PAPA JOHNS INTERNATIONAL INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s,” “Papa Johns” or in the first-person notations of “we,” “us” and “our”) 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. At June 29, 2025, there were 5,989 Papa John’s restaurants in operation, consisting of 554 Company-owned and 5,435 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 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. In discussions of our business, “Domestic” is defined as within the contiguous United States, “North America” includes Canada, and “International” includes the rest of the world other than North America. Recent Developments and Trends During the second quarter of 2025, we remained focused on executing our strategic priorities and returned to growth in our key comparable sales metric in North America as we position the business for long-term success while continuing to navigate 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 second quarter of 2025, we furthered our investments in our messaging to showcase our BETTER INGREDIENTS. BETTER PIZZA ® platform through our “Meet the Makers” marketing campaign, highlighting our six simple ingredients and fresh, never frozen dough and the craftsmanship 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. We anticipate spending up to an additional $25 million in marketing investments throughout 2025, 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 placing additional focus on strategic investments in our technology infrastructure. Our recently announced partnership with Google Cloud to enhance our ordering and delivery experience serves as an additional example of our commitment to delivering a superior customer experience. We are currently developing and beta testing our new omnichannel experiences, including a new app for iOS and Android to improve navigation and order tracking. We believe these rollouts will enable customers to streamline the ordering journey and simplify the overall user 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. Though the lower redemption threshold slightly decreased our overall ticket size during the quarter, we are pleased with the response to the lower redemption threshold, which has activated 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: We continue to evolve our commissary business to drive profitable growth and improve overall supply chain productivity across the system. We have undertaken an internal review of our supply chain and have identified several initiatives that we believe will optimize our commissary business in an effort to reduce the overall cost to serve our Domestic Company-owned and franchised restaurants. Management has not yet finalized the timing and extent to which these initiatives will be implemented, but currently believe that we will begin recognizing cost savings from these initiatives in 2026. 25 • 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 second quarter, we opened 45 new restaurants systemwide, comprised of 19 restaurant openings in North America and 26 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, in July 2025 we signed an agreement to sell our ownership stake in a joint venture that operates 85 restaurants, with the transaction expected to close by the end of 2025. We are excited to offer growth-minded franchisees opportunities to expand their businesses and will continue to evaluate refranchising Company-owned restaurants within various Domestic markets, 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 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 $35 million (inclusive of the $34.1 million incurred through the second quarter of 2025), the remainder of which we expect to be recognized in 2025. See “Note 9. Restructuring” of “Notes to Condensed Consolidated Financial Statements” for additional details. The Company is in the final stages of executing the International Transformation Plan, which is expected to be completed during 2025. Global Restaurant Sales and Unit Information “Comparable sales” represents sales for the same base of restaurants for the same fiscal periods. “Comparable sales growth (decline)” represents the change in year-over-year comparable sales. “Global system-wide restaurant sales” represents total restaurant sales for all Company-owned and franchised restaurants open during the comparable periods, and “Global system-wide restaurant sales growth (decline)” represents the change in global system-wide restaurant sales year-over-year. Comparable sales, Comparable sales growth (decline), Global system-wide restaurant sales and Global system-wide sales growth (decline) exclude franchisees for which we suspended corporate support. “Equivalent units” represents the number of restaurants open at the beginning of a given period, adjusted for restaurants opened, closed, acquired or sold during the period on a weighted average basis. We believe Domestic Company-owned, North America franchised, and International Comparable sales growth (decline) and Global system-wide restaurant sales information is useful in analyzing our results since our franchisees pay royalties and marketing fund contributions that are based on a percentage of franchise sales. Comparable sales and Global system-wide restaurant sales results for restaurants operating outside of the United States are reported on a constant dollar basis, which excludes the impact of foreign currency translation. Franchise sales also generate commissary revenue in the United States and in certain international markets. 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. Franchise restaurant sales are not included in the Company’s revenues. 26 Three Months Ended Six Months Ended Amounts below exclude the impact of foreign currency June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Comparable sales growth (decline): Domestic Company-owned restaurants 0.3% (4.2)% (2.1)% (3.6)% North America franchised restaurants 1.0% (3.4)% (0.7)% (2.4)% North America restaurants 0.9% (3.6)% (1.0)% (2.7)% International restaurants 3.7% (0.1)% 3.5% (1.4)% Total comparable sales growth (decline) 1.6% (2.7)% 0.1% (2.4)% System-wide restaurant sales growth (decline): Domestic Company-owned restaurants 1.5% (1.5)% (0.8)% (1.7)% North America franchised restaurants 2.7% (1.9)% 1.1% (1.8)% North America restaurants 2.5% (1.9)% 0.7% (1.8)% International restaurants (a) 6.6% 5.1% 6.1% 3.3% Total global system-wide restaurant sales growth (decline) (a) 3.5% (0.2)% 2.1% (0.5)% ___________________________________ (a) System-wide sales for the three and six months ended June 30, 2024 include $6.7 million and $7.1 million, respectively of International sales related to the first and second quarters of 2024 that were erroneously omitted in prior periods. Restaurant Progression Three Months Ended Six Months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 North America Company-owned: Beginning of period 539 536 539 531 Opened 2 1 3 6 Closed — — (1) — End of period 541 537 541 537 North America franchised: Beginning of period 2,977 2,911 2,975 2,902 Opened 17 9 34 25 Closed (18) (10) (33) (17) End of period 2,976 2,910 2,976 2,910 International Company-owned: Beginning of period 13 117 13 117 Closed — (43) — (43) Refranchised — (41) — (41) End of period 13 33 13 33 International franchised: Beginning of period 2,490 2,350 2,503 2,356 Opened 26 56 55 79 Closed (57) (44) (99) (73) Refranchised — 41 — 41 End of period 2,459 2,403 2,459 2,403 Total restaurants – end of period 5,989 5,883 5,989 5,883 Trailing four quarters net restaurant growth 106 111 27 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 and six months ended June 30, 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 prior-period comparative information has been recast. Revenues The following table sets forth the various components of Revenues from the Condensed Consolidated Statements of Operations. Three Months Ended Six Months Ended Increase (Decrease) (In thousands) June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 QTD YTD Revenues: Company-owned restaurant sales $ 178,989 $ 184,640 $ 352,870 $ 375,891 (3.1) % (6.1) % Franchise royalties and fees 48,302 46,552 96,358 93,705 3.8 % 2.8 % Commissary revenues 234,576 214,322 463,517 431,834 9.5 % 7.3 % Other revenues 23,136 20,410 46,893 41,345 13.4 % 13.4 % Advertising funds revenue 44,163 41,970 87,837 79,035 5.2 % 11.1 % Total revenues $ 529,166 $ 507,894 $ 1,047,475 $ 1,021,810 4.2 % 2.5 % 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. 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. See “Note 9. Restructuring” for additional information on these transactions. Total revenues increased $21.3 million, or 4.2%, to $529.2 million for the three months ended June 29, 2025 and increased $25.7 million, or 2.5%, to $1.05 billion for the six months ended June 29, 2025, as compared to the prior year comparable periods. Changes in total revenues were impacted by the transactions noted above and as detailed in the discussions below. Company-owned restaurant sales, which include sales from both Domestic and International Company-owned restaurants, decreased $5.7 million, or 3.1%, for the three months ended June 29, 2025 and decreased $23.0 million, or 6.1%, for the six months ended June 29, 2025, as compared to the prior year comparable periods. The decrease was primarily due to declines of $8.2 million and $20.2 million in revenues from our Company-owned restaurants in the UK, respectively, due to the transactions discussed above. The decrease for the three months ended June 29, 2025 is partially offset by a $2.6 million increase in revenue from our Domestic Company-owned restaurants due to higher average ticket that drove comparable sales growth of 0.3%, partially offset by the refranchising of 15 restaurants in the prior year. The decrease for the six months ended June 29, 2025 is also a result of a $2.8 million decline in revenue from our Domestic Company- 28 owned restaurants, reflecting a 2.1% decline in Domestic comparable sales as a result of lower transaction volumes and the refranchising of 15 restaurants in the prior year, partially offset by higher average ticket. Franchise royalties and fees, which include revenues generated from both North American and International franchisees, increased $1.8 million, or 3.8%, for the three months ended June 29, 2025 and increased $2.7 million, or 2.8%, for the six months ended June 29, 2025, as compared to the prior year comparable periods. The increases were primarily due to growth in North America franchised equivalent units of 2.7% and 2.8% and growth in International comparable sales of 3.7% and 3.5% for the three and six months ended June 29, 2025, respectively. North America franchise restaurant sales increased to $752.3 million, or 2.7% excluding the impact of foreign currency fluctuations, for the three months ended June 29, 2025 as compared to the prior year comparable period. North America franchise restaurant sales increased to $1.51 billion, or 1.1% excluding the impact of foreign currency fluctuations, for the six months ended June 29, 2025 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. The main driver in the higher franchise restaurant sales was the North America equivalent unit growth noted above. International franchise restaurant sales increased $33.0 million to $324.8 million and increased $54.9 million to $622.1 million for the three and six months ended June 29, 2025, respectively. 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 $21.0 million, or 7.0%, and increased $37.0 million, or 6.3%, for the three and six months ended June 29, 2025, respectively. International franchise restaurant sales are not included in Company revenues; however, our international royalty revenue is derived from these sales. The increases were due to growth in International comparable sales of 3.7% and 3.5% for the three and six months ended June 29, 2025, respectively, as well as restaurant growth. Commissary revenues, which includes sales from our North American and International QC Centers, increased $20.3 million or 9.5% for the three months ended June 29, 2025 and increased $31.7 million or 7.3% for the six months ended June 29, 2025 as compared to the prior year comparable period. The increase for the three and six months ended June 29, 2025 was primarily due to higher prices and higher transaction volumes as compared to the prior year comparable periods . Other revenues, which primarily includes revenues derived from our online and mobile ordering business, increased $2.7 million, or 13.4%, and increased $5.5 million , or 13.4%, for the three and six months ended June 29, 2025, respectively, as compared to the prior year comparable periods 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 as well as local and International marketing funds, increased $2.2 million, or 5.2%, and increased $8.8 million , or 11.1% , for the three and six months ended June 29, 2025, respectively, as compared to the prior year comparable periods. The increases for the three and six month periods were primarily driven by increases in the PJMF contribution percentage, which took effect in the second quarter of 2024, as well as increases to contribution percentages in certain International markets. The increase in advertising funds revenue also results from global system-wide restaurant sales growth of 3.5% and 2.1% for the three and six months ended June 29, 2025, respectively. 29 Costs and Expenses The following table sets forth the various components of Costs and expenses from the Condensed Consolidated Statements of Operations: (In thousands) Three Months Ended Six Months Ended Increase (Decrease) June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 QTD YTD Costs and expenses: Cost of sales $ 371,716 $ 363,038 $ 738,212 $ 730,704 2.4 % 1.0 % General and administrative expenses 70,118 57,046 135,285 114,923 22.9 % 17.7 % Depreciation and amortization 18,819 17,594 37,162 35,268 7.0 % 5.4 % Advertising funds expense 44,023 41,990 88,361 78,971 4.8 % 11.9 % Total costs and expenses $ 504,676 $ 479,668 $ 999,020 $ 959,866 5.2 % 4.1 % Total costs and expenses were approximately $504.7 million, or 95.4% of total revenues, and $999.0 million , or 95.4% of total revenues, for the three and six months ended June 29, 2025, as compared to $479.7 million, or 94.4% of total revenues, and $959.9 million , or 93.9% of total revenues in the prior year comparable periods. 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 were $371.7 million and $738.2 million, respectively, for the three and six months ended June 29, 2025, an increase of $8.7 million and $7.5 million, respectively, from the prior year comparable periods. The increases were due primarily to higher volumes for our Domestic QC Centers, higher food costs for our Domestic Company-owned restaurants, and higher local advertising costs for our Company-owned restaurants. These increases were partially offset by decreases of approximately $5.7 million and $17.0 million for the three and six months ended June 29, 2025, respectively, 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. Costs of sales by segment for the three and six months ended June 29, 2025 and June 30, 2024, respectively, were as follows: Three Months Ended Six Months Ended (In thousands) June 29, 2025 June 30, 2024 Increase (Decrease) June 29, 2025 June 30, 2024 Increase (Decrease) Domestic Company-owned restaurants (a) $ 156,233 $ 150,508 $ 5,725 $ 311,489 $ 301,937 $ 9,552 North America commissaries (a) 237,187 224,511 12,676 472,919 450,799 22,120 International (a) 24,386 30,209 (5,823) 44,170 61,064 (16,894) Total cost of sales by segment (b) 417,806 405,228 12,578 828,578 813,800 14,778 All other (c) 12,551 12,531 20 25,181 25,426 (245) Intersegment cost of sales (58,641) (54,721) (3,920) (115,547) (108,522) (7,025) Total cost of sales $ 371,716 $ 363,038 $ 8,678 $ 738,212 $ 730,704 $ 7,508 ___________________________________ (a) Segment cost of sales include stock-based compensation expenses and other adjustments that are excluded from our segment results, which are presented on an adjusted basis (see “Note 11. Segment Information”). (b) The North America franchising segment does not incur costs of sales, and therefore is not included in total cost of sales by segment. The North America franchising segment consists of our franchise sales and support activities for our franchisees located in the United States and Canada. (c) “ All other” refers to all other business units that do not meet the quantitative or qualitative thresholds for determining reportable segments, and primarily includes our online and mobile ordering business and our marketing funds and are not operating segments. General and administrative expenses (“G&A”) expenses were $70.1 million, or 13.3% of revenues, and $135.3 million or 12.9% of revenues, for the three and six months ended June 29, 2025, respectively, as compared to $57.0 million, or 11.2% 30 of revenues, and $114.9 million, or 11.2% of revenues for the prior year comparable periods, respectively. G&A expenses consisted of the following: Three Months Ended Six Months Ended (In thousands) June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Administrative and other general expenses, net (a) $ 64,805 $ 46,917 $ 126,349 $ 95,271 International restructuring costs (b) 2,475 6,129 4,631 15,652 Other costs (c) 2,838 4,000 4,305 4,000 General and administrative expenses $ 70,118 $ 57,046 $ 135,285 $ 114,923 ___________________________________ (a) Administrative and other general expenses, net increased by $17.9 million and $31.1 million, respectively, for the three and six months ended June 29, 2025. The increase for the three months ended June 29, 2025 was primarily due to $8.6 million of expenses incurred for incremental marketing investments and a $3.7 million increase from higher incentive compensation under our Management Incentive Plan as compared to prior year comparable period. The six months ended June 29, 2025 were also impacted by expenses resulting from our bi-annual franchise operating conference held in the first quarter of 2025 and lower comparative-period equity compensation costs related to leadership changes during the first quarter of 2024. (b) Represents costs associated with the Company’s International Restructuring plan. See “Note 9. Restructuring”. (c) For the three and six months ended June 29, 2025, other costs is comprised of the following: i. Losses on disposal of equipment incurred in connection with the termination of a COVID-era program that pre-purchased store equipment due to supply chain challenges; ii. Costs associated with project-based strategic initiatives that are not related to our ongoing operations, and; iii. Costs incurred, net of anticipated insurance recoveries, arising from tornadoes that struck the Texas Quality Control Center (“QC Center”) as well as the restaurant support center and QC Center in Louisville, Kentucky. 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. Refer to Note 2. Significant Accounting Policies of the “Notes to Condensed Consolidated Financial Statements” for further details. Depreciation and amortization expenses were $18.8 million, or 3.6% of total revenues, and $37.2 million, or 3.5% of total revenues for the three and six months ended June 29, 2025, respectively, as compared to $17.6 million, or 3.5% of total revenues and $35.3 million or 3.5% of total revenues for the prior year comparable periods, respectively. The increases were primarily due to higher depreciation expense related to our investments in technology platforms. Advertising funds expenses were $44.0 million or 99.7% of advertising revenues and $88.4 million or 100.6% of advertising revenues for the three and six months ended June 29, 2025, respectively, as compared to $42.0 million or 100.0% of advertising revenues and $79.0 million or 99.9% of advertising revenues for the prior year comparable periods, respectively. 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. 31 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 adjustments, 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 Six Months Ended Increase (Decrease) (In thousands) June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 QTD YTD Domestic Company-owned restaurants $ 9,864 $ 13,474 $ 14,896 $ 28,413 $ (3,610) $ (13,517) North America franchising 26,843 27,207 54,091 55,714 (364) (1,623) North America commissaries 19,652 15,042 39,004 32,217 4,610 6,787 International 5,637 3,713 11,019 7,906 1,924 3,113 Domestic Company-owned restaurants decreased $3.6 million for the three months ended June 29, 2025 primarily due to higher food and labor costs for our Domestic Company-owned restaurants during 2025. Domestic Company-owned restaurants decreased $13.5 million for the six months ended June 29, 2025 primarily due to higher food costs and local advertising costs. Results were also impacted by a 2.1% decline in comparable sales compared to the prior year period. North America franchising decreased $0.4 million and $1.6 million for the three and six months ended June 29, 2025, respectively, primarily due to higher incentive compensation allocated to the segment compared to the prior year periods, partially offset by higher royalty and franchise fee revenue as discussed above. North America commissaries increased $4.6 million and $6.8 million for the three and six months ended June 29, 2025, respectively, primarily due to higher prices mentioned previously. 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 QC Centers in Texas and Florida in the third quarter of 2024. International increased $1.9 million and $3.1 million for the three and six months ended June 29, 2025, respectively. The increase was primarily due to operating losses attributable to the UK Company-owned restaurants during the prior year comparable periods, when we owned and operated more restaurants in the UK. 32 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 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 QTD YTD Operating income $ 24,490 $ 28,226 $ 48,455 $ 61,944 $ (3,736) $ (13,489) Net interest expense (10,584) (10,896) (20,663) (21,959) (312) (1,296) Income before income taxes 13,906 17,330 27,792 39,985 (3,424) (12,193) Income tax expense (a) (4,235) (4,794) (8,778) (12,535) (559) (3,757) Net income 9,671 12,536 19,014 27,450 (2,865) (8,436) Net income attributable to noncontrolling interests (140) (293) (261) (571) (153) (310) Net income attributable to the Company $ 9,531 $ 12,243 $ 18,753 $ 26,879 $ (2,712) $ (8,126) Basic earnings per common share $ 0.28 $ 0.37 $ 0.56 $ 0.82 $ (0.09) $ (0.26) Diluted earnings per common share $ 0.28 $ 0.37 $ 0.56 $ 0.82 $ (0.09) $ (0.26) (a) The signage of Income tax expense has been changed from the historic presentation for purposes of signage consistency with other expense items. Net Interest Expense Net interest expense decreased $0.3 million and $1.3 million for the three and six months ended June 29, 2025, respectively. The decrease for the three and six months ended June 29, 2025 was primarily due to lower average interest rates during the respective periods. Income Tax Expense Our effective income tax rates were 30.5% and 31.6% for the three and six months ended June 29, 2025, respectively, as compared to an income tax rate of 27.7% and 31.3% for the prior year comparable periods, respectively. The higher effective tax rate for the three months ended June 29, 2025 was primarily due to lower pretax book income and tax shortfall generated by vesting of restricted shares in the second quarter of 2025. The effective tax rate was materially consistent between the six months ended June 29, 2025 and the prior year comparable period. Three Months Ended Six Months Ended (Dollars in thousands) June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Income before income taxes $ 13,906 $ 17,330 $ 27,792 $ 39,985 Income tax expense $ (4,235) $ (4,794) $ (8,778) $ (12,535) Effective tax rate 30.5 % 27.7 % 31.6 % 31.3 % Net Income Attributable to Noncontrolling Interests Net income included income of $0.1 million and $0.3 million, respectively, attributable to noncontrolling interests for the three and six months ended June 29, 2025 as compared to income of $0.3 million and $0.6 million, respectively, for the prior year comparable periods. Diluted Earnings Per Common Share Diluted earnings per common share were $0.28 and $0.56 for the three and six months ended June 29, 2025, respectively, as compared to $0.37 and $0.82 for the prior year comparable periods, respectively, representing a decrease of $0.09 and $0.26, respectively. Adjusted diluted earnings per common share, a non-GAAP measure, was $0.41 and $0.77 for the three 33 and six months ended June 29, 2025, respectively, as compared to adjusted diluted earnings per common share of $0.61 and $1.28 for the prior year comparable periods, respectively, representing a decrease of $0.20 and $0.51, respectively. See “Non-GAAP Measures” for additional information. 34 Non-GAAP Measures In addition to the results provided in accordance with U.S. GAAP, we provide certain non-GAAP measures, which present results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with U.S. GAAP and include the following: 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. GAAP results and relative to other companies. We believe that the disclosure of these non-GAAP measures is useful to investors as they reflect metrics that our management team and Board utilize to evaluate our operating performance, allocate resources and administer employee incentive plans. The most directly comparable U.S. 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. GAAP results. 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 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Net income $ 9,671 $ 12,536 $ 19,014 $ 27,450 Income tax expense 4,235 4,794 8,778 12,535 Net interest expense 10,584 10,896 20,663 21,959 Depreciation and amortization 18,819 17,594 37,162 35,268 Stock-based compensation expense 3,824 2,915 7,493 2,545 International restructuring costs (a) 2,451 6,185 4,631 15,728 Other costs (b) 3,031 4,000 4,498 4,000 Adjusted EBITDA $ 52,615 $ 58,920 $ 102,239 $ 119,485 Net income attributable to common shareholders $ 9,267 $ 12,243 $ 18,295 $ 26,879 International restructuring costs (a) 2,475 6,129 4,610 15,652 Other costs (b) 3,031 4,000 4,498 4,000 Tax effect of adjustments (c) (1,250) (2,289) (2,068) (4,441) Adjusted net income attributable to common shareholders $ 13,523 $ 20,083 $ 25,335 $ 42,090 Diluted earnings per common share $ 0.28 $ 0.37 $ 0.56 $ 0.82 International restructuring costs (a) 0.07 0.19 0.14 0.48 Other costs (b) 0.10 0.12 0.13 0.12 Tax effect of adjustments (c) (0.04) (0.07) (0.06) (0.14) Adjusted diluted earnings per common share $ 0.41 $ 0.61 $ 0.77 $ 1.28 ` 35 ___________________________________ (a) Represents costs associated with the Company’s International Transformation Plan. See “Note 9. Restructuring” for additional details. (b) For the three and six months ended June 29, 2025, other costs is comprised of the following: i. Losses on disposal of equipment incurred in connection with the termination of a COVID-era program that pre-purchased store equipment due to supply chain challenges; ii. Costs associated with project-based strategic initiatives that are not related to our ongoing operations, and; iii. Costs incurred, net of anticipated insurance recoveries, arising from tornadoes that struck the Texas Quality Control Center (“QC Center”) as well as the restaurant support center and QC Center in Louisville, Kentucky. 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. Refer to Note 2. Significant Accounting Policies of the “Notes to Condensed Consolidated Financial Statements” for further details. (c) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rates of 22.7% for the three and six months ended June 29, 2025 and 22.6% for the three and six months ended June 30, 2024. In addition, we present free cash flow in this report, which is a non-GAAP measure. Please see “Liquidity and Capital Resources – Free Cash Flow” for a discussion of why we believe free cash flow provides useful information regarding our financial condition and results of operations, and a reconciliation of free cash flow to the most directly comparable U.S. GAAP measure. 36 Liquidity and Capital Resources 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 ( the “Second Amended and Restated Credit Agreement”), 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”). See “Note 8. 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: • investing for growth • maintaining a strong balance sheet, and • returning capital to shareholders 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. Cash Flows The table below summarizes our cash flows for the six months ended June 29, 2025 and June 30, 2024 (in thousands): Six Months Ended June 29, 2025 June 30, 2024 Total cash provided by (used in): Operating activities $ 66,843 $ 41,957 Investing activities (19,389) (23,841) Financing activities (52,751) (34,428) Effect of exchange rate changes on cash and cash equivalents 641 30 Change in cash and cash equivalents $ (4,656) $ (16,282) Operating Activities Total cash provided by operating activities was $66.8 million for the six months ended June 29, 2025 compared to $42.0 million for the corresponding period of 2024. The increase of $24.9 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 used in investing activities was $19.4 million for the six months ended June 29, 2025 compared to $23.8 million for the same period in 2024. The decrease in cash used in investing activities is due primarily to a $2.7 million year-over-year increase in repayments of notes issued and a $2.5 million year-over-year increase in investment distributions from 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, which primarily consists of the acquisition of sites and construction costs for new Company-owned restaurants that have opened or that we expect to open during 2025. This estimate also includes an estimated $8 million to $13 million of capital expenditures related to rebuilding tornado damage incurred at our Texas QC Center and Louisville restaurant support center and QC Center. These amounts are subject to change as repair and reconstruction work is ongoing, and we anticipate these amounts will be recovered under our insurance policy, subject to our policy deductibles. We intend to fund our capital expenditures with cash generated by operations and borrowings under our PJI Revolving Facility, as necessary. 37 Financing Activities Total cash used in financing activities was $52.8 million for the six months ended June 29, 2025 compared to $34.4 million for the same period of 2024. During the first six months of 2025, the principal financing outflows were related to dividend payments of $30.5 million and payments related to financing leases of $4.9 million. Cash used in financing activities also reflects the impact of net repayments of $16.1 million under the PJI Revolving Facility throughout the year, which includes the refinancing of our debt via the Second Amended and Restated Credit Agreement during the first quarter of 2025 that 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 as well as $3.2 million in related issuance costs. In the first six months of 2024, the primary uses of cash for financing activities were $30.2 million in dividend payments, $3.3 million in tax payments on equity award issuances and $4.8 million in payments related to financing leases. These outflows were partially offset by net borrowings of $3.0 million from the PJI Revolving Facility and the PJMF revolving line of credit (the “PJMF Revolving Facility”). There were no share repurchases in the first six months of 2025 or 2024. Debt Our outstanding debt as of June 29, 2025 was $733.8 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 $133.8 million outstanding under the PJI Revolving Facility. Remaining availability under the PJI Revolving Facility was approximately $466.2 million as of June 29, 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 “Previous Credit Agreement”). In addition, the Company is subject to the following financial covenants substantially similar to those in the Previous 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 June 29, 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 3.0 to 1.0 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 June 29, 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: incur additional indebtedness and guarantee indebtedness; pay dividends or make other distributions or repurchase or redeem our capital stock; prepay, redeem or repurchase certain debt; issue certain preferred stock or similar equity securities; make loans and investments; sell assets; incur liens; enter into transactions with affiliates; enter into agreements restricting our subsidiaries’ ability to pay dividends; 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 most recently amended on September 30, 2024. We did not have any borrowings under the 38 PJMF Revolving Facility as of June 29, 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 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 and six months ended June 29, 2025 or June 30, 2024. Approximately $90.2 million remained available under the Company’s share repurchase program as of June 29, 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. Dividends The Company paid aggregate cash dividends to common stockholders of $30.5 million ($0.92 per share) and $30.2 million ($0.92 per share) for the six months ended June 29, 2025 and June 30, 2024, respectively. On August 1, 2025, our Board of Directors declared a third quarter dividend of $0.46 per common share (approximately $15.4 million in the aggregate), which will be paid on August 29, 2025 to stockholders of record as of the close of business on August 18, 2025. The declaration and payment of any future dividends will be at the discretion of our Board of Directors. Enactment of the “One Big Beautiful Bill Act” On July 4, 2025, the “One Big Beautiful Bill Act,” a comprehensive tax and spending bill, was signed into U.S. law. The legislation includes changes to the U.S. corporate tax system; refer to “Note 12. Subsequent Events” of the “Notes to Condensed Consolidated Financial Statements” for further details. We anticipate that the enactment of this bill will result in an estimated $10 million to $15 million reduction in cash taxes to be paid during the second half of 2025 due to the reinstatement of 100% bonus depreciation and full expensing for domestic research and development expenditures. Free Cash Flow Free cash flow, a non-GAAP measure, is defined as net cash provided by operating activities (from the Condensed Consolidated Statements of Cash Flows) less the purchases of property and equipment, excluding purchases of property and equipment related to damages from natural disasters. We view free cash flow as an important financial measure because it is one factor that management uses in determining the amount of cash available for discretionary investment. Free cash flow is not a term defined by GAAP, and as a result, our measure of free cash flow might not be comparable to similarly titled measures used by other companies. 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 2025 and 2024 (in thousands): Six Months Ended June 29, 2025 June 30, 2024 Net cash provided by operating activities $ 66,843 $ 41,957 Purchases of property and equipment (30,305) (29,155) Free cash flow $ 36,538 $ 12,802 Cash Requirements There have been no material changes in our cash requirements other than in the ordinary course of business since the end of 2024. Refer to “Contractual Obligations” presented within “Item 7. Management’s Discussion and Analysis of Financial 39 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 Certain matters discussed in this Quarterly Report on Form 10-Q and other Company communications that are not statements of historical fact constitute forward-looking statements within the meaning of the federal securities laws. 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, 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 and investments, 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, impacts of tariffs, insurance recoveries for damages related to natural disasters, 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. Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements. 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; • 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 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 geopolitical conflicts, including those in Ukraine and the Middle East; 40 • increased costs for branding initiatives and launching new advertising and marketing campaigns and promotions to boost consumer sentiment and sales trends, and the risk that such initiatives will not be effective; • risks related to a possible economic slowdown that could, among other things, reduce consumer spending or demand and result in changing consumer practices; • risks related to social media, including publicity adversely and rapidly impacting our brand and reputation; • aggressive changes in pricing or other marketing or promotional strategies by competitors, which may adversely affect sales and profitability; and new product and concept developments by food industry competitors; • changes in consumer preferences or consumer buying habits, including the growing popularity of delivery aggregators, as well as changes in general economic conditions or other factors that may affect consumer confidence and discretionary spending, including higher unemployment; • the adverse impact on the Company or our results caused by global health concerns, product recalls, food quality or safety issues, incidences of foodborne illness, food contamination and other general public health concerns about our Company-owned or franchised restaurants or others in the restaurant industry; • the effectiveness of our technology investments and changes in unit-level operations; • the ability of the Company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably, including difficulties finding qualified franchisees, restaurant level employees or suitable sites; • increases in insurance claims and related costs for programs funded by the Company up to certain retention limits, including medical, owned and non-owned vehicles, workers’ compensation, general liability and property; • disruption of our supply chain or commissary operations which could be caused by our sole source of supply of mozzarella cheese, desserts, garlic cups or limited source of suppliers for other key ingredients or more generally due to weather, natural disasters including drought, disease, or geopolitical or other disruptions beyond our control; • 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, regulatory changes, increased tariffs and other trade barriers, 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; • risks related to our indebtedness and borrowing costs, including prolonged higher interest rates, and the current state of the credit markets; • the Company’s ability to continue to pay dividends to stockholders based upon profitability, cash flows and capital adequacy if restaurant sales and operating results decline; • our ability to effectively operate and improve the performance of International Company-owned restaurants; • disruption of critical business or information technology systems, or those of our suppliers, and risks associated with systems failures and data privacy and cybersecurity incidents, including theft of confidential Company, employee and customer information, including payment cards; and • changes in Federal or state income, general and other tax laws, rules and regulations and changes in generally accepted accounting principles. These and other risk factors are discussed in detail in “Part I. Item 1A. – Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2024. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise, except as required by law.