Papa John's International, Inc.

Good morning and thank you for standing by. Welcome to Papa John's fourth quarter and full year 2023 earnings call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference call is being recorded. I would now like to turn the conference over to Stacey Froehlich, Vice President of MES Relations. Please go ahead.

Good morning, and welcome to our fourth quarter and full year 2023 earnings conference call. This morning, we issued our fourth quarter and full year 2023 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 meaning of 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-up. Rob?

Thank you, Stacey. Good morning, everyone, and thanks for joining us. Before we get into our 2023 results and our 2024 strategic initiatives, I'd like to take a moment to briefly reflect on the progress that we've made over the last five years. When I joined Papa John's in 2019, system-wide sales, North America units, and operating income were rapidly declining. Since then, our team and franchisees have worked incredibly hard to rebuild the brand and regain consumer loyalty. Their focus and diligence during some of the most dynamic times in our industry has strengthened Papa John's and positioned us for sustainable growth in the QSR space. To our team members and franchisees, thank you for your commitment and dedication to our customers, our values, and our brand, and for playing a key role in our success. Because of these efforts, today we are reporting another year of record global system-wide sales. our fourth consecutive year of positive North America comps, accelerating North America unit growth, and adjusted operating income with a five-year CAGR of approximately 12%. More importantly, we made foundational improvements to our restaurant operations, grew our global restaurant footprint, improved our menu with innovative new products, and advanced our digital and marketing platforms to support the evolution of our business model for our next chapter of growth. Our product innovation, rooted in our brand promise of better ingredients, better pizza, continues to be at the heart of our success. In 2023, we expanded some of our most popular platforms with the Garlic Epic Stuffed Crust Pizza, Doritos Cool Ranch Papadias, and new Papa Bites, including Oreo and Twix flavors. We also introduced new innovations like our Crispy Parm Pizza, becoming the first large pizza chain to put cheese on the bottom of the crust and brought back fan favorites like our chacaroni pizza. We also executed on our Back to Better 1.0 initiatives, driving operational improvements to deliver better pizza with better service. At our company-owned restaurants, we've reduced our out-the-door times nearly 25% to average under 20 minutes today, and we've seen our overall customer satisfaction scores continue to improve. This great work has earned us the number one ranking in customer service for the pizza category on the American Customer Satisfaction Index in 2023. We also continue to lean into our domestic third-party aggregator partnerships as sales through this channel reached another high in the fourth quarter, growing more than 10% sequentially and up more than 50% from a year ago. As we've mentioned on past calls, There continues to be a lot of room for category expansion in this channel. We have seen that new competitors entering the marketplace does not necessarily lead to significant volume loss for a brand like ours that has been thriving in this space for years. Our quarter-to-date trends have continued to increase relative to our fourth-quarter run rate, and we have increased our market share in this channel. In early January, we announced Back to Better 2.0. These initiatives are designed to drive best in class pizza QSR unit economics through higher sales, higher restaurant level margins, and higher return on investment on new domestic restaurant openings, our largest and most profitable market. As part of our efforts to enhance our domestic national marketing investment and effectiveness, we went through an extensive advertising and media review process aimed at sharpening our analytics informed approach to marketing and consolidating and optimizing our partners at the national level to drive scale. As a result of this process, we have shifted to a more productive, nationally-focused marketing model. We are increasing the per-store investment in the National Marketing Fund from 5% to 6% of sales, beginning in the second quarter of 2024, while eliminating the 3% required local spend. The required marketing contribution rate decreases from 8% to 6%, and brings the added benefit of an immediate 200 basis points of margin at the restaurant level, along with a bigger impact from their marketing spend. I am thankful for the overwhelming support we received from our franchisees on this change. More than 90% of the system voted in favor, highlighting the confidence our franchisees have in our go-forward marketing strategy. This includes improved audience selection, improved return on ad spend, sustained loyalty, and increased cultural buzz. Our new partners are ramping quickly, and we look forward to sharing how our marketing programs are evolving on future calls. Additionally, we are optimizing our investments in data science and marketing technology to enhance our consumer value perception driven by occasion, day part, and brand. Part of our success in driving positive sales over the past several years has been our ability to strike the right balance between ticket and transaction growth. This is accomplished through our barbell strategy that offers premium innovation while delivering on the needs of our value customers. We're focused on delivering value at every segment of our business, whether that is through promoted price points, our core menu, or premium innovations. Moving to unit development and how we are incentivizing our franchisees to grow. In November, we launched a new development incentive to improve the return on capital investment of new domestic restaurants, by waiving National Marketing Fund contributions for the first five years. This equates to 600 basis points of annual cost savings in their restaurant P&Ls for the first five years, or an approximately $360,000 total benefit that will significantly improve the cash on cash payback for our developing franchisees who open new units in 2024. This incentive will now extend into 2025, offering three years of National Marketing Fund relief, or an approximately $216,000 average benefit for new units opened in 2025. Currently, in North America, we have more than 100 units in our pipeline at various stages of development. We're confident that this incentive program, which delivers best-in-class cash-on-cash returns, coupled with improved restaurant margins, customer service levels, marketing efficiencies, and technology and analytics platforms, will drive sustained development momentum for Papa John's. Given the business model changes associated with Back to Better 2.0, these restaurants built in 2024 have the potential to be some of the most profitable restaurants in our system. All of these strategic actions are designed to drive strong top-line sales and more volume, which in turn makes our supply chain more productive. We are evolving our commissary business and increasing our fixed operating margin to drive profitable growth for our company, while improving supply chain productivity and delivering long-term cost savings for our system. For example, our franchisees can now earn annual incentive-based rebates as they increase volume and open new restaurants. The incremental volume driven by increased marketing and additional development will reduce the shared supply chain costs across the system. We are excited about these initiatives. and the value that they will create for Papa John's and for our North America franchisees, not only as they ramp up in 2024, but over the next several years. Now to our international business. Over the past 10 years, we have more than doubled our international footprint and now operate in 50 countries and territories. As we pursue our next phase of international growth, we're evolving our business model to deliver an enhanced value proposition to our customers, and franchisees, ensure targeted investments and efficient resource management, and better position our largest markets for long-term success. Beyond new unit development, it's about sustainably and profitably growing all of our restaurants globally. This past year, we've made significant enhancements to our international organization and infrastructure. As part of these efforts, we established international regional hubs and key target regions. Asia Pacific, EMEA, and Latin America. These hubs are led by experienced general managers who are partnering with franchisees to create holistic strategies to drive profitable sales in their markets. Our teams are now aligned at the corporate and local levels to execute global best practices in operations, marketing, and technology to accomplish our long-term objective of increasing market share and key markets around the world. To support our international teams and franchisees, we are investing in consumer-facing technology, digital infrastructure, and enhanced financial and operational reporting. By investing in expanded ordering capabilities through our website and app and leveraging analytics, we expect to improve conversion, increase customer retention, and deliver faster consumer insights to franchisees. This playbook is similar to what we successfully implemented within the U.S. over the past few years and we expect it to be equally successful as we expand this investment strategy globally. We are also making progress on our repositioning efforts within the UK market and expect to improve in profitability during 2024. In 2023, we supported the transition of 61 underperforming UK franchise restaurants to other, more proven UK franchisees. We have seen a significant improvement in the performance of these locations, with their fourth quarter comp sales finishing well ahead of the other restaurants within the U.K. market. In fact, the fourth quarter was the second consecutive quarter of positive comp sales for our U.K. franchisees. If you'll recall, in June, we announced the transition of 118 U.K. franchise restaurants to company ownership. As anticipated, these new company-owned U.K. restaurants were dilutive to 2023 adjusted operating income by approximately $9 million, which takes into consideration the restaurant's current year operating loss and the foregone prior year royalties. Similar to the other UK restaurants that transitioned to new owners, we are seeing sequential improvements in the performance of our company-owned restaurants. Together, our company-owned restaurants and franchise locations in the UK are reporting positive comps to start 2024, and we continue to explore options to maximize the value and cash flow of our UK portfolio. ensuring alignment of the region and its performance with our long-term strategy. We have also made the decision to close approximately 50 underperforming company-owned restaurants in the second quarter of 2024. These restaurants accounted for roughly two-thirds of our operating loss in the UK in the fourth quarter. We'll continue to evaluate our remaining portfolio, as well as our franchisee locations, focusing on sales trends, overall profitability, and their lease and loan obligations. Through this process, additional strategic closures could occur as we look to drive improved profitability for our remaining stores, optimize trade zones, and strengthen our franchisee base within this important market. In this dynamic global environment, our industry is facing challenges from the potential impact of geopolitical events. We are closely monitoring these situations and will maintain flexibility with our operations in those impacted regions. We are committed to our international transformational initiatives, as we believe they best position us to realize our next phase of global growth and set our largest markets up for long-term success. Now I'd like to turn the call over to Ravi to cover the financial portion of today's call. Ravi?