What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 244 added, 214 removed, 258 unchanged (64% 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 June 26, 2022, there were 5,571 Papa John’s restaurants in operation, consisting of 519 Company-owned and 5,052 franchised restaurants operating in 49 countries and territories.

As of September 25, 2022, there were 5,589 Papa John’s restaurants in operation, consisting of 521 Company-owned and 5,068 franchised restaurants operating in 47 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.

1 unchanged sentence

Recent Developments and Trends

The Company launched Epic Pepperoni Stuffed Crust Pizza and Spicy Pepperoni Rolls in the second quarter of 2022.

Epic Pepperoni Stuffed Crust Pizza features original, fresh, never-frozen, dough hand-stuffed with our signature pepperoni and melted cheese, then baked into a seasoned crust, which is finished with Papa John's signature pizza sauce, more cheese, and topped off with more pepperoni.

Spicy Pepperoni Rolls feature signature pizza sauce and pepperoni rolled up with jalapenos and creamy melty cheese on our fresh dough.

These offers are in addition to our first quarter launch of NY Style pizza which features eight oversized slices on a thin, foldable crust.

These 2022 launches have proven to be popular with customers and highly incremental to revenues.

Our digital innovation through Papa Rewards, our loyalty program, 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 business plan for 2022 and beyond.

In the second quarter, we promoted exclusive members-only access to Epic Pepperoni Stuffed Crust before its launch, successfully adding nearly 150,000 new members during the one-week early access period.

Growth Strategy .

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 and profitability in the PJUK market.

While uncertain how long these conditions will last, the Company is committed to its presence in the PJUK and is invested in the Company’s long-term success in this region.

As we navigate this challenging economic environment, we will be investing in capabilities to improve our operations and will work to re-position the franchise base to further strengthen our PJUK business.

We are currently evaluating the types and level of franchisee support as part of our plans to support the PJUK business, which may result in future costs to the Company in upcoming quarters.

During the third quarter of 2022, the Company recorded a charge of $4.1 million associated with the termination of a significant franchisee in the United Kingdom, as an initial step forward in our commitment to re-position our PJUK portfolio for future success.

Development Outlook .

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 accelerating commodity and labor inflation.

1 unchanged sentence

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 expect to open between 1,400 and 1,800 net new Papa John’s restaurants worldwide by the end of 2025, relative to the start of 2022.

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 the first six months of 2022, our restaurants continued to navigate a challenging staffing environment.

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

Our integrations with the aggregator marketplaces and our nationwide integrations with Delivery-as-a-Service providers have been key tools allowing us to continue to serve our customers during peak times.

Throughout the first nine months of 2022, our restaurants continued to navigate a challenging staffing environment.

Our integrations with the aggregator marketplaces and our nationwide integrations with Delivery-as-a-Service providers have been key tools allowing us to continue to meet our customers 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.

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.

Further, we remain focused on continuing to hire great employees and reducing turnover by providing competitive compensation, a great working environment, benefits and compelling career paths.

Our goal is to be the employer of choice in our industry, and we've taken many actions to create a strong culture and support our people.

In the second quarter of 2022, we released our 2021 Corporate Responsibility Report, outlining our progress against our priorities to create a positive impact on people, pizza and the planet that sets us up for long-term success.

Papa John's is the first major publicly traded pizza chain to announce that our executive compensation plan now includes Environmental Social and Governance metrics.

Suspension of Franchisee Support in Russi a .

During the first quarter of 2022, the Company recognized $17.4 million ($0.48 loss per diluted share) on a pre-tax basis in one-time, non-cash charges 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 thus, no additional Russia-related charges for reserves, write-offs, or impairments are recorded on the Condensed Consolidated Balance Sheet.

Refranchising loss .

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

("Blue and Silver Ventures").

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 one-time, non-cash $8.4 million impairment loss related to the divestiture in the first quarter of 2022 and realized upon consummation of the sale in the second quarter.

The differentiated brand positioning of Papa John's has been critical to our success over the past 2.5 years as we have been nimble and adapted our strategy to a constantly changing environment.

It's no less important today as we adjust to a new more inflationary and uncertain environment with rising costs and consumers increasingly seeking out value.

As consumer sentiment continues to soften, pizza offers tremendous value relative to other quick service restaurants.

Using Papa Rewards, we are also able to target more price-sensitive customers with high-value promotions.

At the same time, we will continue our successful strategy of letting our customers, especially those who are less price sensitive, to self-select into our premium-priced innovation.

However, with unprecedented inflation, we have begun to take some pricing.

This has helped partially offset higher food, labor, and fuel costs in our supply chain and restaurants.

Our ticket growth has predominantly come through new premium products and add-ons over the past few years.

This has afforded us more room to strategically raise prices in this inflationary environment.

Papa John's has unique pricing flexibility given our value proposition is focused on delivering premium value, not hitting specific low price points.

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.

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.

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.

“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.

For the three and six months ended June 26, 2022, global system-wide restaurant sales growth excludes franchisees for which we suspended corporate support during the quarter ended March 27, 2022.

Also, for the three and six months ended June 26, 2022, both Comparable sales growth and System-wide restaurant sales growth for 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.

Global system-wide restaurant sales and global system-wide sales growth 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 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 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.

4 unchanged sentences

Franchise restaurant sales are not included in the Company’s revenues.

Three Months Ended Six Months Ended

2022 June 27,

2021 June 26,

2022 June 27,

Comparable sales growth (decline):

Three Months Ended Nine Months Ended

September 25,

2022 September 26,

2021 September 25,

2022 September 26,

Comparable sales (decline) growth:

Domestic Company-owned restaurants (2.2)% 7.4% (1.6)% 11.6%

2 unchanged sentences

International restaurants (10.1)% 8.3% (5.8)% 17.1%

Total comparable sales growth (1.4)% 9.0% 0.1% 16.6%

Total comparable sales (decline) growth (3.4)% 7.3% (1.1)% 13.4%

System-wide restaurant sales growth (decline):

5 unchanged sentences

Total global system-wide restaurant sales growth 0.5% 11.2% 2.9% 16.2%

Restaurant Progression Three Months Ended Six Months Ended

2022 June 27,

2021 June 26,

2022 June 27,

Restaurant Progression Three Months Ended Nine Months Ended

September 25,

2022 September 26,

2021 September 25,

2022 September 26,

North America Company-owned:

14 unchanged sentences

Opened 48 71 175 210

Closed (27) (27) (35) (36)

Suspended (a) — — (188) —

(32) (39) (67) (75)

Suspended (b)

End of period 2,231 2,246 2,231 2,246

Total restaurants – end of period 5,589 5,569 5,589 5,569

Trailing four quarters net store growth (b) 236 176

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

(b) Excludes suspended restaurants.

Trailing four quarters net store growth (c)

(a) Temporary store closures are not treated as store closures in the table above.

Subsequent to September 25, 2022, 12 franchised restaurants in the United Kingdom were permanently closed.

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

Results of Operations

1 unchanged sentence

Three Months Ended

June 26, 2022 June 27, 2021

September 25, 2022 September 26, 2021

($ in thousands) % of Related

16 unchanged sentences

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)%

1 unchanged sentence

Income before income taxes $ 11,838 2.3% $ 34,598 6.7% (4.4)%

Six Months Ended

June 26, 2022 June 27, 2021

Nine months ended

September 25, 2022 September 26, 2021

($ in thousands) % of Related

20 unchanged sentences

Income before income taxes $ 54,833 3.5% $ 118,801 7.7% (4.2)%

Consolidated revenues increased $7.7 million, or 1.5% to $522.7 million, and $38.6 million, or 3.8% to $1.1 billion for the three and six months ended June 26, 2022, respectively, compared to prior year comparable periods.

Excluding the impact of the Company refranchising its 51% ownership in a 90-restaurant consolidated joint venture, consolidated revenues increased $25.6 million, or 5.2%, and $56.9 million, or 5.7%, for the three and six months ended June 26, 2022, respectively.

Domestic Company-owned restaurant sales decreased $24.7 million, or 12.6%, and $23.2 million, or 5.9% for the three and six months ended June 26, 2022, respectively, compared to the prior year comparable periods.

Excluding the impact of refranchising, Domestic Company-owned restaurant sales increased $2.0 million, or 1.2%, and $3.0 million, or 0.9%, for the three and six months ended June 26, 2022, respectively, primarily due to innovations and strategic pricing actions to help offset food and labor inflation.

North America franchise royalties and fees increased $2.4 million, or 7.5%, and $4.0 million, or 6.1% for the three and six months ended June 26, 2022, respectively, compared to prior year comparable periods.

Excluding the impact of refranchising, North America franchise royalties and fees increased $1.1 million, or 3.3%, and $2.7 million, or 4.0% for the three and six months ended June 26, 2022, respectively, primarily due to positive comparable sales increases of 1.4% and 2.1% for the three and six months ended June 26, 2022, and higher equivalent units of 4.9% and 3.4% for the same periods, respectively.

North America franchise restaurant sales, excluding the impact of refranchising, increased 2.7% to $753.8 million and 1.4% to $1.5 billion for the three and six months ended June 26, 2022, respectively, compared to the prior year comparable periods.

For the nine months ended September 25, 2022, revenue explanations for Domestic Company-owned restaurants and North America franchised restaurants also include an adjusted figure 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.

Consolidated revenues decreased $2.3 million, or 0.4% to $510.5 million for the three months ended September 25, 2022, and increased $36.3 million, or 2.4% to $1.6 billion for the nine months ended September 25, 2022, as compared to each prior year comparable period.

Excluding the impact of the Company refranchising its 51% ownership in a 90-restaurant consolidated joint venture, consolidated revenues increased $15.5 million, or 3.1%, and $72.4 million, or 4.9%, for the three and nine months ended September 25, 2022, respectively.

Domestic Company-owned restaurant sales decreased $25.5 million, or 13.3%, and $48.7 million, or 8.3% for the three and nine months ended September 25, 2022, respectively, compared to the prior year comparable periods.

Excluding the impact of refranchising, Domestic Company-owned restaurant sales increased $0.9 million, or 0.5%, and $3.9 million, or 0.8%, for the three and nine months ended September 25, 2022, respectively, primarily due 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, 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.

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 $32.7 million, or 17.5% and $57.5 million, or 15.5% for the three and six months ended June 26, 2022, respectively, compared to the prior year comparable periods primarily due to higher pricing as a result of increased underlying costs associated with commodity price increases, partially offset by lower volumes.

International revenues decreased $5.7 million, or 15.0% and $5.6 million, or 7.8% for the three and six months ended June 26, 2022, respectively, compared to prior year comparable periods, primarily due to lower United Kingdom ("PJUK") commissary revenues and royalties.

Additionally, international comparable sales revenues decreased 8.0% and 3.6% for the three and six months ended June 26, 2022.

The overall declines in our international revenue performance were largely attributable to a contracting PJUK market where consumer sentiment is reaching historical lows.

International franchise restaurant sales increased to $281.3 million and $585.9 million for the three and six months ended June 26, 2022, respectively.

Excluding the impact of foreign currency, international franchise restaurant sales increased 3.4% and 8.3% for the three and six months ended June 26, 2022, respectively.

North America commissary revenues increased $26.9 million, or 14.2% and $84.4 million, or 15.1% for the three and nine months ended September 25, 2022, respectively, compared to the prior year comparable periods primarily due to higher pricing as a result of increased underlying costs associated with commodity price increases, partially offset by lower volumes.

International revenues decreased $7.7 million, or 20.0% and $13.3 million, or 12.0% 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 in our international revenue performance were largely attributable to lower comparable sales of 10.1% and 5.8% for the three and nine months ended September 25, 2022, which are largely attributable to the economic downturn of the PJUK market.

International franchise restaurant sales increased to $309.4 million and $939.2 million for the three and nine months ended September 25, 2022, respectively.

Excluding the impact of foreign currency, international franchise restaurant sales decreased 0.4% and increased 5.3% for the three and nine months ended September 25, 2022, respectively.

International franchise restaurant sales are not included in Company revenues;

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

Other revenues increased $2.8 million, or 4.6%, and $5.9 million, or 4.7%, for the three and six months ended June 26, 2022, respectively, compared to the prior year comparable periods primarily due to higher revenues from our technology services attributable to increased North America systemwide comparable sales and equivalent units.

Other revenues increased $2.3 million, or 3.7%, and $8.2 million, or 4.4%, for the three and nine months ended September 25, 2022, respectively, compared to the prior year comparable periods primarily due to higher revenues from our technology services from higher equivalent units.

Costs and Expenses

Total costs and expenses were approximately $483.8 million, or 92.6% of total revenues for the three months ended June 26, 2022, as compared to $470.4 million or 91.3% of related revenues for the prior year comparable period.

For the six months ended June 26, 2022, total costs and expenses were approximately $1.0 billion or 93.9% of total revenues, as compared to $935.3 million, or 91.1% of total revenues for the prior year comparable period.

Total costs and expenses were approximately $490.1 million, or 96.0% of total revenues for the three months ended September 25, 2022, as compared to $474.2 million or 92.5% of related revenues for the prior year comparable period.

For the nine months ended September 25, 2022, total costs and expenses were approximately $1.5 billion or 94.6% of total revenues, as compared to $1.4 billion, or 91.6% of total revenues for the prior year comparable period.

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

Domestic Company-owned restaurant expenses were $142.0 million, or 82.9% of related revenues for the three months ended June 26, 2022, as compared to $154.3 million, or 78.7% of related revenues for the prior year comparable period.

For the six months ended June 26, 2022, Domestic Company-owned restaurant expenses were $303.7 million or 82.0% of related revenues, compared to expenses of $310.2 million or 78.9% of related revenues for the prior year comparable period.

The expenses, as a percentage of revenues, increased 4.2% and 3.2%, respectively, due to higher food cost attributable to rising commodity prices, which accelerated in the second quarter, and increased labor expense as staffing levels recover at a higher cost.

Our strategic pricing actions implemented in the first six months of 2022 helped reduce the impact of the underlying cost pressures.

North America commissary expenses were $204.5 million, or 93.2% of related revenues for the three months ended June 26, 2022, as compared to $172.2 million, or 92.3% of related revenues for the prior year comparable period.

For the six months ended June 26, 2022, North America commissary expenses were $401.6 million, or 93.6% of related revenues, compared to $342.9 million, or 92.3% of related revenues for the prior year comparable period.

The expenses, as a percentage of related revenues, increased 0.9% and 1.3%, respectively, primarily due to rising commodity prices, principally in cheese, proteins and wheat, and higher delivery cost.

International expenses were $19.2 million, or 60.2% of related revenues for the three months ended June 26, 2022, as compared to $21.4 million, or 57.0% of related revenues for the prior year comparable period.

For the six months ended June 26, 2022, International expenses were $39.2 million, or 58.8% of related revenues, compared to $41.0 million, or 56.8% of related revenues for the prior year comparable period.

Domestic Company-owned restaurant expenses were $138.3 million, or 83.3% of related revenues for the three months ended September 25, 2022, as compared to $155.5 million, or 81.2% of related revenues for the prior year comparable period.

For the nine months ended September 25, 2022, Domestic Company-owned restaurant expenses were $442.0 million or 82.4% of related revenues, compared to expenses of $465.7 million or 79.6% of related revenues for the prior year comparable period.

The expenses, as a percentage of revenues, increased 2.1% and 2.8%, respectively, due to increased food cost attributable to higher commodity prices and labor expenses as staffing levels recover at increased cost.

Our strategic pricing actions implemented in 2022 helped reduce the impact of the underlying cost pressures.

North America commissary expenses were $203.1 million, or 94.0% of related revenues for the three months ended September 25, 2022, as compared to $175.4 million, or 92.7% of related revenues for the prior year comparable period.

For the nine months ended September 25, 2022, North America commissary expenses were $604.7 million, or 93.7% of related revenues, compared to $518.3 million, or 92.4% of related revenues for the prior year comparable period.

The expenses, as a percentage of related revenues, increased 1.3% for both the three and nine month periods, primarily due to rising commodity prices, principally in cheese, soy oil, proteins and wheat, and higher delivery cost.

International expenses were $18.2 million, or 59.2% of related revenues for the three months ended September 25, 2022, as 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 $60.6 million, or 93.3% of related revenues for the three months ended June 26, 2022, as compared to $56.2 million, or 90.5% of related revenues for the prior year comparable period.

For the six months ended June 26, 2022, Other expenses were $121.2 million, or 93.0% of related revenues, compared to $112.1 million, or 90.0% of related revenues for the prior year comparable period.

The expenses as a percentage of related revenues, increased 2.8% and 2.9%

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 $44.6 million, or 8.5% of revenues three months ended June 26, 2022, compared to $53.7 million, or 10.4% of revenues for the prior year comparable period.

For the six months ended June 26, 2022, G&A was $110.6 million, or 10.4% of revenues, compared to $103.7 million, or 10.1% of revenues for the prior year comparable periods.

For the three and six months ended June 26, 2022, G&A consisted of the following (in thousands):

Three Months Ended Six Months Ended

June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

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 months ended September 25, 2022, compared to $54.1 million, or 10.5% 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 consisted of the following (in thousands):

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

(a) For both the three and six months ended June 26, 2022, Administrative expenses decreased $8.2 million compared to the prior year comparable periods primarily due to lower incentive compensation costs, partially offset by higher labor, travel, and occupancy cost associated with the re-opening of corporate headquarters in the first quarter of 2022.

(b) For the three months ended June 26, 2022, Special items include a $1.5 million charge related to advisory fees and severance costs associated with the transition of certain executives.

For the six months ended June 26, 2022, Special items include a one-time, non-cash provisions of $14.6 million on accounts receivable and notes receivable in connection with the conflict in Ukraine and related government actions, a charge of $5.0 million associated with a legal settlement.

See “Note 2” of “Notes to Condensed Consolidated Financial Statements” for further information regarding one-time, non-cash provision recorded in the first quarter of 2022 and see “Note 9” of “Notes to Condensed Consolidated Financial Statements” for further discussion regarding the legal settlement.

(c) For the three and six months ended June 27, 2021, Special items of $3.3 million and $7.2 million, respectively, include strategic reorganization costs associated with our new office in Atlanta which concluded at the end of 2021.

Depreciation and amortization expense was $12.7 million, or 2.4% of revenues three months ended June 26, 2022, compared to $12.5 million, or 2.4% of revenues for the prior year comparable period.

For the six months ended June 26, 2022, Depreciation and amortization expense was $24.7 million, or 2.3% of revenues, compared to$25.4 million, or 2.5% of revenues, for the prior year comparable periods.

(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 million and $9.4 million, respectively, consist of strategic reorganization costs associated with our new corporate office in Atlanta which concluded at 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 $5.7 million to $38.9 million and decreased $38.2 million to $53.3 million for the three and six months ended June 26, 2022, respectively, compared to the prior year comparable periods.

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.

4 unchanged sentences

(In thousands) Reported

June 26, 2022 Special

25, 2022 Special

in 2022 (a) Adjusted

June 26, 2022 Reported

June 27, 2021 Special

25, 2022 Reported

26, 2021 Special

in 2021 (b) Adjusted

June 27, 2021 Adjusted

26, 2021 Adjusted

Domestic Company-owned restaurants $ 3,667 $ — $ 3,667 $ 9,480 $ — $ 9,480 $ (5,813)

6 unchanged sentences

Total $ 19,461 $ 14,132 $ 33,593 $ 38,577 $ 2,153 $ 40,730 $ (7,137)

(a) For the three months ended June 26, 2022, Special items impacting Operating income include a charge of $1.5 million charge related to advisory fees and severance costs associated with the transition of certain executives.

(b) For the three months ended June 27, 2021, Special items impacted Operating income include a charge of $3.3 million related to strategic reorganization costs associated with our new office in Atlanta.

Six Months Ended

(a) For the three months ended September 25, 2022, Special items impacting Operating income include a charge of $10.0 million related to certain legal settlements and $4.1 million related to PJUK reserves and impairment related to the termination of a significant franchisee in the UK in the third quarter.

(b) 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

June 26, 2022 Special

25, 2022 Special

in 2022 (a) Adjusted

June 26, 2022 Reported

June 27, 2021 Special

25, 2022 Reported

26, 2021 Special

in 2021 (b) Adjusted

June 27, 2021 Adjusted

26, 2021 Adjusted

Domestic Company-owned restaurants $ 11,579 $ 8,412 $ 19,991 $ 40,165 $ — $ 40,165 $ (20,174)

6 unchanged sentences

Total $ 72,800 $ 46,435 $ 119,235 $ 130,076 $ 9,364 $ 139,440 $ (20,205)

(a) For the six months ended June 26, 2022, Special items impacting Operating income include a one-time, non-cash provisions of $14.6 million on accounts receivable and notes receivable in connection with the conflict in Ukraine and related government actions, a charge of $5.0 million associated with a legal settlement 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 a charge of $1.5 million charge related to advisory fees and severance costs associated with the transition of certain executives.

(b) For the six months ended June 27, 2021, Special items impacting Operating income include a charge of $7.2 million related to strategic reorganization costs associated with our new office in Atlanta which concluded at the end of 2021.

Excluding the impact of special items, Operating income decreased $7.6 million, or 15.7% and $13.1 million, or 13.2% for the three and six month ended June 26, 2022, respectively.

(a) For the nine months ended September 25, 2022, Special items impacting Operating income include 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, a charge of $15.0 million 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 the third quarter, $2.8 million for the impairment of certain reacquired franchise rights and a charge of

$1.5 million related to advisory fees and severance costs associated with the transition of certain executives in the second quarter.

See Note 2 and Note 10 for more information.

(b) For the nine months ended September 26, 2021, Special items impacting Operating income consist of a charge of $9.4 million related to strategic reorganization costs associated with our new corporate office in Atlanta which concluded at 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 $9.4 million and $14.4 million for the three and six months ended June 26, 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 $6.8 million and $11.7 million primarily due to higher commodity and labor cost, partially offset by higher revenues related to strategic pricing actions from higher equivalent units.

• North America franchising increased $2.1 million and $3.8 million for the three and six months ended June 26, 2022, respectively.

Excluding the impact of the above mentioned refranchising, North America franchising increased $1.2 million and $2.9 million primarily due to positive comparable sales of 1.4% and 2.1% for three and six months ended June 26, 2022, respectively.

• North America commissaries increased $1.2 million and $0.8 million for the three and six months ended June 26, 2022, respectively, primarily due to higher pricing as a result of increased underlying costs associated with commodity price increases, partially offset by lower volumes

• International decreased $1.4 million and $1.8 million for the three and six months ended June 26, 2022, respectively, primarily due to lower United Kingdom ("PJUK") commissary revenues and royalties attributed to lower comparable sales, which declined 8.0% and 3.6%, for the three and six months ended June 26, 2022, respectively.

• All Others, which primarily includes our online and mobile ordering business and our marketing funds, decreased $2.7 million and $5.1 million for the three and six months ended June 26, 2022 compared to the prior year comparable periods primarily due to timing of expenditures for technology support initiatives.

• Unallocated corporate expenses decreased $3.5 million and $4.5 million for the three and six months ended June 26, 2022, respectively.

The decrease for the six months ended June 26, 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 of corporate headquarters in the first quarter of 2022.

Refranchising and Impairment loss

• Domestic Company-owned restaurants decreased $5.8 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 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.

1 unchanged sentence

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.

In the third quarter of 2022, we terminated a significant franchisee in the United Kingdom, resulting in a charge of $0.9 million related to lease impairment.

Net Interest Expense

Net interest expense increased $2.4 million, or 66.7%, and $3.0 million, or 41.8% for three and six months ended June 26, 2022, respectively due to higher average outstanding debt on our revolving credit facility.

Total debt outstanding was $545 million and $490 million as of June 26, 2022 and December 26, 2021, respectively.

Income Before Income Taxes

For the reasons discussed above, income before income taxes decreased approximately $8.2 million, or 19.9%, and $41.2 million, or 48.9%, for the three and six months ended June 26, 2022, respectively, over the prior year comparable periods.

Net interest expense increased $3.6 million, or 91.6%, and $6.7 million, or 59.4% for three and nine months ended September 25, 2022, respectively due to higher average outstanding debt on our revolving credit facility.

Total debt outstanding was $557.0 million and $490.0 million as of September 25, 2022 and December 26, 2021, respectively.

Income Tax Expense

Our effective income tax rates were 21.6% and 13.6% for three and six months ended June 26, 2022 compared to 18.0% and 18.2% for the prior year comparable periods.

The decrease in the effective rate for the six months ended June 26, 2022 was caused by higher excess tax benefits generated by stock option exercises and vesting of restricted shares in addition to an overall decrease in pre-tax income.

Quarter Ended Six Months Ended

June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

Our effective income tax rates were 28.5% and 16.8% for three and nine months ended September 25, 2022, respectively, compared to 11.7% and 16.3% for the prior year comparable periods.

The increase in the effective rate for the three months ended September 25, 2022 was caused by a reduction in foreign tax credits, a shift in income between jurisdictions and an overall decrease in pre-tax income.

A federal return to provision true-up was recorded in the third quarter of 2021 which positively impacted the effective tax rate in the three and nine months periods ended September 25, 2021.

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

2 unchanged sentences

Diluted Earnings (Loss) Per Common Share

Diluted earnings per common share was $0.70 for the three months ended June 26, 2022, compared to diluted loss per common share of $(2.30) in the prior year comparable period.

For the six months ended June 26, 2022, diluted earnings per common share was $0.99, compared to diluted loss per common share of $(1.47) for the prior year comparable period.

Excluding the impact of Special items, adjusted diluted earnings per common share were $0.74 and $1.69 for the three and six months ended June 26, 2022, respectively, compared to adjusted diluted earnings per common share of $0.93 and $1.94 for the prior year comparable periods.

Diluted earnings per common share for the six months ended June 26, 2022 included Special items of $25.0 million, net of tax, primarily related to refranchising losses associated with the divestiture of our controlling interest in the joint venture with Blue and Silver Ventures, impairment losses of certain loans and reacquired franchised rights, and the Legal Settlement.

Diluted earnings per common share for the six months ended June 27, 2021 included Special items of $115.4 million, net of tax, primarily due to reorganization costs and the reduction in net income attributable to common shareholders related to the repurchase and conversion of all shares of the Company's former Series B Convertible Preferred Stock ("Series B Preferred Stock") in May 2021.

These reductions reflect the excess of the one-time cash payment over the carrying value of the Series B Preferred Stock.

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 and $2.23 for the three and nine months ended September 25, 2022, respectively, compared to adjusted diluted earnings per common share of $0.83 and $2.76 for the prior year comparable periods.

Diluted earnings per common share for the nine months ended September 25, 2022 included Special items 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.

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 three and six months ended June 26, 2022, there have been and may continue to be increases in food costs and labor costs which have and could further impact our profitability.

Inflationary factors such as 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 sustained 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.

Non-GAAP Measures” for additional information on Special items.

Items Impacting Comparability;

3 unchanged sentences

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 Six Months Ended

(In thousands, except per share amounts) June 26,

2022 June 27,

2021 June 26,

2022 June 27,

Three Months Ended Nine Months Ended

(In thousands, except per share amounts) September 25,

2022 September 26,

2021 September 25,

2022 September 26,

GAAP operating income $ 19,461 $ 38,577 $ 72,800 $ 130,076

Refranchising and impairment loss (1) — — 25,796 —

Legal settlement (2)

Strategic corporate reorganization costs (3)

Refranchising and impairment losses (a)

905 — 26,701 —

Other costs (4) 1,507 — 1,507 —

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)

Adjusted operating income $ 33,593 $ 40,730 $ 119,235 $ 139,440

GAAP net income attributable to common shareholders $ 25,240 $ (79,898) $ 35,693 $ (49,542)

Refranchising and impairment loss (1)

Legal settlement (2)

Strategic corporate reorganization costs (3)

GAAP net income (loss) attributable to common shareholders $ 8,245 $ 28,961 $ 43,996 $ (20,423)

Refranchising and impairment losses (a)

905 — 26,701 —

Other costs (4) 1,507 — 1,507 —

Repurchase and conversion of Series B Preferred Stock — 109,852 — 109,852

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

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)

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 per common share $ 0.70 $ (2.30) $ 0.99 $ (1.47)

Refranchising and impairment loss (1)

Legal settlement (2)

Strategic corporate reorganization costs (3)

GAAP diluted earnings (loss) per common share $ 0.23 $ 0.79 $ 1.22 $ (0.59)

Refranchising and impairment losses (a)

0.03 — 0.75 —

Other costs (4) 0.05 — 0.04 —

Repurchase and conversion of Series B Preferred Stock — 3.15 — 3.23

Tax effect of Non-GAAP adjustment on special items (5)

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)

Repurchase and conversion of Series B Preferred Stock (f)

Tax effect of Non-GAAP adjustments on special items (g)

(0.09) (0.01) (0.29) (0.06)

Adjusted diluted earnings per common share $ 0.54 $ 0.83 $ 2.23 $ 2.76

(Note) The above table does not 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 controlling interest in the 90-restaurant joint venture, recorded as Refranchising and impairment loss;

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

(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.

(4) Other costs of $1.5 million for the second quarter of 2022 include advisory fees and severance costs associated with the transition of certain executives.

(5) The tax effect for Special items was calculated by applying the marginal tax rate of 22.5% and 22.4% for the three and six months ended June 26, 2022 and June 27, 2021, respectively.

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

(a) The following refranchising and impairment adjustments are included on a pre-tax basis:

Three Months Ended Nine Months Ended

(In thousands) September 25,

2022 September 26,

2021 September 25,

2022 September 26,

Refranchising impairment loss (1)

$ — $ — $ 8,412 $ —

Ukraine-related charge (2)

PJUK lease impairment (3)

Total adjustment $ 905 $ — $ 26,702 $ —

(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;

(2) A charge of $17.4 million ($0.48 loss per diluted share) was recorded 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;

(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) Represents an accrual of certain legal settlements, recorded in General and administrative expenses.

See "Note 9" for further information.

(c) 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 and severance costs associated with the transition of certain executives.

(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 was calculated by applying the marginal tax rate of 22.5% and 22.4% for the three and nine months ended September 25, 2022 and September 26, 2021, respectively.

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.

1 unchanged sentence

In addition, management uses these metrics to evaluate the Company’s underlying operating performance and to analyze trends.

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 GAAP

Liquidity and Capital Resources

The table below summarizes our cash flows from continuing operations for the six months ended June 26, 2022 and June 27, 2021:

Six Months Ended

2022 June 27,

The table below summarizes our cash flows from continuing operations for the nine months ended September 25, 2022 and September 26, 2021:

Nine Months Ended

September 25,

2022 September 26,

Total cash provided by (used in):

4 unchanged sentences

Operating Activities

Cash flow provided by operating activities was $45.6 million for the six months ended June 26, 2022 compared to $128.0 million for the corresponding period of 2021.

The decrease of $82.4 million was primarily reflects lower cash flow from operating activities as a result of overall business performance, lower accrued expenses, and the impact of timing of certain marketing payments.

Cash provided by operating activities was $76.6 million for the nine months ended September 25, 2022 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 flow used in investing activities was $12.5 million for the six months ended June 26, 2022 compared to $19.5 million for the same period in 2021, or a decrease of $6.9 million.

The decrease in cash flow used in investing activities was primarily due to an increase in capital expenditures, partly offset by $14.0 million in proceeds, net of transaction costs, from the impact of refranchising 90-restaurants in the first quarter of 2022.

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, or a decrease of $11.0 million.

The decrease in cash used in investing activities was primarily due to a larger net repayment of notes and $13.6 million in proceeds, net of transaction costs, from the impact of refranchising 90-restaurants in the first quarter of 2022, partially offset by 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.

1 unchanged sentence

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 senior secured revolving credit facility with an aggregate available principal amount of the $600 million (the "PJI Revolving Facility"), as necessary.

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 Revolving Facility"), as necessary.

Financing Activities

Cash flow used in financing activities was $50.7 million the six months ended June 26, 2022 compared to $142.9 million for the same period of 2021.

The decrease of $92.2 million in cash flow used in financing activities reflects payment of cash consideration for the repurchase and conversion of all of the Company’s Series B Preferred Stock outstanding in 2021, offset by increased repurchases of Company common stock and a decrease in proceeds from our revolving credit facility.

Our outstanding debt as of June 26, 2022 was $545.0 million, which was comprised of $400.0 million outstanding under our 3.875% senior notes (the "Notes") and $145.0 million under the PJI Revolving Facility.

Remaining availability under the PJI Revolving Facility was approximately $455.0 million as of June 26, 2022.

Our amended and restated credit agreement, dated September 14, 2021 (the "Amended Credit Agreement") contains 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 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 June 26, 2022

Cash used in financing activities was $79.2 million for the nine months ended September 25, 2022 compared to $177.1 million for the same period of 2021, a decrease of $97.8 million in cash used in financing activities.

The nine months ended September 25, 2022 includes outflows of $95.0 million in share repurchases, and $40.0 million of common dividends paid 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.

Our outstanding debt as of September 25, 2022 was $557.0 million, which was comprised of $400.0 million outstanding under our 3.875% senior notes (the "Notes") and $157.0 million outstanding under the PJI Revolving Facility.

Remaining availability under the PJI Revolving Facility was approximately $443.0 million as of September 25, 2022.

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 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.

Leverage ratio Not to exceed 5.25 to 1.0 2.4 to 1.0

2 unchanged sentences

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 June 26, 2022.

We were in compliance with all financial covenants as of September 25, 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:

10 unchanged sentences

Bank National Association, as lender.

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

There was no debt outstanding under the PJMF Revolving Facility as of September 25, 2022 or December 26, 2021.

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

3 unchanged sentences

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 six months ended June 26, 2022 and June 27, 2021:

The following table summarizes our repurchase activity under these programs for the three and nine months ended September 25, 2022 and September 26, 2021:

(in thousands, except average price per share) Total

7 unchanged sentences

Three Months Ended

June 26, 2022 452 $ 94.56 $ 42,762 $ 349,329

June 27, 2021 68 $ 101.21 $ 6,921 $ 64,110

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

6 unchanged sentences

Plans or Programs

Six Months Ended

June 26, 2022 753 $ 100.23 $ 75,471 $ 349,329

June 27, 2021 83 $ 98.23 $ 8,188 $ 64,110

Subsequent to June 26, 2022, we acquired an additional 229,000 shares at an aggregate cost of $19.5 million.

Approximately $329.8 million re mained available under the Company’s share repurchase program as of July 29, 2022.

Nine Months Ended

September 25, 2022 982 $ 96.71 $ 95,000 $ 329,800

September 26, 2021 187 $ 110.00 $ 20,555 $ 51,743

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 $25.1 million ($0.70 per share) for the six months ended June 26, 2022.

On August 2, 2022, our Board of Directors declared a second quarter dividend of $0.42 per common share (approximately $14.9 million in the aggregate), which will be paid on August 26, 2022 to stockholders of record as of the close of business on August 15, 2022.

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

The Company recorded dividends of approximately $39.9 million ($1.12 per share) for the nine months ended September 25, 2022.

O n October 27, 2022, our Board of Directors declared a fourth quarter dividend of $0.42 per common share (approximately $14.9 million in the aggregate), which will be paid on November 25, 2022 to stockholders of record as of the close of business on November 14, 2022 The declaration and payment of any future dividends will be at the discretion of our Board of Directors.

Free Cash Flow

3 unchanged sentences

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.

See “Items Impacting Comparability;

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

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

Six Months Ended

2022 June 27,

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

Nine Months Ended

September 25,

2022 September 26,

Net cash provided by operating activities $ 76,553 $ 193,624

9 unchanged sentences

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.

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 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, unit growth, unit level performance, capital expenditures, restaurant and franchise development, the duration of changes in consumer behavior caused by the pandemic, labor shortages and price increases, inflation, royalty relief, franchisee support, 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.

Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements.

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:

4 unchanged sentences

• 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;

17 unchanged sentences

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 26, 2021 and “Part II.

– Risk Factors” in our Quarterly Report on Form 10-Q for the quarter end March 27, 2022, as well as subsequent filings.

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

– Risk Factors” in our Quarterly Report on Form 10-Q for the quarter end March 27, 2022, and 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