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Form 10-Q PAPA JOHNS INTERNATIONAL For: Jun 26

August 4, 2022 7:00 AM EDT

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pzza-20220626_g1.jpg
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 26, 2022
OR
o    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 0-21660
PAPA JOHN’S INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware61-1203323
(State or other jurisdiction of(I.R.S. Employer Identification
incorporation or organization)number)
2002 Papa John’s Boulevard
Louisville, KY 40299-2367
(Address of principal executive offices)
(502) 261-7272
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:Trading SymbolName of each exchange on which registered:
Common stock, $0.01 par valuePZZAThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o
Indicate by check mark whether the registrant has submitted electronically every interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company
Emerging growth company



If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
At July 29, 2022, there were outstanding 35,347,234 shares of the registrant’s common stock, par value $0.01 per share.



INDEX
Page No.
2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)June 26,
2022
December 26,
2021
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$52,124 $70,610 
Accounts receivable, net87,495 81,370 
Notes receivable, current portion8,333 12,352 
Income tax receivable4,017 9,386 
Inventories38,076 34,981 
Prepaid expenses and other current assets49,743 46,310 
Total current assets239,788 255,009 
Property and equipment, net225,382 223,856 
Finance lease right-of-use assets, net18,642 20,907 
Operating lease right-of-use assets176,719 176,256 
Notes receivable, less current portion, net19,703 35,504 
Goodwill70,731 80,632 
Deferred income taxes8,657 5,156 
Other assets76,650 88,384 
Total assets$836,272 $885,704 
Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit
Current liabilities:
Accounts payable$40,845 $28,092 
Income and other taxes payable16,785 19,996 
Accrued expenses and other current liabilities146,213 190,116 
Current deferred revenue19,925 21,700 
Current finance lease liabilities5,224 4,977 
Current operating lease liabilities21,485 22,543 
Total current liabilities250,477 287,424 
Deferred revenue23,633 13,846 
Long-term finance lease liabilities14,252 16,580 
Long-term operating lease liabilities164,336 160,672 
Long-term debt, less current portion, net536,446 480,730 
Deferred income taxes236 258 
Other long-term liabilities79,516 93,154 
Total liabilities1,068,896 1,052,664 
Redeemable noncontrolling interests1,174 5,498 
Stockholders’ deficit:
Common stock ($0.01 par value per share; issued 49,096 at June 26, 2022 and 49,002 at December 26, 2021)
491 490 
Additional paid-in capital442,255 445,126 
Accumulated other comprehensive loss(11,034)(9,971)
Retained earnings193,934 183,157 
Treasury stock (13,848 shares at June 26, 2022 and 13,205 shares at December 26, 2021, at cost)
(875,205)(806,472)
Total stockholders’ deficit(249,559)(187,670)
Noncontrolling interests in subsidiaries15,761 15,212 
Total Stockholders’ deficit (233,798)(172,458)
Total liabilities, Redeemable noncontrolling interests and Stockholders’ deficit$836,272 $885,704 
See accompanying notes.
3


Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months EndedSix Months Ended
(In thousands, except per share amounts)June 26,
2022
June 27,
2021
June 26,
2022
June 27,
2021
Revenues:
Domestic Company-owned restaurant sales$171,411 $196,124 $370,176 $393,358 
North America franchise royalties and fees34,917 32,475 69,185 65,190 
North America commissary revenues219,383 186,641 429,062 371,519 
International revenues31,958 37,614 66,575 72,221 
Other revenues64,996 62,154 130,359 124,466 
Total revenues522,665 515,008 1,065,357 1,026,754 
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses142,026 154,293 303,687 310,181 
North America commissary expenses204,470 172,227 401,560 342,911 
International expenses19,236 21,430 39,150 41,048 
Other expenses60,648 56,246 121,203 112,053 
General and administrative expenses44,646 53,698 110,584 103,709 
Depreciation and amortization12,735 12,477 24,674 25,353 
Total costs and expenses483,761 470,371 1,000,858 935,255 
Refranchising and impairment loss  (11,160) 
Operating income38,904 44,637 53,339 91,499 
Net interest expense(6,081)(3,649)(10,344)(7,296)
Income before income taxes32,823 40,988 42,995 84,203 
Income tax expense7,093 7,398 5,838 15,330 
Net income before attribution to noncontrolling interests25,730 33,590 37,157 68,873 
Net income attributable to noncontrolling interests(297)(1,336)(1,230)(2,736)
Net income attributable to the Company$25,433 $32,254 $35,927 $66,137 
Calculation of net income for earnings per share:
Net income attributable to the Company$25,433 $32,254 $35,927 $66,137 
Dividends on redemption of Series B Convertible Preferred Stock (109,852) (109,852)
Dividends paid to participating securities(82)(2,300)(141)(5,827)
Net income attributable to participating securities(111) (93) 
Net income (loss) attributable to common shareholders$25,240 $(79,898)$35,693 $(49,542)
Basic earnings (loss) per common share $0.71 $(2.30)$1.00 $(1.47)
Diluted earnings (loss) per common share$0.70 $(2.30)$0.99 $(1.47)
Basic weighted average common shares outstanding35,624 34,729 35,775 33,739 
Diluted weighted average common shares outstanding35,824 34,729 36,032 33,739 
Dividends declared per common share$0.350 $0.225 $0.700 $0.450 
4


Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months EndedSix Months Ended
(In thousands)June 26,
2022
June 27,
2021
June 26,
2022
June 27,
2021
Net income before attribution to noncontrolling interests$25,730 $33,590 $37,157 $68,873 
Other comprehensive (loss) income, before tax:
Foreign currency translation adjustments(4,109)437 (4,970)1,496 
Interest rate swaps (1)1,877 1,817 3,589 3,612 
Other comprehensive (loss) income, before tax(2,232)2,254 (1,381)5,108 
Income tax effect:
Foreign currency translation adjustments946 (100)1,144 (344)
Interest rate swaps (2)(432)(418)(826)(831)
Income tax effect514 (518)318 (1,175)
Other comprehensive (loss) income, net of tax(1,718)1,736 (1,063)3,933 
Comprehensive income before attribution to noncontrolling interests24,012 35,326 36,094 72,806 
Less: comprehensive (income), redeemable noncontrolling interests(18)(713)(528)(1,500)
Less: comprehensive (income), nonredeemable noncontrolling interests(279)(623)(702)(1,236)
Comprehensive income attributable to the Company$23,715 $33,990 $34,864 $70,070 
_______________
(1)
Amounts reclassified out of accumulated other comprehensive loss into net interest expense include $(735) and $(200) for the three and six months ended June 26, 2022, respectively, and $(1,730) and $(3,439) for the three and six months ended June 27, 2021, respectively.
(2)
The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $165 and $45 for the three and six months ended June 26, 2022, respectively, and $388 and $771 for the three and six months ended June 27, 2021, respectively.
See accompanying notes.
5


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
Retained
Earnings
Treasury
Stock
Noncontrolling
Interests in
Subsidiaries
Total
Stockholders’
Deficit
For the three months ended June 26, 2022
Balance at March 27, 202235,675 $491 $436,225 $(9,316)$181,124 $(832,603)$15,635 $(208,444)
Net income (1)— — — — 25,433 — 279 25,712 
Other comprehensive (loss), net of tax— — — (1,718)— — — (1,718)
Cash dividends on common stock— — 48 — (12,541)— — (12,493)
Exercise of stock options22 — 1,167 — — — — 1,167 
Acquisition of Company common stock(452)— — — — (42,762)— (42,762)
Stock-based compensation expense— — 4,925 — — — — 4,925 
Issuance of restricted stock2 — (81)— — 81 —  
Tax payments for equity award issuances(1)— (65)— — — — (65)
Distributions to noncontrolling interests— — — — — — (150)(150)
Other2 — 36  (82)79 (3)30 
Balance at June 26, 202235,248 $491 $442,255 $(11,034)$193,934 $(875,205)$15,761 $(233,798)
For the six months ended June 26, 2022
Balance at December 26, 202135,797 $490 $445,126 $(9,971)$183,157 $(806,472)$15,212 $(172,458)
Net income (1)— — — — 35,927 — 702 36,629 
Other comprehensive (loss), net of tax— — — (1,063)— — — (1,063)
Cash dividends on common stock— — 95 — (25,196)— — (25,101)
Exercise of stock options39 — 1,908 — — — — 1,908 
Acquisition of Company common stock(753)— — — — (75,471)— (75,471)
Stock-based compensation expense— 1 9,100 — — — — 9,101 
Issuance of restricted stock229 — (6,450)— — 6,450 —  
Tax payments for equity award issuances(70)— (7,527)— — — — (7,527)
Distributions to noncontrolling interests— — — — — — (150)(150)
Other6 — 3  46 288 (3)334 
Balance at June 26, 202235,248 $491 $442,255 $(11,034)$193,934 $(875,205)$15,761 $(233,798)
_______________
(1)    Net income to the Company for the three and six months ended June 26, 2022 excludes income of $18 and $528 allocable to the redeemable noncontrolling interests for our joint venture arrangements.
At June 26, 2022, the accumulated other comprehensive loss of $11,034 was comprised of net unrealized foreign currency translation loss of $8,696 and net unrealized loss on the interest rate swap agreements of $2,338.
See accompanying notes.

6


Papa John’s International, Inc.
(In thousands)Common
Stock
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Treasury
Stock
Noncontrolling
Interests in
Subsidiaries
Total
Stockholders’
Deficit
For the three months ended June 27, 2021
Balance at March 28, 202132,681 $453 $251,285 $(11,971)$242,119 $(737,268)$15,282 $(240,100)
Net income (1)— — — — 32,254 — 623 32,877 
Other comprehensive income, net of tax— — — 1,736 — — — 1,736 
Repurchase and conversion of Series B Convertible Preferred Stock3,489 35 174,631 — (110,783)— — 63,883 
Cash dividends on common stock— — 31 — (7,471)— — (7,440)
Cash dividends on preferred stock— — — — (709)— — (709)
Exercise of stock options107 1 5,801 — — — — 5,802 
Acquisition of Company common stock(68)— — — — (6,921)— (6,921)
Stock-based compensation expense— — 4,089 — — — — 4,089 
Issuance of restricted stock5 — (294)— — 294 —  
Tax payments for equity award issuances— — (52)— — — — (52)
Distributions to noncontrolling interests— — — — — — (615)(615)
Other1 — 117 — (641)76 — (448)
Balance at June 27, 202136,215 $489 $435,608 $(10,235)$154,769 $(743,819)$15,290 $(147,898)
For the six months ended June 27, 2021
Balance at December 27, 202032,545 $453 $254,103 $(14,168)$219,158 $(741,724)$15,239 $(266,939)
Net income (1)— — — — 66,137 — 1,236 67,373 
Other comprehensive income, net of tax— — — 3,933 — — — 3,933 
Repurchase and conversion of Series B Convertible Preferred Stock3,489 35 174,631 — (110,783)— — 63,883 
Cash dividends on common stock— — 62 — (14,906)— — (14,844)
Cash dividends on preferred stock— — — — (4,121)— — (4,121)
Exercise of stock options148 1 8,099 — — — — 8,100 
Acquisition of Company common stock(83)— — — — (8,188)— (8,188)
Stock-based compensation expense— — 8,202 — — — — 8,202 
Issuance of restricted stock109 — (5,665)— — 5,665 —  
Tax payments for equity award issuances— — (3,887)— — — — (3,887)
Distributions to noncontrolling interests— — — — — — (1,185)(1,185)
Other7 — 63 — (716)428 — (225)
Balance at June 27, 202136,215 $489 $435,608 $(10,235)$154,769 $(743,819)$15,290 $(147,898)
_______________
(1)    Net income to the Company for the three and six months ended June 27, 2021 excludes $713 and $1,500 allocable to the redeemable noncontrolling interests for our joint venture arrangements.
At June 27, 2021, the accumulated other comprehensive loss of $10,235 was comprised of net unrealized foreign currency translation loss of $2,641 and net unrealized loss on the interest rate swap agreements of $7,594.
See accompanying notes.
7


Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
(In thousands)June 26,
2022
June 27,
2021
Operating activities
Net income before attribution to noncontrolling interests$37,157 $68,873 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (benefit) for allowance for credit losses on accounts and notes receivable15,558 (1,200)
Depreciation and amortization24,674 25,353 
Refranchising and impairment loss11,160  
Deferred income taxes(2,993)(1,397)
Stock-based compensation expense9,100 8,202 
Other(2,071)467 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable(9,177)13,299 
Income tax receivable5,369 189 
Inventories(3,815)430 
Prepaid expenses and other current assets(3,901)1,092 
Other assets and liabilities(5,379)(11,380)
Accounts payable12,742 (5,874)
Income and other taxes payable(3,175)18,500 
Accrued expenses and other current liabilities(37,456)12,123 
Deferred revenue(2,208)(647)
Net cash provided by operating activities45,585 128,030 
Investing activities
Purchases of property and equipment(30,744)(21,543)
Notes issued(1,098)(5,263)
Repayments of notes issued6,743 7,922 
Acquisitions, net of cash acquired(1,250)(699)
Proceeds from refranchising, net of cash transferred13,588  
Other238 116 
Net cash used in investing activities(12,523)(19,467)
Financing activities
Net proceeds of revolving credit facilities55,000 85,000 
Proceeds from exercise of stock options1,908 8,100 
Repurchase of Series B Convertible Preferred Stock (188,647)
Acquisition of Company common stock(75,471)(8,188)
Dividends paid to common stockholders(25,101)(14,844)
Dividends paid to preferred stockholders (6,394)
Tax payments for equity award issuances(7,526)(3,887)
Distributions to noncontrolling interests(835)(2,320)
Repayments of term loan (10,000)
Other1,348 (1,691)
Net cash used in financing activities(50,677)(142,871)
Effect of exchange rate changes on cash and cash equivalents(871)317 
Change in cash and cash equivalents(18,486)(