What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-02 · 169 added, 315 removed, 221 unchanged (69% of the section changed)

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

As of September 24, 2023, there were 5,825 Papa John’s restaurants in operation, consisting of 644 Company-owned and 5,181 franchised restaurants operating in 48 countries and territories.

As of March 31, 2024, there were 5,914 Papa John’s restaurants in operation, consisting of 653 Company-owned and 5,261 franchised restaurants operating in 49 countries and territories.

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

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

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

Growth Strategy .

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

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

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

In the third quarter of 2023, we opened 45 net new restaurants for global unit growth of 0.8%.

We expect global development to be between 245 and 260 net new units for fiscal 2023, lower than previous guidance of 270 to 310 due to the dynamic geopolitical environment.

Operational Initiatives.

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

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

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

We are seeing improvement in our restaurant level operating margins, and we experienced a 3.8% increase in comparable sales for Domestic Company-owned restaurants for the first nine months of 2023.

Over the past two years, the UK restaurants 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 during the second quarter.

We acquired an additional 27 Papa Johns restaurants in the third quarter, bringing the total number of Company-owned restaurants in the UK market to 118.

The Company-owned restaurants have incurred operating losses in the third quarter as we continue to evaluate current operational capabilities and implement improvements in revenue management capabilities, product and technological innovation and operational efficiencies to improve sales and restaurant-level profitability over the longer term.

We continue to focus on rationalizing our portfolio to better position the UK market for success, which could include strategic store closures in the future.

Our progress and significant transactions during the first quarter of 2024 are described below.

Focusing on future growth, our “Back to BETTER 2.0” initiative 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.

During the first quarter of 2024, the Company made significant progress against our priorities of Back to Better 2.0 and International Transformation.

Back to Better 2.0

• Product innovation and marketing strategy:

We advanced our menu and digital innovations to drive new customers and ticket sales.

At the end of the quarter, we launched our new Crispy Cuppy ‘Roni platform, which is available across a trio of menu items and price points.

We also launched an all-new brand platform “Better Get You Some” that is part of our deepened commitment to, and investment in, our new marketing strategy.

These investments are focused on improving audience segmentation, building consumer loyalty and driving cultural relevance.

• Domestic commissary growth strategy:

Our previously-announced change in the Domestic Commissary profit model was implemented during the quarter, with the fixed operating margin that Domestic QC Centers charge increasing to 5% paired with increased rebate opportunities for franchisees.

As of the end of the first quarter, we project that more than 40% of franchisees are on track to earn a rebate for 2024.

The operating income of the North America Commissary business has also increased, reflecting benefits for both franchisees as well as the Commissary.

We also continue to pursue productivity efficiencies throughout the supply chain through improved operations and supplier relationships.

International Transformation Plan

In December 2023, the Company announced international transformation initiatives (“International Transformation Plan”) designed to evolve our business structure to deliver an enhanced value proposition to our International customers and franchisees, ensure targeted investments and efficient resource management, and better position our largest markets, including the UK, for long-term profitable growth and brand strength.

Total estimated pre-tax costs associated with the International Transformation Plan are expected to be approximately $25 million to $35 million (inclusive of the $11.7 million spent through the first quarter of 2024), which the Company currently expects to be recognized in 2024 and 2025.

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

Key elements and progress of our International Transformation Plan are set forth as follows:

• International strategy - UK Optimization:

The UK franchise business is trending positively, with improved comparable sales.

However, our UK Company-owned stores have continued to incur operating losses, and we are moving forward with our previously-announced planned closures of 43 underperforming Company-owned stores in the second quarter, which we expect will reduce future operating losses incurred by the Company.

The impending closures of these stores resulted in first-quarter 2024 charges of $9.5 million, primarily comprised of non-cash lease and fixed asset impairment charges.

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

◦ International strategy - Regional hubs:

During the first quarter, we established hubs in our key regions - APAC (Asia Pacific), EMEA (Europe, Middle East and Africa), and Latin America.

These hubs will enable us to deliver a frictionless, locally-valued offering with a recognizable and consistent customer experience.

These regional hubs are led by General Managers, who bring a significant amount of restaurant and international franchise experience, and their teams who are partnering with franchisees to create a holistic strategy to boost performance in their markets.

These teams are aligning 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.

Global Restaurant Sales and Unit Information

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

Three Months Ended Nine Months Ended

Amounts below exclude the impact of foreign currency September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Three Months Ended

Amounts below exclude the impact of foreign currency March 31,

2024 March 26,

Comparable sales growth (decline):

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North America restaurants (1.7)% 1.6%

International restaurants (a)

8.8% (0.4)% 6.8% 5.3%

International restaurants 1.4% 3.3%

Total global system-wide restaurant sales growth (decline) (0.9)% 2.0%

_______________________________

(a) The nine months ended September 25, 2022 exclude the impact of franchisee suspended restaurants.

Restaurant Progression Three Months Ended Nine Months Ended

September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Restaurant Progression Three Months Ended

2024 March 26,

North America Company-owned:

Beginning of period 531 522

Opened — 1 — 9

Closed — — (2) —

Acquired 9 1 10 2

Refranchised (4) — (4) (90)

End of period 536 520

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Beginning of period 2,902 2,854

Opened 15 17 44 49

Closed (7) (6)

Sold (9) (1) (10) (2)

Refranchised 4 — 4 90

End of period 2,911 2,864

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Beginning of period 117 —

Acquired 27 — 118 —

End of period 117 —

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Beginning of period 2,356 2,322

Opened 55 48 153 175

Closed (29) (24)

Sold (27) — (118) —

Suspended (a)

End of period 2,350 2,341

Total restaurants – end of period 5,914 5,725

Trailing four quarters net store growth (b)

___________________________________

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

These suspended restaurants are excluded from net unit growth calculations.

(b) Excludes suspended restaurants.

Trailing four quarters net store growth 189 209

Results of Operations

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

Three Months Ended Nine Months Ended Increase

(Dollars in thousands) September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Three Months Ended Increase

(Dollars in thousands) March 31,

2024 March 26,

Domestic Company-owned restaurant sales $ 176,224 $ 179,866 (2.0) %

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Total revenues $ 513,916 $ 527,049 (2.5) %

The discussion below references impacts to the comparable results from the acquisition of 118 formerly franchised restaurants in the UK in the second and third quarters of 2023 (the “UK franchisee acquisitions”) and from the refranchising of 90 restaurants during the second quarter of 2022 (the “2022 refranchising”).

When comparing the operating results of 2023 with 2022, note that the UK franchisee acquisitions resulted in 118 International restaurants changing from franchised to Company-owned restaurants in the second and third quarters of 2023.

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.

These transactions impact the comparability of operating results between the periods.

The comparability of results between 2024 and 2023 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”).

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

See “Note 12.

Acquisitions” and “Note 10.

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

Total revenues increased $12.3 million or 2.4% to $522.8 million for the three months ended September 24, 2023 and decreased $11.5 million or 0.7% to $1.6 billion for the nine months ended September 24, 2023, as compared to each prior year comparable period.

Changes in total revenues are impacted by the transactions noted above;

see further discussion below.

Domestic Company-owned restaurant sales increased $11.1 million, or 6.7% for the three months ended September 24, 2023 and decreased $3.4 million, or 0.6% for the nine months ended September 24, 2023, as compared to the prior year comparable periods.

Due to the 2022 refranchising, Domestic Company-owned restaurant sales decreased by $27.3 million for the nine months ended September 25, 2022.

Excluding the impact of the 2022 refranchising, Domestic Company-owned restaurant sales would have increased $24.0 million, or 4.7%, for the nine months ended September 24, 2023.

The increases of $11.1 million and $24.0 million were primarily due to comparable sales growth of 5.9% and 3.8% for the three and nine months ended September 24, 2023, respectively.

North America franchise royalties and fees increased $1.3 million, or 3.9% and increased $2.9 million or 2.8% for the three and nine months ended September 24, 2023, respectively, as compared to each prior year comparable period.

The impact of the 2022 refranchising for North America franchise royalties and fees was $1.4 million for the nine months ended September 25, 2022.

Excluding the 2022 refranchising, North America franchise royalties increased $1.6 million or 1.5%, for the nine months ended September 24, 2023.

Comparable sales for the three and nine months ended September 24, 2023 grew 2.2% and declined 0.4%, respectively.

Equivalent units declined 1.7% and 0.6% for the three and nine months ended September 24, 2023, respectively, excluding the impact of the 2022 refranchising.

North America franchise restaurant sales increased 3.1% to $749.8 million for the three months ended September 24, 2023 and increased 2.2% to $2.3 billion for the nine months ended September 24, 2023 compared to the prior year comparable periods.

Excluding the impact of the 2022 refranchising, North America franchise restaurant sales increased 0.9% to $2.3 billion for the nine months ended September 24, 2023 compared to the prior year comparable period.

North America

franchise restaurant sales are not included in Company revenues;

Acquisitions” of the “Notes to Condensed Consolidated Financial Statements” for additional information on this transaction.

Total revenues decreased $13.1 million or 2.5% to $513.9 million for the three months ended March 31, 2024, as compared to prior year comparable period.

Changes in total revenues are impacted by the transaction noted above.

Domestic Company-owned restaurant sales decreased $3.6 million, or 2.0% for the three months ended March 31, 2024, as compared to the prior year comparable period.

The decrease was primarily due to a decline in comparable sales of 3.0%, partially offset by increased equivalent units of 3.1% for the three months ended March 31, 2024.

North America franchise royalties and fees decreased $0.4 million, or 1.0% for the three months ended March 31, 2024 as compared to the prior year comparable period primarily due to comparable sales decline of 1.5%.

Equivalent units increased 2.1% for the three months ended March 31, 2024.

North America franchise restaurant sales decreased 1.6% to $759.3 million for the three months ended March 31, 2024 compared to the prior year comparable period.

North America franchise restaurant sales are not included in Company revenues;

however, our North America franchise royalties are derived from these sales.

North America commissary revenues decreased $11.2 million, or 5.2% for the three months ended September 24, 2023 and decreased $20.7 million, or 3.2% for the nine months ended September 24, 2023, compared to the prior year comparable periods.

Excluding the impact of the 2022 refranchising, North America commissary revenues decreased $28.9 million, or 4.4% for the nine months ended September 24, 2023.

The declines in North America commissary revenues were primarily a result of declining commodity prices in 2023 and lower volumes during the first half of 2023, partially offset by higher volumes during the three months ended September 24, 2023.

International revenues increased $12.2 million, or 39.7% for the three months ended September 24, 2023 and increased $11.7 million, or 12.0% for the nine months ended September 24, 2023, compared with the respective prior year periods.

International revenues included $14.0 million and $17.0 million for the three and nine months ended September 24, 2023, respectively, attributable to the acquired UK restaurants, and included $5.0 million and $7.0 million for the three and nine months ended September 25, 2022, respectively, related to franchise royalty and food distribution revenue generated from the UK formerly franchised restaurants.

Excluding the impact of the UK franchisee acquisitions, revenues would have increased $3.2 million, or 12.5%, and increased $1.6 million, or 1.8%, for the three and nine months ended September 24, 2023, respectively.

International revenues benefited from new unit development in 2023 and positive foreign currency fluctuations, partially offset by comparable sales declines of 0.3% and 2.3% for the three and nine months ended September 24, 2023.

International franchise restaurant sales increased $28.8 million to $289.2 million and increased $36.8 million to $880.2 million for the three and nine months ended September 24, 2023, respectively.

Excluding the impact of the UK franchisee acquisitions, the previously disclosed suspended restaurants, and foreign currency fluctuations, International franchise restaurant sales increased 9.5% and 7.0% for the three and nine months ended September 24, 2023, respectively.

North America commissary revenues decreased $9.3 million, or 4.4% for the three months ended March 31, 2024, compared to the prior year quarter primarily due to declines in pricing of commodities and lower volumes.

International revenues increased $9.2 million, or 29.4% for the three months ended March 31, 2024, compared with the prior year comparable period.

The impact of the UK franchisee acquisitions was a net increase of approximately $9.7 million of revenues in the first quarter of 2024, 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, International revenues would have decreased $0.5 million, or 1.6%, for the three months ended March 31, 2024.

International revenues were impacted by a comparable sales decline of 2.6% for the three months ended March 31, 2024 as a result of sales declines in the Middle East region.

International franchise restaurant sales decreased $18.4 million to $275.0 million for the three months ended March 31, 2024.

Excluding the impact of the UK franchisee acquisitions and foreign currency fluctuations, International franchise restaurant sales decreased $3.7 million or 1.3% for the three months ended March 31, 2024.

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, decreased $1.1 million, or 1.8%, and decreased $2.0 million, or 1.0%, for the three and nine months ended September 24, 2023, respectively, compared to the prior year comparable periods.

The impacts of the UK franchisee acquisitions decreased Other revenues by $1.3 million and $1.8 million for the three and nine months ended September 24, 2023, respectively.

Excluding the impact of the UK franchisee acquisitions, Other revenues would have increased $0.2 million and decreased $0.1 million for the three and nine months ended September 24, 2023.

Other revenues, which primarily includes our national marketing funds and online and mobile ordering business, decreased $9.1 million, or 13.5%, for the three months ended March 31, 2024 compared to the prior year comparable period.

decrease reflects $5.1 million related to Preferred Marketing, our formerly wholly-owned print and promotions company, which was sold in the fourth quarter of 2023.

The decrease was also driven by $2.7 million of lower marketing fees.

The impact of the UK franchisee acquisitions decreased Other revenues by $1.4 million for the three months ended March 31, 2024.

Costs and Expenses

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(Dollars in thousands) Three Months Ended

September 24, 2023 % of Related

Revenues September 25, 2022 % of Related

Revenues Increase (Decrease) in % of Revenues

Costs and expenses:

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

Domestic Company-owned restaurant expenses $ 145,433 82.1 % $ 138,299 83.3 % (1.2) %

North America commissary expenses 189,551 92.5 % 203,129 94.0 % (1.5) %

International expenses 29,796 69.4 % 18,196 59.2 % 10.2 %

Other expenses 57,587 91.8 % 59,249 92.7 % (0.9) %

General and administrative expenses 52,173 10.0 % 57,935 11.3 % (1.3) %

Depreciation and amortization 16,404 3.1 % 13,338 2.6 % 0.5 %

Total costs and expenses 490,944 93.9 % 490,146 96.0 % (2.1) %

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

Operating income $ 31,868 6.1 % $ 19,461 3.8 % 2.3 %

(Dollars in thousands) Nine Months Ended

September 24, 2023 % of Related

Revenues September 25, 2022 % of Related

March 31, 2024 % of Related

Revenues March 23, 2023 % of Related

Revenues Increase (Decrease) in % of Revenues

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Total costs and expenses 480,198 93.4 % 489,253 92.8 % 0.6 %

Refranchising and impairment loss — — % (12,065) (0.8) % 0.8 %

Operating income $ 33,718 6.6 % $ 37,796 7.2 % (0.6) %

Total costs and expenses were $490.9 million or 93.9% of total revenues for the three months ended September 24, 2023, as compared to $490.1 million or 96.0% of total revenues for the prior year comparable period.

For the nine months ended September 24, 2023, total costs and expenses were $1.5 billion or 93.3% of total revenues, as compared to $1.5 billion, or 94.6% of total revenues for the prior year comparable period.

Total costs and expenses were $480.2 million or 93.4% of total revenues for the three months ended March 31, 2024, as compared to $489.3 million, or 92.8% of total revenues for the prior year comparable period.

The changes in total costs and expenses, as percentages of revenues, were primarily due to the following:

Domestic Company-owned restaurant expenses were $145.4 million or 82.1% of related revenues for the three months ended September 24, 2023, compared to expenses of $138.3 million or 83.3% of related revenues for the prior year period.

For the nine months ended September 24, 2023 Domestic Company-owned restaurant expenses were $436.9 million or 82.0% of related revenues compared to $442.0 million or 82.4% of related revenues for the prior year comparable period.

The quarter and year to date decreases of 1.2% and 0.4%, respectively, were primarily due to decreases in certain commodity expenses.

North America commissary expenses were $189.6 million or 92.5% of related revenues for the three months ended September 24, 2023 compared to expenses of $203.1 million or 94.0% of related revenues for the prior year comparable period.

For the nine months ended September 24, 2023 North America commissary expenses were $576.4 million, or 92.3% of related revenues compared to $604.7 million or 93.7% of related revenues for the prior year period.

The expenses, as a percentage of related revenues, decreased 1.5% and 1.4% for the three and nine months ended September 24, 2023, respectively, primarily due to declining commodity prices and delivery costs in 2023 and lower volumes during the first half of 2023.

International expenses were $29.8 million or 69.4% of related revenues for the three months ended September 24, 2023 as compared to $18.2 million, or 59.2% of related revenues for the prior year comparable period.

For the nine months ended September 24, 2023, International expenses were $67.5 million, or 62.0% of related revenues, as compared to $57.3 million, or 58.9% of related revenues for the prior year comparable period.

International expenses increased in 2023 as a result of the UK franchisee acquisitions, which added operating costs of 118 Company-owned restaurants, partially offset by declining commodity prices at our International commissary.

Expenses in 2023 also include repositioning costs and transaction costs related to the UK franchisee acquisitions of approximately $1.2 million and $2.5 million for the three and nine months ended September 24, 2023, respectively.

Other expenses were $57.6 million or 91.8% of related revenues for the three months ended September 24, 2023 as compared to $59.2 million or 92.7% of related revenues for the prior year comparable period.

For the nine months ended September 24, 2023, Other expenses were $177.7 million, or 92.4% of related revenues, compared to $180.5 million, or 92.9% of related revenues for the prior year comparable period.

General and Administrative Expenses

General and administrative (“G&A”) expenses were $52.2 million, or 10.0% of revenues for the three months ended September 24, 2023, compared to $57.9 million, or 11.3% of revenues for the prior year period.

For the nine months ended September 24, 2023, G&A expenses were $154.4 million or 9.9% of revenues, compared to $168.5 million or 10.7% of revenues for the prior year comparable period.

G&A expenses consisted of the following:

(Dollars in thousands) Three Months Ended Nine Months Ended

September 24, 2023 September 25, 2022 September 24, 2023 September 25, 2022

Administrative expenses (a)

$ 49,034 $ 44,391 $ 147,271 $ 133,370

UK repositioning and acquisition-related costs (b)

1,193 — 2,501 —

Legal settlement accruals (c)

577 10,000 577 15,000

Specific accounts receivable and notes receivable provisions (d)

— 3,227 — 17,863

Other costs (e)

— — 2,017 1,507

Other general expenses, net 1,369 317 2,075 779

Domestic Company-owned restaurant expenses were $138.8 million or 78.7% of related revenues for the three months ended March 31, 2024, compared to expenses of $147.8 million or 82.2% of related revenues for the prior year comparable period.

The decrease of 3.5% was primarily due to a decrease in certain commodity expenses, lower utility costs and lower advertising spend.

North America commissary expenses were $185.2 million, or 91.1% of related revenues for the three months ended March 31, 2024, compared to expenses of $196.4 million or 92.4% of related revenues for the prior year period.

The expense, as a percentage of related revenues, decreased 1.3% for the three months ended March 31, 2024 primarily due to declining commodity prices for cheese and lower volumes, partially offset by higher delivery costs in the first quarter of 2024.

International expenses were $28.3 million, or 69.6% of related revenues for the three months ended March 31, 2024, compared to expenses of $17.3 million, or 55.0% of related revenues for the prior year comparable period.

International expenses increased in 2024 as a result of the UK franchisee acquisitions, which added operating costs related to Company-owned restaurants, partially offset by declining commodity prices at our International commissary.

Other expenses were $51.8 million, or 89.3% of related revenues for the three months ended March 31, 2024, compared to expenses of $61.1 million, or 91.0% of related revenues for the prior year comparable period.

The decrease reflects $4.8 million related to Preferred Marketing, our formerly wholly-owned print and promotions company, which was sold in the fourth quarter of 2023.

The decrease also includes $2.5 million in lower advertising costs.

General and Administrative Expenses

___________________________________

(a) For the three and nine months ended September 24, 2023, administrative expenses increased $4.6 million and $13.9 million primarily due to higher incentive compensation and benefit costs.

The nine month period also included higher costs from our franchise operating conference in the second quarter of 2023.

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

Litigation, Commitments and Contingencies” for further information.

(d) Represents a one-time, non-cash provision of $14.6 million on accounts receivable and notes receivable in connection with the conflict in Ukraine and related government actions in the first quarter of 2022 and a $3.2 million charge recorded in the third quarter of 2022 associated with the termination of a significant franchisee in the United Kingdom related to the reserve of certain accounts and notes receivable.

(e) Represents severance and related costs associated with the transition of certain executives incurred during the nine months ended September 24, 2023 and nine months ended September 25, 2022.

General and Administrative (“G&A”) expenses were $58.5 million or 11.4% of revenues for the three months ended March 31, 2024 compared to $51.9 million or 9.9% of revenues for the prior year comparable period.

The increase of $6.6 million in the first quarter of 2024 results primarily from $9.5 million incurred related to the International Transformation

Plan (see “Note 9.

Restructuring”).

This increase was partially offset by lower equity compensation costs related to leadership changes.

Depreciation and Amortization

Depreciation and amortization expense was $16.4 million or 3.1% of revenues for the three months ended September 24, 2023, compared to $13.3 million or 2.6% of revenues for the prior year comparable period.

For the nine months ended September 24, 2023, Depreciation and amortization expense was $46.8 million, or 3.0% of revenues compared to $38.0 million, or 2.4% of revenues, for the prior year comparable period.

The increases were primarily due to higher depreciation expense related to our investments in technology support initiatives.

Refranchising and Impairment Loss

There was no Refranchising and impairment loss during the nine months ended September 24, 2023.

Refranchising and impairment loss was $12.1 million for the nine months ended September 25, 2022, consisting of an $8.4 million loss on the 2022 refranchising and an impairment loss of $2.8 million for reacquired franchise rights due to the financial and operational impact of the conflict in Ukraine and government actions taken in response to that conflict.

See “Note 10.

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

Depreciation and amortization expense was $17.7 million, or 3.4% of revenues for the three months ended March 31, 2024, compared to $14.7 million, or 2.8% of revenues, for the prior year comparable period.

The increase was primarily due to higher depreciation expense related to the UK franchisee acquisitions and our investments in technology platforms.

Operating Income by Segment

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

Three Months Ended September 24, 2023 Three Months Ended September 25, 2022

(In thousands) Reported Adjustments (a)

Adjusted Reported Adjustments (a)

Adjusted Reported Increase (Decrease) Adjusted

Domestic Company-owned restaurants $ 6,147 $ — $ 6,147 $ 3,667 $ — $ 3,667 $ 2,480 $ 2,480

North America franchising 32,234 — 32,234 31,464 — 31,464 770 770

North America commissaries 10,691 — 10,691 8,425 — 8,425 2,266 2,266

International 2,270 1,193 3,463 1,136 4,132 5,268 1,134 (1,805)

All others 2,379 — 2,379 2,037 — 2,037 342 342

Unallocated corporate expenses (20,792) 577 (20,215) (27,684) 10,000 (17,684) 6,892 (2,531)

Elimination of intersegment (profits) losses (1,061) — (1,061) 416 — 416 (1,477) (1,477)

Total $ 31,868 $ 1,770 $ 33,638 $ 19,461 $ 14,132 $ 33,593 $ 12,407 $ 45

Nine Months Ended September 24, 2023 Nine Months Ended September 25, 2022

Three Months Ended March 31, 2024 Three Months Ended March 26, 2023

(In thousands) Reported Adjustments (a)

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GAAP measure.

Operating income was $31.9 million and $104.6 million for the three and nine months ended September 24, 2023, respectively, compared to $19.5 million and $72.8 million for the prior year comparable periods, increases of $12.4 million and $31.8 million, respectively.

Adjusted operating income was $33.6 million and $109.7 million for the three and nine months ended September 24, 2023, respectively, compared to $33.6 million and $119.2 million for the prior year comparable periods, which was flat and a decrease of $9.6 million, respectively.

Operating income was $33.7 million for the three months ended March 31, 2024 compared to $37.8 million for the prior year comparable period, a decrease of $4.1 million.

Adjusted operating income was $43.2 million for the three months ended March 31, 2024 compared to $39.2 million for the prior year comparable period, an increase of $4.1 million.

The fluctuations in adjusted operating income in 2024 compared to 2023 were primarily due to the following:

• Domestic Company-owned restaurants increased $2.5 million and decreased $0.6 million for the three and nine months ended September 24, 2023, respectively.

The three month period increase of $2.5 million was primarily due to higher revenues from comparable sales growth of 5.9% and improved results from lower food costs, partially offset by higher depreciation and utility expenses.

The impact of the 2022 refranchising decreased the

segment’s operating income by $2.3 million for the nine months ended September 25, 2022.

Excluding the impact of the 2022 refranchising, the nine month period would have increased $1.7 million primarily due to comparable sales growth of 3.8%, partially offset by higher compensation and benefit costs.

• North America franchising increased $0.8 million for the three months ended September 24, 2023 primarily due to comparable sales growth of 2.2%, partially offset by a 1.7% decrease in equivalent units.

For the nine months ended September 24, 2023, North America franchising increased $1.5 million primarily due to the impact of the 2022 refranchising.

• North America commissaries increased $2.3 million and $3.1 million for the three and nine months ended September 24, 2023, respectively.

The three month period increase of $2.3 million was primarily due to lower commodity and labor costs.

The impact of the 2022 refranchising decreased the segment’s operating income by $0.3 million for the nine months ended September 25, 2022.

Excluding the impact of the 2022 refranchising for the nine month period, North America commissaries would have increased $2.8 million primarily due to lower commodity costs and delivery costs throughout 2023 and lower volumes during the first half of 2023.

• International decreased $1.8 million and $4.8 million for the three and nine months ended September 24, 2023, respectively.

The decreases in adjusted operating income were primarily driven by operating losses attributable to the recently acquired UK Company-owned restaurants as well as comparable sales declines of 0.3% and 2.3% for the respective periods.

These decreases were partially offset by favorable commissary results from lower commodity costs.

• All Others, which primarily includes our online and mobile ordering business and our marketing funds, increased $0.3 million and decreased $1.1 million for the three and nine months ended September 24, 2023, respectively, compared to the prior year comparable periods.

The $1.1 million decrease for the nine months ended September 24, 2023 was primarily due to lower results from higher depreciation expense related to our investments in technology support initiatives.

• Unallocated corporate expenses increased $2.5 million and $7.5 million for the three and nine months ended September 24, 2023, respectively.

The increases are primarily due to higher incentive compensation and benefit costs and higher depreciation expense related to our investments in technology support initiatives.

The nine month period also included increases from higher insurance expense and costs for our franchise operating conference in the second quarter of 2023.

• Domestic Company-owned restaurants increased $3.7 million for the three months ended March 31, 2024.

The increase was primarily due to lower commodity prices, lower advertising and utility costs, partially offset by lower revenues from a 3.0% decline in comparable sales.

• North America franchising increased $0.3 million for the three months ended March 31, 2024 primarily due to a 2.1% increase in equivalent units, partially offset by a decrease in comparable sales of 1.5%.

• North America commissaries increased $1.6 million for the three months ended March 31, 2024, primarily due to the increase in the commissary fixed operating margin, which was effective in 2024, partially offset by anticipated franchisee rebates.

• International decreased $3.7 million for the three months ended March 31, 2024 primarily driven by operating losses, including increased depreciation expense attributable to the UK franchisee acquisitions as well as comparable sales declines of 2.6%.

• All Others, which primarily includes our online and mobile ordering business and our marketing funds, was in line with the prior year comparable period.

• Unallocated corporate expenses decreased $2.4 million for the three months ended March 31, 2024.

The decrease was primarily due to the reversal of stock compensation expense for unvested equity units from leadership

This decrease was partially offset by higher professional fees and depreciation expense related to our investments in technology support initiatives.

Items Below Operating Income

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

Three Months Ended Nine Months Ended Increase (Decrease)

(In thousands, except per share amounts) September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Three Months Ended Increase (Decrease)

(In thousands, except per share amounts) March 31,

2024 March 26,

Operating income $ 33,718 $ 37,796 $ (4,078)

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Net income attributable to the Company $ 14,636 $ 22,376 $ (7,740)

Calculation of net income for earnings per share:

Net income attributable to the Company $ 15,861 $ 8,331 $ 56,005 $ 44,258 $ 7,530 $ 11,747

Dividends paid to participating securities — (86) — (228) 86 228

Net income attributable to participating securities — — — (34) — 34

Net income attributable to common shareholders $ 15,861 $ 8,245 $ 56,005 $ 43,996 $ 7,616 $ 12,009

Basic earnings per common share $ 0.45 $ 0.66 $ (0.21)

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Net Interest Expense

Net interest expense increased $3.8 million and $13.7 million, or 49.3% and 76.3% for the three and nine months ended September 24, 2023, respectively, due primarily to higher average outstanding debt as well as an increase in borrowing rates in 2023.

The higher outstanding debt on our senior secured revolving credit facility (“the PJI Revolving Facility”) was primarily utilized to finance share repurchases in the first quarter of 2023.

Total debt outstanding was $790.8 million and $605.0 million as of September 24, 2023 and December 25, 2022, respectively.

Net interest expense increased $2.0 million, or 22.6% for the three months ended March 31, 2024 due primarily to higher average outstanding debt as well as an increase in borrowing rates.

Total debt outstanding was $769.3 million and $764.0 million as of March 31, 2024 and December 31, 2023, respectively.

Income Tax Expense (Benefit)

Our effective income tax rates were 22.2% and 22.7% for three and nine months ended September 24, 2023, compared to income tax rates of 28.5% and 16.8% for the prior year comparable periods.

The lower effective tax rate for the nine months ended September 25, 2022 was caused by higher excess tax benefits generated by stock option exercises and vesting of restricted shares in 2022 along with a lower pre-tax income.

Three Months Ended Nine Months Ended

(Dollars in thousands) September 24, 2023 September 25, 2022 September 24, 2023 September 25, 2022

Our effective income tax rate was 34.2% for the three months ended March 31, 2024 compared to an income tax rate of 21.6% for the prior year comparable period.

The higher effective tax rate for the three months ended March 31, 2024 was driven by impairment charges related to the International Restructuring that created unrecognized tax losses and prevented the Company from generating foreign tax credits as well as a tax shortfall generated by stock option exercises and vesting of restricted shares in 2024 along with a lower pre-tax income.

Three Months Ended

(Dollars in thousands) March 31, 2024 March 26, 2023

Income before income taxes $ 22,655 $ 28,775

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Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests was $0.1 million and $0.4 million for the three and nine months ended September 24, 2023, compared with $0.1 million and $1.4 million for the prior year comparable period.

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

Net income attributable to noncontrolling interests was $0.3 million for the three months ended March 31, 2024 compared with $0.2 million for the prior year comparable period.

Diluted Earnings Per Common Share

Diluted earnings per common share was $0.48 and $1.68 for the three and nine months ended September 24, 2023, respectively, compared to $0.23 and $1.22 for the prior year comparable period, representing increases of $0.25 and $0.46, respectively.

Adjusted diluted earnings per common share, a non-GAAP measure, was $0.53 and $1.80 for the three and nine months ended September 24, 2023, compared to adjusted diluted earnings per common share of $0.54 and $2.23 for the prior year comparable periods, representing decreases of $0.01 and $0.43, respectively.

Diluted earnings per common share was $0.44 for the three months ended March 31, 2024 as compared to $0.65 for the prior year comparable period, representing a decrease of $0.21.

Adjusted diluted earnings per common share, a non-GAAP measure, was $0.67 for the three months ended March 31, 2024 as compared to adjusted diluted earnings per common share of $0.68 for the prior year comparable period representing decreases of $0.01.

See “Non-GAAP Measures” for additional information.

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

Three Months Ended Nine Months Ended

(In thousands, except per share amounts) September 24,

2023 September 25,

2022 September 24,

2023 September 25,

Three Months Ended

(In thousands, except per share amounts) March 31,

2024 March 26,

Operating income $ 33,718 $ 37,796

UK repositioning and acquisition-related costs (a)

1,193 — 2,501 —

Refranchising and impairment losses (b)

— 905 — 26,701

Legal settlements (c)

577 10,000 577 15,000

Provision for uncollectible accounts and notes receivable (d)

— 3,227 — 3,227

Other costs (e)

— — 2,017 1,507

International restructuring costs (a)

Other costs (b)

Adjusted operating income $ 43,241 $ 39,152

Net income attributable to common shareholders $ 14,636 $ 22,376

UK repositioning and acquisition-related costs (a)

1,193 — 2,501 —

Refranchising and impairment losses (b)

— 905 — 26,701

Legal settlements (c)

577 10,000 577 15,000

Provision for uncollectible accounts and notes receivable (d)

— 3,227 — 3,227

Other costs (e)

— — 2,017 1,507

Tax effect of adjustments (f)

(404) (3,180) (1,162) (10,449)

Adjusted net income attributable to common shareholders (g)

International restructuring costs (a)

Other costs (b)

Tax effect of adjustments (c)

(2,152) (309)

Adjusted net income attributable to common shareholders $ 22,007 $ 23,423

Diluted earnings per common share $ 0.44 $ 0.65

UK repositioning and acquisition-related costs (a)

0.04 — 0.07 —

Refranchising and impairment losses (b)

— 0.03 — 0.75

Legal settlements (c)

0.02 0.28 0.02 0.42

Provision for uncollectible accounts and notes receivable (d)

— 0.09 — 0.09

Other costs (e)

— — 0.06 0.04

Tax effect of adjustments (f)

(0.01) (0.09) (0.03) (0.29)

Adjusted diluted earnings per common share (g)

International restructuring costs (a)

Other costs (b)

Tax effect of adjustments (c)

(0.06) (0.01)

Adjusted diluted earnings per common share $ 0.67 $ 0.68

___________________________________

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

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

(In thousands) Three Months Ended September 25, 2022 Nine Months Ended September 25, 2022

Refranchising impairment loss (1)

Ukraine-related charge (2)

PJUK lease impairment (3)

Total adjustment $ 905 $ 26,701

(1) Represents a one-time, non-cash charge of $8.4 million ($0.23 loss per diluted share) recorded in the first quarter of 2022 associated with the refranchising of the Company’s controlling interest in the 90-restaurant joint venture, recorded as Refranchising and impairment loss.

(2) Represents a one-time non-cash charge of $17.4 million ($0.48 loss per diluted share) on accounts receivable, notes receivable, and impairment of reacquired franchised rights in connection with the conflict in Ukraine and related government actions in the first quarter of 2022, which were recorded as Refranchising and impairment loss of $2.8 million and General and administrative expenses of $14.6 million.

(3) An impairment charge of $0.9 million on the right-of-use assets on leases recorded in the third quarter of 2022 associated with the termination of a significant franchisee in the United Kingdom, which was recorded in Refranchising and impairment loss.

Litigation, Commitments and Contingencies” for further information.

(d) Represents a $3.2 million charge recorded in the third quarter of 2022 associated with the termination of a significant franchisee in the United Kingdom related to the reserve of certain accounts and notes receivable.

(e) Represents severance and related costs associated with the transition of certain executives incurred during the three and nine months ended September 24, 2023 and September 25, 2022, which were recorded in General and administrative expenses.

(f) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rates of 22.8% and 22.5% for the three and nine-month periods ended September 24, 2023 and September 25, 2022, respectively.

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

(a) Represents costs associated with the Company’s International Restructuring plan.

Restructuring”

(b) Represents severance and related costs associated with the transition of certain executives, recorded in General and administrative expenses.

(c) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rates of 22.6% and 22.8% for the three-month periods ended March 31, 2024 and March 26, 2023, respectively.

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

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

The table below summarizes our cash flows for the nine months ended September 24, 2023 and September 25, 2022 (in thousands):

Nine Months Ended

September 24,

2023 September 25,

The table below summarizes our cash flows for the three months ended March 31, 2024 and March 26, 2023 (in thousands):

Three Months Ended

2024 March 26,

Total cash provided by (used in):

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Operating Activities

Total cash provided by operating activities was $126.9 million for the nine months ended September 24, 2023 compared to $76.6 million for the corresponding period of 2022.

The increase of $50.4 million primarily reflects favorable working capital changes, principally related to higher incentive compensation payments during the nine months ended September 25, 2022 and other current liabilities, as well as lower inventory balances stemming from lower commodity costs and higher cash collections on accounts receivable balances during 2023 due to timing of cash receipts at the beginning of the year.

Total cash provided by operating activities was $12.0 million for the three months ended March 31, 2024 compared to $40.8 million for the corresponding period of 2023.

The decrease of $28.8 million primarily reflects unfavorable working capital changes in the first quarter of 2024, principally related to the timing of payments and higher accrual balances at December 31, 2023 related to the 53rd week of our 2023 fiscal year.

These factors resulted in several large disbursements during the first quarter of 2024, driving outflows in working capital.

In addition, in the first quarter of 2024 compared to the first quarter of 2023, depreciation expenses were higher due to the UK franchisee acquisitions and impairment charges were incurred due to UK restructuring initiatives, partially offset by stock compensation expense reversal for unvested equity units as a result of leadership transitions.

Investing Activities

Total cash used in investing activities was $57.7 million for the nine months ended September 24, 2023 compared to $30.2 million for the same period in 2022, or an increase of $27.4 million.

The increase in cash used in investing activities was primarily due to cash proceeds of $14.0 million, net of transaction costs, received from the 2022 refranchising during the nine months ended September 25, 2022.

Additionally, the Company paid $5.6 million to purchase 37 International and Domestic restaurants and issued $7.3 million of construction and development notes during the nine months ended September 24, 2023.

Total cash used in investing activities was $10.2 million for the three months ended March 31, 2024 compared to $18.3 million for the same period in 2023, or a decrease of $8.1 million.

The decrease in cash used in investing activities was primarily due to lower capital expenditures in the first quarter of 2024 as compared to 2023.

We also received a $2.3 million investment distribution in the first quarter of 2024 related to our deferred compensation plan.

Our capital expenditures consisted primarily of capital investments for existing stores, new store locations and capital expenditures for strategic initiatives.

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Financing Activities

Total cash used in financing activities was $79.1 million for the nine months ended September 24, 2023 compared to $79.2 million for the same period of 2022.

In 2023, cash used for financing activities includes outflows of $210.3 million in share repurchases and $43.6 million of common stock dividends paid, partially offset by net borrowings of $171.0

million from the PJI Revolving Facility and $14.8 million from the PJMF revolving line of credit (the “PJMF Revolving Facility”).

In 2022, cash used for financing activities includes outflows of $95.0 million in share repurchases and $39.9 million of dividends paid, partially offset by net borrowings of $67.0 million from the PJI Revolving Facility.

Our outstanding debt as of September 24, 2023 was $790.8 million, which was comprised of $400.0 million of our 3.875% senior notes (the “Notes”) and $390.8 million outstanding under the PJI Revolving Facility and the PJMF Revolving Facility.

Remaining availability under the PJI Revolving Facility was approximately $224.0 million as of September 24, 2023.

Our Credit Agreement, dated September 14, 2021, contains affirmative and negative covenants that, among other things, require customary reporting obligations and restrict, subject to certain exceptions, the incurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates.

Total cash used in financing activities was $14.6 million for the three months ended March 31, 2024 compared to $23.2 million for the same period of 2023.

In the first quarter of 2024, the principal financing outflows were related to dividend payments of $15.1 million, $3.2 million in tax payments on equity award issuances and $2.4 million in payments

related to financing leases.

These outflows were offset by net borrowings of $3.5 million from the PJI Revolving Facility and $1.8 million from the PJMF revolving line of credit (the “PJMF Revolving Facility”).

There were no share repurchases in the first quarter of 2024.

In the first quarter of 2023, cash used for financing activities primarily reflects the impact of share repurchases of $209.6 million, which were financed through $208.2 million in net borrowing from the PJI Revolving Facility.

Other financing outflows in the first quarter of 2023 included $14.6 million in dividend payments, $6.0 million in tax payments on equity award issuances and $1.7 million in payments related to financing leases.

Our outstanding debt as of March 31, 2024 was $769.3 million, which was comprised of $400.0 million principal amount of our 3.875% senior notes (the “Notes”) and $369.3 million outstanding under the PJI Revolving Facility and the PJMF Revolving Facility.

Remaining availability under the PJI Revolving Facility was approximately $232.5 million as of March 31, 2024.

Our Credit Agreement, dated September 14, 2021 and amended May 30, 2023 (as amended, the “Credit Agreement”), contains affirmative and negative covenants that, among other things, require customary reporting obligations and restrict, subject to certain exceptions, the incurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates.

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

Permitted Ratio Actual Ratio as of September 24, 2023

Permitted Ratio Actual Ratio as of March 31, 2024

Leverage ratio Not to exceed 5.25 to 1.0 3.1 to 1.0

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

We were in compliance with all financial covenants as of September 24, 2023.

We were in compliance with all financial covenants as of March 31, 2024.

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

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

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

The PJMF Revolving Facility consists of a $30.0 million revolving line of credit pursuant to a Revolving Loan Agreement, dated September 30, 2015, and amended September 30, 2023, with U.S.

Bank National Association, as lender.

Debt outstanding under the PJMF Revolving Facility was approximately $14.8 million as of September 24, 2023.

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.

Debt outstanding under the PJMF Revolving Facility was approximately $1.8 million as of March 31, 2024.

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

Refer to Note 12 of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information.

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

The following table summarizes our repurchase activity under these 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

The following table summarizes our repurchase activity under this program for the three months ended March 31, 2024 and March 26, 2023:

(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) 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 at a price of $82.52 per share for aggregate consideration of $179.6 million.

Three Months Ended

March 31, 2024 — $ — $ — $ 90,160

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

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

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

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

The Company paid aggregate dividends to common stockholders of $43.6 million ($1.30 per share) and $39.9 million ($1.12 per share) for the nine months ended September 24, 2023 and September 25, 2022, respectively.

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 Company paid aggregate dividends to common stockholders of $15.1 million ($0.46 per share) and $14.6 million ($0.42 per share) for the three months ended March 31, 2024 and March 26, 2023, respectively.

On May 2, 2024, our Board of Directors declared a first quarter dividend of $0.46 per common share (approximately $15.2 million in the aggregate), which will be paid on May 31, 2024 to stockholders of record as of the close of business on May 20, 2024.

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

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

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

Nine Months Ended

September 24,

2023 September 25,

The Company’s free cash flow was as follows for the three month periods of 2024 and 2023 (in thousands):

Three Months Ended

2024 March 26,

Net cash provided by operating activities $ 11,987 $ 40,788

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Forward-Looking Statements

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

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, 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, 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, dividends, effective tax rates, regulatory changes and impacts, investments in the UK market, adoption of new accounting standards, and other financial and operational measures.

Such forward-looking statements include or may relate to projections or guidance concerning

business performance, revenue, earnings, cash flow, earnings per share, share repurchases, the current economic environment, commodity and labor costs, currency fluctuations, profit margins, 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 plans, timing and costs, 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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• 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 conflict 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 recession or downturn that could, among other things, reduce consumer spending or demand and result in changing consumer practices;

• 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;

• increased risks associated with our International operations, including economic and political conditions, instability or uncertainty in our international markets, especially emerging markets, fluctuations in currency exchange rates, difficulty in meeting planned sales targets and new restaurant growth;

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

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• 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 security breaches, including theft of confidential Company, employee and customer information, including payment cards;

• 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.

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

– Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2022, as updated by “Part II.

- Risk Factors” in our Quarterly Report on Form 10-Q for the three and six months ended June 25, 2023 and they may be updated from time to time in our future reports filed with the Securities and Exchange Commission.

– Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis