PAPA JOHNS INTERNATIONAL INC - Quarter Report: 2024 June (Form 10-Q)

Basic earnings per common share $ $ $ $ Diluted earnings per common share$ $ $ $ Basic weighted average common shares outstanding Diluted weighted average common shares outstanding Dividends declared per common share$ $ $ $

See accompanying notes.

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended

Six Months Ended

(In thousands)

June 30,
2024

June 25,
2023

June 30,
2024

June 25,
2023

Net income before attribution to noncontrolling interests

Other comprehensive income (loss), before tax:

Foreign currency translation adjustments

()

Interest rate swaps (1)

Other comprehensive income (loss), before tax

Income tax effect:

Foreign currency translation adjustments

()

Interest rate swaps (2)

()

Income tax effect

()

Other comprehensive income (loss), net of tax

Comprehensive income before attribution to noncontrolling interests

Less: comprehensive income, redeemable noncontrolling interests

()

Less: comprehensive income, nonredeemable noncontrolling interests

()

Comprehensive income attributable to the Company

___________________________________

(1) and $ for the three and six months ended June 30, 2024, respectively, and $() and $() for the three and six months ended June 25, 2023, respectively.

(2) ) and $() for the three and six months ended June 30, 2024, respectively, and $ and $ for the three and six months ended

See accompanying notes.

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)

Papa John’s International, Inc.

(In thousands)

Common
Stock
Shares
Outstanding

Common
Stock

Additional
Paid-In
Capital

Accumulated

Other

Comprehensive

Loss (2)

Retained
Earnings

Treasury
Stock

Noncontrolling
Interests in
Subsidiaries

Total
Stockholders’
Deficit

For the three months ended
June 30, 2024

Balance at March 31, 2024

()

Net income (1)

—

Other comprehensive income (loss), net of tax

—

Dividends on common stock

—

()

—

()

Exercise of stock options

—

Stock-based compensation expense

—

Issuance of restricted stock

—

()

—

Tax effect of restricted stock awards

()

—

()

—

()

Distributions to noncontrolling interests

—

()

Other

—

()

—

()

Balance at June 30, 2024

()

For the six months ended
June 30, 2024

Balance at December 31, 2023

()

Net income (1)

—

Other comprehensive income (loss), net of tax

—

Dividends on common stock

—

()

—

()

Exercise of stock options

—

Stock-based compensation expense

—

Issuance of restricted stock

—

()

—

Tax effect of restricted stock awards

()

—

()

—

()

Distributions to noncontrolling interests

—

()

Other

—

()

—

Balance at June 30, 2024

()

(1) and $, respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

(2) was comprised of net unrealized foreign currency translation loss of $ and net unrealized gain on the interest rate swap agreements of $.

See accompanying notes.

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit (continued)

(Unaudited) )))))))) )) ) )))) ) )

Papa John’s International, Inc.

(In thousands)

Common
Stock
Shares
Outstanding

Common
Stock

Additional
Paid-In
Capital

Accumulated

Other

Comprehensive

Loss (2)

Retained
Earnings

Treasury

Stock (3)

Noncontrolling
Interests in
Subsidiaries

Total
Stockholders’
Deficit

For the three months ended
June 25, 2023

Balance at March 26, 2023

()

Net income (1)

—

Other comprehensive income (loss), net of tax

—

Dividends on common stock

—

()

—

()

Exercise of stock options

—

()

See accompanying notes.

Papa John’s International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 30, 2024

percent are franchised, and does not have sufficient equity to fund its operations without these ongoing financial contributions. Based on an assessment of the governance structure and operating procedures of PJMF, the Company determined it has the power to control certain significant activities of PJMF, and therefore, is the primary beneficiary. The Company has consolidated PJMF in its financial results in accordance with Accounting Standards Codification (“ASC”) 810, “Consolidation.”

$ $ $ Redeemable noncontrolling interests Nonredeemable noncontrolling interests Total net income$ $ $ $

$ $ $

Interest rate swaps (b)

$ $ $ $ Other long-term liabilities$$

Interest expense$ $()June 25, 2023$Interest expense$()$()Interest rate swaps for the six months ended:June 30, 2024$Interest expense$ $()June 25, 2023$Interest expense$()$()

Net interest paid, including payments made or received under the swaps, was $ million and $ million for the three and six months ended June 30, 2024, respectively, and $ million and $ million for the three and six months ended June 25, 2023, respectively.

underperforming UK Company-owned restaurants during the three months ended June 30, 2024.

During the second quarter of 2024, the Company completed the refranchising of formerly Company-owned restaurants to existing franchisees in June 2024, which resulted in a loss on sale of $ million during the three months ended June 30, 2024. Additionally, the Company refranchised an additional formerly Company-owned restaurants effective July 1, 2024. The assets of these stores were classified as assets held for sale on the Condensed Consolidated Balance Sheets as of June 30, 2024, and the remeasurement of these assets resulted in charges of $ million during the three months ended June 30, 2024. The loss on sale and remeasurement charges were recorded within General and administrative expenses in the Condensed Consolidated Statements of Operations. Further, as a result of ongoing evaluation of our UK market, the Company closed an additional franchised locations during the first six months of 2024. We are finalizing the evaluation of our restaurant portfolio in the UK, which may result in limited strategic restaurant closures with the Company’s efforts turning towards growth opportunities within this market as we complete optimization of the portfolio.

The Company evaluates its property and equipment and other long-lived assets (primarily right-of-use operating lease assets) for potential indicators of impairment at least annually, or as facts and circumstances indicate that the carrying value of the asset group may not be recoverable. The asset group is at the store level for our UK-based restaurants and primarily includes lease right-of-use assets for franchised stores and lease right-of-use assets and leasehold improvements for Company-owned stores. Due to indicators of potential impairment associated with the UK Company-owned and franchised store closures mentioned above, the Company performed an impairment analysis and determined that the carrying amount

million and $ million for the three and six months ended June 30, 2024, respectively, primarily related to lease right-of-use asset and leasehold improvement impairment charges, losses associated with the refranchising of corporate stores, losses on notes receivable with a UK franchisee in relation to franchised store closures, lease termination impacts related to closed stores, employee termination costs, and professional advisory services and other related costs. The Company has incurred total restructuring related costs of $ million since commencement of the International Transformation Plan. These costs were included in General and administrative expenses in the Condensed Consolidated Statements of Operations.

Total estimated pre-tax costs associated with the International Transformation Plan are approximately $ million to $ million (inclusive of the $ million incurred through the second quarter of 2024), all of which will be recorded within our International segment, and we expect to incur the remainder of these costs through 2024 and 2025.

$ Loss on franchisee notes receivable Loss on refranchising Company-owned stores Professional services and other related costs

Employee termination costs, net (a)

() Operating lease terminations Total international transformation costs, net$ $

(a) During the three months ended June 30, 2024, the Company had a partial reversal of severance originally estimated in connection with the closure of Company-owned restaurants. Includes noncash reversal of $ million related to the forfeiture of unvested stock-based compensation awards.

$ $ $ Charges Payments ()()()()Balance as of June 30, 2024$ $ $ $

million and other non-monetary consideration, all claims in the action will be dismissed, the litigation will be terminated, and the Company will receive a release. The settlement amount was recorded in General and administrative expenses in the Condensed Consolidated Statements of Operations in the first quarter of 2022 and remained accrued in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets as of June 30, 2024. The proposed settlement remains subject to approval by the District Court and contains certain customary contingencies. The Company continues to deny any liability or wrongdoing in this matter.

reportable segments: Domestic Company-owned restaurants, North America franchising, North America commissaries, and International operations. The Domestic Company-owned restaurant segment consists of the operations of all Domestic Company-owned restaurants and derives its revenues principally from retail sales of pizza, Papadias, and side items, including breadsticks, Papa Bites, cheesesticks, boneless chicken wings and bone-in chicken wings, dessert items and canned or bottled beverages. The North America franchising segment consists of our franchise sales and support activities and derives its revenues from sales of franchise and development rights and collection of royalties from our franchisees located in the United States and Canada. The North America commissary segment consists of the operations of our regional dough production and product distribution centers and derives its revenues principally from the sale and distribution of food and paper products to Domestic Company-owned and franchised restaurants in the United States and Canada. The International segment consists of the operations of all Company-owned restaurants located in the UK, as well as distribution sales to franchised Papa Johns restaurants located in the UK and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our International franchisees. All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as “all other,” which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of information systems and related services used in restaurant operations, including our point-of-sale system, online and other technology-based ordering platforms, as well as franchise contributions to marketing funds.

Generally, we evaluate performance and allocate resources based on operating income. Certain administrative and capital costs are allocated to segments based upon predetermined rates or estimated resource usage. We account for intercompany sales and transfers as if the sales or transfers were to third parties and eliminate the activity in consolidation.

Our reportable segments are business units that provide different products or services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies. single external customer accounted for 10% or more of our consolidated revenues.

$$$North America franchisingNorth America commissariesInternationalAll othersTotal revenues $$$$Intersegment revenues:North America franchising$$$$North America commissariesInternationalAll othersTotal intersegment revenues$$$$Operating income:

Domestic Company-owned restaurants (a)

$$$$North America franchisingNorth America commissaries

International (b)

()()All others

Unallocated corporate expenses (c)

()()()()Elimination of intersegment (profits) losses()()Total operating income$$$$Property and equipment, net:Domestic Company-owned restaurants$North America commissariesInternationalAll othersUnallocated corporate assetsAccumulated depreciation and amortization()Total property and equipment, net$___________________________________

(a) The three and six months ended June 30, 2024 includes a $ million non-cash impairment charge related to fixed and intangible assets related to certain Domestic restaurants.

(b) The three and six months ended June 30, 2024 includes $ million and $ million, respectively, of costs related to the International Transformation Plan. See “Note 9. Restructuring” for additional information. The three and six months ended June 25, 2023 includes $ million of costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of stores from franchisees.

million and $ million, respectively, of severance and related costs associated with the transition of certain executives.

$— $— $ $— $ Franchise royalties and fees— — — Commissary sales— — — Other revenues— — — Eliminations— ()()— ()()Total segment revenues

International other revenues (a)

— — — () — Total revenues$ $ $ $ $ $ Reportable SegmentsThree Months Ended June 25, 2023Major Products/Services LinesDomestic Company-owned restaurantsNorth America franchisingNorth America commissariesInternationalAll othersTotalCompany-owned restaurant sales$ $— $— $ $— $ Franchise royalties and fees— — — Commissary sales— — — Other revenues— — — Eliminations— ()()()()()Total segment revenues

International other revenues (a)

— — — () — Total revenues$ $ $ $ $ $ Reportable SegmentsSix Months Ended June 30, 2024Major Products/Services LinesDomestic Company-owned restaurantsNorth America franchisingNorth America commissariesInternationalAll othersTotalCompany-owned restaurant sales$ $— $— $ $— $ Franchise royalties and fees— — — Commissary sales— — — Other revenues— — — Eliminations— ()() ()()Total segment revenues

International other revenues (a)

— — — () — Total revenues$ $ $ $ $ $

$— $— $ $— $ Franchise royalties and fees— — — Commissary sales— — — Other revenues— — — Eliminations— ()()()()()Total segment revenues

International other revenues (a)

— — — () — Total revenues$ $ $ $ $ $ ___________________________________

(a) Other revenues as reported in the Condensed Consolidated Statements of Operations include $ million and $ million of revenues for the three and six months ended June 30, 2024, respectively, and $ million and $ million of revenues for the three and six months ended June 25, 2023, respectively, that are part of the International reporting segment. These amounts include marketing fund contributions and sublease rental income from international franchisees in the United Kingdom that provide no significant contribution to income before income taxes but must be reported on a gross basis under accounting requirements. The related expenses for these Other revenues are reported in Other expenses in the Condensed Consolidated Statements of Operations.

Domestic QC Centers for a purchase price of $ million. Under the terms of the leases, which commenced on August 2, 2024, we will lease the QC Centers for years with year renewal options. The Company will pay annual rents under the operating leases of the Texas and Florida QC Centers of $ million and $ million, respectively, for the first year with annual rents increasing by % thereafter. We have reclassified all long-lived assets associated with the transaction as held for sale as of the balance sheet date, in accordance with ASC 360. We expect to record a pre-tax gain on sale of approximately $ million to $ million during the third quarter of 2024, as the sale was not executed as of June 30, 2024.

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

The Company has focused on executing strategic priorities and building a foundation for long-term success, while navigating a challenging macroeconomic environment. Our progress and significant transactions during the second quarter of 2024 are described below.

Focusing on future growth, our “Back to BETTER 2.0” initiative is comprised of long-term strategic initiatives focused on driving systemwide sales through enhancing North America national marketing investment and effectiveness and accelerating North America development. In addition, we are evolving our Domestic Commissary business to provide cost savings for our franchisees and incremental profit for our business model.

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

Back to Better 2.0

•Product innovation and marketing strategy: In the second quarter, the approved contribution rate increase to PJMF became effective, while local marketing spend remains optional. This strategy shift is intended to increase the productivity of franchisees’ marketing contributions by leveraging the scale that national investments deliver. In earlier 2024, we also launched an all-new brand platform “Better Get You Some” that is part of our deepened commitment to, and investment in, our new marketing strategy. These investments are focused on improving audience segmentation, building consumer loyalty and driving cultural relevance. Additionally during the quarter, we brought back the Cheesy Burger Pizza platform, which is available across a trio of menu items and price points.

•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.

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 $17.9 million incurred through the second quarter of 2024), which the Company currently expects to be recognized in 2024 and 2025. See “Note 9. Restructuring” of “Notes to Condensed Consolidated Financial Statements” for additional details.

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

•During the second quarter, we completed several transactions to optimize the UK Company-owned restaurant portfolio. On May 15, 2024, we completed the planned closure of 43 underperforming UK Company-owned restaurants. In June, we successfully refranchised 40 formerly Company-owned restaurants to existing franchisees. On July 1, 2024, we refranchised an additional 20 formerly Company-owned restaurants to primarily existing franchisees. Beginning with the third quarter of 2024, we will continue to operate only 13 Company-owned restaurants in the UK. We have also continued evaluating and right-sizing the UK franchise base, resulting in the closure of 19 franchised locations during the first six months of 2024. Based on these actions, and the continued operating success of our franchisees, we anticipate the UK market to be profit accretive in the second half of 2024.

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

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.


	Three Months Ended		Six Months Ended
Amounts below exclude the impact of foreign currency	June 30, 2024	June 25, 2023	June 30, 2024	June 25, 2023
Comparable sales growth (decline):
Domestic Company-owned restaurants	(4.2)%	2.2%	(3.6)%	2.8%
North America franchised restaurants	(3.4)%	(2.3)%	(2.4)%	(1.6)%
North America restaurants	(3.6)%	(1.4)%	(2.7)%	(0.7)%
International restaurants	(0.1)%	(0.7)%	(1.4)%	(3.3)%
Total comparable sales growth (decline)	(2.7)%	(1.3)%	(2.4)%	(1.3)%
System-wide restaurant sales growth (decline):
Domestic Company-owned restaurants	(1.5)%	2.5%	(1.7)%	3.7%
North America franchised restaurants	(1.9)%	(0.6)%	(1.8)%	0.1%
North America restaurants	(1.9)%	—%	(1.8)%	0.8%
International restaurants	2.9%	8.6%	2.2%	5.8%
Total global system-wide restaurant sales growth (decline)	(0.7)%	2.0%	(0.8)%	2.0%


Restaurant Progression	Three Months Ended		Six Months Ended
	June 30, 2024	June 25, 2023	June 30, 2024	June 25, 2023
North America Company-owned:
Beginning of period	536	520	531	522
Opened	1	—	6	—
Closed	—	—	—	(2)
Acquired	—	1	—	1
End of period	537	521	537	521
North America franchised:
Beginning of period	2,911	2,864	2,902	2,854
Opened	9	13	25	29
Closed	(10)	(8)	(17)	(14)
Sold	—	(1)	—	(1)
End of period	2,910	2,868	2,910	2,868
International Company-owned
Beginning of period	117	—	117	—
Closed	(43)	—	(43)	—
Acquired	—	91	—	91
Refranchised	(41)	—	(41)	—
End of period	33	91	33	91
International franchised:
Beginning of period	2,350	2,341	2,356	2,322
Opened	56	55	79	98
Closed	(44)	(13)	(73)	(37)
Sold	—	(91)	—	(91)
Refranchised	41	—	41	—
End of period	2,403	2,292	2,403	2,292
Total restaurants – end of period	5,883	5,772	5,883	5,772

Trailing four quarters net store growth	111	209

Results of Operations

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)
(Dollars in thousands)	June 30, 2024		June 25, 2023		June 30, 2024		June 25, 2023		QTD		YTD
Revenues:
Domestic Company-owned restaurant sales	$	173,207	$	175,780	$	349,431	$	355,646	(1.5)	%	(1.7)	%
North America franchise royalties and fees	34,409		34,711		70,106		70,783		(0.9)	%	(1.0)	%
North America commissary revenues	198,197		206,980		401,484		419,546		(4.2)	%	(4.3)	%
International revenues	39,701		34,608		80,409		66,071		14.7	%	21.7	%
Other revenues	62,380		62,451		120,380		129,533		(0.1)	%	(7.1)	%
Total revenues	$	507,894	$	514,530	$	1,021,810	$	1,041,579	(1.3)	%	(1.9)	%

The comparability of results between 2024 and 2023 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 quarter of 2024, the Company completed the previously-announced closure of 43 Company-owned restaurants in the UK and also refranchised 40 Company-owned restaurants in the UK. These transactions impact the composition of International revenues and the results of the International segment during the periods presented. On July 1, 2024, the Company refranchised an additional 20 Company-owned restaurants in the UK. After prior disposals of two mobile units, the Company is operating 13 UK Company-owned restaurants beginning in the third quarter of 2024. See “Note 9. Restructuring” of the “Notes to Condensed Consolidated Financial Statements” for additional information on these transactions.

Total revenues decreased $6.6 million or 1.3% to $507.9 million for the three months ended June 30, 2024 and decreased $19.8 million or 1.9% to $1.02 billion for the six months ended June 30, 2024, as compared to each prior year comparable period. Changes in total revenues are impacted by the transactions noted above and as detailed in the discussion below.

Domestic Company-owned restaurant sales decreased $2.6 million, or 1.5%, for the three months ended June 30, 2024 and decreased $6.2 million, or 1.7% for the six months ended June 30, 2024, as compared to each prior year comparable period. The decrease was primarily due to declines in comparable sales of 4.2% and 3.6% for the three and six months ended June 30, 2024, respectively. The comparable sales declines were partially offset by increased equivalent units of 4.1% and 2.3% for the same respective periods.

North America franchise royalties and fees decreased $0.3 million, or 0.9%, for the three months ended June 30, 2024 and decreased $0.7 million, or 1.0% for the six months ended June 30, 2024, each as compared to each prior year comparable period. The decreases are primarily due to comparable sales declines of 3.4% and 2.4%, respectively. These declines were partially offset by lower royalty waivers in 2024 as compared to 2023 and growth in units. Equivalent units increased 3.7% and 3.3% for the three and six months ended June 30, 2024, respectively.

North America franchise restaurant sales decreased 2.0% to $732.5 million for the three months ended June 30, 2024 compared to the prior year comparable period. North America franchise restaurant sales decreased 1.8% to $1.5 billion for the six months ended June 30, 2024 as compared to the prior year comparable period. North America franchise restaurant sales are not included in Company revenues; however, our North America franchise royalties are derived from these sales.

North America commissary revenues decreased $8.8 million or 4.2% for the three months ended June 30, 2024 and decreased $18.1 million, or 4.3% for the six months ended June 30, 2024, each as compared with the prior year comparable period. The declines were due to a combination of lower commodity prices, particularly cheese, and lower volumes.

International revenues increased $5.1 million, or 14.7%, for the three months ended June 30, 2024 and increased $14.3 million, or 21.7% for the six months ended June 30, 2024, each as compared with the prior year comparable period. As mentioned above, the UK franchisee acquisitions in 2023 and the UK restaurant closures and refranchising transactions in the second quarter of 2024 impact the comparability of International revenues earned in each period. The net increase in revenue related to the UK franchisee acquisitions was approximately $5.2 million and $14.9 million for the three and six months ended June 30, 2024, respectively, representing sales and royalties attributable to this group of restaurants compared to prior year. Excluding the impact of the UK franchisee acquisitions, International revenues would have decreased $0.1 million and $0.6 million for the three and six months ended June 30, 2024, respectively.

International franchise restaurant sales decreased $10.4 million to $287.1 million and decreased $28.8 million to $562.2 million for the three and six months ended June 30, 2024, respectively. This decrease includes the impact of the UK franchisee acquisitions moving out of franchise restaurant sales and into Company-owned sales. Excluding the impact of the UK franchisee acquisitions and foreign currency fluctuations, International franchise restaurant sales increased $12.2 million or 4.3% and $16.4 million or 2.9% for the three and six months ended June 30, 2024, respectively. International franchise restaurant sales are not included in Company revenues; however, our international royalty revenue is derived from these sales.

Other revenues, which primarily includes our national marketing funds and online and mobile ordering business, were flat and decreased $9.2 million, or 7.1%, for the three and six months ended June 30, 2024 compared to the prior year comparable periods. Our results for the three and six months ended June 25, 2023 included revenues of $4.8 million and $9.9 million, respectively, related to Preferred Marketing, our formerly wholly-owned print and promotions company which was sold in the fourth quarter of 2023. This was offset during the second quarter of 2024 primarily by a $4.2 million increase in marketing fees due to a planned increase in the national marketing fund contribution percentage that went into effect during the quarter and an increase in franchised locations.

Costs and Expenses

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


(Dollars in thousands)	Three Months Ended
	June 30, 2024		% of Related Revenues		June 25, 2023		% of Related Revenues		Increase (Decrease) in % of Revenues
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses	$	138,033	79.7	%	$	143,705	81.8	%	(2.1)	%
North America commissary expenses	182,299		92.0	%	190,468		92.0	%	—	%
International expenses	27,077		68.2	%	20,435		59.0	%	9.2	%
Other expenses	56,951		91.3	%	58,996		94.5	%	(3.2)	%
General and administrative expenses	57,714		11.4	%	50,324		9.8	%	1.6	%
Depreciation and amortization	17,594		3.5	%	15,690		3.0	%	0.5	%
Total costs and expenses	479,668		94.4	%	479,618		93.2	%	1.2	%

Operating income	$	28,226	5.6	%	$	34,912	6.8	%	(1.2)	%

(Dollars in thousands)	Six Months Ended
	June 30, 2024		% of Related Revenues		June 25, 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	$	276,786	79.2	%	$	291,489	82.0	%	(2.8)	%
North America commissary expenses	367,498		91.5	%	386,883		92.2	%	(0.7)	%
International expenses	55,423		68.9	%	37,746		57.1	%	11.8	%
Other expenses	108,718		90.3	%	120,074		92.7	%	(2.4)	%
General and administrative expenses	116,173		11.4	%	102,268		9.8	%	1.6	%
Depreciation and amortization	35,268		3.5	%	30,411		2.9	%	0.6	%
Total costs and expenses	959,866		93.9	%	968,871		93.0	%	0.9	%

Operating income	$	61,944	6.1	%	$	72,708	7.0	%	(0.9)	%

Total costs and expenses were $479.7 million or 94.4% of total revenues for the three months ended June 30, 2024 as compared to $479.6 million or 93.2% of total revenues for the prior year comparable period. For the six months ended June 30, 2024, total costs and expenses were $959.9 million or 93.9% of total revenues, as compared to $968.9 million, or 93.0% of total revenues for the prior year comparable period. The changes in total costs and expenses, as percentages of revenues, were primarily due to the following:

Domestic Company-owned restaurant expenses were $138.0 million or 79.7% of related revenues for the three months ended June 30, 2024 as compared to expenses of $143.7 million or 81.8% of related revenues for the prior year period. For the six months ended June 30, 2024 Domestic Company-owned restaurant expenses were $276.8 million or 79.2% of related revenues as compared to expenses of $291.5 million or 82.0% of related revenues for the prior year comparable period. The quarter and year-to-date decreases of 2.1% and 2.8%, respectively, were primarily due to lower insurance expenses related to improved auto liability claims experience, lower utility costs, and lower advertising spend that we expect to incur later in 2024.

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

six months ended June 30, 2024 North America commissary expenses were $367.5 million, or 91.5% of related revenues as compared to $386.9 million, or 92.2% of related revenues for the prior year comparable period. The expense, as a percentage of related revenues, was flat and decreased 0.7% for the three and six months ended June 30, 2024 primarily due to declining commodity prices for cheese and lower volumes.

International expenses were $27.1 million, or 68.2% of related revenues for the three months ended June 30, 2024 as compared to $20.4 million, or 59.0% of related revenues for the prior year comparable period. For the six months ended June 30, 2024, International expenses were $55.4 million, or 68.9% of related revenues as compared to expenses of $37.7 million, or 57.1% of related revenues for the prior year comparable period. International expenses increased in 2024 as a result of the UK franchisee acquisitions, which added operating costs related to Company-owned restaurants, partially offset by declining commodity prices at our International commissary.

Other expenses were $57.0 million, or 91.3% of related revenues for the three months ended June 30, 2024, as compared to $59.0 million, or 94.5% for the prior year comparable period. For the six months ended June 30, 2024, Other expenses were $108.7 million, or 90.3% of related revenues as compared to expenses of $120.1 million, or 92.7% of related revenues for the prior year comparable period. The decrease reflects $4.7 million and $9.5 million of expenses incurred for the three and six months ended June 25, 2023 related to Preferred Marketing, our formerly wholly-owned print and promotions company, which was sold in the fourth quarter of 2023. This decrease was partially offset during the second quarter of 2024 by a $3.8 million increase in advertising expenses due to a planned increase in the national marketing fund contribution percentage that went into effect during the quarter and an increase in franchised locations.

General and Administrative Expenses

General and Administrative (“G&A”) expenses were $57.7 million, or 11.4% of revenues for the three months ended June 30, 2024 as compared to $50.3 million, or 9.8% of revenues for the prior year comparable period. For the six months ended June 30, 2024, G&A expenses were $116.2 million or 11.4% of revenues compared to $102.3 million or 9.8% of revenues for the prior year comparable period. G&A expenses increased $7.4 million and $13.9 million, respectively, for the three and six months ended June 30, 2024 primarily due to $6.1 million and $15.7 million incurred related to the International Transformation Plan (see “Note 9. Restructuring”) as well as $4.0 million related to a non-cash impairment charge to write down the carrying value of property and equipment and intangible assets for certain Domestic restaurants. This increase was partially offset by lower equity compensation costs related to leadership changes and lower costs in 2024 as the bi-annual franchise operating conference took place in 2023.

Depreciation and Amortization

Depreciation and amortization expense was $17.6 million, or 3.5% of revenues for the three months ended June 30, 2024, as compared to $15.7 million, or 3.0% of revenues for the prior year comparable period. For the six months ended June 30, 2024, depreciation and amortization expense was $35.3 million, or 3.5% of revenues as compared to $30.4 million, or 2.9% of revenues for the prior year comparable period. The increases of $1.9 million and $4.9 million, respectively, for the three and six months ended June 30, 2024, was primarily due to higher depreciation expense related to our investments in technology platforms and the UK franchisee acquisitions.

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 June 30, 2024						Three Months Ended June 25, 2023
(In thousands)	Reported		Adjustments (a)		Adjusted		Reported		Adjustments (a)		Adjusted		Reported Increase (Decrease)		Adjusted Increase (Decrease)
Domestic Company-owned restaurants	$	4,777	$	4,000	$	8,777	$	6,641	$	—	$	6,641	$	(1,864)	$	2,136
North America franchising	32,409		—		32,409		32,111		—		32,111		298		298
North America commissaries	11,403		—		11,403		10,397		—		10,397		1,006		1,006
International	(2,665)		6,129		3,464		3,763		1,308		5,071		(6,428)		(1,607)
All others	2,170		—		2,170		1,343		—		1,343		827		827
Unallocated corporate expenses	(19,598)		—		(19,598)		(19,701)		661		(19,040)		103		(558)
Elimination of intersegment (profits) losses	(270)		—		(270)		358		—		358		(628)		(628)
Total	$	28,226	$	10,129	$	38,355	$	34,912	$	1,969	$	36,881	$	(6,686)	$	1,474

	Six Months Ended June 30, 2024						Six Months Ended June 25, 2023
(In thousands)	Reported		Adjustments (a)		Adjusted		Reported		Adjustments (a)		Adjusted		Reported Increase (Decrease)		Adjusted Increase (Decrease)
Domestic Company-owned restaurants	$	15,136	$	4,000	$	19,136	$	13,291	$	—	$	13,291	$	1,845	$	5,845
North America franchising	66,120		—		66,120		65,511		—		65,511		609		609
North America commissaries	23,738		—		23,738		21,127		—		21,127		2,611		2,611
International	(8,654)		15,652		6,998		10,995		1,308		12,303		(19,649)		(5,305)
All others	5,368		—		5,368		4,500		—		4,500		868		868
Unallocated corporate expenses	(39,240)		—		(39,240)		(43,067)		2,017		(41,050)		3,827		1,810
Elimination of intersegment (profits) losses	(524)		—		(524)		351		—		351		(875)		(875)
Total	$	61,944	$	19,652	$	81,596	$	72,708	$	3,325	$	76,033	$	(10,764)	$	5,563

___________________________________

(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 $28.2 million and $61.9 million for the three and six months ended June 30, 2024, respectively, as compared to $34.9 million and $72.7 million for the prior year comparable periods, a decrease of $6.7 million and $10.8 million, respectively. Adjusted operating income was $38.4 million and $81.6 million for the three and six months ended June 30, 2024, respectively, as compared to $36.9 million and $76.0 million for the prior year comparable periods, an increase of $1.5 million and $5.6 million, respectively. The fluctuations in adjusted operating income in 2024 compared to 2023 were primarily due to the following:

•Domestic Company-owned restaurants increased $2.1 million and $5.8 million for the three and six months ended June 30, 2024. The increase was primarily due to lower advertising, utility and insurance costs, combined with lower commodity prices, which were partially offset by lower revenues from 4.2% and 3.6% declines in comparable sales for the respective periods.

•North America franchising increased $0.3 million and $0.6 million for the three and six months ended June 30, 2024. The increase is primarily due to a 3.7% and 3.3% increase in equivalent units, partially offset by a decrease in comparable sales of 3.4% and 2.4% for the respective periods.

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

•International decreased $1.6 million and $5.3 million for the three and six months ended June 30, 2024 primarily driven by operating losses including increased depreciation expense attributable to the UK franchisee acquisitions as well as comparable sales declines of 0.1% and 1.4% for the respective periods. As mentioned above, during the second quarter of 2024, 43 of the UK Company-owned restaurants were closed and an additional 40 were refranchised. 20 additional UK Company-owned restaurants were refranchised effective July 1, 2024. Beginning in the third quarter of 2024, we will operate 13 Company-owned stores in the UK.

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

•Unallocated corporate expenses increased $0.6 million for three months ended June 30, 2024 and decreased $1.8 million for the six months ended June 30, 2024. The decrease during the year-to-date period was primarily due to the reversal of stock compensation expense for unvested equity units from leadership transitions, which was partially offset by higher depreciation expense related to our investments in technology support initiatives.

Items Below Operating Income

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


	Three Months Ended				Six Months Ended				Increase (Decrease)
(In thousands, except per share amounts)	June 30, 2024		June 25, 2023		June 30, 2024		June 25, 2023		QTD		YTD
Operating income	$	28,226	$	34,912	$	61,944	$	72,708	$	(6,686)	$	(10,764)
Net interest expense	(10,896)		(11,275)		(21,959)		(20,296)		379		(1,663)
Income before income taxes	17,330		23,637		39,985		52,412		(6,307)		(12,427)
Income tax expense	4,794		5,778		12,535		12,007		(984)		528
Net income before attribution to noncontrolling interests	12,536		17,859		27,450		40,405		(5,323)		(12,955)
Net income attributable to noncontrolling interests	(293)		(91)		(571)		(261)		(202)		(310)
Net income attributable to the Company	$	12,243	$	17,768	$	26,879	$	40,144	$	(5,525)	$	(13,265)







Basic earnings per common share	$	0.37	$	0.55	$	0.82	$	1.20	$	(0.18)	$	(0.38)
Diluted earnings per common share	$	0.37	$	0.54	$	0.82	$	1.20	$	(0.17)	$	(0.38)

Net Interest Expense

Net interest expense decreased $0.4 million and increased $1.7 million, or 3.4% and 8.2% for the three and six months ended June 30, 2024. The increase for the six months ended June 30, 2024 was due to higher average outstanding debt as well as an increase in borrowing rates.

Income Tax Expense (Benefit)

Our effective income tax rate was 27.7% and 31.3% for the three and six months ended June 30, 2024 as compared to an income tax rate of 24.4% and 22.9% for the prior year comparable periods. The higher effective tax rate for the three and six months ended June 30, 2024 was driven by impairment charges related to the International Restructuring that created unrecognized tax losses and prevented the Company from generating foreign tax credits as well as a tax shortfall generated by stock option exercises and vesting of restricted shares in 2024 along with a lower pre-tax income.


	Three Months Ended						Six Months Ended
(Dollars in thousands)	June 30, 2024			June 25, 2023			June 30, 2024			June 25, 2023
Income before income taxes	$	17,330		$	23,637		$	39,985		$	52,412
Income tax expense	$	4,794		$	5,778		$	12,535		$	12,007
Effective tax rate	27.7		%	24.4		%	31.3		%	22.9		%

Net Income Attributable to Noncontrolling Interests

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

Diluted Earnings Per Common Share

Diluted earnings per common share was $0.37 and $0.82 for the three and six months ended June 30, 2024 as compared to $0.54 and $1.20 for the prior year comparable periods, representing decreases of $0.17 and $0.38, respectively. Adjusted diluted earnings per common share, a non-GAAP measure, was $0.61 and $1.28 for the three and six months ended June 30, 2024 as compared to adjusted diluted earnings per common share of $0.59 and $1.28 for the prior year comparable periods, representing an increase of $0.02 for the quarter and flat for the six month period. See “Non-GAAP Measures” for additional information.

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 operating income, 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 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. 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 30, 2024		June 25, 2023		June 30, 2024		June 25, 2023
Operating income		$	28,226	$	34,912	$	61,944	$	72,708
International restructuring costs (a)		6,129		—		15,652		—
UK repositioning and acquisition-related costs (b)		—		1,308		—		1,308
Other costs (c)		4,000		661		4,000		2,017
Adjusted operating income		$	38,355	$	36,881	$	81,596	$	76,033

Net income attributable to common shareholders		$	12,243	$	17,768	$	26,879	$	40,144
International restructuring costs (a)		6,129		—		15,652		—
UK repositioning and acquisition-related costs (b)		—		1,308		—		1,308
Other costs (c)		4,000		661		4,000		2,017
Tax effect of adjustments (d)		(2,289)		(449)		(4,441)		(758)
Adjusted net income attributable to common shareholders		$	20,083	$	19,288	$	42,090	$	42,711

Diluted earnings per common share		$	0.37	$	0.54	$	0.82	$	1.20
International restructuring costs (a)		0.19		—		0.48		—
UK repositioning and acquisition-related costs (b)		—		0.04		—		0.04
12,802	$	58,976

Cash Requirements

There have been no material changes in our cash requirements other than in the ordinary course of business since the end of 2023. Refer to “Contractual Obligations” presented within “Item 7. Management’s Discussion and Analysis of Financial

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

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, 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 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, including the United Kingdom;

•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;

•the potential for delayed new store 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;

•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 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 31, 2023. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise, except as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to the impact of interest rate changes on our PJI Revolving Facility and PJMF Revolving Facility. We attempt to minimize interest rate risk exposure by fixing our interest rate through the utilization of interest rate swaps, which are derivative financial instruments. Our swaps are entered into with financial institutions that participate in the PJI Revolving Facility. By using a derivative instrument to hedge exposures to changes in interest rates, we expose ourselves to credit risk due to the possible failure of the counterparty to perform under the terms of the derivative contract. We do not enter into contracts for trading purposes and do not use leveraged instruments. The market risks associated with our debt obligations as of June 30, 2024 have not changed from those reported in “Part II. Item 7A. Quantitative and Qualitative Disclosure About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. See “Note 8. Debt” of “Notes to Condensed Consolidated Financial Statements” for additional information on our debt obligations and derivative instruments.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate fluctuations from our operations outside of the United States, which can adversely impact our revenues, net income and cash flows. Our International operations principally consist of distribution sales to franchised Papa Johns restaurants located in the UK, operation of Company-owned restaurants in the UK, and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our International franchisees. Approximately 7.8% and 7.9% of our revenues were derived from these operations for the three and six months ended June 30, 2024, as compared to 6.7% and 6.3% for the prior year comparable period.

We have not historically hedged our exposure to foreign currency fluctuations. Foreign currency exchange rate fluctuations had an unfavorable impact of approximately $0.2 million and a favorable impact of $0.8 million on International revenues for the three and six months ended June 30, 2024, respectively, and an unfavorable impact of $0.1 million and $3.0 million on International revenues for the three and six months ended June 25, 2023, respectively. Foreign currency exchange rate fluctuations had an unfavorable impact of approximately $0.5 million and $1.4 million on operating income for the three and six months ended June 30, 2024, respectively, and a favorable impact of approximately $0.2 million and an unfavorable impact of approximately $0.5 million on operating income for the three and six months ended June 25, 2023, respectively.

Commodity Price Risk

In the ordinary course of business, the food and paper products we purchase, including cheese (our largest ingredient cost), are subject to seasonal fluctuations, weather, availability, demand and other factors that are beyond our control. We have pricing agreements with some of our vendors, including forward pricing agreements for a portion of our cheese purchases for our Domestic Company-owned restaurants, which are accounted for as normal purchases; however, we still remain

exposed to ongoing commodity volatility, and increases in commodity prices or food costs, including as a result of inflation, could negatively impact our business, financial condition or results of operations. We have not historically entered into other financial instruments that would be accounted for as hedging instruments to manage this risk.

Item 4. Controls and Procedures

Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

During the most recently completed fiscal quarter, there was no change made in the Company’s internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in a number of lawsuits, claims, investigations and proceedings consisting of intellectual property, employment, consumer, commercial and other matters arising in the ordinary course of business. In accordance with Financial Accounting Standards Board Accounting Standards Codification 450, “Contingencies”, the Company has made accruals with respect to these matters, where appropriate, which are reflected in the Company’s condensed consolidated financial statements. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. The legal proceedings described in “Note 10. Litigation, Commitments and Contingencies” of “Notes to Condensed Consolidated Financial Statements” within “Part I. Item 1. Financial Statements” of this Form 10-Q are incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchase Program

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. Funding for the share repurchase program is provided through our operating cash flows and cash provided from borrowings under our $600.0 million PJI Revolving Facility.

The following table summarizes our repurchase activity by fiscal period during the three months ended June 30, 2024 (in thousands, except per share amounts):


Fiscal Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
4/01/2024 - 4/28/2024	—	$	—	—	$	90,160
4/29/2024 - 5/26/2024	—	$	—	—	$	90,160
5/27/2024 - 6/30/2024	—	$	—	—	$	90,160
Total	—	$	—	—	$	90,160

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.

Repurchases of Stock for Tax Withholdings

During the fiscal quarter ended June 30, 2024, the Company acquired approximately 3,000 shares of its common stock from employees to satisfy minimum tax withholding obligations that arose upon (i) vesting of restricted stock granted pursuant to approved plans and (ii) distribution of shares of common stock issued pursuant to deferred compensation obligations.

Item 5. Other Information

During the three months ended June 30, 2024, no director or officer of the Company or a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation S-K.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

The Compensation Committee of the Board of Directors approved Amendment No. 1 (the “Amendment”) to the Company’s Amended and Restated Change of Control Severance Plan (the “Plan”) effective August 6, 2024. Pursuant to the Amendment, upon a Qualifying Termination within twenty-four months of a Change of Control (as each term is defined in the Plan), outstanding unvested time-based equity awards held by participants in the Plan (which include the Company’s Chief Financial Officer and Chief Legal and Risk Officer) will vest in full, rather than receiving 12 months of vesting credit. The Compensation Committee approved the Amendment upon the recommendation of its independent compensation consultant in order to bring the Company’s severance benefits in line with market practice.

The foregoing description of the Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Amendment, which is attached hereto as Exhibit 10.1, and is incorporated herein by reference.

Item 6. Exhibits


Exhibit Number						Description


10.1						Amendment No. 1 to the Company’s Amended and Restated Change of Control Severance Plan, dated August 6 , 2024.

10.2						Employment Agreement between Papa John’s International, Inc. and Todd Penegor dated and effective July 31, 2024 (incorporated by reference to our Exhibit 10.1 to our Current Report on Form 8-K filed on August 5, 2024).

10.3						Form of Performance-Based Retention Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on July 19, 2024).

31.1						Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-15(e), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-15(e), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101						Financial statements from the quarterly report on Form 10-Q of Papa John’s International, Inc. for the quarter ended June 30, 2024, filed on August 8, 2024, formatted in iXBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Deficit, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			PAPA JOHN’S INTERNATIONAL, INC.
			(Registrant)


Date: August 8, 2024			/s/ Ravi Thanawala
			Ravi Thanawala
			Chief Financial Officer

PAPA JOHNS INTERNATIONAL INC - Quarter Report: 2024 June (Form 10-Q)

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