What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-23 · 269 added, 191 removed, 371 unchanged (55% of the section changed)

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Discussion of 2021 items and year-to-year comparisons between the years ended December 25, 2022 and December 26, 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2022.

Our fiscal year ends on the last Sunday in December of each year.

All fiscal years presented consist of 52 weeks except for the 2023 fiscal year, which consists of 53 weeks.

Papa John’s International, Inc.

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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, approximately 48% to 52% of our North America revenues in each of the last two fiscal years were derived 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 UK, contributions received by Papa John’s Marketing Fund, Inc.

Additionally, approximately 50% of our North America revenues in each of the last two fiscal years were derived 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, Inc.

(“PJMF”) which is our national marketing fund, printing and promotional items and information systems equipment, and software and related services.

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Recent Business Matters

In 2022, the Company focused on executing strategic priorities and building a foundation for long-term success, while navigating a challenging macroeconomic environment.

In 2023, the Company focused on executing strategic priorities and building a foundation for long-term success, while navigating a dynamic macroeconomic environment.

Our progress and significant transactions during the year are described below.

Growth Strategy .

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

The Company delivered its eighteenth consecutive quarter of Global system-wide restaurant sales growth, fueled by continued product innovation and expansion both domestically and internationally.

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

We have improved out-the-door times and overall customer satisfaction, and focused on 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 for 2023.

Focusing on future growth, we recently announced “Back to BETTER 2.0,” which is comprised of long-term strategic initiatives focused on driving systemwide sales through enhancing North America national marketing investment and effectiveness and accelerating North America development.

In addition, we are evolving our Domestic Commissary business to provide cost savings for our franchisees and incremental profit for our business model.

• Product innovation:

Our menu and digital innovations are an important part of our long-term strategy to drive new customers and ticket sales.

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In 2023, approximately 85% of our Domestic transactions came through these digital channels.

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

In 2022, we expanded our global footprint by 4.5%, with 244 net new units (excluding the 188 restaurants suspended in Russia in the first quarter of 2022 and discussed below).

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 historic deals to develop within key areas.

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.

Global Market Conditions.

The differentiated brand positioning of Papa Johns and the agility of our business model have been critical to our success as we have had to navigate a constantly changing environment in recent years.

Our brand positioning and ability to adapt are no less important today as we continue to adjust to a more inflationary and uncertain environment and consumers are increasingly seeking out value.

As consumer demand for dining has softened over the past year, pizza offers tremendous value relative to other quick service restaurants.

Using Papa Rewards, our loyalty program, we are 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, 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 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 will be investing in capabilities to improve our operations and will work to re-position the franchise base to further strengthen our UK business.

The next step in our commitment includes a variety of support to help franchisees through this difficult time, including targeted marketing incentives of approximately $2 million to $3 million.

• Marketing strategy:

We are activating a new marketing strategy in 2024.

Based on a comprehensive review of our creative and media strategy, we have identified opportunities to improve audience selection, offer differentiated category solutions, improve marketing return on ad spend, sustain loyalty and create cultural buzz.

Correspondingly, our franchisees have voted to increase the contribution rate to PJMF by 20%, or 100 basis points of sales.

This change is intended to increase the productivity of franchisees’ marketing contributions by leveraging the scale that national investments deliver.

At the same time, we have made local marketing optional for franchisees, resulting in a net decrease in required marketing spend and an opportunity to increase the overall profitability of restaurants.

• Development strategy:

Our expanding development pipeline is also 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 2023, we expanded our global footprint by 3.7%, with 208 net new units comprised of 57 net unit openings in North America and 151 net unit openings in International markets.

To pursue the significant opportunities we have identified in the U.S.

and accelerate development in 2024 and beyond, we have designed a new development incentive intended to deliver higher restaurant-level profit margins for new restaurants opened in 2024 through a waiver of PJMF contributions during the first five years of operations.

We are also offering a three-year waiver of PJMF contributions for new restaurants opened in 2025.

This new incentive is intended to improve profitability for franchisees, add scale in key markets and attract growth-driven franchisees.

We are pleased with the performance of our recently opened restaurants in North America and expect net new unit development for North America to increase by more than 20% in 2024 relative to 2023 net unit openings.

From an International perspective, we are approaching 2024 with caution taking into account the ongoing dynamic geopolitical environment.

In addition, this year we anticipate an increased number of strategic restaurant closures in certain markets which will likely have an impact on our ability to execute on our net new unit development goals in the near-term.

In 2024, we expect gross openings of more than 100 new International restaurants.

Additionally, we will evaluate making strategic restaurant closures in markets to improve marketplace health and exit unprofitable restaurants.

As such, our anticipated gross openings could be offset by the closure of underperforming Company-owned and franchised restaurants to enhance long-term profitability.

• Domestic commissary growth strategy :

To drive profitable growth and overall supply chain productivity that provides cost savings and incremental profit for the system, we are evolving our commissary business.

Beginning in 2024, we will increase the fixed operating margin that Domestic QC Centers charge by 100 basis points in each of the next four years, moving from 4% in 2023 to 8% in 2027.

In total, this change should equate to approximately 100 basis points of cost at the restaurant level.

To mitigate this cost for franchisees, we will offer new opportunities for franchisees to earn annual incentive-based rebates as they increase volume and open new restaurants.

Franchisees who increase case-volume purchases at the highest volume growth could realize target market rates lower than the current 4% rate.

Additionally, we expect the incremental volume driven by increased marketing and additional development will reduce the shared supply chain costs across the system.

Lastly, we will be focused on driving continued productivity throughout the supply chain through improved operations and supplier relationships.

• International strategy:

In the fourth quarter of 2023, the Company launched several initiatives as part of the International Transformation Plan described in Note 16.

Restructuring of “Notes to Consolidated Financial Statements” to evolve its international business structure, which resulted in charges of $2.2 million in the fourth quarter.

These initiatives include the following:

◦ Establish International Regional Hubs – To deliver a frictionless, locally-valued offering with a recognizable and consistent customer experience, we are establishing hubs in our key regions – APAC (Asia Pacific), EMEA (Europe, Middle East and Africa), and Latin America.

These regional hubs will be led by experienced General Managers and their teams who will partner with franchisees to create a holistic strategy to boost performance in their markets.

These teams will align global best practices in operations, marketing and technology with local preferences and needs to accomplish our long-term objective of increasing market share in key markets around the world.

◦ Increase Technology Investments – To further our ability to deliver impactful innovations, targeted marketing, and enhanced value in key international markets, we are increasing our investment in consumer-facing technology, digital infrastructure and enhanced reporting.

By investing in expanded ordering capabilities through its website and app and leveraging analytics, we expect to improve purchase conversion, increase customer retention and deliver faster consumer insights to franchisees.

◦ Optimize UK Business Model – Over the past two years, the Papa Johns restaurants in the UK have experienced declines in sales.

As we have navigated a dynamic economic environment and worked towards repositioning the market, we established a Company-owned restaurant portfolio in the UK, acquiring 118 restaurants in the second and third quarters of 2023.

These Company-owned restaurants incurred operating losses in 2023.

In order to set up our largest international market for long-term success, we will continue to focus on driving profitability and strengthening our franchisee base within the UK.

As a result, multiple low-performing franchised restaurants were closed in the fourth quarter of 2023.

In February 2024, our Board of Directors approved the planned closure of approximately 50 underperforming Company-owned restaurants in the United Kingdom during the first six months of 2024.

As a result of the planned closures, the Company expects to incur restructuring charges of approximately $10.0 million to $15.0 million, which we expect will primarily be comprised of non-cash lease and fixed asset impairment charges and will be recognized during 2024 within our International segment.

We are continuing to evaluate our restaurant portfolio in the UK, which may result in additional strategic restaurant closures or divestitures.

Future closures would likely result in additional restructuring charges comprised primarily of lease, loan, and fixed asset impairment, though the amounts and nature of future expenses are currently not estimable as specific actions to effect those closures have not yet been determined.

The Company currently expects any resulting restructuring costs to be recognized in 2024 and 2025.

See Note “16.

Restructuring” and Note “25.

Subsequent Events” of “Notes to Consolidated Financial Statements for additional details.

Significant 2022 transactions

Refranchising .

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

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

(“Blue and Silver Ventures”).

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The Company recognized $17.4 million in one-time, non-cash charges related to reserves for certain loans and impairments of reacquired franchised rights due to the conflict in Ukraine and subsequent international government actions and sanctions, which were recorded as Refranchising and impairment loss of $2.8 million and General and administrative expenses of $14.6 million.

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

Coronavirus Pandemic and Related Market Impact.

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

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

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

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

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

Presentation of Financial Results

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The results of operations are based on our Consolidated Financial Statements, which were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).

The preparation of Consolidated Financial Statements requires management to select accounting policies for critical accounting areas as well as estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements.

The preparation of Consolidated Financial Statements requires management to make estimates and judgments that affect the amounts reported in the Consolidated Financial Statements.

A number of our significant accounting policies involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

On an ongoing basis, our management evaluates its estimates, including those related to insurance reserves, long-lived assets, the allowance for credit losses on franchisee notes receivable, and income taxes.

Actual results may differ from those estimates, and significant changes in assumptions and/or conditions in our critical accounting policies could materially impact our operating results.

The Company’s significant accounting policies, including recently issued accounting pronouncements, are more fully described in “Note 2.

Significant Accounting Policies” of “Notes to Consolidated Financial Statements.” A number of our significant accounting policies are critical due to the fact that they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

Significant changes in assumptions and/or conditions in our critical accounting policies could materially impact the operating results.

Significant Accounting Policies” of “Notes to Consolidated Financial Statements.”

We believe that our most critical accounting estimates are:

Insurance Reserves

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Reserves are included in Accrued expenses and other current liabilities and Other long-term liabilities on the Consolidated Balance Sheets.

Our insurance reserves primarily relate to auto liability and workers’ compensation claims and include the gross up of claims above our retention levels, with a corresponding receivable recorded in Prepaid and other current assets and Other assets on the Consolidated Balance Sheets.

Our insurance reserves primarily relate to auto liability and workers’ compensation claims and include the gross up of claims above our retention levels, with a corresponding receivable recorded in Prepaid expenses and other current assets and Other assets on the Consolidated Balance Sheets.

The insurance reserves represent the mid-point of the range as determined by our actuarial analysis, which considered various actuarial valuation methodologies.

The determination of the recorded insurance reserves is highly complex due to the significant uncertainty in the potential value of reported claims and the number and potential value of incurred but not reported claims.

Property and Equipment, Net and Impairment of Long-Lived Assets

We record property and equipment at its historical cost, which includes all costs necessarily incurred to bring the asset to the condition and location necessary for its intended use.

Purchases of property and equipment were $76.6 million in 2023, $78.4 million in 2022, and $68.6 million in 2021.

Property and equipment are depreciated on a straight-line basis over their useful lives, which are based on management’s estimates of the period over which the assets provide a benefit to the Company.

The useful lives are estimated based on historical experience with similar assets as well as other information regarding condition and utility of the assets.

Our asset useful lives are generally five to ten years for restaurant, commissary, and other equipment, twenty to forty years for buildings and improvements, and five years for technology, communication assets, and capitalized software.

Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the respective lease, including the first renewal period (generally five to ten years).

Depreciation expense was $54.3 million in 2023, $45.6 million in 2022 and $43.0 million in 2021.

We evaluate property and equipment and other long-lived assets (primarily right-of-use operating lease assets) for potential indicators of impairment at least annually, or as facts and circumstances indicate that the carrying value of the asset may not be recoverable.

We perform these assessments at the operating market level, as this represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

If we determine there are indicators of impairment, we compare the net carrying value of the asset group to the projected undiscounted cash flows to be generated from the use of the asset group.

If the carrying amount of the long-lived asset group exceeds the amount of estimated future undiscounted cash flows, then we estimate the fair value of the asset group and record an impairment loss if the carrying value exceeds fair value.

If indicators of impairment are present, calculating projected undiscounted cash flows requires management to make assumptions and estimates for factors that include future comparable sales growth and gross margin based on internal projections as well as the historical performance of the market and whether that is an indicator of future performance.

These assumptions for future growth are subjective and may be negatively impacted by future changes in operating performance or economic conditions.

We did not record any impairment losses on property and equipment during 2023 or 2021, and recognized lease impairment charges of $0.9 million in 2022 related to the termination of a specific and significant franchisee in the UK.

Allowance for Credit Losses on Franchisee Notes Receivable

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The Company establishes an allowance for credit losses on franchisee notes receivables based on management’s estimate of the lifetime expected loss on the notes.

The allowance for credit losses on notes receivable is judgmental and subjective based on management’s evaluation of historical collection experience, external market data and other factors, including those related to current market conditions and events.

The allowance for credit losses on notes receivable is judgmental and subjective based on management’s evaluation of historical collection experience and external market data and other factors, including those related to current market conditions and events.

The Company is provided collateral rights of the franchisee’s restaurants (e.g., underlying franchise business, property and equipment) and personal guarantees from the operators to recover the carrying value of the outstanding note receivable in the event collectability concerns arise.

Therefore, the Company considers the fair value of the underlying collateral rights (e.g., underlying franchisee business, property and equipment) and any guarantees when assessing the allowance for credit losses (which may require third-party valuations of fair value).

Therefore, the

Company considers the fair value of the underlying collateral rights (e.g., underlying franchisee business, property and equipment) and any guarantees when assessing the allowance for credit losses (which may require third-party valuations of fair value).

Notes receivable balances are charged off against the allowance after recovery efforts have ceased.

Franchisee notes receivable was $33.6 million with an allowance for credit losses of $16.1 million as of December 31, 2023 compared to $42.6 million with an allowance for credit losses of $14.5 million as of December 25, 2022.

The increase in the allowance for credit losses was primarily due to an increase for certain notes receivable primarily associated with a master franchisee with operations principally in Russia and the termination of significant franchisees in the UK.

See “Note 10.

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“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.

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 North America, International and global restaurant and 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.

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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.

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.

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

Amounts below exclude the impact of foreign currency December 31, 2023 December 25, 2022

Comparable sales growth (decline):

Comparable sales growth (decline) (a) :

Domestic Company-owned restaurants 3.4 % (1.0) %

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Total comparable sales growth (decline) (0.1) % (0.8) %

System-wide restaurant sales growth:

System-wide restaurant sales growth (b) :

Domestic Company-owned restaurants 6.7 % 1.3 %

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North America restaurants 4.1 % 2.3 %

International restaurants (a)

Total global system-wide restaurant sales growth (a)

International restaurants (c)

Total global system-wide restaurant sales growth (c)

______________________________

(a) The twelve months ended December 25, 2022 excludes the impact of franchisee suspended restaurants.

(a) Comparable sales growth (decline) in fiscal year 2023 includes a 52-week comparison to fiscal year 2022.

(b) System-wide restaurant sales growth includes 53 weeks in fiscal year 2023.

Restaurant Progression Year Ended

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Beginning of period 522 600

Acquired 10 2

Refranchised (4) (90)

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Closed (33) (49)

Sold (10) (2)

Refranchised 4 90

End of period 2,902 2,854

International Company-owned

Beginning of period — —

Acquired 118 —

Refranchised (1) —

End of period 117 —

International franchised:

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Opened 234 292

Closed (85) (104)

Refranchised 1 —

Suspended (a)

End of period 2,330 2,311

End of period (b)

Total restaurants – end of period 5,906 5,698

Full year net store growth (b)

Full year net restaurant growth (a)

______________________________

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These suspended restaurants are excluded from net unit growth calculations.

(b) 2022 full year restaurant activity has been adjusted from previous presentations, as eight International franchised locations were reclassified as closed locations following a review of temporary restaurant closures.

Our fiscal year ends on the last Sunday in December of each year.

All fiscal years presented in the accompanying Consolidated Financial Statements consist of 52 weeks.

All fiscal years presented in the accompanying Consolidated Financial Statements consist of 52 weeks except for the 2023 fiscal year, which consists of 53 weeks.

Results of Operations

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Total revenues $ 2,135,713 $ 2,102,103 1.6 %

For the year ended December 25, 2022, the discussion of changes in revenues below for Domestic Company-owned restaurants and North America franchised restaurants include an explanation of the impact of refranchising 90 restaurants during the second quarter of 2022 (the “2022 refranchising”).

See “Refranchising” above and “Note 22.

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

The comparability of results between 2023 and 2022 is impacted by the acquisition of 118 formerly franchised restaurants in the UK in the second and third quarters of 2023 (the “UK franchisee acquisitions”) and the refranchising of 90 restaurants during the second quarter of 2022 (the “2022 refranchising”).

The UK franchisee acquisitions impact the composition of International revenues and the results of the International segment.

Additionally, the 2022 refranchising resulted in 90 restaurants moving from Domestic Company-owned restaurants into North America franchising, effective as of the second quarter of 2022, impacting revenues for both of these segments.

See “Note 24.

Acquisitions” and “Note 22.

Divestitures” of the “Notes to Consolidated Financial Statements” for additional information on these transactions.

Additionally, results for the year ended December 31, 2023 are not directly comparable with the results for the year ended December 25, 2022, as year-over-year comparisons are affected by an additional week of operations in the fourth quarter of 2023 due to the 53-week fiscal year in 2023.

The estimated impact of the Company’s 53rd week on 2023 results has been highlighted in the discussion below to enhance comparability between the periods.

Total revenues increased $33.6 million, or 1.6% to $2.14 billion for the year ended December 31, 2023, as compared to the prior year.

Excluding the impact of the 2022 refranchising, total revenues increased $86.9 million, or 4.4%, for the year ended December 25, 2022.

Domestic Company-owned restaurant sales decreased $69.9 million, or 9.0% for the year ended December 25, 2022 compared to the prior year.

Excluding the impact of the 2022 refranchising, Domestic Company-owned restaurant sales increased $8.7 million, or 1.3% for the year ended December 25, 2022, primarily due to innovations and strategic pricing actions to help offset food and labor inflation.

Equivalent units also increased 3.7% for the year ended December 25, 2022, excluding the 2022 refranchising, and the related increase was partially offset by a comparable sales decline of 1.0%.

Revenues for the 53rd week of operations in 2023 contributed approximately $41 million, or an increase of 1.9%.

Other increases include a $31 million increase from our Domestic Company-owned restaurants, a $3 million increase in North America franchise royalties and a $24 million increase in International revenues primarily related to the UK franchisee acquisitions.

These increases were offset by a $44 million decrease in North America commissary revenues reflecting lower commodity prices and transaction volume in 2023, a $3.4 million decrease primarily resulting from the sale of Preferred Marketing and a $17.8 million decrease resulting from the 2022 refranchising.

Domestic Company-owned restaurant sales increased $18.0 million, or 2.5% for the year ended December 31, 2023 compared to the prior year.

The benefit of the 53rd week of operations in 2023 was approximately $14 million, and 2022 included revenues of $27.3 million from the restaurants that were part of the 2022 refranchising.

Excluding the impact of the 2022 refranchising and the additional week in 2023, Domestic Company-owned restaurant sales would have increased $31 million, or 4.6%, primarily due to increased comparable sales of 3.4% and equivalent unit growth of 1.0% for the year ended December 31, 2023.

North America franchise royalties and fees increased $7.2 million, or 5.2% for the year ended December 31, 2023 compared to the prior year.

Excluding the impact of 2022 refranchising, North America franchise royalties and fees increased $4.2 million, or 3.1% for the year ended December 25, 2022, primarily due to an increase in comparable sales of 1.2% and equivalent units of 1.4%.

North America franchise restaurant sales, excluding the impact of the 2022 refranchising, increased 2.3% to $2.99 billion for the year ended December 25, 2022 compared to the prior year.

The benefit of the 53rd week of operations in 2023 was approximately $3 million.

The 2023 increase resulting from the 2022 refranchising was $1.4 million.

Excluding the 2022 refranchising and the additional week, North America franchise royalties and fees would have increased approximately $3 million, or 2.0% for the year ended December 31, 2023 primarily due to positive comparable sales of 0.1%, equivalent unit growth of 2.5% and fewer royalty waivers in 2023.

North America franchise restaurant sales, excluding the impact of the 2022 refranchising, increased 3.4% to $3.09 billion ($3.03 billion on a 52-week basis) for the year ended December 31, 2023 compared to the prior year.

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 $108.3 million or 14.2% for the year ended December 25, 2022 compared to the prior year.

North America commissaries have increased prices in line with rising commodity prices driven by inflation, principally in cheese, soy oil, proteins and wheat.

International revenues decreased $20.9 million, or 13.8% for the year ended December 25, 2022 compared to the prior year, primarily due to lower UK commissary revenues.

The overall declines in our International revenue performance were largely attributable to a decrease in comparable sales of 5.3% for the year ended December 25, 2022 related to inflationary pressures in the PJUK market.

International franchise restaurant sales decreased to $1.17 billion for the year ended December 25, 2022 compared to $1.27 billion for the year ended December 26, 2021.

Excluding the impact of foreign currency fluctuations and the previously disclosed franchisee suspended restaurants, International franchise restaurant sales increased $58.2 million or 4.8% for the year ended December 25, 2022.

North America commissary revenue decreased $17.3 million or 2.0% for the year ended December 31, 2023 compared to the prior year.

The benefit from the 53rd week of operations was approximately $19 million, or 2%.

The impact of the

2022 refranchising was an increase in 2023 of $8.2 million.

Excluding the impact of the 2022 refranchising and the 53rd week, North America commissary revenue decreased approximately $44 million, or a decline of 5.0% for the year ended December 31, 2023.

The decline in North America commissary revenues was primarily a result of lower commodity prices, primarily poultry, cheese and wheat, in addition to lower volumes.

International revenues increased $27.3 million, or 21.0% for the year ended December 31, 2023 compared to the prior year.

The benefit of the 53rd week of operations in 2023 was approximately $4 million.

The impact of the UK franchisee acquisitions was a net increase of approximately $20.3 million in 2023, representing sales attributable to the acquired UK franchisee restaurants less prior year franchise royalty and food distribution revenue generated from the UK formerly franchised restaurants.

Excluding the impact of the UK franchisee acquisitions and the additional week, revenues would have increased approximately $3 million, or 2.9% primarily due to new unit development in 2023 and positive foreign currency fluctuations.

These increases were partially offset by a comparable sales decline of 3.1% in International markets.

International franchise restaurant sales increased $21.1 million to $1.19 billion ($1.16 billion on a 52-week basis) for the year ended December 31, 2023 compared to $1.17 billion for the prior year.

Excluding the impact of the UK franchisee acquisitions, the previously disclosed franchisee suspended restaurants, and foreign currency fluctuations, International franchise restaurant sales increased $88.3 million or 7.9% for the year ended December 31, 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 $8.1 million, or 3.2% in 2022 primarily due to higher revenues

from our technology services from higher equivalent units and higher revenues from Preferred Marketing, our wholly-owned print and promotions company as they return to pre-pandemic levels.

Other revenues, which primarily includes our national marketing fund, online and mobile ordering business and our previously wholly-owned print and promotions subsidiary, decreased $1.5 million, or 0.6% in 2023.

The benefit of the 53rd week of operations was approximately $2 million, and the impact of the UK franchisee acquisitions decreased Other revenues by $3.2 million in 2023.

Excluding the impact of the UK franchisee acquisitions and the additional week, Other revenues would have been flat as increased technology services from higher comparable sales and equivalent units were offset by the sale of our previously wholly-owned print and promotions subsidiary, Preferred Marketing, in the fourth quarter of 2023.

See “Note 22.

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

Costs and Expenses

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Total costs and expenses were approximately $1.99 billion, or 93.1% of total revenues in 2023, as compared to $1.98 billion, or 94.2% of total revenues for the prior year.

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

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

Domestic Company-owned restaurant expenses were $587.9 million, or 80.9% of related revenues in 2023, compared to expenses of $585.3 million, or 82.6% of related revenues for the prior year.

The expenses, as a percentage of revenues, increased 2.7% primarily due to increased food cost attributable to higher commodity prices driven by inflation 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.

The expenses, as a percentage of revenues, decreased 1.7% in 2023 primarily due to a reduction in food costs attributable to lower commodities prices.

North America commissary expenses were $787.6 million, or 92.4% of related revenues in 2023, compared to $811.4 million, or 93.3% of related revenues, for the prior year.

The expenses, as a percentage of revenues, increased 0.9% primarily due to rising commodity prices driven by inflation, principally in cheese, soy oil, proteins and wheat, and higher delivery costs.

The expenses, as a percentage of revenues, decreased 0.9% primarily due to lower commodities prices, principally related to poultry, cheese and wheat costs.

International expenses were $103.2 million, or 65.7% of related revenues, for 2023 compared to $76.0 million, or 58.5% of related revenues for the prior year.

International expenses were flat as a percentage of revenues as lower labor costs and lower food costs from negative comparable sales were offset by higher distribution costs as a percentage of revenues.

International expenses increased in 2023 as a result of the UK franchisee acquisitions, partially offset by declining commodity prices at our International commissary.

Other expenses were $235.5 million, or 92.3% of related revenues in 2023, as compared to $238.8 million, or 93.0% of related revenues for the prior year.

The expenses, as a percentage of related revenues, increased 2.0% 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 $210.4 million, or 9.8% of total revenues for 2023 compared to $217.4 million, or 10.3% of total revenues for the prior year.

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$ 197,959 $ 180,159

Strategic corporate reorganization costs (b)

Legal settlement accruals (c)

Additional specific accounts receivable and notes receivable provisions (d)

Other general expenses (e)

UK re-positioning and acquisition-related costs (b)

International restructuring costs (c)

Middle East related costs (d)

Refranchising and impairment losses (e)

Legal settlement accruals (f)

Other costs (g)

Other general expenses, net 2,515 998

General and administrative expenses $ 210,357 $ 217,412

______________________________

(a) The decrease in administrative expenses of $17.9 million for the year ended December 25, 2022 compared to the prior year was primarily due to lower incentive compensation linked to Company performance, 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) Represents strategic reorganization costs associated with our new corporate office in Atlanta which concluded at the end of 2021.

(a) The increase in administrative expenses of $17.8 million for the year ended December 31, 2023 compared to the prior year was primarily due to higher incentive compensation linked to Company performance, higher labor and benefit costs, professional fees and additional costs for our franchisee operators conference held in 2023.

(b) Represents costs associated with repositioning the UK portfolio of $2.1 million in 2023 and $5.1 million in 2022, primarily related to lease and loan impairments and related costs.

In 2023, we also incurred $2.1 million of acquisition and transition costs related to the UK franchisee acquisitions.

During the period, costs incurred related to the restructuring include $1.5 million in severance and compensation costs and $0.7 million in consulting and professional fees.

See “Note 16.

Strategic Corporate Reorganization for Long-term Growth” to our Notes to Consolidated Financial Statements for additional information.

Restructuring” to our “Notes to Consolidated Financial Statements” for additional details.

(d) Represents a one-time non-cash charge of $0.9 million recorded in the fourth quarter of 2023 related to the reserve of certain accounts receivable related to the conflict in the Middle East, which were recorded as G&A expense.

(e) Represents a one-time non-cash charge of $14.6 million 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.

(f) Represents previously disclosed litigation recorded in General and administrative expenses.

See “Note 19.

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

(d) Represents 2022 expenses for the following:

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,

One-time, non-cash provision of $3.7 million for certain accounts receivable and notes receivable in the United Kingdom.

(e) Included in the Other general expenses for the year ended December 25, 2022 is $1.5 million related to advisory fees and severance costs associated with the transition of certain executives.

Depreciation and Amortization.

Depreciation and amortization expense was $52.0 million, or 2.5% of revenues in 2022, as compared to $48.8 million, or 2.4% of revenues for the prior year, primarily due and increase in capital expenditures for our technology platforms and new restaurants.

Refranchising and Impairment Loss

Refranchising and impairment loss was $12.1 million for the year ended December 25, 2022 as compared to zero for the prior year.

The 2022 amount was comprised of an $8.4 million loss on our 2022 refranchising, an impairment loss of $2.8 million for reacquired franchise rights due to the financial and operational impact of the conflict in Ukraine and lease impairment charges of $0.9 million related to the termination of a significant franchisee in the UK.

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

Depreciation and Amortization Depreciation and amortization expense was $64.1 million, or 3.0% of revenues in 2023, as compared to $52.0 million, or 2.5% of revenues for the prior year, primarily due to an increase in capital expenditures for our technology platforms and new restaurants.

Refranchising and Impairment Loss We did not record any refranchising and impairment loss for the year ended December 31, 2023, following a $12.1 million refranchising and impairment loss in prior year.

The 2022 activity was

comprised of an $8.4 million loss on our 2022 refranchising, an impairment loss of $2.8 million for reacquired franchise rights due to the financial and operational impact of the conflict in Ukraine and lease impairment charges of $0.9 million related to the termination of a significant franchisee in the UK.

See “Note 22.

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Unallocated corporate expenses (85,353) 2,594 (82,759) (104,419) 30,376 (74,043) 19,066 (8,716)

Elimination of intersegment (profits) (905) — (905) (695) — (695) (210) (210)

Elimination of intersegment loss/(profit) 27 — 27 (905) — (905) 932 932

Total $ 147,142 $ 9,883 $ 157,025 $ 109,030 $ 48,432 $ 157,462 $ 38,112 $ (437)

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GAAP measure.

Operating income was $109.0 million for the year ended December 25, 2022 compared to $168.2 million for the prior year, a decrease of $59.2 million.

Operating income was $147.1 million for the year ended December 31, 2023 compared to $109.0 million for the prior year, an increase of $38.1 million.

Adjusted operating income was $157.0 million for the year ended December 31, 2023 compared to $157.5 million for the prior year, a decrease of $0.5 million, or 0.3%.

The decrease in adjusted operating income in 2022 compared to 2021 was primarily due to the following:

• Domestic Company-owned restaurants decreased $25.3 million for the year ended December 25, 2022.

Excluding the impact of the 2022 refranchising in the second quarter, Domestic Company-owned restaurants decreased $21.3 million, primarily due to higher commodity and labor costs, partially offset by lower bonuses and higher revenues related to strategic pricing actions.

The 53rd week contributed approximately $8 million to operating income in 2023.

The changes in adjusted operating income compared to the prior year were primarily due to the following:

• Domestic Company-owned restaurants increased $9.1 million for the year ended December 31, 2023.

The 53rd week of operations contributed approximately $4 million to operating income in 2023.

The impact of the 2022 refranchising decreased the segment’s operating income by $2 million for the year ended December 31, 2023.

Excluding the impact of the additional week and the 2022 refranchising, Domestic Company-owned restaurants would have increased approximately $8 million primarily due to comparable sales growth of 3.4%, partially offset by higher benefits and utility expenses.

• North America franchising increased $5.9 million for the year ended December 31, 2023.

Excluding the impact of the 2022 refranchising, North America franchising increased $4.3 million, due to an increase in comparable sales of 1.2% and higher equivalent units of 1.4%.

The 53rd week of operations contributed approximately $3 million to operating income in 2023.

The impact of the 2022 refranchising increased the segment’s operating income by $1.4 million in 2023.

Excluding the impact of the additional week and the 2022 refranchising, the segment would have increased $2 million primarily due to an increase in comparable sales of 0.1%, higher equivalent units of 2.5% and fewer royalty waivers in 2023.

• North America commissaries increased $0.8 million for the year ended December 31, 2023.

North America commissaries have increased prices in line with inflation, which has been partially offset with lower margins due to lower volume of items sold.

• International decreased $7.4 million for the year ended December 25, 2022, primarily due to significant inflation and high energy prices in the UK that attributed to lower comparable sales, which declined 5.3%.

• All Others, which primarily includes our online and mobile ordering business and our marketing funds, decreased $7.6 million for the year ended December 25, 2022, compared to the prior year, primarily due to timing of expenditures for technology support initiatives.

• Unallocated corporate expenses decreased $7.0 million for the year ended December 25, 2022, primarily due to lower incentive compensation costs, partially offset by higher labor, travel, professional fees and occupancy cost associated with the re-opening of corporate headquarters in the first quarter of 2022.

The 53rd week of operations contributed approximately $1 million to operating income in 2023.

The impact of the 2022 refranchising decreased the segment’s operating income by $0.3 million in 2023.

Excluding the additional week and the impact of the 2022 refranchising, operating income would have been down $1 million to 2022.

• International decreased $8.5 million for the year ended December 31, 2023.

The 53rd week of operations contributed approximately $0.8 million to operating income during 2023.

The impact of the UK franchisee acquisitions was a decrease of approximately $9 million in 2023 compared to 2022, driven by 2023 operating losses attributable to the recently acquired UK Company-owned restaurants that previously generated royalty

income in 2022.

Excluding the additional week and the impact of the UK franchisee acquisitions, operating income would have increased $1.7 million primarily due to equivalent unit growth, partially offset by comparable sales declines of 3.1%.

• All Others, which primarily includes our online and mobile ordering business and our marketing funds, were flat year over year.

• Unallocated corporate expenses increased $8.7 million for the year ended December 31, 2023, primarily due higher incentive compensation and benefits costs, higher insurance costs and higher depreciation expense related to our investments in technology support initiatives and additional costs for our operators conference held in 2023.

Items Below Operating Income

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

(Dollars in thousands) Year Ended

(In thousands, except per share amounts) Year Ended

December 31, 2023 December 25, 2022 Change

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Net income attributable to the Company $ 82,098 $ 67,772 $ 14,326

Dividends on redemption of Series B Convertible Preferred Stock — (109,852) 109,852

Dividends paid to participating securities — (306) 306

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Net Interest Expense

Interest expense increased approximately $8.0 million for the year ended December 25, 2022 compared to the prior year, primarily due to higher average outstanding debt on our revolving credit facility.

Interest expense increased approximately $18.2 million for the year ended December 31, 2023 compared to the prior year, primarily due to higher average outstanding debt on our senior secured revolving credit facility (the “PJI Revolving Facility”) as well as an increase in borrowing rates in 2023.

The higher outstanding debt on our PJI Revolving Facility was primarily utilized to finance share repurchases in the first quarter of 2023.

Total debt outstanding was $764.0 million and $605.0 million as of December 31, 2023 and December 25, 2022, respectively.

The 53rd week of operations in 2023 increased interest expense by approximately $0.5 million.

Income Tax Expense

The effective income tax rate was 17.2% for both 2022 and 2021.

The effective rate was flat due to the income mix and items impacting tax expense being proportional to the pre-tax income year-over-year.

The effective income tax rate was 20.1% for 2023 and 17.2% for 2022.

The effective rate was lower in 2022 due to higher excess tax benefits generated by stock option exercises and vesting of restricted shares in 2022 along with a lower pre-tax income.

(Dollars in thousands) Year Ended

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Diluted earnings per common share was $2.48 for the year ended December 31, 2023 compared to $1.89 for the year ended December 25, 2022, representing an increase of $0.59.

Diluted earnings per common share for the year ended December 26, 2021 was reduced by $3.10 from a reduction in net income attributable to common shareholders related to the repurchase and conversion of all of the shares of the Company’s previously outstanding Series B Convertible Preferred Stock (“Series B Preferred Stock”) during the second quarter of 2021.

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

Stockholders’ Deficit” and “Note 7.

Earnings per Share” of “Notes to Consolidated Financial Statements,” for additional information.

Adjusted diluted earnings per common share, a non-GAAP measure, was $2.71 for the year ended December 31, 2023 compared to $2.94 for the year ended December 25, 2022, representing a decrease of $0.23.

See “Non-GAAP Measures” for additional information.

These changes were driven by the same factors impacting operating income and adjusted operating income as discussed above.

In addition, diluted earnings per share and adjusted diluted earnings per share reflect higher interest expense compared with 2022 due to higher borrowings used to fund share repurchases in the first quarter of 2023.

Non-GAAP Measures

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Operating income $ 147,142 $ 109,030

Refranchising and impairment losses (a)

Legal settlements (b)

Costs associated with the termination of significant franchisees (c)

Strategic corporate reorganization costs (d)

Other costs (e)

UK repositioning and acquisition-related costs (a)

International restructuring costs (b)

Middle East related costs (c)

Refranchising and impairment losses (d)

Legal settlements (e)

Other costs (f)

Adjusted operating income 157,025 157,462

Net income attributable to common shareholders $ 82,098 $ 67,362

Refranchising and impairment losses (a)

Legal settlements (b)

Costs associated with the termination of significant franchisees (c)

Strategic corporate reorganization costs (d)

Other costs (e)

Repurchase and conversion of Series B Preferred Stock (f)

UK repositioning and acquisition-related costs (a)

International restructuring costs (b)

Middle East related costs (c)

Refranchising and impairment losses (d)

Legal settlements (e)

Other costs (f)

Tax effect of adjustments (g)

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Diluted earnings per common share $ 2.48 $ 1.89

Refranchising and impairment losses (a)

Legal settlements (b)

Costs associated with the termination of significant franchisees (c)

Strategic corporate reorganization costs (d)

Other costs (e)

Repurchase and conversion of Series B Preferred Stock (f)

UK repositioning and acquisition-related costs (a)

International restructuring costs (b)

Middle East related costs (c)

Refranchising and impairment losses (d)

Legal settlements (e)

Other costs (f)

Tax effect of adjustments (g)

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$ 2.71 $ 2.94

______________________________

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

(In thousands) December 25, 2022

Refranchising impairment loss (1)

Ukraine-related charge (2)

UK lease impairment (3)

Total adjustment $ 26,702

(1) Represents a one-time, non-cash charge of $8.4 million ($0.24 loss per diluted share) recorded in the first quarter of 2022 associated with the refranchising of the Company’s controlling interest in a 90-restaurant joint venture, recorded as Refranchising and impairment loss;

(a) Represents costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of restaurants from franchisees.

(b) In the fourth quarter of 2023, the Company initiated an International restructuring plan.

During the period, costs incurred related to the restructuring include $1.5 million in severance and compensation costs and $0.7 million in consulting and professional fees.

(c) Represents a one-time non-cash charge of $0.9 million recorded in the fourth quarter of 2023 related to the reserve of certain accounts receivable related to the conflict in the Middle East, which were recorded as G&A expenses.

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

(1) Represents a one-time, non-cash charge of $8.4 million ($0.24 loss per diluted share) recorded in the first quarter of 2022 associated with the 2022 refranchising, recorded as Refranchising and impairment loss;

(2) Represents a one-time non-cash charge of $17.4 million ($0.49 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;

(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 UK, which was recorded in Refranchising and impairment loss.

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

See “Note 19.

Litigation, Commitments and Contingencies” of “Notes to Consolidated Financial Statements for further information.

(c) Represents costs associated with the termination of significant franchisees in the UK, including costs 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.

See "Note 16.

Strategic Corporate Reorganization for Long-term Growth of “Notes to Consolidated Financial Statements for additional information.

(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.

Stockholders’ Deficit” of “Notes to Consolidated Financial Statements,” for additional information.

(g) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rate of 22.5% for both years ended December 25, 2022 and December 26, 2021.

(e) Represents accruals for certain legal settlements recorded in General and administrative expenses.

(f) Represents severance and related costs associated with the transition of certain executives incurred during the twelve month periods ended December 31, 2023 and December 25, 2022.

(g) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rate of 22.6% and 22.5% for the years ended December 31, 2023 and December 25, 2022, respectively.

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

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Liquidity and Capital Resources

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

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under the PJI Revolving 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.

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Financing activities (124,076) (76,240)

Change in cash and cash equivalents, excluding the effect of exchange rate changes on cash and cash equivalents $ (21,225) $ (59,363)

Effect of exchange rate changes on cash and cash equivalents (642) (2,012)

Change in cash and cash equivalents $ (6,786) $ (23,237)

Operating Activities

Total cash provided by operating activities was $193.1 million for the year ended December 31, 2023 compared to $117.8 million for the prior year.

The decrease of $66.9 million primarily reflects lower net income in 2022 and a reduction in working capital.

The working capital reduction is driven by lower accrued expenses at December 25, 2022 as compared to the prior year, primarily related to lower incentive compensation payable and lower taxes payable at December 25, 2022.

The decrease in incentive compensation payable is linked to Company performance while the decrease in taxes payable is linked to the timing of payments related to the CARES Act.

These decreases were partially offset by the provision for allowance for credit losses of $20.5 million (See “Note 10.

Allowance for Credit Losses” of “Notes to Consolidated Financial Statements”) and refranchising and impairment losses of $12.1 million (discussed above in “Results of Operations”).

The increase of $75.2 million primarily reflects higher net income in 2023 and favorable working capital changes.

Favorable working capital changes were principally related to higher incentive compensation payments and deferred payroll tax payments related to the CARES Act made during the prior year, as well as current year increases in accounts payable due to extension of certain vendor terms within our North America commissary business and a reduction in inventory levels during 2023.

These favorable changes were partially offset by the provision for allowance for credit losses of $20.5 million (See “Note 10.

Allowance for Credit Losses” of “Notes to Consolidated Financial Statements”) and refranchising and impairment losses of $12.1 million (discussed above in “Results of Operations”) that were incurred during the prior year.

Investing Activities

Total cash used in investing activities was $62.8 million in 2022 compared to $63.5 million in 2021, a decrease of $0.7 million.

2022 cash flows included $13.6 million in proceeds, net of transaction costs, from the impact of the 2022 refranchising in the first quarter of 2022.

Repayments of notes, net of issuances were $3.7 million in 2022 as compared to $2.4 million in 2021, an increase in inflows of $1.3 million for the year.

The increased inflows from refranchising and notes were offset by larger purchases of property and equipment of $9.8 million in 2022, as the Company improved its digital infrastructure.

Cash flows for 2021 also included an inflow of $3.3 million related to the sale of land that did not recur in 2022.

Total cash used in investing activities was $75.1 million in 2023 compared to $62.8 million in 2022, an increase of $12.3 million.

The increase in cash used in investing activities was primarily due to cash proceeds of $13.6 million, net of cash transferred, received from the 2022 refranchising during the year ended December 25, 2022, fewer note repayments during 2023, and payment of $5.6 million to purchase 37 International and Domestic restaurants during the year ended December 31, 2023.

This activity was partially offset by a slight reduction in capital expenditures and fewer note issuances during 2023.

Financing Activities

Total cash used in financing activities was $76.2 million in 2022 compared to $180.5 million in 2021, an decrease of $104.3 million.

In 2022, cash used for financing activities includes outflows of $125.0 million in share repurchases and $54.8 million of common dividends paid, offset by net borrowings of $115.0 million from the credit facility.

In 2021, outflows include $340.0 million in repayments 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 $40.4 million, offset by inflows of $400.0 million in proceeds from the issuance of senior notes and net borrowings from the credit facility of $80.0 million.

Total cash used in financing activities was $124.1 million in 2023 compared to $76.2 million in 2022, an increase of $47.8 million.

In 2023, cash used for financing activities includes outflows of $210.3 million in share repurchases and $58.5 million of dividends paid to common shareholders, partially offset by net borrowings of $159.0 million from the PJI Revolving Facility.

In 2022, outflows included $125.0 million in share repurchases as well as dividends paid to common shareholders of $54.8 million, partially offset by $115.0 million in net borrowings from the PJI Revolving Facility.

On September 14, 2021, the Company issued $400.0 million of 3.875% senior notes (the “Notes”) which will mature on September 15, 2029.

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

The Amended Credit Agreement provides for a senior secured revolving credit facility in an aggregate available principal amount of $600.0 million (the “PJI Revolving Facility”), of which up to $40.0 million is available as swingline loans and up to $80.0 million is available as letters of credit.

Concurrently with the issuance of the Notes, the Company entered into an amended and restated credit agreement (the “Credit Agreement”) replacing the Company’s previous credit agreement.

The Credit Agreement provides for the PJI Revolving Facility, a senior secured revolving credit facility in an aggregate available principal amount of $600.0 million, of which up to $40.0 million is available as swingline loans and up to $80.0 million is available as letters of credit.

The PJI Revolving Facility will mature on September 14, 2026.

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

Our outstanding debt as of December 31, 2023 was $764.0 million, which was comprised of $400.0 million outstanding under the Notes and $364.0 million outstanding under the PJI Revolving Facility.

Remaining availability under the PJI Revolving Facility was $236.0 million as of December 31, 2023.

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

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Interest coverage ratio Not less than 2.00 to 1.0 3.3 to 1.0

Our leverage ratio is defined as outstanding debt divided by Consolidated EBITDA (as defined in our credit agreement), 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.

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Bank National Association, as lender.

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 one-month SOFR plus 1.975%;

and (iii) expand the capacity from $20.0 million to $30.0 million.

The PJMF Revolving Facility is secured by substantially all assets of PJMF.

The PJMF Revolving Facility matures on September 30, 2024, but is subject to annual amendments.

The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of the one-month LIBOR plu s 1.60%.

The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of the one-month SOFR plu s 1.975% .

There was no debt outstanding under the PJMF Revolving Facility as of December 31, 2023 or December 25, 2022.

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

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

See “Note 12.

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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.

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

The following table summarizes our repurchase activity for the years ended December 31, 2023 and December 25, 2022:

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December 25, 2022 1,343 $ 93.07 $ 125,000 $ 299,800

Subsequent to year-end, we acquired an additional 319,307 shares at an aggregate cost of $27.6 million.

We did not repurchase any shares subsequent to December 31, 2023.

Approximately $90.2 million remained available under the Company’s share repurchase program as of February 22, 2024.

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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 paid aggregate dividends to common stockholders of $54.8 million ($1.54 per share) for the year ended December 25, 2022.

The Company paid dividends of approximately $46.0 million for the year ended December 26, 2021, consisting of the following:

• $40.4 million paid to common stockholders ($1.15 per share);

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

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

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

The Company paid aggregate cash dividends to common stockholders of $58.5 million ($1.76 per share) and $54.8 million ($1.54 per share) for the years ended December 31, 2023 and December 25, 2022, respectively.

On January 30, 2024, our Board of Directors declared a first quarter 2024 dividend of $0.46 per common share, representing a $15.1 million aggregate dividend that was paid on February 23, 2024 to stockholders of record as of the close of business on February 12, 2024.

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Free Cash Flow

Free cash flow, a non-GAAP measure, is defined as net cash provided by operating activities (from the Consolidated Statements of Cash Flows) less 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 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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Purchases of property and equipment (76,620) (78,391)

Dividends paid to preferred stockholders (a)

Free cash flow $ 116,435 $ 39,417

______________________________

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

Contractual Obligations

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This estimate includes development of Company-owned restaurants and technology enhancements.

We intend to fund our capital expenditures with cash generated by operations and borrowings under our senior secured revolving credit facility, as necessary.

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

We guarantee leases for certain Papa Johns North American franchisees who have purchased restaurants that were previously Company-owned.

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The leases have varying terms, the latest of which expires in 2036.

As of December 25, 2022, the estimate maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was approximately $9.2 million.

As of December 31, 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 approximately $7.3 million.

We have certain other commercial commitments where payment is contingent upon the occurrence of certain events.

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Impact of Inflation

We experienced price increases in food items and other commodities, labor and benefits, and fuel and other energy costs during 2022 and expect further inflationary pressure during 2023.

Inflationary pressures affect our profitability both directly, in our company-owned restaurants and delivery mechanisms and through gross margins experienced by sales of food and supply items via our Quality Control Centers, as well as indirectly, through higher food ingredient and paper and supply costs, rising fees from delivery aggregators driven by higher wage demands and increases in the cost of gasoline that, once reflected in upward price adjustments on their fees, can exert downward pressure on unit sales, reducing royalty fees we realize from our Domestic and International franchisees.

We experienced price increases in food items and other commodities, labor and benefits, and fuel and other energy costs during 2022, which began to gradually ease throughout 2023 and which we expect to continue to moderate during 2024.

Inflationary pressures affect our profitability both directly, in our company-owned restaurants and delivery mechanisms and through gross margins experienced by sales of food and supply items via our QC Centers, as well as indirectly, through higher food ingredient and paper and supply costs, rising fees from delivery aggregators driven by higher wage demands and increases in the cost of gasoline that, once reflected in upward price adjustments on their fees, can exert downward pressure on unit sales, reducing royalty fees we realize from our Domestic and International franchisees.

Compensating menu price increases are subject to competitive pressure in the markets in which we operate.

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Certain matters discussed in this Annual Report on Form 10-K and other Company communications that are not statements of historical fact constitute forward-looking statements within the meaning of the federal securities laws.

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

by the federal securities laws.

Such forward-looking statements include or may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, share repurchases, the current economic environment, the continuing impact of the coronavirus pandemic, commodity and labor costs, currency fluctuations, profit margins, net unit growth, unit level performance, capital expenditures, restaurant and franchise development, labor shortages and price increases, inflation, royalty relief, franchisee support, the effectiveness of our menu innovations and other business initiatives, investments in product and digital innovation, 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.

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, commodity and labor costs, currency fluctuations, profit margins, supply chain operating margin, net unit growth, unit level performance, capital expenditures, restaurant and franchise development, restaurant acquisitions, restaurant closures, labor shortages, labor cost increases, inflation, royalty relief, franchisee support and incentives, the effectiveness of our menu innovations and other business initiatives, investments in product and digital innovation, marketing efforts and investments, liquidity, compliance with debt covenants, impairments, strategic decisions and actions, changes to our national marketing fund, changes to our commissary model, dividends, effective tax rates, regulatory changes and impacts, investments and repositioning of the UK market, International restructuring, International consumer demand, adoption of new accounting standards, and other financial and operational measures.

Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control.

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

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

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

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

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

• risks to the global economy and our business related to the conflicts in Ukraine and the Middle East 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 slowdown 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 effectiveness of our technology investments and changes in unit-level operations;

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

• increases in 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;

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

• risks related to our indebtedness and borrowing costs, including prolonged higher interest rates, and the 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;

• continuing risks related to the outbreak of COVID-19 and other health crises;

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

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

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

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

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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-K

Item 7. Management’s Discussion and Analysis