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Papa John’s Announces First Quarter 2021 Financial Results

By: Papa Johns |  2 Shares     243 Reads

LOUISVILLE, Ky. - (BUSINESS WIRE) - May 6, 2021 - 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.

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.

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

SOURCE Papa John’s International, Inc.

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