Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 2, 2023

Documents

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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 September 24, 2023
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)
Delaware 61-1203323
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification number)
2002 Papa John’s Boulevard
Louisville, KY
 40299-2367
(Address of principal executive offices) (Zip Code)
(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 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 o
Emerging growth company o
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 October 27, 2023, there were 32,755,858 shares of the Registrant’s common stock outstanding.


INDEX
Page No.
i

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) September 24,
2023		 December 25,
2022
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 37,492  $ 47,373 
Accounts receivable, net 109,697  102,533 
Notes receivable, current portion 5,169  6,848 
Income tax receivable 1,162  8,780 
Inventories 37,666  41,382 
Prepaid expenses and other current assets 51,943  44,123 
Assets held for sale (a)
3,427  — 
Total current assets 246,556  251,039 
Property and equipment, net 268,087  249,793 
Finance lease right-of-use assets, net 34,443  24,941 
Operating lease right-of-use assets 166,360  172,425 
Notes receivable, less current portion, net 15,016  21,248 
Goodwill 76,011  70,616 
Other assets 71,092  74,165 
Total assets $ 877,565  $ 864,227 
Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit
Current liabilities:
Accounts payable $ 68,020  $ 62,316 
Income and other taxes payable 9,738  8,766 
Accrued expenses and other current liabilities 153,772  142,535 
Current deferred revenue 19,565  21,272 
Current finance lease liabilities 9,520  6,850 
Current operating lease liabilities 25,935  23,418 
Current portion of long-term debt 14,789  — 
Total current liabilities 301,339  265,157 
Deferred revenue 20,699  23,204 
Long-term finance lease liabilities 26,305  19,022 
Long-term operating lease liabilities 153,506  160,905 
Long-term debt, less current portion, net 769,210  597,069 
Other long-term liabilities 65,494  68,317 
Total liabilities 1,336,553  1,133,674 
Redeemable noncontrolling interests 910  1,217 
Stockholders’ deficit:
Common stock ($0.01 par value per share; issued 49,227 at September 24, 2023 and 49,138 at December 25, 2022)
 492  491 
Additional paid-in capital 447,699  449,829 
Accumulated other comprehensive loss (7,916) (10,135)
Retained earnings 208,132  195,856 
Treasury stock (16,754 shares at September 24, 2023 and 14,402 shares at December 25, 2022, at cost)
 (1,123,599) (922,434)
Total stockholders’ deficit (475,192) (286,393)
Noncontrolling interests in subsidiaries 15,294  15,729 
Total Stockholders’ deficit (459,898) (270,664)
Total Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit $ 877,565  $ 864,227 
(a) Represents vacant land adjacent to the Company’s Louisville office, which was sold on September 29, 2023.
See accompanying notes.
1

Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
(In thousands, except per share amounts) September 24,
2023		 September 25,
2022		 September 24,
2023		 September 25,
2022
Revenues:
Domestic Company-owned restaurant sales $ 177,195  $ 166,050  $ 532,841  $ 536,226 
North America franchise royalties and fees 35,041  33,712  105,824  102,897 
North America commissary revenues 204,887  216,115  624,433  645,177 
International revenues 42,927  30,735  108,998  97,310 
Other revenues 62,762  63,900  192,295  194,259 
Total revenues 522,812  510,512  1,564,391  1,575,869 
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses 145,433  138,299  436,922  441,986 
North America commissary expenses 189,551  203,129  576,434  604,689 
International expenses 29,796  18,196  67,542  57,346 
Other expenses 57,587  59,249  177,661  180,452 
General and administrative expenses 52,173  57,935  154,441  168,519 
Depreciation and amortization 16,404  13,338  46,815  38,012 
Total costs and expenses 490,944  490,146  1,459,815  1,491,004 
Refranchising and impairment loss —  (905) —  (12,065)
Operating income 31,868  19,461  104,576  72,800 
Net interest expense (11,378) (7,623) (31,674) (17,967)
Income before income taxes 20,490  11,838  72,902  54,833 
Income tax expense 4,539  3,374  16,546  9,212 
Net income before attribution to noncontrolling interests 15,951  8,464  56,356  45,621 
Net income attributable to noncontrolling interests (90) (133) (351) (1,363)
Net income attributable to the Company $ 15,861  $ 8,331  $ 56,005  $ 44,258 
Calculation of net income for earnings per share:
Net income attributable to the Company $ 15,861  $ 8,331  $ 56,005  $ 44,258 
Dividends paid to participating securities —  (86) —  (228)
Net income attributable to participating securities —  —  —  (34)
Net income attributable to common shareholders $ 15,861  $ 8,245  $ 56,005  $ 43,996 
Basic earnings per common share $ 0.49  $ 0.23  $ 1.69  $ 1.23 
Diluted earnings per common share $ 0.48  $ 0.23  $ 1.68  $ 1.22 
Basic weighted average common shares outstanding 32,564  35,259  33,053  35,602 
Diluted weighted average common shares outstanding 32,800  35,448  33,287  35,840 
Dividends declared per common share $ 0.46  $ 0.42  $ 1.30  $ 1.12 
See accompanying notes.
2

Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

Three Months Ended Nine Months Ended
(In thousands) September 24,
2023		 September 25,
2022		 September 24,
2023		 September 25,
2022
Net income before attribution to noncontrolling interests $ 15,951  $ 8,464  $ 56,356  $ 45,621 
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments (1,854) (4,849) (7) (9,819)
Interest rate swaps (1)
1,039  1,169  2,889  4,758 
Other comprehensive income (loss), before tax (815) (3,680) 2,882  (5,061)
Income tax effect:
Foreign currency translation adjustments 426  1,114  1  2,258 
Interest rate swaps (2)
(238) (268) (664) (1,094)
Income tax effect 188  846  (663) 1,164 
Other comprehensive income (loss), net of tax (627) (2,834) 2,219  (3,897)
Comprehensive income before attribution to noncontrolling interests 15,324  5,630  58,575  41,724 
Less: comprehensive income, redeemable noncontrolling interests (30) (31) (135) (559)
Less: comprehensive income, nonredeemable noncontrolling interests (60) (102) (216) (804)
Comprehensive income attributable to the Company $ 15,234  $ 5,497  $ 58,224  $ 40,361 
___________________________________
(1)    Amounts reclassified out of accumulated other comprehensive loss into net interest income (expense) include $203 and $(40) for the three and nine months ended September 24, 2023, respectively and $(1,650) and $(1,850) for the three and nine months ended September 25, 2022, respectively.
(2)    The income tax effects of amounts reclassified out of accumulated other comprehensive loss were $(46) and $9 for the three and nine months ended September 24, 2023, respectively and $371 and $416 for the three and nine months ended September 25, 2022, respectively.

See accompanying notes.
3

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 (3)
Noncontrolling
Interests in
Subsidiaries		 Total
Stockholders’
Deficit
For the three months ended
September 24, 2023
Balance at June 25, 2023 32,394  $ 492  $ 445,964  $ (7,289) $ 207,461  $ (1,127,669) $ 15,562  $ (465,479)
Net income (1)
—  —  —  —  15,861  —  60  15,921 
Other comprehensive income (loss), net of tax —  —  —  (627) —  —  —  (627)
Dividends on common stock —  —  34  —  (15,190) —  —  (15,156)
Exercise of stock options 18  —  1,134  —  —  —  —  1,134 
Stock-based compensation expense —  —  4,726  —  —  —  —  4,726 
Issuance of restricted stock 7  —  (315) —  —  315  —  — 
Tax effect of restricted stock awards (2) —  (171) —  —  —  —  (171)
Distributions to noncontrolling interests —  —  —  —  —  —  (328) (328)
Other 56  —  (3,673) —  —  3,755  —  82 
Balance at September 24, 2023 32,473  $ 492  $ 447,699  $ (7,916) $ 208,132  $ (1,123,599) $ 15,294  $ (459,898)
For the nine months ended
September 24, 2023
Balance at December 25, 2022 34,736  $ 491  $ 449,829  $ (10,135) $ 195,856  $ (922,434) $ 15,729  $ (270,664)
Net income (1)
—  —  —  —  56,005  —  216  56,221 
Other comprehensive income (loss), net of tax —  —  —  2,219  —  —  —  2,219 
Dividends on common stock —  —  88  —  (43,729) —  —  (43,641)
Exercise of stock options 35  1  1,816  —  —  —  —  1,817 
Acquisition of Company common stock (3)
(2,523) —  —  —  —  (212,444) —  (212,444)
Stock-based compensation expense —  —  13,224  —  —  —  —  13,224 
Issuance of restricted stock 234  —  (6,857) —  —  6,857  —  — 
Tax effect of restricted stock awards (75) —  (6,279) —  —  —  —  (6,279)
Distributions to noncontrolling interests —  —  —  —  —  —  (651) (651)
Other 66  —  (4,122) —  —  4,422  —  300 
Balance at September 24, 2023 32,473  $ 492  $ 447,699  $ (7,916) $ 208,132  $ (1,123,599) $ 15,294  $ (459,898)
(1)    Net income to the Company for the three and nine months ended September 24, 2023 excludes $30 and $135, respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.
(2)    At September 24, 2023, the accumulated other comprehensive loss of $7,916 was comprised of net unrealized foreign currency translation loss of $8,702 and net unrealized gain on the interest rate swap agreements of $786.
(3)    Acquisition of Company common stock for the nine months ended September 24, 2023 includes $2,804 of transaction costs directly attributable to share repurchases, including a 1% excise tax incurred under the Inflation Reduction Act of 2022.
See accompanying notes.
4

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		 Noncontrolling
Interests in
Subsidiaries		 Total
Stockholders’
Deficit
For the three months ended
September 25, 2022
Balance at June 26, 2022 35,248  $ 491  $ 442,255  $ (11,034) $ 193,934  $ (875,205) $ 15,761  $ (233,798)
Net income (1)
—  —  —  —  8,331  —  102  8,433 
Other comprehensive income (loss), net of tax —  —  —  (2,834) —  —  —  (2,834)
Dividends on common stock —  —  57  —  (14,979) —  —  (14,922)
Exercise of stock options 16  —  823  —  —  —  —  823 
Acquisition of Company common stock (229) —  —  —  —  (19,529) —  (19,529)
Stock-based compensation expense —  —  5,146  —  —  —  —  5,146 
Issuance of restricted stock 50  —  (1,671) —  —  1,760  —  89 
Tax effect of restricted stock awards (22) —  (1,900) —  —  —  —  (1,900)
Distributions to noncontrolling interests —  —  —  —  —  —  (216) (216)
Other 2  —  (67) —  —  156  —  89 
Balance at September 25, 2022 35,065  $ 491  $ 444,643  $ (13,868) $ 187,286  $ (892,818) $ 15,647  $ (258,619)
For the nine months ended
September 25, 2022
Balance at December 26, 2021 35,797  $ 490  $ 445,126  $ (9,971) $ 183,157  $ (806,472) $ 15,212  $ (172,458)
Net income (1)
—  —  —  —  44,258  —  804  45,062 
Other comprehensive income (loss), net of tax —  —  —  (3,897) —  —  —  (3,897)
Dividends on common stock —  —  153  —  (40,129) —  —  (39,976)
Exercise of stock options 55  1  2,730  —  —  —  —  2,731 
Acquisition of Company common stock (982) —  —  —  —  (95,000) —  (95,000)
Stock-based compensation expense —  —  14,246  —  —  —  —  14,246 
Issuance of restricted stock 279  —  (8,122) —  —  8,210  —  88 
Tax effect of restricted stock awards (92) —  (9,426) —  —  —  —  (9,426)
Distributions to noncontrolling interests —  —  —  —  —  —  (366) (366)
Other 8  —  (64) —  —  444  (3) 377 
Balance at September 25, 2022 35,065  $ 491  $ 444,643  $ (13,868) $ 187,286  $ (892,818) $ 15,647  $ (258,619)
(1)    Net income to the Company for the three and nine months ended September 25, 2022 excludes $31 and $559, respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.
(2)    At September 25, 2022, the accumulated other comprehensive loss of $13,868 was comprised of net unrealized foreign currency translation loss of $12,430 and net unrealized loss on the interest rate swap agreements of $1,438.

See accompanying notes.
5

Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
(In thousands) September 24,
2023		 September 25,
2022
Operating activities
Net income before attribution to noncontrolling interests $ 56,356  $ 45,621 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for allowance for credit losses on accounts and notes receivable 1,348  18,576 
Depreciation and amortization 46,815  38,012 
Refranchising and impairment loss —  12,065 
Deferred income taxes 3,481  519 
Stock-based compensation expense 13,224  14,246 
Other 331  (466)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (11,643) (19,584)
Income tax receivable 7,617  (1,146)
Inventories 3,875  (8,185)
Prepaid expenses and other current assets (2,104) 2,065 
Other assets and liabilities 2,057  (4,919)
Accounts payable 15,237  16,188 
Income and other taxes payable 1,087  (1,789)
Accrued expenses and other current liabilities (6,579) (32,404)
Deferred revenue (4,166) (2,246)
Net cash provided by operating activities 126,936  76,553 
Investing activities
Purchases of property and equipment (50,905) (48,424)
Notes issued (7,310) (2,248)
Repayments of notes issued 5,759  8,125 
Acquisitions, net of cash acquired (5,599) (1,346)
Proceeds from refranchising, net of cash transferred —  13,588 
Other 401  76 
Net cash used in investing activities (57,654) (30,229)
Financing activities
Net proceeds of revolving credit facilities 185,789  66,999 
Proceeds from exercise of stock options 1,816  2,730 
Acquisition of Company common stock (210,348) (95,000)
Dividends paid to common stockholders (43,641) (39,949)
Tax payments for equity award issuances (6,279) (9,426)
Distributions to noncontrolling interests (651) (1,090)
Other (5,825) (3,480)
Net cash used in financing activities (79,139) (79,216)
Effect of exchange rate changes on cash and cash equivalents (24) (1,100)
Change in cash and cash equivalents (9,881) (33,992)
Cash and cash equivalents at beginning of period 47,373  70,610 
Cash and cash equivalents at end of period $ 37,492  $ 36,618 
See accompanying notes.
6

Papa John’s International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 24, 2023
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP” or “U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 24, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for 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”) for the year ended December 25, 2022.
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.
2. Significant Accounting Policies
Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements include the accounts of Papa John’s International, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated.
Variable Interest Entity
Papa John’s domestic restaurants, both Company-owned and franchised, participate in Papa John’s Marketing Fund, Inc. (“PJMF”), a nonstock corporation designed to operate at break-even as it spends all annual contributions received from the system. PJMF collects a percentage of revenues from Company-owned and franchised restaurants in the United States and Canada for the purpose of designing and administering advertising and promotional programs. PJMF is a variable interest entity (“VIE”) that funds its operations with ongoing financial support and contributions from the North America restaurants, of which approximately 85 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.”
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant items that are subject to such estimates and assumptions include the allowance for credit losses on accounts and notes receivable, intangible assets, contract assets and contract liabilities including the customer loyalty program obligation, right-of-use assets and lease liabilities, unredeemed gift card liabilities, insurance reserves and tax reserves. Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could significantly differ from these estimates.
Noncontrolling Interests
Papa John’s has joint venture arrangements in which there are noncontrolling interests held by third parties that included 98 restaurants at September 24, 2023 and September 25, 2022, respectively. As further described in “Note 10. Divestitures” we divested our 51 percent interest in one joint venture in Texas that owned 90 restaurants in the second quarter of 2022. Consolidated net income is required to be reported separately at amounts attributable to both the Company and the noncontrolling interests.
7

Net income attributable to these joint ventures for the three and nine months ended September 24, 2023 and September 25, 2022 was as follows (in thousands):
Three Months Ended Nine Months Ended
September 24,
2023		 September 25,
2022		 September 24,
2023		 September 25,
2022
Papa John’s International, Inc. $ 196  $ 314  $ 821  $ 2,642 
Noncontrolling interests 90  133  351  1,363 
Total net income $ 286  $ 447  $ 1,172  $ 4,005 
The following summarizes the redemption feature, location and related accounting within the Condensed Consolidated Balance Sheets for these joint venture arrangements:
Type of Joint Venture Arrangement Location within the Condensed Consolidated Balance Sheets Recorded Value
Joint ventures with no redemption feature Permanent equity Carrying value
Joint ventures with option to require the Company to purchase the noncontrolling interest - not currently redeemable or redemption not probable Temporary equity Carrying value
Deferred Income Tax Accounts and Tax Reserves
We are subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and the related assets and liabilities. The provision for income taxes includes income taxes paid, currently payable or receivable and those deferred. We use an estimated annual effective rate based on expected annual income to determine our quarterly provision for income taxes. The effective income tax rate includes the estimated domestic state effective income tax rate and applicable foreign income tax rates. The effective income tax rate is also impacted by various permanent items and credits, net of any related valuation allowances, and can vary based on changes in estimated annual income. Discrete items are recorded in the quarter in which they occur.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets and liabilities are netted by tax jurisdiction. Deferred tax assets are also recognized for the estimated future effects of tax attribute carryforwards (e.g., net operating losses, capital losses, and foreign tax credits). The effect on deferred taxes due to changes in tax rates is recognized in the period in which the new tax rate is enacted. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. Deferred tax assets and liabilities are recorded within Other assets and Other long-term liabilities on the Condensed Consolidated Balance Sheets.
Tax authorities periodically audit the Company. We record reserves and related interest and penalties for identified exposures as income tax expense. We evaluate these issues on a quarterly basis to adjust for events, such as statute of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for such exposures.
Fair Value Measurements and Disclosures
The Company determines the fair value of financial assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following three categories:
•Level 1: Quoted market prices in active markets for identical assets or liabilities.
•Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
•Level 3: Unobservable inputs that are not corroborated by market data.
Fair value is a market-based measurement, not an entity-specific measurement. Considerable judgment is required to interpret market data to estimate fair value; accordingly, the fair values presented do not necessarily indicate what the Company or its debtholders could realize in a current market exchange.
8

Our financial assets that were measured at fair value on a recurring basis as of September 24, 2023 and December 25, 2022 are as follows:
Fair Value Measurements
(In thousands) Carrying
Value		 Level 1 Level 2 Level 3
September 24, 2023
Financial assets:
Cash surrender value of life insurance policies (a)
$ 26,984  $ 26,984  $ —  $ — 
Interest rate swaps (b)
$ 785  $ —  $ 785  $ — 
December 25, 2022
Financial assets:
Cash surrender value of life insurance policies (a)
$ 30,120  $ 30,120  $ —  $ — 
Interest rate swaps (b)
$ 986  $ —  $ 986  $ — 
___________________________________
(a)Represents life insurance policies held in our non-qualified deferred compensation plan.
(b)The fair value of our interest rate swaps is based on the sum of all future net present value cash flows. The future cash flows are derived based on the terms of our interest rate swaps, as well as considering published discount factors, and projected Secured Overnight Financing Rates (“SOFR”). Interest rate swaps entered into prior to 2023 were based on London Interbank Offered Rates (“LIBOR”).
The fair value of certain assets and liabilities approximates carrying value because of the short-term nature of the accounts, including cash and cash equivalents, accounts receivable, net of allowances, and accounts payable. The carrying value of notes receivable, net of allowances, also approximates fair value. The Company’s revolving credit facilities under the Company’s credit agreement approximate carrying value due to their variable market-based interest rate. The Company’s 3.875% senior notes are classified as a Level 2 fair value measurement since the Company estimates the fair value by using recent trading transactions, and have the following estimated fair values and carrying values (excluding the impact of unamortized debt issuance costs) as of September 24, 2023 and December 25, 2022:
September 24, 2023 December 25, 2022
(In thousands) Carrying
Value		 Fair
Value		 Carrying
Value		 Fair
Value
3.875% Senior Notes
 $ 400,000  $ 333,000  $ 400,000  $ 339,500 
Allowance for Credit Losses
Estimates of expected credit losses, even if remote, are based upon historical account write-off trends, facts about the current financial condition of the debtor, forecasts of future operating results based upon current trends of select operating metrics, and macroeconomic factors. Credit quality is monitored through the timing of payments compared to the prescribed payment terms and known facts regarding the financial condition of the franchisee or customer. Account and note balances are charged against the allowance after recovery efforts have ceased.
The following table summarizes changes in our allowances for credit losses for accounts receivable and notes receivable:
(In thousands) Accounts Receivable Notes Receivable
Balance at December 25, 2022 $ 6,718  $ 14,499 
Current period provision for expected credit losses, net 1,234  114 
Write-offs charged against the allowance (1,496) (147)
Balance at September 24, 2023 $ 6,456  $ 14,466 
9

3. Leases
Lessor Operating Leases
The Company subleases certain retail space to our franchisees in the United Kingdom (“UK”), which are primarily operating leases. At September 24, 2023, we leased and subleased 340 Papa Johns restaurants to franchisees in the UK. The initial lease terms on the franchised sites in the UK are generally 15 years. The Company has the option to negotiate an extension toward the end of the lease term at the landlord’s discretion. The initial lease terms of the franchisee subleases are generally five to ten years. Rental income, primarily derived from properties leased and subleased to franchisees in the UK, is recognized on a straight-line basis over the respective operating lease terms. The Company recognized total sublease income of $2.3 million and $8.0 million for the three and nine months ended September 24, 2023, respectively, and $3.0 million and $9.0 million for the three and nine months ended September 25, 2022, respectively, within Other revenues in the Condensed Consolidated Statements of Operations.
Lease Guarantees
As a result of assigning our interest in obligations under property leases as a condition of the refranchising of certain restaurants, we are contingently liable for payment of 49 domestic leases. These leases have varying terms, the latest of which expires in 2036. As of September 24, 2023, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was $7.7 million. This contingent liability is not included in the Condensed Consolidated Balance Sheets as it is not probable to occur. The fair value of the guarantee is not material.
Supplemental Cash Flow & Other Information
Supplemental cash flow information related to leases for the periods reported is as follows:
Nine Months Ended
(In thousands) September 24, 2023 September 25, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases $ 1,128  $ 754 
Financing cash flows from finance leases $ 5,975  $ 3,854 
Operating cash flows from operating leases (a)
$ 28,394  $ 26,771 
Right-of-use assets obtained in exchange for new finance lease liabilities $ 16,518  $ 5,980 
Right-of-use assets obtained in exchange for new operating lease liabilities $ 17,652  $ 43,639 
Cash received from sublease income $ 7,160  $ 8,251 
___________________________________
(a)    Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease right-of-use asset amortization and lease liability accretion.
4. Papa John’s Marketing Fund, Inc.
PJMF, which is a consolidated VIE where the Company has been identified as the primary beneficiary, collects a percentage of revenues from Company-owned and franchised restaurants in the United States, for the purpose of designing and administering advertising and promotional programs for all participating Domestic restaurants. Contributions and expenditures are reported on a gross basis in the Condensed Consolidated Statements of Operations within Other revenues and Other expenses. PJMF also has a wholly-owned subsidiary, Papa Card, Inc., which administers the Company’s gift card programs.
10

Assets and liabilities of PJMF, which are utilized solely for the Company’s advertising and promotional programs, were as follows in the Condensed Consolidated Balance Sheets (in thousands):
September 24,
2023		 December 25, 2022
Assets
Current assets:
Cash and cash equivalents $ 3,963  $ 17,174 
Accounts receivable, net 24,274  14,780 
Prepaid expenses and other current assets 8,278  1,815 
Total current assets 36,515  33,769 
Deferred income taxes 655  655 
Total assets $ 37,170  $ 34,424 
Liabilities
Current liabilities:
Accounts payable $ 517  $ 12,428 
Accrued expenses and other current liabilities 21,762  17,936 
Current portion of long-term debt 14,789  — 
Current deferred revenue 3,451  4,395 
Total current liabilities 40,519  34,759 
Deferred revenue 1,995  2,503 
Total liabilities $ 42,514  $ 37,262 
5. Revenue Recognition
Contract Balances
Our contract liabilities primarily relate to franchise fees, unredeemed gift card liabilities, and loyalty program obligations, which we classify as Deferred revenue on the Condensed Consolidated Balance Sheets. During the three and nine months ended September 24, 2023, the Company recognized $8.1 million and $24.4 million in revenue, respectively, related to deferred revenue compared to $8.0 million and $25.6 million for the three and nine months ended September 25, 2022.
The following table includes a breakout of contract liability balances (in thousands):
Contract Liabilities
September 24, 2023 December 25, 2022 Change
Franchise fees and unredeemed gift card liabilities $ 27,189  $ 30,710  $ (3,521)
Customer loyalty program obligations 13,075  13,766  (691)
Total contract liabilities $ 40,264  $ 44,476  $ (4,212)
Our contract assets consist primarily of equipment incentives provided to franchisees. Equipment incentives are related to the future value of commissary revenue the Company will receive over the term of the incentive agreement. As of September 24, 2023 and December 25, 2022, the contract assets were approximately $6.7 million and $6.2 million, respectively. For the three and nine months ended September 24, 2023, revenue was reduced approximately $0.9 million and $2.7 million, respectively, for the amortization of contract assets over the applicable contract terms. For the three and nine months ended September 25, 2022, revenue was reduced approximately $0.8 million and $2.7 million, respectively, for the amortization of contract assets over the applicable contract terms. Contract assets are included in Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets.
11

Transaction Price Allocated to the Remaining Performance Obligations
The following table (in thousands) includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period.
Performance Obligations by Period
Less than 1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years Thereafter Total
Franchise fees $ 3,015  $ 2,774  $ 2,566  $ 2,308  $ 2,033  $ 5,631  $ 18,327 
At September 24, 2023, approximately $3.5 million of area development fees related to unopened stores and international unearned royalties are included in Deferred revenue. Timing of revenue recognition is dependent upon the timing of store openings and franchisees’ revenues. Gift card liabilities of approximately $5.4 million, included in Deferred revenue, will be recognized in Company-owned restaurant revenues when gift cards are redeemed. The Company will recognize redemption fee revenue in Other revenues when cards are redeemed at franchised restaurant locations.
The Company applies the practical expedient in ASC 606, “Revenue Recognition” and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
6. Common Stock
Shares Authorized and Outstanding
The Company has authorized 100.0 million shares of common stock as of September 24, 2023 and December 25, 2022. The Company’s outstanding shares of common stock outstanding, net of repurchased shares of common stock held as treasury stock, were 32.5 million shares at September 24, 2023, compared to 34.7 million shares at December 25, 2022.
Share Repurchase Program
On October 28, 2021, our Board of Directors (the “Board”) approved a share repurchase program with an indefinite duration for up to $425.0 million of the Company’s common stock. The following table summarizes our repurchase activity under our share repurchase programs for the three and nine months ended September 24, 2023 and September 25, 2022:
(In thousands, except average price per share) Total Number of Shares Purchased Average Price Paid per Share Aggregate Cost of Shares Purchased Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Three Months Ended
September 24, 2023 —  $ —  $ —  $ 90,160 
September 25, 2022 229  $ 85.15  $ 19,529  $ 329,800 
(In thousands, except average price per share) Total Number of Shares Purchased Average Price Paid per Share
Aggregate Cost of Shares Purchased (a)
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Nine Months Ended
September 24, 2023 2,523  $ 83.10  $ 209,640  $ 90,160 
September 25, 2022 982  $ 96.71  $ 95,000  $ 329,800 
(a)    Aggregate cost of shares purchased for the nine months ended September 24, 2023 excludes $2.8 million of transaction costs directly attributable to share repurchases, including a 1% excise tax incurred under the Inflation Reduction Act of 2022. Of these costs, $2.1 million were classified as non-cash financing activities during the nine months ended September 24, 2023.
The shares repurchased during the nine months ended September 24, 2023 included 2,176,928 shares repurchased on March 1, 2023 from certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), at a price of $82.52 per share, for aggregate consideration of $179.6 million. The transaction was negotiated by an independent committee of the Board of Directors formed for the purpose of evaluating a possible transaction involving Starboard, and was approved by the full Board of Directors upon such independent committee’s recommendation. Starboard’s Chief Executive Officer is Jeffrey Smith, who previously served as the Company’s Chairman of the Board until his resignation on March 1, 2023.
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The timing and volume of share repurchases under the Company’s share repurchase programs may be executed at the discretion of management on an opportunistic basis, subject to market and business conditions, regulatory requirements and other factors, or pursuant to trading plans or other arrangements. Repurchases under the programs may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate. Repurchases under the Company’s share repurchase programs may be commenced or suspended from time to time at the Company’s discretion without prior notice. Funding for the share repurchase programs will be provided through our credit facility, operating cash flow, stock option exercises and cash and cash equivalents.
Dividends
The Company paid dividends of approximately $43.6 million ($1.30 per share) for the nine months ended September 24, 2023. On October 24, 2023, our Board of Directors declared a fourth quarter dividend of $0.46 per common share (approximately $15.1 million in the aggregate), which will be paid on November 24, 2023 to stockholders of record as of the close of business on November 13, 2023. The declaration and payment of any future dividends will be at the discretion of our Board of Directors.
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7. Earnings per Share
We compute earnings per share using the two-class method. The two-class method requires an earnings allocation formula that determines earnings per share for common shareholders and participating security holders according to dividends declared and participating rights in undistributed earnings. Time-based restricted stock awards are participating securities because holders of such shares have non-forfeitable dividend rights and participate in undistributed earnings with common stock. Under the two-class method, total dividends provided to the holders of participating securities and undistributed earnings allocated to participating securities, are subtracted from net income attributable to the Company in determining net income attributable to common shareholders.
Basic earnings per common share are computed by dividing net income attributable to common shareholders by the weighted-average common shares outstanding. Diluted earnings per common share are computed by dividing the net income attributable to common shareholders by the diluted weighted average common shares outstanding. Diluted weighted average common shares outstanding consist of basic weighted average common shares outstanding plus weighted average awards outstanding under our equity compensation plans, which are dilutive securities.
The calculations of basic and diluted earnings per common share are as follows (in thousands, except per share data):
Three Months Ended Nine Months Ended
September 24,
2023		 September 25,
2022		 September 24,
2023		 September 25,
2022
Basic earnings per common share
Net income attributable to the Company $ 15,861 $ 8,331 $ 56,005 $ 44,258
Dividends paid to participating securities —  (86) —  (228)
Net income attributable to participating securities — — — (34)
Net income attributable to common shareholders $ 15,861 $ 8,245 $ 56,005 $ 43,996
Basic weighted average common shares outstanding 32,564 35,259 33,053 35,602
Basic earnings per common share $ 0.49 $ 0.23 $ 1.69 $ 1.23
Diluted earnings per common share
Net income attributable to common shareholders $ 15,861 $ 8,245 $ 56,005 $ 43,996
Weighted average common shares outstanding 32,564 35,259 33,053 35,602
Dilutive effect of outstanding equity awards (a)
236 189 234 238
Diluted weighted average common shares outstanding 32,800 35,448 33,287 35,840
Diluted earnings per common share $ 0.48 $ 0.23 $ 1.68 $ 1.22
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(a)    Excludes 48,000 and 147,000 shares underlying equity awards for the three and nine months ended September 24, 2023, respectively, and 58,000 and 47,000 shares underlying equity awards for the three and nine months ended September 25, 2022, respectively, as the effect of including such awards would have been anti-dilutive.
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8. Debt
Long-term debt, net, consists of the following (in thousands):
September 24,
2023		 December 25,
2022
Senior notes $ 400,000 $ 400,000
Revolving facilities (a)
390,789 205,000
Outstanding debt $ 790,789 $ 605,000
Unamortized debt issuance costs (6,790) (7,931)
Current portion of long-term debt (14,789) —
Total long-term debt, net $ 769,210 $ 597,069
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(a)    Revolving facilities as of September 24, 2023 includes $14.8 million outstanding under the PJMF Revolving Facility as defined and discussed below.
Senior Notes
On September 14, 2021, the Company issued $400.0 million of 3.875% senior notes (the “Notes”) which will mature on September 15, 2029. Interest on the Notes is payable semi-annually in cash in arrears on March 15 and September 15 of each year at a fixed interest rate of 3.875% per annum. Refer to Note 12 of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2022. for further description of the provisions and covenant requirements under the Senior Notes.
Credit Agreement
The Company’s amended and restated credit agreement, dated September 14, 2021 (the “Credit Agreement”) provides for a senior secured revolving credit facility in an aggregate available principal amount of $600.0 million (the “PJI Revolving Facility”), of which up to $40.0 million is available as swingline loans and up to $80.0 million is available as letters of credit. The PJI Revolving Facility will mature on September 14, 2026. The remaining availability under the PJI Revolving Facility was approximately $224.0 million as of September 24, 2023. Refer to Note 12 of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2022 for further description of the provisions and covenant requirements under the Credit Agreement.
PJMF Revolving Facility
PJMF has a $20.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015 with U.S. Bank National Association, as lender. The PJMF Revolving Facility is secured by substantially all assets of PJMF. The PJMF Revolving Facility matures on September 30, 2023, but is subject to annual amendments. The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of a one month SOFR plus 1.60%. The applicable interest rate on the PJMF Revolving facility was 6.9% for the three months ended September 24, 2023. As of September 24, 2023, the principal amount of debt outstanding under the PJMF Revolving Facility was approximately $14.8 million and is classified as Current portion of long-term debt in the Condensed Consolidated Balance Sheets. The PJMF operating results and the related debt outstanding do not impact the financial covenants under the Credit Agreement.
On September 30, 2023, the Company amended the PJMF Revolving Facility to, among other items: (i) extend the maturity date to September 30, 2024; (ii) amend the variable interest rate to a one month SOFR plus 1.975%; and (iii) expand the capacity from $20.0 million to $30.0 million.
Derivative Financial Instruments
On June 23, 2023, the Company entered into a new interest rate swap with an initial notional value of $100.0 million to replace the Company’s prior interest swaps, which had a notional value of $125.0 million and matured on April 30, 2023. The objective of the interest rate swap is to mitigate the Company’s exposure to the impact of interest rate changes associated with our variable rate debt under the PJI Revolving Facility. We have designated the interest rate swap as a cash flow hedge and will assess hedge effectiveness at regular intervals through the maturity date of June 30, 2025. The interest rate swaps are recorded at fair value at each reporting date, and any unrealized gains or losses are included in Accumulated
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other comprehensive loss in the Condensed Consolidated Balance Sheets and reclassified to Net interest expense in the Condensed Consolidated Statements of Operations in the same period or periods during which the hedged transaction affect earnings.
As of September 24, 2023, we have the following interest rate swap agreements:
Effective Dates Floating Rate Debt Fixed Rates
June 23, 2023 through June 30, 2025 $ 50 million 4.55%
June 23, 2023 through June 30, 2025 $ 50 million 4.55%
The following table provides information on the location and amounts of our current and expired swaps in the accompanying condensed consolidated financial statements (in thousands):
Interest Rate Swap Derivatives
Balance Sheet Location Fair Value
September 24,
2023		 Fair Value
December 25,
2022
Other current assets $ 726 $ 986
Other assets $ 59 $ —
The effect of derivative instruments on the accompanying condensed consolidated financial statements is as follows (in thousands):
Derivatives -
Cash Flow
Hedging
Relationships		 Amount of Gain or
(Loss) Recognized
in AOCL
on Derivative		 Location of (Loss)
or Gain
Reclassified from
AOCL into
Income		 Amount of (Loss) or Gain
Reclassified from
AOCL into
Income		 Total Net Interest Expense
on Condensed
Consolidated Statements
of Operations
Interest rate swaps for the three months ended:
September 24, 2023 $ 801 Interest expense $ 203  $ (11,378)
September 25, 2022 $ 901 Interest expense $ (1,650) $ (7,623)
Interest rate swaps for the nine months ended:
September 24, 2023 $ 2,225 Interest Expense $ (40) $ (31,674)
September 25, 2022 $ 3,664 Interest Expense $ (1,850) $ (17,967)
Net interest paid, including payments made or received under the swaps, was $11.2 million and $9.6 million for the three months ended September 24, 2023 and September 25, 2022, respectively, and $28.0 million and $22.2 million for the nine months ended September 24, 2023 and September 25, 2022, respectively.
9. Litigation, Commitments and Contingencies
Litigation
The Company is involved in a number of lawsuits, claims, investigations and proceedings, including those specifically identified below, consisting of intellectual property, employment, consumer, commercial and other matters arising in the ordinary course of business. In accordance with ASC 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.