PAPA JOHNS INTERNATIONAL INC 10-Q

Item 1. Financial Statements Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except per share amounts) September 24, 2023 December 25, 2022 (Unaudited) Assets Current assets: Cash and cash equivalents $ 37,492 $ 47,373 Accounts receivable, net 109,697 102,533 Notes receivable, current portion 5,169 6,848 Income tax receivable 1,162 8,780 Inventories 37,666 41,382 Prepaid expenses and other current assets 51,943 44,123 Assets held for sale (a) 3,427 — Total current assets 246,556 251,039 Property and equipment, net 268,087 249,793 Finance lease right-of-use assets, net 34,443 24,941 Operating lease right-of-use assets 166,360 172,425 Notes receivable, less current portion, net 15,016 21,248 Goodwill 76,011 70,616 Other assets 71,092 74,165 Total assets $ 877,565 $ 864,227 Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit Current liabilities: Accounts payable $ 68,020 $ 62,316 Income and other taxes payable 9,738 8,766 Accrued expenses and other current liabilities 153,772 142,535 Current deferred revenue 19,565 21,272 Current finance lease liabilities 9,520 6,850 Current operating lease liabilities 25,935 23,418 Current portion of long-term debt 14,789 — Total current liabilities 301,339 265,157 Deferred revenue 20,699 23,204 Long-term finance lease liabilities 26,305 19,022 Long-term operating lease liabilities 153,506 160,905 Long-term debt, less current portion, net 769,210 597,069 Other long-term liabilities 65,494 68,317 Total liabilities 1,336,553 1,133,674 Redeemable noncontrolling interests 910 1,217 Stockholders’ deficit: Common stock ($ 0.01 par value per share; issued 49,227 at September 24, 2023 and 49,138 at December 25, 2022) 492 491 Additional paid-in capital 447,699 449,829 Accumulated other comprehensive loss ( 7,916 ) ( 10,135 ) Retained earnings 208,132 195,856 Treasury stock ( 16,754 shares at September 24, 2023 and 14,402 shares at December 25, 2022, at cost) ( 1,123,599 ) ( 922,434 ) Total stockholders’ deficit ( 475,192 ) ( 286,393 ) Noncontrolling interests in subsidiaries 15,294 15,729 Total Stockholders’ deficit ( 459,898 ) ( 270,664 ) Total Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit $ 877,565 $ 864,227 (a) Represents vacant land adjacent to the Company’s Louisville office, which was sold on September 29, 2023. See accompanying notes. 1 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended (In thousands, except per share amounts) September 24, 2023 September 25, 2022 September 24, 2023 September 25, 2022 Revenues: Domestic Company-owned restaurant sales $ 177,195 $ 166,050 $ 532,841 $ 536,226 North America franchise royalties and fees 35,041 33,712 105,824 102,897 North America commissary revenues 204,887 216,115 624,433 645,177 International revenues 42,927 30,735 108,998 97,310 Other revenues 62,762 63,900 192,295 194,259 Total revenues 522,812 510,512 1,564,391 1,575,869 Costs and expenses: Operating costs (excluding depreciation and amortization shown separately below): Domestic Company-owned restaurant expenses 145,433 138,299 436,922 441,986 North America commissary expenses 189,551 203,129 576,434 604,689 International expenses 29,796 18,196 67,542 57,346 Other expenses 57,587 59,249 177,661 180,452 General and administrative expenses 52,173 57,935 154,441 168,519 Depreciation and amortization 16,404 13,338 46,815 38,012 Total costs and expenses 490,944 490,146 1,459,815 1,491,004 Refranchising and impairment loss — ( 905 ) — ( 12,065 ) Operating income 31,868 19,461 104,576 72,800 Net interest expense ( 11,378 ) ( 7,623 ) ( 31,674 ) ( 17,967 ) Income before income taxes 20,490 11,838 72,902 54,833 Income tax expense 4,539 3,374 16,546 9,212 Net income before attribution to noncontrolling interests 15,951 8,464 56,356 45,621 Net income attributable to noncontrolling interests ( 90 ) ( 133 ) ( 351 ) ( 1,363 ) Net income attributable to the Company $ 15,861 $ 8,331 $ 56,005 $ 44,258 Calculation of net income for earnings per share: Net income attributable to the Company $ 15,861 $ 8,331 $ 56,005 $ 44,258 Dividends paid to participating securities — ( 86 ) — ( 228 ) Net income attributable to participating securities — — — ( 34 ) Net income attributable to common shareholders $ 15,861 $ 8,245 $ 56,005 $ 43,996 Basic earnings per common share $ 0.49 $ 0.23 $ 1.69 $ 1.23 Diluted earnings per common share $ 0.48 $ 0.23 $ 1.68 $ 1.22 Basic weighted average common shares outstanding 32,564 35,259 33,053 35,602 Diluted weighted average common shares outstanding 32,800 35,448 33,287 35,840 Dividends declared per common share $ 0.46 $ 0.42 $ 1.30 $ 1.12 See accompanying notes. 2 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended Nine Months Ended (In thousands) September 24, 2023 September 25, 2022 September 24, 2023 September 25, 2022 Net income before attribution to noncontrolling interests $ 15,951 $ 8,464 $ 56,356 $ 45,621 Other comprehensive income (loss), before tax: Foreign currency translation adjustments ( 1,854 ) ( 4,849 ) ( 7 ) ( 9,819 ) Interest rate swaps (1) 1,039 1,169 2,889 4,758 Other comprehensive income (loss), before tax ( 815 ) ( 3,680 ) 2,882 ( 5,061 ) Income tax effect: Foreign currency translation adjustments 426 1,114 1 2,258 Interest rate swaps (2) ( 238 ) ( 268 ) ( 664 ) ( 1,094 ) Income tax effect 188 846 ( 663 ) 1,164 Other comprehensive income (loss), net of tax ( 627 ) ( 2,834 ) 2,219 ( 3,897 ) Comprehensive income before attribution to noncontrolling interests 15,324 5,630 58,575 41,724 Less: comprehensive income, redeemable noncontrolling interests ( 30 ) ( 31 ) ( 135 ) ( 559 ) Less: comprehensive income, nonredeemable noncontrolling interests ( 60 ) ( 102 ) ( 216 ) ( 804 ) Comprehensive income attributable to the Company $ 15,234 $ 5,497 $ 58,224 $ 40,361 ___________________________________ (1) Amounts reclassified out of accumulated other comprehensive loss into net interest income (expense) include $ 203 and $( 40 ) for the three and nine months ended September 24, 2023, respectively and $( 1,650 ) and $( 1,850 ) for the three and nine months ended September 25, 2022, respectively. (2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss were $( 46 ) and $ 9 for the three and nine months ended September 24, 2023, respectively and $ 371 and $ 416 for the three and nine months ended September 25, 2022, respectively. See accompanying notes. 3 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited) Papa John’s International, Inc. (In thousands) Common Stock Shares Outstanding Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss (2) Retained Earnings Treasury Stock (3) Noncontrolling Interests in Subsidiaries Total Stockholders’ Deficit For the three months ended September 24, 2023 Balance at June 25, 2023 32,394 $ 492 $ 445,964 $ ( 7,289 ) $ 207,461 $ ( 1,127,669 ) $ 15,562 $ ( 465,479 ) Net income (1) — — — — 15,861 — 60 15,921 Other comprehensive income (loss), net of tax — — — ( 627 ) — — — ( 627 ) Dividends on common stock — — 34 — ( 15,190 ) — — ( 15,156 ) Exercise of stock options 18 — 1,134 — — — — 1,134 Stock-based compensation expense — — 4,726 — — — — 4,726 Issuance of restricted stock 7 — ( 315 ) — — 315 — — Tax effect of restricted stock awards ( 2 ) — ( 171 ) — — — — ( 171 ) Distributions to noncontrolling interests — — — — — — ( 328 ) ( 328 ) Other 56 — ( 3,673 ) — — 3,755 — 82 Balance at September 24, 2023 32,473 $ 492 $ 447,699 $ ( 7,916 ) $ 208,132 $ ( 1,123,599 ) $ 15,294 $ ( 459,898 ) For the nine months ended September 24, 2023 Balance at December 25, 2022 34,736 $ 491 $ 449,829 $ ( 10,135 ) $ 195,856 $ ( 922,434 ) $ 15,729 $ ( 270,664 ) Net income (1) — — — — 56,005 — 216 56,221 Other comprehensive income (loss), net of tax — — — 2,219 — — — 2,219 Dividends on common stock — — 88 — ( 43,729 ) — — ( 43,641 ) Exercise of stock options 35 1 1,816 — — — — 1,817 Acquisition of Company common stock (3) ( 2,523 ) — — — — ( 212,444 ) — ( 212,444 ) Stock-based compensation expense — — 13,224 — — — — 13,224 Issuance of restricted stock 234 — ( 6,857 ) — — 6,857 — — Tax effect of restricted stock awards ( 75 ) — ( 6,279 ) — — — — ( 6,279 ) Distributions to noncontrolling interests — — — — — — ( 651 ) ( 651 ) Other 66 — ( 4,122 ) — — 4,422 — 300 Balance at September 24, 2023 32,473 $ 492 $ 447,699 $ ( 7,916 ) $ 208,132 $ ( 1,123,599 ) $ 15,294 $ ( 459,898 ) (1) Net income to the Company for the three and nine months ended September 24, 2023 excludes $ 30 and $ 135 , respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements. (2) At September 24, 2023, the accumulated other comprehensive loss of $ 7,916 was comprised of net unrealized foreign currency translation loss of $ 8,702 and net unrealized gain on the interest rate swap agreements of $ 786 . (3) Acquisition of Company common stock for the nine months ended September 24, 2023 includes $ 2,804 of transaction costs directly attributable to share repurchases, including a 1% excise tax incurred under the Inflation Reduction Act of 2022. See accompanying notes. 4 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (continued) (Unaudited) Papa John’s International, Inc. (In thousands) Common Stock Shares Outstanding Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss (2) Retained Earnings Treasury Stock Noncontrolling Interests in Subsidiaries Total Stockholders’ Deficit For the three months ended September 25, 2022 Balance at June 26, 2022 35,248 $ 491 $ 442,255 $ ( 11,034 ) $ 193,934 $ ( 875,205 ) $ 15,761 $ ( 233,798 ) Net income (1) — — — — 8,331 — 102 8,433 Other comprehensive income (loss), net of tax — — — ( 2,834 ) — — — ( 2,834 ) Dividends on common stock — — 57 — ( 14,979 ) — — ( 14,922 ) Exercise of stock options 16 — 823 — — — — 823 Acquisition of Company common stock ( 229 ) — — — — ( 19,529 ) — ( 19,529 ) Stock-based compensation expense — — 5,146 — — — — 5,146 Issuance of restricted stock 50 — ( 1,671 ) — — 1,760 — 89 Tax effect of restricted stock awards ( 22 ) — ( 1,900 ) — — — — ( 1,900 ) Distributions to noncontrolling interests — — — — — — ( 216 ) ( 216 ) Other 2 — ( 67 ) — — 156 — 89 Balance at September 25, 2022 35,065 $ 491 $ 444,643 $ ( 13,868 ) $ 187,286 $ ( 892,818 ) $ 15,647 $ ( 258,619 ) For the nine months ended September 25, 2022 Balance at December 26, 2021 35,797 $ 490 $ 445,126 $ ( 9,971 ) $ 183,157 $ ( 806,472 ) $ 15,212 $ ( 172,458 ) Net income (1) — — — — 44,258 — 804 45,062 Other comprehensive income (loss), net of tax — — — ( 3,897 ) — — — ( 3,897 ) Dividends on common stock — — 153 — ( 40,129 ) — — ( 39,976 ) Exercise of stock options 55 1 2,730 — — — — 2,731 Acquisition of Company common stock ( 982 ) — — — — ( 95,000 ) — ( 95,000 ) Stock-based compensation expense — — 14,246 — — — — 14,246 Issuance of restricted stock 279 — ( 8,122 ) — — 8,210 — 88 Tax effect of restricted stock awards ( 92 ) — ( 9,426 ) — — — — ( 9,426 ) Distributions to noncontrolling interests — — — — — — ( 366 ) ( 366 ) Other 8 — ( 64 ) — — 444 ( 3 ) 377 Balance at September 25, 2022 35,065 $ 491 $ 444,643 $ ( 13,868 ) $ 187,286 $ ( 892,818 ) $ 15,647 $ ( 258,619 ) (1) Net income to the Company for the three and nine months ended September 25, 2022 excludes $ 31 and $ 559 , respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements. (2) At September 25, 2022, the accumulated other comprehensive loss of $ 13,868 was comprised of net unrealized foreign currency translation loss of $ 12,430 and net unrealized loss on the interest rate swap agreements of $ 1,438 . See accompanying notes. 5 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended (In thousands) September 24, 2023 September 25, 2022 Operating activities Net income before attribution to noncontrolling interests $ 56,356 $ 45,621 Adjustments to reconcile net income to net cash provided by operating activities: Provision for allowance for credit losses on accounts and notes receivable 1,348 18,576 Depreciation and amortization 46,815 38,012 Refranchising and impairment loss — 12,065 Deferred income taxes 3,481 519 Stock-based compensation expense 13,224 14,246 Other 331 ( 466 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 11,643 ) ( 19,584 ) Income tax receivable 7,617 ( 1,146 ) Inventories 3,875 ( 8,185 ) Prepaid expenses and other current assets ( 2,104 ) 2,065 Other assets and liabilities 2,057 ( 4,919 ) Accounts payable 15,237 16,188 Income and other taxes payable 1,087 ( 1,789 ) Accrued expenses and other current liabilities ( 6,579 ) ( 32,404 ) Deferred revenue ( 4,166 ) ( 2,246 ) Net cash provided by operating activities 126,936 76,553 Investing activities Purchases of property and equipment ( 50,905 ) ( 48,424 ) Notes issued ( 7,310 ) ( 2,248 ) Repayments of notes issued 5,759 8,125 Acquisitions, net of cash acquired ( 5,599 ) ( 1,346 ) Proceeds from refranchising, net of cash transferred — 13,588 Other 401 76 Net cash used in investing activities ( 57,654 ) ( 30,229 ) Financing activities Net proceeds of revolving credit facilities 185,789 66,999 Proceeds from exercise of stock options 1,816 2,730 Acquisition of Company common stock ( 210,348 ) ( 95,000 ) Dividends paid to common stockholders ( 43,641 ) ( 39,949 ) Tax payments for equity award issuances ( 6,279 ) ( 9,426 ) Distributions to noncontrolling interests ( 651 ) ( 1,090 ) Other ( 5,825 ) ( 3,480 ) Net cash used in financing activities ( 79,139 ) ( 79,216 ) Effect of exchange rate changes on cash and cash equivalents ( 24 ) ( 1,100 ) Change in cash and cash equivalents ( 9,881 ) ( 33,992 ) Cash and cash equivalents at beginning of period 47,373 70,610 Cash and cash equivalents at end of period $ 37,492 $ 36,618 See accompanying notes. 6 Papa John’s International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 24, 2023 1. Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP” or “U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 24, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s,” “Papa Johns” or in the first-person notations of “we,” “us” and “our”) for the year ended December 25, 2022. In discussions of our business, “Domestic” is defined as within the contiguous United States, “North America” includes Canada, and “International” includes the rest of the world other than North America. 2. Significant Accounting Policies Principles of Consolidation The accompanying Condensed Consolidated Financial Statements include the accounts of Papa John’s International, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated. Variable Interest Entity Papa John’s domestic restaurants, both Company-owned and franchised, participate in Papa John’s Marketing Fund, Inc. (“PJMF”), a nonstock corporation designed to operate at break-even as it spends all annual contributions received from the system. PJMF collects a percentage of revenues from Company-owned and franchised restaurants in the United States and Canada for the purpose of designing and administering advertising and promotional programs. PJMF is a variable interest entity (“VIE”) that funds its operations with ongoing financial support and contributions from the North America restaurants, of which approximately 85 percent are franchised, and does not have sufficient equity to fund its operations without these ongoing financial contributions. Based on an assessment of the governance structure and operating procedures of PJMF, the Company determined it has the power to control certain significant activities of PJMF, and therefore, is the primary beneficiary. The Company has consolidated PJMF in its financial results in accordance with Accounting Standards Codification (“ASC”) 810, “ Consolidation .” Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant items that are subject to such estimates and assumptions include the allowance for credit losses on accounts and notes receivable, intangible assets, contract assets and contract liabilities including the customer loyalty program obligation, right-of-use assets and lease liabilities, unredeemed gift card liabilities, insurance reserves and tax reserves. Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could significantly differ from these estimates. Noncontrolling Interests Papa John’s has joint venture arrangements in which there are noncontrolling interests held by third parties that includ ed 98 restaurants at September 24, 2023 and September 25, 2022, respectively. As further described in “Note 10. Divestitures” we divested our 51 percent interest in one joint venture in Texas that owned 90 restaurants in the second quarter of 2022. Consolidated net income is required to be reported separately at amounts attributable to both the Company and the noncontrolling interests. 7 Net income attributable to these joint ventures for the three and nine months ended September 24, 2023 and September 25, 2022 was as follows (in thousands): Three Months Ended Nine Months Ended September 24, 2023 September 25, 2022 September 24, 2023 September 25, 2022 Papa John’s International, Inc. $ 196 $ 314 $ 821 $ 2,642 Noncontrolling interests 90 133 351 1,363 Total net income $ 286 $ 447 $ 1,172 $ 4,005 The following summarizes the redemption feature, location and related accounting within the Condensed Consolidated Balance Sheets for these joint venture arrangements: Type of Joint Venture Arrangement Location within the Condensed Consolidated Balance Sheets Recorded Value Joint ventures with no redemption feature Permanent equity Carrying value Joint ventures with option to require the Company to purchase the noncontrolling interest - not currently redeemable or redemption not probable Temporary equity Carrying value Deferred Income Tax Accounts and Tax Reserves We are subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and the related assets and liabilities. The provision for income taxes includes income taxes paid, currently payable or receivable and those deferred. We use an estimated annual effective rate based on expected annual income to determine our quarterly provision for income taxes. The effective income tax rate includes the estimated domestic state effective income tax rate and applicable foreign income tax rates. The effective income tax rate is also impacted by various permanent items and credits, net of any related valuation allowances, and can vary based on changes in estimated annual income. Discrete items are recorded in the quarter in which they occur. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets and liabilities are netted by tax jurisdiction. Deferred tax assets are also recognized for the estimated future effects of tax attribute carryforwards (e.g., net operating losses, capital losses, and foreign tax credits). The effect on deferred taxes due to changes in tax rates is recognized in the period in which the new tax rate is enacted. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. Deferred tax assets and liabilities are recorded within Other assets and Other long-term liabilities on the Condensed Consolidated Balance Sheets. Tax authorities periodically audit the Company. We record reserves and related interest and penalties for identified exposures as income tax expense. We evaluate these issues on a quarterly basis to adjust for events, such as statute of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for such exposures. Fair Value Measurements and Disclosures The Company determines the fair value of financial assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following three categories: • Level 1: Quoted market prices in active markets for identical assets or liabilities. • Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. • Level 3: Unobservable inputs that are not corroborated by market data. Fair value is a market-based measurement, not an entity-specific measurement. Considerable judgment is required to interpret market data to estimate fair value; accordingly, the fair values presented do not necessarily indicate what the Company or its debtholders could realize in a current market exchange. 8 Our financial assets that were measured at fair value on a recurring basis as of September 24, 2023 and December 25, 2022 are as follows: Fair Value Measurements (In thousands) Carrying Value Level 1 Level 2 Level 3 September 24, 2023 Financial assets: Cash surrender value of life insurance policies (a) $ 26,984 $ 26,984 $ — $ — Interest rate swaps (b) $ 785 $ — $ 785 $ — December 25, 2022 Financial assets: Cash surrender value of life insurance policies (a) $ 30,120 $ 30,120 $ — $ — Interest rate swaps (b) $ 986 $ — $ 986 $ — ___________________________________ (a) Represents life insurance policies held in our non-qualified deferred compensation plan. (b) The fair value of our interest rate swaps is based on the sum of all future net present value cash flows. The future cash flows are derived based on the terms of our interest rate swaps, as well as considering published discount factors, and projected Secured Overnight Financing Rates (“SOFR”). Interest rate swaps entered into prior to 2023 were based on London Interbank Offered Rates (“LIBOR”). The fair value of certain assets and liabilities approximates carrying value because of the short-term nature of the accounts, including cash and cash equivalents, accounts receivable, net of allowances, and accounts payable. The carrying value of notes receivable, net of allowances, also approximates fair value. The Company’s revolving credit facilities under the Company’s credit agreement approximate carrying value due to their variable market-based interest rate. The Company’s 3.875 % senior notes are classified as a Level 2 fair value measurement since the Company estimates the fair value by using recent trading transactions, and have the following estimated fair values and carrying values (excluding the impact of unamortized debt issuance costs) as of September 24, 2023 and December 25, 2022: September 24, 2023 December 25, 2022 (In thousands) Carrying Value Fair Value Carrying Value Fair Value 3.875 % Senior Notes $ 400,000 $ 333,000 $ 400,000 $ 339,500 Allowance for Credit Losses Estimates of expected credit losses, even if remote, are based upon historical account write-off trends, facts about the current financial condition of the debtor, forecasts of future operating results based upon current trends of select operating metrics, and macroeconomic factors. Credit quality is monitored through the timing of payments compared to the prescribed payment terms and known facts regarding the financial condition of the franchisee or customer. Account and note balances are charged against the allowance after recovery efforts have ceased. The following table summarizes changes in our allowances for credit losses for accounts receivable and notes receivable: (In thousands) Accounts Receivable Notes Receivable Balance at December 25, 2022 $ 6,718 $ 14,499 Current period provision for expected credit losses, net 1,234 114 Write-offs charged against the allowance ( 1,496 ) ( 147 ) Balance at September 24, 2023 $ 6,456 $ 14,466 9 3. Leases Lessor Operating Leases The Company subleases certain retail space to our franchisees in the United Kingdom (“UK”), which are primarily operating leases. At September 24, 2023, we leased and subleased 340 Papa Johns restaurants to franchisees in the UK. The initial lease terms on the franchised sites in the UK are generally 15 years. The Company has the option to negotiate an extension toward the end of the lease term at the landlord’s discretion. The initial lease terms of the franchisee subleases are generally five to ten years . Rental income, primarily derived from properties leased and subleased to franchisees in the UK, is recognized on a straight-line basis over the respective operating lease terms. The Company recognized total sublease income of $ 2.3 million and $ 8.0 million for the three and nine months ended September 24, 2023, respectively, and $ 3.0 million and $ 9.0 million for the three and nine months ended September 25, 2022, respectively, within Other revenues in the Condensed Consolidated Statements of Operations. Lease Guarantees As a result of assigning our interest in obligations under property leases as a condition of the refranchising of certain restaurants, we are contingently liable for payment of 49 domestic leases. These leases have varying terms, the latest of which expires in 2036. As of September 24, 2023, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was $ 7.7 million. This contingent liability is not included in the Condensed Consolidated Balance Sheets as it is not probable to occur. The fair value of the guarantee is not material. Supplemental Cash Flow & Other Information Supplemental cash flow information related to leases for the periods reported is as follows: Nine Months Ended (In thousands) September 24, 2023 September 25, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 1,128 $ 754 Financing cash flows from finance leases $ 5,975 $ 3,854 Operating cash flows from operating leases (a) $ 28,394 $ 26,771 Right-of-use assets obtained in exchange for new finance lease liabilities $ 16,518 $ 5,980 Right-of-use assets obtained in exchange for new operating lease liabilities $ 17,652 $ 43,639 Cash received from sublease income $ 7,160 $ 8,251 ___________________________________ (a) Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease right-of-use asset amortization and lease liability accretion. 4. Papa John’s Marketing Fund, Inc. PJMF, which is a consolidated VIE where the Company has been identified as the primary beneficiary, collects a percentage of revenues from Company-owned and franchised restaurants in the United States, for the purpose of designing and administering advertising and promotional programs for all participating Domestic restaurants. Contributions and expenditures are reported on a gross basis in the Condensed Consolidated Statements of Operations within Other revenues and Other expenses. PJMF also has a wholly-owned subsidiary, Papa Card, Inc., which administers the Company’s gift card programs. 10 Assets and liabilities of PJMF, which are utilized solely for the Company’s advertising and promotional programs, were as follows in the Condensed Consolidated Balance Sheets (in thousands): September 24, 2023 December 25, 2022 Assets Current assets: Cash and cash equivalents $ 3,963 $ 17,174 Accounts receivable, net 24,274 14,780 Prepaid expenses and other current assets 8,278 1,815 Total current assets 36,515 33,769 Deferred income taxes 655 655 Total assets $ 37,170 $ 34,424 Liabilities Current liabilities: Accounts payable $ 517 $ 12,428 Accrued expenses and other current liabilities 21,762 17,936 Current portion of long-term debt 14,789 — Current deferred revenue 3,451 4,395 Total current liabilities 40,519 34,759 Deferred revenue 1,995 2,503 Total liabilities $ 42,514 $ 37,262 5. Revenue Recognition Contract Balances Our contract liabilities primarily relate to franchise fees, unredeemed gift card liabilities, and loyalty program obligations, which we classify as Deferred revenue on the Condensed Consolidated Balance Sheets. During the three and nine months ended September 24, 2023, the Company recognized $ 8.1 million and $ 24.4 million in revenue, respectively, related to deferred revenue compared to $ 8.0 million and $ 25.6 million for the three and nine months ended September 25, 2022. The following table includes a breakout of contract liability balances (in thousands): Contract Liabilities September 24, 2023 December 25, 2022 Change Franchise fees and unredeemed gift card liabilities $ 27,189 $ 30,710 $ ( 3,521 ) Customer loyalty program obligations 13,075 13,766 ( 691 ) Total contract liabilities $ 40,264 $ 44,476 $ ( 4,212 ) Our contract assets consist primarily of equipment incentives provided to franchisees. Equipment incentives are related to the future value of commissary revenue the Company will receive over the term of the incentive agreement. As of September 24, 2023 and December 25, 2022, the contract assets were approximately $ 6.7 million and $ 6.2 million, respectively. For the three and nine months ended September 24, 2023, revenue was reduced approximately $ 0.9 million and $ 2.7 million, respectively, for the amortization of contract assets over the applicable contract terms. For the three and nine months ended September 25, 2022, revenue was reduced approximately $ 0.8 million and $ 2.7 million, respectively, for the amortization of contract assets over the applicable contract terms. Contract assets are included in Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets. 11 Transaction Price Allocated to the Remaining Performance Obligations The following table (in thousands) includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period. Performance Obligations by Period Less than 1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years Thereafter Total Franchise fees $ 3,015 $ 2,774 $ 2,566 $ 2,308 $ 2,033 $ 5,631 $ 18,327 At September 24, 2023, approximately $ 3.5 million of area development fees related to unopened stores and international unearned royalties are included in Deferred revenue. Timing of revenue recognition is dependent upon the timing of store openings and franchisees’ revenues. Gift card liabilities of approximately $ 5.4 million, included in Deferred revenue, will be recognized in Company-owned restaurant revenues when gift cards are redeemed. The Company will recognize redemption fee revenue in Other revenues when cards are redeemed at franchised restaurant locations. The Company applies the practical expedient in ASC 606, “ Revenue Recognition” and does not disclose information about remaining performance obligations that have original expected durations of one year or less. 6. Common Stock Shares Authorized and Outstanding The Company has authorized 100.0 million shares of common stock as of September 24, 2023 and December 25, 2022. The Company’s outstanding shares of common stock outstanding, net of repurchased shares of common stock held as treasury stock, were 32.5 million shares at September 24, 2023, compared to 34.7 million shares at December 25, 2022. Share Repurchase Program On October 28, 2021, our Board of Directors (the “Board”) approved a share repurchase program with an indefinite duration for up to $ 425.0 million of the Company’s common stock. The following table summarizes our repurchase activity under our share repurchase programs for the three and nine months ended September 24, 2023 and September 25, 2022: (In thousands, except average price per share) Total Number of Shares Purchased Average Price Paid per Share Aggregate Cost of Shares Purchased Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Three Months Ended September 24, 2023 — $ — $ — $ 90,160 September 25, 2022 229 $ 85.15 $ 19,529 $ 329,800 (In thousands, except average price per share) Total Number of Shares Purchased Average Price Paid per Share Aggregate Cost of Shares Purchased (a) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Nine Months Ended September 24, 2023 2,523 $ 83.10 $ 209,640 $ 90,160 September 25, 2022 982 $ 96.71 $ 95,000 $ 329,800 (a) Aggregate cost of shares purchased for the nine months ended September 24, 2023 excludes $ 2.8 million of transaction costs directly attributable to share repurchases, including a 1% excise tax incurred under the Inflation Reduction Act of 2022. Of these costs, $ 2.1 million were classified as non-cash financing activities during the nine months ended September 24, 2023. The shares repurchased during the nine months ended September 24, 2023 included 2,176,928 shares repurchased on March 1, 2023 from certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), at a price of $ 82.52 per share, for aggregate consideration of $ 179.6 million. The transaction was negotiated by an independent committee of the Board of Directors formed for the purpose of evaluating a possible transaction involving Starboard, and was approved by the full Board of Directors upon such independent committee’s recommendation. Starboard’s Chief Executive Officer is Jeffrey Smith, who previously served as the Company’s Chairman of the Board until his resignation on March 1, 2023. 12 The timing and volume of share repurchases under the Company’s share repurchase programs may be executed at the discretion of management on an opportunistic basis, subject to market and business conditions, regulatory requirements and other factors, or pursuant to trading plans or other arrangements. Repurchases under the programs may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate. Repurchases under the Company’s share repurchase programs may be commenced or suspended from time to time at the Company’s discretion without prior notice. Funding for the share repurchase programs will be provided through our credit facility, operating cash flow, stock option exercises and cash and cash equivalents. Dividends The Company paid dividends of approx imately $ 43.6 million ($ 1.30 per share) f or the nine months ended September 24, 2023. On October 24, 2023, our Board of Directors declared a fourth quarter dividend of $ 0.46 per common share (approximately $ 15.1 million in the aggregate), which will be paid on November 24, 2023 to stockholders of record as of the close of business on November 13, 2023. The declaration and payment of any future dividends will be at the discretion of our Board of Directors. 13 7. Earnings per Share We compute earnings per share using the two-class method. The two-class method requires an earnings allocation formula that determines earnings per share for common shareholders and participating security holders according to dividends declared and participating rights in undistributed earnings. Time-based restricted stock awards are participating securities because holders of such shares have non-forfeitable dividend rights and participate in undistributed earnings with common stock. Under the two-class method, total dividends provided to the holders of participating securities and undistributed earnings allocated to participating securities, are subtracted from net income attributable to the Company in determining net income attributable to common shareholders. Basic earnings per common share are computed by dividing net income attributable to common shareholders by the weighted-average common shares outstanding. Diluted earnings per common share are computed by dividing the net income attributable to common shareholders by the diluted weighted average common shares outstanding. Diluted weighted average common shares outstanding consist of basic weighted average common shares outstanding plus weighted average awards outstanding under our equity compensation plans, which are dilutive securities. The calculations of basic and diluted earnings per common share are as follows (in thousands, except per share data): Three Months Ended Nine Months Ended September 24, 2023 September 25, 2022 September 24, 2023 September 25, 2022 Basic earnings per common share Net income attributable to the Company $ 15,861 $ 8,331 $ 56,005 $ 44,258 Dividends paid to participating securities — ( 86 ) — ( 228 ) Net income attributable to participating securities — — — ( 34 ) Net income attributable to common shareholders $ 15,861 $ 8,245 $ 56,005 $ 43,996 Basic weighted average common shares outstanding 32,564 35,259 33,053 35,602 Basic earnings per common share $ 0.49 $ 0.23 $ 1.69 $ 1.23 Diluted earnings per common share Net income attributable to common shareholders $ 15,861 $ 8,245 $ 56,005 $ 43,996 Weighted average common shares outstanding 32,564 35,259 33,053 35,602 Dilutive effect of outstanding equity awards (a) 236 189 234 238 Diluted weighted average common shares outstanding 32,800 35,448 33,287 35,840 Diluted earnings per common share $ 0.48 $ 0.23 $ 1.68 $ 1.22 ___________________________________ (a) Excludes 48,000 and 147,000 shares underlying equity awards for the three and nine months ended September 24, 2023, respectively, and 58,000 and 47,000 shares underlying equity awards for the three and nine months ended September 25, 2022, respectively, as the effect of including such awards would have been anti-dilutive. 14 8. Debt Long-term debt, net, consists of the following (in thousands): September 24, 2023 December 25, 2022 Senior notes $ 400,000 $ 400,000 Revolving facilities (a) 390,789 205,000 Outstanding debt $ 790,789 $ 605,000 Unamortized debt issuance costs ( 6,790 ) ( 7,931 ) Current portion of long-term debt ( 14,789 ) — Total long-term debt, net $ 769,210 $ 597,069 ___________________________________ (a) Revolving facilities as of September 24, 2023 includes $ 14.8 million outstanding under the PJMF Revolving Facility as defined and discussed below. Senior Notes On September 14, 2021, the Company issued $ 400.0 million of 3.875 % senior notes (the “Notes”) which will mature on September 15, 2029. Interest on the Notes is payable semi-annually in cash in arrears on March 15 and September 15 of each year at a fixed interest rate of 3.875 % per annum. Refer to Note 12 of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2022. for further description of the provisions and covenant requirements under the Senior Notes. Credit Agreement The Company’s amended and restated credit agreement, dated September 14, 2021 (the “Credit Agreement”) provides for a senior secured revolving credit facility in an aggregate available principal amount of $ 600.0 million (the “PJI Revolving Facility”), of which up to $ 40.0 million is available as swingline loans and up to $ 80.0 million is available as letters of credit. The PJI Revolving Facility will mature on September 14, 2026. The remaining availability under the PJI Revolving Facility was approximately $ 224.0 million as of September 24, 2023. Refer to Note 12 of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2022 for further description of the provisions and covenant requirements under the Credit Agreement. PJMF Revolving Facility PJMF has a $ 20.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015 with U.S. Bank National Association, as lender. The PJMF Revolving Facility is secured by substantially all assets of PJMF. The PJMF Revolving F acility matures on September 30, 2023, but is subject to annual amendments. The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of a one month SOFR plus 1.60 %. The applicable interest rate on the PJMF Revolving facility was 6.9 % for the three months ended September 24, 2023. As of September 24, 2023, t he principal amount of debt outstanding under the PJMF Revolving Facility was approximately $ 14.8 million and is classified as Current portion of long-term debt in the Condensed Consolidated Balance Sheets . The PJMF operating results and the related debt outstanding do not impact the financial covenants under the Credit Agreement. On September 30, 2023, the Company amended the PJMF Revolving Facility to, among other items: (i) extend the maturity date to September 30, 2024; (ii) amend the variable interest rate to a one month SOFR plus 1.975 %; and (iii) expand the capacity from $ 20.0 million to $ 30.0 million. Derivative Financial Instruments On June 23, 2023, the Company entered into a new interest rate swap with an initial notional value of $ 100.0 million to replace the Company’s prior interest swaps, which had a notional value of $ 125.0 million and matured on April 30, 2023. The objective of the interest rate swap is to mitigate the Company’s exposure to the impact of interest rate changes associated with our variable rate debt under the PJI Revolving Facility. We have designated the interest rate swap as a cash flow hedge and will assess hedge effectiveness at regular intervals through the maturity date of June 30, 2025. The interest rate swaps are recorded at fair value at each reporting date, and any unrealized gains or losses are included in Accumulated 15 other comprehensive loss in the Condensed Consolidated Balance Sheets and reclassified to Net interest expense in the Condensed Consolidated Statements of Operations in the same period or periods during which the hedged transaction affect earnings. As of September 24, 2023, we have the following interest rate swap agreements: Effective Dates Floating Rate Debt Fixed Rates June 23, 2023 through June 30, 2025 $ 50 million 4.55 % June 23, 2023 through June 30, 2025 $ 50 million 4.55 % The following table provides information on the location and amounts of our current and expired swaps in the accompanying condensed consolidated financial statements (in thousands): Interest Rate Swap Derivatives Balance Sheet Location Fair Value September 24, 2023 Fair Value December 25, 2022 Other current assets $ 726 $ 986 Other assets $ 59 $ — The effect of derivative instruments on the accompanying condensed consolidated financial statements is as follows (in thousands): Derivatives - Cash Flow Hedging Relationships Amount of Gain or (Loss) Recognized in AOCL on Derivative Location of (Loss) or Gain Reclassified from AOCL into Income Amount of (Loss) or Gain Reclassified from AOCL into Income Total Net Interest Expense on Condensed Consolidated Statements of Operations Interest rate swaps for the three months ended: September 24, 2023 $ 801 Interest expense $ 203 $ ( 11,378 ) September 25, 2022 $ 901 Interest expense $ ( 1,650 ) $ ( 7,623 ) Interest rate swaps for the nine months ended: September 24, 2023 $ 2,225 Interest Expense $ ( 40 ) $ ( 31,674 ) September 25, 2022 $ 3,664 Interest Expense $ ( 1,850 ) $ ( 17,967 ) Net interest paid, including payments made or received under the swaps, was $ 11.2 million and $ 9.6 million for the three months ended September 24, 2023 and September 25, 2022, respectively, and $ 28.0 million and $ 22.2 million for the nine months ended September 24, 2023 and September 25, 2022, respectively. 9. Litigation, Commitments and Contingencies Litigation The Company is involved in a number of lawsuits, claims, investigations and proceedings, including those specifically identified below, consisting of intellectual property, employment, consumer, commercial and other matters arising in the ordinary course of business. In accordance with ASC 450, “ Contingencies, ” the Company has made accruals with respect to these matters, where appropriate, which are reflected in the Company’s condensed consolidated financial statements. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Durling et al v. Papa John’s International, Inc. , is a conditionally certified collective action filed in May 2016 in the United States District Court for the Southern District of New York, alleging that corporate restaurant delivery drivers were 16 not properly reimbursed for vehicle mileage and expenses in accordance with the Fair Labor Standards Act. In July 2018, the District Court granted a motion to certify a conditional corporate collective class and the opt-in notice process has been completed. As of the close of the opt-in period on October 29, 2018, 9,571 drivers opted into the collective class. On September 30, 2022, the parties reached a settlement in principle to resolve the case. On December 19, 2022, the District Court granted preliminary approval of the settlement, and following a hearing on July 27, 2023, the District Court granted final approval of the settlement. Pursuant to the terms of the settlement, which contemplated a total aggregate settlement amount of no more than $ 20.0 million subject to a claims-made process, all claims in the action will be dismissed, the litigation will be terminated, and the Company will receive a release. The settlement also includes resolution of a companion case, Hubbard, et al. v. Papa John’s International, Inc. , pending in the United States District Court for the Western District of Kentucky. The settlement is subject to a claims-made process whereby unclaimed funds revert to the Company, and the Company was only responsible for payments to class and collective action members who timely submitted a claim form. On January 18, 2023, the Company remitted $ 5.0 million to the settlement administrator as partial funding of the settlement in accordance with the terms of the applicable settlement agreement. On August 10, 2023, the Company remitted the remaining $ 5.6 million settlement amount to the administrator in accordance with the final settlement terms. The settlement of these claims and lawsuits is materially complete, and the Company anticipates that the claims process will be concluded by the end of 2023. In re Papa John’s Employee & Franchise Employee Antitrust Litigation is a putative class action filed in December 2018 in the United States District Court for the Western District of Kentucky. The suit alleges that the “no-poaching” provision previously contained in the Company’s franchise agreement constituted an unlawful agreement or conspiracy in restraint of trade and commerce in violation of Section 1 of the Sherman Antitrust Act. On April 14, 2022, the parties reached a settlement in principle to resolve the case. Pursuant to the terms of the proposed settlement, in exchange for the Company’s payment of a total aggregate settlement amount of $ 5.0 million and other non-monetary consideration, all claims in the action will be dismissed, the litigation will be terminated, and the Company will receive a release. The settlement amount was recorded in General and administrative expenses in the Condensed Consolidated Statements of Operations in the first quarter of 2022 and remained accrued in Accrued expenses and other accrued liabilities in the Condensed Consolidated Balance Sheets as of September 24, 2023. The proposed settlement remains subject to approval by the District Court and contains certain customary contingencies. The Company continues to deny any liability or wrongdoing in this matter. 10. Divestitures Refranchising Loss On March 28, 2022, we refranchised our 51 % ownership interest in a 90 -restaurant consolidated joint venture in Texas for $ 14.0 million, net of transaction costs. In connection with the divestiture, we recorded a one-time, non-cash charge of $ 8.4 million in Refranchising and impairment loss in the Condensed Consolidated Statements of Operations, which reflects net sale proceeds of $ 14.0 million, the noncontrolling interest of $ 4.2 million, and the recognition of an unearned royalty stream of $ 12.2 million to be recognized as revenue over the 10 -year term of the franchise agreement executed concurrent with the disposition in accordance with ASC 810, “ Consolidation .” The $ 8.4 million of the one-time, non-cash refranchising loss was recorded in the first quarter of 2022 and realized upon consummation of the sale in the second quarter of 2022. Impairment of Reacquired Master Franchise Rights In the first quarter of 2022 , the Company recorded an impairment of $ 2.8 million in Refranchising and impairment loss in the Condensed Consolidated Statements of Operations for reacquired franchise rights due to the financial and operational impact of the conflict in Ukraine and government actions taken in response to that conflict, including, but not limited to, international sanctions. The reacquired franchise rights were previously acquired from a former master franchisee and capitalized by the Company. 11. Segment Information We have four reportable segments: Domestic Company-owned restaurants, North America franchising, North America commissaries, and International operations. The Domestic Company-owned restaurant segment consists of the operations of all Domestic Company-owned restaurants and derives its revenues principally from retail sales of pizza, Papadias, which are flatbread-style sandwiches, and side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages. The North America franchising segment consists of our franchise sales and support activities and derives its revenues from sales of franchise and development rights and collection of royalties from our franchisees located in the United States and Canada. The North America commissary segment consists of the operations of our regional dough production and product distribution centers and derives its revenues principally from the sale and distribution of food and paper products to Domestic Company-owned and franchised restaurants in the United States and 17 Canada. The International segment consists of the operations of all Company-owned restaurants located in the UK, as well as distribution sales to franchised Papa John’s restaurants located in the UK and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our International franchisees. All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as “all other,” which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of printing and promotional items, franchise contributions to marketing funds and information systems and related services used in restaurant operations, including our point-of-sale system, online and other technology-based ordering platforms. Generally, we evaluate performance and allocate resources based on operating income. Certain administrative and capital costs are allocated to segments based upon predetermined rates or estimated resource usage. We account for intercompany sales and transfers as if the sales or transfers were to third parties and eliminate the activity in consolidation. Our reportable segments are business units that provide different products or services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies. No single external customer accounted for 10% or more of our consolidated revenues. 18 The following tables present our segment information. Three Months Ended Nine Months Ended (In thousands) September 24, 2023 September 25, 2022 September 24, 2023 September 25, 2022 Revenues: Domestic Company-owned restaurants $ 177,195 $ 166,050 $ 532,841 $ 536,226 North America franchising 35,041 33,712 105,824 102,897 North America commissaries 204,887 216,115 624,433 645,177 International 48,481 37,707 128,539 119,696 All others 57,208 56,928 172,754 171,873 Total revenues $ 522,812 $ 510,512 $ 1,564,391 $ 1,575,869 Intersegment revenues: North America franchising $ 1,040 $ 996 $ 3,117 $ 3,097 North America commissaries 51,237 51,330 154,640 162,591 All others 16,180 15,562 49,363 50,830 Total intersegment revenues $ 68,457 $ 67,888 $ 207,120 $ 216,518 Operating income: Domestic Company-owned restaurants (a) $ 6,147 $ 3,667 $ 19,438 $ 11,579 North America franchising 32,234 31,464 97,745 96,225 North America commissaries 10,691 8,425 31,818 28,717 International (b) 2,270 1,136 13,265 12,897 All others 2,379 2,037 6,879 7,943 Unallocated corporate expenses (c) ( 20,792 ) ( 27,684 ) ( 63,859 ) ( 84,138 ) Elimination of intersegment (profits) losses ( 1,061 ) 416 ( 710 ) ( 423 ) Total operating income $ 31,868 $ 19,461 $ 104,576 $ 72,800 Property and equipment, net: Domestic Company-owned restaurants $ 249,211 North America commissaries 157,056 International 29,403 All others 142,905 Unallocated corporate assets 251,104 Accumulated depreciation and amortization ( 561,592 ) Total property and equipment, net $ 268,087 ___________________________________ (a) The nine months ended September 25, 2022 includes a one-time, non-cash charge of $ 8.4 million associated with the refranchising of the Company’s ownership interest in a 90 -restaurant joint venture, recorded as Refranchising and impairment loss. See “Note 10. Divestitures” for additional information. (b) The three and nine months ended September 24, 2023 includes $ 1.2 million and $ 2.5 million of costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of stores from franchisees. The three and nine months ended September 25, 2022 includes a charge of $ 4.1 million related to the reserve of certain accounts and notes receivable and operating lease right-of-use assets impairment associated with the termination of a significant franchise in the United Kingdom. The three and nine months ended September 25, 2022 also includes $ 3.5 million of one-time, non-cash reserves for certain accounts receivable and impairments of reacquired franchise rights. See “Notes 2. Significant Accounting Policies”, “10. Divestitures” and “12. Acquisitions” for additional information. (c) The nine months ended September 24, 2023 includes $ 2.0 million of severance and related costs associated with the transition of certain executives. The three and nine months ended September 24, 2023 includes $ 0.6 million for certain legal settlements. Unallocated corporate expenses includes $ 10.0 million for certain legal settlements for the three months ended September 25, 2022. The nine months ended September 25, 2022 includes $ 13.9 million of one-time, non-cash reserves of certain notes receivable, $ 15.0 million for certain legal settlements, and $ 1.5 million of advisory fees and severance costs associated with the transition of certain 19 executives. See “Notes 2. Significant Accounting Policies” and “9. Litigation, Commitments and Contingencies” for additional information. Disaggregation of Revenue In the following tables, revenues are disaggregated by major product/service line. The tables also include a reconciliation of the disaggregated revenues by the reportable segment (in thousands): Reportable Segments Three Months Ended September 24, 2023 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 177,195 $ — $ — $ 14,013 $ — $ 191,208 Franchise royalties and fees — 36,081 — 12,219 — 48,300 Commissary sales — — 256,124 16,695 — 272,819 Other revenues — — — 5,554 73,388 78,942 Eliminations — ( 1,040 ) ( 51,237 ) — ( 16,180 ) ( 68,457 ) Total segment revenues 177,195 35,041 204,887 48,481 57,208 522,812 International other revenues (a) — — — ( 5,554 ) 5,554 — Total revenues $ 177,195 $ 35,041 $ 204,887 $ 42,927 $ 62,762 $ 522,812 Reportable Segments Three Months Ended September 25, 2022 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 166,050 $ — $ — $ — $ — $ 166,050 Franchise royalties and fees — 34,708 — 11,619 — 46,327 Commissary sales — — 267,445 19,116 — 286,561 Other revenues — — — 6,972 72,490 79,462 Eliminations — ( 996 ) ( 51,330 ) — ( 15,562 ) ( 67,888 ) Total segment revenues 166,050 33,712 216,115 37,707 56,928 510,512 International other revenues (a) — — — ( 6,972 ) 6,972 — Total revenues $ 166,050 $ 33,712 $ 216,115 $ 30,735 $ 63,900 $ 510,512 Reportable Segments Nine Months Ended September 24, 2023 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 532,841 $ — $ — $ 17,031 $ — $ 549,872 Franchise royalties and fees — 108,941 — 36,906 — 145,847 Commissary sales — — 779,073 55,061 — 834,134 Other revenues — — — 19,541 222,117 241,658 Eliminations — ( 3,117 ) ( 154,640 ) — ( 49,363 ) ( 207,120 ) Total segment revenues 532,841 105,824 624,433 128,539 172,754 1,564,391 International other revenues (a) — — — ( 19,541 ) 19,541 — Total revenues $ 532,841 $ 105,824 $ 624,433 $ 108,998 $ 192,295 $ 1,564,391 20 Reportable Segments Nine Months Ended September 25, 2022 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 536,226 $ — $ — $ — $ — $ 536,226 Franchise royalties and fees — 105,994 — 37,097 — 143,091 Commissary sales — — 807,768 60,213 — 867,981 Other revenues — — — 22,386 222,703 245,089 Eliminations — ( 3,097 ) ( 162,591 ) — ( 50,830 ) ( 216,518 ) Total segment revenues 536,226 102,897 645,177 119,696 171,873 1,575,869 International other revenues (a) — — — ( 22,386 ) 22,386 — Total revenues $ 536,226 $ 102,897 $ 645,177 $ 97,310 $ 194,259 $ 1,575,869 ___________________________________ (a) Other revenues as reported in the Condensed Consolidated Statements of Operations include $ 5.6 million and $ 19.5 million of revenues for the three and nine months ended September 24, 2023, respectively, and $ 7.0 million and $ 22.4 million for the three and nine months ended September 25, 2022, respectively, that are part of the International reporting segment. These amounts include marketing fund contributions and sublease rental income from international franchisees in the United Kingdom that provide no significant contribution to operating income but must be reported on a gross basis under accounting requirements. The related expenses for these Other revenues are reported in Other expenses in the Condensed Consolidated Statements of Operations. 12. Acquisitions UK Franchisee Acquisitions As part of our investment to reposition our UK business, we have acquired a portfolio of Company-owned restaurants in the UK market that were previously franchised. Our control and ownership of this portfolio enables us to implement operating model enhancements in the restaurants including revenue management capabilities, product and technological innovation and operational efficiencies to improve sales and restaurant-level profitability, and to drive initiatives for future growth and profitability in the Company’s largest market outside of North America. As part of this investment, the Company acquired 91 Papa Johns restaurants previously operated by the M25 division of Drake Food Service International in the United Kingdom on June 2, 2023 for total consideration of approximately $ 13.7 million. The Company acquired an additional 27 Papa Johns restaurants in the United Kingdom during the three months ended September 24, 2023 for total consideration of approximately $ 1.5 million. Collectively, we refer to these acquisitions as the “UK franchisee acquisitions.” During the three and nine months ended September 24, 2023, the Company incurred $ 0.8 million and $ 2.1 million, respectively, of acquisition and transition costs related to the UK franchisee acquisitions. These expenses were recorded within General and administrative expenses and within the International segment in the Condensed Consolidated Statements of Operations. The results of operations of the acquired restaurants after their respective acquisition dates are included within the International segment in the Company’s Condensed Consolidated Statements of Operations. The impact of the acquisitions was not material to the Company’s Condensed Consolidated Financial Statements. The UK franchisee acquisitions have been accounted for as business combinations. As such, the Company concluded that the consideration was measured at fair value and has recorded the preliminary estimated fair value of the assets acquired and liabilities assumed as of the respective acquisition dates. Total consideration was approximately $ 15.2 million, of which $ 13.7 million was pre-existing accounts receivable and notes receivable and was classified as a noncash investing transaction within the Condensed Consolidated Statements of Cash Flows during the nine months ended September 24, 2023. Assets acquired include approximately $ 10.6 million of property and equipment, net, $ 0.3 million of inventories and other assets and $ 4.3 million of goodwill. The total goodwill recognized in conjunction with the UK franchisee acquisitions, all of which is expected to be deductible for tax purposes, has been assigned to the International operating segment. The purchase price exceeded the fair value of the net assets acquired, which resulted in the recognition of goodwill, primarily due to synergies created from expected future benefits stemming from implementation of the Company’s operational capabilities and further control of the Company’s brand name in our most prominent international market. Goodwill also includes certain other benefits that do not qualify for recognition as intangible assets, such as an assembled workforce. 21 Domestic Acquisitions During the nine months ended September 24, 2023, we acquired ten Domestic restaurants for a total purchase price of $ 4.1 million, which was classified as cash used in investing activities within the Condensed Consolidated Statements of Cash Flows. The impact of the acquisitions was not material to the Company’s Condensed Consolidated Financial Statements. Acquired assets recorded within the Condensed Consolidated Balance Sheets as of September 24, 2023 primarily included store property and equipment of $ 1.4 million, reacquired franchise rights of $ 1.5 million, and goodwill of $ 1.1 million. The amounts recorded as a result of our preliminary acquisition accounting for the UK franchisee and Domestic acquisitions are subject to change and further refinement. The Company is still assessing the condition and finalizing the fair value of acquired property and equipment and intangible assets as well as gathering information regarding leases and other assets. There were no measurement period adjustments recorded during the three months ended September 24, 2023, and the Company expects these items to be finalized prior to the one-year anniversary date of the respective acquisitions. The following summarizes changes in the Company’s goodwill by reportable segment (in thousands): Domestic Company-owned restaurants International All others Total Balance at December 25, 2022 $ 55,507 $ 14,673 $ 436 $ 70,616 Acquisitions (a) 1,102 4,274 — 5,376 Foreign currency adjustments — 19 — 19 Balance at September 24, 2023 $ 56,609 $ 18,966 $ 436 $ 76,011 (s) Goodwill from acquisitions during the nine months ended September 24, 2023 include $ 4.3 million from the UK franchisee acquisitions described above as well as $ 1.1 million related to the Domestic store acquisitions described above. 22