Segment Information

6 Months Ended

Jun. 25, 2023

Segment Reporting [Abstract]

Segment Information

11. Segment Information

We have four reportable segments: Domestic Company-owned restaurants, North America franchising, North America commissaries, and International operations. The Domestic Company-owned restaurant segment consists of the operations of all Domestic Company-owned restaurants and derives its revenues principally from retail sales of pizza, Papadias, which are flatbread-style sandwiches, and side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages. The North America franchising segment consists of our franchise sales and support activities and derives its revenues from sales of franchise and development rights and collection of royalties from our franchisees located in the United States and Canada. The North America commissary segment consists of the operations of our regional dough production and product distribution centers and derives its revenues principally from the sale and

distribution of food and paper products to Domestic Company-owned and franchised restaurants in the United States and Canada. The International segment consists of the operations of all Company-owned restaurants located in the UK, as well as distribution sales to franchised Papa John’s restaurants located in the UK and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our International franchisees. All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as “all other,” which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of printing and promotional items, franchise contributions to marketing funds and information systems and related services used in restaurant operations, including our point-of-sale system, online and other technology-based ordering platforms.

Generally, we evaluate performance and allocate resources based on operating income. Certain administrative and capital costs are allocated to segments based upon predetermined rates or estimated resource usage. We account for intercompany sales and transfers as if the sales or transfers were to third parties and eliminate the activity in consolidation.

Our reportable segments are business units that provide different products or services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies. No single external customer accounted for 10% or more of our consolidated revenues.

The following tables present our segment information.

	Three Months Ended				Six Months Ended
(In thousands)	June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
Revenues:
Domestic Company-owned restaurants	$	175,780	$	171,411	$	355,646	$	370,176
North America franchising	34,711		34,917		70,783		69,185
North America commissaries	206,980		219,383		419,546		429,062
International	41,354		39,282		80,058		81,989
All others	55,705		57,672		115,546		114,945
Total revenues	$	514,530	$	522,665	$	1,041,579	$	1,065,357
Intersegment revenues:
North America franchising	$	1,025	$	1,048	$	2,077	$	2,101
North America commissaries	51,586		52,754		103,403		111,261
International	869		—		869		—
All others	16,348		15,889		33,183		35,268
Total intersegment revenues	$	69,828	$	69,691	$	139,532	$	148,630
Operating income:
Domestic Company-owned restaurants (a)	$	6,641	$	5,924	$	13,291	$	7,912
North America franchising	32,111		32,624		65,511		64,761
North America commissaries	10,397		10,957		21,127		20,292
International (b)	3,763		7,306		10,995		11,761
All others	1,343		2,187		4,500		5,906
Unallocated corporate expenses (c)	(19,701)		(19,344)		(43,067)		(56,454)
Elimination of intersegment (profits) losses	358		(750)		351		(839)
Total operating income	$	34,912	$	38,904	$	72,708	$	53,339
Property and equipment, net:
Domestic Company-owned restaurants	$	242,089
North America commissaries	155,681
International	27,748
All others	139,114
Unallocated corporate assets	248,387
Accumulated depreciation and amortization	(548,626)
Total property and equipment, net	$	264,393

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(a)    The six months ended June 26, 2022 includes a one-time, non-cash charge of $8.4 million associated with the refranchising of the Company’s ownership interest in a 90-restaurant joint venture, recorded as Refranchising and impairment loss. See “Note 10. Divestitures” for additional information.

(b)    The three and six months ended June 25, 2023 includes $1.3 million of costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of stores from franchisees. The six months ended June 26, 2022 includes $3.5 million of one-time, non-cash reserves for certain accounts receivable and impairments of reacquired franchise rights. See “Notes 2. Significant Accounting Policies” and “10. Divestitures” for additional information.

(c)    The three and six months ended June 25, 2023 includes $0.7 million and $2.0 million, respectively, of severance and related costs associated with the transition of certain executives. The three months ended June 26, 2022 includes $1.5 million of advisory fees and severance costs associated with the transition of certain executives. The six months ended June 26, 2022 includes $13.9 million of one-time, non-cash reserves of certain notes receivable, $5.0 million for certain legal settlements, and $1.5 million of advisory fees and severance costs associated with the transition of certain executives. See “Notes 2. Significant Accounting Policies” and “9. Litigation, Commitments and Contingencies” for additional information.

Disaggregation of Revenue

In the following tables, revenues are disaggregated by major product/service line. The tables also include a reconciliation of the disaggregated revenues by the reportable segment (in thousands):

	Reportable Segments
	Three Months Ended June 25, 2023
Major Products/Services Lines	Domestic Company-owned restaurants		North America franchising		North America commissaries		International		All others		Total
Company-owned restaurant sales	$	175,780	$	—	$	—	$	3,018	$	—	$	178,798
Franchise royalties and fees	—		35,736		—		12,196		—		47,932
Commissary sales	—		—		258,566		20,263		—		278,829
Other revenues	—		—		—		6,746		72,053		78,799
Eliminations	—		(1,025)		(51,586)		(869)		(16,348)		(69,828)
Total segment revenues	175,780		34,711		206,980		41,354		55,705		514,530
International other revenues (a)	—		—		—		(6,746)		6,746		—
Total revenues	$	175,780	$	34,711	$	206,980	$	34,608	$	62,451	$	514,530
	Reportable Segments
	Three Months Ended June 26, 2022
Major Products/Services Lines	Domestic Company-owned restaurants		North America franchising		North America commissaries		International		All others		Total
Company-owned restaurant sales	$	171,411	$	—	$	—	$	—	$	—	$	171,411
Franchise royalties and fees	—		35,965		—		12,043		—		48,008
Commissary sales	—		—		272,137		19,915		—		292,052
Other revenues	—		—		—		7,324		73,561		80,885
Eliminations	—		(1,048)		(52,754)		—		(15,889)		(69,691)
Total segment revenues	171,411		34,917		219,383		39,282		57,672		522,665
International other revenues (a)	—		—		—		(7,324)		7,324		—
Total revenues	$	171,411	$	34,917	$	219,383	$	31,958	$	64,996	$	522,665
	Reportable Segments
	Six Months Ended June 25, 2023
Major Products/Services Lines	Domestic Company-owned restaurants		North America franchising		North America commissaries		International		All others		Total
Company-owned restaurant sales	$	355,646	$	—	$	—	$	3,018	$	—	$	358,664
Franchise royalties and fees	—		72,860		—		24,687		—		97,547
Commissary sales	—		—		522,949		39,235		—		562,184
Other revenues	—		—		—		13,987		148,729		162,716
Eliminations	—		(2,077)		(103,403)		(869)		(33,183)		(139,532)
Total segment revenues	355,646		70,783		419,546		80,058		115,546		1,041,579
International other revenues (a)	—		—		—		(13,987)		13,987		—
Total revenues	$	355,646	$	70,783	$	419,546	$	66,071	$	129,533	$	1,041,579

	Reportable Segments
	Six Months Ended June 26, 2022
Major Products/Services Lines	Domestic Company-owned restaurants		North America franchising		North America commissaries		International		All others		Total
Company-owned restaurant sales	$	370,176	$	—	$	—	$	—	$	—	$	370,176
Franchise royalties and fees	—		71,286		—		25,478		—		96,764
Commissary sales	—		—		540,323		41,097		—		581,420
Other revenues	—		—		—		15,414		150,213		165,627
Eliminations	—		(2,101)		(111,261)		—		(35,268)		(148,630)
Total segment revenues	370,176		69,185		429,062		81,989		114,945		1,065,357
International other revenues (a)	—		—		—		(15,414)		15,414		—
Total revenues	$	370,176	$	69,185	$	429,062	$	66,575	$	130,359	$	1,065,357

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(a)    Other revenues as reported in the Condensed Consolidated Statements of Operations include $6.7 million and $14.0 million of revenues for the three and six months ended June 25, 2023, respectively, and $7.3 million and $15.4 million for the three and six months ended June 26, 2022, respectively, that are part of the International reporting segment. These amounts include marketing fund contributions and sublease rental income from international franchisees in the United Kingdom that provide no significant contribution to operating income but must be reported on a gross basis under accounting requirements. The related expenses for these Other revenues are reported in Other expenses in the Condensed Consolidated Statements of Operations.