SEC Filing | Papa John's International, Inc.

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pzza-20220626

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

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						(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 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 ☐
						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.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets — June 26 , 2022 and December 26, 2021	3

	Condensed Consolidated Statements of Operations — Three and six months ended June 26 , 2022 and June 27 , 2021	4

	Condensed Consolidated Statements of Comprehensive Income — Three and six months ended June 26 , 2022 and June 27 , 2021	5

	Condensed Consolidated Statements of Stockholders’ Deficit — Three and six months ended June 26 , 2022 and June 27 , 2021	6

	Condensed Consolidated Statements of Cash Flows — Six months ended June 26 , 2022 and June 27 , 2021	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	43

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 6.	Exhibits	45

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, net	87,495		81,370
Notes receivable, current portion	8,333		12,352
Income tax receivable	4,017		9,386
Inventories	38,076		34,981
Prepaid expenses and other current assets	49,743		46,310

Total current assets	239,788		255,009
Property and equipment, net	225,382		223,856
Finance lease right-of-use assets, net	18,642		20,907
Operating lease right-of-use assets	176,719		176,256
Notes receivable, less current portion, net	19,703		35,504
Goodwill	70,731		80,632
Deferred income taxes	8,657		5,156
Other assets	76,650		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 payable	16,785		19,996
Accrued expenses and other current liabilities	146,213		190,116
Current deferred revenue	19,925		21,700
Current finance lease liabilities	5,224		4,977
Current operating lease liabilities	21,485		22,543

Total current liabilities	250,477		287,424
Deferred revenue	23,633		13,846
Long-term finance lease liabilities	14,252		16,580
Long-term operating lease liabilities	164,336		160,672
Long-term debt, less current portion, net	536,446		480,730
Deferred income taxes	236		258
Other long-term liabilities	79,516		93,154
Total liabilities	1,068,896		1,052,664

Redeemable noncontrolling interests	1,174		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 capital	442,255		445,126
Accumulated other comprehensive loss	(11,034)		(9,971)
Retained earnings	193,934		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 subsidiaries	15,761		15,212
Total Stockholders’ deficit	(233,798)		(172,458)
Total liabilities, Redeemable noncontrolling interests and Stockholders’ deficit	$	836,272	$	885,704

See accompanying notes.

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended				Six 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 fees	34,917		32,475		69,185		65,190
North America commissary revenues	219,383		186,641		429,062		371,519
International revenues	31,958		37,614		66,575		72,221
Other revenues	64,996		62,154		130,359		124,466
Total revenues	522,665		515,008		1,065,357		1,026,754
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses	142,026		154,293		303,687		310,181
North America commissary expenses	204,470		172,227		401,560		342,911
International expenses	19,236		21,430		39,150		41,048
Other expenses	60,648		56,246		121,203		112,053
General and administrative expenses	44,646		53,698		110,584		103,709
Depreciation and amortization	12,735		12,477		24,674		25,353
Total costs and expenses	483,761		470,371		1,000,858		935,255
Refranchising and impairment loss	—		—		(11,160)		—
Operating income	38,904		44,637		53,339		91,499
Net interest expense	(6,081)		(3,649)		(10,344)		(7,296)
Income before income taxes	32,823		40,988		42,995		84,203
Income tax expense	7,093		7,398		5,838		15,330
Net income before attribution to noncontrolling interests	25,730		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 outstanding	35,624		34,729		35,775		33,739
Diluted weighted average common shares outstanding	35,824		34,729		36,032		33,739

Dividends declared per common share	$	0.350	$	0.225	$	0.700	$	0.450

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended				Six 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 adjustments	946		(100)		1,144		(344)
Interest rate swaps (2)	(432)		(418)		(826)		(831)
Income tax effect	514		(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 interests	24,012		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.

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, 2022	35,675	$	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 options	22	—		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 stock	2	—		(81)		—		—		81		—		—
Tax payments for equity award issuances	(1)	—		(65)		—		—		—		—		(65)
Distributions to noncontrolling interests	—	—		—		—		—		—		(150)		(150)
Other	2	—		36		—		(82)		79		(3)		30
Balance at June 26, 2022	35,248	$	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, 2021	35,797	$	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 options	39	—		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 stock	229	—		(6,450)		—		—		6,450		—		—
Tax payments for equity award issuances	(70)	—		(7,527)		—		—		—		—		(7,527)
Distributions to noncontrolling interests	—	—		—		—		—		—		(150)		(150)
Other	6	—		3		—		46		288		(3)		334
Balance at June 26, 2022	35,248	$	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.


	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, 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 payments for equity award issuances	—	—		(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 payments for equity award issuances	—	—		(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.

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 receivable		15,558		(1,200)
Depreciation and amortization		24,674		25,353
Refranchising and impairment loss		11,160		—
Deferred income taxes		(2,993)		(1,397)
Stock-based compensation expense		9,100		8,202
Other		(2,071)		467
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(9,177)		13,299
Income tax receivable		5,369		189
Inventories		(3,815)		430
Prepaid expenses and other current assets		(3,901)		1,092
Other assets and liabilities		(5,379)		(11,380)
Accounts payable		12,742		(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 activities		45,585		128,030
Investing activities
Purchases of property and equipment		(30,744)		(21,543)
Notes issued		(1,098)		(5,263)
Repayments of notes issued		6,743		7,922
Acquisitions, net of cash acquired		(1,250)		(699)
Proceeds from refranchising, net of cash transferred		13,588		—
Other		238		116
Net cash used in investing activities		(12,523)		(19,467)
Financing activities
Net proceeds of revolving credit facilities		55,000		85,000
Proceeds from exercise of stock options		1,908		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)
Other		1,348		(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)		(33,991)
Cash and cash equivalents at beginning of period		70,610