Papa John's International, Inc.

Good day and thank you for standing by. Welcome to the Papa John's second quarter 2026 conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising that 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 hand the conference over to your speaker today, Heather Hollander, Senior Vice President, Investor Relations, FP&A, and Strategy. Please go ahead.

Good morning, and welcome to our second quarter 2026 earnings conference call. Earlier this morning, we issued our earnings release, which can be found on our Investor Relations website at ir.papajohns.com under the News and Events tab or by contacting our Investor Relations department. Joining me on the call this morning are Todd Penegor, President and Chief Executive Officer, and Chris Collins, Interim Chief Financial Officer and Senior Vice President, Corporate Finance and Principal Accounting Officer. Comments made during this call will include forward-looking statements within the meaning 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 filings. In addition, please refer to our earnings release and our investor relations website for the required reconciliation of non-GAAP financial measures discussed on today's call. Lastly, we ask that you please limit your questions to one question and one follow-up. And now I'll turn the call over to Todd.

Thank you, Heather, and good morning, everyone. Today we will discuss our second quarter financial results and provide an update on our outlook for the remainder of the year. Before we get to this, I'd like to briefly address the ongoing media speculation regarding Papa John's and a potential sale of the company. The board and the management team are committed to maximizing value for our shareholders, and consistent with that commitment, we conducted a comprehensive review of our strategy over the past 18 months. We thoroughly explored whether alternative opportunities were available, including a potential sale of the business. We have been well advised in these efforts, supported by our financial and legal advisors. This work has made clear that, for Papa John's, the value creation opportunity that is actionable is the execution of our transformation plan. Of course, the Board remains open to other alternatives to maximize value. However, these options need to be actionable, provide certainty, and serve the best interests of our shareholders. We believe it is in the best interest of the company and all of our shareholders to focus 100% of our attention on Papa John's transformation and the initiatives we are discussing today. In the second quarter, we continue to advance our transformation while strengthening the foundation for long-term growth and value creation. We are seeing encouraging signs of progress. including a growing and highly engaged Popper Rewards membership, meaningful progress on initiatives to improve restaurant-level economics through supply chain savings and restaurant portfolio optimization, and early results from AI and digital investments that are enhancing the customer ordering experience. At the same time, we felt the impacts of the softer consumer backdrop and highly promotional QSR environment which have continued to challenge our financial performance. And while our focus is on relenting, it's clear that our transformation is taking longer than expected. We know that we must execute better and move faster. And as we look ahead, we're making adjustments where needed across our strategic priorities and leadership team to improve results and position Papa John's for 2027 and beyond. To lead the changes we're making and ensure we drive high performance across the enterprise, we announced several key management changes today. Chris Linsue, who serves as Senior Vice President, General Manager of International, has been named Global Chief Marketing Officer. Jenna Bromberg is departing the company to pursue other opportunities. As Chris Linsue assumes this role, Chris Falactu, who serves as Managing Director, UK, Europe, and Canada, has been named Senior Vice President, International. In this role, he will be responsible for leading our highly successful international business. Finally, John Motter, who serves as Senior Vice President, General Counsel, has been named to the newly created position of Global Chief Development Officer, where he will lead global growth and development strategy, including expansion, franchise development, and strategic partnerships. These leaders have already made important contributions to our transformation, giving me great confidence in the impact they'll have in these positions. For example, Chris Lin Tzu and Chris Falactu were instrumental in driving meaningful change and outperformance in our international business. John has been a key leader in our highly successful international development and transformation efforts, as well as leading our North American development team, portfolio optimization work, and strategic partnership negotiations. Now, turning to the second quarter results. Our international business delivered 1.5% comparable sales growth in the quarter, marking our seventh consecutive quarter of positive comps and reflecting the continued benefit of our transformation work. Performance was particularly strong in the UK, where comparable sales increased 10%, driven by continued strong operational execution and enhanced customer experience and increased media investment including a 20% increase in PSAs over the course of the transformation that is elevating brand awareness in this market. Korea also delivered strong results with comparable sales of 9% supported by product innovation, strategic partnerships and holiday demand. In the Middle East, comparable sales were effectively flat as ongoing conflict in the region pressured performance. North America comparable sales declined 8.3%, driven by reduced order volume and continued pressure from lower customer acquisition. Our loyalty program remained a clear area of strength in the quarter, with comparable sales from loyalty customers outperforming non-loyalty customers by 12 percentage points, and our PAPA rewards program surpassing 42 million members in the second quarter. These loyalty members are our most valuable customers, generating tickets that are 6% higher per order and ordering approximately twice as often as non-loyalty customers. Within our core pizza business, orders with multiple pizzas again saw improvement, with pies per order up 6%, positively impacting our overall system ticket, which was flat compared with last year. This upside was offset by pizza mix, shifting to smaller, non-specialty pizzas, resulting in mid-single-digit declines in overall pizza sales. Outside of pizza, comparable sales were pressured by declines in sides and desserts, while sales of our new sandwiches almost fully offset the removal of papadillas and opened an entirely new food category for us, without complicating our make line and operations. Taking into account our performance, and the pressured consumer environment, which we expect to continue throughout the year, we have revised our outlook for 2026. Chris will provide more detail in his remarks, but at a high level, we now expect global system-wide sales to decline between 2% and 4% compared to last year and adjusted EBITDA between $180 to $190 million, which now includes an incremental $18 million of investment to support our franchisees and accelerate our transformation. While our financial performance isn't where we'd like it to be, we have a clear understanding of how to improve our results and gain market share. These focus areas work in tandem with our ongoing strategic transformation efforts. As we have discussed previously, we continue to see two clear opportunities to gain share. Continuing to strengthen our value perception with more targeted personalized offers and a consistent elevated customer experience and attracting new customers through a sharper aggregator strategy, total addressable market expansion, a rebuilt innovation pipeline and a re-energized local presence through re-established co-ops. Looking at our value proposition, we recognize the importance of meeting the customer where they are in this challenged environment. To do so, we focused on offering customers their favorite menu items at compelling price points This quarter, we featured our pop-up pairings offer and local carryout specials. Our sandwiches were added to pop-up pairings, increasing choices within our mix and match. We also put our barbell to work, as we featured our epic stuffed crust pizza at a $13.99 price point. Looking ahead, we're taking a targeted approach to improving our value proposition. rather than engaging in sustained extreme discounting at the national level as we've seen some of our competitors do. In the second half of the year, we'll deploy a more traditional barbell strategy focusing on our most popular fan favorite products with short targeted windows of disruptive value. We are also in phase one of the rollout of our new personalization engine within our CRM platform. This engine is sophisticated multi-channel AI powered tool that leverages a mix of national and local offers and delivers a higher degree of personalization. We believe that once fully deployed, this technology will allow us to better tailor communications and offers to our customers, drive incremental purchases from both new and lapsed customers, and preserve restaurant margins while offering customers compelling value in key moments. We'll use learnings from this initial phase to optimize the broader multichannel rollout planned for the fourth quarter. Turning to operations, we understand that value extends beyond price. To that end, we are also continuing to elevate the customer experience to differentiate Papa John's in the marketplace and drive incremental transactions. We have made significant progress over the last two years, strengthening execution across the system. When we began our transformation, our operations support team and field support structure were more limited and spread across the U.S., resulting in less market-level oversight and fewer in-restaurant touchpoints than we needed. Since then, we've built a brand standards coaching team made up of pizza experts who have initiated in-person training, workshops, coaching sessions, and restaurant evaluations. However, there is still more work ahead as certain restaurants and operators are lagging behind. For example, in the second quarter, There was a 400 basis point gap in comparable sales, comparable orders, and restaurant margin performance between restaurants in the highest quintile of operation scores versus the lowest quintile. Raising the bar for the bottom quintile of operators is one of the single most important things we are doing to improve the consistency of our customer experience, brand perception, and top line performance. To help underperforming restaurants raise their level of execution, We are providing dedicated coaching, earned financial incentives, which raise the bar on operational performance, and a regional franchise business director model designed to provide closer in-market support and greater accountability. This includes more frequent restaurant visits, regular business reviews, documented follow-up, and standardized scorecards to drive measurable improvement. Beyond improved execution, we're also leveraging consumer insights to elevate and optimize our core product, further differentiating Papa John's on quality in a highly competitive marketplace. This work starts with a clear understanding of what matters most to our customers, better ingredients, craveable flavor, consistent execution, and value they see and taste. We are applying those insights across the menu to improve the fundamentals of the pizza experience, from dough optimization and bake consistency to toppings, cheese, sauce, and overall product presentation. We are targeting refinements that enhance the customer experience while remaining operationally simple and scalable across the system. We believe these actions will strengthen brand preference, improve repeat purchase behavior, and reinforce Papa John's longstanding quality positioning. Turning to new customer acquisition, We see a meaningful opportunity to accelerate trial through a more focused aggregator strategy. These platforms continue to play an important role in introducing new customers to the brand, and we believe there is an opportunity to improve both our visibility and effectiveness. To do so, we're optimizing our promotional approach, featuring a mix of value-driven offers and signature products while also refining our allocation of national and local third-party marketing spend to maximize returns. As we broaden our reach through aggregators, we're also taking steps to increase brand awareness and drive consideration at a larger scale. To support that effort, we're rebalancing our media mix in the second half. Innovation also supports a brand proposition that drives new customer acquisition. We're working off a reinvigorated innovation pipeline, having introduced pan pizza, oven toasted sandwiches, a cheesy garlic bread side, and our latest menu addition, Personal Pizzas, the perfect size for individual portions. Combined, these product launches are helping to elevate our pizza mix and expand our total addressable market beyond core pizza. While innovation remains an important lever, this quarter we saw that innovation alone did not generate the level of new customer trial we expected. Going forward, we're pairing innovation with a sharper aggregator strategy and our new first-party CRM platform to improve reach, trial and conversion. Our international innovation continues to raise the bar with encouraging results behind the launch of our artisanal sourdough pizza in the UK, a lighter, thinner, more premium pizza focused on expanding our addressable market. This product is distinctive with scaled TSR pizza and attracts new customers, delivers higher profit margin and further elevates the Papa John's brand in the market. In addition to new menu items, we're also sharpening our marketing message to drive more meaningful impact with our customers. First, we are rebalancing our media mix toward greater mass exposure and higher TRPs. In this highly competitive environment, we recognize the importance of protecting share of voice on mass channels while still supporting a balanced channel mix to reach customers where they engage most. Maximizing the impact of our marketing investment requires balancing broad national awareness with local relevance. As we discussed on our last earnings call, we reinstated advertising co-ops across the US to improve market level targeting, increase relevance, and better connect with customers in local communities. Today, approximately 50% of our US restaurant system is supported by local co-ops, and we're encouraged by the early results. Markets supported by co-ops and meaningful supplemental local spend are outperforming other markets by 200 basis points. To build on this progress, we're establishing a field marketing team that will work directly with local operators to align around effective, coordinated market strategies, ensure the local spend complements our national spend and drive stronger market level performance. We are committed to aligning our system on the right level of national and local spending to support the brand and reinstate co-ops for the majority of the system by the end of this year. Of course, our marketing strategy extends beyond media and market optimization. We're investing in experiences and partnerships that deepen engagement, strengthen brand affinity and attract new customers. In June, we launched four Pizza Planet pop-ups in key locations around the world to celebrate the theatrical release of Disney and Pixar's Toy Story 5. Our retro-inspired pizza arcades invited fans to step directly into the Toy Story universe, featuring iconic characters, experiences, and themes from the beloved franchise, while reinforcing Papa John's as a culturally relevant brand. These activations generated strong global engagement with approximately 4 billion total earned media impressions and thousands of organic social posts from enthusiastic fans. Across our four immersive retro arcade pop-up locations in Los Angeles, London, Seoul, and Madrid, demand was exceptionally strong with reservation slots for each event claimed within minutes. Investing in technology is essential to delivering a seamless customer experience and strengthening engagement. while providing operators with better tools to run their businesses. We continue to build our AI capabilities as a means to drive customer acquisition, unlock new demand channels, and increase brand relevance. As part of that effort, we're advancing our technology transformation through the rollout of Lou AI, our next-generation AI-powered pizza assistant developed in partnership with Google Cloud that is available on our app. Blue AI serves as an always-on digital concierge, customized for Papa John's and designed to simplify the ordering experience, solve customer needs in real time, and create a more frictionless path to purchase. Our eugenic ordering automatically applies the best available deals and now enables fast, seamless reordering for Papa Rewards members. Early results are encouraging. Compared with non-AI-assisted orders, Customers using Lew AI are converting at an 18% higher rate and completing their orders approximately three minutes faster. We are also making steady progress on our transition to a new POS platform following the successful launch of our first restaurant pilot in April with additional restaurants coming on board by the end of the year and full deployment expected across all of our U.S. corporate and franchise locations by the end of 2027. This modern AI-native platform will provide operators with enhanced visibility into key restaurant performance metrics, improve operational decision-making, and create a more connective experience across our digital ecosystem. Ultimately, these investments strengthen our ability to serve customers and support operators. We continue to differentiate our customer experience across every demand channel to support top-line growth. We're leveraging our new e-commerce platform to provide unique, optimized customer experiences across app, mobile web, desktop, call center, and aggregators. Leveraging our robust CRM platform, we are engaging customers more frequently and using targeted, personalized communications across email, push, and SMS to drive incremental visits and deepen engagement. Our extensive data and digital insights are key advantages for Papa John's and we are increasingly leveraging them to identify opportunities to improve the guest experience and drive incremental sales through continuous innovation across our brand. With more than 85% of our sales generated on digital channels, inclusive of the aggregators, it is imperative that we provide an outstanding digital experience. We're also leveraging our new e-commerce gaming platform to drive trial and repeat visits by incorporating CRM and loyalty into the user experience and fully capitalize on our partnerships. To engage with customers around Toy Story 5, we launched our first ever in-app game, Operation Pizza, that unlocked perks for Popper Rewards members. Finally, we continue to partner with and evolve our franchisee base Our efforts to optimize our North American supply chain continue to advance our path to unlocking the full potential of our commissary business. In the second quarter, we captured an additional $7 million of benefits and are on track to realize at least $25 million of savings this year. We believe that we will achieve at least $60 million of North American system-wide supply chain productivity opportunities, equating to at least 160 basis points of four-wall EBITDA improvement by 2028. at both our company-owned and franchise restaurants. As part of evolving our franchisee base, we are optimizing our North American system to get restaurants into the hands of great operators focused on the long term with capital structures in place to properly support the transformation of the business. In the second quarter, we made further progress in the optimization of our restaurant portfolio and have closed 101 of the planned 300 North American restaurants identified in our strategic closure program. As a reminder, this program is focused on closing locations that do not meet brand standards, lack a clear path to sustainable improvement, have AUVs below 600,000, and predominantly generate negative EBITDA. Early results have been encouraging with strong sales transfer to neighboring restaurants. Combined with the proven success of our international transformation, where a focus on priority markets and strategic closures improve franchisee health and market performance, These results give us confidence that our portfolio optimization strategy will strengthen franchisee financial health, enhance our competitiveness, and support future market share gains in North America. Altogether, we expect to generate at least 200 basis points of four-wall EBITDA improvement for both company and franchise restaurants over the medium term, inclusive of the supply chain savings, restaurant portfolio optimization work, and the operational efficiency programs discussed. Turning now to our capital allocation priorities, our board and management team take a disciplined approach to capital allocation, prioritizing investment in the business, maintaining a strong balance sheet, and returning capital to shareholders through share repurchases and dividends. Guided by this framework and our commitment to allocating capital to the highest return opportunities, our board intends to suspend our quarterly dividend beginning in August. This action will increase flexibility to make the investments that we believe are needed to deliver on our strategic transformation and generate the greatest value for shareholders. One critical investment area is our franchisee base. We are expanding financial incentives tied to operational excellence and restaurant image improvements, while also reworking our National Marketing Fund agreement to better balance national and local investments. and established local co-ops in the vast majority of our markets. Together, these actions will accelerate our transformation, elevate the customer experience and deliver strong returns for both franchisees and franchisor. Other investment areas include driving new customer acquisition through a sharper aggregator strategy, expansion of our total addressable market, product innovation and core menu improvement, advancing our technology roadmap, including our AI capabilities, new CRM platform, and next generation POS system to deepen customer engagement, deliver personalization at scale, and drive incremental purchases. Further optimizing our supply chain to improve cost leverage and drive higher four-wall EBITDA and investing in our international business to build on our momentum and support long-term growth. We have clearly defined success criteria are rigorously tracking returns and are already seeing encouraging early signs of progress. As we realize the benefits of our transformation over time, we intend to revisit how to most effectively return capital to shareholders through share buybacks and dividends. In summary, we are executing with discipline, investing for the long term, and positioning the business for improved comparable sales trends in 2027. Ultimately, our goal is to re-engage customers with what is new, better, and distinct about Papa John's. With our six simple ingredients, we have a meaningful point of differentiation on quality and an opportunity to deliver products that feel closer to neighborhood pizza experience at an accessible price point with greater convenience. This reinforces our confidence in the strength of the brand and our ability to compete more effectively and capture market share over time. While our transformation is taking longer than we anticipated, we are building the operational and financial foundation to drive sustainable growth. As I've laid out today, we'll achieve this by competing on value with more targeted, personalized offers and consistent elevated customer experience, targeted investments in customer acquisition and brand elevation, and disciplined portfolio optimization and supply chain improvements that strengthen unit economics. This strategy is similar to the Transformation Playbook that has proven successful internationally, and we are confident it will allow us to compete better and win in North America. I want to now welcome Chris Collins to the call. Chris has assumed the role of our Interim Chief Financial Officer and brings a deep financial knowledge of Papa John's. The Board and I appreciate Chris stepping into this additional role while we conduct a comprehensive search process to identify Papa John's next CFO. Over to you.