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Papa John’s Announces First Quarter 2021 Financial Results

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Papa John’s International, Inc. (NASDAQ: PZZA) today announced financial results for the first quarter ended March 28, 2021.

First quarter 2021 highlights compared to first quarter 2020

  • Total revenues increased 24.9% to $511.7 million

  • Comparable sales up 26.2% in North America and 23.2% Internationally driven by menu innovation, including the new Epic Stuffed Crust pizza in North America, and expanding customer base

  • Earnings per diluted share rose to $0.82 from $0.15; Adjusted earnings per diluted share grew to $0.90 from $0.15

  • Cash flow from operations of $63.2 million; free cash flow of $52.7 million

  • 68 net unit openings in the first quarter driven by International growth; now in 50 countries and territories with first new units in Germany and Cambodia

"Papa John’s started 2021 strongly, delivering our sixth straight quarter of industry outperformance and fourth of double-digit global sales growth. In addition, our unit growth accelerated, and we achieved 600 basis points of operating margin expansion, growing adjusted earnings per share 500%," said President & CEO Rob Lynch. "This momentum is a result of the hard work of our team members and the strength of our franchise system, who together have delivered sustainable business growth over the past seven quarters, reversing the prior six quarters of global restaurant sales declines."

Mr. Lynch continued, "The strategy we put in place more than 18 months ago – focused on innovation, development, operational improvements, and building a culture that values diversity, inclusivity and winning – has provided the strong foundation that underscores Papa John’s industry outperformance and positive long-term outlook."

Global Restaurant and Comparable Sales Information

Global restaurant and comparable sales information for the first quarter ended March 28, 2021, compared to the first quarter ended March 29, 2020 are as follows:

Three Months Ended

Mar. 28,
2021

Mar. 29,
2020

Global restaurant sales growth,

excluding the impact of foreign currency (a)

26.6%

5.4%

Comparable sales growth (b)

Domestic company-owned restaurants

23.3%

6.1%

North America franchised restaurants

27.1%

5.1%

System-wide North America restaurants

26.2%

5.3%

System-wide international restaurants

23.2%

2.3%

(a)

Includes both company-owned and franchised restaurant sales.

(b)

Represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods. Comparable sales results for restaurants operating outside of the United States are reported on a constant dollar basis, which excludes the impact of foreign currency translation. See "Supplemental Information and Financial Statements" below for a discussion of comparable sales, a key operating metric.

Financial Highlights

Three Months Ended

In thousands, except per share amounts

Mar. 28,
2021

Mar. 29,
2020

Increase

Revenue

$

511,746

$

409,859

$

101,887

Operating income

46,862

15,472

31,390

Net income

33,883

8,443

25,440

Diluted earnings per share

0.82

0.15

0.67

Adjusted diluted earnings per share (a)

0.90

0.15

0.75

(a)

Adjusted diluted earnings per share is a non-GAAP measure that excludes "Special items," which impact comparability. Special items of $3.9 million for 2021 include strategic corporate reorganization costs associated with our new office in Atlanta, Georgia projected to open in the summer of 2021. The reconciliation of GAAP to non-GAAP financial results is included in "Reconciliation of Non-GAAP Financial Measures" below.

Revenues

Consolidated revenues of $511.7 million increased $101.9 million, or 24.9%, in the first quarter of 2021 compared to the first quarter of 2020 primarily as a result of strong comparable sales results for North America restaurants, which benefited from successful menu innovation, including the new Epic Stuffed Crust pizza, and expanding customer base, as reflected in higher company-owned restaurant revenues, franchise royalties and commissary sales. International revenues also increased primarily due to higher commissary revenues and higher royalties from strong comparable sales results of 23.2% for the quarter.

Operating Results

Consolidated operating income of $46.9 million for the first quarter of 2021 increased $31.4 million compared to the first quarter of 2020. The increase primarily reflects strong operating leverage and expense control on higher comparable sales both domestically and internationally. Additionally, temporary franchise support of $10.7 million ($5.7 million of royalty relief and $5.0 million of discretionary marketing fund investments) was provided in the first quarter of 2020. The franchise assistance program concluded in the third quarter of 2020.

Diluted earnings per share was $0.82 for the first quarter of 2021 representing an increase of $0.67 over the first quarter of 2020. Excluding Special items, diluted earnings per share was $0.90 representing an increase of $0.75 over the first quarter of 2020. Diluted earnings per share was reduced by approximately $0.10 per diluted share in the first quarter of 2021 ($0.11 impact when excluding Special items) due to income attributable to participating securities, including our Series B Convertible Preferred Stock (the "Series B Preferred Stock"), based on the allocation of undistributed earnings to participating securities in the quarter.

Free Cash Flow

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

First Quarter

Mar. 28,

Mar. 29,

2021

2020

Net cash provided by operating activities

$

63,217

$

33,734

Purchases of property and equipment

(7,076

)

(5,933

)

Dividends paid to preferred shareholders

(3,412

)

(3,412

)

Free cash flow

$

52,729

$

24,389

We view free cash flow as an important financial measure because it is one factor that management uses in determining the amount of cash available for discretionary investment. Free cash flow is not a term defined by GAAP, and as a result, our measure of free cash flow might not be comparable to similarly titled measures used by other companies. Free cash flow should not be construed as a substitute for or a better indicator of the company’s performance than the company’s GAAP measures.

See the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Quarterly Report on Form 10-Q filed with the SEC for additional information concerning our operating results and cash flow for the three months ended March 28, 2021.

Cash Dividend

The company paid common and preferred stock dividends of $10.8 million in the first quarter of 2021. The company declared second quarter 2021 dividends of approximately $10.9 million on April 27, 2021, which will be paid to common shareholders on May 21, 2021. The second quarter preferred dividend will be paid on July 1, 2021. The declaration and payment of any future dividends on our common stock will be at the discretion of our Board of Directors, subject to the company’s financial results, cash requirements, and other factors deemed relevant by our Board of Directors. The holders of Series B Preferred Stock receive quarterly preferred dividends and common stock dividends on an as converted to common stock basis.

Global Restaurant Unit Data

As of March 28, 2021, there were 5,468 Papa John’s restaurants operating in 50 countries and territories, as follows:

Domestic
Company-
owned

Franchised
North
America

Total North
America

International

System-wide

First Quarter

Beginning - December 27, 2020

588

2,701

3,289

2,111

5,400

Opened

-

12

12

68

80

Closed

-

(3

)

(3

)

(9

)

(12

)

Acquired

1

-

1

-

1

Sold

-

(1

)

(1

)

-

(1

)

Ending - March 28, 2021

589

2,709

3,298

2,170

5,468

Net unit growth

1

8

9

59

68

% increase

0.2

%

0.3

%

0.3

%

2.8

%

1.3

%

Our development pipeline as of March 28, 2021 included approximately 1,650 restaurants (250 units in North America and 1,400 units internationally), the majority of which are scheduled to open over the next six years.

Conference Call

A conference call is scheduled for May 6, 2021 at 8:00 a.m. Eastern Time to review the company’s first quarter 2021 earnings results. The call can be accessed from the company’s web page at www.papajohns.com in a listen-only mode or dial 877-312-8816 (U.S. and Canada) or 253-237-1189 (International). The conference call will be available for replay, including by downloadable podcast, from the company’s web. The Conference ID is 2447789.

Forward-Looking Statements

Certain matters discussed in this press release and other company communications that are not statements of historical fact constitute forward-looking statements within the meaning of the federal securities laws. Generally, the use of words such as "expect," "intend," "estimate," "believe," "anticipate," "will," "forecast," "plan," "project," or similar words identify forward-looking statements that we intend to be included within the safe harbor protections provided by the federal securities laws. Such forward-looking statements include or may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, share repurchases, the financial impact of the temporary business opportunities, disruptions and temporary changes in demand we are experiencing related to the current outbreak of the novel coronavirus disease (COVID-19), commodity costs, currency fluctuations, profit margins, unit growth, unit level performance, capital expenditures, restaurant and franchise development, the duration of changes in consumer behavior caused by the pandemic, our plans to open a new office in Atlanta, the associated reorganization costs and the related organizational, employment and real estate changes that are expected, royalty relief, the effectiveness of our menu innovations and other business initiatives, marketing efforts, liquidity, compliance with debt covenants, strategic decisions and actions, dividends, effective tax rates, regulatory changes and impacts, adoption of new accounting standards, and other financial and operational measures. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control.

Our forward-looking statements are based on our assumptions which are based on currently available information, including assumptions about our ability to manage difficulties and opportunities associated with or related to the COVID-19 pandemic, including risks related to: the impact of governmental restrictions on freedom of movement and business operations including quarantines, social distancing requirements and mandatory business closures; changes in consumer demand or behavior; impact of delayed new store openings, both domestically and internationally; the overall contraction in global economic activity, including increased unemployment; our ability to navigate changing governmental programs and regulations relating to the pandemic; the increased risk of phishing and other cyber-attacks; and our ability to successfully implement or fully realize the anticipated benefits of our corporate reorganization and new office in Atlanta, Georgia and corporate reorganization in the timeframes we desire or within the expected range of expenses, or at all. In addition, turnover in our support teams due to our relocations to Georgia could distract our employees, decrease employee morale, harm our reputation, and negatively impact the overall performance of our corporate support teams. Actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements. These and other risks, uncertainties and assumptions that are involved in our forward-looking statements are discussed in detail in "Part I. Item 1A. – Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 27, 2020. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise, except as required by law.

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

Supplemental Information and Financial Statements

Definition

Comparable sales: We believe North America, international and global restaurant and comparable sales growth information is useful in analyzing our results since our franchisees pay royalties and marketing fund contributions that are based on a percentage of franchise sales. Franchise sales also generate commissary revenue in the United States and in certain international markets. Franchise restaurant and comparable sales growth information is also useful for comparison to industry trends and evaluating the strength of our brand. Management believes the presentation of franchise restaurant sales growth, excluding the impact of foreign currency, provides investors with useful information regarding underlying sales trends and the impact of new unit growth without being impacted by swings in the external factor of foreign currency. Franchise restaurant sales are not included in the company’s revenues.

Reconciliation of Non-GAAP Financial Measures

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

Three Months Ended

Mar. 28,

Mar. 29,

(In thousands, except per share amounts)

2021

2020

GAAP operating income

$

46,862

$

15,472

Strategic corporate reorganization costs (1)

3,883

-

Adjusted operating income

$

50,745

$

15,472

GAAP net income attributable to common shareholders

$

27,113

$

4,972

Strategic corporate reorganization costs (1)

3,883

-

Tax effect of Non-GAAP items (2)

(874

)

-

Two-class impact for Non-GAAP adjustment to net income (3)

(423

)

-

Adjusted net income attributable to common shareholders

$

29,699

$

4,972

GAAP diluted earnings per share

$

0.82

$

0.15

Strategic corporate reorganization costs (1)

0.12

-

Tax effect of Non-GAAP items (2)

(0.03

)

-

Two-class impact for Non-GAAP adjustment to earnings per share (3)

(0.01

)

-

Adjusted diluted earnings per share

$

0.90

$

0.15

(1)

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

(2)

The tax effect for strategic corporate reorganization costs was calculated by applying the 2021 full year marginal tax rate of 22.5%.

(3)

Represents an adjustment to the allocation of undistributed earnings to participating securities for the strategic corporate reorganization costs.

Papa John's International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

March 28,

December 27,

2021

2020

(In thousands)

(Unaudited)

(Note)

Assets

Current assets:

Cash and cash equivalents

$

171,272

$

130,204

Accounts receivable, net

76,008

90,135

Notes receivable, current portion

10,687

11,318

Income tax receivable

707

1,273

Inventories

27,552

30,265

Prepaid expenses and other current assets

45,355

43,212

Total current assets

331,581

306,407

Property and equipment, net

195,083

200,895

Finance lease right-of-use assets, net

22,710

16,840

Operating lease right-of-use assets

166,976

148,110

Notes receivable, less current portion, net

35,966

36,538

Goodwill

81,019

80,791

Deferred income taxes

6,890

10,800

Other assets

78,060

72,389

Total assets

$

918,285

$

872,770

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

Current liabilities:

Accounts payable

$

32,020

$

37,370

Income and other taxes payable

25,308

10,263

Accrued expenses and other current liabilities

165,767

174,563

Current deferred revenue

19,807

19,590

Current finance lease liabilities

4,499

3,545

Current operating lease liabilities

24,322

23,538

Current portion of long-term debt

20,000

20,000

Total current liabilities

291,723

288,869

Deferred revenue

13,391

13,664

Long-term finance lease liabilities

18,533

13,531

Long-term operating lease liabilities

143,269

124,666

Long-term debt, less current portion, net

328,538

328,292

Deferred income taxes

267

948

Other long-term liabilities

104,601

111,364

Total liabilities

900,322

881,334

Series B Convertible Preferred Stock

251,938

251,901

Redeemable noncontrolling interests

6,125

6,474

Total Stockholders' deficit

(240,100

)

(266,939

)

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

$

918,285

$

872,770

Note: The Condensed Consolidated Balance Sheets have been derived from the audited consolidated financial statements, but do not include all information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements.

Papa John's International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

Three Months Ended

March 28, 2021

March 29, 2020

(In thousands, except per share amounts)

(Unaudited)

(Unaudited)

Revenues:

Domestic company-owned restaurant sales

$

197,234

$

161,440

North America franchise royalties and fees

32,715

19,440

North America commissary revenues

184,878

155,422

International revenues

34,607

26,059

Other revenues

62,312

47,498

Total revenues

511,746

409,859

Costs and expenses:

Operating costs (excluding depreciation and amortization

shown separately below):

Domestic company-owned restaurant expenses

155,888

129,111

North America commissary expenses

170,684

144,272

International expenses

19,618

15,101

Other expenses

55,807

45,957

General and administrative expenses

50,011

47,651

Depreciation and amortization

12,876

12,295

Total costs and expenses

464,884

394,387

Operating income

46,862

15,472

Net interest expense

(3,647

)

(3,967

)

Income before income taxes

43,215

11,505

Income tax expense

7,932

2,512

Net income before attribution to noncontrolling interests

35,283

8,993

Net income attributable to noncontrolling interests

(1,400

)

(550

)

Net income attributable to the company

$

33,883

$

8,443

Calculation of net income for earnings per share:

Net income attributable to the company

$

33,883

$

8,443

Dividends paid to participating securities and accretion

(3,527

)

(3,471

)

Net income attributable to participating securities

(3,243

)

-

Net income attributable to common shareholders

$

27,113

$

4,972

Basic earnings per common share

$

0.83

$

0.15

Diluted earnings per common share

$

0.82

$

0.15

Basic weighted average common shares outstanding

32,756

32,093

Diluted weighted average common shares outstanding

33,090

32,320

Dividends declared per common share

$

0.225

$

0.225

Papa John's International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Three Months Ended

(In thousands)

March 28, 2021

March 29, 2020

(Unaudited)

(Unaudited)

Operating activities

Net income before attribution to noncontrolling interests

$

35,283

$

8,993

Adjustments to reconcile net income to net cash provided by

operating activities:

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

(1,098

)

768

Depreciation and amortization

12,876

12,295

Deferred income taxes

2,586

1,185

Stock-based compensation expense

4,113

3,950

Other

325

234

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

13,349

(1,839

)

Income tax receivable

566

932

Inventories

2,721

(2,281

)

Prepaid expenses and other current assets

711

5,586

Other assets and liabilities

(7,901

)

2,670

Accounts payable

(5,350

)

4,604

Income and other taxes payable

15,045

568

Accrued expenses and other current liabilities

(9,736

)

(1,903

)

Deferred revenue

(273

)

(2,028

)

Net cash provided by operating activities

63,217

33,734

Investing activities

Purchases of property and equipment

(7,076

)

(5,933

)

Notes issued

(3,417

)

(7,413

)

Repayments of notes issued

4,864

3,790

Acquisitions, net of cash acquired

(699

)

-

Other

29

1

Net cash used in investing activities

(6,299

)

(9,555

)

Financing activities

Repayments of term loan

(5,000

)

(5,000

)

Net proceeds of revolving credit facilities

5,000

640

Proceeds from exercise of stock options

2,298

1,241

Dividends paid to common stockholders

(7,404

)

(7,237

)

Dividends paid to preferred stockholders

(3,412

)

(3,412

)

Tax payments for equity award issuances

(3,834

)

(1,383

)

Acquisition of Company common stock

(1,267

)

Distributions to noncontrolling interests

(1,705

)

(30

)

Other

(756

)

(350

)

Net cash used in financing activities

(16,080

)

(15,531

)

Effect of exchange rate changes on cash and cash equivalents

230

(183

)

Change in cash and cash equivalents

41,068

8,465

Cash and cash equivalents at beginning of period

130,204

27,911

Cash and cash equivalents at end of period

$

171,272

$

36,376

View source version on businesswire.com: https://www.businesswire.com/news/home/20210506005191/en/

Contacts

Ann Gugino
Chief Financial Officer
502-261-7272

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