Papa John's International, Inc.

Hello. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please limit yourself to one question. I'm now turning the call over to Mr. Steve Koch, Senior Vice President of Financial Operations, Accounting, and Reporting.

Thank you. Hi, everyone, and good morning. Joining me on the call today are President and CEO Rob Lynch and our CFO, Ann Gugino. Rob and Ann will comment on our business and provide a financial update. After the prepared remarks, both will be available for Q&A. Our discussion today will contain forward-looking statements involving risk that could cause actual results to differ materially from these statements. Forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our SEC filings. Please refer to our earnings release and the investor relations section of our website for reconciliation of non-GAAP financial measures discussed on this call. Finally, we ask any members of the media to be in a listen-only mode. Now, I'd like to turn the call over to Rob Lynch for his comments. Rob?

Thank you, Steve, and welcome, everyone, to our 2021 third quarter earnings call. We're very excited to be here this morning and share our positive results. With hard work, dedication, and focus on our customers, Papa John's team members and franchisees delivered another quarter of industry outperformance in Q3, achieving great results across the key operational and financial drivers of our business and system. In Q3, system-wide sales rose 11%, adjusted operating income increased 66%, and adjusted EPS more than doubled from a year ago. Comp sales continued to grow. delivering another quarter of two-year comps at or near 30% in North America and internationally. Like we did in Q2, last quarter we held last year's gains and grew on top of them. This year's accelerating unit growth is also a positive indicator of the brand's long-term growth outlook. New, well-capitalized, and experienced franchisees, as well as our high-performing existing franchisees, are signing significant long-term development deals and opening new stores. I'm also proud to say that we are delivering on our commitment to align our capital structure and allocation strategy to support long-term value creation and growth, which Ann will discuss in a moment. Let's take a deeper look at our comp sales results. Comp sales rose 6.9% in North America and 8.3% internationally in Q3. on top of 23.8% and 20.7% gains respectively a year ago. Papa John's innovation across our menu, technology, customer experience, and delivery channels continues to engage both our long-term loyal customers as well as the millions of new customers we have acquired over the past two years. At the same time, we have driven strategic ticket growth through a combination of premium promotions and order add-ons. After eight months as a national promotion, Epic Stuff Crust continued to maintain a strong order mix, driving ticket and customer traffic last quarter. Like Papadias, our folded flatbread-style sandwich, Epic Stuff Crust demonstrates our shift to building long-term, sustainable menu platforms on which we can continue to innovate. These platforms form the foundation of our growing comp sales and improving unit economics. In Q3, we were very proud to bring back Chacaroni. our Pizza with Purpose, limited-time offer that raises $1 from every pizza sold for the Papa John's Foundation for Building Community. Launched nationally in late August, Chacaroni proved yet again to be a fan favorite, selling over 3 million pizzas in September and October. Importantly, we were able to raise more than $3 million again this year for the Papa John's Foundation to support our community partners, including national partners, like the Boys and Girls Club of America. The Chacaroni promotion, which reflects multiple elements of our innovation strategy, also embodies our brand purpose, values, and culture. We are excited about the new Bacon Mania promotion that we launched at the end of last month. In another first for our innovation strategy, this promotion serves up a season of bacon across three different product platforms, pizza, papadillas, and our jalapeno papa roll sides. We expect to not only drive ticket, but to draw traffic and new customers to each of these new menu platforms, generating long-term sales and brand value. Papa Rewards loyalty members were given an exclusive first taste of Bacon Mania. As we've discussed on previous calls, member-only previews are one of the ways we are rapidly growing our loyalty membership program. We now have over 22 million Papa Rewards loyalty members. Up from 17 million at the start of 2021, and 12 million in 2019. As Papa Rewards grows, the program continues to deliver big strategic benefits. Papa Rewards customers are significantly more profitable than non-loyalty customers, since we are able to directly engage them with targeted, personalized offers that drive higher frequency, higher ticket, and higher satisfaction. Continuing with our digital innovation, third-party delivery aggregators again contributed to our strong comp sales and industry outperformance in the third quarter. We continue to believe in making our products available wherever our customers want to purchase them. Our partnerships with aggregators bring additional customers to the brand, driving incremental and profitable transactions for us and our partners. Aggregators have also helped us navigate the labor shortage that the restaurant industry is experiencing by providing supplemental delivery drivers, especially during peak times. Now turning to our accelerating unit growth and development pipeline. I have consistently said that our brand can only succeed and grow long-term when our franchisees succeed and grow. And that's what we are seeing today. The case for opening new Papa John's stores is compelling. AUVs in North America exceeded $1 million in 2020 and have continued to grow throughout 2021. Papa John's unit economics are very attractive. differentiated from other concepts and brands through our premium positioning, simple off-premise model, and vertically integrated supply chain. Year-to-date, we have added 169 net new units. New unit growth in Q3 was robust as well, but impacted slightly on a sequential basis by the decision to permanently close some restaurants that were already temporarily closed as a result of the pandemic. Last quarter, we opened two new company stores. with more expected in Q4 as we ramp up investment in new company store development, which is a high return capital allocation priority. Overall, we remain very optimistic about the near-term development pipeline and expect to hit the top half of the 2021 outlook for 220 to 260 net new units that we provided last quarter. This represents approximately 4.5% to 5% growth in our system for the year. We're even more excited about the longer-term development pipeline, given the new agreements we're signing. Following the announcement of our largest international development deal ever in August with our longtime partner Drake Food Service International, in September we announced the company's largest domestic deal ever with Sun Holdings, which will open 100 new locations in high-growth markets in Texas and the South by 2029. With over 1,000 locations across 12 states, Sun Holdings is one of the most successful multi-concept franchise operators in the country. I have known Sun's founder and leader, Guillermo Perales, for almost a decade. He is a proven operator and a long-term oriented growth investor. His decision to join the Papa John's system is another validation of the brand's growth potential and development white space in the U.S. We're very excited to welcome Guillermo and his team to the Papa John's system. Sun is already moving quickly to identify locations and begin development of new stores. I'm confident that these two landmark deals are just the beginning when it comes to our global opportunity. I'd now like to discuss the current market and implications for Papa John's in the near term. The global pandemic continues to be a very real factor for our team members, franchisees, and customers. As we have done since the beginning, we remain laser focused on our core priorities, keeping our team members and customers safe, delivering operational excellence, driving innovation across everything that we do, and accelerating our global development. Last quarter, we were encouraged to see further signs of a return to pre-pandemic conditions, in spite of concerns about variants and localized surges. Local shutdowns and restrictions on restaurants continue to loosen, giving customers more and more choices again. While this could represent a headwind for our business, the demand for pizza delivery remains strong. In fact, we have seen an acceleration of our business in September, as entertainment and sports once again create occasions for people to gather with their friends and families over pizza. This was a positive indication of our ability to retain our customers as behavior slowly returns to pre-pandemic norms. Another dynamic impacting our business and industry is the challenging labor market. We continue to aspire to be the employer of choice in our industry, as I have repeatedly said. Fortunately, the strength of our business today puts us in a very strong position to continue investing in our team members. Last quarter, we announced new hiring, referral, and appreciation bonuses, which represented additional costs in the quarter and for the remainder of the year. We also made permanent the expanded health, wellness, paid time off, and college tuition benefits that we rolled out during the pandemic. We intend to continue making these kinds of investments to ensure we support our team members as they support our customers. Creating an inclusive, diverse culture that supports and values team members is equally important to attracting and retaining talented, dedicated employees. After being recognized by Forbes earlier this year as one of America's best employers for diversity, last month, Papa John's joined Forbes' annual list of the world's best employers. We were honored to rank number one amongst all pizza companies and number two in the entire restaurant category. As has been widely reported, businesses across the globe are facing significant supply chain challenges and inflation. These factors impact the cost and availability of ingredients, supplies, and equipment, from cheese and chicken wings to pizza boxes and pizza ovens. We are happy to say that we were able to successfully offset those costs so far this year, thanks in part to our strong supply chain and procurement teams, as well as operating leverage from comp sales growth. As I've said in the past, we have successfully grown Ticket through new premium products and add-ons without relying on delivery fees and price increases. This gives us more room today to manage and offset external cost pressures while continuing to deliver quality and value to our customers. we remain cautiously optimistic about our ability to manage short-term industry-wide headwinds, and at the same time, we are encouraged by signs of return to normal days ahead. I'd like to turn to Papa John's longer-term outlook. As I discussed, the global pandemic and its impact on the global economy continue to present near-term uncertainty for our industry and for Papa John's. We look forward to providing more color on our long-term growth opportunity and outlook for fiscal 2022 on our Q4 call. In the meantime, I can say with confidence that our goal will be to continue taking share while leveraging our differentiated position to protect margins in the face of any potential commodity or labor headwinds. Over the longer term, specifically in the next two to three years, I believe the trend lines are clear and Papa John's outlook is consistently positive based on four key premises. First, we are very bullish about the global pizza market. with strong demographic and international tailwinds, and at the sweet spot in a secular shift to delivery and off-premise dining that we're seeing. Second, after eight quarters outperforming the industry and two quarters positively lapping record prior year comps, Papa John's differentiated brand and innovation strategy have proven themselves to be a platform for sustainable, long-term, comparable sales growth. Third, drawn by Papa John's compelling unit economics and vast U.S. and international development white space relative to our more mature peers, new and existing franchisees are accelerating new unit openings and growth plans. And lastly, with strong operating leverage and an asset-light business model, we are well positioned to grow long-term earnings and free cash flow in excess of top-line growth, which we can deploy to further accelerate growth and enhance shareholder returns. In summary, we are more confident than ever that we are prepared to consistently and sustainably deliver great results. I'll now turn the call over to Ann to discuss our capital structure and financial results, as well as provide some color on the next couple of quarters, as we have done on prior calls this year. Ann?