What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-04 · 221 added, 225 removed, 145 unchanged (75% of the section changed)

2 unchanged sentences

(referred to as the “Company,” “Papa John’s” or in the first-person notations of “we,” “us” and “our”) began operations in 1984.

As of September 26, 2021, there were 5,569 Papa John’s restaurants (591 Company-owned and 4,978 franchised) operating in 50 countries and territories.

Our revenues are principally derived from retail sales of pizza and other food and beverage products to the general public by Company-owned restaurants, franchise royalties, sales of franchise and development rights, sales to franchisees of food and paper products, contributions received from franchisees for domestic and international marketing funds we control, revenues for printing and promotional items, and information systems and related services used in their operations.

As of March 27, 2022, there were 5,524 Papa John’s restaurants in operation, consisting of 608 Company-owned and 4,916 franchised restaurants operating in 49 countries and territories.

Our revenues are derived from retail sales of pizza and other food and beverage products to the general public by Company-owned restaurants, franchise royalties, and sales of franchise and development rights.

Additionally, we derive revenues from sales to franchisees of various items including food and paper products from our domestic Quality Control Centers (“QC Centers”), operation of our international QC Center in the United Kingdom, contributions received by Papa John’s Marketing Fund (“PJMF”) which is our national marketing fund, printing and promotional items and information systems equipment, and software and related services.

Recent Developments and Trends

The Company launched its NY Style pizza in the first quarter of 2022.

NY Style features eight oversized slices on a thin foldable crust.

NY Style pizza has proven to be popular with customers and highly incremental to revenues.

The combination of Epic Stuffed Crust and NY Style pizza has contributed to our positive results for the first quarter of 2022 as we compare the period to the prior year’s record first quarter sales, our highest in the history of the Company.

Our digital innovation through Papa Rewards, our loyalty program, allows us to directly engage our customers with targeted personalized offers that drive higher frequency, higher ticket and higher customer satisfaction.

Continued investment in one-to-one marketing capabilities is a big part of our business plan for 2022 and beyond.

In addition, third-party delivery aggregators have been another focus of our digital innovation and strategy as they have helped us reach incremental, profitable customers, while providing supplemental delivery drivers, especially during peak times.

Growth Strategy .

The Company delivered its ninth consecutive quarter of system-wide sales growth and continues to expand both domestically and internationally, as evidenced by our comparable sales and restaurant unit growth.

Our two-year comparable sales were 30.7% in North America and 29.0% internationally for the third quarter, driven by menu innovation and customer retention.

Additionally, new store openings continued to accelerate in the third quarter with the opening of 46 restaurants, net (169 net unit growth for the nine months ended September 26, 2021).

Our expanding development pipeline is on track to be a key long-term growth driver, with the largest domestic development deal in the history of the Company and an expanding international partnership both being announced in the third quarter.

We plan to focus on the continued strategy execution of innovation across our platforms to drive sustainable growth this year and beyond.

Capital Allocation Strategy.

During the quarter we executed on a key component of our capital allocation strategy with the issuance of $400.0 million of 3.875% senior notes which will mature on September 15, 2029 and the concurrent refinancing of our revolving credit facility.

Subsequent to the end of the quarter, we announced a new $425.0 million share repurchase program to further enhance shareholder returns as we continue to invest in our long-term growth.

These initiatives, paired with our previously announced annual dividend rate increase and the repurchase and conversion of all of our Series B Convertible Preferred Stock (the “Series B Preferred Stock”) in the second quarter, strengthen our financial position, optimize our capital structure and provide value to our shareholders.

Coronavirus (“COVID-19”) and Related Market Impact.

The COVID-19 outbreak has presented evolving risks and developments domestically and internationally, as well as new opportunities for our business.

Our delivery and carryout model positioned us to continue to experience strong demand for our products.

Increased demand partly driven by the pandemic contributed to our strong sustainable comparable sales growth during the third quarter.

To ensure we can continue to meet the demand of our customers, we continue to monitor our supply chain and labor force availability.

Our ability to attract and retain hourly employees in our restaurants has become more challenging, especially as the job market has become more competitive.

We have continued to support these efforts through new hiring, referral and appreciation bonuses in the Company’s corporate restaurants and supply chain, holding national recruiting events, supplementing delivery drivers with delivery aggregator partnerships as needed and technology advancements.

We expect staffing and labor challenges to be a priority focus for us and we expect to continue investing in these initiatives during the remainder of the year.

We continue to focus on the safety of our team members, franchisees, and customers.

The Company has taken steps to mitigate the impact of the COVID-19 pandemic by implementing extra health and safety measures across our business, including No Contact Delivery and enhanced cleaning and sanitization measures, for the protection of both our customers and team members.

We believe the pandemic has accelerated our previously announced efforts to innovate and bring new and former customers to the Papa John’s system.

We believe that as the pandemic-related restrictions are lifted we will benefit in the long-term from the increase in customers we have experienced during the duration of the pandemic due to our menu innovation, customer loyalty programs and our offerings of high-quality pizza and other menu items.

Due to the substantial uncertainty related to the effects of the pandemic, its duration and the related market impacts, including the economic stimulus activity, we are unable to predict the specific impact the pandemic and related restrictions (including the lifting or re-imposing of restrictions due to the Delta variant or otherwise) will have on our results of operations, liquidity or long-term financial

condition, including whether and to what extent the increased demand for our products will continue.

For a discussion of the risks to our business presented by the COVID-19 pandemic, see the risk factors disclosed in the Company’s Annual Report on Form-10-K for the fiscal year ended December 27, 2020.

Strategic Corporate Reorganization for Long-term Growth.

In the third quarter of 2020, we announced plans to open an office in Atlanta, Georgia located in Three Ballpark Center at The Battery Atlanta.

The Atlanta office is part of a broader strategic reorganization of corporate functions reflecting the Company’s ongoing transformation into a brand and culture that can effectively and efficiently deliver on the Company’s purpose, values and strategic business priorities.

Affected employees who did not relocate to Atlanta were offered a separation package.

As a result, we expect to incur certain one-time corporate reorganization costs of approximately $17.0 to $20.0 million related to employee severance and transition, recruitment and relocation and other third-party costs through 2021.

Of that amount, we have incurred costs of approximately $15.3 million as of September 26, 2021 ($6.0 million in 2020 and $2.2 million and $9.4 million for the three and nine months ended September 26, 2021, respectively).

See “Items Impacting Comparability;

Non-GAAP Measures” for additional information.

The Company’s goal continues to be to take market share in the pizza category while leveraging our differentiated strategy and premium position to protect margins in the face of commodity and labor headwinds.

We accelerated our development outlook to be between 280 and 320 net new restaurants globally in 2022.

At the midpoint of the range, this represents approximately 5% growth on our total system-wide unit count.

Our view of our long-term unit opportunity, both domestically and internationally, continues to expand as we sign historic deals to develop within key areas and we now expect to open 1,400 to 1,800 net new Papa John’s restaurants worldwide by the end of 2025, relative to the start of 2021.

On March 28, 2022, the Company sold its 51% controlling interest in a joint venture between Papa Johns and Blue and Silver Ventures, Ltd.

Sun Holdings, a leading multi-brand franchisee operator and one of Papa John’s largest domestic franchise partners, has assumed control of the 90 Papa John’s restaurants in Texas that operated under the joint venture.

The Company recorded a $8.4 million impairment loss in the first quarter of 2022 related to the divestiture.

The strategic refranchising deal between Papa Johns and Sun Holdings builds upon the historic development agreement signed by the two parties in September 2021, under which Sun Holdings will open 100 new restaurants across high-growth markets, including in Texas, by 2029, in addition to the restaurants it has acquired.

Now with significant operational scale with the brand, we believe Sun Holdings is positioned to accelerate its development plans and Papa John’s domestic growth.

The agreement continues a rapid acceleration of unit growth and development activity by Papa Johns in the U.S.

and across the globe.

In January, Papa Johns announced its biggest franchisee development agreement in the Company’s history – a partnership with FountainVest Partners to open more than 1,350 new stores across South China by 2040.

Suspension of Franchisee Support in Russia.

The Company has no Company-owned restaurants in Russia or Ukraine.

Out of the Company’s total 5,524 Company-owned and franchised restaurants worldwide, 188 franchised restaurants are located in Russia, all of which are operated and supplied through a master franchisee.

In 2021, franchise royalties derived from these stores represented less than 1% of total company revenue, and therefore were not a material part of the Company’s business or results of operations.

Papa John’s has suspended its corporate operations and support for franchised restaurants in Russia, and fully reserved all receivables from the aforementioned master franchisee.

The Company recognized $17.4 million ($0.48 loss per diluted share) on a pre-tax basis in one-time, non-cash charges in the first quarter related to reserves for certain loans and impairments of reacquired franchised rights due to the conflict in Ukraine and subsequent international government actions and sanctions, which were recorded as Refranchising and impairment loss of $2.8 million and General and administrative expenses of $14.6 million.

All assets related to the franchised operations in Russia have been fully reserved or impaired so there will be no additional Russia related charges for reserves, write-offs, or impairments of amounts recorded on the Condensed Consolidated Balance Sheet.

Coronavirus Pandemic and Related Market Impact.

The restaurant industry has faced and managed staffing challenges since long before the pandemic.

These challenges intensified with the increased demand for employees in the service industry as the economy recovered last year.

In early 2022, the Omicron variant further exacerbated the situation, given the spike in infection rates and number of people out sick or quarantined at home.

Throughout the first quarter, our restaurants have been at their lowest staffing levels since the beginning of the pandemic.

This has impacted customer service and, in limited cases, our ability to deliver or take orders.

We continue to proactively communicate to our loyal customers, providing updates and conveying our gratitude for their patience.

Our team members have been working harder than ever to continue to safely serve their customers and communities and we have benefited from their dedication to manage through staffing constraints.

We will continue to strive to be employer of choice in our industry and have taken many actions to create a strong culture and support our people.

We have invested in wages and continue to offer our team members hiring and referral bonuses as well as expanded health, wellness, paid time off and access to college education.

More and more employees are taking advantage of Dough & Degrees, our college tuition program, which provides access to an online degree free of charge to corporate team members.

Global Restaurant Sales Information

“Comparable sales” represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods.

“Global system-wide restaurant sales growth” represents the change in such sales year-over-year.

Comparable sales exclude sales of restaurants that were not open during both the current and prior year fiscal periods and franchisees for which we suspended corporate support during the quarter ended March 27, 2022.

“Global system-wide restaurant sales” represents total restaurant sales for all Company-owned and franchised stores open during the comparable periods, and “Global system-wide restaurant sales growth” represents the change in total system restaurant sales year-over-year.

We believe North America, international and global restaurant and comparable sales growth 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.

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Three Months Ended

Nine Months Ended

September 26, 2021

September 27, 2020

September 26, 2021

September 27, 2020

Comparable sales growth:

March 27, 2022

March 28, 2021

Comparable sales growth (decline):

Domestic Company-owned restaurants

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Three Months Ended

Nine Months Ended

September 26, 2021

September 27, 2020

September 26, 2021

September 27, 2020

March 27, 2022

March 28, 2021

North America Company-owned:

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Beginning of period

Suspended (a)

End of period

Total restaurants – end of period

Trailing four quarters net store growth

Trailing four quarters net store growth (b)

(a) Represents all franchised restaurants located in Russia, for which the Company has suspended corporate support.

(b) Excludes suspended restaurants.

Results of Operations

1 unchanged sentence

Three Months Ended

September 26, 2021

September 27, 2020

($ in thousands)

Domestic Company-owned restaurant sales

North America franchise royalties and fees

North America commissary revenues

International revenues

Other revenues

Total revenues

Costs and expenses:

Operating costs (excluding depreciation and amortization shown separately below):

Domestic Company-owned restaurant expenses

North America commissary expenses

International expenses

Other expenses

General and administrative expenses

Depreciation and amortization

Total costs and expenses

Operating income

Net interest expense

Income before income taxes

Nine Months Ended

September 26, 2021

September 27, 2020

March 27, 2022

March 28, 2021

($ in thousands)

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Total costs and expenses

Refranchising and impairment loss

Operating income

1 unchanged sentence

Income before income taxes

Consolidated revenues increased $39.8 million, or 8.4% to $512.8 million, and $196.1 million, or 14.6% to $1.54 billion, for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods.

Domestic Company-owned restaurant sales increased $13.2 million, or 7.4%, and $58.6 million, or 11.1%, for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods.

The increases were primarily due to positive comparable sales increases of 7.4% and 11.6% for the three and nine months ended September 26, 2021, respectively.

Comparable sales for the nine-month period were significantly impacted by new product innovation, including the successful launch of our new Epic Stuffed Crust pizza in the first quarter of 2021.

In addition, the increases are partly due to higher demand that has been sustained during the pandemic, which was not reflected in the first quarter of 2020.

Consolidated revenues increased $30.9 million, or 6.0% to $542.7 million for the first quarter of 2022, compared to $511.7 million for the first quarter of 2021.

Domestic Company-owned restaurant sales increased $1.5 million, or 0.8% for the first quarter of 2022 compared to the prior year comparable period.

The increase was primarily due to higher equivalent units of 2.8%, partially offset by negative comparable sales of 1.2% lapping 23.3% comparable sales growth in the prior year period.

“Equivalent units” represents the number of restaurants open at the beginning of a given period, adjusted for restaurants opened, closed, acquired or sold during the period on a weighted average basis.

“Comparable sales” represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods.

North America franchise royalties and fees increased $6.7 million, or 26.3%, and $28.2 million, or 41.0% for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods.

The increases were primarily due to positive comparable sales increases of 6.8% and 12.3% for the three and nine months ended September 26, 2021, respectively.

Additionally, the three and nine months ended September 26, 2021 benefited from a higher effective royalty rate and higher franchise royalties of $3.5 million and $14.3 million, respectively, compared to the prior comparable periods primarily as a result of ending our temporary franchise assistance program in the third quarter of 2020.

The franchise assistance program was above and beyond the level of franchise assistance the Company would incur in the ordinary course of its business.

North America franchise restaurant sales increased 8.0% to $693.9 million and 13.1% to $2.11 billion for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods.

North America franchise royalties and fees increased $1.6 million, or 4.7% for the first quarter of 2022.

The increases were primarily due to positive comparable sales increases of 2.8% and higher equivalent units of 1.9% for the first quarter of 2022 on top of 27.1% comparable sales growth in the prior year period.

North America franchise restaurant sales increased 4.0% to $739.7 million in the first quarter of 2022 compared to the prior year comparable period.

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 $7.9 million, or 4.3%, and $56.4 million, or 11.2%, for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods primarily due to higher volumes.

The nine-month period also included higher pricing on higher commodities.

International revenues increased $5.0 million, or 14.9%, and $23.0 million, or 26.3%, for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods, primarily due to higher royalties from increased equivalent units and higher comparable sales of 8.3% and 17.1% for the three and nine months ended September 26, 2021, respectively.

International revenues also increased $2.1 million and $7.9 million for three and nine months ended September 26, 2021 due to favorable foreign exchange rates.

International franchise restaurant sales increased 21.4% to $320.3 million and 28.2% to $906.7 million for the three and nine months ended September 26, 2021, respectively, excluding the impact of foreign currency, primarily due to increases in comparable sales and equivalent units.

North America commissary revenues increased $24.8 million, or 13.4% for the first quarter of 2022, primarily due to higher pricing from higher commodities.

International revenues were relatively flat for the first quarter of 2022 as compared to prior year, primarily due to higher royalties from increased equivalent units and higher comparable sales of 0.8%, offset by lower United Kingdom (“PJUK”) commissary revenues from lower PJUK comparable sales and $1.2 million due to unfavorable foreign exchange rates.

International franchise restaurant sales increased 11.6% to $337.4 million for the first quarter of 2022, excluding the impact of foreign currency, primarily due to increases in comparable sales and equivalent units.

International franchise restaurant sales are not included in Company revenues;

however, our international royalty revenue is derived from these sales.

Other revenues increased $7.1 million, or 13.1%, and $29.9 million, or 19.1%, for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods.

The increases were primarily due to higher marketing fund revenues from an increase in franchise sales and higher revenues from our technology platform, including our mobile ordering business which benefited from increased restaurant sales.

Other revenues increased $3.1 million, or 4.9%, for the first quarter of 2022 primarily due to higher revenues from our technology platform, including our mobile ordering business which benefited from increased North America restaurant sales.

Costs and Expenses

Total costs and expenses were approximately $474.2 million, or 92.5% of total revenues for the three months ended September 26, 2021, as compared to $448.4 million, or 94.8% of related revenues for the prior year comparable period.

For the nine months ended September 26, 2021, total costs and expenses were approximately $1.41 billion, or 91.6% of total revenues, as compared to $1.27 billion, or 94.7% of total revenues for the prior year comparable period.

The decreases in total costs and expenses, as a percentage of revenues, were primarily due to the following:

Domestic Company-owned restaurant expenses were $155.5 million, or 81.2% of related revenues for the three months ended September 26, 2021, as compared to $144.8 million, or 81.1% of related revenues for the prior year comparable period.

For the nine months ended September 26, 2021, Domestic Company-owned restaurant expenses were $465.7 million or 79.6% of related revenues, compared to expenses of $419.1 million, or 79.6% of related revenues for the prior year comparable period.

The expenses, as a percentage of revenues, were relatively flat as labor and commodities pressures were offset by leveraging fixed costs on higher revenues.

North America commissary expenses were $175.4 million, or 92.7% of related revenues, for the three months ended September 26, 2021, compared to $167.9 million, or 92.6% of related revenues for the prior year comparable period.

North America commissary expenses were $518.3 million, or 92.4% of related revenues, for the nine months ended September 26, 2021, compared to $466.7 million, or 92.5% of related revenues, for the prior year comparable period.

International expenses were $21.7 million, or 56.6% of related revenues for the three months ended September 26, 2021 compared to expenses of $19.4 million, or 57.9% of related revenues for the prior year comparable period.

International expenses were $62.8 million, or 56.8% of related revenues, for the nine months ended September 26, 2021, compared to $52.8 million, or 60.3% of related revenues for the prior year comparable period.

The 1.3% and 3.5% decreases in expenses as a percentage of revenues were primarily due to lower operating costs on higher royalties due to 8.3% and 17.1% increases in comparable sales for the three and nine months ended September 26, 2021, respectively.

Other expenses were $56.0 million, or 90.9% of related revenues for the three months ended September 26, 2021 compared to expenses of $50.9 million, or 93.4% of related revenues for the prior year comparable period.

For the nine months ended September 26, 2021, Other expenses were $168.1 million, or 90.3% of related revenues, as compared to $148.2 million, or 94.9% of related revenues for the prior year comparable period.

The 2.5% and 4.6% decreases in expenses, as a percentage of related revenues, were primarily due to higher margins from our online and mobile ordering business from higher comparable sales.

General and administrative expenses (“G&A”) were $54.1 million, or 10.5% of revenues, and $157.8 million, or 10.2% of revenues, for the three and nine months ended September 26, 2021, respectively, compared to $52.6 million and $148.7 million, or 11.1% of revenues for both comparable periods in the prior year.

Total costs and expenses were approximately $517.1 million, or 95.3% of total revenues for the first quarter of 2022, compared to $464.9 million, or 90.8% of related revenues for the first quarter of 2021.

The increase in total costs and expenses, as a percentage of revenues, was primarily due to the following:

Domestic Company-owned restaurant expenses were $161.7 million for the first quarter of 2022, or 81.3% of related revenues, as compared to $155.9 million, or 79.0% of related revenues for the first quarter of 2021.

The expenses, as a percentage of revenues, increased 2.3% due to higher labor expense and food costs.

North America commissary expenses were $197.1 million for the first quarter of 2022, or 94.0% of related revenues, compared to $170.7 million, or 92.3% of related revenues for the first quarter of 2021.

The 1.7% increase in expenses, as a percentage of related revenues, was primarily due to commodities and inflation.

International expenses were $19.9 million for the first quarter of 2022, or 57.5% of related revenues, compared to expenses of $19.6 million, or 56.7% of related revenues for the first quarter of 2021.

The 0.8% increase in expenses as a percentage of revenues was primarily due to higher commodities costs in the PJUK commissary, partially offset by lower operating costs on higher revenues.

Other expenses were $60.6 million for the first quarter of 2022, or 92.6% of related revenues, compared to expenses of $55.8 million, or 89.6% of related revenues for the first quarter of 2021.

The 3.0% increase in expenses, as a percentage of related revenues, was primarily due to timing of expenditures on technology initiatives.

General and administrative expenses (“G&A”) were $65.9 million, or 12.1% of revenues in the first quarter of 2022, compared to $50.0 million, or 9.8% of revenues for the first quarter of 2021.

G&A consisted of the following (in thousands):

Three Months Ended

Nine Months Ended

Administrative expenses (a)

Strategic corporate reorganization costs (b)

Other general expenses (c)

Special items (b) (c)

Other general expenses

General and administrative expenses

(a) The increases in administrative expenses of $7.7 million and $14.0 million for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods were primarily due to higher professional and legal fees and travel and labor costs.

(b) Represents strategic reorganization costs associated with our new office in Atlanta.

See “Note 10” of “Notes to Condensed Consolidated Financial Statements” for additional information.

(c) The decreases in other general expenses of $8.4 million and $14.3 million for the three and nine months ended September 26, 2021, respectively, were primarily due to our marketing fund investments of $10.0 million and

$15.0 million for the three- and nine-month periods of 2020, respectively, which were part of our previously announced franchise assistance program that concluded in the third quarter of 2020.

Depreciation and amortization expense was $11.5 million, or 2.2% of revenues, and $36.8 million, or 2.4% of revenues, for the three and nine months ended September 26, 2021, respectively, compared to $12.8 million, or 2.7% of revenues, and $37.4 million, or 2.8% of revenues, for the prior year comparable periods, respectively.

The 0.5% and 0.4% decreases in expenses as a percentage of revenues, respectively, were primarily due to the timing of fully depreciated assets.

(a) Administrative expenses were relatively flat for the first quarter of 2022 as compared to the prior year comparable period.

(b) Special items for the first quarter of 2022 include $14.6 million one-time, non-cash provisions on accounts receivable and notes receivable in connection with the conflict in Ukraine and related government actions.

See “Note 2” of “Notes to Condensed Consolidated Financial Statements” for further information.

We also recorded a $5.0 million charge associated with the Legal Settlement discussed in “Note 9” of “Notes to Condensed Consolidated Financial Statements” and within “Part 1.

Financial Statements.”

(c) Special items of $3.9 million for the first quarter of 2021 includes strategic reorganization costs associated with our new office in Atlanta which concluded in 2021.

Depreciation and amortization expense was $11.9 million, or 2.2% of revenues in the first quarter of 2022, compared to $12.9 million, or 2.5% of revenues for the first quarter of 2021.

Operating Income by Segment

Operating income increased approximately $14.0 million and $59.5 million for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods.

Operating income decreased approximately $32.4 million for the three months ended March 27, 2022 compared to the prior year comparable period.

Operating income is summarized in the following table on a reporting segment basis.

Alongside the GAAP operating income data, we have included “adjusted” operating income to exclude Special items.

Special items impacting operating income for 2021 include strategic corporate reorganization costs associated with our new office in Atlanta, Georgia.

Special items impacting operating income for 2022 include an $8.4 million refranchising loss associated with the sale of our ownership interest in a joint venture including 90 restaurants, $2.8 million for the impairment of certain reacquired franchise rights and $14.6 million of reserves on certain accounts receivable and notes receivable resulting from the conflict in Ukraine and subsequent government actions, and $5.0 million for the Legal Settlement.

Special items impacting operating income for 2021 included strategic corporate reorganization costs associated with our new office in Atlanta, Georgia.

The reconciliation of GAAP to non-GAAP financial results, as well as the Special items, are included in “Items Impacting Comparability;

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Elimination of intersegment losses (profits)

Nine Months Ended

(In thousands)

Domestic Company-owned restaurants

North America franchising

North America commissaries

International

Unallocated corporate expenses

Elimination of intersegment losses (profits)

The increase in operating income, excluding Special items, of $16.2 million, or 65.9%, and $68.9 million, or 97.6%, for the three- and nine- month periods in 2021, respectively, were primarily due to the following:

● Domestic Company-owned restaurants increased $1.0 million and $6.3 million for the three and nine months ended September 26, 2021, respectively, as compared to the prior year comparable periods primarily due to higher

profits from comparable sales increases of 7.4% and 11.6%, respectively.

These increases were partially offset by higher commodities costs and labor initiatives.

● North America franchising increased $6.5 million and $27.9 million for the three and nine months ended September 26, 2021, respectively, primarily due to higher comparable sales of 6.8% and 12.3% for the three- and nine- month periods, respectively.

The three and nine months ended September 26, 2021 also benefited from higher effective royalty rates as compared to the comparable periods primarily due to higher franchise royalties of $3.5 million and $14.3 million, respectively, as a result of our temporary royalty reduction program concluding in the third quarter of 2020, which was above and beyond the level of franchise assistance the Company would incur in the ordinary course of its business.

● North America commissaries increased $1.4 million and $4.5 million for the three and nine months ended September 26, 2021, respectively, primarily due to higher profits from higher volumes.

● International increased approximately $1.6 million and $9.8 million for the three and nine months ended September 26, 2021, respectively, primarily due to higher royalty revenue from comparable sales of 8.3% and 17.1%, respectively, and increased equivalent units.

● All Others, which primarily includes our online and mobile ordering business and our marketing funds, increased $655,000 and $9.8 million for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods primarily due to higher revenues from our technology platform, including our mobile ordering business.

● Unallocated corporate expenses decreased approximately $5.9 million and $10.4 million for the three and nine months ended September 26, 2021, respectively.

These decreases were primarily due to our discretionary marketing fund investments of $10.0 million and $15.0 million for the three and nine months ended September 27, 2020, respectively, which were part of our previously announced franchise assistance program that concluded in the third quarter of 2020.

These decreases were partially offset by higher professional and legal fees and travel and labor costs.

The decrease in operating income, excluding Special items, of $5.5 million, or 10.9% for the first quarter of 2022 was primarily due to the following:

● Domestic Company-owned restaurants decreased $4.9 million for the first quarter of 2022 primarily due to higher commodities costs and labor initiatives.

● North America franchising increased $1.7 million for the first quarter of 2022, primarily due to higher comparable sales of 2.8% and higher equivalent units of 1.9%.

● North America commissaries were relatively flat for the first quarter of 2022 as higher revenues from pricing offset higher commodities costs.

● International decreased approximately $0.4 million for the first quarter of 2022, primarily due to higher commodity costs were partially offset by higher royalty revenue from increased comparable sales of 0.8% and higher equivalent units.

● All Others, which primarily includes our online and mobile ordering business and our marketing funds, decreased $2.4 million for the first quarter of 2022 primarily due to timing of expenditures for technology initiatives.

● Unallocated corporate expenses decreased approximately $1.0 million for the first quarter of 2021 primarily due to compensation costs and professional fees, partially offset by higher labor costs and costs related to corporate headquarters re-opening.

Refranchising and impairment loss

In the first quarter of 2022, the Company recorded a one-time, non-cash refranchising and impairment loss of $11.2 million.

On March 28, 2022, we refranchised our 51% ownership interest in a 90-restaurant consolidated joint venture between Papa Johns and Blue and Silver Ventures, Ltd in Texas for cash proceeds of $14.0 million, net of transaction costs.

The assets and liabilities associated with the joint venture are classified as held for sale in the Condensed Consolidated Balance Sheet as of March 27, 2022 and we recorded a one-time, non-cash charge of $8.4 million in the first quarter.

The Company also recorded 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 to, international sanctions.

Net Interest Expense

Net interest expense increased $343,000 for the three months ended September 26, 2021 (consistent for the nine-month periods) due to higher average outstanding debt on our revolving credit facility drawn to partially fund the repurchase and conversion of our Series B Preferred Stock, partially offset by lower interest rates.

Total debt outstanding was $425.0 million and $350.0 million as of September 26, 2021 and December 27, 2020, respectively.

Net interest expense increased $0.6 million for the first quarter of 2022 due to higher average outstanding debt on our revolving credit facility.

Total debt outstanding was $537.0 million and $490.0 million as of March 27, 2022 and December 26, 2021, respectively.

Income Before Income Taxes

For the reasons discussed above, income before income taxes increased approximately $13.7 million, or 65.4%, and $59.5 million, or 100.3%, for the three and nine months ended September 26, 2021, respectively over the prior year comparable periods.

Income Tax Expense

The effective income tax rates were 11.7% and 16.3% for the three and nine months ended September 26, 2021 representing decreases of 9.9% and 3.9%, respectively, from the prior year comparable periods.

The decreases in the effective rates were primarily due to the finalization of our 2020 federal income tax return, which resulted in a $2.7 million benefit to tax expense, including immaterial prior year true-up adjustments, and higher excess tax benefits from stock option exercises and restricted shares vesting activity.

Diluted Earnings (Loss) Per Common Share

Diluted earnings per common share was $0.79 for the three months ended September 26, 2021, compared to diluted earnings per share of $0.35 in the prior year comparable period.

For the nine months ended September 26, 2021, diluted loss per common share was $0.59, compared to diluted earnings per share of $0.99 for the prior year comparable period.

Excluding Special items, adjusted diluted earnings per common share were $0.83 and $2.76 for the three and nine months ended September 26, 2021, respectively.

Diluted loss per common share for the nine months ended September 26, 2021 included Special items of $3.14 from a reduction in net income attributable to common shareholders related to the

repurchase and conversion of all shares of previously outstanding Series B Preferred Stock during the second quarter.

This reduction reflects the excess of the one-time cash payment over the carrying value of the Series B Preferred Stock.

For the reasons discussed above, income before income taxes decreased approximately $33.0 million for the first quarter of 2022 over the first quarter of 2021.

Income Tax (Benefit) Expense

The effective income tax rate was negative 12.3% for the three months ended March 27, 2022 compared to 18.4% for the prior year comparable period.

The decrease in the effective rate was caused by higher excess tax benefits generated by stock option exercises and vesting of restricted shares along with a decrease in pre-tax income attributable to the establishment of reserves for receivables discussed in “Note 2”, the Legal Settlement discussed in “Note 9” and the impairments discussed in “Note 10” of the “Notes to Condensed Consolidated Financial Statements”.

Quarter Ended

March 27, 2022

March 28, 2021

Income before income taxes

Income tax (benefit) expense

Effective tax rate

Diluted Earnings Per Common Share

Diluted earnings per common share was $0.29 for the first quarter of 2022, compared to diluted earnings per share of $0.82 in the first quarter of 2021, a decrease of $0.53.

Excluding Special items, adjusted diluted earnings per common share was $0.95 for the first quarter of 2022, compared to adjusted diluted earnings per common share of $0.91 in the first quarter of 2021, an increase of $0.04.

Diluted earnings per common share for the three months ended March 27, 2022 included Special items of $23.9 million, net of tax, related to refranchising losses associated with the divestiture of our controlling interest in a 90 restaurant joint venture, impairment losses of certain loans and reacquired franchised rights, and the Legal Settlement.

See “Items Impacting Comparability;

Non-GAAP Measures” for additional information.

Impact of Inflation

Given the accelerating inflationary environment and short-term commodity volatility experienced in the first quarter of 2022, there have been and may continue to be increases in food costs and labor costs which have and could further impact our profitability.

Factors such as inflation, increased food costs, increased labor and employee health and benefit costs, increased rent costs and increased energy costs have and may continue to adversely affect our operating costs and

profitability.

Severe increases in inflation could affect the global and U.S.

economies and could have an adverse impact on our business, financial condition and results of operations.

To the extent permitted by competition, increased costs are recovered through a combination of selective menu price increases, product mix, and/or implementing operational improvements.

Items Impacting Comparability;

Non-GAAP Measures

The table below reconciles our GAAP financial results to our adjusted financial results, which are non-GAAP measures (collectively defined as “Special items”).

We present these non-GAAP measures because we believe the Special items in 2021 impact the comparability of our results of operations.

The table below reconciles our GAAP financial results to our adjusted financial results, which are non-GAAP measures.

We present these non-GAAP measures because we believe the Special items impact the comparability of our results of operations .

See “Note 2”, “Note 9”, and “Note 10” of “Notes to Condensed Consolidated Financial Statements,” for additional information about the Special items.

Three Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

(In thousands, except per share amounts)

GAAP operating income

Refranchising and impairment loss (1)

Legal settlement (2)

Strategic corporate reorganization costs (3)

Adjusted operating income

GAAP net income/(loss) attributable to common shareholders

GAAP net income attributable to common shareholders

Refranchising and impairment loss (1)

Legal settlement (2)

Strategic corporate reorganization costs (3)

Repurchase and conversion of Series B Preferred Stock (2)

Tax effect of strategic corporate reorganization costs (3)

Tax effect of Non-GAAP adjustment on special items (4)

Adjusted net income attributable to common shareholders

GAAP diluted earnings/(loss) per common share

GAAP diluted earnings per common share

Refranchising and impairment loss (1)

Legal settlement (2)

Strategic corporate reorganization costs (3)

Repurchase and conversion of Series B Preferred Stock (2)

Tax effect of strategic corporate reorganization costs (3)

Adjusted diluted earnings per share

(Note) The above table does not include the impact of the allocation of undistributed earnings to participating securities for Special items.

Tax effect of Non-GAAP adjustment on special items (4)

Adjusted diluted earnings per common share

(Note) The above table does not include the impact of allocation of undistributed earnings to participating securities for Special items.

(1) Includes on a pre-tax basis (a) a one-time, non-cash charge of $8.4 million ($0.23 loss per diluted share) associated with the refranchising of the Company’s majority stake in a 90 restaurant joint venture, recorded as Refranchising and impairment loss;

and (b) $17.4 million ($0.48 loss per diluted share) in one-time, non-cash expense related to the reserve of certain loans and impairment of reacquired franchised rights resulting from 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 .

(2) Represents an accrual of the Legal Settlement, recorded in General and administrative expenses.

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

(2) 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.

(3) The tax effect for strategic corporate reorganization costs was calculated by applying the 2021 marginal tax rate of 22.4%.

There was no tax effect on the repurchase and conversion of the Series B Preferred Stock as the one-time charge was non-deductible for tax purposes.

(4) The tax effect for Special items included in the Reconciliation of Non-GAAP Financial Measures was calculated by applying the marginal tax rate of 22.5% for the three months ended March 27, 2022 and March 28, 2021.

The 2022 non-GAAP adjusted results shown above and within this document, which exclude Special items, should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s GAAP results.

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Liquidity and Capital Resources

Our outstanding debt as of September 26, 2021 was $425.0 million, which was comprised of $400.0 million outstanding under our 3.875% senior notes due 2029 (the “Notes”) and $25.0 million under the PJI Revolving Facility (as defined below).

Including outstanding letters of credit, the remaining availability under the PJI Revolving Facility was approximately $572.3 million as of September 26, 2021.

On September 14, 2021, the Company issued $400.0 million of Notes which will mature on September 15, 2029.

Concurrently with the closing of the Notes, the Company entered into an amended and restated credit agreement (the “Amended Credit Agreement”) replacing the previous $800.0 million credit agreement (“Previous Credit Agreement”).

The Amended 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 net proceeds from the Notes, together with borrowings under the PJI Revolving Facility, were used to repay outstanding revolver and term loan borrowings under the Company’s Previous Credit Agreement.

As of September 26, 2021, we have the following interest rate swap agreements with a total notional value of $350.0 million:

Effective Dates

Floating Rate Debt

April 30, 2018 through April 30, 2023

January 30, 2018 through August 30, 2022

In September 2021, we de-designated $350.0 million of our interest rate swaps as cash flow hedges following the issuance of the Notes.

For these de-designated hedges, the portion of gains or losses on the derivative instruments previously recognized in accumulated other comprehensive loss will be reclassified into earnings as adjustments to interest expense on a straight-line basis over the remaining life of the originally hedged transactions.

Our Amended Credit Agreement contains affirmative and negative covenants, including the following financial covenants:

The table below summarizes our cash flows from continuing operations for the three months ended March 27, 2022 and March 28, 2021:

Three Months Ended

Total cash provided by (used in):

Operating activities

Investing activities

Financing activities

Change in cash and cash equivalents, excluding the impact of foreign currency

Operating Activities

Cash flow provided by operating activities was $25.4 million for the first quarter of 2022 compared to $63.2 million in the first quarter of 2021.

The decrease of $37.8 million was primarily due to unfavorable working capital changes;

principally a decrease of $19.7 million due to the timing of payments associated within accrued expenses and other current liabilities and $15.8 million in accounts receivable related to the timing of cash receipts in the prior year.

Investing Activities

Cash flow used in investing activities was $8.3 million for the first quarter of 2022 compared to $6.3 million in the first quarter of 2021, or an increase of $2.0 million.

The increase in cash flow used in investing activities was primarily due to an increase in capital expenditures.

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 will be approximately $85.0 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.

We intend to fund our capital expenditures with cash generated by operations and borrowings under our PJI Revolving Facility, as necessary.

Financing Activities

Cash flow used in financing activities was $6.8 million for the first quarter of 2022 compared to $16.1 million in the first quarter of 2021.

The decrease of $9.3 million in cash flow used in financing activities reflects increased borrowings on the PJI Revolving Facility during the first quarter of 2022, partially offset by increased repurchases of Company common stock.

Our outstanding debt as of March 27, 2022 was $537.0 million, which was comprised of $400.0 million outstanding under the Notes and $137.0 million under the PJI Revolving Facility.

Remaining availability under the PJI Revolving Facility was approximately $463.0 million as of March 27, 2022.

Our Amended Credit Agreement contains affirmative and negative covenants that, among other things, require customary reporting obligations and restrict, subject to certain exceptions, the 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:

Actual Ratio as of

Permitted Ratio

September 26, 2021

March 27, 2022

Leverage ratio

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Our interest coverage ratio is defined as the sum of 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 26, 2021.

We were in compliance with all financial covenants as of March 27, 2022.

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;

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.

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Bank National Association, as lender.

There was no debt outstanding under the PJMF Revolving Facility as of September 26, 2021 or December 27, 2020.

The PJMF operating results and the related debt outstanding do not impact the financial covenants under the PJI Credit Agreement .

Cash flow provided by operating activities was $193.6 million for the nine months ended September 26, 2021 compared to $168.5 million for the corresponding period of 2020.

The increase of $25.1 million was primarily due to higher net income, offset by unfavorable working capital.

Cash flow used in investing activities was $41.2 million for the nine months ended September 26, 2021 compared to $28.6 million for the same period in 2020, or an increase of $12.6 million.

The increase in cash flow used in investing activities was primarily due to an increase in capital expenditures.

Cash flow used in financing activities was $177.1 million for the nine months ended September 26, 2021 compared to $27.4 million for the same period of 2020.

The increase of $149.7 million in cash flow used in financing activities was primarily due to the payment of cash consideration to affiliates of Starboard Value LP and certain franchisees for the repurchase and conversion of all of the Company’s Series B Preferred Stock outstanding which occurred during the second quarter of 2021, offset by net proceeds from the issuance of our Notes and refinancing of our revolving credit facility in the third quarter of 2021.

The Company recorded dividends of approximately $33.2 million for the nine months ended September 26, 2021 consisting of the following:

● $27.6 million paid to common stockholders ($0.80 per share);

● $3.0 million in preferred dividends on the Series B Preferred Stock (3.6% of the investment per annum);

● $1.5 million of common stock deemed dividend distributions in conjunction with the repurchase and conversion of the Series B Preferred Stock;

● $1.1 million in common stock “pass-through” dividends paid to Series B Preferred Stockholders on an as-converted basis ($0.45 per share).

On October 28, 2021, our Board of Directors declared a fourth quarter dividend of $0.35 per common share, of which approximately $12.8 million will be paid to common stockholders.

The common share dividend will be paid on November 19, 2021 to stockholders of record as of the close of business on November 9, 2021.

There was no debt outstanding under the PJMF Revolving Facility as of March 27, 2022 or December 26, 2021.

The PJMF operating results and the related debt outstanding do not impact the financial covenants under the Amended Credit Agreement .

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 for the three months ended March 27, 2022 and March 28, 2021:

Maximum Dollar

Value of Shares

that May Yet Be

(in thousands, except average price per share)

Purchased Under the

Three Months Ended

Plans or Programs

March 27, 2022

March 28, 2021

Subsequent to March 27, 2022, we acquired an additional 223,000 shares at an aggregate cost of $23.0 million.

Approximately $369.1 million remained available under the Company’s share repurchase program as of April 29, 2022.

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.

The Company recorded dividends of approximately $12.6 million ($0.35 per share) in the first quarter of 2022.

On April 26, 2022, our Board of Directors declared a second quarter dividend of $0.35 per common share, approximately $12.6 million in the aggregate, which will be paid on May 27, 2022 to stockholders of record as of the close of business on May 16, 2022.

The declaration and payment of any future dividends will be at the discretion of our Board of Directors.

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Non-GAAP Measures” for a discussion of free cash flow.

The Company’s free cash flow was as follows for the nine-month periods of 2021 and 2020 (in thousands):

Nine Months Ended

September 26,

September 27,

The Company’s free cash flow was as follows for the first quarter of 2022 and 2021 (in thousands):

Three Months Ended

Net cash provided by operating activities

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Free cash flow

(1) Excludes $188.6 million of cash consideration paid for the repurchase and conversion of the Series B Preferred Stock in the second quarter of 2021 .

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.

Refer to “Cash Requirements” 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 for additional information regarding our cash requirements.

Forward-Looking Statements

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Generally, the use of words such as “expect,” “intend,” “estimate,” “believe,” “anticipate,” “will,” “forecast,” “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 financial impact of the temporary business opportunities, disruptions and temporary changes in demand we are experiencing related to the current outbreak of the novel coronavirus disease (COVID-19), commodity costs, currency fluctuations, profit margins, unit growth, unit level performance, capital expenditures, restaurant and franchise development, the duration of changes in consumer behavior caused by the pandemic, reorganization costs and the related organizational, employment and real estate changes from opening our new office in Atlanta, royalty relief, the effectiveness of our menu innovations and other business initiatives, marketing efforts, liquidity, compliance with debt covenants, strategic decisions and actions, dividends, effective tax rates, regulatory changes and impacts, adoption of new accounting standards, and other financial and operational measures.

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 financial impact of the temporary business opportunities, disruptions and temporary changes in demand we are experiencing related to the current outbreak of the coronavirus pandemic and the related restrictions, commodity costs, currency fluctuations, profit margins, unit growth, unit level performance, capital expenditures, restaurant and franchise development, the duration of changes in consumer behavior caused by the pandemic, labor shortages, inflation, royalty relief, the effectiveness of our menu innovations and other business initiatives, marketing efforts, liquidity, compliance with debt covenants, impairments, strategic decisions and actions, dividends, effective tax rates, regulatory changes and impacts, 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.

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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 and opportunities associated with or related to the COVID-19 pandemic, including risks related to:

the impact of governmental restrictions on freedom of movement and business operations including quarantines, social distancing requirements and mandatory business closures;

changes in consumer demand or behavior;

labor shortages at Company and/or franchised stores;

impact of delayed new store openings, both domestically and internationally;

our ability to navigate changing governmental programs and regulations relating to the pandemic;

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

● our ability to successfully implement or fully realize the anticipated benefits of our corporate reorganization and new office in Atlanta, Georgia and corporate reorganization in the timeframes we desire or within the expected range of expenses, or at all.

In addition, turnover in our support teams due to our relocation to Georgia could distract our employees, decrease employee morale, harm our reputation, and negatively impact the overall performance of our corporate support teams;

● the uncertainty of whether and to what extent the increase in demand for our products that we are currently experiencing during the COVID-19 pandemic will continue following a cessation of the effects of the virus in the future;

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

● the ability of the Company to manage difficulties and opportunities associated with or related to the coronavirus pandemic, including governmental restrictions, changes in consumer demand or behavior, vaccine mandates and changing governmental programs and regulations relating to the pandemic;

● the ability of the Company to manage labor shortages at Company and/or franchised stores 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 and inflation;

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

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

● risks to the global economy and our business related to the conflict in Ukraine.

● 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 social media, including publicity adversely and rapidly impacting our brand and reputation;

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● 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.

This could include increased employee compensation, including as a result of changes in minimum wage, benefits, insurance, tax rates, new regulatory requirements or increasing compliance costs;

● 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 COVID-19;

● increased risks associated with our international operations, including economic and political conditions and risks associated with the withdrawal of the United Kingdom 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;

● increased risks associated with our 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;

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For a discussion of these and other risks that may cause actual results to differ from expectations, refer to “Part I.

– Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 27, 2020.

– Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2021 and “Part II.

– Risk Factors” in this Quarterly Report on Form 10-Q, as well as subsequent filings.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis