What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 240 added, 345 removed, 191 unchanged (75% 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 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.

At March 30, 2025, there were 6,019 Papa John’s restaurants in operation, consisting of 552 Company-owned and 5,467 franchised restaurants operating in 50 countries and territories.

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

Additionally, we derive revenues from sales to franchisees of various items including food and paper products from our Domestic Quality Control Centers (“QC Centers”), operation of our International QC Center in the United Kingdom (“UK”), contributions received by Papa John’s Marketing Fund (“PJMF”) which is our national marketing fund, information systems equipment, and software and related services.

Additionally, we derive revenues from sales to franchisees of various items including food and paper products from our North America Quality Control Centers (“QC Centers”) and operation of our International QC Center in the United Kingdom (“UK”), contributions received by Papa John’s Marketing Fund (“PJMF”) which is our national marketing fund, and fees related to the use of information systems equipment as well as software and related services.

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

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Recent Developments and Trends

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

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 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.

During the first quarter of 2025, we continued to build momentum and make progress on executing our strategic priorities as we position the business for long-term success while also navigating a dynamic macroeconomic and competitive environment.

We continue to put our efforts and investments toward initiatives that improve our price/value perception and improve our digital and loyalty experience to increase conversion and reduce friction within the customer experience.

Our key areas of focus are:

• Marketing strategy:

During the first quarter of 2025, we invested in our messaging and promotions on showcasing our BETTER INGREDIENTS.

BETTER PIZZA ® platform through the launch of our “Meet the Makers” marketing campaign, which highlights the craftsmanship and passion behind the products we serve.

We also focused marketing efforts on improving our value perception, such as emphasizing our Papa Pairings at appropriately-valued price points.

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

In 2025, we anticipate spending up to an additional $25 million in marketing investments, including investments in our customer relationship management platform and our loyalty program, when compared with 2024.

This incremental spend will focus on ensuring a strong presence nationally as well as in key regional and local markets while leveraging our data to create more personalized offers for our customers.

• 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.

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

We are also placing additional focus on strategic investments in our technology infrastructure, with our recently announced partnership with Google Cloud to enhance our ordering and delivery experience serving as an example of our commitment to delivering a superior customer experience.

In the fourth quarter of 2024, we also updated our loyalty program to allow members to unlock redeemable rewards in the form of “Papa Dough” faster by converting points to Papa Dough in smaller increments.

We are pleased with the early response on the lower redemption threshold, which we believe will activate our members at higher rates to help drive transactions and frequency.

We will continue evolving our loyalty and digital experiences as they must be flexible and easy to understand to create strong, emotionally connected consumer engagement that seamlessly integrates with our creative, paid, earned and owned messaging.

• Domestic commissary growth strategy:

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

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.

We continue to evolve our commissary business to drive profitable growth and overall supply chain productivity that provides cost savings and incremental profit across the system.

Effective in the first quarter of 2025, we increased the fixed operating margin that Domestic QC Centers charge by 100 basis points, and we will continue to increase the margin by the same increment in each of the next two years, moving from 4% in 2023 to 8% in 2027.

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

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

We are continuing to evaluate

opportunities to enhance productivity and profitability throughout the supply chain through improved operations and supplier relationships.

• Development strategy:

Development is a key long-term growth driver as we believe there is significant opportunity to offer our quality product to more customers globally and domestically.

During the first quarter, we opened 47 new restaurants systemwide, comprised of 18 restaurant openings in North America and 29 restaurant openings in International markets.

To pursue the opportunities we have identified in the United States and accelerate development, we are offering a three-year waiver of PJMF contributions for new restaurants opened in 2025, which is intended to deliver higher restaurant-level profit margins, add scale in key markets and attract growth-driven franchisees.

Additionally, we continue to evaluate refranchising Company-owned restaurants within various Domestic markets to provide opportunities for growth-minded franchisees to grow their businesses, along with considering strategic closures in certain International markets.

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 $21.7 million incurred through the third quarter of 2024), which the Company currently expects to be recognized in 2024 and 2025.

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 certain international markets, including the United Kingdom, for long-term profitable growth and brand strength.

Total estimated pre-tax costs associated with the International Transformation Plan are expected to be approximately $33 million to $35 million (inclusive of the $31.6 million incurred through the first quarter of 2025), the remainder of which we expect to be recognized in 2025.

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

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.

The Company is in the final stages of executing the International Transformation Plan, expected to be completed during 2025, which has resulted in the following key accomplishments:

• We evaluated and optimized our restaurant portfolio in the UK, which resulted in the closure of 43 underperforming UK Company-owned restaurants and 30 franchised locations.

We also completed the refranchising of 60 formerly Company-owned restaurants to primarily existing franchisees and continue to operate 13 Company-owned restaurants in the UK.

We have completed substantially all of the strategic restaurant closures in the UK market and the Company’s efforts have turned toward growth opportunities and mitigating closure-related costs as we complete the optimization of the portfolio through exiting leases and other contracts as well as transforming our operations to increase efficiency and effectiveness.

• We established hubs for our key regions – APAC (Asia Pacific), EMEA (Europe, Middle East and Africa), and Latin America to align global best practices in operations, marketing and technology with local preferences 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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Comparable sales growth (decline) and Global system-wide restaurant sales information is also useful for comparison to industry trends and evaluating the strength of our brand.

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

impacted by swings in the external factor of foreign currency.

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

Three Months Ended Nine Months Ended

Amounts below exclude the impact of foreign currency September 29,

2024 September 24,

2023 September 29,

2024 September 24,

Three Months Ended

Amounts below exclude the impact of foreign currency March 30,

2025 March 31,

Comparable sales growth (decline):

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International restaurants 3.2% (2.6)%

Total comparable sales growth (decline) (4.9)% 2.2% (3.2)% (0.2)%

Total comparable sales decline (1.3)% (2.0)%

System-wide restaurant sales growth (decline):

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International restaurants (a)

—% 8.8% 2.2% 6.8%

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

___________________________________

(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,

(a) System-wide sales for the three months ended March 31, 2024 include $0.4 million of International sales related to the first quarter of 2024 that were erroneously omitted in prior periods.

Restaurant Progression Three Months Ended

2025 March 31,

North America Company-owned:

Beginning of period 539 531

Opened — — 6 —

Closed — — — (2)

Acquired — 9 — 10

Refranchised — (4) — (4)

End of period 539 536

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Beginning of period 2,975 2,902

Opened 18 15 43 44

Closed (15) (7)

Sold — (9) — (10)

Refranchised — 4 — 4

End of period 2,977 2,911

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Beginning of period 13 117

Closed — — (43) —

Acquired — 27 — 118

Refranchised (20) — (61) —

End of period 13 117

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Beginning of period 2,503 2,356

Opened 36 55 115 153

Closed (42) (29)

Sold — (27) — (118)

Refranchised 20 — 61 —

End of period 2,490 2,350

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Results of Operations

Financial Statement Updates

During the year ended December 29, 2024, the Company implemented several financial statement changes in its Annual Report on Form 10-K, concurrent with the adoption of Accounting Standard Update (“ASU”) 2023-07, “Improvements to Reportable Segment Disclosures.” These changes evolve and modernize our financial statements and footnotes to increase transparency and better reflect management’s key performance metrics.

Presentation changes to the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Cash Flows have been applied retrospectively, and as such, the results from the three months ended March 31, 2024 have been reclassified for consistency with the current year presentation.

Additionally, during the year ended December 29, 2024, the Company updated its internal cost allocation methodology to better reflect current levels of time and effort spent managing our different segments.

These updates resulted in a higher allocation of previously unallocated corporate expenses to primarily each of the North America franchising and International segments.

This update in methodology did not impact total reported expenses and was implemented prospectively beginning with the year ended December 29, 2024, and as such comparative information has been recast.

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

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) %

North America franchise royalties and fees 33,831 35,041 103,937 105,824 (3.5) % (1.8) %

North America commissary revenues 210,389 204,887 611,873 624,433 2.7 % (2.0) %

International revenues 33,024 42,927 113,433 108,998 (23.1) % 4.1 %

Three Months Ended Increase

(In thousands) March 30,

2025 March 31,

Company-owned restaurant sales $ 173,881 $ 191,251 (9.1) %

Franchise royalties and fees 48,056 47,153 1.9 %

Commissary revenues 228,941 217,512 5.3 %

Other revenues 23,757 20,935 13.5 %

Advertising funds revenue 43,674 37,065 17.8 %

Total revenues $ 518,309 $ 513,916 0.9 %

The comparability of results between 2025 and 2024 is impacted by transactions that have changed the composition of restaurants in the UK during the periods presented.

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 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.

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

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 $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.

At the beginning of 2024, the Company operated 117 UK Company-owned restaurants.

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

After prior disposal of one mobile restaurant, the Company operated 13 UK Company-owned restaurants subsequent to July 1, 2024.

These transactions impact the comparability of revenues and expenses from the International segment during the periods presented.

Restructuring” for additional information on these transactions.

Total revenues increased $4.4 million, or 0.9%, to $518.3 million for the three months ended March 30, 2025 as compared to the prior year comparable period.

Company-owned restaurant sales, which include sales from both Domestic and International Company-owned restaurants decreased $17.4 million, or 9.1%, for the three months ended March 30, 2025 as compared to the prior year comparable period.

The decrease was primarily due to an $11.9 million decline in revenues from our Company-owned restaurants in the UK due to the transactions discussed above.

The decrease also results from a $5.4 million decline in revenue from our Domestic Company-owned restaurants, reflecting a 4.6% decline in Domestic comparable sales as a result of lower transaction volumes and ticket sizes.

Franchise royalties and fees, which include revenues generated from both North American and International franchisees, increased $0.9 million, or 1.9%, for the three months ended March 30, 2025 as compared to each prior year comparable period.

The increase was primarily due to 2.7% growth in North America franchised equivalent units compared to the prior year comparable period and International comparable sales growth of 3.2%, partially offset by North America franchised comparable sales declining 2.3% for the three months ended March 30, 2025.

North America franchise restaurant sales decreased to $754.5 million, or 0.4% excluding the impact of foreign currency fluctuations, for the three months ended March 30, 2025 compared to the prior year comparable period.

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

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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 increased $21.9 million to $297.3 million for the three months ended March 30, 2025 compared to the prior year comparable period.

As mentioned above, the UK transactions in the second and third quarters of 2024 impacted the comparability of International franchise restaurant sales earned in each period.

Excluding the impact of the UK restaurant changes and foreign currency fluctuations, International franchise restaurant sales would have increased $16.2 million, or 5.6% for the three months ended March 30, 2025.

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, 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.

Commissary revenues, which includes sales from our North American and International QC Centers, increased $11.4 million or 5.3% for the three months ended March 30, 2025 as compared to the prior year comparable period.

The increase for the three months ended March 30, 2025 was primarily due to higher commodity prices during the quarter, particularly cheese and proteins, as well as the previously-disclosed annual 1% increase to our fixed operating margin charged to Domestic QC Centers that took effect at the beginning of the first quarter of 2025.

These increases were partially offset by lower transaction volumes during the quarter.

Other revenues, which primarily includes revenues derived from our online and mobile ordering business, increased $2.8 million, or 13.5% for the three months ended March 30, 2025 compared to the prior year comparable period primarily due to higher revenues generated from technology services as a result of an increase in the technology fee charged to franchisees that began in the second half of 2024.

Advertising funds revenue, which includes the operations of PJMF, local marketing funds and International marketing funds, increased $6.6 million, or 17.8%, for the three months ended March 30, 2025 compared to the prior year comparable period.

Beginning with the second quarter of 2024, PJMF increased its contribution percentage, which increased Advertising funds revenue.

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.

The following table sets forth the various components of Costs and expenses from the Condensed Consolidated Statements of Operations:

(In thousands) Three Months Ended

September 29,

2024 % of Related

Revenues September 24, 2023 % 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 $ 142,403 84.4 % $ 145,433 82.1 % 2.3 %

North America commissary expenses 193,818 92.1 % 189,551 92.5 % (0.4) %

International expenses 19,001 57.5 % 29,796 69.4 % (11.9) %

Other expenses 55,543 91.2 % 57,587 91.8 % (0.6) %

General and administrative expenses 13,553 2.7 % 52,173 10.0 % (7.3) %

Depreciation and amortization 17,260 3.4 % 16,404 3.1 % 0.3 %

Total costs and expenses 441,578 87.1 % 490,944 93.9 % (6.8) %

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

(In thousands) Nine Months Ended

September 29, 2024 % of Related

Revenues September 24, 2023 % of Related

Revenues Increase (Decrease) in % of Revenues

2025 March 31, 2024

Costs and expenses:

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

Domestic Company-owned restaurant expenses $ 419,189 80.9 % $ 436,922 82.0 % (1.1) %

North America commissary expenses 561,316 91.7 % 576,434 92.3 % (0.6) %

International expenses 74,424 65.6 % 67,542 62.0 % 3.6 %

Other expenses 164,261 90.6 % 177,661 92.4 % (1.8) %

Cost of sales $ 366,496 $ 367,666

General and administrative expenses 65,167 57,877

Depreciation and amortization 18,343 17,674

Advertising funds expense 44,338 36,981

Total costs and expenses $ 494,344 $ 480,198

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

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 $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 $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)

Total costs and expenses were approximately $494.3 million, or 95.4% of total revenues for the three months ended March 30, 2025, as compared to $480.2 million, or 93.4% of total revenues compared to the prior year comparable period.

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

Cost of sales consists primarily of Company-owned restaurant and supply chain costs incurred to generate related revenues.

Components of cost of sales primarily include food and paper products, labor, freight and delivery, occupancy costs, advertising costs related to Company-owned restaurants, and insurance expense.

Cost of sales was $366.5 million for the three months ended March 30, 2025, a decrease of $1.2 million from the prior year comparable period.

Cost of sales was favorably impacted by approximately $11.0 million due to lower food and labor costs from our Company-owned restaurants in the UK as a result of the restaurant closures and refranchising transactions discussed above, offset by higher commodity costs for our Domestic QC Centers as well as higher food and advertising expenses for our Domestic Company-owned restaurants.

Costs of sales by segment for the three months ended March 30, 2025 and March 31, 2024, respectively, were as follows:

Three Months Ended

(Dollars in thousands) March 30, 2025 March 31, 2024 Increase/Decrease

Domestic Company-owned restaurants (b)

$ 155,256 $ 151,429 $ 3,827

International restructuring costs (c)

North America commissaries 235,731 226,287 9,444

International 19,785 30,855 (11,070)

Total cost of sales by segment 410,772 408,571 2,201

All other (a)

12,630 12,895 (265)

Other costs (d)

Intersegment cost of sales (56,906) (53,800) (3,106)

Total cost of sales $ 366,496 $ 367,666 $ (1,170)

___________________________________

UK repositioning and acquisition-related costs (e)

(a) “ All other” refers to all other business units that do not meet the quantitative thresholds for determining reportable segments, which primarily includes our online and mobile ordering business and our marketing funds and are not operating segments.

(b) This information is presented on a GAAP basis.

As a result, amounts include stock-based compensation expenses that are excluded from our segment results, which are presented on an Adjusted basis (see “Note 11.

Segment Information”).

General and administrative expenses (“G&A”) expenses were $65.2 million, or 12.6% of revenues for the three months ended March 30, 2025, as compared to $57.9 million, or 11.3% of revenues for the prior year comparable period.

G&A expenses consisted of the following:

Three Months Ended

(In thousands) March 30,

2025 March 31,

Administrative and other general expenses, net (a)

$ 61,565 $ 48,354

Legal settlement accruals (f)

International restructuring costs (b)

Net expenses due to natural disasters (c)

Strategic initiative costs (d)

General and administrative expenses $ 65,167 $ 57,877

(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”.

___________________________________

(a) Administrative and other general expenses, net increased by $13.2 million during the three months ended March 30, 2025.

The increase was primarily due to costs incurred related to incremental marketing and loyalty investments and expenses resulting from our bi-annual franchise operating conference held in the first quarter of 2025.

The 2024 comparative period included lower equity compensation costs related to leadership changes during the first quarter of 2024.

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

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 $17.3 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

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

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

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

GAAP measure.

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

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

(In thousands) Reported Adjustments (a)

Adjusted Reported Adjustments (a)

Adjusted Reported Increase (Decrease) Adjusted

Domestic Company-owned restaurants $ (1,748) $ 1,495 $ (253) $ 6,147 $ — $ 6,147 $ (7,895) $ (6,400)

North America franchising 31,865 — 31,865 32,234 — 32,234 (369) (369)

North America commissaries 53,599 (41,289) 12,310 10,691 — 10,691 42,908 1,619

International 42 3,862 3,904 2,270 1,193 3,463 (2,228) 441

All others 2,834 — 2,834 2,379 — 2,379 455 455

Unallocated corporate expenses (21,106) — (21,106) (20,792) 577 (20,215) (314) (891)

Elimination of intersegment (profits) losses (257) — (257) (1,061) — (1,061) 804 804

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

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

(In thousands) Reported Adjustments (a)

Adjusted Reported Adjustments (a)

Adjusted Reported Increase (Decrease) Adjusted

(c) Represents expenses incurred, net of expected insurance recoveries, resulting from a tornado that struck our Texas QC Center in March 2025.

Significant Accounting Policies” for additional details.

(d) Represents costs associated with project-based strategic initiatives that are not related to our ongoing operations.

Depreciation and amortization expense was $18.3 million, or 3.5% of revenues for the three months ended March 30, 2025, as compared to $17.7 million, or 3.4% of revenues for the prior year comparable period.

Advertising funds expense was $44.3 million or 101.5% of advertising revenues for the three months ended March 30, 2025 as compared to $37.0 million or 99.8% of advertising revenues for the comparable prior period.

Advertising funds expense is comprised primarily of expenses incurred by PJMF, which is designed to operate at break-even as it spends all annual contributions received from the system.

The increase was primarily due to higher advertising spend resulting from the previously discussed increase in contributions to the national marketing fund.

Advertising funds expense also contains expenses incurred through our international marketing funds to support our International business, which may lead to Advertising funds expense being less than or in excess of Advertising funds revenue due to timing differences.

Segment Financial Performance

We evaluate the performance of our reportable segments and allocate resources to them based on earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, and other, referred to as adjusted EBITDA.

See “Note 11.

Segment Information” for further information regarding the Company’s segments.

Adjusted EBITDA for each of our reportable segments is summarized in the table below.

Three Months Ended Increase (Decrease)

(In thousands) March 30,

2025 March 31,

Domestic Company-owned restaurants $ 5,032 $ 14,938 $ (9,906)

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International 5,381 4,193 1,188

All others 8,202 — 8,202 6,879 — 6,879 1,323 1,323

Unallocated corporate expenses (60,346) — (60,346) (63,859) 2,594 (61,265) 3,513 919

Elimination of intersegment (profits) losses (781) — (781) (710) — (710) (71) (71)

Total $ 127,173 $ (16,280) $ 110,893 $ 104,576 $ 5,095 $ 109,671 $ 22,597 $ 1,222

___________________________________

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

GAAP measure.

Operating income was $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 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.

Domestic Company-owned restaurants decreased $9.9 million for the three months ended March 30, 2025 primarily due to a 4.6% decline in Domestic comparable sales as well as higher food costs and local advertising costs for our Domestic Company-owned restaurants, offset by decreases in insurance costs.

North America franchising decreased $1.3 million for the three months ended March 30, 2025 primarily due to higher incentive compensation allocated to the segment for the three months ended March 30, 2025 compared to the prior year period, partially offset by higher royalty and franchise fee revenue as discussed above.

North America commissaries increased $2.2 million for the three months ended March 30, 2025 primarily due to the annual increase in the commissary fixed operating margin mentioned above.

This was offset by higher food costs, higher salaries and benefits, and increases in rent due to the sale and subsequent leaseback of two Domestic Quality Control Center properties (“QC Centers”) in Texas and Florida in the third quarter of 2024.

International increased $1.2 million for the three months ended March 30, 2025.

The increase was primarily due to operating losses attributable to the UK Company-owned restaurants during the prior year quarter, when we owned and operated more restaurants in the UK.

This was offset by increases in advertising costs in 2025.

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 29,

2024 September 24,

2023 September 29,

2024 September 24,

Three Months Ended Increase (Decrease)

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

2025 March 31,

Operating income $ 23,965 $ 33,718 $ (9,753)

1 unchanged sentence

Income before income taxes 13,886 22,655 (8,769)

Income tax expense 12,812 4,539 25,347 16,546 8,273 8,801

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

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

Income tax expense (a)

(4,543) (7,741) (3,198)

Net income 9,343 14,914 (5,571)

Net income attributable to noncontrolling interests (121) (278) (157)

Net income attributable to the Company $ 9,222 $ 14,636 $ (5,414)

1 unchanged sentence

Diluted earnings per common share $ 0.27 $ 0.44 $ (0.17)

(a) Note that we have changed the signage of income tax expense from historic presentation for consistency purposes.

Net Interest Expense

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 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

Net interest expense decreased $1.0 million for the three months ended March 30, 2025.

The decrease for the three months ended March 30, 2025 was primarily due to lower average interest rates during the quarter.

Income Tax Expense

Our effective income tax rate was 32.7% for three months ended March 30, 2025 as compared to an income tax rate of 34.2% for the prior year comparable period.

The lower effective tax rate for three months ended March 30, 2025 was primarily driven by impairment charges related to the International Restructuring that created unrecognized tax losses and prevented the Company from generating foreign tax credits in 2024, partially offset by increased tax shortfall generated by stock option exercises and vesting of restricted shares in 2025 and increased foreign tax withholding on royalties.

Three Months Ended

(Dollars in thousands) March 30, 2025 March 31, 2024

Income before income taxes $ 13,886 $ 22,655

2 unchanged sentences

Net Income Attributable to Noncontrolling Interests

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.

Net income included income of $0.1 million attributable to noncontrolling interests for three months ended March 30, 2025 as compared to income of $0.3 million for the prior year comparable period.

Diluted Earnings Per Common Share

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.

Diluted earnings per common share was $0.27 for three months ended March 30, 2025 as compared to $0.44 for the prior year comparable period, representing an decrease of $0.17.

Adjusted diluted earnings per common share, a non-GAAP measure, was $0.36 for three months ended March 30, 2025 as compared to adjusted diluted earnings per common share of $0.67 for the prior year comparable period representing a decrease of $0.31.

See “Non-GAAP Measures” for additional information.

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GAAP and include the following:

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

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

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

2 unchanged sentences

The most directly comparable U.S.

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

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

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

1 unchanged sentence

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 29,

2024 September 24,

2023 September 29,

2024 September 24,

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

Gain on sale of QC Center properties (a)

(41,289) — (41,289) —

International restructuring costs (b)

3,862 — 19,514 —

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

Three Months Ended

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

2025 March 31,

Net income $ 9,343 $ 14,914

Income tax expense 4,543 7,741

Net interest expense 10,079 11,063

Depreciation and amortization 18,343 17,674

International restructuring costs (a)

Net expenses due to natural disasters (b)

Strategic initiative costs (c)

Stock-based compensation expense 3,669 (370)

Adjusted EBITDA $ 49,624 $ 60,565

Net income attributable to common shareholders $ 9,028 $ 14,636

Gain on sale of QC Center properties (a)

(41,289) — (41,289) —

International restructuring costs (b)

3,862 — 19,514 —

UK repositioning and acquisition-related costs (c)

— 1,193 — 2,501

Legal settlements (d)

Other costs (e)

1,495 — 5,495 2,017

Tax effect of adjustments (f)

International restructuring costs (a)

Net expenses due to natural disasters (b)

Strategic initiative costs (c)

Tax effect of adjustments (d)

(818) (2,152)

1 unchanged sentence

Diluted earnings per common share $ 0.27 $ 0.44

Gain on sale of QC Center properties (a)

(1.25) — (1.25) —

International restructuring costs (b)

0.12 — 0.59 —

UK repositioning and acquisition-related costs (c)

— 0.04 — 0.07

Legal settlements (d)

— 0.02 — 0.02

Other costs (e)

0.04 — 0.17 0.06

Tax effect of adjustments (f)

International restructuring costs (a)

Net expenses due to natural disasters (b)

Strategic initiative costs (c)

Tax effect of adjustments (d)

(0.02) (0.06)

1 unchanged sentence

___________________________________

(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.

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

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.

(b) Represents expenses incurred, net of expected insurance recoveries, resulting from a tornado that struck our Texas QC Center in March 2025.

Significant Accounting Policies” for additional details.

We consider these costs to be separate and distinct from other professional fees incurred in the ordinary course of business and not reflective of the ongoing costs to operate our business.

(d) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rates of 22.7% and 22.6% for the three months ended March 30, 2025 and March 31, 2024, respectively.

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

2 unchanged sentences

Liquidity and Capital Resources

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/or share repurchases.

Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under the Second Amended and Restated Credit Agreement, dated as of March 26, 2025, which amended and restated the Amended and Restated Credit Agreement dated as of September 14, 2021 and amended May 30, 2023.

The Second Amended and Restated Credit Agreement provides for a senior secured term loan in a principal amount of $200.0 million (the “Term Loan”) and a senior secured revolving credit facility in an aggregate available principal amount of $600.0 million (the “PJI Revolving Facility” together with the Term Loan, the “PJI Credit Facilities”).

Debt” for additional detail regarding the Second Amended and Restated Credit Agreement.

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

Our capital priorities are:

2 unchanged sentences

• returning capital to shareholders

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

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

Nine Months Ended

September 29,

2024 September 24,

The Company believes that its balances of cash and cash equivalents and borrowing capacity, along with cash generated by operations and from asset sales, 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 three months ended March 30, 2025 and March 31, 2024 (in thousands):

Three Months Ended

2025 March 31,

Total cash provided by (used in):

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Operating Activities

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.

Total cash provided by operating activities was $31.3 million for the three months ended March 30, 2025 compared to $12.0 million for the corresponding period of 2024.

The increase of $19.3 million primarily reflects a favorable impact from timing of collections and marketing spend within our advertising fund as well as favorable changes in working capital accounts compared to the prior period.

Investing Activities

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.

Total cash used in investing activities was $7.1 million for the three months ended March 30, 2025 compared to $10.2 million for the same period in 2024.

The decrease in cash used in investing activities is due primarily to the receipt of investment distributions of $4.7 million and $2.3 million during the three months ended March 30, 2025 and March 31, 2024, respectively, related to our deferred compensation plan.

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 2025 will be approximately $75 million to $85 million.

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.

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 2025.

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 $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.

Total cash used in financing activities was $18.6 million for the three months ended March 30, 2025 compared to $14.6 million for the same period of 2024.

In the first quarter of 2025, the principal financing outflows were related to dividend payments of $15.2 million, $2.4 million in payments related to financing leases, and $1.1 million in tax payments on equity compensation award issuances.

Cash used in financing activities also reflects the impact of the refinancing of our debt via the Second Amended and Restated Credit Agreement, which resulted in borrowings of $200.0 million under the new Term Loan, from which the proceeds were used to repay $196.8 million to the PJI Revolving Facility during the quarter and $3.0 million in related issuance costs.

In the first quarter of 2024, the primary uses of cash for financing activities were $15.1 million in dividend payments, $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 2025 or 2024.

Our outstanding debt as of March 30, 2025 was $749.9 million, which was comprised of $400.0 million principal amount of our 3.875% senior notes (the “Notes”), $200.0 million of Term Loan borrowings, and $149.9 million outstanding under the PJI Revolving Facility.

Remaining availability under the PJI Revolving Facility was approximately $450.1 million as of March 30, 2025.

Our Second Amended and Restated Credit Agreement contains customary affirmative and negative covenants that, among other things, require customary reporting obligations, and restrict, subject to certain exceptions, the incurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates, in each case, that are substantially similar to our previous credit agreement (the “Existing Credit Agreement”).

In addition, the Company will be subject to the following financial covenants substantially similar to those in the Existing Credit Agreement (other than the new liquidity requirement described in clause (3)):

(1) a maximum Leverage Ratio of 5.25 to 1.00, subject to the Company’s election to increase the maximum Leverage Ratio by 0.5 to 1.0 in connection with material acquisitions if the Company satisfies certain requirements;

(2) a minimum ratio of EBITDA plus consolidated rental expense to consolidated interest expense plus consolidated rental expense of 2.00 to 1.00;

and (3) applicable only during the time period beginning 91 days prior to the maturity of the Company’s existing senior notes due 2029 (the “Senior Notes”) and until such Senior Notes are repaid in full or the maturity thereof is extended at least 91 days after the latest maturity date applicable to the Credit Facilities, liquidity of not less than $150.0 million.

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 29, 2024

Permitted Ratio Actual Ratio as of March 30, 2025

Leverage ratio Not to exceed 5.25 to 1.0 3.4 to 1.0

Interest coverage ratio Not less than 2.00 to 1.0 3.1 to 1.0

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

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

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

We were in compliance with all financial covenants as of September 29, 2024.

We were in compliance with all financial covenants as of March 30, 2025.

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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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.

We did not have any borrowings under the

PJMF Revolving Facility as of March 30, 2025 or December 29, 2024.

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

Refer to Note 12 of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 29, 2024 for additional information.

Share Repurchases

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.

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

September 29, 2024 — $ — $ — $ 90,160

September 24, 2023 — $ — $ — $ 90,160

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

Average Price Paid per Share Aggregate Cost of Shares Purchased (b)

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

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.

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.

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.There was no share repurchase activity during the three months ended March 30, 2025 and March 31, 2024.

Approximately $90.2 million remained available under the Company’s share repurchase program as of March 30, 2025.

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 $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 Company paid aggregate cash dividends to common stockholders of $15.2 million ($0.46 per share) and $15.1 million ($0.46 per share) for the three months ended March 30, 2025 and March 31, 2024, respectively.

On May 1, 2025, our Board of Directors declared a second quarter dividend of $0.46 per common share (approximately $15.4 million in the aggregate), which will be paid on May 30, 2025 to stockholders of record as of the close of business on May 19, 2025.

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 2024 and 2023 (in thousands):

Nine Months Ended

September 29,

2024 September 24,

The Company’s free cash flow was as follows for the three month periods of 2025 and 2024 (in thousands):

Three Months Ended

2025 March 31,

Net cash provided by operating activities $ 31,336 $ 11,987

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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 29, 2024 for additional information regarding our cash requirements.

Impact of Inflation and Macroeconomic Trends

In recent years, we have experienced price increases in food items and other commodities, labor and benefits, and fuel and other energy costs.

Inflationary pressures affect our profitability both directly, in our Company-owned restaurants and delivery mechanisms and through gross margins experienced by sales of food and supply items via our QC Centers, as well as indirectly, through higher food ingredient and paper and supply costs, rising fees from delivery aggregators driven by higher wage demands and increases in the cost of gasoline that, once reflected in upward price adjustments on their fees,

can exert downward pressure on unit sales, reducing royalty fees we realize from our Domestic and International franchisees.

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

Expense control measures are also deployed to offset higher costs when possible.

Food costs, in particular the cost of cheese, are managed to an extent by pricing agreements with suppliers and forward purchase contracts we enter into, as discussed in “Item 3.

Quantitative and Qualitative Disclosures About Market Risk.”

While we are still evaluating the potential impact of proposed tariffs as well as our ability to manage their impacts, we currently do not believe that tariffs in the form currently proposed by the United States government would have a significant negative impact to our domestic business, as a substantial proportion of our ingredients and supply items are sourced domestically.

However, the extent to which tariffs may increase the price of other goods and services and how they may alter discretionary spending patterns by our customers or impact our franchisees’ profitability is currently unknown and may adversely affect the Company’s results of operations and/or financial position.

Forward-Looking Statements

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

Such forward-looking statements include or may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, share repurchases, the current economic environment, 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, changes in management, 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 in 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 forward-looking statements include or may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, share repurchases, depreciation and amortization, interest expenses, tax rates, system-wide sales, adjusted EBITDA, the current economic environment, industry trends, consumer behavior and preferences, 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, changes in management, inflation, royalty relief, franchisee support and incentives, the effectiveness of our menu innovations and other business initiatives, investments in product, digital and technology 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, repositioning of the UK market, International restructuring plans, including timing of completion, expected benefits 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 risks, uncertainties and assumptions that are involved in our forward-looking statements include, but are not limited to:

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

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

• the ability of the Company to retain key management and manage staffing and labor shortages at Company and/or franchised restaurants and our Quality Control Centers;

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

• increases in labor costs, food costs or sustained higher other operating costs, including as a result of supply chain disruption, inflation and related impacts, increased tariffs or other trade barriers, immigration policies, or climate change;

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

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

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

• risks to the global economy and our business related to geopolitical conflicts, including those in Ukraine and the Middle East;

• 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;

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• 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;

• 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;

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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