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Papa John’s Announces Second Quarter 2021 Financial Results and Significant Increase in Dividend

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LOUISVILLE, Ky., August 05, 2021--(BUSINESS WIRE)--Papa John’s International, Inc. (NASDAQ: PZZA) today announced financial results for the three and six months ended June 27, 2021.

Second quarter 2021 highlights compared to prior year

  • Total company revenues increased 11.8% to $515.0 million

  • Comparable sales up 5.2% in North America and 21.2% Internationally; Global system-wide restaurant sales of $1.2 billion, up 12.2% driven by innovation, strong customer retention and accelerating domestic and international unit growth

  • 55 net unit openings driven by International growth

  • Loss per diluted share of ($2.30), including Special items of $3.23 per share, largely related to repurchase and conversion of Series B Convertible Preferred Stock; Adjusted earnings per diluted share grew to $0.93 from $0.48 a year ago

  • For first six months of 2021, cash flow from operations of $128.0 million, up from $87.7 million a year ago; free cash flow of $100.1 million up from $67.0 million

  • Increases return to common shareholders with 56% increase in annual dividend rate to $1.40 per share; declares third quarter dividend of $0.35 per share

"Papa John’s delivered an eighth consecutive quarter of growth, with system-wide sales up 12% in Q2. We extended the record sales results we achieved a year ago, sustaining our industry outperformance as markets continue reopening," said President & CEO Rob Lynch. "Robust two-year comparable sales results – up 33% in North America and 27% internationally – reflect the impact our multi-faceted innovation strategy has had across every area of our business, powered by the effort of our team members and franchisees."

Mr. Lynch continued, "Papa John’s strong brand and highly-attractive unit economics are driving accelerated restaurant openings by both new and existing franchisees, resulting in a record 123 net unit openings in the first half of 2021. In addition to growing AUVs, development is now a significant component of rising system-wide sales. With our business firing on all cylinders, we are more confident than ever that Papa John’s strategy and growth model position us solidly for long-term growth, as we build the world’s best pizza delivery company."

Financial Highlights

Three Months Ended

Six Months Ended

In thousands, except per share amounts

June 27,
2021

June 28,
2020

Increase
(Decrease)

June 27,
2021

June 28,
2020

Increase
(Decrease)

Revenue

$

515,008

$

460,623

$

54,385

$

1,026,754

$

870,482

$

156,272

Operating income

44,637

30,534

14,103

91,499

46,006

45,493

Net income

32,254

20,614

11,640

66,137

29,057

37,080

Diluted (loss) earnings per share

(2.30

)

0.48

(2.78

)

(1.47

)

0.65

(2.12

)

Adjusted diluted earnings per share (a)

0.93

0.48

0.45

1.94

0.65

1.29

(a)

Adjusted diluted earnings per share is a non-GAAP measure that excludes "Special items," which impact comparability. Special items of $112.4 million and $115.4 million for the three and six months ended June 27, 2021 include $109.9 million of a one-time charge in each period associated with the repurchase and conversion of all shares of the company’s Series B Convertible Preferred Stock ("Series B Preferred Stock") and $3.3 million and $7.2 million for the three and six month ended June 27, 2021, respectively, of strategic corporate reorganization costs associated with the company’s new office in Atlanta, Georgia projected to open in the fall of 2021. The reconciliation of GAAP to non-GAAP financial results is included in "Reconciliation of Non-GAAP Financial Measures" below.

Revenues

Consolidated revenues of $515.0 million increased $54.4 million, or 11.8%, in the second quarter of 2021 compared to the second quarter of 2020 primarily as a result of higher comparable sales of 5.2% for North America restaurants, which benefited from continued menu, delivery and digital innovation as reflected in higher company-owned restaurant revenues, franchise royalties and commissary sales. Higher commodity costs also positively impacted commissary sales. International revenues also increased primarily due to higher royalties from strong comparable sales results of 21.2% for the quarter and higher unit counts.

Operating Results

Consolidated operating income of $44.6 million for the second quarter of 2021 increased $14.1 million compared to the second quarter of 2020. The increase primarily reflects strong sales on higher comparable sales and year-over-year unit growth domestically and internationally. Additionally, the second quarter of 2021 benefited from a higher effective royalty rate and additional franchise royalties of $5.1 million compared to the comparable period in 2020 primarily as a result of ending in the third quarter of 2020 our temporary franchise support program.

Diluted loss per share was $2.30 for the second quarter of 2021 representing a decrease of $2.78 over the second quarter of 2020. Diluted loss per share included $3.15 per diluted share in the second quarter of 2021 from a reduction in net income attributable to common shareholders related to the repurchase and conversion of all shares of Series B Preferred Stock. This charge reflects the excess of the one-time cash payment over the carrying value of the Series B Preferred Stock. Excluding the impact of Special items, adjusted diluted earnings per share was $0.93 representing an increase of $0.45 over the second quarter of 2020.

Global Restaurant Sales Information

Global restaurant and comparable sales information for the three and six months ended June 27, 2021, compared to the three and six months ended June 28, 2020 are as follows (See "Supplemental Information and Financial Statements" below for related definitions):

Three Months Ended

Six Months Ended

June 27,
2021

June 28,
2020

June 27,
2021

June 28,
2020

Comparable sales growth:

Domestic company-owned restaurants

5.6%

22.6%

13.8%

14.4%

North America franchised restaurants

5.2%

29.7%

15.1%

17.2%

North America restaurants

5.2%

28.0%

14.8%

16.6%

International restaurants

21.2%

5.3%

22.2%

3.8%

Total comparable sales growth

9.0%

22.2%

16.6%

13.3%

System-wide restaurant sales growth:

(excluding the impact of foreign currency)

Domestic company-owned restaurants

5.2%

13.9%

13.1%

6.9%

North America franchised restaurants

6.4%

29.4%

15.8%

17.5%

North America restaurants

6.2%

25.7%

15.2%

15.0%

International restaurants

35.7%

5.5%

32.2%

6.8%

Total global system-wide restaurant sales growth

12.2%

20.8%

19.0%

13.0%

Global Restaurant Unit Data

As of June 27, 2021, there were 5,523 Papa John’s restaurants operating in 49 countries and territories, as follows:

Domestic
Company-
owned

Franchised
North
America

Total North
America

International

System-wide

Second Quarter

Beginning - March 28, 2021

589

2,709

3,298

2,170

5,468

Opened

-

24

24

71

95

Closed

-

(13

)

(13

)

(27

)

(40

)

Ending - June 27, 2021

589

2,720

3,309

2,214

5,523

Net unit growth

-

11

11

44

55

Trailing four quarters net store (decline)/growth

(9

)

34

25

151

176

Free Cash Flow

The company’s free cash flow (a non-GAAP financial measure defined as net cash provided by operating activities, less purchases of property and equipment and dividends paid to preferred shareholders) for the six months ended 2021 and 2020, respectively, was as follows (in thousands):

Six Months Ended

June 27,

June 28,

2021

2020

Net cash provided by operating activities

$

128,030

$

87,658

Purchases of property and equipment

(21,543

)

(13,795

)

Dividends paid to preferred shareholders (1)

(6,394

)

(6,825

)

Free cash flow

$

100,093

$

67,038

(1)

This does not include the cash consideration paid for the repurchase and conversion of the Series B Preferred Stock. See "Repurchase and Conversion of Series B Preferred Stock" below for additional information.

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.

See the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Quarterly Report on Form 10-Q filed with the SEC for additional information concerning our operating results for the three and six months and cash flow for the six months ended June 27, 2021.

Repurchase and Conversion of Series B Preferred Stock

On May 13, 2021, the company completed the previously announced repurchase and conversion to common stock of all of the shares of Series B Preferred Stock owned by affiliates of Starboard Value LP. Additionally, on June 7, 2021, all of the remaining outstanding shares of the Series B Preferred Stock, owned by certain franchisee investors, were repurchased or converted to common stock. Collectively, these actions were taken in return for cash payments of $188.6 million. The company also recorded a reduction to net income attributable to common shareholders of $109.9 million as a result of the transaction. This one-time charge to equity reflects the excess of the cash payments over the carrying value of the respective Series B Preferred Stock. Following these transactions, there was no Series B Preferred Stock outstanding as of the end of the quarter.

Cash Dividend

The company paid common and preferred stock dividends of $10.4 million in the second quarter of 2021. On August 3, 2021, our Board of Directors approved a 55.6% increase in the company's dividend rate per common share, from $0.90 on an annual basis to $1.40 on an annual basis, and subsequently declared a third quarter dividend of $0.35 per common share, of which approximately $12.8 million will be paid to common stockholders. The common share dividend will be paid on August 27, 2021 to stockholders of record as of the close of business on August 16, 2021. The declaration and payment of any future dividends will be at the discretion of our Board of Directors.

Conference Call

A conference call is scheduled for August 5, 2021 at 8:00 a.m. Eastern Time to review the company’s second quarter 2021 earnings results. The call can be accessed from the company’s web page at www.papajohns.com in a listen-only mode or dial 877-312-8816 (U.S. and Canada) or 253-237-1189 (International). The conference call will be available for replay, including by downloadable podcast, from the company’s web. The Conference ID is 2924699.

Forward-Looking Statements

Certain matters discussed in this press release 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," "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 financial impact of the temporary business opportunities, disruptions and temporary changes in demand we are experiencing related to the current outbreak of the novel coronavirus disease (COVID-19), commodity costs, currency fluctuations, profit margins, unit growth, unit level performance, capital expenditures, restaurant and franchise development, the duration of changes in consumer behavior caused by the pandemic, our plans to open a new office in Atlanta, the associated reorganization costs and the related organizational, employment and real estate changes that are expected, royalty relief, the effectiveness of our menu innovations and other business initiatives, marketing efforts, liquidity, compliance with debt covenants, strategic decisions and actions, dividends, effective tax rates, regulatory changes and impacts, 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.

Our forward-looking statements are based on our assumptions which are based on currently available information, including assumptions about our ability to manage difficulties and opportunities associated with or related to the COVID-19 pandemic, including risks related to: the impact of governmental restrictions on freedom of movement and business operations including quarantines, social distancing requirements and mandatory business closures; changes in consumer demand or behavior; labor shortages at company and/or franchised stores; impact of delayed new store openings, both domestically and internationally; the overall contraction in global economic activity, including increased unemployment; our ability to navigate changing governmental programs and regulations relating to the pandemic; the increased risk of phishing and other cyber-attacks; and our ability to successfully implement or fully realize the anticipated benefits of our corporate reorganization and new office in Atlanta, Georgia and corporate reorganization in the timeframes we desire or within the expected range of expenses, or at all. In addition, turnover in our support teams due to our relocations to Georgia could distract our employees, decrease employee morale, harm our reputation, and negatively impact the overall performance of our corporate support teams. Actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements. These and other risks, uncertainties and assumptions that are involved in our forward-looking statements 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 27, 2020. 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.

For more information about the company, please visit www.papajohns.com.

Supplemental Information and Financial Statements

Definition

"Comparable sales" represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods. "Global system-wide restaurant sales" represents total restaurant sales for all company-owned and franchised stores open during the comparable periods, and "Global system-wide restaurant sales growth" represents the change in such sales year-over-year. We believe North America, international and global restaurant and comparable sales growth 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. Franchise restaurant and comparable sales growth information is also useful for comparison to industry trends and evaluating the strength of our brand. Management believes the presentation of franchise 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.

Reconciliation of Non-GAAP Financial Measures

The table below reconciles our GAAP financial results to our adjusted financial results, which are non-GAAP measures. The non-GAAP adjusted results shown below and within this press release, which exclude the items in the table below (collectively defined as "Special items"), should not be construed as a substitute for or a better indicator of the company’s performance than the company’s GAAP results. Management believes presenting certain financial information excluding the Special items is important for purposes of comparison to current year results. In addition, management uses these metrics to evaluate the company’s underlying operating performance and to analyze trends.

Three Months Ended

Six Months Ended

June 27,

June 28,

June 27,

June 28,

(In thousands, except per share amounts)

2021

2020

2021

2020

GAAP operating income

$

44,637

$

30,534

$

91,499

$

46,006

Strategic corporate reorganization costs (1)

3,328

-

7,211

-

Adjusted operating income

$

47,965

$

30,534

$

98,710

$

46,006

GAAP net (loss)/income attributable to common shareholders

$

(79,898

)

$

15,707

$

(49,542

)

$

20,933

Strategic corporate reorganization costs (1)

3,328

-

7,211

-

Repurchase and conversion of Series B Preferred Stock (2)

109,852

-

109,852

-

Tax effect of strategic corporate reorganization costs (3)

(745

)

-

(1,615

)

-

Adjusted net income attributable to common shareholders

$

32,537

$

15,707

$

65,906

$

20,933

GAAP diluted (loss)/earnings per share

$

(2.30

)

$

0.48

$

(1.47

)

$

0.65

Strategic corporate reorganization costs (1)

0.10

-

0.22

-

Repurchase and conversion of Series B Preferred Stock (2)

3.15

-

3.23

-

Tax effect of strategic corporate reorganization costs (3)

(0.02

)

-

(0.04

)

-

Adjusted diluted earnings per share

$

0.93

$

0.48

$

1.94

$

0.65

(Note) The above table does not include the impact of allocation of undistributed earnings to participating securities for Special items.

(1)

Represents strategic corporate reorganization costs associated with our new office in Atlanta, Georgia projected to open in the fall of 2021.

(2)

Represents the one-time charge related to the repurchase and conversion of all shares of Series B Preferred Stock and includes related professional fees incurred as part of the transaction.

(3)

The tax effect for strategic corporate reorganization costs was calculated by applying the 2021 marginal tax rate of 22.4%. There was no tax effect on the repurchase and conversion of the Series B Preferred Stock as the one-time charge was non-deductible for tax purposes.

Papa John's International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

June 27,

December 27,

2021

2020

(In thousands)

(Unaudited)

(Note)

Assets

Current assets:

Cash and cash equivalents

$

96,213

$

130,204

Accounts receivable, net

75,839

90,135

Notes receivable, current portion

11,398

11,318

Income tax receivable

1,084

1,273

Inventories

29,843

30,265

Prepaid expenses and other current assets

47,966

43,212

Total current assets

262,343

306,407

Property and equipment, net

198,818

200,895

Finance lease right-of-use assets, net

22,840

16,840

Operating lease right-of-use assets

166,090

148,110

Notes receivable, less current portion, net

34,418

36,538

Goodwill

81,103

80,791

Deferred income taxes

10,388

10,800

Other assets

79,744

72,389

Total assets

$

855,744

$

872,770

Liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders' deficit

Current liabilities:

Accounts payable

$

31,496

$

37,370

Income and other taxes payable

28,763

10,263

Accrued expenses and other current liabilities

187,789

174,563

Current deferred revenue

20,536

19,590

Current finance lease liabilities

4,726

3,545

Current operating lease liabilities

23,194

23,538

Current portion of long-term debt

20,000

20,000

Total current liabilities

316,504

288,869

Deferred revenue

13,017

13,664

Long-term finance lease liabilities

18,555

13,531

Long-term operating lease liabilities

143,940

124,666

Long-term debt, less current portion, net

403,810

328,292

Deferred income taxes

278

948

Other long-term liabilities

100,699

111,364

Total liabilities

996,803

881,334

Series B Convertible Preferred Stock

251,901

Redeemable noncontrolling interests

6,839

6,474

Total Stockholders' deficit

(147,898

)

(266,939

)

Total liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders' deficit

$

855,744

$

872,770

Note: The Condensed Consolidated Balance Sheet at December 27, 2020 has been derived from the audited consolidated financial statements, but does not include all information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements.

Papa John's International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

Three Months Ended

Six Months Ended

June 27, 2021

June 28, 2020

June 27, 2021

June 28, 2020

(In thousands, except per share amounts)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Revenues:

Domestic company-owned restaurant sales

$

196,124

$

186,506

$

393,358

$

347,946

North America franchise royalties and fees

32,475

24,174

65,190

43,614

North America commissary revenues

186,641

167,619

371,519

323,041

International revenues

37,614

28,093

72,221

54,152

Other revenues

62,154

54,231

124,466

101,729

Total revenues

515,008

460,623

1,026,754

870,482

Costs and expenses:

Operating costs (excluding depreciation and amortization

shown separately below):

Domestic company-owned restaurant expenses

154,293

145,168

310,181

274,279

North America commissary expenses

172,227

154,467

342,911

298,739

International expenses

21,430

18,304

41,048

33,405

Other expenses

56,246

51,345

112,053

97,302

General and administrative expenses

53,698

48,428

103,709

96,079

Depreciation and amortization

12,477

12,377

25,353

24,672

Total costs and expenses

470,371

430,089

935,255

824,476

Operating income

44,637

30,534

91,499

46,006

Net interest expense

(3,649

)

(3,627

)

(7,296

)

(7,594

)

Income before income taxes

40,988

26,907

84,203

38,412

Income tax expense

7,398

4,956

15,330

7,468

Net income before attribution to noncontrolling interests

33,590

21,951

68,873

30,944

Net income attributable to noncontrolling interests

(1,336

)

(1,337

)

(2,736

)

(1,887

)

Net income attributable to the company

$

32,254

$

20,614

$

66,137

$

29,057

Calculation of net (loss) income for earnings per share:

Net income attributable to the company

$

32,254

$

20,614

$

66,137

$

29,057

Dividends on redemption of Series B Convertible Preferred Stock

(109,852

)

(109,852

)

Dividends paid to participating securities

(2,300

)

(3,347

)

(5,827

)

(6,818

)

Net income attributable to participating securities

(1,560

)

(1,306

)

Net (loss) income attributable to common shareholders

$

(79,898

)

$

15,707

$

(49,542

)

$

20,933

Basic (loss) earnings per common share

$

(2.30

)

$

0.49

$

(1.47

)

$

0.65

Diluted (loss) earnings per common share

$

(2.30

)

$

0.48

$

(1.47

)

$

0.65

Basic weighted average common shares outstanding

34,729

32,335

33,739

32,214

Diluted weighted average common shares outstanding

34,729

32,619

33,739

32,444

Dividends declared per common share

$

0.225

$

0.225

$

0.450

$

0.450

Papa John's International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Six Months Ended

(In thousands)

June 27, 2021

June 28, 2020

(Unaudited)

(Unaudited)

Operating activities

Net income before attribution to noncontrolling interests

$

68,873

$

30,944

Adjustments to reconcile net income to net cash provided by

operating activities:

(Credit) provision for allowance for credit losses on accounts and notes receivable

(1,200

)

1,051

Depreciation and amortization

25,353

24,672

Deferred income taxes

(1,397

)

(1,502

)

Stock-based compensation expense

8,202

8,742

Other

467

1,090

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

13,299

(8,571

)

Income tax receivable

189

4,278

Inventories

430

(5,017

)

Prepaid expenses and other current assets

1,092

9,657

Other assets and liabilities

(11,380

)

8,065

Accounts payable

(5,874

)

1,558

Income and other taxes payable

18,500

3,601

Accrued expenses and other current liabilities

12,123

10,269

Deferred revenue

(647

)

(1,179

)

Net cash provided by operating activities

128,030

87,658

Investing activities

Purchases of property and equipment

(21,543

)

(13,795

)

Notes issued

(5,263

)

(9,596

)

Repayments of notes issued

7,922

6,462

Acquisitions, net of cash acquired

(699

)

Other

116

14

Net cash used in investing activities

(19,467

)

(16,915

)

Financing activities

Repayments of term loan

(10,000

)

(10,000

)

Net proceeds (repayments) of revolving credit facilities

85,000

(9,884

)

Proceeds from exercise of stock options

8,100

21,704

Dividends paid to common stockholders

(14,844

)

(14,520

)

Dividends paid to preferred stockholders

(6,394

)

(6,825

)

Tax payments for equity award issuances

(3,887

)

(1,579

)

Repurchase of Series B Convertible Preferred Stock

(188,647

)

Acquisition of Company common stock

(8,188

)

Distributions to noncontrolling interests

(2,320

)

(945

)

Other

(1,691

)

(704

)

Net cash used in financing activities

(142,871

)

(22,753

)

Effect of exchange rate changes on cash and cash equivalents

317

(202

)

Change in cash and cash equivalents

(33,991

)

47,788

Cash and cash equivalents at beginning of period

130,204

27,911

Cash and cash equivalents at end of period

$

96,213

$

75,699

View source version on businesswire.com: https://www.businesswire.com/news/home/20210805005125/en/

Contacts

Ann Gugino
Chief Financial Officer
502-261-7272

Steve Coke
Senior Vice President of Financial Operations, Accounting and Reporting
502-261-7272

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