PZZA · Papa John's International, Inc.

Period Performance

Period Performance

For the third quarter of 2025, total revenue increased 0.3% to $508.2 million, driven by higher commissary, franchise royalty, and other revenue, partially offset by a 1.6% decline in company-owned restaurant sales. Operating income plummeted to $16.2 million from $65.2 million in the prior year, primarily due to a $41.3 million gain on sale of QC Center properties recorded in Q3 2024. Excluding that gain, operating income would have decreased modestly. Net income attributable to the Company was $4.7 million ($0.13 diluted EPS) versus $41.8 million ($1.27 diluted EPS) in Q3 2024. The effective tax rate rose to 28.2% from 23.5% due to lower pretax income and tax shortfalls from restricted stock vesting.

Gross margin improved slightly to 27.4% from 27.0% as cost of sales decreased 0.3% while revenue increased. However, operating margin contracted to 3.2% from 12.9% due to the prior year gain and higher general and administrative expenses (G&A) as a percentage of revenue (11.1% vs 2.5%). G&A rose 338% driven by incremental marketing investments of $4.4 million and higher management incentive compensation. Depreciation and amortization increased 44.3% to $24.9 million due to $6.1 million in accelerated depreciation of legacy technology assets.

Segment Dynamics

• Domestic Company-owned: Adjusted EBITDA fell $0.4 million to $3.9 million as comparable sales declined 3.1%, partially offset by refranchising 15 restaurants in Q3 2024.
• North America franchising: Adjusted EBITDA decreased $1.2 million to $25.5 million due to higher allocated incentive compensation, despite a 2.7% increase in royalty revenue from international franchisee growth.
• North America commissaries: Adjusted EBITDA rose $2.5 million to $19.2 million on higher transaction volumes and prices, partially offset by commodity deflation.
• International: Adjusted EBITDA improved $1.2 million to $5.3 million, driven by strong comparable sales growth of 7.1% and reduced operating losses from UK company-owned restaurants after the restructuring.

Forward View

Management highlighted several strategic priorities and outlook items:

• Marketing: Up to $25 million incremental investment in 2025, with $17 million spent in the first nine months, focused on value perception and loyalty.
• Digital: New app launched, modernized website expected by end of 2025, with full omnichannel rollout and legacy platform retirement by end of 2026, incurring $17-22 million in accelerated depreciation.
• Supply chain: Expect at least $50 million in savings starting 2026 from commissary optimization.
• Cost structure: Review to capture at least $25 million in savings in 2026-2027, excluding marketing.
• Development: Opened 45 new restaurants in Q3; refranchising of a joint venture with 85 restaurants expected in Q4 2025.
• Tax: The One Big Beautiful Bill Act expected to reduce cash taxes by $10-15 million in second half 2025.
• Capital expenditures: Estimated $75-85 million for FY2025, including $10-13 million for tornado-related rebuilding.
• Leverage: Leverage ratio of 3.4x within covenant of 5.25x; interest coverage ratio of 3.1x vs minimum 2.0x.

The company remains focused on navigating a challenging consumer environment in North America while capitalizing on international momentum and cost-saving initiatives.

Cash Flow Quality

Cash Flow Quality

Net income for the nine months ended September 28, 2025 was $23.5M, significantly lower than operating cash flow of $106.2M due to non-cash adjustments including $62.1M depreciation and amortization, $12.1M stock-based compensation, and $8.1M refranchising and impairment losses. Working capital changes provided a net inflow of $0.6M, driven by increases in accounts payable ($8.1M) and advertising fund assets ($2.1M), partially offset by decreases in accounts receivable ($9.4M), deferred revenue ($4.7M), and accrued expenses ($2.1M).

CapEx intensity (capex/CFO) of 49% reflects aggressive investment in property and equipment ($47.0M) plus an additional $5.1M for natural disaster damages, partly offset by $3.3M insurance proceeds. Investing cash flow was negative $37.6M, driven by capex partially offset by proceeds from notes and investments.

Financing cash flow of negative $68.2M reflects net repayments of revolving credit facilities ($210.0M) offset by proceeds from term loan ($200.0M), and includes $45.8M in dividends and $3.2M debt issuance costs. The company did not repurchase shares during the period. Overall cash position increased by $1.0M, ending at $39.0M.