Papa John’s(PZZA) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarterly period ended March 30, 2025, compared with December 29, 2024 (for the balance sheet) and March 31, 2024 (for other statements) Condensed Consolidated Balance Sheets As of March 30, 2025, total assets were $898.1 million, a slight increase from $889.0 million at year-end 2024, with total liabilities also increasing to $1.314 billion from $1.302 billion | (In thousands) | March 30, 2025 (Unaudited) | December 29, 2024 | | :--- | :--- | :--- | | Total current assets | $242,115 | $230,605 | | Total assets | $898,088 | $888,952 | | Total current liabilities | $282,899 | $277,963 | | Total liabilities | $1,314,027 | $1,302,265 | | Total Stockholders' deficit | ($416,809) | ($414,216) | Condensed Consolidated Statements of Operations For Q1 2025, total revenues increased slightly to $518.3 million from $513.9 million year-over-year, while operating income decreased to $24.0 million from $33.7 million, and diluted EPS fell to $0.27 from $0.44 | (In thousands, except per share) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total revenues | $518,309 | $513,916 | | Company-owned restaurant sales | $173,881 | $191,251 | | Commissary revenues | $228,941 | $217,512 | | Operating income | $23,965 | $33,718 | | Net income attributable to the Company | $9,222 | $14,636 | | Diluted earnings per common share | $0.27 | $0.44 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $31.3 million in Q1 2025 from $12.0 million in Q1 2024, with cash and cash equivalents increasing by $6.1 million during the quarter | (In thousands) | Three Months Ended March 30, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $31,336 | $11,987 | | Net cash used in investing activities | ($7,083) | ($10,152) | | Net cash used in financing activities | ($18,567) | ($14,602) | | Change in cash and cash equivalents | $6,057 | ($12,819) | | Cash and cash equivalents at end of period | $44,012 | $27,768 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies, including changes to segment reporting and cost allocation methodologies, and disclose the International Transformation Plan costs and a new $200 million term loan - The company updated its segment profit measure to adjusted EBITDA and revised its internal cost allocation methodology, resulting in higher allocations to the North America franchising and International segments, with prior period results recast for comparability[27][84] - The International Transformation Plan incurred $2.2 million in costs in Q1 2025, bringing the total to $31.6 million since commencement, involving strategic closures and refranchising in the UK to improve profitability[78] - On March 26, 2025, the company amended its credit agreement, adding a $200 million term loan and a $600 million revolving credit facility, both maturing in 2030, with term loan proceeds used to repay existing revolving debt[69] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 0.9% increase in total revenues for Q1 2025, driven by higher commissary and advertising fund revenues, offset by a 9.1% decline in company-owned restaurant sales, leading to a $9.8 million drop in operating income - Total revenues increased 0.9% to $518.3 million in Q1 2025, while operating income decreased to $24.0 million from $33.7 million YoY[111][128] - Key strategic focuses for 2025 include investing up to an additional $25 million in marketing, enhancing digital/loyalty experiences with partners like Google Cloud, and increasing the domestic QC Center fixed operating margin by 100 basis points[98] | Comparable Sales Growth (Decline) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Domestic Company-owned restaurants | (4.6)% | (3.0)% | | North America franchised restaurants | (2.3)% | (1.5)% | | International restaurants | 3.2% | (2.6)% | | Total comparable sales decline | (1.3)% | (2.0)% | - The International Transformation Plan is nearly complete, having closed 43 underperforming UK company-owned restaurants and refranchised 60 others, with total estimated pre-tax costs of $33-$35 million, and $31.6 million incurred through Q1 2025[100][104] Results of Operations Total revenues rose 0.9% to $518.3 million, driven by a 5.3% increase in commissary revenues and a 17.8% increase in advertising funds revenue, offset by a 9.1% decrease in company-owned restaurant sales, leading to a drop in operating income from $33.7 million to $24.0 million - Company-owned restaurant sales decreased by $17.4 million (9.1%), with $11.9 million from UK restaurant closures/refranchising and $5.4 million from a 4.6% decline in Domestic comparable sales[112] - Commissary revenues increased by $11.4 million (5.3%) due to higher commodity prices and a 1% increase in the fixed operating margin charged to Domestic QC Centers[116] - General and administrative (G&A) expenses rose to $65.2 million from $57.9 million, driven by incremental marketing investments and costs for a bi-annual franchise conference, including $2.1 million in international restructuring costs[120] Segment Financial Performance Adjusted EBITDA for Domestic Company-owned restaurants fell sharply by $9.9 million due to a 4.6% comparable sales decline and higher costs, while North America commissaries' EBITDA grew by $2.2 million, and the International segment's EBITDA increased by $1.2 million | Adjusted EBITDA by Segment (In thousands) | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Domestic Company-owned restaurants | $5,032 | $14,938 | ($9,906) | | North America franchising | $27,248 | $28,508 | ($1,260) | | North America commissaries | $19,353 | $17,176 | $2,177 | | International | $5,381 | $4,193 | $1,188 | Liquidity and Capital Resources The company's primary liquidity sources are cash from operations and its credit facilities, with total debt at $749.9 million and $450.1 million available under the revolving facility, and free cash flow improving significantly to $19.1 million - The company refinanced its debt, resulting in a new $200 million Term Loan and a $600 million Revolving Facility, with total debt standing at $749.9 million and $450.1 million available for borrowing[138][147] - The company was in compliance with its financial covenants, with a leverage ratio of 3.4 to 1.0 against a permitted maximum of 5.25 to 1.0[148] | (In thousands) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $31,336 | $11,987 | | Purchases of property and equipment | ($12,231) | ($13,058) | | Free cash flow (Non-GAAP) | $19,105 | ($1,071) | - No shares were repurchased in Q1 2025, with approximately $90.2 million remaining available under the share repurchase program[152] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, foreign currency exchange rates, and commodity prices, managing interest rate risk through swaps and facing unhedged foreign currency exposure from international operations - The company uses interest rate swaps to mitigate risk on its variable-rate PJI Revolving Facility[164] - International operations accounted for 7.5% of revenues in Q1 2025, and the company does not historically hedge its foreign currency exposure[165] - The company faces commodity price risk, especially for cheese, managing this through pricing agreements and forward contracts but not using other financial hedging instruments[168] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the quarter, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 30, 2025[169] - No changes were made in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[170] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, including a notable antitrust case for which a $5.0 million settlement in principle was reached and remains accrued pending final court approval - The company has reached a settlement in principle for $5.0 million to resolve the 'In re Papa John's Employee & Franchise Employee Antitrust Litigation' regarding 'no-poaching' provisions, with the amount accrued and awaiting final court approval[81][171] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 29, 2024 - No material changes to risk factors were reported since the last Annual Report on Form 10-K[172] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares under its approved program during Q1 2025, with approximately $90.2 million remaining available, but did acquire approximately 24,000 shares from employees to satisfy tax withholding obligations - There was no share repurchase activity in Q1 2025, with approximately $90.2 million remaining available under the program[173] - The company acquired about 24,000 shares from employees to cover tax withholding obligations on vested restricted stock[176] Other Information During the first quarter of 2025, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement in Q1 2025[177] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Second Amended and Restated Credit Agreement, certifications by the CEO and CFO, and iXBRL interactive data files - Key exhibits include the new credit agreement dated March 26, 2025, and CEO/CFO certifications[178]