What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 251 added, 190 removed, 285 unchanged (61% 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 Johns began operations in 1984.

As of June 30, 2024, there were 5,883 Papa John’s restaurants in operation, consisting of 570 Company-owned and 5,313 franchised restaurants operating in 49 countries and territories.

As of September 29, 2024, there were 5,908 Papa John’s restaurants in operation, consisting of 550 Company-owned and 5,358 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 second 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 half of 2024, the Company made significant progress against our priorities of Back to Better 2.0 and International Transformation.

Back to Better 2.0

In this current economic cycle, consumers have become more deliberate in managing their overall ticket and are showing a preference for brands that are offering compelling value.

As such, we are shifting our efforts and investments to focus on initiatives that improve our price/value perception and improve our digital and loyalty experience to increase conversion and reduce friction within the customer experience.

While we are making progress against our strategic initiatives in 2024, as described below, we anticipate the challenging sales trends we experienced in the third quarter to continue throughout the remainder of the fiscal year and into 2025.

North America Strategic Initiatives

• Product innovation and marketing strategy:

In the second quarter, the approved contribution rate increase to PJMF became effective, while local marketing spend remains optional.

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

In earlier 2024, 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.

Additionally during the quarter, we brought back the Cheesy Burger Pizza platform, which is available across a trio of menu items and price points.

This strategy shift was intended to increase the productivity of franchisees’ marketing contributions by leveraging the scale that national investments deliver.

Additionally, in the first half of 2024 we launched an all-new brand platform “Better Get You Some” that was part of our deepened commitment to, and investment in, our new marketing strategy.

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

In the third quarter, we evolved our messaging and promotions to showcase our better ingredients, better pizza at appropriately-valued price points to improve our overall value perception.

We believe if we maintain an appropriate balance of value offerings and premium products, it will lead to improving sales trends over time.

• Digital and loyalty strategy:

Most of our sales occur through digital channels and we are actively identifying opportunities to more quickly access information, streamline the ordering journey and improve the overall user experience.

In the third quarter, we rolled out an App update that improves call to actions and navigation, elevates imagery and more prominently features loyalty rewards.

• Domestic commissary growth strategy:

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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 $17.9 million incurred through the second quarter of 2024), which the Company currently expects to be recognized in 2024 and 2025.

Total estimated pre-tax costs associated with the International Transformation Plan are expected to be approximately $25 million to $35 million (inclusive of the $21.7 million incurred through the third 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.

During the second quarter of 2024, the Company has made significant progress in executing the International Transformation Plan, with specific actions around UK Optimization as follows:

• During the second quarter, we completed several transactions to optimize the UK Company-owned restaurant portfolio.

On May 15, 2024, we completed the planned closure of 43 underperforming UK Company-owned restaurants.

In June, we successfully refranchised 40 formerly Company-owned restaurants to existing franchisees.

On July 1, 2024, we refranchised an additional 20 formerly Company-owned restaurants to primarily existing franchisees.

Beginning with the third quarter of 2024, we will continue to operate only 13 Company-owned restaurants in the UK.

We have also continued evaluating and right-sizing the UK franchise base, resulting in the closure of 19 franchised locations during the first six months of 2024.

Based on these actions, and the continued operating success of our franchisees, we anticipate the UK market to be profit accretive in the second half of 2024.

• We are finalizing the evaluation of our restaurant portfolio in the UK, which may result in limited strategic restaurant closures with the Company’s efforts turning towards growth opportunities within this market as we complete optimization of the portfolio.

During 2024, the Company has made significant progress in executing the International Transformation Plan, with specific actions around UK Optimization as follows:

• During the second quarter, we completed the planned closure of 43 underperforming UK Company-owned restaurants and successfully refranchised 40 formerly Company-owned restaurants to existing franchisees.

• During the third quarter, we refranchised an additional 20 formerly Company-owned restaurants to primarily existing franchisees, with only 13 Company-owned restaurants remaining in operation in the UK.

We have also continued evaluating and right-sizing the UK franchise base, resulting in the closure of 11 franchised locations during the third quarter and 30 total franchised locations during the first nine months of 2024.

As a result of these actions, we saw year-over-year improvement in the profitability of the UK market in the third quarter, and we continue to optimize the region through exiting leases and other contracts as well as transforming our operations to increase efficiency and effectiveness.

• We have completed nearly all of the strategic restaurant closures in the UK market and the Company’s efforts are turning towards growth opportunities and mitigating closure-related costs as we complete optimization of the portfolio.

Global Restaurant Sales and Unit Information

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

Three Months Ended Six Months Ended

Amounts below exclude the impact of foreign currency June 30,

2024 June 25,

2023 June 30,

2024 June 25,

Three Months Ended Nine Months Ended

Amounts below exclude the impact of foreign currency September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Comparable sales growth (decline):

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North America restaurants (4.0)% 3.9% (2.5)% 1.8%

International restaurants 2.9% 8.6% 2.2% 5.8%

Total global system-wide restaurant sales growth (decline) (0.7)% 2.0% (0.8)% 2.0%

Restaurant Progression Three Months Ended Six Months Ended

2024 June 25,

2023 June 30,

2024 June 25,

International restaurants (a)

—% 8.8% 2.2% 6.8%

Total global system-wide restaurant sales growth (decline) (a)

(3.0)% 5.1% (1.4)% 3.0%

___________________________________

(a) System-wide sales for the nine months ended September 29, 2024 includes $7.1 million of International sales related to the first and second quarters of 2024 that were erroneously omitted in prior periods.

Restaurant Progression Three Months Ended Nine Months Ended

September 29,

2024 September 24,

2023 September 29,

2024 September 24,

North America Company-owned:

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Acquired — 9 — 10

Refranchised — (4) — (4)

End of period 537 526 537 526

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Sold — (9) — (10)

Refranchised — 4 — 4

End of period 2,917 2,871 2,917 2,871

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Total restaurants – end of period 5,908 5,817 5,908 5,817

Trailing four quarters net store growth 111 209

Trailing four quarters net restaurant growth 91 236

Results of Operations

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

Three Months Ended Six Months Ended Increase

(Dollars in thousands) June 30,

2024 June 25,

2023 June 30,

2024 June 25,

Three Months Ended Nine Months Ended Increase

(In thousands) September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Domestic Company-owned restaurant sales $ 168,672 $ 177,195 $ 518,103 $ 532,841 (4.8) % (2.8) %

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In the second and third quarters of 2023, the Company acquired 118 formerly franchised restaurants in the UK (the “UK franchisee acquisitions”).

In the second quarter of 2024, the Company completed the previously-announced closure of 43 Company-owned restaurants in the UK and also refranchised 40 Company-owned restaurants in the UK.

In the second and third quarters of 2024, the Company completed the closure of 43 Company-owned restaurants in the UK and also refranchised 60 formerly Company-owned restaurants in the UK.

After prior disposals of two mobile restaurants, the Company operated 13 UK Company-owned restaurants during the third quarter of 2024.

These transactions impact the composition of International revenues and the results of the International segment during the periods presented.

On July 1, 2024, the Company refranchised an additional 20 Company-owned restaurants in the UK.

After prior disposals of two mobile units, the Company is operating 13 UK Company-owned restaurants beginning in the third quarter of 2024.

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

Total revenues decreased $6.6 million or 1.3% to $507.9 million for the three months ended June 30, 2024 and decreased $19.8 million or 1.9% to $1.02 billion for the six months ended June 30, 2024, as compared to each prior year comparable period.

Changes in total revenues are impacted by the transactions noted above and as detailed in the discussion below.

Domestic Company-owned restaurant sales decreased $2.6 million, or 1.5%, for the three months ended June 30, 2024 and decreased $6.2 million, or 1.7% for the six months ended June 30, 2024, as compared to each prior year comparable period.

The decrease was primarily due to declines in comparable sales of 4.2% and 3.6% for the three and six months ended June 30, 2024, respectively.

Total revenues decreased $16.0 million, or 3.1%, to $506.8 million for the three months ended September 29, 2024 and decreased $35.8 million, or 2.3%, to $1.5 billion for the nine months ended September 29, 2024, as compared to each prior year comparable period.

Domestic Company-owned restaurant sales decreased $8.5 million, or 4.8%, for the three months ended September 29, 2024 and decreased $14.7 million, or 2.8%, for the nine months ended September 29, 2024, as compared to each prior year comparable period.

The decreases were primarily due to declines in comparable sales of 6.7% and 4.6% for the three and nine months ended September 29, 2024, respectively, due to lower transaction volumes.

The comparable sales declines were partially offset by increased equivalent units of 3.8% and 2.2% for the same respective periods.

North America franchise royalties and fees decreased $0.3 million, or 0.9%, for the three months ended June 30, 2024 and decreased $0.7 million, or 1.0% for the six months ended June 30, 2024, each as compared to each prior year comparable period.

The decreases are primarily due to comparable sales declines of 3.4% and 2.4%, respectively.

These declines were partially offset by lower royalty waivers in 2024 as compared to 2023 and growth in units.

Equivalent units increased 3.7% and 3.3% for the three and six months ended June 30, 2024, respectively.

North America franchise restaurant sales decreased 2.0% to $732.5 million for the three months ended June 30, 2024 compared to the prior year comparable period.

North America franchise restaurant sales decreased 1.8% to $1.5 billion for the six months ended June 30, 2024 as compared to the prior year comparable period.

North America franchise royalties and fees decreased $1.2 million, or 3.5%, for the three months ended September 29, 2024 and decreased $1.9 million, or 1.8%, for the nine months ended September 29, 2024, as compared to each prior year comparable period.

The decreases are primarily due to comparable sales declines of 5.3% and 3.4% for the three and nine months ended September 29, 2024, respectively, partially offset by growth in equivalent units and lower royalty waivers in 2024 as compared to 2023.

Equivalent units increased 3.5% and 2.7% for the three and nine months ended September 29, 2024, respectively, as compared to each prior year comparable period.

North America franchise restaurant sales decreased 3.9% to $720.7 million for the three months ended September 29, 2024 compared to the prior year comparable period.

North America franchise restaurant sales decreased 2.5% to $2.2 billion for the nine months ended September 29, 2024 as 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 $8.8 million or 4.2% for the three months ended June 30, 2024 and decreased $18.1 million, or 4.3% for the six months ended June 30, 2024, each as compared with the prior year comparable period.

The declines were due to a combination of lower commodity prices , particularly cheese, and lower volumes.

International revenues increased $5.1 million, or 14.7%, for the three months ended June 30, 2024 and increased $14.3 million, or 21.7% for the six months ended June 30, 2024, each as compared with the prior year comparable period.

As mentioned above, the UK franchisee acquisitions in 2023 and the UK restaurant closures and refranchising transactions in the second quarter of 2024 impact the comparability of International revenues earned in each period.

The net increase in revenue related to the UK franchisee acquisitions was approximately $5.2 million and $14.9 million for the three and six months ended June 30, 2024, respectively, representing sales and royalties attributable to this group of restaurants compared to prior year.

Excluding the impact of the UK franchisee acquisitions, International revenues would have decreased $0.1 million and $0.6 million for the three and six months ended June 30, 2024, respectively.

International franchise restaurant sales decreased $10.4 million to $287.1 million and decreased $28.8 million to $562.2 million for the three and six months ended June 30, 2024, respectively.

This decrease includes the impact of the UK franchisee acquisitions moving out of franchise restaurant sales and into Company-owned sales.

Excluding the impact of the UK franchisee acquisitions and foreign currency fluctuations, International franchise restaurant sales increased $12.2 million or 4.3% and $16.4 million or 2.9% for the three and six months ended June 30, 2024, respectively.

The main drivers in the lower franchise restaurant sales were the North America comparable sales declines, partially offset by equivalent unit growth noted above.

North America commissary revenues increased $5.5 million or 2.7% for the three months ended September 29, 2024 and decreased $12.6 million, or 2.0% for the nine months ended September 29, 2024, as compared to each prior year

comparable period.

The increase for the three months ended September 29, 2024 was primarily due to higher commodity prices during the quarter, particularly cheese and chicken, partially offset by lower volumes.

The decline for the nine months ended September 29, 2024 was due to a combination of lower commodity prices during the first half of the year and lower volumes.

North America commissary revenues during the three and nine months ended September 29, 2024 also benefited from the previously-disclosed increase to the fixed operating margin charged to Domestic QC Centers that took effect during the first quarter of 2024.

International revenues decreased $9.9 million, or 23.1%, for the three months ended September 29, 2024 and increased $4.4 million, or 4.1% for the nine months ended September 29, 2024, as compared to each prior year comparable period.

As mentioned above, the UK franchisee acquisitions in 2023 and the UK restaurant closures and refranchising transactions in the second and third quarters of 2024 impacted the comparability of International revenues earned in each period.

The net change in revenue related to the UK franchisee acquisitions was a decrease of approximately $9.0 million and an increase of approximately $6.3 million for the three and nine months ended September 29, 2024, respectively, representing sales and royalties attributable to this group of restaurants compared to prior year.

Excluding the impact of the UK franchisee acquisitions, International revenues would have decreased $0.9 million and $1.8 million for the three and nine months ended September 29, 2024, respectively, due primarily to comparable sales declines of 2.8% and 1.8%, respectively.

International franchise restaurant sales increased $8.3 million to $297.6 million and decreased $15.4 million to $864.8 million for the three and nine months ended September 29, 2024, respectively.

As mentioned above, the UK franchisee acquisitions in 2023 and the UK refranchising transactions in the second and third quarters of 2024 impacted the comparability of International franchise restaurant sales.

Excluding the impact of the UK franchisee acquisitions and foreign currency fluctuations, International franchise restaurant sales would have increased $5.7 million, or 2.0%, and increased $26.6 million, or 3.1%, for the three and nine months ended September 29, 2024, respectively.

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 and online and mobile ordering business, were flat and decreased $9.2 million, or 7.1%, for the three and six months ended June 30, 2024 compared to the prior year comparable periods.

Our results for the three and six months ended June 25, 2023 included revenues of $4.8 million and $9.9 million, respectively, related to Preferred Marketing, our formerly wholly-owned print and promotions company which was sold in the fourth quarter of 2023.

This was offset during the second quarter of 2024 primarily by a $4.2 million increase in marketing fees due to a planned increase in the national marketing fund contribution percentage that went into effect during the quarter and an increase in franchised locations.

Other revenues, which primarily includes our national marketing funds and online and mobile ordering business, decreased $1.9 million, or 3.0%, and decreased $11.0 million, or 5.7%, for the three and nine months ended September 29, 2024 compared to the prior year comparable periods.

Our results for the three and nine months ended September 24, 2023 included revenues of $4.8 million and $14.7 million, respectively, related to Preferred Marketing, our formerly wholly-owned print and promotions company which was sold in the fourth quarter of 2023.

This decrease was offset during the three and nine months ended September 29, 2024 by a $3.5 million and $7.7 million increase in marketing fees, respectively, due primarily to a planned increase in the national marketing fund contribution percentage that went into effect during the quarter and an increased in franchised locations.

Costs and Expenses

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

(Dollars in thousands) Three Months Ended

June 30, 2024 % of Related

Revenues June 25, 2023 % of Related

(In thousands) Three Months Ended

September 29,

2024 % of Related

Revenues September 24, 2023 % of Related

Revenues Increase (Decrease) in % of Revenues

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Operating income $ 65,229 12.9 % $ 31,868 6.1 % 6.8 %

(Dollars in thousands) Six Months Ended

June 30, 2024 % of Related

Revenues June 25, 2023 % of Related

(In thousands) Nine Months Ended

September 29, 2024 % of Related

Revenues September 24, 2023 % of Related

Revenues Increase (Decrease) in % of Revenues

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Operating income $ 127,173 8.3 % $ 104,576 6.7 % 1.6 %

Total costs and expenses were $479.7 million or 94.4% of total revenues for the three months ended June 30, 2024 as compared to $479.6 million or 93.2% of total revenues for the prior year comparable period.

For the six months ended June 30, 2024, total costs and expenses were $959.9 million or 93.9% of total revenues, as compared to $968.9 million, or 93.0% of total revenues for the prior year comparable period.

Total costs and expenses were $441.6 million or 87.1% of total revenues for the three months ended September 29, 2024 as compared to $490.9 million or 93.9% of total revenues for the prior year comparable period.

Total costs and expenses for the three months ended September 29, 2024 include a pre-tax gain on sale of two Domestic QC Centers of approximately $41.3 million, net of transaction costs, which was recorded within General and administrative expenses in the Condensed Consolidated Statements of Operations.

For the nine months ended September 29, 2024, total costs and expenses were $1,401.4 million, or 91.7% of total revenues, as compared to $1,459.8 million, or 93.3% 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 $138.0 million or 79.7% of related revenues for the three months ended June 30, 2024 as compared to expenses of $143.7 million or 81.8% of related revenues for the prior year period.

For the six months ended June 30, 2024 Domestic Company-owned restaurant expenses were $276.8 million or 79.2% of related revenues as compared to expenses of $291.5 million or 82.0% of related revenues for the prior year comparable period.

The quarter and year-to-date decreases of 2.1% and 2.8%, respectively, were primarily due to lower insurance expenses related to improved auto liability claims experience, lower utility costs, and lower advertising spend that we expect to incur later in 2024.

North America commissary expenses were $182.3 million, or 92.0% of related revenues for the three months ended June 30, 2024 as compared to $190.5 million, or 92.0% of related revenues for the prior year comparable period.

six months ended June 30, 2024 North America commissary expenses were $367.5 million, or 91.5% of related revenues as compared to $386.9 million, or 92.2% of related revenues for the prior year comparable period.

The expense, as a percentage of related revenues, was flat and decreased 0.7% for the three and six months ended June 30, 2024 primarily due to declining commodity prices for cheese and lower volumes.

International expenses were $27.1 million, or 68.2% of related revenues for the three months ended June 30, 2024 as compared to $20.4 million, or 59.0% of related revenues for the prior year comparable period.

For the six months ended June 30, 2024, International expenses were $55.4 million, or 68.9% of related revenues as compared to expenses of $37.7 million, or 57.1% 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 $57.0 million, or 91.3% of related revenues for the three months ended June 30, 2024, as compared to $59.0 million, or 94.5% for the prior year comparable period.

For the six months ended June 30, 2024, Other expenses were $108.7 million, or 90.3% of related revenues as compared to expenses of $120.1 million, or 92.7% of related revenues for the prior year comparable period.

The decrease reflects $4.7 million and $9.5 million of expenses incurred for the three and six months ended June 25, 2023 related to Preferred Marketing, our formerly wholly-owned print and promotions company, which was sold in the fourth quarter of 2023.

This decrease was partially offset during the second quarter of 2024 by a $3.8 million increase in advertising expenses due to a planned increase in the national marketing fund contribution percentage that went into effect during the quarter and an increase in franchised locations.

Domestic Company-owned restaurant expenses were $142.4 million, or 84.4% of related revenues for the three months ended September 29, 2024 as compared to expenses of $145.4 million, or 82.1% of related revenues for the prior year period.

For the nine months ended September 29, 2024 Domestic Company-owned restaurant expenses were $419.2 million, or 80.9% of related revenues as compared to expenses of $436.9 million, or 82.0% of related revenues for the prior year comparable period.

The increase of 2.3% as a percentage of revenues during the third quarter was due mainly to higher food ingredient costs, particularly cheese and chicken.

The 1.1% decrease as a percentage of revenues during the nine months ended September 29, 2024 was primarily due to lower insurance expenses related to improved auto liability claims experience, lower utility costs, and lower advertising spend in the first half of the year.

North America commissary expenses were $193.8 million, or 92.1% of related revenues for the three months ended September 29, 2024 as compared to $189.6 million, or 92.5% of related revenues for the prior year comparable period.

For the nine months ended September 29, 2024 North America commissary expenses were $561.3 million, or 91.7% of related revenues as compared to $576.4 million, or 92.3% of related revenues for the prior year comparable period.

The expense, as a percentage of related revenues, decreased 0.4% and 0.6% for the three and nine months ended September 29, 2024, respectively, primarily due to an increase to the fixed operating margin charged to Domestic QC Centers that took effect during the first quarter of 2024 and lower commodity prices for cheese during the first half of the year .

International expenses were $19.0 million, or 57.5% of related revenues for the three months ended September 29, 2024, as compared to $29.8 million, or 69.4% of related revenues for the prior year comparable period.

For the nine months ended September 29, 2024, International expenses were $74.4 million, or 65.6% of related revenues as compared to expenses of $67.5 million, or 62.0% of related revenues for the prior year comparable period.

International expenses increased in the first six months of 2024 when compared to the prior year comparable period as a result of the UK franchisee acquisitions, which added operating costs related to Company-owned restaurants.

The Company is only operating 13 UK Company-owned restaurants beginning in the third quarter of 2024, leading to a decrease in related expenses.

Other expenses were $55.5 million, or 91.2% of related revenues for the three months ended September 29, 2024, as compared to $57.6 million, or 91.8% for the prior year comparable period.

For the nine months ended September 29, 2024, Other expenses were $164.3 million, or 90.6% of related revenues as compared to expenses of $177.7 million, or 92.4% of related revenues for the prior year comparable period.

The decrease primarily reflects $4.7 million and $14.2 million of expenses incurred for the three and nine months ended September 24, 2023 related to Preferred Marketing, our formerly wholly-owned print and promotions company, which was sold in the fourth quarter of 2023.

General and Administrative Expenses

General and Administrative (“G&A”) expenses were $57.7 million, or 11.4% of revenues for the three months ended June 30, 2024 as compared to $50.3 million, or 9.8% of revenues for the prior year comparable period.

For the six months ended June 30, 2024, G&A expenses were $116.2 million or 11.4% of revenues compared to $102.3 million or 9.8% of revenues for the prior year comparable period.

G&A expenses increased $7.4 million and $13.9 million, respectively, for the three and six months ended June 30, 2024 primarily due to $6.1 million and $15.7 million incurred related to the International Transformation Plan (see “Note 9.

Restructuring”) as well as $4.0 million related to a non-cash impairment charge to write down the carrying value of property and equipment and intangible assets for certain Domestic restaurants.

This increase was partially offset by lower equity compensation costs related to leadership changes and lower costs in 2024 as the bi-annual franchise operating conference took place in 2023.

General and Administrative (“G&A”) expenses were $13.6 million, or 2.7% of revenues for the three months ended September 29, 2024, as compared to $52.2 million, or 10.0% of revenues for the prior year comparable period.

For the nine months ended September 29, 2024, G&A expenses were $129.7 million or 8.5% of revenues compared to $154.4 million or 9.9% of revenues for the prior year comparable period.

G&A expenses consisted of the following:

Three Months Ended Nine Months Ended

(In thousands) September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Administrative and other general expenses, net (a)

$ 49,485 $ 49,034 $ 146,006 $ 147,271

Gain on sale of QC Center properties (b)

(41,289) — (41,289) —

International restructuring costs (c)

3,862 — 19,514 —

Other costs (d)

1,495 1,369 5,495 4,092

UK repositioning and acquisition-related costs (e)

— 1,193 — 2,501

Legal settlement accruals (f)

General and administrative expenses $ 13,553 $ 52,173 $ 129,726 $ 154,441

(a) Administrative and other general expenses, net increased by $0.5 million and decreased by $1.3 million during the three and nine months ended September 29, 2024, respectively.

The decrease during the nine months ended September 29, 2024 was primarily due to lower equity compensation costs related to leadership changes and lower costs in 2024 as the bi-annual franchise operating conference took place in 2023, partially offset by higher labor costs and professional fees.

(b) Represents pre-tax gain on sale of Texas and Florida QC Center properties, net of transaction costs.

See “Note 11.

Divestitures”.

Restructuring”.

(d) For the three and nine months ended September 29, 2024, represents non-cash impairment charges related primarily to fixed and intangible assets from the refranchising of 15 Domestic Company-owned restaurants.

Divestitures.

For the three and nine months ended September 24, 2023, represents severance and related costs associated with the transition of certain executives.

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

(f) Represents accruals for certain legal settlements.

Depreciation and Amortization

Depreciation and amortization expense was $17.6 million, or 3.5% of revenues for the three months ended June 30, 2024, as compared to $15.7 million, or 3.0% of revenues for the prior year comparable period.

For the six months ended June 30, 2024, depreciation and amortization expense was $35.3 million, or 3.5% of revenues as compared to $30.4 million, or 2.9% of revenues for the prior year comparable period.

The increases of $1.9 million and $4.9 million, respectively, for the three and six months ended June 30, 2024, was primarily due to higher depreciation expense related to our investments in technology platforms and the UK franchisee acquisitions.

Depreciation and amortization expense was $17.3 million, or 3.4% of revenues for the three months ended September 29, 2024, as compared to $16.4 million, or 3.1% of revenues for the prior year comparable period.

For the nine months ended September 29, 2024, depreciation and amortization expense was $52.5 million, or 3.4% of revenues as compared to $46.8 million, or 3.0% of revenues for the prior year comparable period.

The increases of $0.9 million and $5.7 million, respectively, for the three and nine months ended September 29, 2024, were primarily due to higher depreciation expense related to 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 June 30, 2024 Three Months Ended June 25, 2023

Three Months Ended September 29, 2024 Three Months Ended September 24, 2023

(In thousands) Reported Adjustments (a)

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Total $ 65,229 $ (35,932) $ 29,297 $ 31,868 $ 1,770 $ 33,638 $ 33,361 $ (4,341)

Six Months Ended June 30, 2024 Six Months Ended June 25, 2023

Nine Months Ended September 29, 2024 Nine Months Ended September 24, 2023

(In thousands) Reported Adjustments (a)

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GAAP measure.

Operating income was $28.2 million and $61.9 million for the three and six months ended June 30, 2024, respectively, as compared to $34.9 million and $72.7 million for the prior year comparable periods, a decrease of $6.7 million and $10.8 million, respectively.

Adjusted operating income was $38.4 million and $81.6 million for the three and six months ended June 30, 2024, respectively, as compared to $36.9 million and $76.0 million for the prior year comparable periods, an increase of $1.5 million and $5.6 million, respectively.

Operating income was $65.2 million and $127.2 million for the three and nine months ended September 29, 2024, respectively, as compared to $31.9 million and $104.6 million for the prior year comparable periods, an increase of $33.4 million and $22.6 million, respectively.

Adjusted operating income was $29.3 million and $110.9 million for the three and

nine months ended September 29, 2024, respectively, as compared to $33.6 million and $109.7 million for the prior year comparable periods, respectively, representing a decrease of $4.3 million and increase of $1.2 million, respectively.

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

• Domestic Company-owned restaurants increased $2.1 million and $5.8 million for the three and six months ended June 30, 2024.

The increase was primarily due to lower advertising, utility and insurance costs, combined with lower commodity prices, which were partially offset by lower revenues from 4.2% and 3.6% declines in comparable sales for the respective periods.

• North America franchising increased $0.3 million and $0.6 million for the three and six months ended June 30, 2024.

The increase is primarily due to a 3.7% and 3.3% increase in equivalent units, partially offset by a decrease in comparable sales of 3.4% and 2.4% for the respective periods.

• North America commissaries increased $1.0 million and $2.6 million for the three and six months ended June 30, 2024, primarily due to the increase in the commissary fixed operating margin, which became effective in 2024, partially offset by anticipated franchisee rebates.

• International decreased $1.6 million and $5.3 million for the three and six months ended June 30, 2024 primarily driven by operating losses including increased depreciation expense attributable to the UK franchisee acquisitions as well as comparable sales declines of 0.1% and 1.4% for the respective periods.

As mentioned above, during the second quarter of 2024, 43 of the UK Company-owned restaurants were closed and an additional 40 were refranchised.

20 additional UK Company-owned restaurants were refranchised effective July 1, 2024.

Beginning in the third quarter of 2024, we will operate 13 Company-owned stores in the UK.

• All Others, which primarily includes our online and mobile ordering business and our marketing funds, increased $0.8 million and $0.9 million during the three and six months ended June 30, 2024 primarily due to prior year losses incurred by Preferred Marketing, our formerly wholly-owned print and promotions company, which was sold in the fourth quarter of 2023.

• Unallocated corporate expenses increased $0.6 million for three months ended June 30, 2024 and decreased $1.8 million for the six months ended June 30, 2024.

The decrease during the year-to-date period was primarily due to the reversal of stock compensation expense for unvested equity units from leadership transitions, which was partially offset by higher depreciation expense related to our investments in technology support initiatives.

• Domestic Company-owned restaurants decreased $6.4 million and $0.6 million for the three and nine months ended September 29, 2024.

The decreases were primarily due to lower revenues from 6.7% and 4.6% declines in comparable sales for the respective periods and higher food ingredient costs during the third quarter of 2024, specifically cheese and chicken.

For the most part, these food cost increases were not passed onto customers due to our focus on value perception.

These factors were partially offset by lower insurance, utility costs, and commodity costs in the first half of 2024.

• North America franchising decreased $0.4 million and increased $0.2 million for the three and nine months ended September 29, 2024.

The variances are primarily driven by a 3.5% and 2.7% increase in equivalent units and a decrease in comparable sales of 5.3% and 3.4% for the respective periods as well as lower royalty waivers in 2024 as compared to 2023.

• North America commissaries increased $1.6 million and $4.2 million for the three and nine months ended September 29, 2024, primarily due to the increase in the commissary fixed operating margin, which became effective in 2024, partially offset by anticipated franchisee rebates.

• International increased $0.4 million and decreased $4.9 million for the three and nine months ended September 29, 2024.

As mentioned above, we have closed 43 of the UK Company-owned restaurants and refranchised an additional 60 restaurants under the International Transformation Plan during 2024, resulting in operations of only 13 Company-owned restaurants in the UK beginning in the third quarter of 2024.

These shifts in Company-owned restaurants favorably impacted International adjusted operating income during the third quarter.

The year-to-date decrease in adjusted operating income was primarily driven by operating losses attributable to the UK Company-owned restaurants, including higher depreciation expense, during the periods where we were operating more restaurants.

International adjusted operating income was also negatively impacted by comparable sales declines of 2.8% and 1.8% for the respective periods.

• All Others, which primarily includes our online and mobile ordering business and our marketing funds, increased $0.5 million and $1.3 million during the three and nine months ended September 29, 2024 primarily due to prior year losses incurred by Preferred Marketing, our formerly wholly-owned print and promotions company, which was sold in the fourth quarter of 2023.

• Unallocated corporate expenses increased $0.9 million for three months ended September 29, 2024 and decreased $0.9 million for the nine months ended September 29, 2024.

The decrease during the year-to-date period was primarily due to the reversal of stock compensation expense for unvested equity compensation awards from leadership transitions incurred primarily during the first three months of 2024, which was partially offset by higher 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 Six Months Ended Increase (Decrease)

(In thousands, except per share amounts) June 30,

2024 June 25,

2023 June 30,

2024 June 25,

Three Months Ended Nine Months Ended Increase (Decrease)

(In thousands, except per share amounts) September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Operating income $ 65,229 $ 31,868 $ 127,173 $ 104,576 $ 33,361 $ 22,597

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Net income before attribution to noncontrolling interests 41,788 15,951 69,238 56,356 25,837 12,882

Net income attributable to noncontrolling interests (293) (91) (571) (261) (202) (310)

Net loss (income) attributable to noncontrolling interests 20 (90) (551) (351) 110 (200)

Net income attributable to the Company $ 41,808 $ 15,861 $ 68,687 $ 56,005 $ 25,947 $ 12,682

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Net Interest Expense

Net interest expense decreased $0.4 million and increased $1.7 million, or 3.4% and 8.2% for the three and six months ended June 30, 2024.

The increase for the six months ended June 30, 2024 was due to higher average outstanding debt as well as an increase in borrowing rates.

Net interest expense decreased $0.7 million and increased $0.9 million for the three and nine months ended September 29, 2024, respectively.

The decrease for the three months ended September 29, 2024 was due primarily to lower average outstanding debt during the quarter.

The increase for the nine months ended September 29, 2024 was due to higher average outstanding debt during the nine months ended September 29, 2024.

Income Tax Expense (Benefit)

Our effective income tax rate was 27.7% and 31.3% for the three and six months ended June 30, 2024 as compared to an income tax rate of 24.4% and 22.9% for the prior year comparable periods.

The higher effective tax rate for the three and six months ended June 30, 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 Six Months Ended

(Dollars in thousands) June 30, 2024 June 25, 2023 June 30, 2024 June 25, 2023

Our effective income tax rate was 23.5% and 26.8% for the three and nine months ended September 29, 2024, respectively, as compared to an income tax rate of 22.2% and 22.7% for the prior year comparable periods.

The higher effective tax rate for the three and nine months ended September 29, 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.

Three Months Ended Nine Months Ended

(Dollars in thousands) September 29, 2024 September 24, 2023 September 29, 2024 September 24, 2023

Income before income taxes $ 54,600 $ 20,490 $ 94,585 $ 72,902

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Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests was $0.3 million and $0.6 million for the three and six months ended June 30, 2024 as compared with $0.1 million and $0.3 million for the prior year comparable periods.

Net income included losses of less than $0.1 million and income of $0.6 million attributable to noncontrolling interests for the three and nine months ended September 29, 2024, respectively, as compared to income of $0.1 million and $0.4 million for the prior year comparable periods.

Diluted Earnings Per Common Share

Diluted earnings per common share was $0.37 and $0.82 for the three and six months ended June 30, 2024 as compared to $0.54 and $1.20 for the prior year comparable periods, representing decreases of $0.17 and $0.38, respectively.

Adjusted diluted earnings per common share, a non-GAAP measure, was $0.61 and $1.28 for the three and six months ended June 30, 2024 as compared to adjusted diluted earnings per common share of $0.59 and $1.28 for the prior year comparable periods, representing an increase of $0.02 for the quarter and flat for the six month period.

Diluted earnings per common share was $1.27 and $2.09 for the three and nine months ended September 29, 2024, respectively, as compared to $0.48 and $1.68 for the prior year comparable periods, representing increases of $0.79 and $0.41, respectively.

Adjusted diluted earnings per common share, a non-GAAP measure, was $0.43 and $1.71 for the three

and nine months ended September 29, 2024 as compared to adjusted diluted earnings per common share of $0.53 and $1.80 for the prior year comparable periods, representing respective decreases of $0.10 and $0.09.

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 Six Months Ended

(In thousands, except per share amounts) June 30,

2024 June 25,

2023 June 30,

2024 June 25,

Three Months Ended Nine Months Ended

(In thousands, except per share amounts) September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Operating income $ 65,229 $ 31,868 $ 127,173 $ 104,576

International restructuring costs (a)

Gain on sale of QC Center properties (a)

(41,289) — (41,289) —

UK repositioning and acquisition-related costs (b)

International restructuring costs (b)

3,862 — 19,514 —

Other costs (c)

UK repositioning and acquisition-related costs (c)

— 1,193 — 2,501

Legal settlements (d)

Other costs (e)

1,495 — 5,495 2,017

Adjusted operating income $ 29,297 $ 33,638 $ 110,893 $ 109,671

Net income attributable to common shareholders $ 41,808 $ 15,861 $ 68,687 $ 56,005

International restructuring costs (a)

Gain on sale of QC Center properties (a)

(41,289) — (41,289) —

UK repositioning and acquisition-related costs (b)

International restructuring costs (b)

3,862 — 19,514 —

Other costs (c)

UK repositioning and acquisition-related costs (c)

— 1,193 — 2,501

Tax effect of adjustments (d)

Legal settlements (d)

Other costs (e)

1,495 — 5,495 2,017

Tax effect of adjustments (f)

8,121 (404) 3,679 (1,162)

Adjusted net income attributable to common shareholders $ 13,997 $ 17,227 $ 56,086 $ 59,938

Diluted earnings per common share $ 1.27 $ 0.48 $ 2.09 $ 1.68

International restructuring costs (a)

Gain on sale of QC Center properties (a)

(1.25) — (1.25) —

UK repositioning and acquisition-related costs (b)

International restructuring costs (b)

0.12 — 0.59 —

Other costs (c)

UK repositioning and acquisition-related costs (c)

— 0.04 — 0.07

Tax effect of adjustments (d)

Legal settlements (d)

— 0.02 — 0.02

Other costs (e)

0.04 — 0.17 0.06

Tax effect of adjustments (f)

0.25 (0.01) 0.11 (0.03)

Adjusted diluted earnings per common share $ 0.43 $ 0.53 $ 1.71 $ 1.80

___________________________________

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

Restructuring”

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

(c) For the three and six months ended June 30, 2024, represents a non-cash impairment charge related to fixed and intangible assets related to certain Domestic restaurants.

(a) Represents pre-tax gain on sale, net of transaction costs, realized upon the August 2, 2024 completion of the sale of our Texas and Florida QC Center properties.

See “Note 11.

Divestitures” for additional details.

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

Restructuring” for additional details.

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

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

(e) For the three and nine months ended September 29, 2024, represents non-cash impairment and remeasurement charges related primarily to fixed and intangible assets from the refranchising of 15 Domestic Company-owned restaurants.

Refer to “Note 11.

Significant Accounting Policies of the “Notes to Condensed Consolidated Financial Statements” for further details.

For the three and six months ended June 25, 2023, represents severance and related costs associated with the transition of certain executives, recorded in General and administrative expenses.

(d) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rates of 22.6% and 22.8% for the three and six months ended June 30, 2024 and June 25, 2023, respectively.

Divestitures” for further details.

For the three and nine months ended September 24, 2023, represents severance and related costs associated with the transition of certain executives, recorded in General and administrative expenses.

(f) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rates of 22.6% and 22.8% for the three and nine months ended September 29, 2024 and September 24, 2023, respectively.

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

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

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

Our capital priorities are:

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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 six months ended June 30, 2024 and June 25, 2023 (in thousands):

Six Months Ended

2024 June 25,

The table below summarizes our cash flows for the nine months ended September 29, 2024 and September 24, 2023 (in thousands):

Nine Months Ended

September 29,

2024 September 24,

Total cash provided by (used in):

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Operating Activities

Total cash provided by operating activities was $42.0 million for the six months ended June 30, 2024 compared to $93.7 million for the corresponding period of 2023.

The decrease of $51.8 million primarily reflects unfavorable working capital changes in the first half 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 half of 2024, driving outflows in working capital.

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

Total cash provided by operating activities was $55.9 million for the nine months ended September 29, 2024 compared to $126.9 million for the corresponding period of 2023.

The decrease of $71.1 million primarily reflects lower net income after considering the gain on sale of QC Center properties as well as unfavorable working capital changes in the first nine months of 2024, principally related to the following:

• Higher tax payments in 2024 due to higher income before income taxes, compared to lower prior year tax payments stemming from the application of 2022 overpayments towards 2023 tax payments;

• Changes in the assets and liabilities of the advertising funds over the comparable periods related to the timing of cash receipts as compared to spending on advertising expense;

• Higher accrual balances at December 31, 2023 related to the 53rd week of our 2023 fiscal year, which resulted in higher cash outflows in 2024.

Investing Activities

Total cash used in investing activities was $23.8 million for the six months ended June 30, 2024 compared to $35.7 million for the same period in 2023, or a decrease of $11.9 million.

The decrease in cash used in investing activities was primarily due to lower capital expenditures and fewer notes issued to franchisees in the first six months of 2024 as compared to 2023.

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

Our capital expenditures consisted primarily of capital investments for existing stores and new store locations as well as investments in technology platforms.

Total cash provided by investing activities was $7.4 million for the nine months ended September 29, 2024 compared to cash used in investing activities of $57.7 million for the same period in 2023.

The cash generated from investing activities was primarily due to net proceeds of $46.7 million from the sale of two Domestic QC Centers, lower capital expenditures and net repayments received on notes to franchisees in the first nine months of 2024 as compared to net issuances of notes to franchisees in 2023.

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

Our capital expenditures consisted primarily of capital investments for existing restaurants and new restaurant locations as well as investments in technology platforms.

We estimate that our capital expenditures during 2024 will be approximately $75 million to $85 million.

This estimate includes the acquisition of sites and construction costs for new Company-owned stores that have opened or that we expect to open during 2024.

This estimate includes the acquisition of sites and construction costs for new Company-owned

restaurants that have opened or that we expect to open during 2024.

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

Financing Activities

Total cash used in financing activities was $34.4 million for the six months ended June 30, 2024 compared to $61.6 million for the same period of 2023.

In the first six months of 2024, the principal financing outflows were related to dividend

payments of $30.2 million, $3.3 million in tax payments on equity award issuances and $4.8 million in payments related to financing leases.

These outflows were offset by net borrowings of $0.6 million from the PJI Revolving Facility and $2.4 million from the PJMF revolving line of credit (the “PJMF Revolving Facility”).

There were no share repurchases in the first six months of 2024.

In the first six months of 2023, cash used for financing activities primarily reflects the impact of share repurchases of $210.3 million, which were financed through $186.5 million in net borrowing from the PJI Revolving Facility.

Other financing outflows in the first six months of 2023 included $28.5 million in dividend payments, $6.1 million in tax payments on equity award issuances and $3.7 million in payments related to financing leases.

Our outstanding debt as of June 30, 2024 was $767.0 million, which was comprised of $400.0 million principal amount of our 3.875% senior notes (the “Notes”) and $367.0 million outstanding under the PJI Revolving Facility and the PJMF Revolving Facility.

Remaining availability under the PJI Revolving Facility was approximately $235.3 million as of June 30, 2024.

Total cash used in financing activities was $86.6 million for the nine months ended September 29, 2024 compared to $79.1 million for the same period of 2023.

In the first nine months of 2024, the principal financing outflows were related to dividend payments of $45.4 million, net repayments of $37.2 million on the PJI Revolving Facility, $6.8 million in payments related to financing leases, and $3.5 million in tax payments on equity compensation award issuances.

These outflows were offset by net borrowings of $5.7 million from the PJMF revolving line of credit (the “PJMF Revolving Facility”).

There were no share repurchases in the first nine months of 2024.

In the first nine months of 2023, cash used for financing activities primarily reflects the impact of share repurchases of $210.3 million, which were financed through $185.8 million in net borrowing from the PJI Revolving Facility.

Other financing outflows in the first nine months of 2023 included $43.6 million in dividend payments, $6.3 million in tax payments on equity award issuances and $6.0 million in payments related to financing leases.

Our outstanding debt as of September 29, 2024 was $732.4 million, which was comprised of $400.0 million principal amount of our 3.875% senior notes (the “Notes”) and $332.4 million outstanding under the PJI Revolving Facility and the PJMF Revolving Facility.

Remaining availability under the PJI Revolving Facility was approximately $273.2 million as of September 29, 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 June 30, 2024

Permitted Ratio Actual Ratio as of September 29, 2024

Leverage ratio Not to exceed 5.25 to 1.0 3.0 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 June 30, 2024.

We were in compliance with all financial covenants as of September 29, 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 $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 $2.4 million as of June 30, 2024.

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 most recently amended on September 30, 2024.

Debt outstanding under the PJMF Revolving Facility was approximately $5.7 million as of September 29, 2024.

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

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Share Repurchases

As part of our long-term growth and capital allocation strategy, we are committed to investing in share repurchases to provide ongoing value and enhanced returns to our shareholders.

As part of our long-term growth and capital allocation strategy, we may elect to invest in share repurchases to provide ongoing value and enhanced returns to our shareholders.

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 this program for the three and six months ended June 30, 2024 and June 25, 2023:

As of September 29, 2024, approximately $90.2 million remained under the share repurchase authorization.

The following table summarizes our repurchase activity under this program for the three and nine months ended September 29, 2024 and September 24, 2023:

(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

June 30, 2024 — $ — $ — $ 90,160

June 25, 2023 — $ — $ — $ 90,160

September 29, 2024 — $ — $ — $ 90,160

September 24, 2023 — $ — $ — $ 90,160

(In thousands, except average price per share) Total Number of Shares Purchased (a)

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

Six Months Ended

June 30, 2024 — $ — $ — $ 90,160

June 25, 2023 2,523 $ 83.10 $ 209,640 $ 90,160

(a) The shares repurchased during the six months ended June 25, 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.

(b) Aggregate cost of shares purchased for the six months ended June 25, 2023 excluded $2.8 million of transaction costs directly attributable to share repurchases, including a 1% excise tax incurred under the Inflation Reduction Act of 2022.

Of these costs, $2.1 million were classified as non-cash financing activities during the six months ended June 25, 2023.

Nine Months Ended

September 29, 2024 — $ — $ — $ 90,160

September 24, 2023 2,523 $ 83.10 $ 209,640 $ 90,160

(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.

(b) Aggregate cost of shares purchased for the nine months ended September 24, 2023 excluded $2.8 million of transaction costs directly attributable to share repurchases, including a 1% excise tax incurred under the Inflation Reduction Act of 2022.

Of these costs, $2.1 million were classified as non-cash financing activities during the nine months ended September 24, 2023.

The 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 cash dividends to common stockholders of $30.2 million ($0.92 per share) and $28.5 million ($0.84 per share) for the six months ended June 30, 2024 and June 25, 2023, respectively.

On July 31, 2024, our Board of Directors declared a third quarter dividend of $0.46 per common share (approximately $15.2 million in the aggregate), which will be paid on August 30, 2024 to stockholders of record as of the close of business on August 19, 2024.

The Company paid aggregate cash dividends to common stockholders of $45.4 million ($1.38 per share) and $43.6 million ($1.30 per share) for the nine months ended September 29, 2024 and September 24, 2023, respectively.

On October 29, 2024, our Board of Directors declared a fourth quarter dividend of $0.46 per common share (approximately $15.2 million in the aggregate), which will be paid on November 29, 2024 to stockholders of record as of the close of business on November 18, 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 six month periods of 2024 and 2023 (in thousands):

Six Months Ended

2024 June 25,

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

Nine Months Ended

September 29,

2024 September 24,

Net cash provided by operating activities $ 55,884 $ 126,936

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

Management’s Discussion and Analysis of Financial

Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for additional information regarding our cash requirements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for additional information regarding our cash requirements.

Forward-Looking Statements

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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;

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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-Q

Item 2. Management’s Discussion and Analysis