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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 280 added, 361 removed, 141 unchanged (82% of the section changed)

1 unchanged sentence

Papa John’s International, Inc.

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

As of 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.

(referred to as the “Company,” “Papa John’s,” “Papa Johns” or in the first-person notations of “we,” “us” and “our”) operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and delivery restaurants under the trademark “Papa John’s.” Papa John’s began operations in 1984.

As of March 26, 2023, there were 5,733 Papa John’s restaurants in operation, consisting of 520 Company-owned and 5,213 franchised restaurants operating in 48 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.

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 (“UK”), contributions received by Papa John’s Marketing Fund (“PJMF”) which is our national marketing fund, printing and promotional items and information systems equipment, and software and related services.

We believe that in addition to supporting both Company and franchised profitability and growth, these activities contribute to product quality and consistency throughout the Papa John’s system.

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

Recent Developments and Trends

The Company has focused on executing strategic priorities and building a foundation for long-term success, while navigating a challenging macroeconomic environment.

Our progress and significant transactions during the first quarter of 2023 are described below.

Growth Strategy .

The Company delivered its fifteenth consecutive quarter of Global system-wide restaurant sales growth and continues to expand both domestically and internationally.

This growth will be fueled by continued product innovation and our development strategy.

Our expanding development pipeline is a key long-term growth driver as we believe there is significant opportunity to offer our differentiated, premium position to more customers globally and domestically.

In the first quarter of 2023, we opened 27 net new restaurants, for global unit growth of 0.5%.

We expect this growth to accelerate in 2023 with global development to be between 270 to 310 net new units.

Our view of our long-term unit opportunity, both domestically and internationally, continues to expand as we sign significant deals to develop within key areas.

In April 2023, we announced our future expansion into India through a development agreement to open 650 new restaurants in India by 2033.

In 2022, we announced that we expect 1,400 to 1,800 net new Papa Johns restaurants worldwide from 2022 through the end of 2025.

We plan to continue focusing on our strategic innovative products and restaurant development across our platforms to drive sustainable growth this year and beyond.

Operational Initiatives.

We launched the “Back to BETTER” initiative in late 2022, which focuses on improving operational execution at the store level in order to drive better financial performance.

We have aligned the organization on improving out the door times, overall customer satisfaction, increasing orders and optimization.

Running BETTER operations is intended to increase customer and employee satisfaction, as well as drive customer loyalty.

We are seeing improvement in our restaurant level operating margins, and we experienced a 3.4% increase in comparable sales for Domestic Company-owned restaurants in the first quarter of 2023.

We expect this initiative to continue throughout 2023.

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.

We currently expect our 2022 global development outlook to be between 240 and 260 net new restaurants.

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 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.

We will continue to invest capital in technology innovations that can make our teams more productive.

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.

“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.

Global system-wide restaurant sales and global system-wide sales growth exclude franchisees for which we suspended corporate support.

Macroeconomic conditions in the UK, the largest region in our International segment, continue to present challenges in light of ongoing inflation and rising interest rates.

Against this backdrop, the Company and franchisees have experienced declines in sales and profitability in the UK market.

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

As we navigate this challenging economic environment, we are investing in capabilities to improve our operations and are working to reposition the franchise base to further strengthen our UK business.

In addition to the targeted marketing support announced in February, we continue to innovate and implement capabilities and strategies from the US for the UK market.

Also, as our franchise base is repositioned in a way that ensures our franchisees and this market are aligned to drive long-term growth, strategic store closures and refranchising will likely occur.

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.

During the first quarter of 2023, the Company repurchased 2.5 million shares of common stock for $209.6 million pursuant to its share repurchase program.

Included in these repurchases were approximately 2.2 million shares repurchased from certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”) on March 1, 2023, at $82.52 per share, for a total aggregate consideration of $179.6 million.

The transaction was negotiated by an independent committee of the Board of Directors formed for the purpose of evaluating a possible transaction involving Starboard, and was approved by the full Board upon such independent committee’s recommendation.

Starboard’s Chief Executive Officer is Jeffrey Smith, who previously served as the Company’s Chairman of the Board until his resignation on March 1, 2023.

The repurchase was funded with cash on hand and funds drawn under the Company’s PJI Revolving Facility.

Following the repurchases, the Company has $90.2 million available under its existing share repurchase authorization as of March 26, 2023.

Global Restaurant Sales and Unit Information

“Comparable sales” represents sales for the same base of restaurants for the same fiscal periods.

“Comparable sales growth (decline)” represents the change in year-over-year comparable sales.

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

Comparable sales, Comparable sales growth (decline), Global system-wide restaurant sales and Global system-wide sales growth (decline) exclude franchisees for which we suspended corporate support.

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

For the nine months ended September 25, 2022, comparable sales growth and system-wide restaurant sales growth for 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.

We believe Domestic Company-owned, North America franchised, and International Comparable sales growth (decline) and Global system-wide restaurant sales information is useful in analyzing our results since our franchisees pay royalties and marketing fund contributions that are based on a percentage of franchise sales.

Comparable sales and Global system-wide restaurant sales results for restaurants operating outside of the United States are reported on a constant dollar basis, which excludes the impact of foreign currency translation.

Franchise sales also generate commissary revenue in the United States and in certain international markets.

Franchise restaurant and comparable sales growth information is also useful for comparison to industry trends and evaluating the strength of our brand.

Management believes the presentation of franchise restaurant sales growth, excluding the impact of foreign currency, provides investors with useful information regarding underlying sales trends and the impact of new unit growth without being impacted by swings in the external factor of foreign currency.

Comparable sales growth (decline) and Global system-wide restaurant sales information is also useful for comparison to industry trends and evaluating the strength of our brand.

Management believes the presentation of Global system-wide restaurant sales growth, excluding the impact of foreign currency, provides investors with useful information regarding underlying sales trends and the impact of new unit growth without being impacted by swings in the external factor of foreign currency.

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

Three Months Ended Nine Months Ended

September 25,

2022 September 26,

2021 September 25,

2022 September 26,

Comparable sales (decline) growth:

Three Months Ended

Amounts below exclude the impact of foreign currency March 26,

2023 March 27,

Comparable sales growth (decline):

Domestic Company-owned restaurants 3.4% (1.2)%

2 unchanged sentences

International restaurants (5.8)% 0.8%

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

Total comparable sales growth (decline) (1.3)% 1.6%

System-wide restaurant sales growth (decline):

(excluding the impact of foreign currency)

Domestic Company-owned restaurants 4.9% 0.8%

1 unchanged sentence

North America restaurants 1.6% 3.3%

International restaurants (0.4)% 21.4% 5.3% 28.2%

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

Restaurant Progression Three Months Ended Nine Months Ended

September 25,

2022 September 26,

2021 September 25,

2022 September 26,

International restaurants (a)

Total global system-wide restaurant sales growth (decline) 2.0% 5.3%

_______________________________

(a) The three months ended March 26, 2023 excludes the impact of franchisee suspended restaurants

Restaurant Progression Three Months Ended

2023 March 27,

North America Company-owned:

Beginning of period 522 600

Opened 1 2 9 2

Acquired 1 — 2 1

Refranchised — — (90) —

End of period 520 608

1 unchanged sentence

Beginning of period 2,854 2,739

Opened 17 21 49 57

Closed (6) (7)

Refranchised — — 90 —

Sold (1) — (2) (1)

End of period 2,864 2,746

1 unchanged sentence

Beginning of period 2,330 2,311

Opened 48 71 175 210

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

Suspended (b)

Closed (24) (8)

Suspended (a)

End of period 2,349 2,170

Total restaurants – end of period 5,733 5,524

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.

Trailing four quarters net store growth (b)

___________________________________

(a) As previously disclosed, the Company has suspended corporate support for all franchised restaurants located in Russia.

These suspended restaurants are excluded from net unit growth calculations.

(b) Excludes suspended restaurants.

Results of Operations

The following table sets forth the various components of our Condensed Consolidated Statements of Operations expressed as a percentage of total revenues, except operating costs which are expressed as a percentage of the associated revenue component.

The following table sets forth the various components of Revenues from the Condensed Consolidated Statements of Operations.

Three Months Ended

September 25, 2022 September 26, 2021

($ in thousands) % of Related

Revenues % of Related

Revenues Increase

(Dollars in thousands) March 26,

2023 March 27,

2022 Increase

Domestic Company-owned restaurant sales $ 179,866 $ 198,765 (9.5) %

4 unchanged sentences

Total revenues $ 527,049 $ 542,692 (2.9) %

For the three months ended March 26, 2023, the discussion of changes in revenues below for Domestic Company-owned restaurants and North America franchised restaurants include explanations of the impact to the comparable results of the

refranchising of 90 restaurants during the second quarter of 2022 (the “2022 refranchising”).

See “Note 10.

Divestitures” of the “Notes to Condensed Consolidated Financial Statements” for additional information.

Total revenues decreased $15.6 million or 2.9% to $527.0 million for the three months ended March 26, 2023, as compared to the prior year period.

Excluding the impact of the 2022 refranchising, total revenues increased $2.2 million, or 0.4%, for the three months ended March 26, 2023.

Domestic Company-owned restaurant sales decreased $18.9 million, or 9.5% for the three months ended March 26, 2023, compared to the prior year period.

Excluding the impact of the 2022 refranchising, Domestic Company-owned restaurant sales increased $8.4 million, or 4.9%, for the three months ended March 26, 2023, primarily due to comparable sales of 3.4% and an increase in equivalent units of 1.2 % .

North America franchise royalties and fees increased $1.8 million, or 5.3% for the three months ended March 26, 2023, compared to prior year period.

Excluding the impact of the 2022 refranchising, North America franchise royalties and fees increased $0.4 million, or 1.3%, for the three months ended March 26, 2023, primarily due to an increase in equivalent units of 1.4%, partially offset by negative comparable sales of 0.8%.

North America franchise restaurant sales, excluding the impact of the 2022 refranchising, increased 0.6% to $771.4 million for the three months ended March 26, 2023, compared to the prior year 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 $2.9 million, or 1.4% for the three months ended March 26, 2023, compared to the prior year period.

Excluding the impact of the 2022 refranchising, North America commissary decreased $5.2 million primarily due to lower volumes, partially offset by increased prices in line with rising commodity prices driven by inflation.

International revenues decreased $3.2 million, or 9.1% for the three months ended March 26, 2023, compared to the prior year period, primarily due to lower UK royalties and commissary revenues.

The overall declines in our International revenue performance were largely attributable to lower comparable sales of 5.8% for the three months ended March 26, 2023, related to inflationary pressures in the UK market.

International franchise restaurant sales decreased to $293.5 million for the three months ended March 26, 2023, compared to $321.7 million for the prior year period.

Excluding the impact of previously disclosed suspended restaurants and foreign currency fluctuations, International franchise restaurant sales increased 3.3% for the three months ended March 26, 2023.

International franchise restaurant sales are not included in Company revenues;

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

Other revenues, which primarily includes our national marketing funds, online and mobile ordering business and our wholly-owned print and promotions subsidiary, increased $1.7 million, or 2.6%, for the three months ended March 26, 2023, compared to the prior year period primarily due to higher revenues from our technology services from point of sale hardware sales and higher equivalent units.

Costs and Expenses

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

Domestic Company-owned restaurant expenses 138,299 83.3% 155,477 81.2% 2.1%

North America commissary expenses 203,129 94.0% 175,399 92.7% 1.3%

International expenses 18,196 59.2% 21,743 56.6% 2.6%

Other expenses 59,249 92.7% 56,039 90.9% 1.8%

General and administrative expenses 57,935 11.3% 54,070 10.5% 0.8%

Depreciation and amortization 13,338 2.6% 11,477 2.2% 0.4%

Total costs and expenses 490,146 96.0% 474,205 92.5% 3.5%

Refranchising and impairment loss (905) (0.2) % — — % (0.2) %

Operating income 19,461 3.8% 38,577 7.5% (3.7)%

Net interest expense (7,623) (1.5) % (3,979) (0.8) % (0.7) %

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

Nine months ended

September 25, 2022 September 26, 2021

($ in thousands) % of Related

Revenues % of Related

Revenues Increase

Domestic Company-owned restaurant sales $ 536,226 $ 584,942 (8.3) %

North America franchise royalties and fees 102,897 97,123 5.9 %

North America commissary revenues 645,177 560,743 15.1 %

International revenues 97,310 110,629 (12.0) %

Other revenues 194,259 186,099 4.4 %

Total revenues 1,575,869 1,539,536 2.4 %

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

(Dollars in thousands) Three Months Ended

March 26, 2023 % of Related

Revenues March 27, 2022 % of Related

Revenues Increase (Decrease) in % of Revenues

Costs and expenses:

9 unchanged sentences

Operating income $ 37,796 7.2 % $ 14,435 2.7 % 4.5 %

Net interest expense (17,967) (1.1) % (11,275) (0.7) % (0.4) %

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

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 $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 $2.3 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 $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 $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 $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

Total costs and expenses were $489.3 million or 92.8% of total revenues for the three months ended March 26, 2023 , as compared to $517.1 million, or 95.3% of total revenues for the prior year period.

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

Domestic Company-owned restaurant expenses were $147.8 million or 82.2% of related revenues for the three months ended March 26, 2023, compared to expenses of $161.7 million or 81.3% of related revenues for the prior year period.

The expenses, as a percentage of revenues, increased 0.9% primarily due to increases in certain commodity, labor, and utility expenses.

North America commissary expenses were $196.4 million, or 92.4% of related revenues for the three months ended March 26, 2023, compared to $197.1 million or 94.0% of related revenues for the prior year period.

The expenses, as a percentage of related revenues, decreased 1.6% primarily due to pricing adjustments stemming from higher commodity pricing driven by inflation, principally paper, dough and desserts.

International expenses were $17.3 million, or 55.0% of related revenues for the three months ended March 26, 2023, compared to $19.9 million, or 57.5% of related revenues for the prior year period.

The expenses as a percentage of related revenues, decreased 2.5%, primarily due to pricing adjustments stemming from higher commodity pricing driven by inflation, principally paper, dough and desserts.

Other expenses were $61.1 million, or 91.0% of related revenues for the three months ended March 26, 2023, compared to $60.6 million, or 92.6% of related revenues for the prior year period.

The expenses as a percentage of related revenues, decreased 1.6% primarily due to timing of expenditures on technology platform initiatives to further enhance our digital capabilities and the customer experience.

General and Administrative Expenses General and administrative (“G&A”) expenses were $51.9 million, or 9.9% of revenues for the three months ended March 26, 2023, compared to $65.9 million, or 12.1% of revenues for the prior year periods.

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

Three Months Ended

March 26, 2023 March 27, 2022

Administrative expenses (a)

$ 51,192 $ 46,090

Special items (b, c)

13,227 2,153 34,370 9,364

Legal settlement accruals (b)

Additional specific accounts receivable and notes receivable provisions (c)

Executive severance costs (d)

Other general expenses

General and administrative expenses $ 51,944 $ 65,937

(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.

___________________________________

(a) For the three months ended March 26, 2023, Administrative expenses increased $5.1 million, primarily due to higher labor and incentive compensation costs.

(b) Represents expenses related to certain legal settlements.

Litigation, Commitments and Contingencies” to our “Notes to Condensed Consolidated Financial Statements” for additional information.

(c) Represents a one-time, non-cash provision of $14.6 million on accounts receivable and notes receivable in connection with the conflict in Ukraine and related government actions in the first quarter of 2022.

(d) Represents severance and related costs associated with the transition of certain executives.

Depreciation and Amortization Depreciation and amortization expense was $14.7 million, or 2.8% of revenues for the three months ended March 26, 2023, compared to $11.9 million, or 2.2% of revenues, for the prior year period.

The increase was primarily due to higher depreciation expense related to our investments in technology support initiatives.

Refranchising and Impairment Loss

There was no Refranchising and impairment loss during the three months ended March 26, 2023.

Refranchising and impairment loss was $11.2 million for the three months ended March 27, 2022, consisting of an $8.4 million loss on the 2022 refranchising and an impairment loss of $2.8 million for reacquired franchise rights due to the financial and operational impact of the conflict in Ukraine and government actions taken in response to that conflict.

See “Note 10.

Divestitures” of “Notes to Condensed Consolidated Financial Statements” for additional information on these items.

Operating Income by Segment

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

The following table summarizes Operating income on a reporting segment basis.

Along with reported Operating Income, “Adjusted” Operating income, which excludes Special items, has been presented.

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

Non-GAAP Measures.” We believe this non-GAAP measure is important for comparability purposes.

Three Months Ended

(In thousands) Reported

25, 2022 Special

in 2022 (a) Adjusted

25, 2022 Reported

26, 2021 Special

in 2021 (b) Adjusted

26, 2021 Adjusted

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

North America franchising 31,464 — 31,464 29,830 — 29,830 1,634

North America commissaries 8,425 — 8,425 9,598 — 9,598 (1,173)

International 1,136 4,132 5,268 9,618 — 9,618 (4,350)

All others 2,037 — 2,037 3,848 — 3,848 (1,811)

Unallocated corporate expenses (27,684) 10,000 (17,684) (23,158) 2,153 (21,005) 3,321

Elimination of intersegment losses (profits) 416 — 416 (639) — (639) 1,055

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

(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

25, 2022 Special

in 2022 (a) Adjusted

25, 2022 Reported

26, 2021 Special

in 2021 (b) Adjusted

26, 2021 Adjusted

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

Adjusted operating income, a non-GAAP measure, is also presented below.

See “Non-GAAP Measures” for a reconciliation to the most comparable U.S.

GAAP measure.

We believe this non-GAAP measure is important for comparability purposes.

Three Months Ended March 26, 2023 Three Months Ended March 27, 2022

(In thousands) Reported (a) Adjustments

Adjusted Reported (a) Adjustments

Adjusted Reported Increase (Decrease) Adjusted

Domestic Company-owned restaurants $ 6,650 $ — $ 6,650 $ 1,989 $ 8,412 $ 10,401 $ 4,661 $ (3,751)

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Unallocated corporate expenses (23,366) 1,356 (22,010) (37,111) 18,869 (18,242) 13,745 (3,768)

Elimination of intersegment losses (profits) (423) — (423) (557) — (557) 134

Elimination of intersegment (profits) (7) — (7) (88) — (88) 81 81

Total $ 37,796 $ 1,356 $ 39,152 $ 14,435 $ 30,796 $ 45,231 $ 23,361 $ (6,079)

(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 $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.

We recorded a one-time, non-cash charge of $8.4 million in the first quarter related to the divestiture.

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.

___________________________________

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

GAAP measure.

Operating income was $37.8 million for the three months ended March 26, 2023 compared to $14.4 million for the prior year period, an increase of $23.4 million.

Adjusted operating income was $39.2 million for the three months ended March 26, 2023 compared to $45.2 million for the prior year period, a decrease of $6.1 million.

The decrease in adjusted operating income in 2023 compared to 2022 was primarily due to the following:

• Domestic Company-owned restaurants decreased $3.8 million for the three months ended March 26, 2023.

Excluding the impact of the 2022 refranchising, Domestic Company-owned restaurants decreased $1.5 million, primarily due to increases in certain commodity, labor, and utility expenses, partially offset by higher revenues from comparable sales growth of 3.4% driven by strategic pricing actions.

• North America franchising increased $1.3 million for the three months ended March 26, 2023.

Excluding the impact of the 2022 refranchising, North America franchising decreased $0.1 million.

The decrease was primarily due to a 0.8% decrease in comparable sales, partially offset by an increase in equivalent units of 1.2%.

• North America commissaries increased $1.4 million for the three months ended March 26, 2023.

Excluding the impact of the 2022 refranchising, North America commissaries increased $1.1 million primarily due to price increases in line with inflation and lower delivery costs, partially offset by lower volumes.

• International decreased $0.7 million for the three months ended March 26, 2023, primarily due to lower UK restaurant and commissary revenues and royalties attributed to lower comparable sales, which declined 5.8% , for the three months ended March 26, 2023.

• All Others, which primarily includes our online and mobile ordering business and our marketing funds, decreased $0.6 million for the three months ended March 26, 2023 compared to the prior year period, primarily due to higher depreciation expense related to our investments in technology support initiatives.

• Unallocated corporate expenses increased $3.8 million for the three months ended March 26, 2023.

The increase is primarily due to higher labor and incentive compensation costs and higher deprecation expense related to our investments in technology support initiatives.

Items Below Operating Income

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

Three Months Ended

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

2023 March 27,

2022 Increase (Decrease)

Operating income $ 37,796 $ 14,435 $ 23,361

Net interest expense (9,021) (4,264) (4,757)

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 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 28,775 10,171 18,604

Income tax expense $ 3,374 $ 4,057 $ 9,212 $ 19,387

Income tax expense (benefit) 6,229 (1,256) 7,485

Net income before attribution to noncontrolling interests 22,546 11,427 11,119

Net income attributable to noncontrolling interests (170) (933) 763

Net income attributable to the Company $ 22,376 $ 10,494 $ 11,882

Calculation of net income for earnings per share:

Net income attributable to the Company $ 22,376 $ 10,494 $ 11,882

Dividends paid to participating securities — (60) 60

Net income attributable to participating securities — — —

Net income attributable to common shareholders $ 22,376 $ 10,434 $ 11,942

Basic earnings per common share $ 0.66 $ 0.29 $ 0.37

Diluted earnings per common share $ 0.65 $ 0.29 $ 0.36

Net Interest Expense

Net interest expense increased $4.8 million, or 111.6% for the three months ended March 26, 2023 due to an increase in the LIBOR rate as well as higher average outstanding debt on the PJI Revolving Facility that was primarily utilized to finance share repurchases.

Total debt outstanding was $813.1 million and $605.0 million as of March 26, 2023 and December 25, 2022, respectively.

Income Tax Expense (Benefit)

Our effective income tax rate was 21.6% for three months ended March 26, 2023, compared to a benefit of 12.3% for the prior year period.

The prior year benefit of 12.3% was caused by higher excess tax benefits generated by stock option exercises and vesting of restricted shares along with a lower pre-tax income.

Three Months Ended

(Dollars in thousands) March 26, 2023 March 27, 2022

Income before income taxes $ 28,775 $ 10,171

Income tax expense (benefit) $ 6,229 $ (1,256)

Effective tax rate 21.6 % (12.3) %

Diluted Earnings (Loss) Per Common Share

Diluted earnings per common share was $0.23 for the three months ended September 25, 2022, compared to $0.79 in the prior year comparable period.

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

Excluding the impact of Special items, adjusted diluted earnings per common share were $0.54 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 on Special items.

Items Impacting Comparability;

Net Income Attributable to Noncontrolling Interests Net income attributable to noncontrolling interests was $0.2 million for the three months ended March 26, 2023, compared with $0.9 million for the prior year period.

The decrease was due to the refranchising of our 51% ownership interest in a 90-restaurant consolidated joint venture in Texas on March 28, 2022.

Diluted Earnings Per Common Share

Diluted earnings per common share was $0.65 for the three months ended March 26, 2023 compared to $0.29 for the prior year period, representing an increase of $0.36.

Adjusted diluted earnings per common share, a non-GAAP measure, was $0.68 for the three months ended March 26, 2023, compared to adjusted diluted earnings per common share of $0.95 for the prior year period, representing a decrease of $0.27.

See “Non-GAAP Measures” for additional information.

Non-GAAP Measures

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

(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

In addition to the results provided in accordance with U.S.

GAAP, we provide certain non-GAAP measures, which present results on an adjusted basis.

These are supplemental measures of performance that are not required by or presented in accordance with U.S.

GAAP and include the following:

adjusted operating income, adjusted net income attributable to common shareholders and adjusted diluted earnings per common share.

We believe that our non-GAAP financial measures enable investors to assess the operating performance of our business relative to our performance based on U.S.

GAAP results and relative to other companies.

We believe that the disclosure of these non-GAAP measures is useful to investors as they reflect metrics that our management team and Board utilize to evaluate our operating performance, allocate resources and administer employee incentive plans.

The most directly comparable U.S.

GAAP measures to adjusted operating income, adjusted net income attributable to common shareholders and adjusted diluted earnings per common share are operating income, net income attributable to common shareholders and diluted earnings per common share, respectively.

These non-GAAP measures should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s U.S.

GAAP results.

The table below reconciles our GAAP financial results to our non-GAAP financial measures.

Three Months Ended

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

2023 March 27,

Operating income $ 37,796 $ 14,435

Refranchising and impairment losses (a)

905 — 26,701 —

Legal settlements (b)

10,000 — 15,000 —

Provision for uncollectible accounts and notes receivable (c)

3,227 — 3,227

Strategic corporate reorganization costs (d)

— 2,153 — 9,364

Other costs (e)

Legal settlement (b)

Other costs (c)

Adjusted operating income $ 39,152 $ 45,231

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

Net income attributable to common shareholders $ 22,376 $ 10,434

Refranchising and impairment losses (a)

905 — 26,701 —

Legal settlements (b)

10,000 — 15,000 —

Provision for uncollectible accounts and notes receivable (c)

3,227 — 3,227 —

Strategic corporate reorganization costs (d)

— 2,153 — 9,364

Other costs (e)

Repurchase and conversion of Series B Preferred Stock (f)

Legal settlement (b)

Other costs (c)

Tax effect of adjustments (d)

(309) (6,929)

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

Adjusted net income attributable to common shareholders (e)

$ 23,423 $ 34,301

Adjusted net income attributable to common shareholders $ 19,197 $ 30,631 $ 79,982 $ 96,695

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

Diluted earnings per common share $ 0.65 $ 0.29

Refranchising and impairment losses (a)

0.03 — 0.75 —

Legal settlements (b)

0.28 — 0.42 —

Provision for uncollectible accounts and notes receivable (c)

Legal settlement (b)

Other costs (c)

Tax effect of adjustments (d)

(0.01) (0.19)

Strategic corporate reorganization costs (d)

Adjusted diluted earnings per common share (e)

$ 0.68 $ 0.95

Other costs (e)

Repurchase and conversion of Series B Preferred Stock (f)

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

___________________________________

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

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,

(a) Refranchising and impairment losses consisted of the following pre-tax adjustments:

Three Months Ended

(In thousands) March 27,

Refranchising impairment loss (1)

$ — $ — $ 8,412 $ —

Ukraine-related charge (2)

PJUK lease impairment (3)

Total adjustment $ 25,796

(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.

Management believes presenting certain financial information excluding Special items is important for purposes of comparison to prior year results.

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

(2) Represents a one-time non-cash charge of $17.4 million ($0.48 loss per diluted share) recorded in the first quarter of 2022 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.

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

Litigation, Commitments and Contingencies” for further information.

(d) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rates of 22.8% and 22.5% for the three-month periods ended March 26, 2023 and March 27, 2022, respectively.

(e) Amounts shown exclude the impact of allocation of undistributed earnings to participating securities.

In addition, we present free cash flow in this report, which is a non-GAAP measure.

Please see “Liquidity and Capital

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

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

Please see “Liquidity and Capital Resources – Free Cash Flow” for a discussion of why we believe free cash flow provides useful information regarding our financial condition and results of operations, and a reconciliation of free cash flow to the most directly comparable U.S.

GAAP measure.

Liquidity and Capital Resources

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,

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under our credit facility.

Our principal uses of cash are operating expenses, capital expenditures, and returning value to our shareholders in the form of cash dividends and share repurchases.

Our capital priorities are:

• investing for growth

• maintaining a strong balance sheet, and

• returning capital to shareholders

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

The table below summarizes our cash flows from continuing operations for the three months ended March 26, 2023 and March 27, 2022 (in thousands):

Three Months Ended

2023 March 27,

Total cash provided by (used in):

2 unchanged sentences

Financing activities (23,212) (6,787)

Change in cash and cash equivalents, excluding the impact of foreign currency $ (32,892) $ (24,625)

Change in cash and cash equivalents, excluding the effect of exchange rate changes on cash and cash equivalents $ (699) $ 10,292

Operating Activities

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.

Total cash provided by operating activities was $40.8 million for the three months ended March 26, 2023 compared to $25.4 million for the corresponding period of 2022.

The increase of $15.4 million primarily reflects favorable working capital changes, principally related to increases in accrued expenses and other current liabilities as well as lower inventory and accounts receivable balances primarily due to lower volumes.

Investing Activities

Cash used in investing activities was $30.2 million for the nine months ended September 25, 2022 compared to $41.2 million for the same period in 2021, 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.

Total cash used in investing activities was $18.3 million for the three months ended March 26, 2023 compared to $8.3 million for the same period in 2022, or an increase of $10.0 million.

The increase in cash 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.

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 2023.

We intend to fund our capital expenditures with cash generated by operations and borrowings under our senior secured revolving credit facility with an aggregate remaining available principal amount of the $443.0 million million (the "PJI Revolving Facility"), as necessary.

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

Financing Activities

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.

Total cash used in financing activities was $23.2 million for the three months ended March 26, 2023 compared to $6.8 million for the same period of 2022, an increase of $16.4 million.

In 2023, cash used for financing activities includes outflows of $209.6 million in share repurchases, and $14.6 million of common stock dividends paid, partially offset by net borrowings of $208.2 million from the PJI Revolving Facility.

In 2022, cash used for financing activities includes outflows of $32.7 million in share repurchases, and $12.6 million of common dividends paid partially offset by net borrowings of $47.0 million from the PJI Revolving Facility.

Our outstanding debt as of March 26, 2023 was $813.1 million, which was comprised of $400.0 million of our 3.875% senior notes (the “Notes”) and $413.1 million outstanding under the PJI Revolving Facility and PJMF Revolving Facility.

Remaining availability under the PJI Revolving Facility was approximately $195.0 million as of March 26, 2023.

Our 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 incurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates.

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

Permitted Ratio Actual Ratio as of March 26, 2023

Leverage ratio Not to exceed 5.25 to 1.0 3.5 to 1.0

Interest coverage ratio Not less than 2.00 to 1.0 3.8 to 1.0

Our leverage ratio is defined as outstanding debt divided by consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the most recent four fiscal quarters.

Our leverage ratio is defined as outstanding debt divided by Consolidated EBITDA (as defined in the Credit Agreement) for the most recent four fiscal quarters.

Our interest coverage ratio is defined as the sum of Consolidated EBITDA and consolidated rental expense for the most recent four fiscal quarters divided by the sum of consolidated interest expense and consolidated rental expense for the most recent four fiscal quarters.

We were in compliance with all financial covenants as of September 25, 2022.

We were in compliance with all financial covenants as of March 26, 2023.

In addition, the Indenture governing the Notes contains customary covenants that, among other things and subject to certain exceptions, limit our ability and the ability of certain of our subsidiaries to:

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and consolidate, merge or sell all or substantially all of our assets.

Papa John’s Marketing Fund, Inc.

(“PJMF”), our national marketing fund, has a $20.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015 with U.S.

The PJMF Revolving Facility consists of a $20.0 million revolving line of credit pursuant to a Revolving Loan Agreement, dated September 30, 2015 with U.S.

Bank National Association, as lender.

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 .

Debt outstanding under the PJMF Revolving Facility was approximately $8.2 million as of March 26, 2023.

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

Debt” of our “Notes to Condensed Consolidated Financial Statements” for additional information.

Share Repurchases

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On October 28, 2021, our Board of Directors approved a share repurchase program with an indefinite duration for up to $425.0 million of the Company’s common stock.

The share repurchase program operated alongside our previous $75.0 million share repurchase authorization, which began on November 4, 2020 and expired on December 26, 2021.

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

(in thousands, except average price per share) Total

Purchased Average

Share Aggregate

Purchased Maximum Dollar

Value of Shares

that May Yet Be

Purchased Under the

Plans or Programs

The following table summarizes our repurchase activity under these programs for the three months ended March 26, 2023 and March 27, 2022:

(In thousands, except average price per share) Total Number of Shares Purchased Average Price Paid per Share Aggregate Cost of Shares Purchased (a)

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

Three Months Ended

September 25, 2022 229 $ 85.15 $ 19,529 $ 329,800

September 26, 2021 104 $ 119.47 $ 12,367 $ 51,743

(in thousands, except average price per share) Total

Purchased Average

Share Aggregate

Purchased Maximum Dollar

Value of Shares

that May Yet Be

Purchased Under the

Plans or Programs

Nine Months Ended

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

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

March 26, 2023 2,523 $ 83.10 $ 209,640 $ 90,160

March 27, 2022 301 $ 108.76 $ 32,709 $ 392,091

(a) The shares repurchased during the three months ended March 26, 2023 included 2,176,928 shares repurchased on March 1, 2023 from Starboard at a price of $82.52 per share for aggregate consideration of $179.6 million.

The Company utilizes a written trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, from time to time to facilitate the repurchase of shares of our common stock under this share repurchase program.

There can be no assurance that we will repurchase shares of our common stock either through a Rule 10b5-1 trading plan or otherwise.

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.

The Company paid aggregate dividends to common stockholders of $14.6 million ($0.42 per share) and $12.6 million ($0.35 per share) for the three months ended March 26, 2023 and March 27, 2022, respectively.

O n April 25, 2023, our Board of Directors declared a second quarter dividend of $0.42 per common share (approximately $13.8 million in the aggregate), which will be paid on May 26, 2023 to stockholders of record as of the close of business on May 15, 2023.

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

Free Cash Flow

Free cash flow, a non-GAAP measure, is defined as net cash provided by operating activities (from the Condensed Consolidated Statements of Cash Flows) less the purchases of property and equipment and dividends paid to preferred stockholders.

Free cash flow, a non-GAAP measure, is defined as net cash provided by operating activities (from the Condensed Consolidated Statements of Cash Flows) less the purchases of property and equipment.

We view free cash flow as an important financial measure because it is one factor that management uses in determining the amount of cash available for discretionary investment.

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Free cash flow should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s GAAP measures.

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

Nine Months Ended

September 25,

2022 September 26,

The Company’s free cash flow was as follows for the three month periods of 2023 and 2022 (in thousands):

Three Months Ended

2023 March 27,

Net cash provided by operating activities $ 40,788 $ 25,394

Purchases of property and equipment (18,410) (10,233)

Dividends paid to preferred stockholders — (6,394)

Free cash flow $ 22,378 $ 15,161

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There have been no material changes in our cash requirements other than in the ordinary course of business since the end of 2022.

Refer to “Cash Requirements” presented within “Item 7.

Refer to “Contractual Obligations” presented within “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2022 for additional information regarding our cash requirements.

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Generally, the use of words such as “expect,” “intend,” “estimate,” “believe,” “anticipate,” “will,” “forecast,” “outlook”, “plan,” “project,” or similar words identify forward-looking statements that we intend to be included within the safe harbor protections provided by the federal securities laws.

Such forward-looking statements include or may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, share repurchases, the current economic environment, the financial impact of the temporary business disruptions and changes in demand we are experiencing related to the current outbreak of the coronavirus pandemic, commodity and labor costs, currency fluctuations, profit margins, 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 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, commodity and labor costs, currency fluctuations, profit margins, net unit growth, unit level performance, capital expenditures, restaurant and franchise development, labor shortages, labor cost increases, inflation, royalty relief, franchisee support, the effectiveness of our menu innovations and other business initiatives, investments in product and digital innovation, marketing efforts and investments, liquidity, compliance with debt covenants, impairments, strategic decisions and actions, dividends, effective tax rates, regulatory changes and impacts, 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:

• 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;

• the ability of the Company to manage challenging macroeconomic conditions in the United States and internationally, including the United Kingdom;

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

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

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• 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;

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

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

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

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

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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, including as a result of supply chain disruption and inflation.

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

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

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

• increased risks associated with our international 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;

• 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;

• risks related to our indebtedness, including increased interest rates, and the current state of the credit markets;

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

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

For a discussion of these 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, 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.

These and other risk factors are discussed in detail in “Part I.

– Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2022, and they may be updated from time to time in our future reports filed with the Securities and Exchange Commission.

We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise, except as required by law.

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