Papa John’s(US:PZZA)2024-05-09 11:06PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Papa John's International, Inc. as of March 31, 2024, and for the three months then ended, covering Balance Sheets, Statements of Operations, and Cash Flows, along with detailed notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (Unaudited, in thousands) | (In thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $27,768 | $40,587 | | Total current assets | $225,927 | $231,018 | | Total assets | $847,167 | $875,005 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $282,634 | $304,596 | | Long-term debt, less current portion, net | $761,317 | $757,422 | | Total liabilities | $1,292,649 | $1,317,770 | | Total stockholders' deficit | ($446,423) | ($443,616) | Condensed Consolidated Statements of Operations Q1 2024 vs. Q1 2023 Statement of Operations (Unaudited, in thousands) | (In thousands, except per share amounts) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 26, 2023 | | :--- | :--- | :--- | | Total revenues | $513,916 | $527,049 | | Operating income | $33,718 | $37,796 | | Net income attributable to the Company | $14,636 | $22,376 | | Diluted earnings per common share | $0.44 | $0.65 | | Dividends declared per common share | $0.46 | $0.42 | Condensed Consolidated Statements of Cash Flows Q1 2024 vs. Q1 2023 Cash Flow Summary (Unaudited, in thousands) | (In thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 26, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,987 | $40,788 | | Net cash used in investing activities | ($10,152) | ($18,275) | | Net cash used in financing activities | ($14,602) | ($23,212) | | Change in cash and cash equivalents | ($12,819) | ($665) | | Cash and cash equivalents at end of period | $27,768 | $46,708 | Notes to Condensed Consolidated Financial Statements - The company is executing an International Transformation Plan, which includes closing 43 underperforming Company-owned restaurants in the UK, resulting in restructuring costs of $9.5 million in Q1 2024, primarily from asset impairment charges6668 - Total estimated pre-tax costs for the International Transformation Plan are approximately $25 million to $35 million, with $11.7 million incurred through Q1 2024, and the remainder expected through 2024 and 202569 - Total debt outstanding was $769.3 million as of March 31, 2024, consisting of $400.0 million in senior notes and $369.3 million under revolving facilities, with the company in compliance with all debt covenants58137 - In 2023, the company acquired 118 previously franchised restaurants in the UK for a total consideration of approximately $15.2 million, which resulted in the recognition of $4.3 million in goodwill7981 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, highlighting a 2.5% decrease in total revenues to $513.9 million, covering segment performance, strategic initiatives, profitability, liquidity, and capital resources - The company is focused on its "Back to BETTER 2.0" initiative, aiming to enhance marketing, accelerate North America development, and evolve the Domestic Commissary business for franchisee cost savings88 - The International Transformation Plan involves establishing regional hubs and optimizing the UK market, including closing 43 underperforming company-owned stores, which is expected to improve long-term profitability9195 Q1 2024 vs Q1 2023 Key Performance Metrics | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenues | $513.9M | $527.0M | | Operating Income | $33.7M | $37.8M | | Adjusted Operating Income (Non-GAAP) | $43.2M | $39.2M | | Diluted EPS | $0.44 | $0.65 | | Adjusted Diluted EPS (Non-GAAP) | $0.67 | $0.68 | Q1 2024 Comparable Sales Growth (Constant Dollar) | Segment | Comparable Sales Growth | | :--- | :--- | | Domestic Company-owned restaurants | (3.0)% | | North America franchised restaurants | (1.5)% | | North America restaurants | (1.8)% | | International restaurants | (2.6)% | Results of Operations - Total revenues decreased by $13.1 million (2.5%) in Q1 2024, primarily due to lower North America commissary revenues, a decline in Domestic Company-owned restaurant sales, and lower marketing fund revenues99 - International revenues increased by $9.2 million (29.4%), mainly due to the acquisition of 118 UK franchisee restaurants in 2023, though excluding this impact, international revenues would have decreased slightly98104 - Operating income decreased by $4.1 million to $33.7 million, while adjusted operating income (non-GAAP) increased by $4.1 million to $43.2 million, driven by improved profitability in Domestic Company-owned restaurants and North America commissaries117 - General and Administrative (G&A) expenses increased by $6.6 million, largely due to $9.5 million in costs related to the International Transformation Plan113 - The effective tax rate rose to 34.2% in Q1 2024 from 21.6% in Q1 2023, driven by non-deductible impairment charges from the international restructuring and a tax shortfall from stock-based compensation122 Liquidity and Capital Resources - Cash from operating activities decreased significantly to $12.0 million in Q1 2024 from $40.8 million in Q1 2023, mainly due to unfavorable working capital changes related to the timing of payments129130 - The company had a negative free cash flow of ($1.1) million in Q1 2024, compared to a positive free cash flow of $22.4 million in Q1 2023145 - No shares were repurchased in Q1 2024, while in Q1 2023, the company repurchased 2.5 million shares for $209.6 million, with approximately $90.2 million remaining available under the current share repurchase program52142 - A quarterly dividend of $0.46 per share was paid in Q1 2024, totaling $15.1 million, and the Board declared a second-quarter dividend of $0.46 per share to be paid in May 202454143 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks including interest rate fluctuations on variable-rate debt, foreign currency exchange rate risk from international operations, and commodity price volatility for key ingredients like cheese - The company is exposed to interest rate changes on its revolving credit facilities and uses interest rate swaps to mitigate this risk151 - Foreign currency fluctuations had a favorable impact of $1.0 million on international revenues but an unfavorable impact of $0.9 million on operating income in Q1 2024153 - The company faces commodity price volatility for food and paper products, with cheese being the largest ingredient cost, using some forward pricing agreements but remaining exposed to market fluctuations154 Controls and Procedures Management, including the Interim CEO and CFO, concluded the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The Interim CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report155 - 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 controls156 PART II. OTHER INFORMATION Legal Proceedings The company is involved in various ordinary course legal proceedings, including a $5.0 million settlement in principle for the 'In re Papa John's Employee & Franchise Employee Antitrust Litigation' as detailed in Note 10 - The company is involved in ordinary course lawsuits and has made accruals where appropriate, with specific details incorporated by reference from Note 10 of the financial statements15771 Risk Factors No material changes to risk factors were reported from those previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - No material changes to risk factors from the Annual Report on Form 10-K for the fiscal year ended December 31, 2023158 Unregistered Sales of Equity Securities and Use of Proceeds This section details share repurchase activity, noting no shares were repurchased under the publicly announced program in Q1 2024, though approximately 45,000 shares were acquired from employees for tax withholding Share Repurchase Activity Q1 2024 | Fiscal Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | 1/01/2024 - 3/31/2024 | — | $ — | - The company acquired approximately 45,000 shares from employees to satisfy minimum tax withholding obligations on vested restricted stock161 Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the first quarter of 2024 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter162 Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and financial statements formatted in iXBRL - Lists required exhibits, including Sarbanes-Oxley certifications and iXBRL data files163