August 5, 2021 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 27, 2021

☐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)

Delaware		61-1203323
(State or other jurisdiction of		(I.R.S. Employer Identification
incorporation or organization)		number)

2002 Papa John’s Boulevard

Louisville, Kentucky 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 Symbol	Name of each exchange on which registered:
Common stock, $0.01 par value	PZZA	The 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 ⌧ No ◻

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 ⌧ No ◻

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 ☒		Accelerated filer ☐
Non-accelerated filer ☐		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.◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At July 30, 2021, there were outstanding 36,563,793 shares of the registrant’s common stock, par value $0.01 per share.

Table of Contents

INDEX

		Page No.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets — June 27, 2021 and December 27, 2020	3

	Condensed Consolidated Statements of Operations — Three and Six months ended June 27, 2021 and June 28, 2020	4

	Condensed Consolidated Statements of Comprehensive Income — Three and Six months ended June 27, 2021 and June 28, 2020	5

	Condensed Consolidated Statements of Stockholders’ Deficit — Three and Six months ended June 27, 2021 and June 28, 2020	6

	Condensed Consolidated Statements of Cash Flows — Six months ended June 27, 2021 and June 28, 2020	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	38

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 5.	Other Information	40

Item 6.	Exhibits	41

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets



	June 27,		December 27,
(In thousands, except per share amounts)	2021		2020
	(Unaudited)
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; $0.01 par value; no shares authorized, issued or outstanding at June 27, 2021, compared to 260.0 shares authorized, 252.5 shares issued and outstanding at December 27, 2020		—		251,901
Redeemable noncontrolling interests		6,839		6,474

Stockholders’ deficit:
Common stock ($0.01 par value per share; issued 48,937 at June 27, 2021 and 45,288 at December 27, 2020)		489		453
Additional paid-in capital		435,608		254,103
Accumulated other comprehensive loss		(10,235)		(14,168)
Retained earnings		154,769		219,158
Treasury stock (12,722 shares at June 27, 2021 and 12,743 shares at December 27, 2020, at cost)		(743,819)		(741,724)
Total stockholders’ deficit		(163,188)		(282,178)
Noncontrolling interests in subsidiaries		15,290		15,239
Total Stockholders’ deficit		(147,898)		(266,939)
Total liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders’ deficit	$	855,744	$	872,770

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)



	Three Months Ended				Six Months Ended
		June 27,	June 28,		June 27,		June 28,
(In thousands, except per share amounts)	2021		2020		2021		2020

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

See accompanying notes.

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Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended				Six Months Ended
	June 27,		June 28,		June 27,		June 28,
(In thousands)	2021		2020		2021		2020


Net income before attribution to noncontrolling interests	$	33,590	$	21,951	$	68,873	$	30,944
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments		437		(334)		1,496		(3,159)
Interest rate swaps (1)		1,817		(103)		3,612		(11,022)
Other comprehensive income (loss), before tax		2,254		(437)		5,108		(14,181)
Income tax effect:
Foreign currency translation adjustments		(100)		77		(344)		727
Interest rate swaps (2)		(418)		24		(831)		2,535
Income tax effect		(518)		101		(1,175)		3,262
Other comprehensive income (loss), net of tax		1,736		(336)		3,933		(10,919)
Comprehensive income before attribution to noncontrolling interests		35,326		21,615		72,806		20,025
Less: comprehensive (income), redeemable noncontrolling interests		(713)		(707)		(1,500)		(883)
Less: comprehensive (income), nonredeemable noncontrolling interests		(623)		(630)		(1,236)		(1,004)
Comprehensive income attributable to the Company	$	33,990	$	20,278	$	70,070	$	18,138

(1)Amounts reclassified out of accumulated other comprehensive loss into net interest expense included ($1,730) and ($3,439) for the three and six months ended June 27, 2021, respectively, and ($1,372) and ($1,702) for the three and six months ended June 28, 2020, respectively.

(2)The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $388 and $771 for the three and six months ended June 27, 2021, respectively, and $332 and $412 for the three and six months ended June 28, 2020, respectively.

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)


	Papa John’s International, Inc.
	Common					Accumulated
	Stock			Additional		Other						Noncontrolling		Total
(In thousands)	Shares	Common		Paid-In		Comprehensive		Retained		Treasury		Interests in		Stockholders’
For the three months ended June 27, 2021	Outstanding	Stock		Capital		Loss		Earnings		Stock		Subsidiaries		Deficit
Balance at March 28, 2021	32,681	$	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 Stock	3,489		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 options	107		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 stock	5		—		(294)		—		—		294		—		—
Tax effect of restricted stock awards	—		—		(52)		—		—		—		—		(52)
Distributions to noncontrolling interests	—		—		—		—		—		—		(615)		(615)
Other	1		—		117		—		(641)		76		—		(448)
Balance at June 27, 2021	36,215	$	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, 2020	32,545	$	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 Stock	3,489		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 options	148		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 stock	109		—		(5,665)		—		—		5,665		—		—
Tax effect of restricted stock awards	—		—		(3,887)		—		—		—		—		(3,887)
Distributions to noncontrolling interests	—		—		—		—		—		—		(1,185)		(1,185)
Other	7		—		63		—		(716)		428		—		(225)
Balance at June 27, 2021	36,215	$	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.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit (continued)

(Unaudited)


	Papa John’s International, Inc.
	Common					Accumulated
	Stock			Additional		Other						Noncontrolling			Total
(In thousands)	Shares	Common		Paid-In		Comprehensive		Retained		Treasury		Interests in			Stockholders’
For the three months ended June 28, 2020	Outstanding	Stock		Capital		Loss		Earnings		Stock		Subsidiaries			Deficit
Balance at March 29, 2020	31,971	$	448	$	220,187	$	(20,768)	$	202,287	$	(744,463)	$	16,009		$	(326,300)
Net income (2)	—		—		—		—		20,614		—		630			21,244
Other comprehensive loss, net of tax	—		—		—		(336)		—		—		—			(336)
Cash dividends on common stock	—		—		77		—		(7,360)		—		—			(7,283)
Cash dividends on preferred stock	—		—		—		—		(3,412)		—		—			(3,412)
Exercise of stock options	346		3		20,460		—		—		—		—			20,463
Stock-based compensation expense	—		—		4,792		—		—		—		—			4,792
Issuance of restricted stock	30		—		(1,760)		—		—		1,760		—			—
Tax effect of restricted stock awards	—		—		(196)		—		—		—		—			(196)
Distributions to noncontrolling interests	—		—		—		—		—		—		(915)	<

Form: 10-Q

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