | — | 719,695 | 71,233 | — | 790,928 | |||||||||||||||||||||||||||||
| Other revenues | — | — | — | 25,132 | 217,580 | 242,712 | |||||||||||||||||||||||||||||
| Eliminations | — | (3,138) | (158,952) | — | (56,613) | (218,703) | |||||||||||||||||||||||||||||
| Total segment revenues | $ | 584,942 | $ | 97,123 | $ | 560,743 | $ | 135,761 | $ | 160,967 | $ | 1,539,536 | |||||||||||||||||||||||
International other revenues(a) | — | — | — | (25,132) | 25,132 | — | |||||||||||||||||||||||||||||
| Total revenues | $ | 584,942 | $ | 97,123 | $ | 560,743 | $ | 110,629 | $ | 186,099 | $ | 1,539,536 | |||||||||||||||||||||||
| (a) | Other revenues as reported in the Condensed Consolidated Statements of Operations include | ||||
23
Note 12. Related Party Transactions
Endorsement Agreement
On April 10, 2022, the Company and PJMF entered into an Endorsement Agreement (the “Endorsement Agreement”), effective March 15, 2022, with ABG-Shaq, LLC (“ABG-Shaq”), an entity affiliated with Shaquille O’Neal, for the personal services of Mr. O’Neal. Mr. O’Neal is a non-independent director of the Company.
The Endorsement Agreement replaces the previous Endorsement Agreement, effective March 15, 2019, by and between the Company, PJMF and ABG-Shaq, as amended (the “Prior Endorsement Agreement”) which expired by its terms on March 15, 2022. The terms of the Endorsement Agreement, which are detailed below, are substantially similar to the Prior Endorsement Agreement.
Pursuant to the Endorsement Agreement, the Company and PJMF received the right and license to use Mr. O’Neal’s name, nickname, initials, autograph, voice, video or film portrayals, photograph, likeness and certain other intellectual property rights (individually and collectively, the “Personality Rights”), in each case, solely as approved by ABG-Shaq, in connection with the advertising, promotion and sale of Papa John’s-branded products. Mr. O’Neal will also provide brand ambassador services related to appearances, social media and public relations matters. The Endorsement Agreement also renewed the offering of the co-branded extra-large pizza product developed among the Company, PJMF and ABG-Shaq under the Prior Endorsement Agreement, and provides that 1 U.S. dollar for each unit of the co-branded pizza sold in the United States will be donated to The Papa John’s Foundation for Building Community and 1 Canadian dollar for each unit sold in Canada will be donated to a charity mutually agreed-upon between the parties.
As consideration for the rights and services granted under the Endorsement Agreement, the Company and PJMF agreed to pay to ABG-Shaq aggregate cash payments of $5.625 million over the three years of the Endorsement Agreement. The Company and PJMF will also pay ABG-Shaq a royalty fee for the co-branded pizza product if the total amount of royalties in a given contract year (calculated as $0.20 per co-branded pizza sold) exceeds the contractual cash payment for that year, in which case the amount of the royalty payment will be the excess of the royalties over the cash payment amount. The Company and PJMF will also pay expenses related to the marketing and personal services provided by Mr. O’Neal.
In addition, the Company agreed to grant 55,898 restricted stock units (the “RSUs”) to Mr. O’Neal (as agent of ABG) under the Company’s 2018 Omnibus Incentive Plan. The RSUs will vest into an equivalent number of shares of the Company’s common stock according to the following vesting schedule:
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The initial term of the Endorsement Agreement ends on March 15, 2025, with an option for a one-year extension upon the parties’ mutual agreement. The Endorsement Agreement also includes customary exclusivity, termination and indemnification clauses.
24
future success. 2022.Item 2.Management’s Discussion and Analysis of Financial Condition and Results of OperationsOverviewPapa John’s International, Inc. (referred to as the “Company,” “Papa John’s” or in the first-person notations of “we,” “us” and “our”) began operations in 1984. As of March 27,September 25, 2022, there were 5,5245,589 Papa John’s restaurants in operation, consisting of 608521 Company-owned and 4,9165,068 franchised restaurants operating in 4947 countries and territories. Our revenues are derived from retail sales of pizza and other food and beverage products to the general public by Company-owned restaurants, franchise royalties, and sales of franchise and development rights. Additionally, we derive revenues from sales to franchisees of various items including food and paper products from our domestic Quality Control Centers (“QC Centers”), operation of our international QC Center in the United Kingdom, contributions received by Papa John’s Marketing Fund (“PJMF”) which is our national marketing fund, printing and promotional items and information systems equipment, and software and related services.Global Market Conditions. The Company launched its NY Style pizza in the first quarterdifferentiated brand positioning of 2022. NY Style features eight oversized slices on a thin foldable crust. NY Style pizzaPapa Johns has proven to be popular with customers and highly incremental to revenues. The combination of Epic Stuffed Crust and NY Style pizza has contributedbeen critical to our positive results for the first quarter of 2022success as we comparehave navigated the periodglobal pandemic and adapted our strategy to the prior year’s record first quarter sales, our highesta constantly changing environment in the history of the Company.recent years. Our digital innovation throughbrand positioning and adapted strategy are no less important today as we continue to adjust to a more inflationary and uncertain environment with rising costs and consumers increasingly seeking out value. As consumer demand has continued to soften, pizza offers tremendous value relative to other quick service restaurants. Using Papa Rewards, our loyalty program, allows uswe are also able to directly engagetarget more price-sensitive customers with high-value promotions. At the same time, we have continued our successful strategy of letting our customers, with targeted personalized offers that driveespecially those who are less price sensitive, self-select into our premium-priced menu innovations. While we have increased pricing in response to inflation, partially offsetting higher frequency, higherfood, labor and fuel costs in our supply chain and at our restaurants, our ticket growth has predominantly come through new premium products and higher customer satisfaction. Continued investmentadd-ons over the past few years.Macroeconomic conditions in one-to-one marketingthe United Kingdom ("PJUK"), the largest region in our international segment, have declined in light of ongoing inflation, rising interest rates and the recent energy crisis. Against this backdrop, the Company has experienced increasing declines in sales and profitability in the PJUK market. While uncertain how long these conditions will last, the Company is committed to its presence in the PJUK and is invested in the Company’s long-term success in this region. As we navigate this challenging economic environment, we will be investing in capabilities is a bigto improve our operations and will work to re-position the franchise base to further strengthen our PJUK business. We are currently evaluating the types and level of franchisee support as part of our plans to support the PJUK business, planwhich may result in future costs to the Company in upcoming quarters. During the third quarter of 2022, the Company recorded a charge of $4.1 million associated with the termination of a significant franchisee in the United Kingdom, as an initial step forward in our commitment to re-position our PJUK portfolio for 2022 and beyond. In addition, third-party delivery aggregators have been another focus of our digital innovation and strategy as they have helped us reach incremental, profitable customers, while providing supplemental delivery drivers, especially during peak times.Development OutlookGrowth Strategy. The Company’s goalcontinuestobetotake market shareinthepizzacategorywhileleveragingourdifferentiatedstrategy and premiumpositiontoprotect marginsinthefaceof accelerating commodityandlaborheadwinds. inflation. We acceleratedcurrently expect our 2022 global development outlook to be between280 240 and320 260 netnewrestaurantsgloballyin2022.Atthemidpoint restaurants. Our view oftherange,thisrepresentsapproximately5%growthon ourtotalsystem-wide long-term unitcount. Ourviewofourlong-termunitopportunity,bothdomesticallyandinternationally,continues to expand as we sign historic deals to develop within key areas and we now expect to open between 1,400 toand 1,800 net new Papa John’s restaurants worldwide by the end of 2025, relative to the start of 2021.Innovation.On March 28, 2022, the Company sold its 51% controlling interest in a joint venture between Papa Johns continues to make strides in menu innovation, with Football Pizza and Blue and Silver Ventures, Ltd. Sun Holdings, a leading multi-brand franchisee operator and one of Papa John’s largest domestic franchise partners, has assumed control of the 90 Papa John’s restaurants in Texas that operated under the joint venture. The Company recorded a $8.4 million impairment lossBowls launched in the third quarter this year following Epic Pepperoni-Stuffed Crust Pizza in the second quarter and NY Style pizza during the first quarter ofquarter. These 2022 relatedlaunches have proven to the divestiture. The strategic refranchising deal betweenbe popular with customers. Our digital innovation through Papa Johns and Sun Holdings builds upon the historic development agreement signed by the two parties in September 2021, under which Sun Holdings will open 100 new restaurants across high-growth markets, including in Texas, by 2029, in additionRewards allows us to the restaurants it has acquired. Nowdirectly engage our customers with significant operational scaletargeted personalized offers with the brand, we believe Sun Holdingsgoal of driving higher frequency, higher ticket and higher customer satisfaction. Continued investment in one-to-one marketing capabilities is positionedimportant to accelerate its development plans and Papa John’s domestic growth.our strategy.The agreement continues a rapid acceleration of unit growth and development activity by Papa Johns in the U.S. and across the globe. In January, Papa Johns announced its biggest franchisee development agreement in the Company’s history – a partnership with FountainVest Partners to open more than 1,350 new stores across South China by 2040.Suspension of Franchisee Support in Russia. The Company has no Company-owned restaurants in Russia or Ukraine. Out of the Company’s total 5,524 Company-owned and franchised restaurants worldwide, 188 franchised restaurants are located in Russia, all of which are operated and supplied through a master franchisee. In 2021, franchise royalties derived from these stores represented less than 1% of total company revenue, and therefore were not a material part of the Company’s business or results of operations.25
Papa John’s has suspended its corporate operations and support for franchised restaurants in Russia, and fully reserved all receivables from the aforementioned master franchisee. The Company recognized $17.4 million ($0.48 loss per diluted share) on a pre-tax basis in one-time, non-cash charges in the first quarter related to reserves for certain loans and impairments of reacquired franchised rights due to the conflict in Ukraine and subsequent international government actions and sanctions, which were recorded as Refranchising and impairment loss of $2.8 million and General and administrative expenses of $14.6 million. All assets related to the franchised operations in Russia have been fully reserved or impaired so there will be no additional Russia related charges for reserves, write-offs, or impairments of amounts recorded on the Condensed Consolidated Balance Sheet.
Coronavirus PandemicRestaurant Staffing and Related Market Impact.ImpactThe restaurant industry has faced and managed staffing challenges since long before the pandemic. These challenges intensified with the increased demand for employees in the service industry as the economy recovered last year. In early 2022, the Omicron variant further exacerbated the situation, given the spike in infection rates and number of people out sick or quarantined at home.. Throughout the first quarter,nine months of 2022, our restaurants continued to navigate a challenging staffing environment. Our integrations with the aggregator marketplaces and our nationwide integrations with Delivery-as-a-Service providers have been at their lowest staffing levels since the beginning of the pandemic. This has impacted customer service and, in limited cases, our ability to deliver or take orders. We continue to proactively communicate to our loyal customers, providing updates and conveying our gratitude for their patience. Our team members have been working harder than everkey tools allowing us to continue to safely servemeet our customers in the channel of their customerschoice. Though these Delivery-as-a-Service transactions are slightly lower margin versus using our own drivers, they are incremental, profitable orders that otherwise may have gone unfulfilled. Papa Call, our centralized order taking and communities customer service center is another example of our long-term investment to make our team members productive
26
Global Restaurant Sales Information
| | | | | | |
|
| Three Months Ended | ||||
|
| March 27, 2022 | | March 28, 2021 | ||
Comparable sales growth (decline): | | | | | | |
Domestic Company-owned restaurants | | | (1.2%) | | | 23.3% |
North America franchised restaurants | | | 2.8% | | | 27.1% |
North America restaurants | | | 1.9% | | | 26.2% |
International restaurants | | | 0.8% | | | 23.2% |
Total comparable sales growth | | | 1.6% | | | 25.4% |
System-wide restaurant sales growth: | | | | | | |
(excluding the impact of foreign currency) | | | | | | |
Domestic Company-owned restaurants | | | 0.8% | | | 22.2% |
North America franchised restaurants | | | 4.0% | | | 27.0% |
North America restaurants | | | 3.3% | | | 25.9% |
International restaurants | | | 11.6% | | | 28.9% |
Total global system-wide restaurant sales growth | | | 5.3% | | | 26.6% |
| | | | | | |
Restaurant Progression |
| Three Months Ended | ||||
|
| March 27, 2022 |
| March 28, 2021 | ||
North America Company-owned: | | | | | | |
Beginning of period | |
| 600 | |
| 588 |
Opened | |
| 7 | |
| — |
Acquired | |
| 1 | |
| 1 |
End of period | |
| 608 | |
| 589 |
North America franchised: | | | | | | |
Beginning of period | |
| 2,739 | |
| 2,701 |
Opened | |
| 15 | |
| 12 |
Closed | |
| (7) | |
| (3) |
Sold | | | (1) | | | (1) |
End of period | |
| 2,746 | |
| 2,709 |
International franchised: | | | | | | |
Beginning of period | |
| 2,311 | |
| 2,111 |
Opened | |
| 55 | |
| 68 |
Closed | |
| (8) | |
| (9) |
Suspended (a) | | | (188) | | | — |
End of period | |
| 2,170 | |
| 2,170 |
Total restaurants – end of period | |
| 5,524 | |
| 5,468 |
| | | | | | |
Trailing four quarters net store growth (b) | |
| 244 | | | 90 |
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| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| Comparable sales (decline) growth: | |||||||||||||||||||||||
| Domestic Company-owned restaurants | (2.2)% | 7.4% | (1.6)% | 11.6% | |||||||||||||||||||
| North America franchised restaurants | (0.5)% | 6.8% | 1.2% | 12.3% | |||||||||||||||||||
| North America restaurants | (0.8)% | 6.9% | 0.6% | 12.1% | |||||||||||||||||||
| International restaurants | (10.1)% | 8.3% | (5.8)% | 17.1% | |||||||||||||||||||
| Total comparable sales (decline) growth | (3.4)% | 7.3% | (1.1)% | 13.4% | |||||||||||||||||||
| System-wide restaurant sales growth (decline): | |||||||||||||||||||||||
| (excluding the impact of foreign currency) | |||||||||||||||||||||||
| Domestic Company-owned restaurants | 0.5% | 7.3% | 0.8% | 11.1% | |||||||||||||||||||
| North America franchised restaurants | 0.9% | 8.0% | 2.5% | 13.1% | |||||||||||||||||||
| North America restaurants | 0.8% | 7.9% | 2.2% | 12.7% | |||||||||||||||||||
| International restaurants | (0.4)% | 21.4% | 5.3% | 28.2% | |||||||||||||||||||
| Total global system-wide restaurant sales growth | 0.5% | 11.2% | 2.9% | 16.2% | |||||||||||||||||||
| Restaurant Progression | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| North America Company-owned: | |||||||||||||||||||||||
| Beginning of period | 519 | 589 | 600 | 588 | |||||||||||||||||||
| Opened | 1 | 2 | 9 | 2 | |||||||||||||||||||
| Acquired | 1 | — | 2 | 1 | |||||||||||||||||||
| Refranchised | — | — | (90) | — | |||||||||||||||||||
| End of period | 521 | 591 | 521 | 591 | |||||||||||||||||||
| North America franchised: | |||||||||||||||||||||||
| Beginning of period | 2,837 | 2,720 | 2,739 | 2,701 | |||||||||||||||||||
| Opened | 17 | 21 | 49 | 57 | |||||||||||||||||||
| Closed | (16) | (9) | (39) | (25) | |||||||||||||||||||
| Refranchised | — | — | 90 | — | |||||||||||||||||||
| Sold | (1) | — | (2) | (1) | |||||||||||||||||||
| End of period | 2,837 | 2,732 | 2,837 | 2,732 | |||||||||||||||||||
| International franchised: | |||||||||||||||||||||||
| Beginning of period | 2,215 | 2,214 | 2,311 | 2,111 | |||||||||||||||||||
| Opened | 48 | 71 | 175 | 210 | |||||||||||||||||||
Closed(a) | (32) | (39) | (67) | (75) | |||||||||||||||||||
Suspended(b) | — | — | (188) | — | |||||||||||||||||||
| End of period | 2,231 | 2,246 | 2,231 | 2,246 | |||||||||||||||||||
| Total restaurants – end of period | 5,589 | 5,569 | 5,589 | 5,569 | |||||||||||||||||||
Trailing four quarters net store growth(c) | 208 | 209 | |||||||||||||||||||||
Results of Operations
| | | | | | | | | | | | | |
| | Three Months Ended | | | | ||||||||
| | March 27, 2022 | | March 28, 2021 | | | | ||||||
| | | | % of Related | | | | % of Related | | | Increase | ||
($ in thousands) | | | | Revenues | | | | Revenues | | | (Decrease) | ||
Revenues: | | | | | ��� | | | | | | | | |
Domestic Company-owned restaurant sales | | $ | 198,765 | | | | $ | 197,234 | | | | | |
North America franchise royalties and fees | | | 34,268 | | | | | 32,715 | | | | | |
North America commissary revenues | | | 209,679 | | | | | 184,878 | | | | | |
International revenues | | | 34,617 | | | | | 34,607 | | | | | |
Other revenues | | | 65,363 | | | | | 62,312 | | | | | |
Total revenues | | | 542,692 | | | | | 511,746 | | | | | |
Costs and expenses: | | | | | | | | | | | | | |
Operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | | | | | | |
Domestic Company-owned restaurant expenses | | | 161,661 | | 81.3% | | | 155,888 | | 79.0% | | | 2.3% |
North America commissary expenses | | | 197,090 | | 94.0% | | | 170,684 | | 92.3% | | | 1.7% |
International expenses | | | 19,914 | | 57.5% | | | 19,618 | | 56.7% | | | 0.8% |
Other expenses | | | 60,555 | | 92.6% | | | 55,807 | | 89.6% | | | 3.0% |
General and administrative expenses | | | 65,937 | | 12.1% | | | 50,011 | | 9.8% | | | 2.3% |
Depreciation and amortization | | | 11,940 | | 2.2% | | | 12,876 | | 2.5% | | | (0.3)% |
Total costs and expenses | | | 517,097 | | 95.3% | | | 464,884 | | 90.8% | | | 4.5% |
Refranchising and impairment loss | | | (11,160) | | (2.1)% | | | - | | 0.0% | | | (2.1)% |
Operating income | | | 14,435 | | 2.7% | | | 46,862 | | 9.2% | | | (6.5)% |
Net interest expense | | | (4,264) | | (0.8)% | | | (3,647) | | (0.7)% | | | (0.1)% |
Income before income taxes | | $ | 10,171 | | 1.9% | | $ | 43,215 | | 8.4% | | | (6.5)% |
| Three Months Ended | ||||||||||||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | |||||||||||||||||||||||||||||||
| ($ in thousands) | % of Related Revenues | % of Related Revenues | Increase (Decrease) | |||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Domestic Company-owned restaurant sales | $ | 166,050 | $ | 191,584 | (13.3) | % | ||||||||||||||||||||||||||
| North America franchise royalties and fees | 33,712 | 31,933 | 5.6 | % | ||||||||||||||||||||||||||||
| North America commissary revenues | 216,115 | 189,224 | 14.2 | % | ||||||||||||||||||||||||||||
| International revenues | 30,735 | 38,408 | (20.0) | % | ||||||||||||||||||||||||||||
| Other revenues | 63,900 | 61,633 | 3.7 | % | ||||||||||||||||||||||||||||
| Total revenues | 510,512 | 512,782 | (0.4) | % | ||||||||||||||||||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||||||||||
| Operating costs (excluding depreciation and amortization shown separately below): | ||||||||||||||||||||||||||||||||
| Domestic Company-owned restaurant expenses | 138,299 | 83.3% | 155,477 | 81.2% | 2.1% | |||||||||||||||||||||||||||
| North America commissary expenses | 203,129 | 94.0% | 175,399 | 92.7% | 1.3% | |||||||||||||||||||||||||||
| International expenses | 18,196 | 59.2% | 21,743 | 56.6% | 2.6% | |||||||||||||||||||||||||||
| Other expenses | 59,249 | 92.7% | 56,039 | 90.9% | 1.8% | |||||||||||||||||||||||||||
| General and administrative expenses | 57,935 | 11.3% | 54,070 | 10.5% | 0.8% | |||||||||||||||||||||||||||
| Depreciation and amortization | 13,338 | 2.6% | 11,477 | 2.2% | 0.4% | |||||||||||||||||||||||||||
| Total costs and expenses | 490,146 | 96.0% | 474,205 | 92.5% | 3.5% | |||||||||||||||||||||||||||
| Refranchising and impairment loss | (905) | (0.2) | % | — | — | % | (0.2) | % | ||||||||||||||||||||||||
| Operating income | 19,461 | 3.8% | 38,577 | 7.5% | (3.7)% | |||||||||||||||||||||||||||
| Net interest expense | (7,623) | (1.5) | % | (3,979) | (0.8) | % | (0.7) | % | ||||||||||||||||||||||||
| Income before income taxes | $ | 11,838 | 2.3% | $ | 34,598 | 6.7% | (4.4)% | |||||||||||||||||||||||||
| Nine months ended | ||||||||||||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | |||||||||||||||||||||||||||||||
| ($ in thousands) | % of Related Revenues | % of Related Revenues | Increase (Decrease) | |||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Domestic Company-owned restaurant sales | $ | 536,226 | $ | 584,942 | (8.3) | % | ||||||||||||||||||||||||||
| North America franchise royalties and fees | 102,897 | 97,123 | 5.9 | % | ||||||||||||||||||||||||||||
| North America commissary revenues | 645,177 | 560,743 | 15.1 | % | ||||||||||||||||||||||||||||
| International revenues | 97,310 | 110,629 | (12.0) | % | ||||||||||||||||||||||||||||
| Other revenues | 194,259 | 186,099 | 4.4 | % | ||||||||||||||||||||||||||||
| Total revenues | 1,575,869 | 1,539,536 | 2.4 | % | ||||||||||||||||||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||||||||||
| Operating costs (excluding depreciation and amortization shown separately below): | ||||||||||||||||||||||||||||||||
| Domestic Company-owned restaurant expenses | 441,986 | 82.4% | 465,658 | 79.6% | 2.8% | |||||||||||||||||||||||||||
| North America commissary expenses | 604,689 | 93.7% | 518,310 | 92.4% | 1.3% | |||||||||||||||||||||||||||
| International expenses | 57,346 | 58.9% | 62,791 | 56.8% | 2.1% | |||||||||||||||||||||||||||
| Other expenses | 180,452 | 92.9% | 168,092 | 90.3% | 2.6% | |||||||||||||||||||||||||||
| General and administrative expenses | 168,519 | 10.7% | 157,779 | 10.2% | 0.5% | |||||||||||||||||||||||||||
| Depreciation and amortization | 38,012 | 2.4% | 36,830 | 2.4% | —% | |||||||||||||||||||||||||||
| Total costs and expenses | 1,491,004 | 94.6% | 1,409,460 | 91.6% | 3.0% | |||||||||||||||||||||||||||
| Refranchising and impairment loss | (12,065) | (0.8) | % | — | — | % | (0.8) | % | ||||||||||||||||||||||||
| Operating income | 72,800 | 4.6% | 130,076 | 8.4% | (3.8)% | |||||||||||||||||||||||||||
| Net interest expense | (17,967) | (1.1) | % | (11,275) | (0.7) | % | (0.4) | % | ||||||||||||||||||||||||
| Income before income taxes | $ | 54,833 | 3.5% | $ | 118,801 | 7.7% | (4.2)% | |||||||||||||||||||||||||
three and nine months ended September 25, 2022, respectively.
“Equivalent units” represents the number of restaurants open at the beginning of a given period, adjusted for restaurants opened, closed, acquired or sold during the period on a weighted average basis. “Comparable sales” represents the change in year-over-year salesand 1.5% for the same base of restaurants for the same fiscal periods.
North America franchise royaltiesthree and fees increased $1.6 million, or 4.7% for the first quarter of 2022. The increases were primarily due to positive comparable sales increases of 2.8% and higher equivalent units of 1.9% for the first quarter ofnine months ended September 25, 2022, on top of 27.1% comparable sales growth in the prior year period.
respectively.
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International revenues were relatively flatdecreased $7.7 million, or 20.0% and $13.3 million, or 12.0% for the first quarter ofthree and nine months ended September 25, 2022, asrespectively, compared to prior year comparable periods, primarily due to higher royalties from increased equivalent units and higherlower United Kingdom commissary revenues. The overall declines in our international revenue performance were largely attributable to lower comparable sales of 0.8%, offset by lower United Kingdom (“PJUK”) commissary revenues from lower10.1% and 5.8% for the three and nine months ended September 25, 2022, which are largely attributable to the economic downturn of the PJUK comparable sales and $1.2 million due to unfavorable foreign exchange rates.
market.
International franchise restaurant sales increased 11.6% to $337.4$309.4 million and $939.2 million for the first quarter ofthree and nine months ended September 25, 2022, excludingrespectively. Excluding the impact of foreign currency, primarily due to increases in comparableinternational franchise restaurant sales decreased 0.4% and equivalent units.increased 5.3% for the three and nine months ended September 25, 2022, respectively. International franchise restaurant sales are not included in Company revenues; however, our international royalty revenue is derived from these sales.
higher equivalent units.
expenses as staffing levels recover at increased cost. Our strategic pricing actions implemented in 2022 helped reduce the impact of the underlying cost pressures.
wheat, and higher delivery cost.
Other expenses were $60.6 million for the first quarter of 2022, or 92.6% of related revenues, compared to expenses of $55.8 million, or 89.6% of related revenues for the first quarter of 2021. The 3.0% increase in expenses as a percentage of related revenues, wasincreased 2.6% and 2.1%, respectively, primarily due to higher commodity costs in the PJUK commissary.
platform initiatives to further enhance our digital capabilities and the customer experience.
| | | | | |
| Three Months Ended | ||||
| | Mar. 27, | | | March 28, |
| | 2022 | | | 2021 |
Administrative expenses (a) | $ | 46,090 | | $ | 46,082 |
Special items (b) (c) | | 19,636 | | | 3,883 |
Other general expenses | | 211 | | | 46 |
General and administrative expenses | $ | 65,937 | | $ | 50,011 |
29
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
Administrative expenses(a) | $ | 44,391 | $ | 51,398 | $ | 133,370 | $ | 148,533 | |||||||||||||||
Special items(b, c) | 13,227 | 2,153 | 34,370 | 9,364 | |||||||||||||||||||
| Other general expenses | 317 | 519 | 779 | (118) | |||||||||||||||||||
| General and administrative expenses | $ | 57,935 | $ | 54,070 | $ | 168,519 | $ | 157,779 | |||||||||||||||
Depreciation and amortization expense was $11.9 million, or 2.2% of revenues in the first quarter of 2022, compared to $12.9 million, or 2.5% of revenues for the first quarter of 2021.
Operating Income by Segment
Operating income decreased approximately $32.4 million forFor the three months ended March 27,September 25, 2022, Administrative expense decreased $7.0 million compared to the prior year comparable period. Operating income is summarized inperiod primarily due to lower incentive compensation costs, partially offset by higher labor. The decrease of $15.2 million for the following table on a reporting segment basis. Alongside the GAAP operating income data, we have included “adjusted” operating incomenine months ended September 25, 2022 was primarily due to exclude Special items. Special items impacting operating income for 2022 include an $8.4 million refranchising losslower incentive compensation, which was partially offset by higher labor costs as well as travel and occupancy costs associated with the salere-opening of our ownership interestcorporate headquarters in the first quarter of 2022.
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | Reported Sep. 25, 2022 | Special items in 2022 (a) | Adjusted Sep. 25, 2022 | Reported Sep. 26, 2021 | Special items in 2021 (b) | Adjusted Sep. 26, 2021 | Adjusted Increase (Decrease) | |||||||||||||||||||||||||||||||||||||
| Domestic Company-owned restaurants | $ | 3,667 | $ | — | $ | 3,667 | $ | 9,480 | $ | — | $ | 9,480 | $ | (5,813) | ||||||||||||||||||||||||||||||
| North America franchising | 31,464 | — | 31,464 | 29,830 | — | 29,830 | 1,634 | |||||||||||||||||||||||||||||||||||||
| North America commissaries | 8,425 | — | 8,425 | 9,598 | — | 9,598 | (1,173) | |||||||||||||||||||||||||||||||||||||
| International | 1,136 | 4,132 | 5,268 | 9,618 | — | 9,618 | (4,350) | |||||||||||||||||||||||||||||||||||||
| All others | 2,037 | — | 2,037 | 3,848 | — | 3,848 | (1,811) | |||||||||||||||||||||||||||||||||||||
| Unallocated corporate expenses | (27,684) | 10,000 | (17,684) | (23,158) | 2,153 | (21,005) | 3,321 | |||||||||||||||||||||||||||||||||||||
| Elimination of intersegment losses (profits) | 416 | — | 416 | (639) | — | (639) | 1,055 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 19,461 | $ | 14,132 | $ | 33,593 | $ | 38,577 | $ | 2,153 | $ | 40,730 | $ | (7,137) | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | |||||||||||||||||||
|
| Reported |
| Special |
| Adjusted |
| Reported |
| Special |
| Adjusted |
| Adjusted | |||||||
| | Mar. 27, | | items | | Mar. 27, |
| Mar. 28, | | items | | Mar. 28, | | Increase | |||||||
(In thousands) |
| 2022 |
| in 2022 |
| 2022 |
| 2021 |
| in 2021 |
| 2021 |
| (Decrease) | |||||||
| | | | | | | | | | | | | | | | | | | | | |
Domestic Company-owned restaurants | | $ | 1,989 | | $ | 8,412 | | $ | 10,401 | | $ | 15,324 | | $ | — | | $ | 15,324 | | $ | (4,923) |
North America franchising | | | 32,137 | | | — | | | 32,137 | | | 30,443 | | | — | | | 30,443 | | | 1,694 |
North America commissaries | | | 9,334 | |
| — | |
| 9,334 | | | 9,713 | |
| — | |
| 9,713 | |
| (379) |
International | | | 4,455 | | | 3,515 | | | 7,970 | | | 8,364 | | | — | | | 8,364 | | | (394) |
All others | | | 3,719 | | | — | | | 3,719 | | | 6,118 | | | — | | | 6,118 | | | (2,399) |
Unallocated corporate expenses | | | (37,111) | | | 18,869 | | | (18,242) | | | (23,162) | | | 3,883 | | | (19,279) | | | 1,037 |
Elimination of intersegment losses (profits) | | | (88) | | | — | | | (88) | | | 62 | | | — | | | 62 | | | (150) |
Total | | $ | 14,435 | | $ | 30,796 | | $ | 45,231 | | $ | 46,862 | | $ | 3,883 | | $ | 50,745 | | $ | (5,514) |
For the three months ended September 25, 2022, Special items impacting Operating income include a charge of $10.0 million related to certain legal settlements and $4.1 million related to PJUK reserves and impairment related to the termination of a significant franchisee in the UK in the third quarter.
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | Reported Sep. 25, 2022 | Special items in 2022 (a) | Adjusted Sep. 25, 2022 | Reported Sep. 26, 2021 | Special items in 2021 (b) | Adjusted Sep. 26, 2021 | Adjusted Increase (Decrease) | |||||||||||||||||||||||||||||||||||||
| Domestic Company-owned restaurants | $ | 11,579 | $ | 8,412 | $ | 19,991 | $ | 40,165 | $ | — | $ | 40,165 | $ | (20,174) | ||||||||||||||||||||||||||||||
| North America franchising | 96,225 | — | 96,225 | 90,791 | — | 90,791 | 5,434 | |||||||||||||||||||||||||||||||||||||
| North America commissaries | 28,717 | — | 28,717 | 29,089 | — | 29,089 | (372) | |||||||||||||||||||||||||||||||||||||
| International | 12,897 | 7,647 | 20,544 | 26,665 | — | 26,665 | (6,121) | |||||||||||||||||||||||||||||||||||||
| All others | 7,943 | — | 7,943 | 14,860 | — | 14,860 | (6,917) | |||||||||||||||||||||||||||||||||||||
| Unallocated corporate expenses | (84,138) | 30,376 | (53,762) | (70,937) | 9,364 | (61,573) | 7,811 | |||||||||||||||||||||||||||||||||||||
| Elimination of intersegment losses (profits) | (423) | — | (423) | (557) | — | (557) | 134 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 72,800 | $ | 46,435 | $ | 119,235 | $ | 130,076 | $ | 9,364 | $ | 139,440 | $ | (20,205) | ||||||||||||||||||||||||||||||
30
Refranchising and impairment loss
In the first quarter of 2022, the Company recorded a one-time, non-cash refranchising and impairment loss of $11.2 million. Impairment losses
Income Before Income Taxes
For the reasons discussed above, income before income taxes decreased approximately $33.0 million for the first quarter of 2022 over the first quarter of 2021.
The
nine months periods ended September 25, 2021.
| | | | | |
| | Quarter Ended | |||
| March 27, 2022 | | March 28, 2021 | ||
| | | | | |
Income before income taxes | $ | 10,171 | | $ | 43,215 |
Income tax (benefit) expense | $ | (1,256) | | $ | 7,932 |
Effective tax rate | | -12.3% | | | 18.4% |
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| Income before income taxes | $ | 11,838 | $ | 34,598 | $ | 54,833 | $ | 118,801 | |||||||||||||||
| Income tax expense | $ | 3,374 | $ | 4,057 | $ | 9,212 | $ | 19,387 | |||||||||||||||
| Effective tax rate | 28.5 | % | 11.7 | % | 16.8 | % | 16.3 | % | |||||||||||||||
Impact of Inflation
Given the accelerating inflationary environment and short-term commodity volatility experienced in the first quarter of 2022, there have been and may continue to be increases in food costs and labor costs which have and could further impact our profitability. Factors such as inflation, increased food costs, increased labor and employee health and benefit costs, increased rent costs and increased energy costs have and may continue to adversely affect our operating costs and
31
profitability. Severe increases in inflation could affect the global and U.S. economies and could have an adverse impact on our business, financial condition and results of operations. To the extent permitted by competition, increased costs are recovered through a combination of selective menu price increases, product mix, and/or implementing operational improvements.
The table below reconciles our GAAP financial results to our adjusted financial results, which are non-GAAP measures. We present these non-GAAP measures because we believe the Special items impact the comparability of our results of operations. See “Note 2”, “Note 9”, and “Note 10” of “Notes to Condensed Consolidated Financial Statements,” for additional information about the Special items.
| | | | | | |
| | Three Months Ended | ||||
| | March 27, | | March 28, | ||
(In thousands, except per share amounts) |
| 2022 |
| 2021 | ||
| | | | | | |
GAAP operating income | | $ | 14,435 | | $ | 46,862 |
Refranchising and impairment loss (1) | | | 25,796 | | | — |
Legal settlement (2) | | | 5,000 | | | — |
Strategic corporate reorganization costs (3) | | | — | | | 3,883 |
Adjusted operating income | | $ | 45,231 | | $ | 50,745 |
| | | | | | |
GAAP net income attributable to common shareholders | | $ | 10,434 | | $ | 27,113 |
Refranchising and impairment loss (1) | | | 25,796 | | | — |
Legal settlement (2) | | | 5,000 | | | — |
Strategic corporate reorganization costs (3) | | | — | | | 3,883 |
Tax effect of Non-GAAP adjustment on special items (4) | | | (6,929) | | | (874) |
Adjusted net income attributable to common shareholders | | $ | 34,301 | | $ | 30,122 |
| | | | | | |
GAAP diluted earnings per common share | | $ | 0.29 | | $ | 0.82 |
Refranchising and impairment loss (1) | | | 0.71 | | | — |
Legal settlement (2) | | | 0.14 | | | — |
Strategic corporate reorganization costs (3) | | | — | | | 0.12 |
Tax effect of Non-GAAP adjustment on special items (4) | | | (0.19) | | | (0.03) |
Adjusted diluted earnings per common share | | $ | 0.95 | | $ | 0.91 |
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (In thousands, except per share amounts) | September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||||
| GAAP operating income | $ | 19,461 | $ | 38,577 | $ | 72,800 | $ | 130,076 | ||||||||||||||||||
Refranchising and impairment losses(a) | 905 | — | 26,701 | — | ||||||||||||||||||||||
Legal settlements(b) | 10,000 | — | 15,000 | — | ||||||||||||||||||||||
Provision for uncollectible accounts and notes receivable(c) | 3,227 | — | 3,227 | |||||||||||||||||||||||
Strategic corporate reorganization costs(d) | — | 2,153 | — | 9,364 | ||||||||||||||||||||||
Other costs(e) | — | — | 1,507 | — | ||||||||||||||||||||||
| Adjusted operating income | $ | 33,593 | $ | 40,730 | $ | 119,235 | $ | 139,440 | ||||||||||||||||||
| GAAP net income (loss) attributable to common shareholders | $ | 8,245 | $ | 28,961 | $ | 43,996 | $ | (20,423) | ||||||||||||||||||
Refranchising and impairment losses(a) | 905 | — | 26,701 | — | ||||||||||||||||||||||
Legal settlements(b) | 10,000 | — | 15,000 | — | ||||||||||||||||||||||
Provision for uncollectible accounts and notes receivable(c) | 3,227 | — | 3,227 | — | ||||||||||||||||||||||
Strategic corporate reorganization costs(d) | — | 2,153 | — | 9,364 | ||||||||||||||||||||||
Other costs(e) | — | — | 1,507 | — | ||||||||||||||||||||||
Repurchase and conversion of Series B Preferred Stock(f) | — | — | — | 109,852 | ||||||||||||||||||||||
Tax effect of Non-GAAP adjustments on special items(g) | (3,180) | (483) | (10,449) | (2,098) | ||||||||||||||||||||||
| Adjusted net income attributable to common shareholders | $ | 19,197 | $ | 30,631 | $ | 79,982 | $ | 96,695 | ||||||||||||||||||
| GAAP diluted earnings (loss) per common share | $ | 0.23 | $ | 0.79 | $ | 1.22 | $ | (0.59) | ||||||||||||||||||
Refranchising and impairment losses(a) | 0.03 | — | 0.75 | — | ||||||||||||||||||||||
Legal settlements(b) | 0.28 | — | 0.42 | — | ||||||||||||||||||||||
Provision for uncollectible accounts and notes receivable(c) | 0.09 | — | 0.09 | — | ||||||||||||||||||||||
Strategic corporate reorganization costs(d) | — | 0.05 | — | 0.27 | ||||||||||||||||||||||
Other costs(e) | — | — | 0.04 | — | ||||||||||||||||||||||
Repurchase and conversion of Series B Preferred Stock(f) | — | — | — | 3.14 | ||||||||||||||||||||||
Tax effect of Non-GAAP adjustments on special items(g) | (0.09) | (0.01) | (0.29) | (0.06) | ||||||||||||||||||||||
| Adjusted diluted earnings per common share | $ | 0.54 | $ | 0.83 | $ | 2.23 | $ | 2.76 | ||||||||||||||||||
(Note) The above table does not
The following refranchising and impairment adjustments are included on a pre-tax basis:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (In thousands) | September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||||
Refranchising impairment loss(1) | $ | — | $ | — | $ | 8,412 | $ | — | ||||||||||||||||||
Ukraine-related charge(2) | — | — | 17,385 | — | ||||||||||||||||||||||
PJUK lease impairment(3) | 905 | — | 905 | — | ||||||||||||||||||||||
| Total adjustment | $ | 905 | $ | — | $ | 26,702 | $ | — | ||||||||||||||||||
32
Liquidity and Capital Resources
| | | | | | |
| | Three Months Ended | ||||
| | March 27, | | March 28, | ||
| | 2022 | | 2021 | ||
Total cash provided by (used in): | | | | | | |
Operating activities | | $ | 25,394 | | $ | 63,217 |
Investing activities | | | (8,315) | | | (6,299) |
Financing activities | | | (6,787) | | | (16,080) |
Change in cash and cash equivalents, excluding the impact of foreign currency | | $ | 10,292 | | $ | 40,838 |
| Nine Months Ended | |||||||||||
| September 25, 2022 | September 26, 2021 | ||||||||||
| Total cash provided by (used in): | |||||||||||
| Operating activities | $ | 76,553 | $ | 193,624 | |||||||
| Investing activities | (30,229) | (41,191) | |||||||||
| Financing activities | (79,216) | (177,058) | |||||||||
| Change in cash and cash equivalents, excluding the impact of foreign currency | $ | (32,892) | $ | (24,625) | |||||||
expenses.
$20.6 million, offset by inflows of $400.0 million in proceeds from the issuance of senior notes and net borrowings from the credit facility of $15.0 million.
33
financial covenants, as shown in the following table, that could restrict or impose constraints on the liquidity of our business:
|
|
|
|
| ||||||||
|
|
|
|
| ||||||||
|
|
|
| Actual Ratio as of Sept. 25, 2022 | ||||||||
|
|
| ||||||||||
Leverage ratio | Not to exceed 5.25 to 1.0 |
| ||||||||||
|
|
|
|
| ||||||||
Interest coverage ratio | Not less than 2.00 to 1.0 |
| ||||||||||
Papa John’s Marketing Fund, Inc. (“PJMF”), our national marketing fund, has a $20.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015 with U.S. Bank National Association, as lender. There was 0no debt outstanding under the PJMF Revolving Facility as of March 27,September 25, 2022 or December 26, 2021. The PJMF operating results and the related debt outstanding do not impact the financial covenants under the Amended Credit Agreement.
| | | | | | | | | | | |
| | | | | | | | | | | Maximum Dollar |
| | Total | | | Average | | | Aggregate | | | Value of Shares |
| | Number | | | Price | | | Cost of | | | that May Yet Be |
(in thousands, except average price per share) | | of Shares | | | Paid per | | | Shares | | | Purchased Under the |
Three Months Ended | | Purchased | |
| Share | | | Purchased | | | Plans or Programs |
March 27, 2022 | | 301 | | $ | 108.76 | | $ | 32,709 | | $ | 392,091 |
March 28, 2021 | | 15 | | $ | 84.63 | | $ | 1,267 | | $ | 71,031 |
Subsequent to March 27, 2022, we acquired an additional 223,000 shares at an aggregate cost of $23.0 million. Approximately $369.1 million remained available under the Company’s share repurchase program as of April 29, 2022.
| (in thousands, except average price per share) | Total Number of Shares Purchased | Average Price Paid per Share | Aggregate Cost of Shares Purchased | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||
| September 25, 2022 | 229 | $ | 85.15 | $ | 19,529 | $ | 329,800 | |||||||||||||||||||
| September 26, 2021 | 104 | $ | 119.47 | $ | 12,367 | $ | 51,743 | |||||||||||||||||||
| (in thousands, except average price per share) | Total Number of Shares Purchased | Average Price Paid per Share | Aggregate Cost of Shares Purchased | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||
| September 25, 2022 | 982 | $ | 96.71 | $ | 95,000 | $ | 329,800 | |||||||||||||||||||
| September 26, 2021 | 187 | $ | 110.00 | $ | 20,555 | $ | 51,743 | |||||||||||||||||||
34
Dividends
The Company recorded dividends of approximately $12.6$39.9 million ($0.351.12 per share) infor the first quarter ofnine months ended September 25, 2022. On April 26,On October 27, 2022, our Board of Directors declared a secondfourth quarter dividend of $0.35$0.42 per common share approximately $12.6(approximately $14.9 million in the aggregate,aggregate), which will be paid on May 27,November 25, 2022 to stockholders of record as of the close of business on May 16, 2022.November 14, 2022 The declaration and payment of any future dividends will be at the discretion of our Board of Directors.
| | | | | | |
| | Three Months Ended | ||||
|
| March 27, |
| March 28, | ||
| | 2022 | | 2021 | ||
| | | | | | |
Net cash provided by operating activities | | $ | 25,394 | | $ | 63,217 |
Purchases of property and equipment | | | (10,233) | | | (7,076) |
Dividends paid to preferred stockholders | |
| — | |
| (3,412) |
Free cash flow | | $ | 15,161 | | $ | 52,729 |
| Nine Months Ended | |||||||||||
| September 25, 2022 | September 26, 2021 | ||||||||||
| Net cash provided by operating activities | $ | 76,553 | $ | 193,624 | |||||||
| Purchases of property and equipment | (48,424) | (41,328) | |||||||||
| Dividends paid to preferred stockholders | — | (6,394) | |||||||||
| Free cash flow | $ | 28,129 | $ | 145,902 | |||||||
35
36
37
operations for the three and nine months ended September 25, 2022, respectively, as compared to 7.5% and 7.2% for the prior year comparable periods. three and nine months ended September 26, 2021, respectively.Item 3.Quantitative and Qualitative Disclosures About Market RiskInterest Rate RiskWe are exposed to the impact of interest rate changes on our PJI Revolving Facility. We attempt to minimize interest rate risk exposure by fixing our interest rate through the utilization of interest rate swaps, which are derivative financial instruments. The interest rate swaps were de-designated following the issuance of the Notes in the third quarter of 2021. Our swaps are entered into with financial institutions that participate in the PJI Revolving Facility. By using a derivative instrument to hedge exposures to changes in interest rates, we expose ourselves to credit risk due to the possible failure of the counterparty to perform under the terms of the derivative contract. We do not enter into contracts for trading purposes and do not use leveraged instruments. The market risks associated with our debt obligations as of March 27,September 25, 2022 have not changed from those reported in “Part II. Item 7A. Quantitative and Qualitative Disclosure About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2021. See “Note 8” of “Notes to Condensed Consolidated Financial Statements” for additional information on our debt obligations and derivative instruments.Foreign Currency Exchange Rate RiskWe are exposed to foreign currency exchange rate fluctuations from our operations outside of the United States, which can adversely impact our revenues, net income and cash flows. Our international operations principally consist of distribution sales to franchised Papa John’s restaurants located in the United Kingdom and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our international franchisees. For each of the periods presented, between 6%Approximately, 6.0% and 7%6.2% of our revenues were derived from these operations.We have not historically hedged our exposure to foreign currency fluctuations. Foreign currency exchange rate fluctuations had an unfavorable impact of approximately $1.2$4.6 million and $9.0 million on International revenues for first quarter ofthe three and nine months ended September 25, 2022, compared torespectively, and a favorable impact of approximately $1.9$2.1 million inand $7.9 million for the first quarter of 2021.three and nine months ended September 26, 2021, respectively. Foreign currency exchange rate fluctuations had an unfavorable impact of approximately $0.6$0.4 million and $1.5 million on operating income infor the first quarter ofthree and nine months ended September 25, 2022, compared torespectively, and a favorable impact of $0.5$0.4 million inand $1.7 million on operating income for the first quarter of 2021.Commodity Price RiskIn the ordinary course of business, the food and paper products we purchase, including cheese (our largest individual food cost item), are subject to seasonal fluctuations, weather, availability, demand and other factors that are beyond our control. We have pricing agreements with some of our vendors, including forward pricing agreements for a portion of our cheese purchases for our domestic Company-owned restaurants, which are accounted for as normal purchases; however, we remain exposed to on-going commodity volatility.38
The following table presents the actual average block price for cheese by quarter through the firstthird quarter of 2022 and the projected average block price by quarter for 2022 (based on the April 29,October 28, 2022 Chicago Mercantile Exchange cheese futures market prices):
| | | | | | |
| | 2022 | | 2021 | ||
| | Projected | | Actual | ||
|
| Block Price |
| Block Price | ||
| | | | | | |
Quarter 1 |
| $ | 1.966 |
| $ | 1.676 |
Quarter 2 | |
| 2.352 | |
| 1.680 |
Quarter 3 | |
| 2.374 | |
| 1.676 |
Quarter 4 | |
| 2.318 | |
| 1.786 |
Full Year |
| $ | 2.253 | * | $ | 1.705 |
| 2022 | 2021 | |||||||||||||
| Projected Block Price | Actual Block Price | |||||||||||||
| Quarter 1 | $ | 1.966 | $ | 1.676 | ||||||||||
| Quarter 2 | 2.296 | 1.680 | ||||||||||||
| Quarter 3 | 1.938 | 1.676 | ||||||||||||
| Quarter 4 | 1.974 | 1.786 | ||||||||||||
| Full Year | $ | 2.043 | (a) | $ | 1.705 | |||||||||
*The full year estimate is based on futures prices and does not include the impact of forward pricing agreements we have for a portion of our cheese purchases for our domestic Company-owned restaurants. Additionally, the price charged to restaurants can vary somewhat by quarter from the actual block price based upon our monthly pricing mechanism.
| (a) | The full year estimate is based on futures prices and does not include the impact of forward pricing agreements we have for a portion of our cheese purchases for our domestic Company-owned restaurants. Additionally, the price charged to restaurants can vary somewhat by quarter from the actual block price based upon our monthly pricing mechanism. | ||||
Item 4. Controls and ProceduresUnder the supervision and with the participation of the Company’s management, including its chief executive officer and chief financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, the chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.Changes in Internal Control Over Financial ReportingDuring the most recently completed fiscal quarter, there was no change made in the Company’s internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 1. Legal ProceedingsThe Company is involved in a number of lawsuits, claims, investigations and proceedings consisting of intellectual property, employment, consumer, commercial and other matters arising in the ordinary course of business. In accordance with Financial Accounting Standards Board Accounting Standards Codification 450, “Contingencies”, the Company has made accruals with respect to these matters, where appropriate, which are reflected in the Company’s condensed consolidated financial statements. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. The legal proceedings described in Note 9 of “Notes to Condensed Consolidated Financial Statements” within “Part I. Item 1. Financial Statements” of this Form 10-Q are incorporated herein by reference.
Item 1A. Risk FactorsExcept as set forth below and in "Part II. Item IA - Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 27, 2022, there have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2021.Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine.The global economy has been negatively impacted by the military conflict in Ukraine. Furthermore, governments in the U.S., United Kingdom, and European Union have each imposed export controls on certain products and financial and39
economic sanctions on certain industry sectors and parties in Russia. The Company has no company-owned restaurants in Russia or Ukraine and has suspended corporate support for its master franchisee in Russia, which operates and supplies all 188 franchised Papa John’s restaurants there. The Company is unable to predict how long the current environment will last or if it will resume corporate support to impacted franchised restaurants. As all assets related to the Russia master franchisee and franchised restaurants have been fully reserved or impaired, we do not expect further financial statement charges for the Russia operation.
Like other businesses, we have experienced some increased costs for transportation, energy, and commodities due in part to the negative impact of the military conflict in Ukraine on the global economy. Further escalation of geopolitical tensions, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain. In addition, the effects of the ongoing conflict could heighten many of our known risks described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 26, 2021.
Total Number Maximum Dollar Total Average of Shares Purchased Value of Shares Number Price as Part of Publicly that May Yet Be of Shares Paid per Announced Plans Purchased Under the Fiscal Period Purchased Share or Programs Plans or Programs 12/27/2021 - 1/23/2022 52 $ 126.26 52 $ 418,204 1/24/2022 - 2/20/2022 59 $ 118.87 59 $ 411,196 2/21/2022 - 3/27/2022 190 $ 100.80 190 $ 392,091 Total 301 $ 108.76 301 $ 392,091 Exhibit Description 31.1 31.2 32.1 32.2 101 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). Date: /s/ Ann B. Gugino Ann B. Gugino Chief Financial OfficerItem 2. Unregistered Sales of Equity Securities and Use of ProceedsShare Repurchase ProgramOn October 28, 2021, our Board of Directors approved a share repurchase program with an indefinite duration for up to $425.0 million of the Company’s common stock. Funding for the share repurchase program is provided through our operating cash flows and our $600.0 million PJI Revolving Facility.The following table summarizes our repurchase activity under this share repurchase program by fiscal period during the first quarterthree months ended March 27,September 25, 2022 (in thousands, except per share amounts):Fiscal Period Total
Number
of Shares
PurchasedAverage
Price
Paid per
ShareTotal Number
of Shares Purchased
as Part of Publicly
Announced Plans
or ProgramsMaximum Dollar
Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs6/27/2022 - 7/24/2022 167 $ 84.60 167 $ 335,169 7/25/2022 - 8/21/2022 62 $ 86.63 62 $ 329,800 8/22/2022 - 9/25/2022 — $ — — $ 329,800 Total 229 $ 85.15 229 $ 329,800 The Company utilizes a written trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, from time to time to facilitate the repurchase of shares of our common stock under this share repurchase program. There can be no assurance that we will repurchase shares of our common stock either through a Rule 10b5-1 trading plan or otherwise.Subsequent to March 27, 2022, we acquired an additional 223,000 shares at an aggregate cost of $23.0 million. Approximately $369.1 million remained available under the Company’s share repurchase program as of April 29, 2022.Repurchases of Stock for Tax WithholdingsDuring the fiscal quarter ended March 27,September 25, 2022, the Company acquired approximately 69,00022,000 shares of its common stock from employees to satisfy minimum tax withholding obligations that arose upon (i) vesting of restricted stock granted pursuant to approved plans and (ii) distribution of shares of common stock issued pursuant to deferred compensation obligations.4041Item 6. ExhibitsExhibit
Number10.110.2Financial statements from the quarterly report on Form 10-Q of Papa John’s International, Inc. for the quarter ended March 27,September 25, 2022, filed on May 5,November 3, 2022, formatted in iXBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Deficit, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.104 4142Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.PAPA JOHN’S INTERNATIONAL, INC. (Registrant)(Registrant)May 5,November 3, 20224243