Papa John's (PZZA) Q4 2025 Earnings Transcript

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Papa John's (NASDAQ:PZZA) reported its latest quarterly results and strategic updates as follows:

Date

Thursday, Feb. 26, 2026 at 8 a.m. ET

Call participants

• Chief Executive Officer — Todd Penegor
• Chief Financial Officer and President, North America — Ravi Thanawala

Takeaways

• Global system-wide sales -- $1.23 billion, representing a 1% decrease in constant currency, driven by lower North America comparable sales offset by a 1% increase in global net restaurant count.
• North America comparable sales -- Down 5%, reflecting a 5.5% decrease in transaction comps; carryout grew 1%, but declines in total delivery orders outweighed gains.
• International comparable sales -- Up 6%, with the UK specifically achieving 7% growth as a result of transformation efforts.
• Total consolidated revenue -- $498 million, a decrease of 6% due to lower domestic company-owned, commissary, and other business units' revenue, partially offset by a $4 million increase in international revenue.
• Adjusted consolidated EBITDA (Q4) -- $51 million, down year over year and influenced by $8 million in marketing investments and $2 million more in management incentive compensation.
• Adjusted consolidated EBITDA (full year) -- $201 million, including $21 million in incremental marketing investments compared to $4 million in 2024.
• Domestic company-owned four-wall EBITDA (Q4) -- $19.2 million, with a margin of 12.7%.
• North America commissary EBITDA margin -- 7.7%, up 150 basis points, primarily due to higher volumes.
• Free cash flow (2025) -- $61 million, an increase of $27 million, mainly from working capital improvements and reduced cash payments for marketing and taxes.
• Q4 loyalty program engagement -- Loyalty orders redeeming Papa Do doubled to 48%, up from 24% last year, while loyalty members ordered 2.5 times more than non-members.
• Cost savings initiatives -- At least $60 million in North American supply chain savings targeted system-wide; $20 million-$25 million expected by 2026; 160 basis points of four-wall EBITDA improvement anticipated by 2028.
• Refranchising activity -- Eighty-five restaurants refranchised in November, with 29 more pending for Q2; after execution, company-owned units are projected to be a mid-single-digit percent of the North America system.
• Planned restaurant closures (2026-2027) -- Approximately 300 underperforming North America units identified for closure, with about 200 closures in 2026 and 100 in 2027, focused mostly on franchise units operating at negative four-wall EBITDA.
• Menu simplification -- Papadias and Papa Bites to be discontinued in North America in Q2 2026, creating about 150 basis points of near-term pressure on 2026 comps, with anticipated longer-term operational benefits.
• Guidance: 2026 North America comparable sales -- Expected to decline 2%-4%; international comps are forecast to rise 2%-4%.
• Capital expenditures outlook (2026) -- Expected $70 million-$80 million, with a longer-term step-down to $60 million-$70 million per year post-2026 as the company becomes more asset-light.
• Corporate workforce reduction -- About 7% of positions eliminated; restructuring charges totaling $16 million-$23 million expected through 2027.
• New restaurant openings planned (2026) -- Forty to fifty gross in North America and 180-220 gross internationally; international closures to represent 5%-6% of system units before normalizing to 1.5%-2% after 2027.
• Technology and digital initiatives -- New omnichannel apps launched, leading to 40% faster response times and a 70-basis-point improvement in conversion versus legacy platforms; move to PAR POS system and Google Cloud integration underway.

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Risks

• Ravi Thanawala said, "We expect that this menu revision will exert approximately 150 basis points of near-term pressure on 2026 North America comparable sales," referring to the elimination of Papadias and Papa Bites.
• Todd Penegor stated, "new customer acquisition was lower than last year," explicitly highlighting weaker new customer growth in the core market.
• North America comparable sales decreased 5% in Q4, with management's 2026 guidance reflecting further 2%-4% declines amid persistent cautious consumer trends and intense competition.
• Third-party (3P) channel order declines and ongoing trade-down from specialty to medium pizzas continued to pressure average ticket and sales mix.

Summary

The call underscored a disciplined transformation plan focusing on cost savings, operational optimization, and menu innovation. Leadership targeted expanded supply chain efficiencies and a more asset-light business model. Management announced a significant refranchising effort and closure of underperforming stores, directly impacting the restaurant mix and future profitability. Digital initiatives, new product platforms such as pan pizza, and enhanced loyalty engagement were positioned as drivers for gradual recovery, particularly internationally. However, 2026 was clearly labeled as another year of near-term comp sales contraction in North America. The company's strategic guidance reflects ongoing macro challenges, balancing investment in marketing and technology against persistent headwinds in domestic order acquisition and sales mix quality.

• Todd Penegor said, "promotions such as our 50% carryout deal, $9.99 create your own pizza, and our popular Papa Pairings were effective, improving our value perception scores, which increased mid-single digits compared with last year."
• Ravi Thanawala stated, "we have identified approximately 300 underperforming restaurants across North America that are not meeting brand expectations or lack a clear path to sustainable financial improvement, as well as locations where we can effectively transfer sales to a nearby restaurant. These locations are primarily franchise-owned and are mostly operating at negative four-wall EBITDA. We expect to close the majority of these restaurants by the end of 2027, with approximately 200 closures occurring in 2026."
• Carryout showed sequential improvement, as Todd Penegor noted, "carryout business returned to low single-digit order growth supported by the 50% carryout offer in November."
• Loyalty engagement emerged as a material offset to new customer weakness, with Papa Rewards membership reaching nearly 41 million and loyalty orders redeeming Papa Do increasing from 24% last year to 48% at year-end 2025.
• Retail network strategy is pivoting to prioritize quality and profitability, as Ravi Thanawala said, "So the AUVs increase about 3% on an average basis from the restaurant closures, and I would say the recapture rates vary by individual trade zones. But our recapture rates are very healthy in the business."
• International operations remained resilient, driven by "aggregator expansion, and improved brand and marketing performance," and menu innovations including sandwiches and chicken tenders.
• Technology investments, including omnichannel app launch and migration to PAR POS, are expected to enable faster new feature deployment and improved customer experience metrics.

Industry glossary

• Four-wall EBITDA: Earnings before interest, tax, depreciation, and amortization at the individual restaurant (unit) level, reflecting operational profitability excluding corporate overhead and system-level costs.
• PAR POS: A restaurant point-of-sale (POS) platform provided by PAR Technology, integrating core transaction, inventory, and labor management for quick-service restaurant operations.
• Aggregator: Third-party delivery platforms (e.g., Uber Eats) that consolidate restaurant offerings and facilitate off-premises dining orders.
• Papa Do: Papa John's loyalty program reward currency redeemed by loyalty program members for discounts or free items.
• AUV: Average unit volume; the average annual sales generated per restaurant in the system.
• 1P / 3P: “First-party” (orders placed directly through the company’s channels) and “third-party” (orders placed via external delivery aggregator platforms) sales channels.

Full Conference Call Transcript

Todd Penegor: We have substantially improved our brand health, customer experience, restaurant fleet, and cost structure. To our brand health, technology platform, innovation pipeline, together with key leadership appointments and organizational changes, as well as our value and quality perception with our customers, we achieved growth, and higher utilization amongst our loyalty members, or our most valuable customers, increasing loyalty orders redeeming Papa Do from 24% last year to 48% at the 2025. Our international business, we have delivered five consecutive quarters of positive sales comps. We have made progress against our technology roadmap with the goal of establishing Papa John's International, Inc. as a best-in-class technology leader in QSR.

We established a plan to deliver at least $60,000,000 of system-wide supply chain cost savings to our company and franchise restaurants without compromising the customer experience. We identified at least $25,000,000 of non-customer-facing corporate cost savings to be realized through 2027. And we ended the year meeting or exceeding our updated guidance targets, while investing $21,000,000 in supplemental marketing year over year to support our value proposition. These actions begin to take hold. And near-term performance is mixed as our transformation initiatives continue to gain traction. Still, our progress is just beginning.

As we work to build on this momentum, I am even more confident that Papa John's International, Inc. is well positioned for meaningful medium- and long-term growth and value creation than I was at this time last year. For example, from a consumer lens, in the fourth quarter, we saw strength in our loyalty customers and existing customers in North America. However, new customer acquisition was lower than last year. From a product perspective, core pizza remains resilient, with the total number of pizzas sold actually increasing 1%. On the other hand, single pie orders declined during the quarter, and total pizza sales declined low single digits as our order mix shifted towards smaller, non-specialty pizzas.

From a geographic perspective, we delivered strong 6% comparable sales growth internationally, driven by strength across key markets in the Middle East, Asia Pacific, and Europe. Performance highlights include 7% comp sales growth in the UK, as the market benefited from our transformation work. As for fulfillment channels, in North America, we were pleased that our carryout business returned to low single-digit order growth supported by the 50% carryout offer in November. There was also notable strength in Uber Eats performance. This upside was offset by year-over-year order declines in total delivery. As we look to 2026, we are positioning the business to win in a category that has staying power and growth opportunities.

Pizza is a go-to for families and friends. In everyday moments, special occasions, and gatherings, I am confident Papa John's International, Inc. will capture this global market opportunity. And that deep-rooted consumer affection ensures pizza remains one of the most durable food categories. By being the best pizza makers in the industry, we will win new customers, and leverage our rebuilt innovation pipeline. Our two largest opportunities to gain share are expand our total addressable market, elevate our pizza order mix to more premium pizzas, and drive add-ons. Let me share more on each. Starting with our value proposition.

In the fourth quarter, promotions such as our 50% carryout deal, $9.99 create your own pizza, and our popular Papa Pairings were effective, improving our value perception scores, which increased mid-single digits compared with last year, even as QSR peers introduced aggressive new promotional offers. We will continue to pulse compelling promotions to meet the customer where they are. We are also significantly evolving our promotional intensity to really think about how we meet the consumer where they are. We will continue to pulse compelling promotions to meet the customer where they are. We are also significantly evolving our promotional intensity using our premium ingredients and featuring our signature sauce.

We will continue to pulse compelling promotions to meet the customer where they are. We are also significantly evolving our promotional intensity using our premium ingredients and featuring our signature sauce. Second, a steady dose of innovation is critical for new customer acquisition, and our innovation engine is firing on all cylinders. At the January, we launched our pan pizza platform. Following extensive culinary research and development, our teams have crafted an elevated, differentiated pan pizza experience with a crispy garlic Parmesan crust, a six-cheese artisan blend, and a fluffy soft interior. Pan pizza fills an important menu gap for us, and it raises the bar on a nostalgic type of pizza that we know our customers love.

While early, pan pizza mix is performing above expectations. And we plan to build momentum off the pan pizza launch, driving trial and awareness of this outstanding product. We are also excited to expand pan pizza into several priority international markets in the coming months. Our innovation pipeline expands our aperture beyond traditional QSR pizza. It is designed to drive incremental sales and attract a broader customer base, serving up new crispy coated chicken tenders alongside new dipping sauces at accessible price points. For example, part of our product innovation work in 2026 is centered around crafting compelling side items at accessible price points.

To provide a handheld option as an accessible price point, we are pleased with the early results. As we elevate our offerings outside of core pizza and drive benefits to total ticket, sales, and four-wall margins, we are testing oven-toasted sandwiches in North America and will soon begin testing in certain international markets. These chef-crafted sandwiches are made on bakery-fresh ciabatta bread, brushed with our signature garlic sauce, and packed with innovative flavors and high-quality meats. In the UK, we are pleased with the early results of this new growth platform, with our new sandwiches increasing sales of non-pizza items in test markets. We plan to build upon these learnings for chicken innovation in the US.

Our innovation is supremely customer-centric and insights-driven. We recently piloted a protein crust pizza featuring an industry-first protein-infused dough that aligns with the customer's desire for protein-rich options. When paired with our premium toppings, this pizza delivers up to 55 grams of protein per serving with 23 grams in the crust alone. Customer feedback during the test was highly positive, but we are still in the early development phase. The protein crust pizza is an example of how we are rebuilding our innovation pipeline, soon joining our menu lineup. The protein crust pizza is an example of how we are rebuilding our innovation pipeline. The protein crust pizza is an example of how we are rebuilding our innovation pipeline.

We expect the benefits of a comprehensive value proposition to begin to take hold. And look forward to providing updates in the coming months. We are also building partnerships with notable brands and strategic collaborations to introduce Papa John's International, Inc. to new customers. With the competitive dynamics in the QSR marketplace, we are equally focused on sharpening our marketing message. At Papa John's International, Inc., innovation extends beyond the menu, along with consumer-led, data-driven product innovation to win new customers and improve order mix on the path to sustainable, profitable top-line growth.

The foundational work we have done to recalibrate our ovens to adjust bake temperatures and optimize bake times has made our expanded innovation pipeline possible and has improved product quality and consistency. We are putting innovation behind these partnerships, and we are excited about what is ahead. While it is too early to share the details about these partnerships, we know pizzas are a game played nationally, but won locally. With a new single-serving pizza to drive incremental orders from existing customers and aligning with the trends that matter most to our customers, we are supporting our product launches with an all-new creative platform developed in partnership with our new agency of record.

I am thrilled to share that we have reestablished co-ops across 50 markets in the United States, which includes the majority of our priority markets. These co-ops enable franchisees across regions to pool resources for more effective localized targeting and brand support, with collaborative local campaigns. Now nearly half of our North American system-wide sales are supported by an advertising co-op. For example, as we prepared for our pan pizza launch, we launched a comprehensive campaign built around online video, social and owned channels, TV, influencer and media activation, and widespread press outreach.

Our messaging around pan is performing well, especially among younger consumers with strong purchase intent, with pan front and center because we know great pizza deserves a star. We will continue to anchor on our six simple ingredients promise. These new campaigns will also connect with customers by leaning into culture-forward omnichannel storytelling. Investing in technology and our tech stack is essential to being at the forefront of digital leadership in QSR and elevating the customer experience. Early in the fourth quarter, we launched our new omnichannel apps across both iOS and Android devices.

This enhancement consolidates our apps onto a single modern code base, makes digital innovation faster and more efficient, and increases our agility in adapting to customer needs. The new app experience is delivering strong early results, outperforming our legacy platforms in reliability and conversion, with response times nearly 40% faster and a 70 basis points improvement in conversion. Over the next two years, we will migrate from our legacy system to a modernized POS, combined with AI-powered labor, inventory and restaurant management systems. We have partnered with leading food service technology provider PAR Technology.

To reduce complexity and improve workflow in our US restaurants, we have partnered with PAR Technology to migrate to PAR POS, consolidating inventory management, make line operations, and AI-powered labor, inventory and restaurant management systems onto one platform and enable real-time insights. PAR POS provides us with powerful data and insights to inform our decisions and better serve our customers. The new system will utilize existing hardware, minimizing implementation expense and accelerating deployment. Additionally, we continue to expand our partnership with Google Cloud. In the second quarter, we plan to launch an advanced voice and group ordering feature to transform digital ordering through its AI-powered food ordering agent, and frictionless reordering for Papa Rewards members.

Together, these enhanced tools will simplify the ordering experience, reduce cart abandonment, and shorten the path from app open to checkout. We will continue to leverage our strong partnership with Google Cloud to deliver additional enhancements to make the customer experience even more seamless. Differentiating our customer experience across every demand channel remains a top priority. Our loyalty program, Papa Rewards, is one of our most valuable assets, connecting us with nearly 41,000,000 fans and engagement across all customer cohorts, leveraging personalization and exclusive offers to drive urgency, exclusivity, and incremental visits.

In 2025, our loyalty members placed two and a half times more orders than non-rewards members, indicating both the strength of our loyalty program and the opportunity associated with capturing new members. We are also engaging customers more frequently and helping to build advocacy among younger, value-orientated consumers. And given the importance of the carryout channel, we are also providing franchise incentives to support remodels and elevate the in-store experience. Finally, we continue to partner with and evolve our franchisee base. Our Papa Rewards loyalty program continues to increase order frequency, engagement across all customer cohorts, and we are already seeing green shoots.

I am pleased to report that we continue to gain momentum with our efforts to optimize our North American supply chain and reduce overall costs to serve. As we have progressed with the work, we have identified additional productivity opportunities and now expect to achieve at least $60,000,000 of North American system-wide cost savings, with $20,000,000 to $25,000,000 realized by 2026. These cost savings will equate to at least 160 basis points of four-wall EBITDA improvement by 2028. Next, we completed a strategic review of our restaurant fleet for both company and franchise restaurants and identified targeted opportunities to strengthen it through selective closures.

In November, we refranchised 85 restaurants, and we are currently in negotiations to refranchise 29 additional restaurants in the Southeast to another strong growth-orientated operator and expect to finalize that transaction in the second quarter. Partnering with well-capitalized strategic growing franchisees enhances local execution, improves operational efficiency, and unlocks future growth. In addition to accelerating refranchising, we are accelerating our refranchising program and expect to reduce company-owned restaurants to mid-single-digit percent of the North American system. Turning now to our cost structure.

We have conducted a comprehensive review of non-customer-facing costs as well as our corporate and field resources to create incremental flexibility across the company, further strengthen execution, and support profitable long-term growth for the Papa John's International, Inc. system. Together with the just-reviewed actions to optimize our restaurant portfolio, we expect this program to deliver at least $25,000,000 in cost savings outside of marketing through 2027. I will briefly walk through the key drivers of these savings in a moment, and Ravi will share the expected financial impacts from these initiatives in a few moments.

Starting with our organizational structure, we are taking action to better align corporate and field resources with our transformation priorities, including business areas that we believe have the greatest potential to drive sustainable growth, expand our addressable market, simplify operations, and optimize spans and layers in our organization. In parallel, we also evaluated non-customer-facing costs and are executing against identified opportunities to reduce indirect spend.

A portion of these savings will be reinvested to ignite even more customer enthusiasm and to remain agile and, as needed, to invest on behalf of the system in innovation, marketing to supplement national advertising, return co-ops to full strength, and support compelling price points across the system; technology such as our new POS and advancements in personalization and loyalty to drive customer engagement; priority markets and franchise development incentives that deliver strong returns for both franchisees and franchisor; and supply chain to improve cost leverage and four-wall EBITDA across the system. We have established clear success criteria and are closely tracking returns on these investments, and we are already seeing green shoots.

In summary, as we accelerate our transformation through focused investment in product and priority markets, we are making visible progress executing our strategy and are confident in our direction and in our ability to deliver sustainable, profitable long-term growth and capitalize on opportunities. And with that, I would like to turn it over to Ravi.

Ravi Thanawala: Thank you, Todd, and good morning, everyone. I will begin by sharing an update on our progress to improve restaurant profitability and optimize our restaurant portfolio, collaborating with our franchisees, and reviewing the North America restaurant fleet. I will then provide an overview of our fourth quarter financial results, and conclude with our outlook for fiscal 2026. First, I am honored to step into the role of president in North America in addition to my CFO responsibilities. I have spent the last three months in our restaurants, and I am struck by the engagement of our team members and franchisees and look forward to continuing to work with them to accelerate our transformation.

To drive profitable growth across the Papa John's International, Inc. system, I am highly focused on improving four-wall EBITDA for both company-owned and franchise restaurants. Given the high flow-through inherent in our business model, transaction growth supported by an elevated customer experience, and TAM-expanding product innovation such as the pan pizza, sandwiches, and sides that Todd referenced, will serve as a critical driver for four-wall margin over the medium and long term. Lower cost and greater efficiency are additional pillars of the four-wall EBITDA improvement. In addition to reducing our overall cost to serve, the supply chain optimization that Todd referenced will drive cost efficiency in our restaurants and improve customer service.

We are developing new tools that allow us to better predict sales demand and give our restaurants better visibility to align staffing needs with peak and off-peak periods. We are leveraging new AI capabilities, including our Google Cloud partnership, to simultaneously drive customer experience across the category. Optimizing our restaurant portfolio and strategically closing underperforming restaurants are among the most impactful actions we can take to improve restaurant profitability and fleet health. We have completed a strategic review of our restaurant fleet and identified targeted opportunities to strengthen it through select closures. The vast majority of our global restaurants have performed well over the years and delivered strong returns for both corporate and franchise owners.

However, we have identified approximately 300 underperforming restaurants across North America that are not meeting brand expectations or lack a clear path to sustainable financial improvement, as well as locations where we can effectively transfer sales to a nearby restaurant. These locations are primarily franchise-owned and are mostly operating at negative four-wall EBITDA. We expect to close the majority of these restaurants by the end of 2027, with approximately 200 closures occurring in 2026. We believe these closures will further strengthen the system. This is the same strategy we successfully deployed during my tenure managing our international business. We delivered significant upside, improving AUVs in the UK by 17% after implementing our transformation plan.

Similarly, select strategic closures will allow our North American franchisees to redirect resources towards operational excellence and improve franchisee health by allowing franchisees to reallocate resources in their remaining restaurants and open units in priority markets. While domestic four-wall EBITDA has been pressured over the last two years by food costs, labor inflation, and fixed cost leverage, we expect to generate at least 200 basis points of improvement in four-wall EBITDA over the medium term driven by supply chain savings, operational efficiency, and market optimization. In addition to healthier corporate and franchise restaurant portfolios, we expect the increased restaurant-level profitability will accelerate unit growth. We expect the increased restaurant-level profitability will accelerate unit growth.

We expect the increased restaurant-level profitability will accelerate unit growth. As an incremental lever to assist our franchisees in growing profitably, we are also investing in long-term restaurant development incentives, with an emphasis on accelerating growth in our highest priority markets. I am also highly focused on reducing menu complexity to improve restaurant operations. Based on productivity studies and feedback from both franchisees and customers, we have made the decision to eliminate Papadias and Papa Bites from our North America menu in the second quarter.

We expect that this menu revision will exert approximately 150 basis points of near-term pressure on 2026 North America comparable sales, but ultimately benefit the brand as we improve operations and grow sales of products outside of core pizza as the benefit of our reinvigorated innovation pipeline builds. Turning now to our financial results. Please note that all comparisons and growth rates referenced today are compared to the prior-year period unless otherwise noted.

In 2025, we met or exceeded our updated financial targets for system-wide sales, comparable sales growth, and adjusted EBITDA as we pivoted during the second half of the year to amplify our value proposition in response to a weaker consumer backdrop and intense competitive promotional activity while prudently managing our expenses. We also opened 279 new restaurants and ended 2025 with 96 restaurant openings in North America and 183 in international markets. For the fourth quarter, global system-wide restaurant sales were $1,230,000,000, down 1% in constant currency, reflecting a system-wide sales decline of just under 1%, as higher international comparable sales and 1% global net restaurant growth were more than offset by lower comparable sales in North America.

As Todd described, we are taking actions to further increase our agility across our restaurants. In 2025, our US market share slightly softened. As we move throughout 2026 and build momentum behind our transformation, we expect to recapture share. North America comparable sales decreased 5% in the fourth quarter driven by a 5.5% decrease in transaction comps. Carryout grew 1% but was more than offset by declines in total delivery. The international team delivered another exceptional quarter with comparable sales improving 6%. We saw continued momentum across our key markets driven by new menu offerings, aggregator expansion, and improved brand and marketing performance.

Total consolidated revenue for the fourth quarter was $498,000,000, down 6%, as lower revenue at our domestic company-owned restaurants, North America commissary, and all other business units was partially offset by higher international revenues. North America commissary revenues decreased $7,000,000 primarily due to lower pricing, slightly offset by higher volumes. Domestic company-owned revenues decreased $24,000,000 primarily due to refranchising of 85 corporate restaurants. All other business unit revenues decreased $7,000,000 driven by lower advertising fund revenue as a function of lower sales. Partially offsetting these declines was a $4,000,000 increase in international revenue driven by improved performance across our priority regions.

Fourth quarter consolidated adjusted EBITDA decreased to $51,000,000 as we sharpened our value proposition during the quarter in addition to lower comparable sales in the prior year, and approximately $2,000,000 of higher management incentive compensation. Fourth quarter consolidated adjusted EBITDA performance was impacted by marketing investments and subsidies of approximately $8,000,000. These declines were partially offset by lower cost of sales related to the refranchising transaction and commodity deflation. In 2025, consolidated adjusted EBITDA was $201,000,000, including $21,000,000 of incremental marketing investments, building on approximately $4,000,000 of incremental marketing investment in 2024. In the fourth quarter, domestic company-owned restaurant delivered four-wall EBITDA of $19,200,000 and a four-wall margin of 12.7%.

Domestic company-owned restaurant segment adjusted EBITDA margin, which includes G&A expenses, was 6.3%, improving by approximately 10 basis points as a flow-through from higher average ticket offset lower transaction volumes and labor inflation. North America commissary segment adjusted EBITDA margins were 7.7%, an increase of 150 basis points primarily reflecting higher volumes. Food costs and restaurant labor were each approximately 32% of domestic company-owned revenues during the quarter. Turning to our balance sheet. At the end of the quarter, our total available liquidity was $515,000,000 and our covenant leverage ratio was 3.2 times. We continue to maintain a strong balance sheet that provides ample flexibility to invest behind our transformation initiatives. Turning now to cash flows.

Net cash provided by operating activities in 2025 was $126,000,000. Free cash flow was $61,000,000, an increase of $27,000,000, primarily reflecting favorable changes in working capital and timing of cash payments for the national marketing fund and cash taxes. Capital expenditures decreased approximately $8,000,000. Now turning to our 2026 outlook. Our financial guidance is provided on an adjusted basis, excluding restructuring charges. As we improve our cost structure to support our transformation, we expect to incur restructuring charges of approximately $16,000,000 to $23,000,000 associated with our transformation work. We expect these will be primarily cash charges to be recognized in 2026 and 2027.

We have reduced our corporate workforce by approximately 7% and expect to close approximately 200 North America restaurants in 2026 and 100 in 2027, representing approximately 21% of annualized global system-wide sales, respectively. These impacts are reflected in our financial guidance. For 2026, we expect global system-wide sales to range between flat and low single-digits decline. For North America, we expect comparable sales to be down 2% to 4%. Our guidance reflects both the benefit of innovation pipeline and considerations around the current cautious consumer environment we expect to persist throughout 2026. These factors are expected to influence our comparable sales trends through the year.

Quarter to date, comparable sales are down mid-single digits, and we expect to end the first quarter in that range, followed by improved trends in the second half of the year. Internationally, as we build on our transformation momentum, we expect comparable sales to increase between 2%–4%, supported by the benefits of our product innovation, marketing co-ops, and new aggregator marketing strategy. As Todd shared, we are negotiating the refranchising of 29 additional restaurants in the Southeast and expect to close the transaction in the second quarter. This transaction is expected to reduce 2026 consolidated revenues by approximately $9,000,000, including the impact of eliminations, and benefit adjusted EBITDA by approximately $1,000,000.

We also plan to refranchise additional restaurants in 2026, but those transactions are in the earlier stages and are not factored into our guidance at this time. We will provide updates on financial impacts on future earnings calls on those transactions’ progress. For 2026, we expect consolidated adjusted EBITDA to be between $202,000,000–$210,000,000. Recall that 2025 and 2026 are our investment years as we support our transformation initiatives, and we do not expect this $22,000,000 investment to continue after 2026. In 2026, we expect to invest approximately $22,000,000 in supplemental marketing and franchisee subsidies as we lean into a promotional strategy in this year's innovation calendar, and we continue to stand up local co-ops.

As Todd described earlier, our 2026 consolidated adjusted EBITDA outlook includes $13,000,000 of cost savings outside of marketing on our way to achieving $25,000,000 of total cost savings by 2027. As our transformation advances, we will continue to be prudent with cost management to support our menu strategy and enhance franchisee profitability. For non-operating expense items, we expect net interest expense between $35,000,000 and $40,000,000, adjusted D&A between $70,000,000 and $75,000,000, and capital expenditures between $70,000,000 and $80,000,000. As we move to a more asset-light model after 2026, we expect capital expenditures to step down to approximately $60,000,000 to $70,000,000 per year, on average.

We expect our 2026 GAAP effective tax rate to be in the range of 30% to 34%. For Q1, our tax rate is expected to be between 34%–38%, reflective of an anticipated shortfall of the vesting of restricted shares resulting in additional tax expense when compared with the prior-year period. Turning to restaurant development. We expect to open between 40 and 50 gross new restaurants in North America in 2026. In the near term, we are focused on elevating four-wall economics and capitalizing on significant market share opportunities over the medium term. Internationally, we expect to open 180 to 220 gross new restaurants in 2026.

We anticipate international closures will represent 5% to 6% of our international system as we continue to pursue strategic closures with the intent of accelerating new restaurant development and our consumer experience, and closures returning to 1.5% to 2% per year after 2027, with new restaurant growth comparable to 2025 levels. Overall, we are pursuing an asset-light model that generates higher free cash flow. We believe that our accelerated refranchising program combined with our efforts to grow transactions, improve restaurant-level profitability, and reduce corporate G&A will generate higher free cash flow. While transformations are not linear, we are managing the current environment while taking deliberate strategic actions to deliver long-term value creation for all of our stakeholders.

Now we would like to open up the call for any questions you may have. Operator? We will now open for questions.

Operator: Ladies and gentlemen, as a reminder, to ask a question, please press star 11. Please limit yourself to one question and one follow-up. Our first question comes from the line of Brian Bittner with Oppenheimer. Your line is open.

Brian Bittner: One of your competitors suggested the QSR pizza industry as a whole is pretty stable, in fact, growing. And your same-store sales guidance for 2026 is a 2% to 4% decline. And the question is just what is holding you back from holding or taking share in 2026 in your view? I realize you see a cautious consumer out there, but it seems like your guidance does assume a market share decline in 2026 and just would like your commentary on that. And then I just have a quick follow-up.

Todd Penegor: Yeah, Brian. Thanks for the question. You know, as we think about 2026, our opportunity is really about bringing our innovation calendar to life. As you think about where some of the opportunities have been for us over the last year or so, you know, and it was really around recruiting new customers to our brand. And we do believe that innovation is going to play a big role with that. Actually doing a nice job continuing to protect and drive frequency with our existing customer, and you saw that in the prepared remarks with the work that we have been doing in Papa Rewards and the targeted CRM offers. We are seeing good repeat rates early in the game.

You know, the sandwich come with a fun property tie-in. So those are things that we know we have to drive on innovation to recruit new customers. We also know we have got to bring news, continue to drive our core pizza business. You know, the good news is we sold 4% more pizzas in 2025 on a full-year basis than we did the year before. Even though we saw some of the mixed trade downs from large and specialty into medium, which provides a little bit of pressure on our business, we know we have an opportunity to drive add-on with affordable sides. So we have got that news coming through this year.

But we do think as we go through this year, you know, bringing to life pan pizza, we are already seeing a nice mix in that product. We know we have an opportunity to recruit new customers into our brand, and it is a great product once they try it. It is doing really well in test. So I would expect to see that come to life during the course of this year. And the single-serve pizza opportunity is an opportunity for us to start to expand our total addressable market because we do not play in that category yet.

And that will really compete better at the local level, and we have been working hard over the course of the last eighteen months since I have been here to get the co-ops back up. And as you heard in the prepared remarks, we now have 50 co-ops representing half the system sales in the US up and running. So all of those are the nice tailwinds in our business that we are going to see during the course of this year. Why do we have the guidance that we have with all of that news? Well, we have got a couple of things that we know we need to evolve and change.

We talked about we are going to do the things that are right for the long term of the business. And we know we have got to compete even stronger in the 3P channel. And that is not just national offers, that is working local, and the co-ops will help us really position to do that even stronger at the local level. So we think we will continue to see some of the mixed trade downs, and we are going to be focused on doing that. But you know, we think it is a prudent approach to the business. We are managing our cost structure appropriately. We continue to invest to bring the news to life.

And we do really think that kind of prudent approach to our business will set ourselves up for long-term success. Anything else, Ravi?

Ravi Thanawala: And just, Brian, as we think about dimensionalizing the 2025 comp, 180 basis points of our comp pressure came from our sides business. Fifty basis points were from channel mix, the balance was really a mix shift within the pizzas that sell from larger sizes to medium sizes and a little bit of a mix out of specialty and to create your own. So there are a couple of dynamics there, but as Todd mentioned, we are really focused on wearing in our innovation strategy and competing well.

Todd Penegor: Thanks, Brian. Follow-up. Yeah. I think, you know, on competing on value, we really think about how do we meet the consumer where they are at. And, you know, we did that in partnership with our franchise system in the fourth quarter. Our 50% carryout offer met them where they are at, and, you know, that is a great offer and a great overall service experience because we do really well on the carryout side. You know, having $9.99 create your own did meet the consumer where they are at, but we have to compete on both ends of the barbell, and that is why bringing this innovation is so important.

And you can see that as we come out with a compelling price point on pan, at $11.99, it is still a trade-up from our $9.99 create your own offering. So that does help margin in check and dollars. But what we really need to do is continue to recruit new customers because if we can get them into our rewards program, we see higher frequency, and there is a lot of value that can be created with Papa Do redemptions. We have seen a nice uptick in the Papa Do redemptions, and our frequency, as we said on the call, is two and a half times more with a loyalty member than a non-loyalty member.

You know, the work we are doing on innovation to have affordable sides certainly helps us on value. And we said earlier, we are going to have to make sure that we have got the appropriate offers in 3P to compete even better to make sure we have got not just our fair share of the pizza category, but our fair share of QSR in the 3P channel. It is going to have to be a balance. We are just going to have to continue to drive folks over into our program. So as you think about more personalized one-to-one communication to drive value, drive behavior with those customers, we will continue to lean in on that.

A great way to compete for the size and scale of the business that we are against the bigger competitors that are out there.

Operator: Please stand by for our next question. Our next question comes from the line of Sara Harkavy Senatore with Bank of America. Your line is open.

Isaiah Austin: Hi. Thanks for the question. I am Isaiah Austin on for Sara. Just briefly, how do you guys think about competing on value? I know it is kind of derivative of the previous question, but how do you think of competing on value when you think of going against a larger scale competitor? And then I just have a quick follow-up. And do you mind letting me know how you guys see growth? Is that coming more from aggregator platforms, or if there is an opportunity to drive growth primarily through the one key platform?

Ravi Thanawala: Yeah, and just like as a reminder in our prepared remarks, we talked to an opportunity for capturing 200 basis points of margin upside on a four-wall basis in the system, with 160 basis points coming from supply chain and the balance coming from labor and market calendar. So even in this value-centric world, we are pulling levers to continue to maintain and drive our four walls. And just more broadly, from a four-wall standpoint, in December 2024, we provided a and figured that our domestic company-owned restaurant four-wall margins were $150,000. And as we look at the numbers for year end 2025, we are at $135,000.

So just from a broader system standpoint, we went slightly backwards, but we have a clear plan that we just laid out to reaccelerate there. And then by having this balance of value messaging that I referenced and wearing in our innovation program, we think there is an opportunity to drive growth from a carryout standpoint in our 1P business, and we see that as a core focus. We continue to attack, really bringing new customers, and that is not just in our traditional channels to carryout and 1P, but also helps a lot in 3P as we bring all this news to life.

And just like as a reminder in our prepared remarks, we talked to an opportunity for capturing 200 basis points of margin upside on a four-wall basis in the system, with 160 basis points coming from supply chain and the balance coming from labor and market. And just more broadly, from a four-wall standpoint, in December 2024, we provided a and figured that our domestic company-owned is at a $1,250,000 AUV, roughly at a 10% EBITDA margin. And our top 75% of our fleet AUVs are roughly $1,400,000 at a 12% EBITDA margin.

So when we look at the top 50% of our fleet right now in the US, we see opportunities to continue to accelerate four-wall margins and drive increased check and traffic in that channel.

Todd Penegor: We have been first movers on the aggregators, and we continue to grow and expand that business in both. As we have talked about, we see a lot of runway still left on the different platforms. So we are going to continue to lean in both, but I think we have to be agile both at first party and third party. And we truly believe our strong innovation calendar will help us really bring new customers, and that is not just in our traditional channels to carryout and 1P, but also helps a lot in 3P as we bring all this news to life.

Ravi Thanawala: As, you know, look. There are lots of different offers that consumers are seeing in this value-centric world. But I think we have to be agile both at first party and third party. James has got lots of experience on managing the third-party experience and third-party business, and we will continue to shift and adjust as needed.

Operator: Our next question comes from the line of Todd Brooks with Benchmark. Your line is open.

Todd Brooks: Hey, good morning. Thanks for the question. Ravi, you just gave us some hints on kind of the overall system performance. But can you maybe take the metrics that you gave us for unit-level EBITDA for company and apply that to the overall base, how much that 500 restaurants system that they are operate a rough—company and apply that to the overall base, how much that—different perspectives in terms of managing ticket versus transaction as well that could impact individual franchisees' performance. But what we are all rallied around—is recapturing 200 basis points of margin rate upside. And as I think about 2026 relative to 2025, we expect four-wall profitability to slightly increase year on year on a dollar basis.

Ravi Thanawala: Yeah. I cannot give specifics on the declines from a system standpoint, but what I would say is it is a probably a reasonable starting point to work from. I think more broadly, across our system, there are different perspectives in terms of managing ticket versus transaction as well that could impact individual franchisees’ performance. But what we are all rallied around is recapturing 200 basis points of margin rate upside. And as I think about 2026 relative to 2025, we expect four-wall profitability to slightly increase year on year on a dollar basis.

And the last thing I will add, I think we really have the opportunity to lean in on our CRM and figured that our domestic company-owned, and our top 75% of our fleet AUVs are roughly $1,400,000 at a 12% EBITDA margin. So just from a broader system standpoint, we have a clear plan that we just laid out to reaccelerate there. And then by having this balance of value messaging and wearing in our innovation calendar, we continue to accelerate four-wall margins.

Todd Penegor: Yeah, Todd. And I would add, you know, that is why we really took a thoughtful approach to the closures and really conducted a full strategic review, as we said in the prepared remarks, to make sure that we really strengthen the system and help on the four-wall profitability and help on our overall AUVs. Take a look at restaurants that maybe the trade areas have moved away or there was going to be significant investment to get them up to grade, both from how we are operating them as well as how they are perceived because they may look a little more older and tired.

Todd Brooks: Okay. Great. So I am trying to dimensionalize the 300 that you have identified for closure. How much healthier does that make the rest of the system from an economic standpoint?

Todd Penegor: To really strengthen the system and help on the four-wall profitability and help on our overall AUV and our more challenged EBITDA restaurants. You know, that opportunity is an opportunity to really take care of our lowest AUV and our more challenged EBITDA restaurants.

Ravi Thanawala: So the AUVs increase about 3% on an average basis from the restaurant closures, and I would say the recapture rates vary by individual trade zones. But our recapture rates are very healthy in the business. So we took a pretty surgical approach of looking at quality of operations, quality in the trade zone, quality of the assets itself, and made a pretty clear determination in terms of restaurant by restaurant, which are the ones that we felt should close. And, you know, we have had great partnership with the franchisees to make sure we are thinking about each market holistically, that we are setting ourselves up for a stronger system.

Todd Penegor: Yeah. Appreciate the work Ravi has been doing with each franchisee on the joint capital planning front to really look at what is going to be the best opportunity to not only be there for our consumer, but set our system up and our franchise up in those markets for ultimate success. Whether that is a relocation, whether that is a closure, whether that is a reimage, whether that is a new build, we are working hard to really make sure that we partner with our franchise community to set them up for long-term success.

Operator: Thank you. Our last question will come from the line of James Jon Sanderson with Northcoast Research.

James Jon Sanderson: Hey. Thanks for the question. I wanted to get a little bit more feedback on the delivery channel. Any feedback on how the third party performed relative to first party? And what do you think the biggest unlock or opportunity ahead is to really drive increased check and traffic in that channel?

Ravi Thanawala: Thanks, Todd. In the quarter, third-party delivery grew low single digits on a dollar basis. The decline came from the first party side. We think that there is still meaningful work that we can get after to improve consumer satisfaction scores on the delivery side. There is no one thing we are doing there. There are a number of things we continue to work on. We are leveraging our Google Cloud partnership to continue to evolve that digital experience journey. We are looking at different strategies to make sure that we are improving taste of food, which is a key measure of consumer satisfaction. Which is a key measure of consumer satisfaction. Which is a key measure of consumer satisfaction.

On the delivery of product. And third is we are going to continue to leverage CRM to make sure we are getting our most loyal consumers into that delivery channel.

Todd Penegor: Well, I would like to thank everybody for joining the call this morning. I know it is a busy morning with a lot of other folks announcing. So I appreciate your continued interest in Papa John's International, Inc. Thanks, Jim. I appreciate your continued interest in Papa John's International, Inc.

James Jon Sanderson: Alright. Thank you very much.

Operator: Ladies and gentlemen, there are no more questions in the queue. I would now like to turn the call back over to Todd for closing remarks.

Todd Penegor: Most importantly, I want to thank our team members and franchisees for their dedication to serving our customers as we accelerate our transformation in 2026 to set ourselves up for mid- and long-term success. We are confident we have the right plan in place to create meaningful value across our organization for our team members, franchisees, and shareholders. Have a great day. I look forward to some of the follow-up calls this morning. Thanks, everybody.

Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

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