Papa John's International, Inc.

Good day and thank you for standing by and welcome to the Papa John's third quarter 2023 conference call and webcast. At this time, our participants are in listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Stacey Froehle, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to our third quarter earnings conference call. This morning, we issued our 2023 third quarter earnings release. A copy of the release can be obtained on our investor relations website at ir.papajohns.com under the news releases tab or by contacting our investor relations department at investor underscore relations at papajohns.com. On the call this morning are Rob Lynch, our president and CEO, and Ravi Thanawala, our chief financial officer. Before we begin, I need to remind you that comments made during this call will include forward-looking statements within the meanings of the federal securities laws. These statements may involve risks and uncertainties 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 filing. In addition, please refer to our earnings release for the required reconciliation of non-GAAP financial measures discussed on today's call. Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow-ups. Rob?

Thank you, Stacey. Good morning, everyone, and thanks for joining us. I'd like to start out by thanking our team members and franchisees for their hard work and dedication to delivering the best experience and value proposition for our customers. The sales and transaction growth we'll speak to today are the direct result of their solid execution as they drive our business with agility and adjust to changing consumer purchasing behaviors. As you read in our earnings release this morning, the positive North America comp sales and transaction growth that we discussed at the end of the second quarter continued throughout the third quarter at both our company-owned and franchised restaurants. Together, we delivered a 3% increase in North America comp sales by remaining focused on what matters to our customers, product innovation, operational excellence, and a strong value proposition. We're particularly pleased that our growth in the quarter was driven by higher transactions, reaffirming the strength of our brand and the continued demand for our products. Our company teams remained committed to providing quality products, a winning customer experience, and great value. which led to a 6% comp sales growth in our company-owned restaurants. This transaction-driven growth, combined with lower food costs, resulted in improving restaurant-level margins in the quarter. Despite the strong sales growth in North America, our company's adjusted operating income was just in line with the third quarter last year, due to the dilutive impact of our recently acquired restaurants in the U.K. Today, I will focus on the key drivers of our North America business. including updates to our U.S. commissary operating model and provide an update on our recent acquisition of the U.K. restaurants. I will then pass it on to Ravi, who will walk you through our third quarter financial results in more detail, along with an update on our fiscal 2023 and long-term guidance, before opening the lines to answer any questions that you may have. First, our North America business. Our corporate teams continue to work closely with our franchisees to deliver our product innovation with excellence and create strong customer value through our revenue management capabilities. This has resulted in an increase in unit-level profitability while preserving customer counts. In the current inflationary environment, we have watched as many restaurant brands have increased menu prices. We have found other ways to drive restaurant profitability and have executed a thoughtful approach to managing price and promotions. As a result, we believe that our products offer an attractive value proposition to consumers compared with other QSRs. This was a key driver of our transaction growth in the quarter, and we expect it to continue as many QSRs continue to take more price. To put the current pricing gap into perspective, at Papa John's, if you are looking to feed a family of four and order two large, one-topping pizzas, and a two-liter of soda for carryout, on average, it would cost you approximately $22. This ticket is well below what it may cost to feed that same family of four at many QSR drive-thrus, where the ticket is likely to run more than $40 on average. In challenging economic times, this should lead to continued transaction growth. However, I want to emphasize that our goal is not only to provide pricing value, but a high-quality premium offering. This is ultimately what sets Papa John's apart from others in the pizza category and why we are on the path to achieving our fourth consecutive year of positive North America comparable sales growth. Our consistent annual sales growth is driven in large part by our menu innovation, which has been a strong sales and engagement driver for us. No one in the pizza space innovates like we do. We have repeatedly delivered sales-driving, craveable new products. In the third quarter, we continued our innovation by expanding our popular Epic Stuffed Crust pizza platform. Our new Garlic Epic Stuffed Crust pizza was a direct response to the love that our fans have shown for our Epic Stuffed Crust and our iconic special garlic sauce. The pizza launched in July for a limited time at a premium price point of $13.99. We then turned the heat up even more with our Spicy Garlic Epic Stuffed Crust, which followed in August. We also launched new all-white meat boneless wings. The boneless wings were introduced as another great option within our nationally advertised pop-up pairings program where customers can select two or more menu items for just $6.99 each. Providing products such as garlic epic stuffed crust pizza at $13.99 and boneless wings at $6.99 demonstrates our commitment to our barbell strategy as we look to provide value to our customers across a broad range of price points and product offerings. Last week, we announced the return of our chacaroni pizza. Our pizza with a purpose donates $1 from every chacaroni pizza sold to the Papa John's Foundation for Building Community. A perennial fan favorite, we expect it to help close 2023 on a positive note. We also expanded our Papa Bites platform with a limited time new dessert, Twix Papa Bites, served with a caramel dipping sauce. I highly recommend that you place an order or two as part of your Papa John's research. Another foundational component of our model is the continual evolution and improvement of our digital platform. We've been an industry leader in digital as technology has made it easier for us to engage and service our customers from any device. Our years of leadership in digital give us a competitive advantage over other QSRs entering this space as more than 85% of our transactions already occur through digital channels. providing us with a significant amount of insights to drive differentiation through better innovation and ongoing digital product improvements. Today, I would like to share an update on three components of our digital universe, e-commerce, aggregators, and loyalty. Recent enhancements to our e-commerce platforms have focused on highlighting value for our most price-sensitive customer segments and are driving improved website and app conversion rates. We're also focused on simplifying our digital ordering journey by offering clear, fast, and easy to understand navigation paths into the menu, which can increase attachment rates. When it comes to third-party aggregators, Papa John's has been a leader in aggregator integration since 2019. We are excited about the partnerships that we have built over these four years and continue to grow rapidly in the space. We remain committed to meeting customers where they want to order from us. and to giving them high-quality, innovative products, providing great value, and delivering excellent service, regardless of the channel in which they order. Currently, approximately 85% of our sales take place in our organic carryout and delivery channels, with carryout mixing slightly higher when compared with the same period last year. The other 15% comes from third-party aggregators. Additionally, as new national pizza chains arrive on the aggregator platforms, The pizza category has continued to expand its share of the overall aggregator market. It turns out pizza is a great product for home delivery. Since the first day that we entered this platform, we have been competing with thousands of hometown pizza shops. Over the last three years, Pizza Hut and Little Caesars also entered this channel. And despite the increased national pizza chain competition, our DoorDash sales have grown more than 150% over that same time period. There continues to be a lot of room for category expansion, indicating that competitive entries do not necessarily lead to significant volume loss for brands that have been thriving in this space for years. Lastly, we are excited about the opportunity that this business model provides for us to increase our volume in the lunch and late night day parts, which today are a smaller segment of our business, but represent opportunities for significant future gains. Historically, It has been challenging to execute our delivery model at lunch and late night due to the lack of consistent ordering patterns and commensurately the ability to accurately forecast the labor necessary to meet the variable demand. The on-demand labor that the aggregators provide through their delivery as a service model solves this challenge for us. We know that we can be best in class in this channel and garner more than our fair share of the transactions because we believe that our product innovation, premium positioning coupled with great value is a unique combination of category attributes that give us an advantage over the competition. The aggregator marketplace dynamic makes it more difficult to win on low prices alone, as the incremental fees reduce the ability to offer steep discounts. In turn, this enhances the value of our premium and innovative products. Complementing this growth, is our core business where we will continue to innovate and deliver targeted promotions to our most valuable customer base, our Papa John's Rewards members. Our goal is to be able to offer our Rewards members attractive incentives to order through our organic channels. This will ensure that they continue to have higher frequency and higher tickets. We are currently working to enhance our loyalty program and anticipate even better program performance in 2024 and beyond. We will also benefit from the improved productivity that we expect from the advertising and media review process that we are currently conducting. Turning to our commissary business, which we do not always talk a lot about, we have some exciting news to share. Although this segment of our business operates at a lower margin, it is a consistent way to provide our system with the fresh ingredients necessary to deliver the level of quality that our customers expect. We are relatively unique in the QSR industry with a vertically integrated supply chain and distribution network that operates on a fixed operating margin basis, which is currently set at 4%. This business is our largest source of company revenue, and as our business continues to scale, we continue to evolve our approach with our franchisees to increase investment in our supply chain infrastructure. These efforts will ensure that we continue to deliver high-quality ingredients to our restaurants and support our system growth, as well as incentivize our franchisees to grow. Beginning in 2024, we will increase the fixed operating margin that our U.S. domestic commissaries charge by 100 basis points in each of the next four years, moving from 4% today to 8% in 2027. At the same time, we are offering new opportunities for our franchisees to earn annual incentive-based rebates as they increase volume and open new restaurants, which will drive even more continued productivity for our system. The incentive-based rebates will provide the opportunity for our franchisees to earn a reduced effective supply chain rate as they continue to grow on an annual basis. Finally, I'd like to briefly touch upon our UK markets. As previously discussed, we have been making targeted investments in our international organizations, setting us up for long-term success in this growing segment of our business. Our efforts over the past year have also focused on repositioning our UK portfolio in a way that ensures our franchisees and the total market will drive healthy growth over the long term. This has led to the rotation of some franchise entities to other, more proven franchisees. These efforts are paying dividends as we continue to see improved performance from these locations quarter after quarter. Lastly, as you recall, in June we announced the purchase of a portfolio of franchised restaurants with the goal of helping to realign this market for long-term profitable growth. Although we expected and communicated that these stores would be dilutive to earnings during our first year of operations, they are slightly more dilutive than we anticipated. as evidenced in our third quarter results, and they will continue to be a drag on profits in the fourth quarter and into 2024. However, we anticipate sequential quarterly improvements in profitability, and we are making the necessary investments to improve their sales and profitability with a focus on labor optimization, product innovation, and e-commerce enhancements. We continue to be confident in the long-term potential of the UK market. Now I'd like to turn the call over to Ravi to cover the financial portion of today's call. Ravi?