UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September ~~25, 2022~~24, 2023

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-21660

PAPA JOHN’S INTERNATIONAL, INC.

(Exact name of ~~registrant~~Registrant as specified in its charter)


Delaware						61-1203323
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification
~~incorporation or organization)~~						number)

~~2002 Papa John’s Boulevard~~

~~Louisville, KY 40299-2367~~


2002 Papa John’s Boulevard
Louisville, KY						40299-2367
(Address of principal executive offices)						(Zip Code)

(502) 261-7272

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the ~~registrant~~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~~Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o

Indicate by check mark whether the ~~registrant~~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~~Registrant was required to submit such files). Yes x No o

Indicate by check mark whether the ~~registrant~~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 Accelerated Filer~~ x

~~Accelerated filer~~ o

Large Accelerated Filer

Accelerated filer

Non-accelerated filer

Smaller reporting company ☐

Emerging growth company ☐

If 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~~Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

At October ~~28, 2022,~~27, 2023, there were ~~outstanding 35,328,153~~32,755,858 shares of the ~~registrant’s~~Registrant’s common stock ~~par value $0.01 per share.~~outstanding.

INDEX


		Page No.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets — September 25 2 4 , ~~2022~~2023 and December ~~26, 2021~~25, 20 2 2	1

	Condensed Consolidated Statements of Operations — Three and nine months ended ~~Sept~~September ~~ember 25~~ 2 4 , ~~2022~~2023 and September 26 ~~, 2021~~ 2 5 2022	2

	Condensed Consolidated Statements of Comprehensive Income — Three and nine months ended SeSeptember ~~ptember 25~~ 2 4 , ~~2022~~2023 and September 26 ~~, 2021~~ 2 5 2022	3

	Condensed Consolidated Statements of Stockholders’ Deficit — Three and nine months ended September 25 2 4 , 2023 and September 2 5 , 2022 ~~and~~ ~~September 26, 2021~~	4

	Condensed Consolidated Statements of Cash Flows — Three and ~~Nine~~ nine months ended September 25 2 4 , 2023 and September 2 5 , 2022 ~~and~~ ~~September 26, 2021~~	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3941

Item 4.	Controls and Procedures	4042

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	4042

Item 1A.	Risk Factors	4042

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4143

Item 6.	Exhibits	4244

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


(In thousands, except per share amounts)	(In thousands, except per share amounts)	September 25, 2022		December 26, 2021		(In thousands, except per share amounts)	September 24, 2023		December 25, 2022
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	36,618	$	70,610	Cash and cash equivalents	$	37,492	$	47,373
Accounts receivable, net	Accounts receivable, net	95,855		81,370		Accounts receivable, net	109,697		102,533
Notes receivable, current portion	Notes receivable, current portion	7,556		12,352		Notes receivable, current portion	5,169		6,848
Income tax receivable	Income tax receivable	10,533		9,386		Income tax receivable	1,162		8,780
Inventories	Inventories	42,448		34,981		Inventories	37,666		41,382
Prepaid expenses and other current assets	Prepaid expenses and other current assets	46,514		46,310		Prepaid expenses and other current assets	51,943		44,123

Assets held for sale (a)						Assets held for sale (a)	3,427		—
Total current assets	Total current assets	239,524		255,009		Total current assets	246,556		251,039
Property and equipment, net	Property and equipment, net	230,894		223,856		Property and equipment, net	268,087		249,793
Finance lease right-of-use assets, net	Finance lease right-of-use assets, net	22,692		20,907		Finance lease right-of-use assets, net	34,443		24,941
Operating lease right-of-use assets	Operating lease right-of-use assets	167,470		176,256		Operating lease right-of-use assets	166,360		172,425
Notes receivable, less current portion, net	Notes receivable, less current portion, net	17,397		35,504		Notes receivable, less current portion, net	15,016		21,248
Goodwill	Goodwill	69,476		80,632		Goodwill	76,011		70,616
Deferred income taxes		4,969		5,156

Other assets	Other assets	77,326		88,384		Other assets	71,092		74,165
Total assets	Total assets	$	829,748	$	885,704	Total assets	$	877,565	$	864,227

Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit	Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit					Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	44,263	$	28,092	Accounts payable	$	68,020	$	62,316
Income and other taxes payable	Income and other taxes payable	18,171		19,996		Income and other taxes payable	9,738		8,766
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	152,893		190,116		Accrued expenses and other current liabilities	153,772		142,535
Current deferred revenue	Current deferred revenue	19,925		21,700		Current deferred revenue	19,565		21,272
Current finance lease liabilities	Current finance lease liabilities	6,072		4,977		Current finance lease liabilities	9,520		6,850
Current operating lease liabilities	Current operating lease liabilities	22,403		22,543		Current operating lease liabilities	25,935		23,418
Current portion of long-term debt						Current portion of long-term debt	14,789		—

Total current liabilities	Total current liabilities	263,727		287,424		Total current liabilities	301,339		265,157
Deferred revenue	Deferred revenue	22,987		13,846		Deferred revenue	20,699		23,204
Long-term finance lease liabilities	Long-term finance lease liabilities	17,468		16,580		Long-term finance lease liabilities	26,305		19,022
Long-term operating lease liabilities	Long-term operating lease liabilities	155,952		160,672		Long-term operating lease liabilities	153,506		160,905
Long-term debt, less current portion, net	Long-term debt, less current portion, net	548,753		480,730		Long-term debt, less current portion, net	769,210		597,069
Deferred income taxes		362		258

Other long-term liabilities	Other long-term liabilities	77,912		93,154		Other long-term liabilities	65,494		68,317
Total liabilities	Total liabilities	1,087,161		1,052,664		Total liabilities	1,336,553		1,133,674

Redeemable noncontrolling interests	Redeemable noncontrolling interests	1,206		5,498		Redeemable noncontrolling interests	910		1,217

Stockholders’ deficit:	Stockholders’ deficit:					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
Common stock ($0.01 par value per share; issued 49,227 at September 24, 2023 and 49,138 at December 25, 2022)						Common stock ($0.01 par value per share; issued 49,227 at September 24, 2023 and 49,138 at December 25, 2022)	492		491
Additional paid-in capital	Additional paid-in capital	444,643		445,126		Additional paid-in capital	447,699		449,829
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(13,868)		(9,971)		Accumulated other comprehensive loss	(7,916)		(10,135)
Retained earnings	Retained earnings	187,286		183,157		Retained earnings	208,132		195,856
Treasury stock (14,047 shares at September 25, 2022 and 13,205 shares at December 26, 2021, at cost)		(892,818)		(806,472)
Treasury stock (16,754 shares at September 24, 2023 and 14,402 shares at December 25, 2022, at cost)						Treasury stock (16,754 shares at September 24, 2023 and 14,402 shares at December 25, 2022, at cost)	(1,123,599)		(922,434)
Total stockholders’ deficit	Total stockholders’ deficit	(274,266)		(187,670)		Total stockholders’ deficit	(475,192)		(286,393)
Noncontrolling interests in subsidiaries	Noncontrolling interests in subsidiaries	15,647		15,212		Noncontrolling interests in subsidiaries	15,294		15,729
Total Stockholders’ deficit	Total Stockholders’ deficit	(258,619)		(172,458)		Total Stockholders’ deficit	(459,898)		(270,664)
Total liabilities, Redeemable noncontrolling interests and Stockholders’ deficit		$	829,748	$	885,704
Total Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit						Total Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit	$	877,565	$	864,227

(a) Represents vacant land adjacent to the Company’s Louisville office, which was sold on September 29, 2023.

See accompanying notes.

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
(In thousands, except per share amounts)	(In thousands, except per share amounts)	September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021		(In thousands, except per share amounts)	September 24, 2023		September 25, 2022		September 24, 2023		September 25, 2022

Revenues:	Revenues:									Revenues:
Domestic Company-owned restaurant sales	Domestic Company-owned restaurant sales	$	166,050	$	191,584	$	536,226	$	584,942	Domestic Company-owned restaurant sales	$	177,195	$	166,050	$	532,841	$	536,226
North America franchise royalties and fees	North America franchise royalties and fees	33,712		31,933		102,897		97,123		North America franchise royalties and fees	35,041		33,712		105,824		102,897
North America commissary revenues	North America commissary revenues	216,115		189,224		645,177		560,743		North America commissary revenues	204,887		216,115		624,433		645,177
International revenues	International revenues	30,735		38,408		97,310		110,629		International revenues	42,927		30,735		108,998		97,310
Other revenues	Other revenues	63,900		61,633		194,259		186,099		Other revenues	62,762		63,900		192,295		194,259
Total revenues	Total revenues	510,512		512,782		1,575,869		1,539,536		Total revenues	522,812		510,512		1,564,391		1,575,869
Costs and expenses:	Costs and expenses:									Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):	Operating costs (excluding depreciation and amortization shown separately below):									Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses	Domestic Company-owned restaurant expenses	138,299		155,477		441,986		465,658		Domestic Company-owned restaurant expenses	145,433		138,299		436,922		441,986
North America commissary expenses	North America commissary expenses	203,129		175,399		604,689		518,310		North America commissary expenses	189,551		203,129		576,434		604,689
International expenses	International expenses	18,196		21,743		57,346		62,791		International expenses	29,796		18,196		67,542		57,346
Other expenses	Other expenses	59,249		56,039		180,452		168,092		Other expenses	57,587		59,249		177,661		180,452
General and administrative expenses	General and administrative expenses	57,935		54,070		168,519		157,779		General and administrative expenses	52,173		57,935		154,441		168,519
Depreciation and amortization	Depreciation and amortization	13,338		11,477		38,012		36,830		Depreciation and amortization	16,404		13,338		46,815		38,012
Total costs and expenses	Total costs and expenses	490,146		474,205		1,491,004		1,409,460		Total costs and expenses	490,944		490,146		1,459,815		1,491,004
Refranchising and impairment loss	Refranchising and impairment loss	(905)		—		(12,065)		—		Refranchising and impairment loss	—		(905)		—		(12,065)
Operating income	Operating income	19,461		38,577		72,800		130,076		Operating income	31,868		19,461		104,576		72,800
Net interest expense	Net interest expense	(7,623)		(3,979)		(17,967)		(11,275)		Net interest expense	(11,378)		(7,623)		(31,674)		(17,967)
Income before income taxes	Income before income taxes	11,838		34,598		54,833		118,801		Income before income taxes	20,490		11,838		72,902		54,833
Income tax expense	Income tax expense	3,374		4,057		9,212		19,387		Income tax expense	4,539		3,374		16,546		9,212
Net income before attribution to noncontrolling interests	Net income before attribution to noncontrolling interests	8,464		30,541		45,621		99,414		Net income before attribution to noncontrolling interests	15,951		8,464		56,356		45,621
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(133)		(1,285)		(1,363)		(4,021)		Net income attributable to noncontrolling interests	(90)		(133)		(351)		(1,363)
Net income attributable to the Company	Net income attributable to the Company	$	8,331	$	29,256	$	44,258	$	95,393	Net income attributable to the Company	$	15,861	$	8,331	$	56,005	$	44,258

Calculation of net income (loss) for earnings per share:
Calculation of net income for earnings per share:										Calculation of net income for earnings per share:
Net income attributable to the Company	Net income attributable to the Company	$	8,331	$	29,256	$	44,258	$	95,393	Net income attributable to the Company	$	15,861	$	8,331	$	56,005	$	44,258
Dividends on redemption of Series B Convertible Preferred Stock		—		—		—		(109,852)
Dividends paid to participating securities	Dividends paid to participating securities	(86)		(137)		(228)		(5,964)		Dividends paid to participating securities	—		(86)		—		(228)
Net income attributable to participating securities	Net income attributable to participating securities	—		(158)		(34)		—		Net income attributable to participating securities	—		—		—		(34)
Net income (loss) attributable to common shareholders		$	8,245	$	28,961	$	43,996	$	(20,423)
Net income attributable to common shareholders										Net income attributable to common shareholders	$	15,861	$	8,245	$	56,005	$	43,996

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 earnings per common share										Basic earnings per common share	$	0.49	$	0.23	$	1.69	$	1.23
Diluted earnings per common share										Diluted earnings per common share	$	0.48	$	0.23	$	1.68	$	1.22

Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	35,259		36,387		35,602		34,619		Basic weighted average common shares outstanding	32,564		35,259		33,053		35,602
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	35,448		36,719		35,840		34,619		Diluted weighted average common shares outstanding	32,800		35,448		33,287		35,840

Dividends declared per common share	Dividends declared per common share	$	0.42	$	0.35	$	1.12	$	0.80	Dividends declared per common share	$	0.46	$	0.42	$	1.30	$	1.12

See accompanying notes.

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended Nine Months Ended
(In thousands) September 25,
2022 September 26,
2021 September 25,
2022 September 26,
2021
Net 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

~~_______________~~


	Three Months Ended				Nine Months Ended
(In thousands)	September 24, 2023		September 25, 2022		September 24, 2023		September 25, 2022

Net income before attribution to noncontrolling interests	$	15,951	$	8,464	$	56,356	$	45,621
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	(1,854)		(4,849)		(7)		(9,819)
Interest rate swaps (1)	1,039		1,169		2,889		4,758
Other comprehensive income (loss), before tax	(815)		(3,680)		2,882		(5,061)
Income tax effect:
Foreign currency translation adjustments	426		1,114		1		2,258
Interest rate swaps (2)	(238)		(268)		(664)		(1,094)
Income tax effect	188		846		(663)		1,164
Other comprehensive income (loss), net of tax	(627)		(2,834)		2,219		(3,897)
Comprehensive income before attribution to noncontrolling interests	15,324		5,630		58,575		41,724
Less: comprehensive income, redeemable noncontrolling interests	(30)		(31)		(135)		(559)
Less: comprehensive income, nonredeemable noncontrolling interests	(60)		(102)		(216)		(804)
Comprehensive income attributable to the Company	$	15,234	$	5,497	$	58,224	$	40,361

(1) Amounts reclassified out of accumulated other comprehensive loss into net interest income (expense) include $203 and $(40) for the three and nine months ended September 24, 2023, respectively and $(1,650) and $(1,850) for the three and nine months ended September 25, 2022, respectively.


~~(1)~~(2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss were $(46) and $9 for the three and nine months ended September 24, 2023, respectively and $371 and $416 for the three and nine months ended September 25, 2022, respectively.			Amounts reclassified out of accumulated other comprehensive loss into net interest expense include $1,650 and $1,850 for the three and nine months ended September 25, 2022, respectively, and $1,644 and $5,084 for the three and nine months ended September 26, 2021, respectively.
~~(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.

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)

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.
(In thousands)	Common Stock Shares Outstanding	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss (2)		Retained Earnings		Treasury Stock (3)		Noncontrolling Interests in Subsidiaries		Total Stockholders’ Deficit

For the three months ended September 24, 2023
Balance at June 25, 2023	32,394	$	492	$	445,964	$	(7,289)	$	207,461	$	(1,127,669)	$	15,562	$	(465,479)
Net income (1)	—	—		—		—		15,861		—		60		15,921
Other comprehensive income (loss), net of tax	—	—		—		(627)		—		—		—		(627)
Dividends on common stock	—	—		34		—		(15,190)		—		—		(15,156)
Exercise of stock options	18	—		1,134		—		—		—		—		1,134

Stock-based compensation expense	—	—		4,726		—		—		—		—		4,726
Issuance of restricted stock	7	—		(315)		—		—		315		—		—
Tax effect of restricted stock awards	(2)	—		(171)		—		—		—		—		(171)
Distributions to noncontrolling interests	—	—		—		—		—		—		(328)		(328)
Other	56	—		(3,673)		—		—		3,755		—		82
Balance at September 24, 2023	32,473	$	492	$	447,699	$	(7,916)	$	208,132	$	(1,123,599)	$	15,294	$	(459,898)

For the nine months ended September 24, 2023
Balance at December 25, 2022	34,736	$	491	$	449,829	$	(10,135)	$	195,856	$	(922,434)	$	15,729	$	(270,664)
Net income (1)	—	—		—		—		56,005		—		216		56,221
Other comprehensive income (loss), net of tax	—	—		—		2,219		—		—		—		2,219
Dividends on common stock	—	—		88		—		(43,729)		—		—		(43,641)
Exercise of stock options	35	1		1,816		—		—		—		—		1,817
Acquisition of Company common stock (3)	(2,523)	—		—		—		—		(212,444)		—		(212,444)
Stock-based compensation expense	—	—		13,224		—		—		—		—		13,224
Issuance of restricted stock	234	—		(6,857)		—		—		6,857		—		—
Tax effect of restricted stock awards	(75)	—		(6,279)		—		—		—		—		(6,279)
Distributions to noncontrolling interests	—	—		—		—		—		—		(651)		(651)
Other	66	—		(4,122)		—		—		4,422		—		300
Balance at September 24, 2023	32,473	$	492	$	447,699	$	(7,916)	$	208,132	$	(1,123,599)	$	15,294	$	(459,898)

(1) Net income to the Company for the three and nine months ended September 24, 2023 excludes $30 and $135, respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

(2)At September 24, 2023, the accumulated other comprehensive loss of $7,916 was comprised of net unrealized foreign currency translation loss of $8,702 and net unrealized gain on the interest rate swap agreements of $786.

(3)Acquisition of Company common stock for the nine months ended September 24, 2023 includes $2,804 of transaction costs directly attributable to share repurchases, including a 1% excise tax incurred under the Inflation Reduction Act of 2022.

See accompanying notes.

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit (continued)

(Unaudited)


	Papa John’s International, Inc.
(In thousands)	Common Stock Shares Outstanding	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss (2)		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 income (loss), net of tax	—	—		—		(2,834)		—		—		—		(2,834)
Dividends on common stock	—	—		57		—		(14,979)		—		—		(14,922)
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 effect of restricted stock awards	(22)	—		(1,900)		—		—		—		—		(1,900)
Distributions to noncontrolling interests	—	—		—		—		—		—		(216)		(216)
Other	2	—		(67)		—		—		156		—		89
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 income (loss), net of tax	—	—		—		(3,897)		—		—		—		(3,897)
Dividends on common stock	—	—		153		—		(40,129)		—		—		(39,976)
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 effect of restricted stock awards	(92)	—		(9,426)		—		—		—		—		(9,426)
Distributions to noncontrolling interests	—	—		—		—		—		—		(366)		(366)
Other	8	—		(64)		—		—		444		(3)		377
Balance at September 25, 2022	35,065	$	491	$	444,643	$	(13,868)	$	187,286	$	(892,818)	$	15,647	$	(258,619)

(1)Net income to the Company for the three and nine months ended September 25, 2022 excludes ~~income of~~ $31 and $559, respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

(2)At September 25, 2022, the accumulated other comprehensive loss of $13,868 was comprised of net unrealized foreign currency translation loss of $12,430 and net unrealized loss on the interest rate swap agreements of ~~$1,438~~$1,438..

~~See accompanying notes.~~

~~Papa John’s International, Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Stockholders’ Deficit (continued)~~

~~(Unaudited)~~
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 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.~~

At September 26, 2021, the accumulated other comprehensive loss of $9,910 was comprised of net unrealized foreign currency translation loss of $3,499 and net unrealized loss on the interest rate swap agreements of $6,411.

See accompanying notes.

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Nine Months Ended						Nine Months Ended
(In thousands)	(In thousands)		September 25, 2022		September 26, 2021		(In thousands)		September 24, 2023		September 25, 2022

Operating activities	Operating activities						Operating activities
Net income before attribution to noncontrolling interests	Net income before attribution to noncontrolling interests		$	45,621	$	99,414	Net income before attribution to noncontrolling interests		$	56,356	$	45,621
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:						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)
Provision for allowance for credit losses on accounts and notes receivable							Provision for allowance for credit losses on accounts and notes receivable		1,348		18,576
Depreciation and amortization	Depreciation and amortization		38,012		36,830		Depreciation and amortization		46,815		38,012
Refranchising and impairment loss	Refranchising and impairment loss		12,065		—		Refranchising and impairment loss		—		12,065
Deferred income taxes	Deferred income taxes		519		(5,113)		Deferred income taxes		3,481		519
Stock-based compensation expense	Stock-based compensation expense		14,246		12,519		Stock-based compensation expense		13,224		14,246
Other	Other		(466)		1,052		Other		331		(466)
Changes in operating assets and liabilities, net of acquisitions:	Changes in operating assets and liabilities, net of acquisitions:						Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	Accounts receivable		(19,584)		5,955		Accounts receivable		(11,643)		(19,584)
Income tax receivable	Income tax receivable		(1,146)		674		Income tax receivable		7,617		(1,146)
Inventories	Inventories		(8,185)		(3,217)		Inventories		3,875		(8,185)
Prepaid expenses and other current assets	Prepaid expenses and other current assets		2,065		11,277		Prepaid expenses and other current assets		(2,104)		2,065
Other assets and liabilities	Other assets and liabilities		(4,919)		(8,627)		Other assets and liabilities		2,057		(4,919)
Accounts payable	Accounts payable		16,188		5,014		Accounts payable		15,237		16,188
Income and other taxes payable	Income and other taxes payable		(1,789)		15,958		Income and other taxes payable		1,087		(1,789)
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities		(32,404)		24,001		Accrued expenses and other current liabilities		(6,579)		(32,404)
Deferred revenue	Deferred revenue		(2,246)		(1,193)		Deferred revenue		(4,166)		(2,246)
Net cash provided by operating activities	Net cash provided by operating activities		76,553		193,624		Net cash provided by operating activities		126,936		76,553
Investing activities	Investing activities						Investing activities
Purchases of property and equipment	Purchases of property and equipment		(48,424)		(41,328)		Purchases of property and equipment		(50,905)		(48,424)
Notes issued	Notes issued		(2,248)		(14,637)		Notes issued		(7,310)		(2,248)
Repayments of notes issued	Repayments of notes issued		8,125		15,352		Repayments of notes issued		5,759		8,125
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired		(1,346)		(699)		Acquisitions, net of cash acquired		(5,599)		(1,346)
Proceeds from refranchising, net of cash transferred	Proceeds from refranchising, net of cash transferred		13,588		—		Proceeds from refranchising, net of cash transferred		—		13,588
Other	Other		76		121		Other		401		76
Net cash used in investing activities	Net cash used in investing activities		(30,229)		(41,191)		Net cash used in investing activities		(57,654)		(30,229)
Financing activities	Financing activities						Financing activities
Proceeds from issuance of senior notes			—		400,000

Net proceeds of revolving credit facilities	Net proceeds of revolving credit facilities		66,999		15,000		Net proceeds of revolving credit facilities		185,789		66,999
Debt issuance costs			—		(9,179)

Proceeds from exercise of stock options	Proceeds from exercise of stock options		2,730		11,211		Proceeds from exercise of stock options		1,816		2,730
Repurchase of Series B Convertible Preferred Stock			—		(188,647)
Acquisition of Company common stock	Acquisition of Company common stock		(95,000)		(20,555)		Acquisition of Company common stock		(210,348)		(95,000)
Dividends paid to common stockholders	Dividends paid to common stockholders		(39,949)		(27,640)		Dividends paid to common stockholders		(43,641)		(39,949)
Dividends paid to preferred stockholders			—		(6,394)
Tax payments for equity award issuances	Tax payments for equity award issuances		(9,426)		(5,310)		Tax payments for equity award issuances		(6,279)		(9,426)

Distributions to noncontrolling interests	Distributions to noncontrolling interests		(1,090)		(2,914)		Distributions to noncontrolling interests		(651)		(1,090)
Repayments of term loan			—		(340,000)

Other	Other		(3,480)		(2,630)		Other		(5,825)		(3,480)
Net cash used in financing activities	Net cash used in financing activities		(79,216)		(177,058)		Net cash used in financing activities		(79,139)		(79,216)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents		(1,100)		234		Effect of exchange rate changes on cash and cash equivalents		(24)		(1,100)
Change in cash and cash equivalents	Change in cash and cash equivalents		(33,992)		(24,391)		Change in cash and cash equivalents		(9,881)		(33,992)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period		70,610		130,204		Cash and cash equivalents at beginning of period		47,373		70,610
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period		$	36,618	$	105,813	Cash and cash equivalents at end of period		$	37,492	$	36,618

See accompanying ~~notes~~.notes.

Papa John’s International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September ~~25, 2022~~24, 2023

1. Basis of Presentation

The accompanying unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP” or “U.S. 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 September ~~25, 2022~~24, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December ~~25, 2022.~~31, 2023. 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”,~~“Company,” “Papa ~~John’s”~~John’s,” “Papa Johns” or in the first-person notations of ~~“we”,~~“we,” “us” and “our”) for the year ended December ~~26, 2021.~~25, 2022.

In discussions of our business, “Domestic” is defined as within the contiguous United States, “North America” includes Canada, and “International” includes the rest of the world other than North America.

2. Significant Accounting Policies

~~Use~~Principles of ~~Estimates~~Consolidation

The ~~preparation~~accompanying Condensed Consolidated Financial Statements include the accounts of ~~condensed consolidated financial statements in conformity with GAAP requires management to make estimates~~Papa John’s International, Inc. and ~~assumptions that affect the amounts reported in the condensed consolidated financial statements~~its subsidiaries. All intercompany balances and accompanying notes. Significant items that are subject to such estimates and assumptions include allowance for credit losses on accounts and notes receivable, 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.transactions have been eliminated.

Variable Interest Entity

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 and Canada 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~~North America restaurants, of which approximately 85 percent are franchised, 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~~Consolidation.”

Use of Estimates

The 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 the allowance for credit losses on accounts and notes receivable, intangible assets, contract assets and contract liabilities including the customer loyalty program obligation, right-of-use assets and lease liabilities, unredeemed gift card 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.

Noncontrolling Interests

Papa John’s has joint venture arrangements in which there are noncontrolling interests held by third parties that includeed 98 ~~and 188~~ restaurants at September ~~25, 2022~~24, 2023 and September ~~26, 2021,~~25, 2022, respectively. As further described in ~~Note 10,~~“Note 10. Divestitures” we divested our 51 percent interest in one joint venture in Texas that owned ~~90-restaurants~~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 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 of 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.

Net income attributable to these joint ventures for the three and nine months ended September ~~25, 2022~~24, 2023 and September ~~26, 2021~~25, 2022 was as follows (in thousands):


		Three Months Ended				Nine Months Ended
		September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021			Three Months Ended				Nine Months Ended
											September 24, 2023		September 25, 2022		September 24, 2023		September 25, 2022
Papa John’s International, Inc.	Papa John’s International, Inc.	$	314	$	2,171	$	2,642	$	6,816	Papa John’s International, Inc.	$	196	$	314	$	821	$	2,642
Noncontrolling interests	Noncontrolling interests	133		1,285		1,363		4,021		Noncontrolling interests	90		133		351		1,363
Total net income	Total net income	$	447	$	3,456	$	4,005	$	10,837	Total net income	$	286	$	447	$	1,172	$	4,005

The following summarizes the redemption feature, location and related accounting within the Condensed Consolidated Balance Sheets for these joint venture arrangements:

Type of Joint Venture Arrangement

Location within the Condensed Consolidated 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

Deferred Income Tax Accounts and Tax Reserves

We are subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining ~~Papa John’s~~the 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 and liabilities are netted by tax jurisdiction. 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 ofdue to 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. Deferred tax assets and liabilities are recorded within Other assets and Other long-term liabilities on the Condensed Consolidated Balance Sheets.

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.

Fair Value Measurements and Disclosures

The 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.

Fair 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 September ~~25, 2022~~24, 2023 and December ~~26, 2021~~25, 2022 are as follows:

Fair Value Measurements
(in thousands) Carrying
Value Level 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 $ —


			Fair Value Measurements
(In thousands)	Carrying Value		Level 1		Level 2		Level 3
September 24, 2023
Financial assets:
Cash surrender value of life insurance policies (a)	$	26,984	$	26,984	$	—	$	—
Interest rate swaps (b)	$	785	$	—	$	785	$	—




December 25, 2022
Financial assets:
Cash surrender value of life insurance policies (a)	$	30,120	$	30,120	$	—	$	—
Interest rate swaps (b)	$	986	$	—	$	986	$	—

~~_______________~~

(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 Secured Overnight Financing Rates (“SOFR”). Interest rate swaps entered into prior to 2023 were based on 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~~the Company’s credit agreement approximate carrying value due to ~~its~~their 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~~have the following estimated fair values and carrying values (excluding the impact of unamortized debt issuance costs) as of September ~~25, 2022~~24, 2023 and December ~~26, 2021, respectively:~~25, 2022:


		September 25, 2022				December 26, 2021					September 24, 2023				December 25, 2022
(in thousands)		Carrying Value		Fair Value		Carrying Value		Fair Value
(In thousands)										(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
3.875% Senior Notes	3.875% Senior Notes	$	400,000	$	328,000	$	400,000	$	396,000	3.875% Senior Notes	$	400,000	$	333,000	$	400,000	$	339,500

Allowance for Credit Losses

Estimates of expected credit losses, even if remote, are based upon historical account write-off trends, facts about the current financial condition of the debtor, forecasts of future operating results based upon current trends of select operating metrics, and macroeconomic factors. Credit quality is monitored through the timing of payments compared to the prescribed payment terms and known facts regarding the financial condition of the franchisee or customer. Account and note balances are charged ~~off~~ against the allowance after recovery efforts have ceased.

The following table summarizes changes in our allowances for credit losses for accounts receivable and notes receivable:

(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


(In thousands)	Accounts Receivable		Notes Receivable
Balance at December 25, 2022	$	6,718	$	14,499
Current period provision for expected credit losses, net	1,234		114
Write-offs charged against the allowance	(1,496)		(147)
Balance at September 24, 2023	$	6,456	$	14,466


			~~(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.

3. Leases

Lessor Operating Leases

The Company subleases certain retail space to our franchisees in the United Kingdom (“UK”), which are primarily operating leases. At September ~~25, 2022,~~24, 2023, we leased and subleased ~~approximately 444~~340 Papa ~~John’s restaurant properties~~Johns restaurants to franchisees in the ~~United Kingdom.~~UK. The initial lease terms on the franchised sites in the ~~United Kingdom~~UK 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. The initial lease terms of the franchisee subleases are generally five to ten years. Rental income, primarily derived from properties leased and subleased to franchisees in the ~~United Kingdom,~~UK, is recognized on a straight-line basis over the respective operating lease terms. WeThe Company recognized total sublease income of $2.3 million and $8.0 million for the three and nine months ended September 24, 2023, respectively, and $3.0 million and $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.

Lease Guarantees

As 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 55~~49 domestic leases. These leases have varying terms, the latest of which expires in 2036. As of September ~~25, 2022,~~24, 2023, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was ~~$9.8~~$7.7 million. This contingent liability is not included in the Condensed Consolidated Balance ~~Sheet~~Sheets as it is not probable to occur. The fair value of the guarantee is not material.

Supplemental Cash Flow & Other Information

Supplemental cash flow information related to leases for the periods reported is as follows:


		Nine Months Ended					Nine Months Ended
(in thousands)			September 25, 2022		September 26, 2021
(In thousands)								(In thousands)	September 24, 2023		September 25, 2022
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:							Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	Operating cash flows from finance leases		$	754	$	864		Operating cash flows from finance leases	$	1,128	$	754
Financing cash flows from finance leases	Financing cash flows from finance leases		3,854		3,358			Financing cash flows from finance leases	$	5,975	$	3,854
Operating cash flows from operating leases (a)	Operating cash flows from operating leases (a)		26,771		28,830			Operating cash flows from operating leases (a)	$	28,394	$	26,771
Right-of-use assets obtained in exchange for new finance lease liabilities	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 finance lease liabilities	$	16,518	$	5,980
Right-of-use assets obtained in exchange for new operating lease liabilities ~~(b)~~	Right-of-use assets obtained in exchange for new operating lease liabilities ~~(b)~~		43,639		52,462			Right-of-use assets obtained in exchange for new operating lease liabilities ~~(b)~~	$	17,652	$	43,639
Cash received from sublease income	Cash received from sublease income		8,251		8,728			Cash received from sublease income	$	7,160	$	8,251

(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.

___________________________________

(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.

4.Papa John’s Marketing Fund, Inc.

PJMF, which is a consolidated VIE where the Company has been identified as the primary beneficiary, 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 for all participating ~~domestic~~Domestic restaurants. Contributions and expenditures are reported on a gross basis in the Condensed Consolidated Statements of Operations within Other revenues and Other expenses. PJMF also has a wholly-owned subsidiary, Papa Card, Inc., which administers the Company’s gift card programs.

Assets and liabilities of PJMF, which are ~~restricted in their use, included~~utilized solely for the Company’s advertising and promotional programs, were as follows in the Condensed Consolidated Balance Sheets ~~were as follows~~ (in thousands):


		September 25, 2022		December 26, 2021			September 24, 2023		December 25, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	4,349	$	24,481	Cash and cash equivalents	$	3,963	$	17,174
Accounts receivable, net	Accounts receivable, net	23,677		14,150		Accounts receivable, net	24,274		14,780
Income tax receivable		44		300

Prepaid expenses and other current assets	Prepaid expenses and other current assets	2,512		1,718		Prepaid expenses and other current assets	8,278		1,815
Total current assets	Total current assets	30,582		40,649		Total current assets	36,515		33,769
Deferred income taxes	Deferred income taxes	587		614		Deferred income taxes	655		655
Total assets	Total assets	$	31,169	$	41,263	Total assets	$	37,170	$	34,424

Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	24	$	140	Accounts payable	$	517	$	12,428
Income and other taxes payable		3		2

Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	30,139		40,154		Accrued expenses and other current liabilities	21,762		17,936
Current portion of long-term debt						Current portion of long-term debt	14,789		—
Current deferred revenue	Current deferred revenue	3,319		4,317		Current deferred revenue	3,451		4,395
Total current liabilities	Total current liabilities	33,485		44,613		Total current liabilities	40,519		34,759
Deferred revenue	Deferred revenue	1,892		2,478		Deferred revenue	1,995		2,503
Total liabilities	Total liabilities	$	35,377	$	47,091	Total liabilities	$	42,514	$	37,262

5. Revenue Recognition

Contract Balances

Our contract liabilities primarily relate to franchise fees, unredeemed gift card liabilities, and loyalty program obligations, which we classify as Deferred revenue on the Condensed Consolidated Balance Sheets. During the three and nine months ended September ~~25, 2022,~~24, 2023, the Company recognized ~~$8.0~~$8.1 million and ~~$25.6~~$24.4 million in revenue, respectively, related to deferred revenue compared to ~~$9.2~~$8.0 million and ~~$27.3~~$25.6 million for the three and nine months ended September ~~26, 2021.~~25, 2022.

The following table includes a breakout of contract liability balances (in thousands):


		Contract Liabilities							Contract Liabilities
		September 25, 2022		December 26, 2021		Change			September 24, 2023		December 25, 2022		Change
Franchise fees and unredeemed gift card liabilities	Franchise fees and unredeemed gift card liabilities	$	29,469	$	20,410	$	9,059	Franchise fees and unredeemed gift card liabilities	$	27,189	$	30,710	$	(3,521)
Customer loyalty program obligations	Customer loyalty program obligations	13,443		15,136		(1,693)		Customer loyalty program obligations	13,075		13,766		(691)
Total contract liabilities	Total contract liabilities	$	42,912	$	35,546	$	7,366	Total contract liabilities	$	40,264	$	44,476	$	(4,212)

Our contract assets consist primarily of equipment incentives provided to franchisees. Equipment incentives are related to the future value of commissary revenue the Company will receive over the term of the incentive agreement. As of September ~~25, 2022~~24, 2023 and December ~~26, 2021,~~25, 2022, the contract assets were approximately ~~$5.1~~$6.7 million and ~~$5.8~~$6.2 million, respectively. For the three and nine months ended September 24, 2023, revenue was reduced approximately $0.9 million and $2.7 million, respectively, for the amortization of contract assets over the applicable contract terms. For the three and nine months ended September 25, 2022, revenue was reduced approximately $0.8 million and $2.7 million, respectively, for the amortization of contract assets over the applicable contract terms. Contract assets are included in Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets.

Transaction Price Allocated to the Remaining Performance Obligations

The following table (in thousands) includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period.

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


	Performance Obligations by Period
	Less than 1 Year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		Thereafter		Total
Franchise fees	$	3,015	$	2,774	$	2,566	$	2,308	$	2,033	$	5,631	$	18,327

~~Approximately $3.1~~At September 24, 2023, approximately $3.5 million of area development fees related to unopened stores and international unearned royalties are included in Deferred revenue. Timing of revenue recognition is dependent upon the timing of store openings and franchisees’ revenues. Gift card liabilities of approximately ~~$5.2~~$5.4 million, included in Deferred revenue, will be recognized in Company-owned restaurant revenues when gift cards are redeemed. The Company will recognize redemption fee revenue in Other revenues when cards are redeemed at franchised restaurant locations.

The Company applies the practical expedient in ASC 606, "“Revenue ~~Recognition~~Recognition”" and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

6. Common Stock

Shares Authorized and Outstanding

The Company has authorized ~~5.0 million shares of preferred stock (of which none were issued or outstanding at September 25, 2022 and December 26, 2021) and~~ 100.0 million shares of common stock as of September ~~25, 2022~~24, 2023 and December ~~26, 2021. There were 35.1 million~~25, 2022. The Company’s outstanding shares of common stock outstanding, net of repurchased shares of common stock held as treasury stock, were 32.5 million shares at September ~~25, 2022,~~24, 2023, compared to ~~35.8~~34.7 million shares at December ~~26, 2021.~~25, 2022.

Share Repurchase Program

On October 28, 2021, our Board of Directors (the “Board”) approved a share repurchase program with an indefinite duration for up to $425.0 million of the Company’s common stock. ~~This share repurchase program operated alongside our previous $75.0~~

~~million share repurchase authorization, which began on November 4, 2020 and expired on December 26, 2021.~~ The following table summarizes our repurchase activity under our share repurchase programs for the three and nine months ended September ~~25, 2022~~24, 2023 and September ~~26, 2021:~~25, 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
(In thousands, except average price per share)						(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	Three Months Ended		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 24, 2023						September 24, 2023							—					$	—		$	—					$	90,160
September 25, 2022	September 25, 2022	229				$	85.15				$	19,529					$	329,800		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
(In thousands, except average price per share)						(In thousands, except average price per share)					Total Number of Shares Purchased							Average Price Paid per Share			Aggregate Cost of Shares Purchased (a)			Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Nine Months Ended	Nine Months Ended		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 24, 2023						September 24, 2023							2,523					$	83.10		$	209,640					$	90,160
September 25, 2022	September 25, 2022	982				$	96.71				$	95,000					$	329,800		September 25, 2022		982			$	96.71			$	95,000	$	329,800
September 26, 2021		187		$	110.00			$	20,555					$	51,743

(a) Aggregate cost of shares purchased for the nine months ended September 24, 2023 excludes $2.8 million of transaction costs directly attributable to share repurchases, including a 1% excise tax incurred under the Inflation Reduction Act of 2022. Of these costs, $2.1 million were classified as non-cash financing activities during the nine months ended September 24, 2023.

The shares repurchased during the nine months ended September 24, 2023 included 2,176,928 shares repurchased on March 1, 2023 from certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), at a price of $82.52 per share, for aggregate consideration of $179.6 million. The transaction was negotiated by an independent committee of the Board of Directors formed for the purpose of evaluating a possible transaction involving Starboard, and was approved by the full Board of Directors upon such independent committee’s recommendation. Starboard’s Chief Executive Officer is Jeffrey Smith, who previously served as the Company’s Chairman of the Board until his resignation on March 1, 2023.

The timing and volume of share repurchases under the Company’s share repurchase programs may be executed at the discretion of management on an opportunistic basis, subject to market and business conditions, regulatory requirements and other factors, or pursuant to trading plans or other arrangements. Repurchases under the programs may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate. Repurchases under the Company’s share repurchase programs may be commenced or suspended from time to time at the Company’s discretion without prior notice. Funding for the share repurchase programs will be provided through our credit facility, operating cash flow, stock option exercises and cash and cash equivalents.

Dividends

The Company ~~recorded~~paid dividends of approximately ~~$39.9~~$43.6 million ($~~1.12~~1.30 per share) for the nine months ended September ~~25, 2022.~~24, 2023. On October ~~27, 2022,~~24, 2023, our Board of Directors declared a fourth quarter dividend of ~~$0.42~~$0.46 per common share (approximately ~~$14.9~~$15.1 million in the aggregate), which will be paid on November ~~25, 2022~~24, 2023 to stockholders of record as of the close of business on November ~~14, 2022.~~13, 2023. The ~~declaration~~declaration and payment of any future dividends will be at the discretion of our Board of Directors.

7. Earnings ~~(Loss) Per~~per Share

We compute earnings ~~(loss)~~ per share using the two-class method. The two-class method requires an earnings allocation formula that determines earnings ~~(loss)~~ per share for common shareholders and participating security holders according to dividends declared and participating rights in undistributed earnings. The shares of the Company’s former Series B Convertible Preferred Stock ("Series B Preferred Stock"), all of which were repurchased by the Company or converted into shares of common stock during 2021, and time-basedTime-based restricted stock awards are participating securities because holders of such shares have non-forfeitable dividend rights and participate in undistributed earnings with common stock. Under the two-class method, total dividends provided to the holders of participating securities and undistributed earnings allocated to participating securities, are subtracted from net income attributable to the Company in determining net income attributable to common shareholders. ~~Additionally, any accretion to the redemption value for the Series B Preferred Stock was treated as a deemed dividend in the two-class~~

Basic earnings per common share ~~calculation.~~

are computed by dividing net income attributable to common shareholders by the weighted-average common shares outstanding. Diluted earnings per common share are computed by dividing the net income attributable to common shareholders by the diluted weighted average common shares outstanding. Diluted weighted average common shares outstanding consist of basic weighted average common shares outstanding plus weighted average awards outstanding under our equity compensation plans, which are dilutive securities.

The calculations of basic and diluted earnings per common share are as ~~follows:~~follows (in thousands, except per share data):

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				Nine Months Ended
	September 24, 2023		September 25, 2022		September 24, 2023		September 25, 2022
Basic earnings per common share
Net income attributable to the Company	$	15,861	$	8,331	$	56,005	$	44,258
Dividends paid to participating securities	—		(86)		—		(228)
Net income attributable to participating securities	—		—		—		(34)
Net income attributable to common shareholders	$	15,861	$	8,245	$	56,005	$	43,996

Basic weighted average common shares outstanding	32,564		35,259		33,053		35,602
Basic earnings per common share	$	0.49	$	0.23	$	1.69	$	1.23

Diluted earnings per common share
Net income attributable to common shareholders	$	15,861	$	8,245	$	56,005	$	43,996

Weighted average common shares outstanding	32,564		35,259		33,053		35,602
Dilutive effect of outstanding equity awards (a)	236		189		234		238
Diluted weighted average common shares outstanding	32,800		35,448		33,287		35,840
Diluted earnings per common share	$	0.48	$	0.23	$	1.68	$	1.22

___________________________________

(a) Excludes 48,000 and 147,000 shares underlying equity awards for the three and nine months ended September 24, 2023, respectively, and 58,000 and 47,000 shares underlying equity awards for the three and nine months ended September 25, 2022, respectively, as the effect of including such awards would have been anti-dilutive.


~~(a)~~			Excludes 58 and 47 equity awards for the three and nine months ended September 25, 2022, respectively, as the effect of including such awards would have been anti-dilutive (none for the three and nine months ended September 26, 2021).

8. Debt

Long-term debt, net, consists of the following (in thousands):


		September 25, 2022		December 26, 2021			September 24, 2023		December 25, 2022
Senior notes	Senior notes	$	400,000	$	400,000	Senior notes	$	400,000	$	400,000
Revolving facilities(a)	Revolving facilities(a)	157,000		90,000		Revolving facilities(a)	390,789		205,000
Outstanding debt	Outstanding debt	$	557,000	$	490,000	Outstanding debt	$	790,789	$	605,000
Unamortized debt issuance costs	Unamortized debt issuance costs	(8,247)		(9,270)		Unamortized debt issuance costs	(6,790)		(7,931)
Current portion of long-term debt						Current portion of long-term debt	(14,789)		—
Total long-term debt, net	Total long-term debt, net	$	548,753	$	480,730	Total long-term debt, net	$	769,210	$	597,069

(a) Revolving facilities as of September 24, 2023 includes $14.8 million outstanding under the PJMF Revolving Facility as defined and discussed below.

Senior Notes

On September 14, 2021, the Company issued $400.0 million of 3.875% senior notes (the “Notes”) which will mature on September 15, 2029. Interest on the Notes is payable semi-annually in cash in arrears on March 15 and September 15 of each year at a fixed interest rate of 3.875% per annum.

~~The Company may redeem the Notes, in whole or in part, at any time on or after September 15, 2024 at established redemption prices ranging from 97~~ Refer to ~~194 basis points depending on when the Notes are redeemed. At any time prior to September 15, 2024, the Company may also redeem up to 40%~~Note 12 of the ~~Notes with net cash proceeds of certain equity offerings at a redemption price equal to 103.875%~~consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2022. for further description of the ~~principal amount of~~provisions and covenant requirements under the ~~Notes to be redeemed, plus accrued and unpaid interest, excluding the redemption date. In addition, at any time prior to September 15, 2024, the Company may~~Senior Notes.

redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest and an applicable “make-whole” premium. The Notes also contain customary redemption provisions related to asset sales and certain change of control transactions.

The Indenture governing the Notes contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the Indenture or the Notes and certain provisions related to bankruptcy events. The Indenture also contains customary negative covenants.

~~Amended~~ Credit Agreement

The Company’s amended and restated credit agreement, dated September 14, 2021 (the ~~“Amended Credit~~“Credit Agreement”) provides for a senior secured revolving credit facility in an aggregate available principal amount of $600.0 million (the “PJI Revolving Facility”), of which up to $40.0 million is available as swingline loans and up to $80.0 million is available as letters of credit. The PJI Revolving Facility will mature on September 14, 2026. The remaining availability under the PJI Revolving Facility was approximately ~~$443.0~~$224.0 million as of September ~~25, 2022.~~

Up24, 2023. Refer to ~~$50.0 million~~Note 12 of the ~~PJI Revolving Facility may be advanced~~consolidated financial statements in ~~certain agreed foreign currencies, including Euros, Pounds Sterling, Canadian Dollars, Japanese Yen, and Mexican Pesos. Additionally,~~our Annual Report on Form 10-K for the ~~Amended Credit Agreement includes an accordion feature allowing~~year ended December 25, 2022 for ~~a future increase~~further description of the PJI Revolving Facility and/or incremental term loans in an aggregate amount of up to $500.0 million, subject to certain conditions, including obtaining commitments from one or more new or existing lenders to provide such increased amountsprovisions and ~~ongoing compliance with financial covenants.~~

~~Loans~~covenant requirements under the PJI Revolving Facility accrue interest at a per annum rate equal to, at the Company’s election, either a LIBOR rate plus a margin ranging from 1.25% to 2.00% or a base rate (generally determined according to the greater of a prime rate, federal funds rate plus 0.50%, or a LIBOR rate plus 1.00%) plus a margin ranging from 0.25% to 1.00%. In each case, the actual margin is determined according to a ratio of the Company’s total indebtedness to earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for the then most recently ended four quarter period (the “Leverage Ratio”). An unused commitment fee ranging from 18 to 30 basis points per annum, determined according to the Leverage Ratio, applies to the underutilized commitments under the PJI Revolving Facility. Loans outstanding under the PJI Revolving Facility may be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings for which a LIBOR rate election is in effect. The Amended Credit Agreement also contain provisions specifying alternative interest rate calculations to be used at such time as LIBOR ceases to be available as a benchmark for establishing the interest rate on floating interest rate borrowings.

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 occurrence 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. The Company is 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 September 25, 2022.

Obligations under the Amended Credit Agreement are guaranteed by certain direct and indirect material domestic subsidiaries of the Company (the “Guarantors”) and are secured by a security interest in substantially all of the capital stock and equity interests of the Company’s and the Guarantors’ domestic and first tier material foreign subsidiaries. The Amended Credit Agreement contains customary events of default including, among other things, payment defaults, breach of covenants, cross acceleration to material indebtedness, bankruptcy-related defaults, judgment defaults, and the occurrence of certain change of control events. The occurrence of an event of default may result in the termination of the PJI Revolving Facility, acceleration of repayment obligations and the exercise of remedies by the Lenders with respect to the Guarantors.Agreement.

PJMF Revolving Facility

PJMF has a ~~$20.0~~$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. The PJMF Revolving Facility is secured by substantially all assets of PJMF. The PJMF Revolving ~~Facility~~Facility matures on September 30, ~~2023.~~2023, but is subject to annual amendments. The borrowings

under the PJMF Revolving Facility accrue interest at a variable rate of a one month ~~Term Secured Overnight Financing Rate ("SOFR")~~SOFR plus 1.60%. The applicable interest rate on the PJMF Revolving facility was 6.9% for the three months ended ~~There was no~~September 24, 2023. As of September 24, 2023, the principal amount of debt outstanding under the PJMF Revolving Facility was approximately $14.8 million and is classified as Current portion of ~~September 25, 2022 or December 26, 2021.~~long-term debt in the Condensed Consolidated Balance Sheets. The PJMF operating results and the related debt outstanding do not impact the financial covenants under the ~~Amended~~ Credit Agreement.

On September 30, 2023, the Company amended the PJMF Revolving Facility to, among other items: (i) extend the maturity date to September 30, 2024; (ii) amend the variable interest rate to a one month SOFR plus 1.975%; and (iii) expand the capacity from $20.0 million to $30.0 million.

Derivative Financial Instruments

On June 23, 2023, the Company entered into a new interest rate swap with an initial notional value of $100.0 million to replace the Company’s prior interest swaps, which had a notional value of $125.0 million and matured on April 30, 2023. The objective of the interest rate swap is to mitigate the Company’s exposure to the impact of interest rate changes associated with our variable rate debt under the PJI Revolving Facility. We have designated the interest rate swap as a cash flow hedge and will assess hedge effectiveness at regular intervals through the maturity date of June 30, 2025. The interest rate swaps are recorded at fair value at each reporting date, and any unrealized gains or losses are included in Accumulated

other comprehensive loss in the Condensed Consolidated Balance Sheets and reclassified to Net interest expense in the Condensed Consolidated Statements of Operations in the same period or periods during which the hedged transaction affect earnings.

As of September ~~25, 2022,~~24, 2023, we have the following interest rate swap ~~agreements with a total notional value of $125.0 million:~~agreements:

Effective Dates

Floating Rate Debt

Fixed Rates

~~April~~June 23, 2023 through June 30, ~~2018 through April 30, 2023~~2025

5550 million

~~2.33%~~4.55%

~~April~~June 23, 2023 through June 30, ~~2018 through April 30, 2023~~2025

3550 million

~~2.36%~~

~~April 30, 2018 through April 30, 2023~~

~~35 million~~

~~2.34%~~4.55%

In the third quarter of 2021, our interest rate swaps were de-designated as cash flow hedges following the issuance of the Notes and remained undesignated as hedges through June 26, 2022. For these de-designated hedges, the portion of gains or losses on the derivative instruments previously recognized in accumulated other comprehensive loss (“AOCL”) will be reclassified into earnings as adjustments to interest expense on a straight-line basis over the remaining life of the originally hedged transactions.

As of June 27, 2022, the interest rate swaps were re-designated as cash flow hedges to provide a hedge against changes in variable rate cash flows regarding fluctuations in the LIBOR rate utilized on the revolving credit facility. Therefore, beginning in the third quarter of 2022, our interest rate swaps are accounted for utilizing cash flow hedge accounting treatment. The interest rate swaps are marked to market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings.

The following table provides information on the location and amounts of our current and expired 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
Balance Sheet Location	Fair Value September 24, 2023		Fair Value December 25, 2022
Other current assets	$	726	$	986
Other assets	$	59	$	—

The effect of derivative instruments on the accompanying condensed consolidated financial statements is as follows (in thousands):


Derivatives - Cash Flow Hedging Relationships	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		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:	Interest rate swaps for the three months ended:							Interest rate swaps for the three months ended:
September 24, 2023								September 24, 2023	$	801	Interest expense	$	203	$	(11,378)
September 25, 2022	September 25, 2022	$	901	Interest expense	(1,650)	$	(7,623)	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:	Interest rate swaps for the nine months ended:							Interest rate swaps for the nine months ended:
September 24, 2023								September 24, 2023	$	2,225	Interest Expense	$	(40)	$	(31,674)
September 25, 2022	September 25, 2022	$	3,664	Interest Expense	(1,850)	$	(17,967)	September 25, 2022	$	3,664	Interest Expense	$	(1,850)	$	(17,967)
September 26, 2021		$	3,963	Interest Expense	(5,084)	$	(11,275)

~~Interest~~Net interest paid, including payments made or received under the swaps, was ~~$9.6~~$11.2 million and ~~$4.1~~$9.6 million for the three months ended September 24, 2023 and September 25, 2022, ~~and September 26, 2021,~~ respectively, and ~~$22.2~~$28.0 million and ~~$11.1~~$22.2 million for the nine months ended September 24, 2023 and September 25, 2022, ~~and September 26, 2021,~~ respectively.

9. Litigation, Commitments and Contingencies

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~~these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

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. On December 19, 2022, the District Court granted preliminary approval of the settlement, and following a hearing on July 27, 2023, the District Court granted final approval of the settlement. Pursuant to the terms of the settlement, which contemplated 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 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 settlement is subject to a claims-made process whereby unclaimed funds revert to the Company, and the Company was only responsible for payments to class and collective action members who timely submitted a claim form. On January 18, 2023, the Company remitted $5.0 million to the settlement administrator as partial funding of the settlement in accordance with the terms of the applicable settlement agreement. On August 10, 2023, the Company remitted the remaining $5.6 million settlement amount to the administrator in accordance with the final settlement terms. The settlement of these claims and lawsuits is materially complete, and the Company anticipates that the claims process will be concluded by the end of 2023.

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 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.~~2022 and remained accrued in Accrued expenses and other accrued liabilities in the Condensed Consolidated Balance Sheets as of September 24, 2023. The proposed settlement isremains 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~~

Company is only responsible for payments to class and collective action members who timely submit a claim form. Although the return rate for timely claims is unknown and not within the Company's control, the Company estimates its actual exposure resulting from the settlement to be approximately $10.0 million and this amount was recorded in General and administrative expenses in the Condensed Consolidated Statements of Operations in the third 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.

10. Divestitures

Refranchising Loss

On March 28, 2022, we refranchised our 51% ownership interest in a 90-restaurant consolidated joint venture in Texas for $14.0 million, net of transaction costs.

In connection with the divestiture, we recorded a one-time, non-cash charge of $8.4 million ~~as a~~in Refranchising ~~Loss~~and impairment loss in the Condensed Consolidated ~~Statement~~Statements 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.” The $8.4 million of the one-time, non-cash refranchising loss was recorded in the first quarter of 2022 and realized upon consummation of the sale in the second ~~quarter.~~quarter of 2022.

Impairment of Reacquired Master Franchise Rights

In the first quarter of 2022, the Company recorded an impairment of $2.8 million in Refranchising and impairment lossin the Condensed Consolidated Statements of Operations for reacquired franchise rights due to the financial and operational impact of the conflict in Ukraine and government actions taken in response to that conflict, including, but not limited to, international sanctions. The reacquired franchise rights were previously acquired from a former master franchisee and capitalized by the Company.

11. Segment Information

We have four reportable segments: Domestic Company-owned restaurants, North America franchising, North America commissaries, and ~~international~~International operations. The ~~domestic~~Domestic Company-owned restaurant segment consists of the operations of all ~~domestic (“domestic” is defined as contiguous United States)~~Domestic 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~~North America commissary segment ~~principally~~ 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 International segment consists of the operations of all Company-owned restaurants located in the UK, as well as distribution sales to franchised Papa John’s restaurants located in the ~~United Kingdom~~UK 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~~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.

Generally, we evaluate performance and allocate resources based on operating ~~income and intercompany eliminations.~~income. Certain administrative and capital costs are allocated to segments based upon predetermined rates or estimated resource usage. We account for intercompany sales and transfers as if the sales or transfers were to third parties and eliminate the activity in consolidation.

Our reportable segments are business units that provide different products or services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies. No single external customer accounted for 10% or more of our consolidated revenues.

The following tables present our segment information.


	Three Months Ended				Nine Months Ended
(In thousands)	September 24, 2023		September 25, 2022		September 24, 2023		September 25, 2022
Revenues:
Domestic Company-owned restaurants	$	177,195	$	166,050	$	532,841	$	536,226
North America franchising	35,041		33,712		105,824		102,897
North America commissaries	204,887		216,115		624,433		645,177
International	48,481		37,707		128,539		119,696
All others	57,208		56,928		172,754		171,873
Total revenues	$	522,812	$	510,512	$	1,564,391	$	1,575,869

Intersegment revenues:
North America franchising	$	1,040	$	996	$	3,117	$	3,097
North America commissaries	51,237		51,330		154,640		162,591

All others	16,180		15,562		49,363		50,830
Total intersegment revenues	$	68,457	$	67,888	$	207,120	$	216,518

Operating income:
Domestic Company-owned restaurants (a)	$	6,147	$	3,667	$	19,438	$	11,579
North America franchising	32,234		31,464		97,745		96,225
North America commissaries	10,691		8,425		31,818		28,717
International (b)	2,270		1,136		13,265		12,897
All others	2,379		2,037		6,879		7,943
Unallocated corporate expenses (c)	(20,792)		(27,684)		(63,859)		(84,138)
Elimination of intersegment (profits) losses	(1,061)		416		(710)		(423)
Total operating income	$	31,868	$	19,461	$	104,576	$	72,800


Property and equipment, net:
Domestic Company-owned restaurants	$	249,211
North America commissaries	157,056
International	29,403
All others	142,905
Unallocated corporate assets	251,104
Accumulated depreciation and amortization	(561,592)
Total property and equipment, net	$	268,087

___________________________________

(a) The nine months endedSeptember 25, 2022 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 loss. See “Note 10. Divestitures” for additional information.

(b) The three and nine months ended September 24, 2023 includes $1.2 million and $2.5 million of costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of stores from franchisees. The three and nine 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 franchise in the United Kingdom. The three and 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 rights. See “Notes 2. Significant Accounting Policies”, “10. Divestitures” and “12. Acquisitions” for additional information.

(c) The nine months ended September 24, 2023 includes $2.0 million of severance and related costs associated with the transition of certain executives. The three and nine months ended September 24, 2023 includes $0.6 million for certain legal settlements. Unallocated corporate expenses includes $10.0 million for certain legal settlements for the three months ended September 25, 2022. The nine months endedSeptember 25, 2022 includes $13.9 million of one-time, non-cash reserves of certain notes receivable, $15.0 million for certain legal settlements, and $1.5 million of advisory fees and severance costs associated with the transition of certain

~~Our segment information is as follows:~~

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 loss for the nine months ended September 25, 2022. See Note 10executives. See “Notes 2. Significant Accounting Policies” and “9. Litigation, Commitments and Contingencies” for additional information.


~~(b)~~			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 rights. See Notes 2 and 10 for additional information.


~~(c)~~			Unallocated corporate expenses includes $10.0 million for certain legal settlements for the three months ended September 25, 2022. For the nine months ended September 25, 2022, Unallocated corporate expenses includes $13.9 million of one-time, non-cash reserves of certain notes receivable, $15.0 million for certain legal settlements (see Note 9 for more information), and $1.5 million of advisory fees and severance costs associated with the transition of certain executives. Unallocated corporate expense includes $2.2 million and $9.4 million of reorganization costs for the three and nine months ended September 26, 2021. See Notes 2 and 9 for additional information.

Disaggregation of Revenue

In the following tables, revenues are disaggregated by major product/service line. The tables also include a reconciliation of the disaggregated revenues by the reportable segment (in thousands):


		Reportable Segments													Reportable Segments
		Three Months Ended September 25, 2022													Three Months Ended September 24, 2023
Major Products/Services Lines	Major Products/Services Lines	Domestic Company-owned restaurants		North America franchising		North America commissaries		International		All others		Total		Major Products/Services Lines	Domestic Company-owned restaurants		North America franchising		North America commissaries		International		All others		Total
Company-owned restaurant sales	Company-owned restaurant sales	$	166,050	$	—	$	—	$	—	$	—	$	166,050	Company-owned restaurant sales	$	177,195	$	—	$	—	$	14,013	$	—	$	191,208
Franchise royalties and fees	Franchise royalties and fees	—		34,708		—		11,619		—		46,327		Franchise royalties and fees	—		36,081		—		12,219		—		48,300
Commissary sales	Commissary sales	—		—		267,445		19,116		—		286,561		Commissary sales	—		—		256,124		16,695		—		272,819
Other revenues	Other revenues	—		—		—		6,972		72,490		79,462		Other revenues	—		—		—		5,554		73,388		78,942
Eliminations	Eliminations	—		(996)		(51,330)		—		(15,562)		(67,888)		Eliminations	—		(1,040)		(51,237)		—		(16,180)		(68,457)
Total segment revenues	Total segment revenues	$	166,050	$	33,712	$	216,115	$	37,707	$	56,928	$	510,512	Total segment revenues	177,195		35,041		204,887		48,481		57,208		522,812
International other revenues(a)	International other revenues(a)	—		—		—		(6,972)		6,972		—		International other revenues (a)	—		—		—		(5,554)		5,554		—
Total revenues	Total revenues	$	166,050	$	33,712	$	216,115	$	30,735	$	63,900	$	510,512	Total revenues	$	177,195	$	35,041	$	204,887	$	42,927	$	62,762	$	522,812

		Reportable Segments													Reportable Segments
		Three Months Ended September 26, 2021													Three Months Ended September 25, 2022
Major Products/Services Lines	Major Products/Services Lines	Domestic Company-owned restaurants		North America franchising		North America commissaries		International		All others		Total		Major Products/Services Lines	Domestic Company-owned restaurants		North America franchising		North America commissaries		International		All others		Total
Company-owned restaurant sales	Company-owned restaurant sales	$	191,584	$	—	$	—	$	—	$	—	$	191,584	Company-owned restaurant sales	$	166,050	$	—	$	—	$	—	$	—	$	166,050
Franchise royalties and fees	Franchise royalties and fees	—		32,970		—		14,031		—		47,001		Franchise royalties and fees	—		34,708		—		11,619		—		46,327
Commissary sales	Commissary sales	—		—		242,678		24,377		—		267,055		Commissary sales	—		—		267,445		19,116		—		286,561
Other revenues	Other revenues	—		—		—		8,472		71,683		80,155		Other revenues	—		—		—		6,972		72,490		79,462
Eliminations	Eliminations	—		(1,037)		(53,454)		—		(18,522)		(73,013)		Eliminations	—		(996)		(51,330)		—		(15,562)		(67,888)
Total segment revenues	Total segment revenues	$	191,584	$	31,933	$	189,224	$	46,880	$	53,161	$	512,782	Total segment revenues	166,050		33,712		216,115		37,707		56,928		510,512
International other revenues(a)	International other revenues(a)	—		—		—		(8,472)		8,472		—		International other revenues (a)	—		—		—		(6,972)		6,972		—
Total revenues	Total revenues	$	191,584	$	31,933	$	189,224	$	38,408	$	61,633	$	512,782	Total revenues	$	166,050	$	33,712	$	216,115	$	30,735	$	63,900	$	510,512

		Reportable Segments													Reportable Segments
		Nine Months Ended September 25, 2022													Nine Months Ended September 24, 2023
Major Products/Services Lines	Major Products/Services Lines	Domestic Company-owned restaurants		North America franchising		North America commissaries		International		All others		Total		Major Products/Services Lines	Domestic Company-owned restaurants		North America franchising		North America commissaries		International		All others		Total
Company-owned restaurant sales	Company-owned restaurant sales	$	536,226	$	—	$	—	$	—	$	—	$	536,226	Company-owned restaurant sales	$	532,841	$	—	$	—	$	17,031	$	—	$	549,872
Franchise royalties and fees	Franchise royalties and fees	—		105,994		—		37,097		—		143,091		Franchise royalties and fees	—		108,941		—		36,906		—		145,847
Commissary sales	Commissary sales	—		—		807,768		60,213		—		867,981		Commissary sales	—		—		779,073		55,061		—		834,134
Other revenues	Other revenues	—		—		—		22,386		222,703		245,089		Other revenues	—		—		—		19,541		222,117		241,658
Eliminations	Eliminations	—		(3,097)		(162,591)		—		(50,830)		(216,518)		Eliminations	—		(3,117)		(154,640)		—		(49,363)		(207,120)
Total segment revenues	Total segment revenues	$	536,226	$	102,897	$	645,177	$	119,696	$	171,873	$	1,575,869	Total segment revenues	532,841		105,824		624,433		128,539		172,754		1,564,391
International other revenues(a)	International other revenues(a)	—		—		—		(22,386)		22,386		—		International other revenues (a)	—		—		—		(19,541)		19,541		—
Total revenues	Total revenues	$	536,226	$	102,897	$	645,177	$	97,310	$	194,259	$	1,575,869	Total revenues	$	532,841	$	105,824	$	624,433	$	108,998	$	192,295	$	1,564,391


	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

___________________________________

(a) Other revenues as reported in the Condensed Consolidated Statements of Operations include $5.6 million and $19.5 million of revenues for the three and nine months ended September 24, 2023, respectively, and $7.0 million and $22.4 million for the three and nine months ended September 25, 2022, respectively, that are part of the International reporting segment. These amounts include marketing fund contributions and sublease rental income from international franchisees in the United Kingdom that provide no significant contribution to operating income but must be reported on a gross basis under accounting requirements. The related expenses for these Other revenues are reported in Other expenses in the Condensed Consolidated Statements of Operations.

12. Acquisitions

UK Franchisee Acquisitions

As part of our investment to reposition our UK business, we have acquired a portfolio of Company-owned restaurants in the UK market that were previously franchised. Our control and ownership of this portfolio enables us to implement operating model enhancements in the restaurants including revenue management capabilities, product and technological innovation and operational efficiencies to improve sales and restaurant-level profitability, and to drive initiatives for future growth and profitability in the Company’s largest market outside of North America. As part of this investment, the Company acquired 91 Papa Johns restaurants previously operated by the M25 division of Drake Food Service International in the United Kingdom on June 2, 2023 for total consideration of approximately $13.7 million. The Company acquired an additional 27 Papa Johns restaurants in the United Kingdom during the three months ended September 24, 2023 for total consideration of approximately $1.5 million. Collectively, we refer to these acquisitions as the “UK franchisee acquisitions.”

During the three and nine months ended September 24, 2023, the Company incurred $0.8 million and $2.1 million, respectively, of acquisition and transition costs related to the UK franchisee acquisitions. These expenses were recorded within General and administrative expenses and within the International segment in the Condensed Consolidated Statements of Operations. The results of operations of the acquired restaurants after their respective acquisition dates are included within the International segment in the Company’s Condensed Consolidated Statements of Operations. The impact of the acquisitions was not material to the Company’s Condensed Consolidated Financial Statements.

The UK franchisee acquisitions have been accounted for as business combinations. As such, the Company concluded that the consideration was measured at fair value and has recorded the preliminary estimated fair value of the assets acquired and liabilities assumed as of the respective acquisition dates. Total consideration was approximately $15.2 million, of which $13.7 million was pre-existing accounts receivable and notes receivable and was classified as a noncash investing transaction within the Condensed Consolidated Statements of Cash Flows during the nine months ended September 24, 2023. Assets acquired include approximately $10.6 million of property and equipment, net, $0.3 million of inventories and other assets and $4.3 million of goodwill.

The total goodwill recognized in conjunction with the UK franchisee acquisitions, all of which is expected to be deductible for tax purposes, has been assigned to the International operating segment. The purchase price exceeded the fair value of the net assets acquired, which resulted in the recognition of goodwill, primarily due to synergies created from expected future benefits stemming from implementation of the Company’s operational capabilities and further control of the Company’s brand name in our most prominent international market. Goodwill also includes certain other benefits that do not qualify for recognition as intangible assets, such as an assembled workforce.

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
Domestic Acquisitions


~~(a)~~			Other revenues as reported in the Condensed Consolidated Statements of Operations include $7.0 million and $22.4 million of revenue for the three and nine months ended September 25, 2022, respectively, and $8.5 million and $25.1 million for the three and nine months ended September 26, 2021, respectively, that are part of the international reporting segment. These amounts include marketing fund contributions and sublease rental income from international franchisees in the United Kingdom that provide no significant contribution to operating income but must be reported on a gross basis under accounting requirements. The related expenses for these Other revenues are reported in Other expenses in the Condensed Consolidated Statements of Operations.

During the nine months ended September 24, 2023, we acquired ten Domestic restaurants for a total purchase price of $4.1 million, which was classified as cash used in investing activities within the Condensed Consolidated Statements of Cash Flows. The impact of the acquisitions was not material to the Company’s Condensed Consolidated Financial Statements. Acquired assets recorded within the Condensed Consolidated Balance Sheets as of September 24, 2023 primarily included store property and equipment of $1.4 million, reacquired franchise rights of $1.5 million, and goodwill of $1.1 million.

The amounts recorded as a result of our preliminary acquisition accounting for the UK franchisee and Domestic acquisitions are subject to change and further refinement. The Company is still assessing the condition and finalizing the fair value of acquired property and equipment and intangible assets as well as gathering information regarding leases and other assets. There were no measurement period adjustments recorded during the three months ended September 24, 2023, and the Company expects these items to be finalized prior to the one-year anniversary date of the respective acquisitions.

The following summarizes changes in the Company’s goodwill by reportable segment (in thousands):


	Domestic Company-owned restaurants		International		All others		Total
Balance at December 25, 2022	$	55,507	$	14,673	$	436	$	70,616
Acquisitions (a)	1,102		4,274		—		5,376

Foreign currency adjustments	—		19		—		19
Balance at September 24, 2023	$	56,609	$	18,966	$	436	$	76,011

(s) Goodwill from acquisitions during the nine months ended September 24, 2023 include $4.3 million from the UK franchisee acquisitionsdescribed above as well as $1.1 million related to the Domestic store acquisitions described above.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Papa John’s International, Inc. (referred to as the “Company,” “Papa ~~John’s”~~John’s,” “Papa Johns” or in the first-person notations of “we,” “us” and “our”) operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and delivery restaurants under the trademark “Papa John’s.” Papa John’s began operations in 1984. As of September ~~25, 2022,~~24, 2023, there were ~~5,589~~5,825 Papa John’s restaurants in operation, consisting of ~~521~~644 Company-owned and ~~5,068~~5,181 franchised restaurants operating in 4748 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~~Domestic Quality Control Centers (“QC Centers”), operation of our ~~international~~International QC Center in the ~~United~~(United Kingdom (“UK”), 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. We believe that in addition to supporting both Company and franchised profitability and growth, these activities contribute to product quality and consistency throughout the Papa John’s system.

Recent Developments and Trends

~~Global Market Conditions.~~ The differentiated brand positioning of Papa Johns has been critical to our success as we have navigated the global pandemic and adapted our strategy to a constantly changing environment in recent years. Our brand 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, we are also able to target more price-sensitive customers with high-value promotions. At the same time, we have continued our successful strategy of letting our customers, especially 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 food, labor and fuel costs in our supply chain and at our restaurants, our ticket growth has predominantly come through new premium products and add-ons over the past few years.

Macroeconomic conditions in the 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~~focused on executing strategic priorities 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~~building a foundation for long-term success, ~~in this region. As we navigate this~~while navigating a challenging ~~economic environment, we will be investing in capabilities to improve our operations~~macroeconomic environment. Our progress 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, which may result in future costs to the Company in upcoming quarters. Duringsignificant transactions 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 future success.2023 are described below.

~~Development Outlook~~Growth Strategy. The ~~Company’s goal~~Company delivered its seventeenth consecutive quarter of Global system-wide restaurant sales growth and continues to beexpand both domestically and internationally. This growth is fueled by continued product innovation and our development strategy.

Our expanding development pipeline is a key long-term growth driver as we believe there is significant opportunity to ~~take market share in the pizza category while leveraging~~offer our differentiated, ~~strategy and~~ premium position to ~~protect margins in~~more customers globally and domestically. In the ~~face~~third quarter of ~~accelerating commodity and labor inflation.~~2023, we opened 45 net new restaurants for global unit growth of 0.8%. We ~~currently~~ expect ~~our 2022~~ global development ~~outlook~~ to be between ~~240~~245 and 260 net new ~~restaurants. Our view~~units for fiscal 2023, lower than previous guidance of 270 to 310 due to the dynamic geopolitical environment.

Operational Initiatives. We launched the “Back to BETTER” initiative in late 2022, which focuses on improving operational execution at the store level in order to drive better financial performance. We have aligned the organization on improving out-the-door times, overall customer satisfaction, increasing orders and optimization. Running BETTER operations is intended to increase customer and employee satisfaction, as well as drive customer loyalty. We are seeing improvement in our ~~long-term unit opportunity, both domestically and internationally, continues to expand as we sign historic deals to develop within key areas~~restaurant level operating margins, and we ~~expect to open between 1,400 and 1,800 net new Papa John’s~~experienced a 3.8% increase in comparable sales for Domestic Company-owned restaurants ~~worldwide by the end of 2025, relative to the start of 2022.~~

~~Innovation.~~ Papa Johns continues to make strides in menu innovation, with Football Pizza and Papa Bowls 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. These 2022 launches have proven to be popular with customers. Our digital innovation through Papa Rewards allows us to directly engage our customers with targeted personalized offers with the goal of driving higher frequency, higher ticket and higher customer satisfaction. Continued investment in one-to-one marketing capabilities is important to our strategy.

~~Restaurant Staffing and Related Market Impact. Throughout~~for the first nine months of ~~2022, our~~2023.

UK Market. Over the past two years, the UK restaurants ~~continued~~have experienced declines in sales. As we have navigated a dynamic economic environment and worked towards repositioning the market, we established a Company-owned restaurant portfolio in the UK during the second quarter. We acquired an additional 27 Papa Johns restaurants in the third quarter, bringing the total number of Company-owned restaurants in the UK market to ~~navigate a challenging staffing environment. Our integrations with~~118. The Company-owned restaurants have incurred operating losses in the ~~aggregator marketplaces and our nationwide integrations with Delivery-as-a-Service providers have been key tools allowing us to~~third quarter as we continue to ~~meet~~evaluate current operational capabilities and implement improvements in revenue management capabilities, product and technological innovation and operational efficiencies to improve sales and restaurant-level profitability over the longer term. We continue to focus on rationalizing our ~~customers~~portfolio to better position the UK market for success, which could include strategic store closures in the channel of their choice. 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 customer service center is another example of our long-term investment to make our team members productive

~~and help them focus on making and delivering great pizza. We will continue to invest capital in technology innovations that can make our teams more productive.~~

future.

Global Restaurant Sales and Unit Information

“Comparable sales” represents ~~the change in year-over-year~~ sales for the same base of restaurants for the same fiscal periods. ~~Comparable~~“Comparable sales ~~exclude sales of restaurants that were not open during both~~growth (decline)” represents the ~~current and prior year fiscal periods and franchisees for which we suspended corporate support.~~change in year-over-year comparable sales. “Global system-wide restaurant sales” represents total restaurant sales for all Company-owned and franchised ~~stores~~restaurants open during the comparable periods, and “Global system-wide restaurant sales ~~growth”~~growth (decline)” represents the change in ~~total system~~global system-wide restaurant sales year-over-year. Comparable sales, Comparable sales growth (decline), Global system-wide restaurant sales and ~~global~~Global system-wide sales growth (decline) exclude franchisees for which we suspended corporate support.

“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.

~~For the nine months ended September 25, 2022, comparable sales growth and system-wide restaurant sales growth for~~We believe Domestic Company-owned, ~~restaurants and~~ North America franchised, restaurants have been adjusted to reflect the impact of refranchising 90 restaurants during the second quarter of 2022. See "Note 10" of "Notes to Condensed Consolidated Financial Statements" for additional information.

~~We believe North America, international~~ and ~~global restaurant and comparable~~International Comparable sales growth (decline) and Global system-wide restaurant sales information is useful in analyzing our results since our franchisees pay royalties and marketing fund contributions that are based on a percentage of franchise sales. Comparable sales and Global system-wide restaurant sales results for restaurants operating outside of the United States are reported on a constant dollar basis, which excludes the impact of foreign currency translation. Franchise sales also generate commissary revenue in the United States and in certain international markets. ~~Franchise~~Comparable sales growth (decline) and Global system-wide restaurant ~~and comparable~~ sales ~~growth~~ information is also useful for comparison to industry trends and evaluating the strength of our brand. Management believes the presentation of ~~franchise~~Global system-wide restaurant sales growth, excluding the impact of foreign currency, provides investors with useful information regarding underlying sales trends and the impact of new unit growth without being impacted by swings in the external factor of foreign currency. Franchise restaurant sales are not included in the Company’s revenues.


	Three Months Ended		Nine Months Ended
Amounts below exclude the impact of foreign currency	September 24, 2023	September 25, 2022	September 24, 2023	September 25, 2022
Comparable sales growth (decline):
Domestic Company-owned restaurants	5.9%	(2.2)%	3.8%	(1.6)%
North America franchised restaurants	2.2%	(0.5)%	(0.4)%	1.2%
North America restaurants	2.9%	(0.8)%	0.4%	0.6%
International restaurants	(0.3)%	(10.1)%	(2.3)%	(5.8)%
Total comparable sales growth (decline)	2.2%	(3.4)%	(0.2)%	(1.1)%
System-wide restaurant sales growth (decline):
Domestic Company-owned restaurants	6.7%	0.5%	4.7%	0.8%
North America franchised restaurants	3.2%	0.9%	1.1%	2.5%
North America restaurants	3.9%	0.8%	1.8%	2.2%
International restaurants (a)	8.8%	(0.4)%	6.8%	5.3%
Total global system-wide restaurant sales growth (decline)	5.1%	0.5%	3.0%	2.9%

_______________________________

(a)The nine months ended September 25, 2022 exclude the impact of franchisee suspended restaurants.

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	Restaurant Progression	Three Months Ended		Nine Months Ended		Restaurant Progression	Three Months Ended		Nine Months Ended
		September 25, 2022	September 26, 2021	September 25, 2022	September 26, 2021		September 24, 2023	September 25, 2022	September 24, 2023	September 25, 2022
North America Company-owned:	North America Company-owned:					North America Company-owned:
Beginning of period	Beginning of period	519	589	600	588	Beginning of period	521	519	522	600
Opened	Opened	1	2	9	2	Opened	—	1	—	9
Closed						Closed	—	—	(2)	—

Acquired	Acquired	1	—	2	1	Acquired	9	1	10	2
Refranchised	Refranchised	—	—	(90)	—	Refranchised	(4)	—	(4)	(90)
End of period	End of period	521	591	521	591	End of period	526	521	526	521
North America franchised:	North America franchised:					North America franchised:
Beginning of period	Beginning of period	2,837	2,720	2,739	2,701	Beginning of period	2,868	2,837	2,854	2,739
Opened	Opened	17	21	49	57	Opened	15	17	44	49
Closed	Closed	(16)	(9)	(39)	(25)	Closed	(7)	(16)	(21)	(39)
Sold						Sold	(9)	(1)	(10)	(2)

Refranchised	Refranchised	—	—	90	—	Refranchised	4	—	4	90
Sold		(1)	—	(2)	(1)
End of period						End of period	2,871	2,837	2,871	2,837
International Company-owned						International Company-owned
Beginning of period						Beginning of period	91	—	—	—

Acquired						Acquired	27	—	118	—

End of period	End of period	2,837	2,732	2,837	2,732	End of period	118	—	118	—
International franchised:	International franchised:					International franchised:
Beginning of period	Beginning of period	2,215	2,214	2,311	2,111	Beginning of period	2,300	2,215	2,330	2,311
Opened	Opened	48	71	175	210	Opened	55	48	153	175
Closed(a)		(32)	(39)	(67)	(75)
Suspended(b)		—	—	(188)	—
Closed						Closed	(18)	(32)	(55)	(67)
Sold						Sold	(27)	—	(118)	—

Suspended (a)						Suspended (a)	—	—	—	(188)
End of period	End of period	2,231	2,246	2,231	2,246	End of period	2,310	2,231	2,310	2,231
Total restaurants – end of period	Total restaurants – end of period	5,589	5,569	5,589	5,569	Total restaurants – end of period	5,825	5,589	5,825	5,589

Trailing four quarters net store growth(c)		208	209
Trailing four quarters net store growth (b)						Trailing four quarters net store growth (b)	236	208

___________________________________

(a)~~Temporary store closures are not treated as store closures in~~As previously disclosed, the ~~table above. Subsequent to September 25, 2022, 12 franchised restaurants in the United Kingdom were permanently closed.~~

~~(b)Represents~~Company has suspended corporate support for all franchised restaurants located in ~~Russia, for which the Company has~~Russia. These suspended ~~corporate support.~~restaurants are excluded from net unit growth calculations.

~~(c)~~(b)Excludes suspended restaurants.

Results of Operations

Revenues

The following table sets forth the various components of ~~our~~Revenues from the Condensed Consolidated Statements of ~~Operations expressed as a percentage~~Operations.


	Three Months Ended				Nine Months Ended				Increase (Decrease)
(Dollars in thousands)	September 24, 2023		September 25, 2022		September 24, 2023		September 25, 2022		QTD		YTD
Revenues:
Domestic Company-owned restaurant sales	$	177,195	$	166,050	$	532,841	$	536,226	6.7	%	(0.6)	%
North America franchise royalties and fees	35,041		33,712		105,824		102,897		3.9	%	2.8	%
North America commissary revenues	204,887		216,115		624,433		645,177		(5.2)	%	(3.2)	%
International revenues	42,927		30,735		108,998		97,310		39.7	%	12.0	%
Other revenues	62,762		63,900		192,295		194,259		(1.8)	%	(1.0)	%
Total revenues	$	522,812	$	510,512	$	1,564,391	$	1,575,869	2.4	%	(0.7)	%

The discussion below references impacts to the comparable results from the acquisition of ~~total revenues, except operating costs which are expressed as a percentage of the associated revenue component.~~

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)%

~~Revenues~~

~~For the nine months ended September 25, 2022, revenue explanations for Domestic Company-owned restaurants and North America~~118 formerly franchised restaurants ~~also include an adjusted figure to reflect~~in the ~~impact~~UK in the second and third quarters of 2023 (the “UK franchisee acquisitions”) and from the refranchising of 90 restaurants during the second quarter of 2022 (the “2022 refranchising”). When comparing the operating results of 2023 with 2022, note that the UK franchisee acquisitions resulted in 118 International restaurants changing from franchised to Company-owned restaurants in the second and third quarters of 2023. Additionally, the 2022 refranchising resulted in 90 restaurants moving from Domestic Company-owned restaurants into North America franchising, effective as of the second quarter of 2022. These transactions impact the comparability of operating results between the periods. See ~~"Note 10"~~ “Note 12. Acquisitions” and “Note 10. Divestitures”of ~~"Notes~~the “Notes to Condensed Consolidated Financial ~~Statements"~~ Statements”for additional ~~information.~~information on these transactions.

~~Consolidated~~Total revenues ~~decreased $2.3~~increased $12.3 million or ~~0.4%~~2.4% to ~~$510.5~~$522.8 million for the three months ended September ~~25, 2022,~~24, 2023 and ~~increased $36.3~~ decreased $11.5 million or ~~2.4%~~0.7% to $1.6 billion for the nine months ended September ~~25, 2022,~~24, 2023, as compared to each prior year comparable period. Changes in total revenues are impacted by the transactions noted above; see further discussion below.

Domestic Company-owned restaurant sales increased $11.1 million, or 6.7% for the three months ended September 24, 2023 and decreased $3.4 million, or 0.6% for the nine months ended September 24, 2023, as compared to the prior year comparable periods. Due to the 2022 refranchising, Domestic Company-owned restaurant sales decreased by $27.3 million for the nine months ended September 25, 2022. Excluding the impact of the ~~Company~~2022 refranchising, ~~its 51% ownership in a 90-restaurant consolidated joint venture, consolidated revenues~~Domestic Company-owned restaurant sales would have increased ~~$15.5~~$24.0 million, or ~~3.1%~~4.7%, for the nine months ended September 24, 2023. The increases of $11.1 million and ~~$72.4~~$24.0 million ~~or 4.9%,~~were primarily due to comparable sales growth of 5.9% and 3.8% for the three and nine months ended September ~~25, 2022,~~24, 2023, respectively.

~~Domestic Company-owned restaurant sales decreased $25.5~~North America franchise royalties and fees increased $1.3 million, or ~~13.3%,~~3.9% and ~~$48.7~~increased $2.9 million or ~~8.3%~~2.8% for the three and nine months ended September 24, 2023, respectively, as compared to each prior year comparable period. The impact of the 2022 refranchising for North America franchise royalties and fees was $1.4 million for the nine months ended September 25, 2022. Excluding the 2022 refranchising, North America franchise royalties increased $1.6 million or 1.5%, for the nine months ended September 24, 2023. Comparable sales for the three and nine months ended September 24, 2023 grew 2.2% and declined 0.4%, respectively. Equivalent units declined 1.7% and 0.6% for the three and nine months ended September 24, 2023, respectively, excluding the impact of the 2022 refranchising.

North America franchise restaurant sales increased 3.1% to $749.8 million for the three months ended September 24, 2023 and increased 2.2% to $2.3 billion for the nine months ended September 24, 2023 compared to the prior year comparable periods. Excluding the impact of the 2022 refranchising, ~~Domestic Company-owned~~North America franchise restaurant sales increased ~~$0.9 million, or 0.5%, and $3.9 million, or 0.8%,~~0.9% to $2.3 billion for the ~~three and~~ nine months ended September ~~25, 2022, respectively, primarily due~~24, 2023 compared to ~~innovations and strategic pricing actions to help offset food and labor inflation. Equivalent units increased 4.1% and 3.8% for~~ the ~~three and nine months ended September 25, 2022, respectively.~~

~~North America franchise royalties and fees increased $1.8 million, or 5.6%, and $5.8 million, or 5.9% for the three and nine months ended September 25, 2022, respectively, compared to~~ prior year comparable ~~periods. Excluding the impact of refranchising,~~period. North America franchise royalties and fees increased $0.5 million, or 1.4%, and $3.1 million, or 3.1%, for the three and nine months ended September 25, 2022, respectively, primarily due to higher equivalent units of 1.2% and 1.5% for the three and nine months ended September 25, 2022, respectively.

2726

North America franchise restaurant sales, excluding the impact of refranchising, increased 0.9% to $728.3 million and 2.5% to $2.3 billion for the three and nine months ended September 25, 2022, respectively, compared to the prior year comparable periods. North America franchise restaurant sales are not included in Company revenues; however, our North America franchise royalties are derived from these sales.

North America commissary revenues ~~increased $26.9~~decreased $11.2 million, or ~~14.2%~~5.2% for the three months ended September 24, 2023 and ~~$84.4~~decreased $20.7 million, or ~~15.1%~~3.2% for the nine months ended September 24, 2023, compared to the prior year comparable periods. Excluding the impact of the 2022 refranchising, North America commissary revenues decreased $28.9 million, or 4.4% for the nine months ended September 24, 2023. The declines in North America commissary revenues were primarily a result of declining commodity prices in 2023 and lower volumes during the first half of 2023, partially offset by higher volumes during the three months ended September 24, 2023.

International revenues increased $12.2 million, or 39.7% for the three months ended September 24, 2023 and increased $11.7 million, or 12.0% for the nine months ended September 24, 2023, compared with the respective prior year periods. International revenues included $14.0 million and $17.0 million for the three and nine months ended September 24, 2023, respectively, attributable to the acquired UK restaurants, and included $5.0 million and $7.0 million for the three and nine months ended September 25, 2022, respectively, ~~compared~~related to franchise royalty and food distribution revenue generated from the ~~prior year comparable periods primarily due to higher pricing as a result~~UK formerly franchised restaurants. Excluding the impact of the UK franchisee acquisitions, revenues would have increased ~~underlying costs associated with commodity price increases, partially offset by lower volumes.~~

~~International revenues decreased $7.7~~$3.2 million, or ~~20.0%~~12.5%, and ~~$13.3~~increased $1.6 million, or ~~12.0%~~1.8%, for the three and nine months ended September ~~25, 2022, respectively, compared to prior year comparable periods, primarily due to lower United Kingdom commissary revenues. The overall declines~~24, 2023, respectively. International revenues benefited from new unit development in ~~our international revenue performance were largely attributable to lower~~2023 and positive foreign currency fluctuations, partially offset by comparable sales declines of ~~10.1%~~0.3% and ~~5.8%~~2.3% for the three and nine months ended September ~~25, 2022, which are largely attributable to the economic downturn of the PJUK market.~~24, 2023.

International franchise restaurant sales increased $28.8 million to ~~$309.4~~$289.2 million and ~~$939.2~~increased $36.8 million to $880.2 million for the three and nine months ended September ~~25, 2022,~~24, 2023, respectively. Excluding the impact of the UK franchisee acquisitions, the previously disclosed suspended restaurants, and foreign currency ~~international~~fluctuations, International franchise restaurant sales ~~decreased 0.4%~~increased 9.5% and ~~increased 5.3%~~7.0% for the three and nine months ended September ~~25, 2022,~~24, 2023, respectively. International franchise restaurant sales are not included in Company revenues; however, our international royalty revenue is derived from these sales.

Other revenues, ~~increased $2.3~~which primarily includes our national marketing funds, online and mobile ordering business and our wholly-owned print and promotions subsidiary, decreased $1.1 million, or ~~3.7%~~1.8%, and ~~$8.2~~decreased $2.0 million, or ~~4.4%~~1.0%, for the three and nine months ended September ~~25, 2022,~~24, 2023, respectively, compared to the prior year comparable ~~periods primarily due to higher~~periods. The impacts of the UK franchisee acquisitions decreased Other revenues ~~from our technology services from higher equivalent units.~~by $1.3 million and $1.8 million for the three and nine months ended September 24, 2023, respectively. Excluding the impact of the UK franchisee acquisitions, Other revenues would have increased $0.2 million and decreased $0.1 million for the three and nine months ended September 24, 2023.

Costs and Expenses

The following table sets forth the various components of Costs and expenses from the Condensed Consolidated Statements of Operations, expressed as a percentage of the associated revenue component.


(Dollars in thousands)	Three Months Ended
	September 24, 2023		% of Related Revenues		September 25, 2022		% of Related Revenues		Increase (Decrease) in % of Revenues
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses	$	145,433	82.1	%	$	138,299	83.3	%	(1.2)	%
North America commissary expenses	189,551		92.5	%	203,129		94.0	%	(1.5)	%
International expenses	29,796		69.4	%	18,196		59.2	%	10.2	%
Other expenses	57,587		91.8	%	59,249		92.7	%	(0.9)	%
General and administrative expenses	52,173		10.0	%	57,935		11.3	%	(1.3)	%
Depreciation and amortization	16,404		3.1	%	13,338		2.6	%	0.5	%
Total costs and expenses	490,944		93.9	%	490,146		96.0	%	(2.1)	%
Refranchising and impairment loss	—		—	%	(905)		(0.2)	%	0.2	%
Operating income	$	31,868	6.1	%	$	19,461	3.8	%	2.3	%


(Dollars in thousands)	Nine Months Ended
	September 24, 2023		% of Related Revenues		September 25, 2022		% of Related Revenues		Increase (Decrease) in % of Revenues
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses	$	436,922	82.0	%	$	441,986	82.4	%	(0.4)	%
North America commissary expenses	576,434		92.3	%	604,689		93.7	%	(1.4)	%
International expenses	67,542		62.0	%	57,346		58.9	%	3.1	%
Other expenses	177,661		92.4	%	180,452		92.9	%	(0.5)	%
General and administrative expenses	154,441		9.9	%	168,519		10.7	%	(0.8)	%
Depreciation and amortization	46,815		3.0	%	38,012		2.4	%	0.6	%
Total costs and expenses	1,459,815		93.3	%	1,491,004		94.6	%	(1.3)	%
Refranchising and impairment loss	—		—	%	(12,065)		(0.8)	%	0.8	%
Operating income	$	104,576	6.7	%	$	72,800	4.6	%	2.1	%

Total costs and expenses were ~~approximately~~$490.9 million or 93.9% of total revenues for the three months ended September 24, 2023, as compared to $490.1 million or 96.0% of total revenues for the prior year comparable period. For the nine months ended September 24, 2023, total costs and expenses were $1.5 billion or 93.3% of total revenues, as compared to $1.5 billion, or 94.6% of total revenues for the prior year comparable period. The changes in total costs and expenses, as percentages of revenues, were primarily due to the following:

Domestic Company-owned restaurant expenses were $145.4 million or 82.1% of related revenues for the three months ended September ~~25, 2022, as~~24, 2023, compared to ~~$474.2~~expenses of $138.3 million or 83.3% of related revenues for the prior year period. For the nine months ended September 24, 2023 Domestic Company-owned restaurant expenses were $436.9 million or 82.0% of related revenues compared to $442.0 million or 82.4% of related revenues for the prior year comparable period. The quarter and year to date decreases of 1.2% and 0.4%, respectively, were primarily due to decreases in certain commodity expenses.

North America commissary expenses were $189.6 million or 92.5% of related revenues for the three months ended September 24, 2023 compared to expenses of $203.1 million or 94.0% of related revenues for the prior year comparable period. For the nine months ended September ~~25, 2022, total costs and~~24, 2023 North America commissary expenses were ~~approximately $1.5 billion~~$576.4 million, or ~~94.6%~~92.3% of ~~total~~related revenues as compared to ~~$1.4 billion,~~$604.7 million or ~~91.6%~~93.7% of ~~total~~related revenues for the prior year ~~comparable~~ period. The ~~increases in total costs and~~ expenses, as a percentage of related revenues, ~~were~~decreased 1.5% and 1.4% for the three and nine months ended September 24, 2023, respectively, primarily due to declining commodity prices and delivery costs in 2023 and lower volumes during the ~~following:~~first half of 2023.

~~Domestic Company-owned restaurant~~International expenses were ~~$138.3~~$29.8 million or ~~83.3%~~69.4% of related revenues for the three months ended September ~~25, 2022,~~24, 2023 as compared to ~~$155.5~~$18.2 million, or ~~81.2%~~59.2% of related revenues for the prior year comparable period. For the nine months ended September ~~25, 2022, Domestic Company-owned restaurant~~24, 2023, International expenses were ~~$442.0~~$67.5 million, or ~~82.4%~~62.0% of related revenues, as compared to ~~expenses of $465.7~~$57.3 million, or ~~79.6%~~58.9% of related revenues for the prior year comparable period. ~~The~~International expenses increased in 2023 as a ~~percentage~~result of ~~revenues, increased 2.1% and 2.8%, respectively, due to increased food cost attributable to higher~~the UK franchisee acquisitions, which added operating costs of 118 Company-owned restaurants, partially offset by declining commodity prices at our International commissary. Expenses in 2023 also include repositioning costs and ~~labor expenses as staffing levels recover at increased cost. Our strategic pricing actions implemented in 2022 helped reduce~~transaction costs related to the ~~impact~~UK franchisee acquisitions of approximately $1.2 million and $2.5 million for the ~~underlying cost pressures.~~three and nine months ended September 24, 2023, respectively.

~~North America commissary~~Other expenses were ~~$203.1~~$57.6 million or ~~94.0%~~91.8% of related revenues for the three months ended September ~~25, 2022,~~24, 2023 as compared to ~~$175.4~~$59.2 million or 92.7% of related revenues for the prior year comparable period. For the nine months ended September ~~25, 2022, North America commissary~~24, 2023, Other expenses were ~~$604.7~~$177.7 million, or ~~93.7%~~92.4% of related revenues, compared to ~~$518.3~~$180.5 million, or ~~92.4%~~92.9% of related revenues for the prior year comparable period. ~~The expenses, as a percentage of related revenues, increased 1.3% for both the three~~

General and ~~nine month periods, primarily due to rising commodity prices, principally in cheese, soy oil, proteins~~Administrative Expenses

General and ~~wheat, and higher delivery cost.~~

~~International~~administrative (“G&A”) expenses were ~~$18.2~~$52.2 million, or ~~59.2%~~10.0% of ~~related~~ revenues for the three months ended September ~~25, 2022, as~~24, 2023, compared to $21.7 million, or 56.6% of related revenues for the prior year comparable period. For the nine months ended September 25, 2022, International expenses were $57.3 million, or 58.9% of related revenues, compared to $62.8 million, or 56.8% of related revenues for the prior year comparable period. The expenses as a percentage of related revenues, increased 2.6% and 2.1%, respectively, primarily due to higher commodity costs in the PJUK commissary.

Other expenses were $59.2 million, or 92.7% of related revenues for the three months ended September 25, 2022, as compared to $56.0 million, or 90.9% of related revenues for the prior year comparable period. For the nine months ended September 25, 2022, Other expenses were $180.5 million, or 92.9% of related revenues, compared to $168.1 million, or

90.3% of related revenues for the prior year comparable period. The expenses as a percentage of related revenues, increased 1.8% and 2.6% respectively, primarily due to timing of expenditures on technology platform initiatives to further enhance our digital capabilities and the customer experience.

~~General and administrative expenses (“G&A”) were~~ $57.9 million, or 11.3% of revenues for the ~~three~~prior year period. For the nine months ended September ~~25, 2022,~~24, 2023, G&A expenses were $154.4 million or 9.9% of revenues, compared to ~~$54.1~~$168.5 million or ~~10.5%~~10.7% of revenues for the prior year comparable period. ~~For the nine months ended September 25, 2022,~~ G&A ~~was $168.5 million, or 10.7% of revenues, compared to $157.8 million, or 10.2% of revenues for the prior year comparable periods.~~

~~For the three and nine months ended September 25, 2022, G&A~~expenses consisted of the ~~following (in thousands):~~following:

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


(Dollars in thousands)	Three Months Ended				Nine Months Ended
	September 24, 2023		September 25, 2022		September 24, 2023		September 25, 2022
Administrative expenses (a)	$	49,034	$	44,391	$	147,271	$	133,370
UK repositioning and acquisition-related costs (b)	1,193		—		2,501		—
Legal settlement accruals (c)	577		10,000		577		15,000
Specific accounts receivable and notes receivable provisions (d)	—		3,227		—		17,863
Other costs (e)	—		—		2,017		1,507
Other general expenses, net	1,369		317		2,075		779
General and administrative expenses	$	52,173	$	57,935	$	154,441	$	168,519

___________________________________

(a)For the three months ended September 25, 2022, Administrative expense decreased $7.0 million compared to the prior year comparable period primarily due to lower incentive compensation costs, partially offset by higher labor. The decrease of $15.2 million for the nine months ended September 25, 2022 was primarily due to lower incentive compensation, which was partially offset by higher labor costs as well as travel and occupancy costs associated with the re-opening of corporate headquarters in the first quarter of 2022.

~~(b)~~For the three months ended September 25, 2022, Special items include a $10.0 million charge related to certain legal settlements. See "Note 9" of "Notes to Condensed Consolidated Financial Statements" for additional information. Special items also include a charge of $3.2 million related to reserves recorded in the third quarter of 2022 for certain accounts and notes receivable primarily associated with the termination of a significant franchisee in the United Kingdom.

For the nine months ended September 25, 2022, Special items include a first-quarter one-time, non-cash provision of $14.6 million on accounts receivable and notes receivable in connection with the conflict in Ukraine and related government actions in the first quarter, $3.2 million related to PJUK reserves in the third quarter, a second-quarter $1.5 million charge related to advisory fees and severance costs associated with the transition of certain executives in the second quarter, and charges of $15.0 million related to certain legal settlements occurring in the first and third quarters of 2022, respectively. See “Note 2” of “Notes to Condensed Consolidated Financial Statements” for further information regarding one-time, non-cash provision recorded in the first and third quarters of 2022 and see “Note 9” of “Notes to Condensed Consolidated Financial Statements” for further discussion regarding the legal settlements.

~~(c)~~For the three and nine months ended September ~~26, 2021, the Special items of $2.2~~24, 2023, administrative expenses increased $4.6 million and ~~$9.4~~$13.9 million ~~respectively, consist~~primarily due to higher incentive compensation and benefit costs. The nine month period also included higher costs from our franchise operating conference in the second quarter of ~~strategic reorganization~~2023.

(b)Represents costs associated with ~~our new corporate office in Atlanta which concluded at~~repositioning the ~~end of 2021.~~

Depreciation and amortization expense was $13.3 million, or 2.6% of revenues three months ended September 25, 2022, compared to $11.5 million, or 2.2% of revenues for the prior year comparable period. For the nine months ended September 25, 2022, Depreciation and amortization expense was $38.0 million, or 2.4% of revenues, compared to $36.8 million, or 2.4% of revenues, for the prior year comparable periods.

~~Operating Income by Segment~~

Operating income decreased $19.1 million to $19.5 million and decreased $57.3 million to $72.8 million for the three and nine months ended September 25, 2022, respectively, compared to the prior year comparable periods.

The following table summarizes Operating income on a reporting segment basis. Along with reported Operating Income, “Adjusted” Operating income, which excludes Special items, has been presented. The reconciliation of GAAP to non-GAAP financial results,UK portfolio as well as ~~the Special items, are included in “Items Impacting Comparability; Non-GAAP Measures.” We believe this non-GAAP measure is important for comparability purposes.~~

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)
transaction costs related to acquisition of stores from franchisees.

~~(a)~~(c) ~~For the three months ended September 25, 2022, Special items impacting Operating income include a charge of $10.0 million related to~~Represents accruals for certain legal settlements, recorded in General and ~~$4.1 million related to PJUK reserves~~administrative expenses. See “Note 9. Litigation, Commitments and ~~impairment related to the termination of a significant franchisee in the UK in the third quarter.~~Contingencies” for further information.

~~(b)~~(d) For the three months ended September 26, 2021, Special items impacted Operating income include a charge of $2.2 million related to strategic reorganization costs associated with our new office in Atlanta.

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)

~~(a)~~ ~~For the nine months ended September 25, 2022, Special items impacting Operating income include~~Represents a one-time, non-cash provision of $14.6 million on accounts receivable and notes receivable in connection with the conflict in Ukraine and related government actions in the first quarter of 2022 and a $3.2 million charge recorded in the third quarter of ~~$15.0 million~~2022 associated with certain legal settlements, an $8.4 million refranchising loss associated with the sale of our ownership interest in a joint venture including 90-restaurants, $4.1 million related to PJUK reserves and impairment related to the termination of a significant franchisee in the ~~UK in~~United Kingdom related to the ~~third quarter, $2.8 million for the impairment~~reserve of certain ~~reacquired franchise rights~~accounts and ~~a charge of~~notes receivable.

(e)

~~$1.5 million related to advisory fees~~Represents severance and ~~severance~~related costs associated with the transition of certain executives inincurred during the ~~second quarter. See Note 2~~nine months ended September 24, 2023 and ~~Note 10~~nine months ended September 25, 2022.

Depreciation and Amortization

Depreciation and amortization expense was $16.4 million or 3.1% of revenues for ~~more information.~~

~~(b)~~the three months ended September 24, 2023, compared to $13.3 million or 2.6% of revenues for the prior year comparable period. For the nine months ended September ~~26, 2021, Special items impacting Operating income consist~~24, 2023, Depreciation and amortization expense was $46.8 million, or 3.0% of ~~a charge~~revenues compared to $38.0 million, or 2.4% of ~~$9.4 million~~revenues, for the prior year comparable period. The increases were primarily due to higher depreciation expense related to ~~strategic reorganization costs associated with~~ our ~~new corporate office~~investments in ~~Atlanta which concluded at~~technology support initiatives.

Refranchising and Impairment Loss

There was no Refranchising and impairment loss during the ~~end of 2021.~~

~~Excluding the impact of special items, Operating income decreased $7.1 million, or 17.5% and $20.2 million, or 14.5% for the three and~~ nine months ended September ~~25, 2022, respectively. These decreases were primarily due to the following:~~

•~~Domestic Company-owned restaurants decreased $5.8~~24, 2023. Refranchising and impairment loss was $12.1 million and $20.2 million for the three and nine months ended September 25, 2022, respectively. Excluding the impact of the Company refranchising its 51% ownership in a 90-restaurant consolidated joint venture in the second quarter, Domestic Company-owned restaurants decreased $3.4 million and $14.0 million, primarily due to higher commodity and labor cost, partially offset by higher revenues related to strategic pricing actions and lower bonuses.

•North America franchising increased $1.6 million and $5.4 million for the three and nine months ended September 25, 2022, respectively. Excluding the impact of the above mentioned refranchising, North America franchising increased $0.5 million and $3.1 million, respectively. The three month period increase was primarily due to positive equivalent units of 1.2%, partially offset by a decrease in comparable sales of 0.5%. The nine month period increase was due to an increase in comparable sales of 1.2% and higher equivalent units of 1.5%.

•North America commissaries decreased $1.2 million and $0.4 million for the three and nine months ended September 25, 2022, respectively, primarily due to commodity price increases and higher operating costs. The North America commissaries have increased prices, however margins have been declining due to lower volume of items sold.

•International decreased $4.4 million and $6.1 million for the three and nine months ended September 25, 2022, respectively, primarily due to lower PJUK commissary revenues and royalties attributed to lower comparable sales, which declined 10.1% and 5.8%, for the three and nine months ended September 25, 2022, respectively.

•All Others, which primarily includes our online and mobile ordering business and our marketing funds, decreased $1.8 million and $6.9 million for the three and nine months ended September 25, 2022, respectively, compared to the prior year comparable periods primarily due to timing of expenditures for technology support initiatives.

•~~Unallocated corporate expenses decreased $3.3 million and $7.8 million for the three and nine months ended September 25, 2022, respectively. The decrease~~ for the nine months ended September 25, 2022, ~~compared to prior year comparable period primarily due to lower incentive compensation costs, partially offset by higher labor, travel, and occupancy cost associated with the re-opening~~consisting of ~~corporate headquarters in the first quarter of 2022.~~

~~Refranchising and Impairment losses~~

On March 28, 2022, we refranchised our 51 percent ownership interest in a 90-restaurant consolidated joint venture between Papa Johns and Blue and Silver Ventures in Texas for cash proceeds of $14.0 million, net of transaction costs. We recorded a one-time, non-cash charge ofan $8.4 million inloss on the ~~first quarter related to the divestiture. The Company also recorded~~2022 refranchising and an impairment loss of $2.8 million for reacquired franchise rights due to the financial and operational impact of the conflict in Ukraine and government actions taken in response to that ~~conflict, including, but not limited~~conflict. See “Note 10. Divestitures” of “Notes to ~~international sanctions.~~Condensed Consolidated Financial Statements” for additional information on these items.

~~In the third quarter of 2022, we terminated a significant franchisee~~

Operating Income by Segment

Operating income is summarized in the ~~United Kingdom, resulting~~following table on a reporting segment basis. Adjusted operating income, a non-GAAP measure, is also presented below. See “Non-GAAP Measures” for a reconciliation to the most comparable U.S. GAAP measure. We believe this non-GAAP measure is important for comparability purposes.


	Three Months Ended September 24, 2023						Three Months Ended September 25, 2022
(In thousands)	Reported		Adjustments (a)		Adjusted		Reported		Adjustments (a)		Adjusted		Reported Increase (Decrease)		Adjusted Increase (Decrease)
Domestic Company-owned restaurants	$	6,147	$	—	$	6,147	$	3,667	$	—	$	3,667	$	2,480	$	2,480
North America franchising	32,234		—		32,234		31,464		—		31,464		770		770
North America commissaries	10,691		—		10,691		8,425		—		8,425		2,266		2,266
International	2,270		1,193		3,463		1,136		4,132		5,268		1,134		(1,805)
All others	2,379		—		2,379		2,037		—		2,037		342		342
Unallocated corporate expenses	(20,792)		577		(20,215)		(27,684)		10,000		(17,684)		6,892		(2,531)
Elimination of intersegment (profits) losses	(1,061)		—		(1,061)		416		—		416		(1,477)		(1,477)
Total	$	31,868	$	1,770	$	33,638	$	19,461	$	14,132	$	33,593	$	12,407	$	45


	Nine Months Ended September 24, 2023						Nine Months Ended September 25, 2022
(In thousands)	Reported		Adjustments (a)		Adjusted		Reported		Adjustments (a)		Adjusted		Reported Increase (Decrease)		Adjusted Increase (Decrease)
Domestic Company-owned restaurants	$	19,438	$	—	$	19,438	$	11,579	$	8,412	$	19,991	$	7,859	$	(553)
North America franchising	97,745		—		97,745		96,225		—		96,225		1,520		1,520
North America commissaries	31,818		—		31,818		28,717		—		28,717		3,101		3,101
International	13,265		2,501		15,766		12,897		7,647		20,544		368		(4,778)
All others	6,879		—		6,879		7,943		—		7,943		(1,064)		(1,064)
Unallocated corporate expenses	(63,859)		2,594		(61,265)		(84,138)		30,376		(53,762)		20,279		(7,503)
Elimination of intersegment (profits) losses	(710)		—		(710)		(423)		—		(423)		(287)		(287)
Total	$	104,576	$	5,095	$	109,671	$	72,800	$	46,435	$	119,235	$	31,776	$	(9,564)

(a) See “Non-GAAP Measures” below for a detail of the adjustments in each period and for a ~~charge~~reconciliation to the most comparable U.S. GAAP measure.

Operating income was $31.9 million and $104.6 million for the three andnine months ended September 24, 2023, respectively, compared to $19.5 million and $72.8 million for the prior year comparable periods, increases of ~~$0.9~~$12.4 million ~~related to lease impairment.~~

~~Net Interest Expense~~

~~Net interest expense increased $3.6~~and $31.8 million, ~~or 91.6%,~~respectively. Adjusted operating income was $33.6 million and ~~$6.7~~$109.7 million ~~or 59.4%~~ for the three and nine months ended September ~~25,~~24, 2023, respectively, compared to $33.6 million and $119.2 million for the prior year comparable periods, which was flat and a decrease of $9.6 million, respectively. The fluctuations in adjusted operating income in 2023 compared to 2022 ~~respectively~~were primarily due to the following:

•Domestic Company-owned restaurants increased $2.5 million and decreased $0.6 million for the three and nine months ended September 24, 2023, respectively. The three month period increase of $2.5 million was primarily due to higher ~~average outstanding debt on our revolving credit facility. Total debt outstanding was $557.0 million~~revenues from comparable sales growth of 5.9% and ~~$490.0 million as~~improved results from lower food costs, partially offset by higher depreciation and utility expenses. The impact of ~~September 25,~~the 2022 ~~and December 26, 2021, respectively.~~

refranchising decreased the

segment’s operating income by $2.3 million for the nine months ended September 25, 2022. Excluding the impact of the 2022 refranchising, the nine month period would have increased $1.7 million primarily due to comparable sales growth of 3.8%, partially offset by higher compensation and benefit costs.

•North America franchising increased $0.8 million for the three months ended September 24, 2023 primarily due to comparable sales growth of 2.2%, partially offset by a 1.7% decrease in equivalent units. For the nine months ended September 24, 2023, North America franchising increased $1.5 million primarily due to the impact of the 2022 refranchising.

•North America commissaries increased $2.3 million and $3.1 million for the three and nine months ended September 24, 2023, respectively. The three month period increase of $2.3 million was primarily due to lower commodity and labor costs. The impact of the 2022 refranchising decreased the segment’s operating income by $0.3 million for the nine months ended September 25, 2022. Excluding the impact of the 2022 refranchising for the nine month period, North America commissaries would have increased $2.8 million primarily due to lower commodity costs and delivery costs throughout 2023 and lower volumes during the first half of 2023.

•International decreased $1.8 million and $4.8 million for the three and nine months ended September 24, 2023, respectively. The decreases in adjusted operating income were primarily driven by operating losses attributable to the recently acquired UK Company-owned restaurants as well as comparable sales declines of 0.3% and 2.3% for the respective periods. These decreases were partially offset by favorable commissary results from lower commodity costs.

•All Others, which primarily includes our online and mobile ordering business and our marketing funds, increased $0.3 million and decreased $1.1 million for the three and nine months ended September 24, 2023, respectively, compared to the prior year comparable periods. The $1.1 million decrease for the nine months ended September 24, 2023 was primarily due to lower results from higher depreciation expense related to our investments in technology support initiatives.

•Unallocated corporate expenses increased $2.5 million and $7.5 million for the three and nine months ended September 24, 2023, respectively. The increases are primarily due to higher incentive compensation and benefit costs and higher depreciation expense related to our investments in technology support initiatives. The nine month period also included increases from higher insurance expense and costs for our franchise operating conference in the second quarter of 2023.

Items Below Operating Income

The following table sets forth the various items below Operating income from the Condensed Consolidated Statements of Operations:


	Three Months Ended				Nine Months Ended				Increase (Decrease)
(In thousands, except per share amounts)	September 24, 2023		September 25, 2022		September 24, 2023		September 25, 2022		QTD		YTD
Operating income	$	31,868	$	19,461	$	104,576	$	72,800	$	12,407	$	31,776
Net interest expense	(11,378)		(7,623)		(31,674)		(17,967)		(3,755)		(13,707)
Income before income taxes	20,490		11,838		72,902		54,833		8,652		18,069
Income tax expense	4,539		3,374		16,546		9,212		1,165		7,334
Net income before attribution to noncontrolling interests	15,951		8,464		56,356		45,621		7,487		10,735
Net income attributable to noncontrolling interests	(90)		(133)		(351)		(1,363)		43		1,012
Net income attributable to the Company	$	15,861	$	8,331	$	56,005	$	44,258	$	7,530	$	11,747

Calculation of net income for earnings per share:
Net income attributable to the Company	$	15,861	$	8,331	$	56,005	$	44,258	$	7,530	$	11,747
Dividends paid to participating securities	—		(86)		—		(228)		86		228
Net income attributable to participating securities	—		—		—		(34)		—		34
Net income attributable to common shareholders	$	15,861	$	8,245	$	56,005	$	43,996	$	7,616	$	12,009

Basic earnings per common share	$	0.49	$	0.23	$	1.69	$	1.23	$	0.26	$	0.46
Diluted earnings per common share	$	0.48	$	0.23	$	1.68	$	1.22	$	0.25	$	0.46

Net Interest Expense

Net interest expense increased $3.8 million and $13.7 million, or 49.3% and 76.3% for the three and nine months ended September 24, 2023, respectively, due primarily to higher average outstanding debt as well as an increase in borrowing rates in 2023. The higher outstanding debt on our senior secured revolving credit facility (“the PJI Revolving Facility”) was primarily utilized to finance share repurchases in the first quarter of 2023. Total debt outstanding was $790.8 million and $605.0 million as of September 24, 2023 and December 25, 2022, respectively.

Income Tax Expense

(Benefit)

Our effective income tax rates were ~~28.5%~~22.2% and ~~16.8%~~22.7% for threeandnine months ended September ~~25, 2022, respectively,~~24, 2023, compared to ~~11.7%~~income tax rates of 28.5% and ~~16.3%~~16.8% for the prior year comparable periods. The ~~increase in the~~lower effective tax rate for the ~~three~~nine months ended September 25, 2022 was caused by higher excess tax benefits generated by stock option exercises and vesting of restricted shares in 2022 along with a ~~reduction in foreign tax credits, a shift in income between jurisdictions and an overall decrease in~~lower pre-tax income. ~~A federal return~~


	Three Months Ended						Nine Months Ended
(Dollars in thousands)	September 24, 2023			September 25, 2022			September 24, 2023			September 25, 2022
Income before income taxes	$	20,490		$	11,838		$	72,902		$	54,833
Income tax expense	$	4,539		$	3,374		$	16,546		$	9,212
Effective tax rate	22.2		%	28.5		%	22.7		%	16.8		%

Net Income Attributable to ~~provision true-up~~Noncontrolling Interests

Net income attributable to noncontrolling interests was ~~recorded in the third quarter of 2021 which positively impacted the effective tax rate in~~$0.1 million and $0.4 million for the three andnine months ~~periods~~ ended September ~~25, 2021.~~24, 2023, compared with $0.1 million and $1.4 million for the prior year comparable period. The decrease was due to the refranchising of our 51% ownership interest in a 90-restaurant consolidated joint venture in Texas on March 28, 2022.

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 %

Diluted Earnings ~~(Loss)~~ Per Common Share

Diluted earnings per common share was $0.23 for the three months ended September 25, 2022, compared to $0.79 in the prior year comparable period. For the nine months ended September 25, 2022, diluted earnings per common share was $1.22, compared to diluted loss per common share of $0.59 for the prior year comparable period.

~~Excluding the impact of Special items, adjusted diluted earnings per common share were $0.54~~$0.48 and ~~$2.23~~$1.68 for the three and nine months ended September ~~25, 2022,~~24, 2023, respectively, compared to $0.23 and $1.22 for the prior year comparable period, representing increases of $0.25 and $0.46, respectively. Adjusted diluted earnings per common share, a non-GAAP measure, was $0.53 and $1.80 for the three and nine months ended September 24, 2023, compared to adjusted diluted earnings per common share of ~~$0.83~~$0.54 and ~~$2.76~~$2.23 for the prior year comparable ~~periods. Diluted earnings per common share for the nine months ended September 25, 2022 included Special items~~periods, representing decreases of ~~$36.0 million, net of tax. Diluted earnings per common share for the nine months ended September 26, 2021 included Special items of $117.1 million, net of tax.~~$0.01 and $0.43, respectively. See ~~“Items Impacting Comparability; Non-GAAP~~“Non-GAAP Measures” for additional ~~information on Special items.~~

information.

3234

~~Items Impacting Comparability;~~ Non-GAAP Measures

In addition to the results provided in accordance with U.S. GAAP, we provide certain non-GAAP measures, which present results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with U.S. GAAP and include the following: adjusted operating income, adjusted net income attributable to common shareholders and adjusted diluted earnings per common share. We believe that our non-GAAP financial measures enable investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies. We believe that the disclosure of these non-GAAP measures is useful to investors as they reflect metrics that our management team and Board utilize to evaluate our operating performance, allocate resources and administer employee incentive plans. The most directly comparable U.S. GAAP measures to adjusted operating income, adjusted net income attributable to common shareholders and adjusted diluted earnings per common share are operating income, net income attributable to common shareholders and diluted earnings per common share, respectively. These non-GAAP measures should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s U.S. GAAP results. The table below reconciles our GAAP financial results to our ~~adjusted~~non-GAAP 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 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


	Three Months Ended				Nine Months Ended
(In thousands, except per share amounts)	September 24, 2023		September 25, 2022		September 24, 2023		September 25, 2022
Operating income	$	31,868	$	19,461	$	104,576	$	72,800
UK repositioning and acquisition-related costs (a)	1,193		—		2,501		—
Refranchising and impairment losses (b)	—		905		—		26,701
Legal settlements (c)	577		10,000		577		15,000
Provision for uncollectible accounts and notes receivable (d)	—		3,227		—		3,227

Other costs (e)	—		—		2,017		1,507
Adjusted operating income	$	33,638	$	33,593	$	109,671	$	119,235

Net income attributable to common shareholders	$	15,861	$	8,245	$	56,005	$	43,996
UK repositioning and acquisition-related costs (a)	1,193		—		2,501		—
Refranchising and impairment losses (b)	—		905		—		26,701
Legal settlements (c)	577		10,000		577		15,000
Provision for uncollectible accounts and notes receivable (d)	—		3,227		—		3,227


Other costs (e)	—		—		2,017		1,507
Tax effect of adjustments (f)	(404)		(3,180)		(1,162)		(10,449)
Adjusted net income attributable to common shareholders (g)	$	17,227	$	19,197	$	59,938	$	79,982

Diluted earnings per common share	$	0.48	$	0.23	$	1.68	$	1.22
UK repositioning and acquisition-related costs (a)	0.04		—		0.07		—
Refranchising and impairment losses (b)	—		0.03		—		0.75
Legal settlements (c)	0.02		0.28		0.02		0.42
Provision for uncollectible accounts and notes receivable (d)	—		0.09		—		0.09


Other costs (e)	—		—		0.06		0.04
Tax effect of adjustments (f)	(0.01)		(0.09)		(0.03)		(0.29)
Adjusted diluted earnings per common share (g)	$	0.53	$	0.54	$	1.80	$	2.23

3335

~~Amounts shown exclude include the impact of allocation of undistributed earnings to participating securities for Special items.~~

(a)~~The following refranchising~~Represents costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of stores from franchisees.

(b)Refranchising and impairment ~~adjustments are included on a~~losses consisted of the following pre-tax ~~basis:~~adjustments:

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 $ —



(In thousands)	Three Months Ended September 25, 2022		Nine Months Ended September 25, 2022
Refranchising impairment loss (1)	$	—	$	8,412
Ukraine-related charge (2)	—		17,384
PJUK lease impairment (3)	905		905
Total adjustment	$	905	$	26,701

(1) Represents a one-time, non-cash charge of $8.4 million ($0.23 loss per diluted share) recorded in the first quarter of 2022 associated with the refranchising of the Company’s controlling interest in the 90-restaurant joint venture, recorded as Refranchising and impairment ~~loss;~~loss.

(2) ARepresents a one-time non-cash charge of $17.4 million ($0.48 loss per diluted share) ~~was recorded~~on accounts receivable, notes receivable, and impairment of reacquired franchised rights in connection with the conflict in Ukraine and related government actions in the first quarter of 2022, in one-time, non-cash expense related to the reserve of certain loans and impairment of reacquired franchised rights related 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;~~million.

(3) An impairment charge of $0.9 million on the right-of-use assets on leases recorded in the third quarter of 2022 associated with the termination of a significant franchisee in the United Kingdom, which was recorded in Refranchising and impairment loss.

~~(b)~~(c)Represents ~~an accrual of~~accruals for certain legal settlements, recorded in General and administrative expenses. See ~~"Note 9"~~“Note 9. Litigation, Commitments and Contingencies” for further information.

~~(c)~~(d)Represents a $3.2 million charge recorded in the third quarter of 2022 associated with the termination of a significant franchisee in the United Kingdom related to the reserve of certain accounts and notes receivable.

~~(d)Represents strategic corporate reorganization costs associated with our new corporate office in Atlanta, Georgia.~~

(e)Represents ~~advisory fees~~severance and ~~severance~~related costs associated with the transition of certain ~~executives.~~

executives incurred during the three and nine months ended September 24, 2023 and September 25, 2022, which were recorded in General and administrative expenses.

(f)~~Represents the one-time charge related to the repurchase and conversion of all shares of Series B Preferred Stock and includes related professional fees incurred as part of the transaction.~~

~~(g)~~The tax effect ~~for Special items~~on non-GAAP adjustments was calculated by applying the marginal tax ~~rate~~rates of ~~22.5%~~22.8% and ~~22.4%~~22.5% for the three and ~~nine months~~nine-month periods ended September 24, 2023 and September 25, 2022, ~~and September 26, 2021,~~ respectively.

~~The 2022 non-GAAP adjusted results~~(g)Amounts shown ~~above and within this document, which~~ exclude ~~Special items, should not be construed as a substitute for or a better indicator~~the impact of ~~the Company’s performance than the Company’s GAAP results. Management believes presenting certain financial information excluding Special items is important for purposes~~allocation of ~~comparison~~undistributed earnings to ~~prior year results. In addition, management uses these metrics to evaluate the Company’s underlying operating performance and to analyze trends.~~participating securities.

In addition, we present free cash flow in this report, which is a non-GAAP measure. Please see “Liquidity and Capital

Resources – Free Cash Flow” for a discussion of why we believe free cash flow provides useful information regarding our

financial condition and results of operations, and a reconciliation of free cash flow to the most directly comparable U.S. GAAP

measure.

3436

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under our credit facility. Our principal uses of cash are operating expenses, capital expenditures, and returning value to our shareholders in the form of cash dividends and share repurchases. Our capital priorities are:

•investing for growth

•maintaining a strong balance sheet, and

•returning capital to shareholders

The Company believes that its balances of cash and cash equivalents and borrowing capacity, along with cash generated by operations, will be sufficient to satisfy its cash requirements, cash dividends, interest payments and share repurchases over the next twelve months and beyond.

Cash Flows

The table below summarizes our cash flows ~~from continuing operations~~ for the nine months ended September 24, 2023 and September 25, 2022 (in thousands):


	Nine Months Ended
	September 24, 2023		September 25, 2022
Total cash provided by (used in):
Operating activities	$	126,936	$	76,553
Investing activities	(57,654)		(30,229)
Financing activities	(79,139)		(79,216)
Effect of exchange rate changes on cash and cash equivalents	(24)		(1,100)
Change in cash and cash equivalents	$	(9,881)	$	(33,992)

Operating Activities

Total cash provided by operating activities was $126.9 million for the nine months ended September 24, 2023 compared to $76.6 million for the corresponding period of 2022. The increase of $50.4 million primarily reflects favorable working capital changes, principally related to higher incentive compensation payments during the nine months ended September 25, 2022 and ~~September 26, 2021:~~other current liabilities, as well as lower inventory balances stemming from lower commodity costs and higher cash collections on accounts receivable balances during 2023 due to timing of cash receipts at the beginning of the year.

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)

~~Operating~~Investing Activities

~~Cash provided by operating~~Total cash used in investing activities was ~~$76.6~~$57.7 million for the nine months ended September ~~25, 2022~~24, 2023 compared to $193.6 million for the corresponding period of 2021. The decrease of $117.1 million primarily reflects lower cash from operating activities as a result of overall business performance and lower accrued expenses.

~~Investing Activities~~

~~Cash used in investing activities was~~ $30.2 ~~million for the nine months ended September 25, 2022 compared to $41.2~~ million for the same period in ~~2021,~~2022, or ~~a decrease~~an increase of ~~$11.0~~$27.4 million. The ~~decrease~~increase in cash used in investing activities was primarily due to ~~a larger net repayment~~cash proceeds of ~~notes and $13.6~~$14.0 million, ~~in proceeds,~~ net of transaction costs, received from the ~~impact~~2022 refranchising during the nine months ended September 25, 2022. Additionally, the Company paid $5.6 million to purchase 37 International and Domestic restaurants and issued $7.3 million of ~~refranchising 90-restaurants in~~construction and development notes during the ~~first quarter of 2022, partially offset by an increase in capital expenditures.~~nine months ended September 24, 2023.

Our capital expenditures consisted primarily of capital investments for existing stores, new store locations and capital expenditures for strategic initiatives. We estimate that our capital expenditures during ~~2022~~2023 will be approximately ~~$75~~$80 million to ~~$85~~$90 million.This estimate includes the acquisition of sites and construction costs for new Company-owned stores that have opened or that we expect to open during ~~2022.~~2023. We intend to fund our capital expenditures with cash generated by operations and borrowings under our ~~senior secured revolving credit facility with an aggregate remaining available principal amount of the $443.0 million million (the "PJI~~PJI Revolving ~~Facility"),~~Facility, as necessary.

Financing Activities

~~Cash~~Total cash used in financing activities was ~~$79.2~~$79.1 million for the nine months ended September ~~25, 2022~~24, 2023 compared to ~~$177.1~~$79.2 million for the same period of ~~2021, a decrease~~2022. In 2023, cash used for financing activities includes outflows of ~~$97.8~~$210.3 million in share repurchases and $43.6 million of common stock dividends paid, partially offset by net borrowings of $171.0

million from the PJI Revolving Facility and $14.8 million from the PJMF revolving line of credit (the “PJMF Revolving Facility”). In 2022, cash used infor financing ~~activities. The nine months ended September 25, 2022~~activities includes outflows of $95.0 million in share repurchases and ~~$40.0~~$39.9 million of ~~common~~ dividends paid, partially offset by net borrowings of $67.0 million from the credit facility. The nine months ended September 26, 2021 reflects outflows of $340.0 million in repayment of the term loan, $188.6 million in payment of cash consideration for the repurchase and conversion of all of the Company’s Series B Preferred Stock outstanding, and dividends to common and preferred shareholders of $34.0 million and share repurchases of $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.PJI Revolving Facility.

Debt

Our outstanding debt as of September ~~25, 2022~~24, 2023 was ~~$557.0~~$790.8 million, which was comprised of $400.0 million ~~outstanding under~~of our 3.875% senior notes (the ~~"Notes"~~“Notes”) and ~~$157.0~~$390.8 million outstanding under the PJI Revolving Facility and the PJMF Revolving Facility. Remaining availability under the PJI Revolving Facility was approximately ~~$443.0~~$224.0 million as of September ~~25, 2022.~~24, 2023.

Our ~~Amended~~ Credit Agreement, dated September 14, 2021, contains affirmative and negative covenants that, among other things, require customary reporting obligations and restrict, subject to certain exceptions, the ~~occurrence~~incurrence 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. The Company is

also subject to certain financial covenants, as shown in the following table, that could restrict or impose constraints on the liquidity of our business:

Permitted Ratio

Actual Ratio as of ~~Sept. 25, 2022~~September 24, 2023

Leverage ratio

Not to exceed 5.25 to 1.0

~~2.4~~3.4 to 1.0

Interest coverage ratio

Not less than 2.00 to 1.0

~~4.2~~3.3 to 1.0

Our leverage ratio is defined as outstanding debt divided by ~~consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”)~~Consolidated EBITDA (as defined in the Credit Agreement) for the most recent four fiscal quarters. Our interest coverage ratio is defined as the sum of ~~consolidated~~Consolidated EBITDA and consolidated rental expense for the most recent four fiscal quarters divided by the sum of consolidated interest expense and consolidated rental expense for the most recent four fiscal quarters. We were in compliance with all financial covenants as of September ~~25, 2022.~~24, 2023.

In addition, the Indenture governing the Notes contains customary covenants that, among other things and subject to certain exceptions, limit our ability and the ability of certain of our subsidiaries to: incur additional indebtedness and guarantee indebtedness; pay dividends or make other distributions or repurchase or redeem our capital stock; prepay, redeem or repurchase certain debt; issue certain preferred stock or similar equity securities; make loans and investments; sell assets; incur liens; enter into transactions with affiliates; enter into agreements restricting our subsidiaries’ ability to pay dividends; and consolidate, merge or sell all or substantially all of our assets.

~~Papa John’s Marketing Fund, Inc. (“PJMF”), our national marketing fund,~~ The PJMF Revolving Facility consists of~~has~~ a ~~$20.0~~$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 no debt~~Debt outstanding under the PJMF Revolving Facility was approximately $14.8 million as of September ~~25, 2022 or December 26, 2021.~~24, 2023. The PJMF operating results and the related debt outstanding do not impact the financial covenants under the ~~Amended~~ Credit ~~Agreement~~Agreement..

Refer to Note 12 of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2022 for additional information.

Share Repurchases

As part of our long-term growth and capital allocation strategy, we are committed to investing in share repurchases to provide ongoing value and enhanced returns to our shareholders. On 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. ~~The share repurchase program operated alongside our previous $75.0 million share repurchase authorization, which began on November 4, 2020 and expired on December 26, 2021.~~

The following table summarizes our repurchase activity under these programs for the three and nine months ended September ~~25, 2022~~24, 2023 and September ~~26, 2021:~~25, 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
(In thousands, except average price per share)						(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	Three Months Ended		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 24, 2023						September 24, 2023							—					$	—		$	—					$	90,160
September 25, 2022	September 25, 2022	229				$	85.15				$	19,529					$	329,800		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
(In thousands, except average price per share)						(In thousands, except average price per share)					Total Number of Shares Purchased							Average Price Paid per Share			Aggregate Cost of Shares Purchased (a)			Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Nine Months Ended	Nine Months Ended		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 24, 2023						September 24, 2023							2,523					$	83.10		$	209,640					$	90,160
September 25, 2022	September 25, 2022	982				$	96.71				$	95,000					$	329,800		September 25, 2022		982			$	96.71			$	95,000	$	329,800
September 26, 2021		187		$	110.00			$	20,555					$	51,743

(a) The shares repurchased during the nine months ended September 24, 2023 included 2,176,928 shares repurchased on March 1, 2023 from certain funds affiliated with, or managed by, Starboard Value LP at a price of $82.52 per share for aggregate consideration of $179.6 million.

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.

Dividends

~~Dividends~~

The Company ~~recorded~~paid aggregate dividends to common stockholders of ~~approximately~~$43.6 million ($1.30 per share) and $39.9 million ($1.12 per share) for the nine months ended September 24, 2023 and September 25, ~~2022.~~ On2022, respectively. On October ~~27, 2022,~~24, 2023, our Board of Directors declared a fourth quarter dividend of ~~$0.42~~$0.46 per common share (approximately ~~$14.9~~$15.1 million in the aggregate), which will be paid on November ~~25, 2022~~24, 2023 to stockholders of record as of the close of business on November ~~14, 2022~~13, 2023. The declaration and payment of any future dividends will be at the discretion of our Board of Directors.

Free Cash Flow

Free cash flow, a non-GAAP measure, is defined as net cash provided by operating activities (from the Condensed Consolidated Statements of Cash Flows) less the purchases of property and ~~equipment and dividends paid to preferred stockholders.~~equipment. We view free cash flow as an important financial measure because it is one factor that management uses in determining the amount of cash available for discretionary investment. Free cash flow is not a term defined by GAAP, and as a result, our measure of free cash flow might not be comparable to similarly titled measures used by other companies. Free cash flow should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s GAAP measures.

The Company’s free cash flow was as follows for the ~~nine-months~~nine month periods of ~~2022~~2023 and ~~2021~~2022 (in thousands):


		Nine Months Ended
		September 25, 2022		September 26, 2021			Nine Months Ended
							September 24, 2023		September 25, 2022
Net cash provided by operating activities	Net cash provided by operating activities	$	76,553	$	193,624	Net cash provided by operating activities	$	126,936	$	76,553
Purchases of property and equipment	Purchases of property and equipment	(48,424)		(41,328)		Purchases of property and equipment	(50,905)		(48,424)
Dividends paid to preferred stockholders		—		(6,394)
Free cash flow	Free cash flow	$	28,129	$	145,902	Free cash flow	$	76,031	$	28,129

Cash Requirements

There have been no material changes in our cash requirements other than in the ordinary course of business since the end of ~~2021.~~2022. Refer to ~~“Cash Requirements”~~“Contractual Obligations” presented within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December ~~26, 2021~~25, 2022 for additional information regarding our cash requirements.

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q and other Company communications that are not statements of historical fact constitute forward-looking statements within the meaning of the federal securities laws. Generally, the use of words such as “expect,” “intend,” “estimate,” “believe,” “anticipate,” “will,” “forecast,” “outlook”, “plan,” “project,” or similar words identify forward-looking statements that we intend to be included within the safe harbor protections provided by the federal securities laws. Such forward-looking statements include or may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, share repurchases, the current economic environment, ~~the financial impact of the temporary business disruptions and changes in demand we are experiencing related to the current outbreak of the coronavirus pandemic,~~ commodity and labor costs, currency fluctuations, profit margins, supply chain operating margin, net unit growth, unit level performance, capital expenditures, restaurant and franchise development, ~~the duration of changes in consumer behavior caused by the pandemic,~~restaurant acquisitions, labor shortages, ~~and price~~labor cost increases, inflation, royalty relief, franchisee support and incentives, the effectiveness of our menu innovations and other business initiatives, investments in product and digital innovation, marketing efforts and investments, liquidity, compliance with debt covenants, impairments, strategic decisions and actions, dividends, effective tax rates, regulatory changes and impacts, investments in the UK market, adoption of new accounting standards, and other financial and operational measures. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and

results may differ materially from those matters expressed or implied in such forward-looking statements. The risks, uncertainties and assumptions that are involved in our forward-looking statements include, but are not limited to:

•the ability of the Company to manage ~~difficulties~~challenging macroeconomic conditions in the United States and ~~opportunities associated with or related to~~internationally, including the ~~coronavirus pandemic, including governmental restrictions, changes in consumer demand or behavior, vaccine mandates and changing governmental programs and regulations relating to the pandemic;~~United Kingdom;

•the ability of the Company to manage staffing and labor shortages at Company and/or franchised ~~stores~~restaurants and our quality control centers;

•increases in labor costs, food costs or sustained higher other operating costs, including as a result of supply chain disruption, inflation or climate change;

•the potential for delayed new store openings, both domestically and internationally;

•the increased risk of phishing, ransomware and other cyber-attacks;

•~~the ability of the Company to successfully navigate the deteriorating macroeconomic conditions in the United Kingdom;~~

•risks to the global economy and our business related to the conflict in ~~Ukraine;~~Ukraine and other international conflicts;

•increased costs for branding initiatives and launching new advertising and marketing campaigns and promotions to boost consumer sentiment and sales trends, and the risk that such initiatives will not be effective;

•risks related to a possible economic recession or downturn that could, among other things, reduce consumer spending or demand and result in changing consumer practices;

•risks related to social media, including publicity adversely and rapidly impacting our brand and reputation;

•aggressive changes in pricing or other marketing or promotional strategies by competitors, which may adversely affect sales and profitability; and new product and concept developments by food industry competitors;

•changes in consumer preferences or consumer buying habits, including the growing popularity of delivery aggregators, as well as changes in general economic conditions or other factors that may affect consumer confidence and discretionary spending, including higher unemployment;

•the adverse impact on the Company or our results caused by global health concerns, product recalls, food quality or safety issues, incidences of foodborne illness, food contamination and other general public health concerns about our Company-owned or franchised restaurants or others in the restaurant industry;

•the effectiveness of our technology investments and changes in unit-level operations;

•the ability of the Company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably, including difficulties finding qualified franchisees, store level employees or suitable sites;

•increases in labor costs, food costs or sustained higher other operating costs, including as a result of supply chain disruption and inflation. This could also include increased employee compensation, including as a result of labor shortages, changes in minimum wage, benefits, insurance, tax rates, new regulatory requirements or increasing compliance costs;

•~~increases in~~ insurance claims and related costs for programs funded by the Company up to certain retention limits, including medical, owned and non-owned vehicles, workers’ compensation, general liability and property;

•disruption of our supply chain or commissary operations which could be caused by our sole source of supply of mozzarella cheese, desserts, garlic cups or limited source of suppliers for other key ingredients or more generally due to weather, natural disasters including drought, disease, or geopolitical or other disruptions beyond our control, including the coronavirus pandemic;

•increased risks associated with our ~~international~~International operations, including economic and political conditions and risks associated with the withdrawal of the UK from the European Union, instability or uncertainty in our international markets, especially emerging markets, fluctuations in currency exchange rates, difficulty in meeting planned sales targets and new store growth;

•the impact of current or future claims and litigation and our ability to comply with current, proposed or future legislation that could impact our business including compliance with the European Union General Data Protection Regulation;

•risks related to our indebtedness and borrowing costs, including prolonged higher interest rates, and the ~~Company's~~current state of the credit markets;

•the Company’s ability to continue to pay dividends to stockholders based upon profitability, cash flows and capital adequacy if restaurant sales and operating results decline;

•our ability to effectively operate and improve the performance of International Company-owned restaurants;

•disruption of critical business or information technology systems, or those of our suppliers, and risks associated with systems failures and data privacy and security breaches, including theft of confidential Company, employee and customer information, including payment cards; and

•changes in Federal or state income, general and other tax laws, rules and regulations and changes in generally accepted accounting principles.

~~For a discussion of these~~These and other ~~risks that may cause actual results to differ from expectations, refer to~~risk factors are discussed in detail in “Part I. Item 1A. – Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December ~~26, 2021,~~25, 2022, as updated by “Part II. Item ~~IA. –~~1A. - Risk Factors” in our Quarterly Report on Form 10-Q for the ~~quarter end March 27, 2022,~~three and ~~this Quarterly~~

~~Report on Form 10-Q, as well as subsequent filings.~~six months ended June 25, 2023 and they may be updated from time to time in our future reports filed with the Securities and Exchange Commission. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise, except as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to the impact of interest rate changes on our PJI Revolving Facility and PJMF 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. 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 September ~~25, 2022~~24, 2023 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.~~25, 2022. See “Note 8”8. Debt” of “Notes to Condensed Consolidated Financial Statements” for additional information on our debt obligations and derivative instruments.

Foreign Currency Exchange Rate Risk

We 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~~International operations ~~principally~~ consist of distribution sales to franchised Papa John’s restaurants located in the ~~United Kingdom~~UK 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, as well as Company-owned restaurants located in the UK. Approximately ~~6.0%~~8.2% and ~~6.2%~~7.0% of our revenues were derived from these operations for the three and nine months ended September ~~25, 2022,~~24, 2023, respectively, as compared to ~~7.5%~~6.0% and ~~7.2%~~6.2% for the prior year comparable periods.

We have not historically hedged our exposure to foreign currency fluctuations. Foreign currency exchange rate fluctuations had a favorable impact of approximately $2.3 million and an unfavorable impact of ~~approximately $4.6 million and $9.0~~$0.7 million on International revenues for the three and nine months ended September ~~25, 2022, respectively,~~24, 2023, and ~~a favorable~~an unfavorable impact of ~~$2.1~~$4.6 million and ~~$7.9~~$9.0 million for the three and nine months ended September ~~26, 2021, respectively.~~25, 2022. Foreign currency exchange rate fluctuations had an unfavorable impact of approximately $0.3 million and $0.8 million on operating income for the three and nine months ended September 24, 2023, respectively, and an unfavorable impact of $0.4 million and $1.5 million on operating income for the three and nine months ended September 25, 2022, ~~respectively, and a favorable impact of $0.4 million and $1.7 million on operating income for the three and nine months ended September 26, 2021,~~ respectively.

Commodity Price Risk

In the ordinary course of business, the food and paper products we purchase, including cheese (our largest ~~individual food cost item)~~ingredient cost), 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~~Domestic Company-owned restaurants, which are accounted for as normal purchases; however, we remain exposed to ~~on-going~~ongoing commodity volatility.

The following table presents the actual average block price for cheese by quarter through the third quarter of ~~2022~~2023 and the projected average block price by quarter for ~~2022~~2023 (based on the October ~~28, 2022~~27, 2023 Chicago Mercantile Exchange cheese futures market prices):

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


	2023			2022
	Projected Block Price			Actual Block Price
Quarter 1	$	1.960		$	1.966
Quarter 2	1.668			2.296
Quarter 3	1.755			1.938
Quarter 4	1.788			1.974
Full Year	$	1.793	(a)	$	2.043

___________________________________


(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 Procedures

Under the supervision and with the participation of the Company’s management, including its ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer,~~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~~Chief Executive Officer and ~~chief financial officer~~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 Reporting

During 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The 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”~~“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~~“Note 9. Litigation, Commitments and Contingencies” 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 Factors

Except as set forth ~~below and~~ in ~~"Part~~“Part II. Item IA1A - Risk ~~Factors"~~Factors” in our Quarterly Report on Form 10-Q for the quarter ended ~~March 27, 2022,~~June 25, 2023, 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.~~25, 2022.

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.~~

~~Our business, financial condition and results of operations have been and could continue to be adversely affected by deteriorating economic and business conditions in the United Kingdom~~

There are approximately 500 franchised Papa John’s restaurants located in the United Kingdom, and we also operate an international QC Center in the United Kingdom. During 2022, our business in the United Kingdom has been subject to adverse macroeconomic conditions, including high inflation, rising interest rates, the recent energy crisis, slowing economic growth, volatile exchange rates, and an increased VAT tax rate, which has resulted in negative comparable sales and a challenging operating environment for our franchisees. As we navigate this challenging economic environment, we will be investing in capabilities to improve our operations and will work to re-position the franchise base to further strengthen our business in the United Kingdom. If our efforts to re-position the franchise base are unsuccessful, we might need to find new operators for certain unprofitable stores and/or close them. In addition, the Company is considering providing financial support to franchisees in the United Kingdom, which may be in the form of royalty relief, loans, or loan

4042

forgiveness, all of which would adversely impact the Company’s financial condition and results of operations in the region. The type and amount of franchisee support has not been determined and ultimately may not be sufficient to keep restaurants in the United Kingdom from closing, particularly if current economic conditions worsen. The Company is unable to predict the duration or the extent of the macroeconomic deterioration in the United Kingdom or the extent to which franchised restaurants will be impacted.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchase Program

On 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 iswas 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 three months ended September ~~25, 2022~~24, 2023 (in thousands, except per share amounts):

Fiscal Period Total
Number
of Shares
Purchased Average
Price
Paid per
Share Total Number
of Shares Purchased
as Part of Publicly
Announced Plans
or Programs Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
6/27/2022 - 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


Fiscal Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
6/26/2023 - 7/23/2023	—	$	—	—	$	90,160
7/24/2023 - 8/20/2023	—	$	—	—	$	90,160
8/21/2023 - 9/24/2023	—	$	—	—	$	90,160
Total	—	$	—	—	$	90,160

Repurchases of Stock for Tax Withholdings

During the fiscal quarter ended September ~~25, 2022,~~24, 2023, the Company acquired approximately ~~22,000~~2,000 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.

Item 5. Other Information

During the three months ended September 24, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits


Exhibit Number						Description

10.1**						Amendment No. 1, effective as of August 1 , 2023 , to Endorsement Agreement, dated as of March 15 , 202 2 by and among , on the one hand, ABG-S haq ,LLC, for the personal services of Shaquille O ’Neal and, o n the other hand, Papa John’s Marketing Fund, Inc. and Papa John ’s International, Inc.

31.1						Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-15(e), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-15(e), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101						Financial statements from the quarterly report on Form 10-Q of Papa John’s International, Inc. for the quarter ended September ~~25, 2022,~~24, 2023, filed on November ~~3, 2022,~~2, 2023, 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						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

** Filed herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~registrant~~Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			PAPA JOHN’S INTERNATIONAL, INC.
			(Registrant)


Date: November ~~3, 2022~~2, 2023			/s/ ~~Ann B. Gugino~~Ravi Thanawala
			~~Ann B. Gugino~~Ravi Thanawala
			Chief Financial Officer

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	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



	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


	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)


	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		%


	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