Papa John’s Announces Second Quarter 2021 Financial Results and Significant Increase in Dividend

Papa John’s International, Inc. (NASDAQ: PZZA) today announced financial results for the three and six months ended June 27, 2021.

Second quarter 2021 highlights compared to prior year

  • Total company revenues increased 11.8% to $515.0 million
  • Comparable sales up 5.2% in North America and 21.2% Internationally; Global system-wide restaurant sales of $1.2 billion, up 12.2% driven by innovation, strong customer retention and accelerating domestic and international unit growth
  • 55 net unit openings driven by International growth
  • Loss per diluted share of ($2.30), including Special items of $3.23 per share, largely related to repurchase and conversion of Series B Convertible Preferred Stock; Adjusted earnings per diluted share grew to $0.93 from $0.48 a year ago
  • For first six months of 2021, cash flow from operations of $128.0 million, up from $87.7 million a year ago; free cash flow of $100.1 million up from $67.0 million
  • Increases return to common shareholders with 56% increase in annual dividend rate to $1.40 per share; declares third quarter dividend of $0.35 per share

“Papa John’s delivered an eighth consecutive quarter of growth, with system-wide sales up 12% in Q2. We extended the record sales results we achieved a year ago, sustaining our industry outperformance as markets continue reopening,” said President & CEO Rob Lynch. “Robust two-year comparable sales results – up 33% in North America and 27% internationally – reflect the impact our multi-faceted innovation strategy has had across every area of our business, powered by the effort of our team members and franchisees.”

Mr. Lynch continued, “Papa John’s strong brand and highly-attractive unit economics are driving accelerated restaurant openings by both new and existing franchisees, resulting in a record 123 net unit openings in the first half of 2021. In addition to growing AUVs, development is now a significant component of rising system-wide sales. With our business firing on all cylinders, we are more confident than ever that Papa John’s strategy and growth model position us solidly for long-term growth, as we build the world’s best pizza delivery company.”

Financial Highlights

   

Three Months Ended

Six Months Ended

In thousands, except per share amounts  

June 27,
2021

June 28,
2020

Increase
(Decrease)

June 27,
2021

June 28,
2020

Increase
(Decrease)

                         
Revenue  

$

515,008

 

$

460,623

 

$

54,385

 

$

1,026,754

 

$

870,482

 

$

156,272

Operating income  

44,637

 

30,534

 

14,103

 

91,499

 

46,006

 

45,493

Net income  

32,254

 

20,614

 

11,640

 

66,137

 

29,057

 

37,080

Diluted (loss) earnings per share  

(2.30

)

 

0.48

 

(2.78

)

 

(1.47

)

 

0.65

 

(2.12

)

Adjusted diluted earnings per share (a)  

0.93

 

0.48

 

0.45

 

1.94

 

0.65

 

1.29

(a)

 

Adjusted diluted earnings per share is a non-GAAP measure that excludes “Special items,” which impact comparability. Special items of $112.4 million and $115.4 million for the three and six months ended June 27, 2021 include $109.9 million of a one-time charge in each period associated with the repurchase and conversion of all shares of the company’s Series B Convertible Preferred Stock (“Series B Preferred Stock”) and $3.3 million and $7.2 million for the three and six month ended June 27, 2021, respectively, of strategic corporate reorganization costs associated with the company’s new office in Atlanta, Georgia projected to open in the fall 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 $515.0 million increased $54.4 million, or 11.8%, in the second quarter of 2021 compared to the second quarter of 2020 primarily as a result of higher comparable sales of 5.2% for North America restaurants, which benefited from continued menu, delivery and digital innovation as reflected in higher company-owned restaurant revenues, franchise royalties and commissary sales. Higher commodity costs also positively impacted commissary sales. International revenues also increased primarily due to higher royalties from strong comparable sales results of 21.2% for the quarter and higher unit counts.

Operating Results

Consolidated operating income of $44.6 million for the second quarter of 2021 increased $14.1 million compared to the second quarter of 2020. The increase primarily reflects strong sales on higher comparable sales and year-over-year unit growth domestically and internationally. Additionally, the second quarter of 2021 benefited from a higher effective royalty rate and additional franchise royalties of $5.1 million compared to the comparable period in 2020 primarily as a result of ending in the third quarter of 2020 our temporary franchise support program.

Diluted loss per share was $2.30 for the second quarter of 2021 representing a decrease of $2.78 over the second quarter of 2020. Diluted loss per share included $3.15 per diluted share in the second quarter of 2021 from a reduction in net income attributable to common shareholders related to the repurchase and conversion of all shares of Series B Preferred Stock. This charge reflects the excess of the one-time cash payment over the carrying value of the Series B Preferred Stock. Excluding the impact of Special items, adjusted diluted earnings per share was $0.93 representing an increase of $0.45 over the second quarter of 2020.

Global Restaurant Sales Information

Global restaurant and comparable sales information for the three and six months ended June 27, 2021, compared to the three and six months ended June 28, 2020 are as follows (See “Supplemental Information and Financial Statements” below for related definitions):

    Three Months Ended   Six Months Ended
    June 27,
2021
  June 28,
2020
  June 27,
2021
  June 28,
2020
Comparable sales growth:                
Domestic company-owned restaurants  

5.6%

 

22.6%

 

13.8%

 

14.4%

North America franchised restaurants  

5.2%

 

29.7%

 

15.1%

 

17.2%

North America restaurants  

5.2%

 

28.0%

 

14.8%

 

16.6%

International restaurants  

21.2%

 

5.3%

 

22.2%

 

3.8%

Total comparable sales growth  

9.0%

 

22.2%

 

16.6%

 

13.3%

                 
System-wide restaurant sales growth:                
(excluding the impact of foreign currency)                
Domestic company-owned restaurants  

5.2%

 

13.9%

 

13.1%

 

6.9%

North America franchised restaurants  

6.4%

 

29.4%

 

15.8%

 

17.5%

North America restaurants  

6.2%

 

25.7%

 

15.2%

 

15.0%

International restaurants  

35.7%

 

5.5%

 

32.2%

 

6.8%

Total global system-wide restaurant sales growth  

12.2%

 

20.8%

 

19.0%

 

13.0%

Global Restaurant Unit Data

As of June 27, 2021, there were 5,523 Papa John’s restaurants operating in 49 countries and territories, as follows:

   

Domestic
Company-
owned

 

Franchised
North
America

 

Total North
America

 

International

 

System-wide

Second Quarter                    
Beginning – March 28, 2021  

589

 

2,709

 

3,298

 

2,170

 

5,468

Opened  

 

24

 

24

 

71

 

95

Closed  

 

(13

)

 

(13

)

 

(27

)

 

(40

)

Ending – June 27, 2021  

589

 

2,720

 

3,309

 

2,214

 

5,523

Net unit growth  

 

11

 

11

 

44

 

55

Trailing four quarters net store (decline)/growth  

(9

)

 

34

 

25

 

151

 

176

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 six months ended 2021 and 2020, respectively, was as follows (in thousands):

   

Six Months Ended

   

June 27,

 

June 28,

   

2021

 

2020

         
Net cash provided by operating activities  

$

128,030

 

$

87,658

Purchases of property and equipment  

(21,543

)

 

(13,795

)

Dividends paid to preferred shareholders (1)  

(6,394

)

 

(6,825

)

Free cash flow  

$

100,093

 

$

67,038

(1)

 

This does not include the cash consideration paid for the repurchase and conversion of the Series B Preferred Stock. See “Repurchase and Conversion of Series B Preferred Stock” below for additional information.

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 for the three and six months and cash flow for the six months ended June 27, 2021.

Repurchase and Conversion of Series B Preferred Stock

On May 13, 2021, the company completed the previously announced repurchase and conversion to common stock of all of the shares of Series B Preferred Stock owned by affiliates of Starboard Value LP. Additionally, on June 7, 2021, all of the remaining outstanding shares of the Series B Preferred Stock, owned by certain franchisee investors, were repurchased or converted to common stock. Collectively, these actions were taken in return for cash payments of $188.6 million. The company also recorded a reduction to net income attributable to common shareholders of $109.9 million as a result of the transaction. This one-time charge to equity reflects the excess of the cash payments over the carrying value of the respective Series B Preferred Stock. Following these transactions, there was no Series B Preferred Stock outstanding as of the end of the quarter.

Cash Dividend

The company paid common and preferred stock dividends of $10.4 million in the second quarter of 2021. On August 3, 2021, our Board of Directors approved a 55.6% increase in the company’s dividend rate per common share, from $0.90 on an annual basis to $1.40 on an annual basis, and subsequently declared a third quarter dividend of $0.35 per common share, of which approximately $12.8 million will be paid to common stockholders. The common share dividend will be paid on August 27, 2021 to stockholders of record as of the close of business on August 16, 2021. The declaration and payment of any future dividends will be at the discretion of our Board of Directors.

   

Three Months Ended

Six Months Ended

   

June 27,

June 28,

June 27,

June 28,

(In thousands, except per share amounts)  

2021

2020

2021

2020

                 
GAAP operating income  

$

44,637

 

$

30,534

 

$

91,499

 

$

46,006

Strategic corporate reorganization costs (1)  

3,328

 

 

7,211

 

Adjusted operating income  

$

47,965

 

$

30,534

 

$

98,710

 

$

46,006

                 
GAAP net (loss)/income attributable to common shareholders  

$

(79,898

)

 

$

15,707

 

$

(49,542

)

 

$

20,933

Strategic corporate reorganization costs (1)  

3,328

 

 

7,211

 

Repurchase and conversion of Series B Preferred Stock (2)  

109,852

 

 

109,852

 

Tax effect of strategic corporate reorganization costs (3)  

(745

)

 

 

(1,615

)

 

Adjusted net income attributable to common shareholders  

$

32,537

 

$

15,707

 

$

65,906

 

$

20,933

                 
GAAP diluted (loss)/earnings per share  

$

(2.30

)

 

$

0.48

 

$

(1.47

)

 

$

0.65

Strategic corporate reorganization costs (1)  

0.10

 

 

0.22

 

Repurchase and conversion of Series B Preferred Stock (2)  

3.15

 

 

3.23

 

Tax effect of strategic corporate reorganization costs (3)  

(0.02

)

 

 

(0.04

)

 

Adjusted diluted earnings per share  

$

0.93

 

$

0.48

 

$

1.94

 

$

0.65

(Note) The above table does not include the impact of allocation of undistributed earnings to participating securities for Special items.

(1)

 

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

(2)

 

Represents the one-time charge related to the repurchase and conversion of all shares of Series B Preferred Stock and includes related professional fees incurred as part of the transaction.

(3)

 

The tax effect for strategic corporate reorganization costs was calculated by applying the 2021 marginal tax rate of 22.4%. There was no tax effect on the repurchase and conversion of the Series B Preferred Stock as the one-time charge was non-deductible for tax purposes.

Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
         
         
   

June 27,

December 27,

   

2021

2020

(In thousands)   (Unaudited)   (Note)
         
Assets        
Current assets:      
Cash and cash equivalents

$

96,213

 

$

130,204

Accounts receivable, net

75,839

 

90,135

Notes receivable, current portion

11,398

 

11,318

Income tax receivable

1,084

 

1,273

Inventories  

29,843

 

30,265

Prepaid expenses and other current assets

47,966

 

43,212

Total current assets

262,343

 

306,407

         
Property and equipment, net

198,818

 

200,895

Finance lease right-of-use assets, net

22,840

 

16,840

Operating lease right-of-use assets

166,090

 

148,110

Notes receivable, less current portion, net

34,418

 

36,538

Goodwill  

81,103

 

80,791

Deferred income taxes

10,388

 

10,800

Other assets  

79,744

 

72,389

Total assets  

$

855,744

 

$

872,770

         
         
Liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders’ deficit      
Current liabilities:      
Accounts payable

$

31,496

 

$

37,370

Income and other taxes payable

28,763

 

10,263

Accrued expenses and other current liabilities

187,789

 

174,563

Current deferred revenue

20,536

 

19,590

Current finance lease liabilities

4,726

 

3,545

Current operating lease liabilities

23,194

 

23,538

Current portion of long-term debt

20,000

 

20,000

Total current liabilities

316,504

 

288,869

         
Deferred revenue

13,017

 

13,664

Long-term finance lease liabilities

18,555

 

13,531

Long-term operating lease liabilities

143,940

 

124,666

Long-term debt, less current portion, net

403,810

 

328,292

Deferred income taxes

278

 

948

Other long-term liabilities

100,699

 

111,364

Total liabilities

996,803

 

881,334

         
Series B Convertible Preferred Stock

 

251,901

Redeemable noncontrolling interests

6,839

 

6,474

         
Total Stockholders’ deficit

(147,898

)

 

(266,939

)

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

$

855,744

 

$

872,770

Note: The Condensed Consolidated Balance Sheet at December 27, 2020 has been derived from the audited consolidated financial statements, but does 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

Six Months Ended

   

June 27, 2021

June 28, 2020

June 27, 2021

June 28, 2020

(In thousands, except per share amounts)  

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Revenues:                
Domestic company-owned restaurant sales  

$

196,124

 

$

186,506

 

$

393,358

 

$

347,946

North America franchise royalties and fees  

32,475

 

24,174

 

65,190

 

43,614

North America commissary revenues  

186,641

 

167,619

 

371,519

 

323,041

International revenues  

37,614

 

28,093

 

72,221

 

54,152

Other revenues  

62,154

 

54,231

 

124,466

 

101,729

Total revenues  

515,008

 

460,623

 

1,026,754

 

870,482

                 
Costs and expenses:                
Operating costs (excluding depreciation and amortization                
shown separately below):                
Domestic company-owned restaurant expenses  

154,293

 

145,168

 

310,181

 

274,279

North America commissary expenses  

172,227

 

154,467

 

342,911

 

298,739

International expenses  

21,430

 

18,304

 

41,048

 

33,405

Other expenses  

56,246

 

51,345

 

112,053

 

97,302

General and administrative expenses  

53,698

 

48,428

 

103,709

 

96,079

Depreciation and amortization  

12,477

 

12,377

 

25,353

 

24,672

Total costs and expenses  

470,371

 

430,089

 

935,255

 

824,476

Operating income  

44,637

 

30,534

 

91,499

 

46,006

Net interest expense  

(3,649

)

 

(3,627

)

 

(7,296

)

 

(7,594

)

Income before income taxes  

40,988

 

26,907

 

84,203

 

38,412

Income tax expense  

7,398

 

4,956

 

15,330

 

7,468

Net income before attribution to noncontrolling interests  

33,590

 

21,951

 

68,873

 

30,944

Net income attributable to noncontrolling interests  

(1,336

)

 

(1,337

)

 

(2,736

)

 

(1,887

)

Net income attributable to the company  

$

32,254

 

$

20,614

 

$

66,137

 

$

29,057

                 
Calculation of net (loss) income for earnings per share:                
Net income attributable to the company  

$

32,254

 

$

20,614

 

$

66,137

 

$

29,057

Dividends on redemption of Series B Convertible Preferred Stock  

(109,852

)

 

 

(109,852

)

 

Dividends paid to participating securities  

(2,300

)

 

(3,347

)

 

(5,827

)

 

(6,818

)

Net income attributable to participating securities  

 

(1,560

)

 

 

(1,306

)

Net (loss) income attributable to common shareholders  

$

(79,898

)

 

$

15,707

 

$

(49,542

)

 

$

20,933

                 
Basic (loss) earnings per common share  

$

(2.30

)

 

$

0.49

 

$

(1.47

)

 

$

0.65

Diluted (loss) earnings per common share  

$

(2.30

)

 

$

0.48

 

$

(1.47

)

 

$

0.65

                 
Basic weighted average common shares outstanding  

34,729

 

32,335

 

33,739

 

32,214

Diluted weighted average common shares outstanding  

34,729

 

32,619

 

33,739

 

32,444

                 
Dividends declared per common share  

$

0.225

 

$

0.225

 

$

0.450

 

$

0.450

Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
 
       
  Six Months Ended
(In thousands) June 27, 2021   June 28, 2020
  (Unaudited)   (Unaudited)
Operating activities      
Net income before attribution to noncontrolling interests

$

68,873

 

$

30,944

Adjustments to reconcile net income to net cash provided by      
operating activities:      
(Credit) provision for allowance for credit losses on accounts and notes receivable

(1,200

)

 

1,051

Depreciation and amortization

25,353

 

24,672

Deferred income taxes

(1,397

)

 

(1,502

)

Stock-based compensation expense

8,202

 

8,742

Other

467

 

1,090

Changes in operating assets and liabilities, net of acquisitions:      
Accounts receivable

13,299

 

(8,571

)

Income tax receivable

189

 

4,278

Inventories

430

 

(5,017

)

Prepaid expenses and other current assets

1,092

 

9,657

Other assets and liabilities

(11,380

)

 

8,065

Accounts payable

(5,874

)

 

1,558

Income and other taxes payable

18,500

 

3,601

Accrued expenses and other current liabilities

12,123

 

10,269

Deferred revenue

(647

)

 

(1,179

)

Net cash provided by operating activities

128,030

 

87,658

       
Investing activities      
Purchases of property and equipment

(21,543

)

 

(13,795

)

Notes issued

(5,263

)

 

(9,596

)

Repayments of notes issued

7,922

 

6,462

Acquisitions, net of cash acquired

(699

)

 

Other

116

 

14

Net cash used in investing activities

(19,467

)

 

(16,915

)

       
Financing activities      
Repayments of term loan

(10,000

)

 

(10,000

)

Net proceeds (repayments) of revolving credit facilities

85,000

 

(9,884

)

Proceeds from exercise of stock options

8,100

 

21,704

Dividends paid to common stockholders

(14,844

)

 

(14,520

)

Dividends paid to preferred stockholders

(6,394

)

 

(6,825

)

Tax payments for equity award issuances

(3,887

)

 

(1,579

)

Repurchase of Series B Convertible Preferred Stock

(188,647

)

 

Acquisition of Company common stock

(8,188

)

 

Distributions to noncontrolling interests

(2,320

)

 

(945

)

Other

(1,691

)

 

(704

)

Net cash used in financing activities

(142,871

)

 

(22,753

)

       
Effect of exchange rate changes on cash and cash equivalents

317

 

(202

)

Change in cash and cash equivalents

(33,991

)

 

47,788

Cash and cash equivalents at beginning of period

130,204

 

27,911

       
Cash and cash equivalents at end of period

$

96,213

 

$

75,699