Papa John’s International, Inc. (NASDAQ: PZZA) today announced
financial results for the three months and full year ended December
27, 2020.
Fourth quarter highlights compared to prior year
- Total revenues of $469.8 million, up 12.5% over
2019
- Comparable sales up by 13.5% in North America and 21.4%
Internationally
- Earnings per diluted share rose to $0.28 from loss per
diluted share of ($0.18)
- Adjusted earnings per diluted share grew to $0.40 versus
adjusted loss per diluted share of ($0.25), excluding Special
items
- 40 net unit openings in the fourth quarter driven by
International
- Paid end-of-year bonuses to front-line team members of $2.7
million ($0.06 per diluted share)
Full year 2020 highlights compared to prior year
- Total revenues of $1,813.2 million, up 12.0% over
2019
- Comparable sales up by 17.6% in North America and 12.6%
Internationally
- Earnings per diluted share rose to $1.28 compared to loss
per diluted share of ($0.24)
- Adjusted earnings per diluted share grew to $1.40 from
adjusted earnings per diluted share of $0.03, excluding Special
items
- Cash flow from operations of $186.4 million and free cash
flow of $137.1 million for full year 2020
“2020 was a transformational year for Papa John’s, as we turned
our focus to the future. We were able to deliver industry-leading
sales growth and significant profitability by coming together as a
system to take care of our team members, customers and communities
in one of the most challenging years in history,” said President
& CEO Rob Lynch. “Q4 2020 was the third consecutive quarter of
double-digit comparable sales growth and the sixth straight quarter
of positive comparable sales in North America. We ended the year
with the launch of Epic Stuffed Crust, the biggest product
innovation in the company’s history, and our future is extremely
bright.”
Mr. Lynch continued, “We are confident that the foundations of
our business – our company’s core values, our iconic brand, our
dedicated team members, our strong franchise system and our rapidly
improving financial performance – are stronger than ever, and we
continue to build momentum. We remain hopeful for a swift end to
the global pandemic and continue to prioritize the health and
safety of our team and customers, while we meet our responsibility
to serve millions of new and returning customers.”
Global Restaurant and Comparable Sales
Information
Global restaurant and comparable sales information for the three
months and full year ended December 27, 2020, compared to the three
months and full year ended December 29, 2019 are as follows:
Three Months Ended Year Ended Dec. 27,2020
Dec. 29,2019 Dec. 27,2020 Dec. 29,2019
Global restaurant sales growth / (decline) (a)
15.5%
4.4%
15.1%
(0.8%)
Global restaurant sales growth, excluding the impact of
foreign currency (a)
15.4%
4.7%
15.9%
0.3%
Comparable sales growth / (decline) (b) Domestic
company-owned restaurants
10.2%
4.1%
14.2%
(2.7%)
North America franchised restaurants
14.5%
3.3%
18.6%
(2.0%)
System-wide North America restaurants
13.5%
3.5%
17.6%
(2.2%)
System-wide international restaurants (c)
21.4%
2.4%
12.6%
1.1%
(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.
(c)
Includes the impact of temporarily closed
stores. Excluding those stores, comparable sales growth for
System-wide international restaurants would have been approximately
22.9% and 15.9% for the three months and full year ended December
27, 2020, respectively. There were no temporarily closed stores for
the comparable periods ended December 29, 2019.
Financial Highlights
Three Months Ended Year Ended In thousands, except
per share amounts
Dec. 27,2020 Dec. 29,2019
Increase Dec. 27,2020 Dec. 29,2019
Increase Revenue
$
469,811
$
417,514
$
52,297
$
1,813,234
$
1,619,248
$
193,986
Operating income (loss)
19,698
(132
)
19,830
90,253
24,535
65,718
Net income (loss)
13,167
(2,142
)
15,309
57,932
4,866
53,066
Diluted earnings (loss) per share
0.28
(0.18
)
0.46
1.28
(0.24
)
1.52
Adjusted diluted earnings per share (a)
0.40
(0.25
)
0.65
1.40
0.03
1.37
(a)
Adjusted diluted earnings per share is a
non-GAAP measure that excludes “Special items,” which impact
comparability. Special items for 2020 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 $469.8 million increased $52.3 million,
or 12.5%, in the fourth quarter of 2020 compared to the fourth
quarter of 2019 primarily due to strong comparable sales results
for North America restaurants, including 10.2% for company-owned
restaurants and 14.5% for franchised restaurants, resulting 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 21.4% for the quarter.
Operating Results
Consolidated operating income of $19.7 million for the fourth
quarter of 2020 increased $19.8 million compared to the fourth
quarter of 2019. Excluding the impact of Special items,
consolidated operating income increased $28.7 million for the three
months ended December 27, 2020. See “Reconciliation of Non-GAAP
Financial Measures,” for additional information. The increase,
excluding Special items, was primarily due to temporary franchise
support of $25.4 million in the fourth quarter of 2019 (see
“Temporary Franchise Support” below) and higher income from higher
comparable sales both domestically and internationally.
Diluted earnings per share was $0.28 for the fourth quarter of
2020 representing an increase of $0.46 over the fourth quarter of
2019. Excluding Special items, diluted earnings per share was $0.40
representing an increase of $0.65 over the fourth quarter of 2019.
Diluted earnings per share was reduced by approximately $0.01 per
diluted share in the fourth quarter of 2020 ($0.03 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 period. See “Participating Securities Earnings Per Share” for
additional information related to the calculation of income
attributable to participating securities for the three months ended
December 27, 2020.
Segment Results
Three Months Ended
Reported
Special
Adjusted
Reported
Special
Adjusted
Adjusted
Dec. 27,
items
Dec. 27,
Dec. 29,
items
Dec. 29,
Increase
(In thousands)
2020
in 2020
2020
2019
in 2019
2019
(Decrease)
Domestic Company-owned restaurants
$
3,197
$
-
$
3,197
$
12,486
$
(2,850
)
$
9,636
$
(6,439
)
North America franchising
26,946
-
26,946
16,669
-
16,669
10,277
North America commissaries
8,606
-
8,606
8,488
-
8,488
118
International
7,198
-
7,198
4,084
-
4,084
3,114
All others
2,013
-
2,013
192
-
192
1,821
Unallocated corporate expenses
(28,091
)
5,985
(22,106
)
(42,121
)
-
(42,121
)
20,015
Elimination of intersegment (profits) losses
(171
)
-
(171
)
70
-
70
(241
)
Adjusted operating income (loss)
$
19,698
$
5,985
$
25,683
$
(132
)
$
(2,850
)
$
(2,982
)
$
28,665
Year Ended
Reported
Special
Adjusted
Reported
Special
Adjusted
Dec. 27,
items
Dec. 27,
Dec. 29,
items
Dec. 29,
Adjusted
(In thousands)
2020
in 2020
2020
2019
in 2019
2019
Increase
Domestic Company-owned restaurants
$
37,049
$
-
$
37,049
$
33,957
$
(4,739
)
$
29,218
$
7,831
North America franchising
89,801
-
89,801
64,362
-
64,362
25,439
North America commissaries
33,185
-
33,185
30,690
-
30,690
2,495
International
24,034
-
24,034
18,738
-
18,738
5,296
All others
7,043
-
7,043
(1,966
)
-
(1,966
)
9,009
Unallocated corporate expenses
(100,069
)
5,985
(94,084
)
(120,280
)
14,221
(106,059
)
11,975
Elimination of intersegment (profits) losses
(790
)
-
(790
)
(966
)
-
(966
)
176
Adjusted operating income
$
90,253
$
5,985
$
96,238
$
24,535
$
9,482
$
34,017
$
62,221
Consolidated operating income of $19.7 million for the fourth
quarter of 2020 increased $19.8 million from the fourth quarter of
2019. Excluding the impact of Special items, the increase was $28.7
million. Significant changes in operating income and operating
income, excluding Special items, are as follows:
- Domestic Company-owned restaurants operating income was $3.2
million for the fourth quarter of 2020, a decrease of $6.4 million.
The higher profits from comparable sales of 10.2% were offset by
labor initiatives, bonuses, including the previously announced
special end-of-year bonus for front-line team members, and
increased commodities costs. Additionally, the prior period
benefited from the expiration of customer rewards associated with
our Papa Rewards loyalty program ($2.6 million benefit for the
fourth quarter of 2019).
- North America franchising increased $10.3 million to $26.9
million primarily due to higher comparable sales of 14.5% and a
higher effective royalty rate due to the completion of our
franchise assistance program in the third quarter of 2020 (see
“Temporary Franchise Support” for additional information).
- North America commissaries was relatively flat as higher
profits from higher volumes were substantially offset by higher
bonuses, including the bonus for front-line team members previously
mentioned.
- International increased $3.1 million to $7.2 million primarily
due to higher profits from higher comparable sales of 21.4% and
higher PJUK commissary income attributable to higher comparable
sales and increased units.
- All others, which primarily includes our online and mobile
ordering business, our wholly owned print and promotions subsidiary
and our North America marketing funds, increased $1.8 million
primarily due to higher online revenues.
- Unallocated corporate expenses decreased approximately $20.0
million primarily due to lower discretionary marketing fund
investments (see “Temporary Franchise Support” for additional
information).
Full Year Results
Consolidated revenues increased 12.0% to $1,813.2 million for
the year ended December 27, 2020, compared to the prior year
comparable period, primarily due to higher comparable sales which
benefited each of the company’s operating segments. Consolidated
operating income increased $65.7 million for the year ended
December 27, 2020 ($62.2 million excluding Special items), compared
to the prior year comparable period, primarily due to improved
results from North America franchising and Domestic Company-owned
restaurants and lower temporary franchise support.
For the year ended December 27, 2020, diluted earnings per share
was $1.28 representing an increase of $1.52 over the prior year
period. Excluding Special items, diluted earnings per share was
$1.40 representing an increase of $1.37 over the prior year period.
Diluted earnings per share was reduced by approximately $0.07 per
share for the year ($0.09 impact when excluding Special items) due
to income attributable to participating securities, including
Series B Preferred Stockholders, based on the allocation of
undistributed earnings to participating securities in the period.
See “Participating Securities Earnings Per Share” for additional
information related to the calculation of income attributable to
participating securities for the year ended December 27, 2020.
The company’s cash flow from operating activities for the year
ended December 27, 2020 was $186.4 million, compared to $61.7
million a year ago, reflecting higher net income and favorable
working capital changes, including timing of payments. This
resulted in significantly higher 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) of $137.1 million, compared to
$14.0 million for the year ended December 29, 2019. See “Free Cash
Flow” for additional information.
See the Management’s Discussion and Analysis of Financial
Condition and Results of Operations section of our Annual Report on
Form 10-K filed with the SEC for additional information concerning
our operating results and cash flow for the year ended December 27,
2020.
Cash Dividend
The company paid common and preferred stock dividends of $10.9
million in the fourth quarter of 2020. The company declared first
quarter 2021 dividends of approximately $10.8 million on January
25, 2021, which were paid to common shareholders on February 19,
2021. The first quarter preferred dividend will be paid on April 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 December 27, 2020, there were 5,400 Papa John’s
restaurants operating in 48 countries and territories, as
follows:
DomesticCompany-owned FranchisedNorthAmerica Total
NorthAmerica International System-wide
Fourth Quarter Beginning -
September 28, 2020
597
2,689
3,286
2,074
5,360
Opened
1
24
25
73
98
Closed
(10
)
(12
)
(22
)
(36
)
(58
)
Ending - December 27, 2020 (1)
588
2,701
3,289
2,111
5,400
Year Ended Beginning -
December 29, 2019
598
2,690
3,288
2,107
5,395
Opened
2
62
64
156
220
Closed
(12
)
(51
)
(63
)
(152
)
(215
)
Ending - December 27, 2020 (1)
588
2,701
3,289
2,111
5,400
Net unit growth (decline)
(10
)
11
1
4
5
% increase (decrease)
(1.7
%)
0.4
%
0.0
%
0.2
%
0.1
%
(1)
Temporary closures as a result of the
COVID-19 outbreak are not reflected as “closed” in the restaurant
progression above. Of the company’s 2,111 international franchised
stores, approximately 65 stores were temporarily closed as of
December 27, 2020, principally in Latin America and Europe, in
accordance with government policies. In North America, almost all
traditional restaurants remain open and fully operational. A number
of non-traditional restaurants located in universities and stadiums
are temporarily closed; these non-traditional locations are not
significant to our revenues and operating results.
Our development pipeline as of December 27, 2020 included
approximately 1,460 restaurants (210 units in North America and
1,250 units internationally), the majority of which are scheduled
to open over the next six years.
Strategic Corporate Reorganization for
Long-term Growth
On September 17, 2020, we announced plans to open an office in
Atlanta, Georgia. The Atlanta office is part of a broader strategic
reorganization of corporate functions reflecting the company’s
ongoing transformation into a brand and culture that can
effectively and efficiently deliver on the company’s purpose,
values and strategic business priorities. The opening of the
Atlanta location and related organizational changes are expected to
be completed by the summer of 2021. Affected employees who do not
relocate to Atlanta have been offered a separation package. We
expect to incur certain one-time corporate reorganization costs of
approximately $15 to $20 million related to employee severance and
transition, recruitment and relocation, and third-party and other
costs through 2021, and $6.0 million (or approximately $0.12 per
diluted share) of these strategic corporate reorganization costs
were incurred in the fourth quarter of 2020. See “Reconciliation of
Non-GAAP Financial Measures” for additional information.
2021 Outlook
Given on-going uncertainty surrounding the future impact of
COVID-19, we are not providing outlook for 2021 at this time.
Conference Call and Website
Information
A conference call is scheduled for February 25, 2021 at 8:00
a.m. Eastern Time to review the company’s fourth quarter and full
year 2020 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 site at
www.papajohns.com. The Conference ID is 9479043.
Investors and others should note that we announce material
financial information to our investors using our investor relations
website, press releases, SEC filings and public conference calls
and webcasts. We intend to use our investor relations website as a
means of disclosing information about our business, our financial
condition and results of operations and other matters and for
complying with our disclosure obligations under Regulation FD. The
information we post on our investor relations website, including
information contained in investor presentations, may be deemed
material. Accordingly, investors should monitor our investor
relations website, in addition to following our press releases, SEC
filings and public conference calls and webcasts. We encourage
investors and others to sign up for email alerts at our investor
relations page under Shareholder Tools at the bottom right side of
the page. These email alerts are intended to help investors and
others to monitor our investor relations website by notifying them
when new information is posted on the site.
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), including our cash on hand and access to our credit
facilities, 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, the duration and number
of temporary store closures, 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; the virus’s impact on the availability of our workforce;
the potential disruption of our supply chain; 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 liquidity
position; our ability to navigate changing governmental programs
and regulations relating to the pandemic; the increased risk of
phishing and other cyber-attacks; 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. Therefore, 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
Effective as of the first quarter of 2020, the company modified
its presentation of adjusted (non-GAAP) financial results to no
longer present certain financial assistance provided to the North
America system in the form of royalty relief and discretionary
marketing fund investments as Special charges. This financial
assistance, which began in the third quarter of 2018 in response to
declining sales in North America, concluded in the third quarter of
2020. The adjusted financial results for the three months and full
year ended December 27, 2019 have been revised to remove these
items. See “Temporary Franchise Support” for additional information
regarding this change in presentation.
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
Year Ended
Dec. 27,
Dec. 29,
Dec. 27,
Dec. 29,
(In thousands, except per share amounts)
2020
2019
2020
2019
GAAP operating income (loss)
$
19,698
$
(132
)
$
90,253
$
24,535
Strategic corporate reorganization costs (1)
5,985
-
5,985
-
Special charges: Legal and advisory fees (2)
-
-
-
5,922
Mark-to-market adjustment on option valuation (3)
-
-
-
5,914
Other costs (4)
-
-
-
2,385
Refranchising gains
-
(2,850
)
-
(4,739
)
Adjusted operating income (loss)
$
25,683
$
(2,982
)
$
96,238
$
34,017
GAAP net income (loss) attributable to common shareholders
$
9,319
$
(5,612
)
$
41,737
$
(7,633
)
Strategic corporate reorganization costs (1)
5,985
-
5,985
-
Special charges: Legal and advisory fees (2)
-
-
-
5,922
Mark-to-market adjustment on option valuation (3)
-
-
-
5,914
Other costs (4)
-
-
-
2,385
Refranchising gains
-
(2,850
)
-
(4,739
)
Tax effect of Non-GAAP items (5) (6)
(1,346
)
635
(1,346
)
(799
)
Two-class impact for Non-GAAP adjustment to net income (7)
(658
)
-
(662
)
-
Adjusted net income (loss) attributable to common
shareholders
$
13,300
$
(7,827
)
$
45,714
$
1,050
GAAP diluted earnings (loss) per share
$
0.28
$
(0.18
)
$
1.28
$
(0.24
)
Strategic corporate reorganization costs (1)
0.18
-
0.18
-
Special charges: Legal and advisory fees (2)
-
-
-
0.19
Mark-to-market adjustment on option valuation (3)
-
-
-
0.19
Other costs (4)
-
-
-
0.07
Refranchising gains
-
(0.09
)
-
(0.15
)
Tax effect of Non-GAAP items (5) (6)
(0.04
)
0.02
(0.04
)
(0.03
)
Two-class impact for Non-GAAP adjustment to earnings per share (7)
(0.02
)
-
(0.02
)
-
Adjusted diluted earnings (loss) per share
$
0.40
$
(0.25
)
$
1.40
$
0.03
(1)
Represents strategic corporate
reorganization costs associated with our new office in Atlanta,
Georgia projected to open in the summer of 2021. See “Strategic
Corporate Reorganization for Long-term Growth” for additional
information.
(2)
Represents advisory and legal costs
incurred in 2019 primarily associated with the review of a wide
range of strategic opportunities that culminated in the strategic
investment in the company by affiliates of Starboard Value LP
(“Starboard”) as well as certain litigation costs associated with
legal proceedings initiated by our founder.
(3)
Represents a one-time mark-to-market
adjustment of $5.9 million primarily related to the increase in the
fair value of the Starboard option to purchase Series B Preferred
Stock that culminated in the purchase of additional preferred stock
in late March 2019.
(4)
Includes severance costs for our former
CEO and costs related to the termination of a license agreement for
intellectual property no longer being utilized.
(5)
The tax effect for strategic corporate
reorganization costs was calculated by applying the 2020 full year
marginal tax rate of 22.5%.
(6)
The tax effect for Legal and advisory
fees, Other costs, and Refranchising gains was calculated by
applying the 2019 full year marginal rate of 22.4%. The
mark-to-market adjustment on option valuation was non-deductible
for tax purposes.
(7)
Represents an adjustment to the allocation
of undistributed earnings to participating securities for the
strategic corporate reorganization costs.
Temporary Franchise
Support
Beginning in the third quarter of 2018, the company began
providing various forms of support and financial assistance to the
North America franchise system in response to declining North
America sales. In July 2019, the company announced a formal relief
program to provide our North America franchisees with certainty
regarding the availability and schedule of the temporary relief
which concluded in the third quarter of 2020.
As previously mentioned, effective as of the first quarter of
2020, the company no longer presents certain royalty relief and
discretionary marketing fund investments, included herein as
“Temporary Franchise Support,” as Special items within its adjusted
financial results. The prior period adjusted financial measures
presented above in “Reconciliation of non-GAAP Financial Measures”
have also been revised to remove the impact of these items. The
Temporary Franchise Support concluded in the third quarter of
2020.
Temporary Franchise Support investments were $29.3 million (or
approximately $0.69 per diluted share) for the full year ended
December 27, 2020 (none for the three-month period), compared to
$25.4 million (or approximately $0.62 per diluted share) and $46.6
million (or approximately $1.14 per diluted share) for the three
and twelve months ended December 29, 2019, respectively, as follows
(in thousands):
Three Months Ended
Year Ended
Dec. 27, 2020
Dec. 29, 2019
Dec. 27, 2020
Dec. 29, 2019
Royalty relief (a)
$
-
$
5,404
$
14,270
$
19,096
Marketing fund investments (b)
-
20,000
15,000
27,500
Total Temporary Franchise Support
$
-
$
25,404
$
29,270
$
46,596
(a)
Represents financial assistance provided
to the North America system in the form of temporary royalty
reductions that are above and beyond the level of franchise
assistance the company would incur in the ordinary course of its
business. These royalty reductions are not an expense, but rather
consist of the amount of waived royalties that the company would
otherwise have been entitled to absent the waiver. The waived
royalties are not included in North America franchise royalties and
fees revenues.
(b)
Represents incremental discretionary
marketing fund investments in excess of contractual company-owned
restaurant-level contributions, which were made as part of our
previously announced temporary financial support package to our
franchisees. The marketing fund investments are included in
Unallocated corporate expenses.
Free Cash Flow
We define free cash flow as net cash provided by operating
activities (from the Consolidated Statements of Cash Flows) less
the purchases of property and equipment and dividends paid to
preferred shareholders. We view free cash flow as an important
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. The
company’s free cash flow for the years ended December 27, 2020 and
December 29, 2019, respectively were as follows (in thousands):
Year Ended
Dec. 27,
Dec. 29,
2020
2019
Net cash provided by operating activities
$
186,439
$
61,749
Purchases of property and equipment
(35,652
)
(37,711
)
Dividends paid to preferred shareholders
(13,649
)
(10,020
)
Free cash flow
$
137,138
$
14,018
Participating Securities Earnings Per
Share
We compute earnings per common share using the two-class method,
by which net income attributable to participating securities, in
addition to preferred stock dividends and accretion, is deducted
from net income attributable to the company to determine net income
attributable to common shareholders. Net income attributable to
participating securities is the portion of undistributed earnings,
defined as net income attributable to the company, less dividends
paid to common and preferred shareholders, that would be allocated
to the holders of participating securities on an as-converted
basis.
The calculation to determine the amount of undistributed
earnings to allocate to participating securities is as follow (in
thousands):
Three Months Ended Year Ended Dec. 27,2020
Allocation% Dec. 27,2020 Allocation%
Calculation of net income attributable to participating
securities and common shareholders: Share count
allocation calculation: Diluted weighted average common shares
outstanding
32,981
85.8
%
32,717
85.7
%
Participating preferred stock weighted average shares outstanding,
as-converted (252,530,000/$50.06)
5,045
13.1
%
5,045
13.2
%
Participating unvested restricted stock weighted average shares
outstanding
412
1.1
%
425
1.1
%
Total share count
38,438
100.0
%
38,187
100.0
%
Undistributed earnings allocation: Net income attributable
to the company
$
13,167
$
57,932
Dividends paid to common and preferred stock
(10,797
)
(43,011
)
Total undistributed earnings
$
2,370
$
14,921
Net income attributable to participating securities: Total
undistributed earnings - allocable to participating preferred stock
$
(311
)
13.1
%
$
(1,971
)
13.2
%
Total undistributed earnings - allocable to participating unvested
restricted stock
(24
)
1.1
%
(165
)
1.1
%
Total net income attributable to participating securities
$
(335
)
14.2
%
$
(2,136
)
14.3
%
Net income attributable to common shareholders: Net income
attributable to the company
$
13,167
$
57,932
Dividends paid to participating securities and accretion
(3,513
)
(14,059
)
Net income attributable to participating securities
(335
)
(2,136
)
Net income attributable to common shareholders
$
9,319
$
41,737
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
December 27,
December 29,
2020
2019
(In thousands)
Assets Current assets: Cash and
cash equivalents
$
130,204
$
27,911
Accounts receivable, net
90,135
70,462
Notes receivable, current portion
11,318
7,790
Income tax receivable
1,273
4,024
Inventories
30,265
27,529
Prepaid expenses and other current assets
43,212
43,830
Total current assets
306,407
181,546
Property and equipment, net
200,895
211,741
Finance lease right-of-use assets, net
16,840
9,383
Operating lease right-of-use assets
148,110
148,229
Notes receivable, less current portion, net
36,538
33,010
Goodwill
80,791
80,340
Deferred income taxes
10,800
1,839
Other assets
72,389
64,633
Total assets
$
872,770
$
730,721
Liabilities, Series B Convertible Preferred Stock,
Redeemable noncontrolling interests and Stockholders' deficit
Current liabilities: Accounts payable
$
37,370
$
29,141
Income and other taxes payable
10,263
7,599
Accrued expenses and other current liabilities
174,563
108,517
Current deferred revenue
19,590
17,673
Current finance lease liabilities
3,545
1,789
Current operating lease liabilities
23,538
23,226
Current portion of long-term debt
20,000
20,000
Total current liabilities
288,869
207,945
Deferred revenue
13,664
14,722
Long-term finance lease liabilities
13,531
7,629
Long-term operating lease liabilities
124,666
125,297
Long-term debt, less current portion, net
328,292
347,290
Deferred income taxes
948
2,649
Other long-term liabilities
111,364
84,927
Total liabilities
881,334
790,459
Series B Convertible Preferred Stock
251,901
251,133
Redeemable noncontrolling interests
6,474
5,785
Total Stockholders' deficit
(266,939
)
(316,656
)
Total liabilities, Series B Convertible Preferred Stock,
Redeemable noncontrolling interests and Stockholders' deficit
$
872,770
$
730,721
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
Year Ended
Dec. 27, 2020
Dec. 29, 2019
Dec. 27, 2020
Dec. 29, 2019
(In thousands, except per share amounts)
Revenues: Domestic
company-owned restaurant sales
$
174,440
$
161,459
$
700,757
$
652,053
North America franchise royalties and fees
27,837
18,613
96,732
71,828
North America commissary revenues
176,414
161,917
680,793
612,652
International revenues
36,371
27,081
123,963
102,924
Other revenues
54,749
48,444
210,989
179,791
Total revenues
469,811
417,514
1,813,234
1,619,248
Costs and expenses: Operating costs (excluding
depreciation and amortization shown separately below): Domestic
company-owned restaurant expenses
144,717
127,197
563,799
526,237
North America commissary expenses
164,261
149,255
630,937
569,180
International expenses
21,219
15,188
73,994
57,702
Other expenses
52,085
46,573
200,304
175,592
General and administrative expenses
55,562
70,104
204,242
223,460
Depreciation and amortization
12,269
12,179
49,705
47,281
Total costs and expenses
450,113
420,496
1,722,981
1,599,452
Refranchising gains
-
2,850
-
4,739
Operating income (loss)
19,698
(132
)
90,253
24,535
Investment income (loss)
436
(145
)
2,131
1,104
Interest expense
(4,097
)
(4,547
)
(17,022
)
(20,593
)
Income (loss) before income taxes
16,037
(4,824
)
75,362
5,046
Income tax expense (benefit)
2,764
(3,146
)
14,748
(611
)
Net income (loss) before attribution to noncontrolling
interests
13,273
(1,678
)
60,614
5,657
Net income attributable to noncontrolling interests
(106
)
(464
)
(2,682
)
(791
)
Net income (loss) attributable to the company
$
13,167
$
(2,142
)
$
57,932
$
4,866
Calculation of net income (loss) for earnings (loss) per
share: Net income (loss) attributable to the company
$
13,167
$
(2,142
)
$
57,932
$
4,866
Dividends paid to participating securities and accretion
(3,513
)
(3,470
)
(14,059
)
(12,499
)
Net income attributable to participating securities
(335
)
-
(2,136
)
-
Net income (loss) attributable to common shareholders
$
9,319
$
(5,612
)
$
41,737
$
(7,633
)
Basic earnings (loss) per common share
$
0.29
$
(0.18
)
$
1.29
$
(0.24
)
Diluted earnings (loss) per common share
$
0.28
$
(0.18
)
$
1.28
$
(0.24
)
Basic weighted average common shares outstanding
32,698
31,783
32,421
31,632
Diluted weighted average common shares outstanding
32,981
31,783
32,717
31,632
Dividends declared per common share
$
0.225
$
0.225
$
0.900
$
0.900
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Year Ended (In thousands)
Dec. 27, 2020 Dec. 29,
2019 Operating activities Net income before
attribution to noncontrolling interests
$
60,614
$
5,657
Adjustments to reconcile net income to net cash provided by
operating activities: (Credit) provision for allowance for credit
losses on accounts and notes receivable
(4,734
)
3,139
Depreciation and amortization
49,705
47,281
Deferred income taxes
(9,268
)
(3,764
)
Preferred stock option mark-to-market adjustment
—
5,914
Stock-based compensation expense
16,310
15,303
Refranchising gains
—
(4,739
)
Other
2,257
3,203
Changes in operating assets and liabilities: Accounts receivable
(22,420
)
(6,181
)
Income tax receivable
3,760
12,122
Inventories
(2,736
)
(326
)
Prepaid expenses and other current assets
2,884
1,367
Other assets and liabilities
20,879
(6,354
)
Accounts payable
8,229
2,035
Income and other taxes payable
2,664
1,009
Accrued expenses and other current liabilities
59,353
(11,331
)
Deferred revenue
(1,058
)
(2,586
)
Net cash provided by operating activities
186,439
61,749
Investing activities Purchases of property and
equipment
(35,652
)
(37,711
)
Notes issued
(16,589
)
(15,864
)
Repayments of notes issued
11,154
5,616
Proceeds from divestitures of restaurants
—
13,495
Other
16
1,889
Net cash used in investing activities
(41,071
)
(32,575
)
Financing activities Repayments of term loan
(20,000
)
(15,000
)
Net repayments of revolving credit facilities
—
(240,026
)
Proceeds from exercise of stock options
30,622
16,010
Dividends paid to common stockholders
(29,362
)
(28,552
)
Dividends paid to preferred stockholders
(13,649
)
(10,020
)
Tax payments for equity award issuances
(3,974
)
(1,433
)
Acquisition of Company common stock
(2,701
)
—
Proceeds from issuance of preferred stock
—
252,530
Issuance costs associated with preferred stock
—
(7,527
)
Contributions from noncontrolling interests
—
840
Distributions to noncontrolling interests
(2,420
)
(870
)
Other
(1,977
)
(526
)
Net cash used in financing activities
(43,461
)
(34,574
)
Effect of exchange rate changes on cash and cash equivalents
386
53
Change in cash and cash equivalents
102,293
(5,347
)
Cash and cash equivalents at beginning of period
27,911
33,258
Cash and cash equivalents at end of period
$
130,204
$
27,911
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210225005281/en/
Ann Gugino Chief Financial Officer 502-261-7272
Steve Coke Senior Vice President of Financial Operations,
Accounting and Reporting 502-261-7272
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