Papa John’s Announces First Quarter 2021 Financial Results
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Papa John’s Announces First Quarter 2021 Financial Results

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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