Papa John's International Stock

Good day, and thank you for standing by. Welcome to the Papa John's Third Quarter 2026 Conference Call and webcast. [Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amy Anne Turnage, Senior Director of Treasury. Please go ahead.

Good morning, and welcome to our third 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. 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 addressed on today's call. Lastly, we ask that you please limit your question and follow-up.

And now I'll turn the call over to Todd.

Thank you, Amy Anne, and good morning, everyone. Before I review our third quarter results, I'd like to spend some time discussing where Papa John's is headed and why I believe we are entering an important next phase of transformation for the company.

For decades, customers chose Papa John's because we stood for something distinctive, not because we were the cheapest option, but because they believe we offered something worth choosing, quality ingredients, great pizza and a brand promise that sets us apart. At our best, that promise earned trust and loyalty. But customers' expectations have continued to rise. Competition has intensified, and we recognize that we must move with those expectations in order to continue to earn that trust.

That is why today, we are introducing Unbox Better. Unbox Better is more than a marketing platform or a short-term initiative. It is our company-wide blueprint for strengthening our brand, strengthening our system and earning the right to be chosen again and again. Importantly, this strategy is supported by our new marketing framework, which creates operational and financial alignment across our system.

With our franchisees and corporate teams moving forward together, we have a stronger foundation than we have had in years to execute a common vision and accelerate our transformation. Perhaps the clearest sign of that alignment is the overwhelming support for this framework, which was approved by a remarkable 98% of votes cast. That level of consensus reflects a shared commitment to the future of the brand and reinforces what we know to be true. When franchisor and franchisee are aligned behind a common strategy, we can accelerate growth, strengthen performance and create greater economic opportunity across the system.

Turning to our third quarter results. While top line performance came in below our expectations, our disciplined focus on value, operational execution and cost management enabled us to deliver positive free cash flow. We know that business transformations are rarely linear, and Papa John's is no exception. That said, we have a clear path forward, driven by our renewed strategic focus that I will detail later.

North America continues to be challenged, driven primarily by the same factors we discussed last quarter, including an intensely promotional environment and softer new customer acquisition. Consistent with the pattern we saw last quarter, our carryout business was relatively stronger than delivery, while our first-party delivery channel remains under the most pressure. We also continue to see the same underlying mix pressure with single-pie orders, sides and desserts remaining a drag even as orders with multiple pies continue to hold up well.

Turning to our international business. Comparable sales were down 1.8% for the quarter with challenges in some of our markets. This was partially offset by continued momentum in the U.K., where comparable sales were up 7.2% on a one-year basis and 16.3% on a two-year basis. The pressure came from the Middle East, where the regional conflict has weighed on consumers, both directly and indirectly.

Trends also remained soft in parts of Latin America and in China. In the U.K., strong operational execution and increased media investment continue to build brand awareness and momentum, fueled by core product improvement, innovation you would only expect from Papa John's and franchisee ownership optimization. That consistent growth gives us confidence in our renewed strategy for the North American business as we are using many of the same key ingredients that drove our U.K. turnaround.

Chris will walk you through the third quarter in more detail later in the call. For now, I would like to discuss our roadmap for the future. As I mentioned at the start of the call, today marks an important milestone in our transformation journey as we formally introduce Unbox Better. At its core, Unbox Better is built around a simple belief. Customers do not owe us their business. We earn it every order, every experience, every day. The strategy is rooted in two priorities:

First, strengthen our brand by giving customers compelling reasons to choose Papa John's. Second, strengthen our system by consistently delivering on the expectations we create. Taken together, those priorities create what matters most, customer preference and customer trust. Under each priority, we have business imperatives that will bring those priorities to life, and they form the blueprint for how we will create sustainable growth over time. I will now walk you through our four imperatives that will drive our first strategic priority, strengthening our brand.

One, reignite our food, so it is worth choosing. As a restaurant company, everything starts with the food and strengthening the core menu is our #1 priority. We are working on and retraining the fundamentals across still optimization, bake consistency, better toppings and presentation with better ingredients and consistent execution behind them, every pizza every time. We are starting now with a system-wide recommitment to those fundamentals, and we are pairing it with a new offer that invites customers to come back, try us again and tell us how we did. Their feedback will guide a steady set of product and quality improvements that we will roll out through next year.

Two, bring our brand promise back to life. Customers want authenticity and reasons to believe. So we are grounding that promise in the product truth that set Papa John's apart, including quality ingredients, fresh vegetables, real cheese and our signature garlic sauce. This imperative focus on the customer experience and the operations behind it, combined with the first imperative focus on the food itself ensures every order reflects what we stand for.

Three, reset our value equation. Value is not simply the lowest price. It is what customers receive relative to what they spend, including quality, convenience and trust. In a very promotional category, we chose to protect margin over deep discounting and transactions declined as a result. We are now sharpening our barbell strategy, pairing the signature products customers crave with price points that drive traffic and conversion. We know it will take several quarters of that consistency before customers give us credit for it.

And four, deepen our customer connection and our loyalty members show why it matters. Their comparable sales outperform non-loyalty customers by 10 percentage points. Their tickets are 4% higher per order, and they order about twice as often. We want customers actively choosing us more often and staying with us for longer. We have continued to roll out an AI-powered personalization engine within our CRM platform, which will let us send more relevant offers and deliver value at the moments that matter. But giving customers a reason to choose us only works if you deliver on it, which underpins our second strategic priority, strengthening our system.

I'll walk you through the three imperatives that will support this priority. One, deliver on every promise, every pizza every time. Customers judge us one order at a time, and we know that when we meet or exceed expectations, customers come back. In the third quarter, restaurants in the top quintile of operation scores were 400 basis points ahead of our bottom quintile in comps and restaurant margin.

Closing that gap is one of our highest return levers. We are doing that through coaching, earned financial incentives and a regional franchise business director model that puts more support closer to our franchisees. Technology supports this work. We are testing a modern AI-native point-of-sale platform in a small number of restaurants and the early read is encouraging.

The new POS allows for more accurate forecasting, better labor scheduling and increased speed and flexibility of deploying offers and promotions. This is achieved by allowing our restaurant teams to spend less time on noncustomer-facing tasks and more time focusing on making great food and driving positive interactions with our customers. We expect to have an initial wave of restaurants live by year-end with the bulk of our U.S. system going live in 2027.

More importantly, what we learn now is helping us set up that rollout for success. Lou AI, our AI ordering companion built with Google Cloud is already making ordering easier. Customers using Lou AI convert at a higher rate and finish their orders faster. And we are improving driver routing for faster delivery and hotter pizzas while simultaneously making operations easier for our team members.

Two, bring the brand to more guests. We have partnered with Walmart Express delivery to become the first national restaurant brand on the platform with orders fulfilled entirely from restaurant locations outside of Walmart stores. This new partnership reaches guests who might not otherwise have Papa John's in their consideration set. We are in early pilot testing this fall. And roughly half of our U.S. restaurant system is now supported by our reestablished co-ops with funded co-op markets continuing to meaningfully outperform markets without one.

We anticipate the remaining local co-ops will be established by the end of 2027. To support the success, as part of the new marketing framework, we are increasing local co-op spending to 2% in addition to the national spend, which we are now adjusting to 5%. In total, marketing spend is now 7% versus 6% previously.

Three, build a system where operators thrive. Our success depends on the success of our franchisees. If they are not thriving, customers will ultimately feel it. To further support our franchisees, we are reducing our supply chain margin to 4%, providing a 100 basis point margin improvement for our franchisees versus our previously targeted 2027 supply chain margins and strengthening the entire system for the long term.

Consistent with what we shared last quarter, this is part of our continued support for franchisees with approximately $35 million of investment continuing into 2027. Support continues into future years at lesser amounts as the supply chain margin steps up to 4.5% in 2028 and 5% in 2029. This improves alignment and gives us more agility in a highly competitive market and supports more cohesive national and local marketing.

In addition, we plan to roll back our tech fee from 1.75% to 1.5% in 2027. We view these actions as fuel for growth, strengthening the unit economics franchisees need to compete as a team in their local co-ops. In terms of our supply chain work, we continue to make good progress with $21 million in savings captured year-to-date through the third quarter. As we look ahead, we remain on track to realize at least $25 million in savings this year and at least $60 million by 2028.

As we have said previously, these savings equate to at least 160 basis points of four-wall EBITDA margin improvement by 2028 for both company and franchise restaurants. We are also optimizing our restaurant portfolio. Year-to-date, we have closed 239 restaurants across the system, including 146 in North America, which is nearly half of the 300 North American closures we have committed to through 2027.

Early results continue to be encouraging with strong sales transfer to neighboring restaurants as we close underperforming locations. We know recognition of our improved execution will take time, but we expect the Unbox Better plan to deliver strong returns for all our stakeholders.

That is Unbox Better. We have a clear strategy, a more aligned system and a focused set of priorities to guide our execution. Our task now is straightforward: deliver consistently, earn customer trust and convert that execution into stronger business performance over time. As we continue to focus on operational efficiencies, we remain on track to achieve our G&A savings for the year, and we have line of sight to the $30 million of cumulative G&A savings by the end of 2027.

On capital allocation, our approach is unchanged. We are prioritizing the investments that support the plan and deliver the highest returns, driving free cash flow and strengthening the balance sheet. Refranchising remains part of that approach, and we continue to move toward an asset-light model with company ownership at a mid-single-digit percentage of our North American system.

We are focused on continuing to maintain a strong balance sheet to ensure we are a good brand steward in support of the overall system. To close, let me bring it back to where we started. Unbox Better is our commitment to reclaim what has always made Papa John's special while modernizing the business for the future. We are strengthening our brand, so customers have compelling reasons to choose us. We are strengthening our system so we consistently deliver on what we promise.

And through our new agreement with our franchisees, we now have greater alignment to execute those priorities together. We know progress will not come from presentations or plans. It will come from execution. It will come from better products, better experiences, better operations and measurable results. We start from a strong position on quality as consumers know us for better.

Our opportunity is to continue to raise the bar on quality and great service to ensure we deliver on our commitment to better with every order. We intend to report our progress against Unbox Better each quarter and hold ourselves accountable along the way. I want to thank our team members and franchisees for their ongoing commitment to that mission. We are focused on earning the rights to be chosen again and again by customers, creating attractive returns for franchisees and delivering long-term value for our shareholders. With that, let me turn things over to Chris.

Thank you, Todd, and good morning, everyone. I'll begin by reviewing our third quarter results in further detail, and then I'll share our updated 2026 outlook. Please note that all comparisons and growth rates referenced today are compared to the prior year period, unless otherwise noted.

For the third quarter, global system-wide restaurant sales were $1.15 billion, down 5.6% in constant currency, reflecting lower comparable performance in North America and international as well as a decline in the global net restaurants on a trailing 12-month basis. Total consolidated revenue for the third quarter was $455 million, down 10.5%, reflecting the impact of refranchising transactions and lower performance in North America.

Domestic company-owned revenues decreased $37 million, primarily due to the refranchising of 85 corporate restaurants in the fourth quarter of 2025 and 28 corporate restaurants in August of 2026, in addition to lower comparable sales. Revenues in our North America commissary segment decreased $15 million, primarily due to lower volumes, partially offset by higher pricing. And revenues in our North America franchising segment decreased $5 million, primarily due to lower comparable sales at our franchised restaurants.

And finally, all other business unit revenues increased $5 million, primarily reflecting higher advertising funds revenue driven by discretionary company contributions to the Papa John's marketing Fund. This was partially offset by lower digital fees.

International revenues were flat. Consolidated adjusted EBITDA of $38 million was down $10 million, primarily attributable to the decline in sales and volumes in North America, partially offset by lower cost of sales. We captured approximately $7 million in system-wide supply chain benefits during the third quarter through increased efficiency and reduced cost to serve at our North America commissary.

Year-to-date through Q3, we have captured approximately $21 million in supply chain savings, representing 55 basis points of restaurant margin benefit. North America Commissary segment adjusted EBITDA margins were 8.2%, an improvement of approximately 80 basis points, primarily reflecting supply chain cost savings benefits and higher pricing, partially offset by lower volumes during the quarter.

Domestic company-owned restaurant delivered four-wall EBITDA of $9.8 million and four-wall margins of 7.7%, a decrease of 220 basis points. This decrease was due to lower transaction volumes and higher food costs, partially offset by lower labor costs due to increased productivity and the impact of company-owned restaurant refranchising transactions.

Turning to our refranchising efforts. In August, we completed the refranchising of 28 company restaurants in Orlando, Florida. As we pursue an asset-light model, we remain on track to reduce company restaurant ownership to a mid-single-digit percentage of North America system. We are actively assessing several additional North America markets for refranchising while also evaluating opportunities internationally. We believe these actions will support incremental growth opportunities and strengthen our franchise network by transitioning select restaurants to high-performing franchise partners, and we look forward to providing updates as these transactions progress in the future.

We are also exploring new formats and distribution channels such as nontraditional locations to expand our footprint and attract new customers to the Papa John's brand. We remain committed to maintaining our strong balance sheet and positioning the business for stronger cash flow generation through sustainable long-term growth enabled by Unbox Better.

Through refranchising, we are creating a more asset-light model, and through disciplined cost reduction and operating model optimization, we will build a more efficient, profitable system.

Turning to our balance sheet. At the end of the quarter, our total available liquidity was approximately $500 million, and our covenant leverage ratio was 3.3x as we continue to maintain a strong balance sheet, which provides us flexibility to support our transformation initiatives.

Turning to cash flows. Net cash flow provided by operating activities through the third quarter was $59 million. Free cash flow through the first nine months was $19 million compared with last year's $59 million. This was driven by the timing of compensation payments related to the prior year as well as payments related to our company's enterprise transformation plan, the timing of cash payments for the company's national marketing fund and lower net income during 2026, partially offset by a decrease in capital expenditures, primarily driven by lower company-owned restaurant development compared to the prior year.

Now turning to our 2026 outlook. As discussed, we are revising our outlook to incorporate year-to-date results as well as the current consumer and macroeconomic environment. Our guidance now includes the following: system-wide sales decline of approximately 5%, North America comparable sales decline of approximately 8% international comparable sales growth of flat to up 1% gross openings of 40 to 50 in North America and 180 to 220 internationally, gross closures in North America of 200 to 250 in 2026 and 5% to 6% of the international system.

Adjusted EBITDA of approximately $175 million, excluding stock-based compensation of approximately $16 million and diluted share count of approximately 33 million shares. To provide additional context, our 2026 guidance incorporates approximately $35 million of supplemental marketing and franchise investment, which we expect to continue into 2027 in the form of reduced supply chain margins and digital fees, and approximately $13 million of G&A savings, excluding marketing for 2026 as we continue to have line of sight to approximately $30 million of cumulative savings by the end of 2027.

In addition, for nonoperating expense items, we expect net interest between $35 million and $40 million, adjusted D&A between $70 million and $75 million and capital expenditures, including capitalized Software as-a-Service costs of between $70 million and $80 million.

Overall, we've taken a measured approach to this guidance. It is built upon the trends we are seeing in the business today, and it does not assume any improvement in the current environment. Although we are not building any benefit from Unbox Better into our 2026 outlook, we do expect Unbox Better to support improved trends over time as we strengthen the brand and our system. And with that, we'd like to open the call up for any questions you may have. Operator?

[Operator Instructions]

Our first question will come from the line of Brian Bittner from Oppenheimer.

First question is just as it relates to the 300 stores that you've targeted to close by 2027. Should this number be higher just given the unit economic pressure from system comps this year? And how do you want us thinking about the percent of the U.S. system that's currently sitting on very profitable footing versus not?

Yes. Thanks for the question, Brian. Now we still feel very comfortable that 300 is the right number. We're in the range of 200 to 250 closures this year. And the reason we feel comfortable with that is the system relief package that we just put in place. So rolling back the commissary margin from what would have been 8% in 2027 back down to 4% as 100 basis points of support for the system. And now that we're in a good position as we've caught up on technology and rolling our technology feedback from 1.75 to 1.5, that's additional support to the system.

As well as the ongoing cost savings that have been put in place from the supply chain perspective. We're still on track, as we talked about in the prepared remarks, to be $60 million plus by 2028. So we do provide a lot of fuel to help the economic model. And in and of itself, those closures, where we're seeing really strong recapture rates back to existing restaurants that are in those markets, those things have given us the confidence that, that is the right number, and we're trying to really strengthen the system for 2027 to make sure we got the fuel to fight behind the Unbox Better plan. And we don't really get into the details of how the financial health is of the overall system.

I mean our franchisees have various different balance sheets, but we do think this collective relief package, along with a focus on coming back and earning the right to be chosen again and again behind Unbox Better will put us in a good position to continue to build the health of the system over time.

Okay. Those details are helpful, Todd. And the follow-up is on the same-store sales trend. It seems like the 4Q implied guidance is a similar trend as 3Q, down 8-ish. I mean you can correct me if I'm wrong. But how do we think about how you fight through this promotional intense environment that seems to be impacting the business? And how are you thinking about the opportunity for trends to improve once we turn the page on the calendar and enter 2027?

Well, I'll let Chris talk about kind of the implied guidance in a minute. But as you think about how we're going to play the game differently, I think that is the impetus of Unbox Better. It's really recommitting to what made this brand special in the first place. really modernizing the very best of who we are and strengthen it for today's marketplace and really focused on the quality of our food and executing it well every time so we can earn it. I mean our customers don't know us their business. We earn it with every order, every experience, every day. And that is the focus.

But I do think putting ourselves in a position where we're going to get the co-op stood back up, we're going to have 2% at least spending at the local level, national coming back down to 5%. It does put us in a position to where we can have a strong national barbell, but also complement it and accentuate it at the local level, which we have been a bit handicapped on the last few years. So I do think that really gives us the opportunity to compete even stronger. Pizza a game played nationally, but one locally, and we're really setting our teams up to connect to the communities that they serve. So that is the strategy and the focus, and that's why we're confident we'll bend the trends. But on the implied guidance for the fourth quarter, Chris?

Yes. Thanks for that, Brian. I just want to reiterate that we took a measured approach to our guidance. It's really based upon our Q3 results and the trends that we've been seeing. It doesn't assume any improvement in our underlying consumer macroeconomic environment either. You're exactly right, though. I mean, with our full year guidance, we're looking at a Q4 that's very similar to Q3 in terms of comps, our revenue and even our EBITDA.

And our next question will come from the line of Dennis Geiger from UBS.

This is Paul Howe on with Dennis. I guess just to start, can you talk a little bit about any shift you have seen in the consumer behavior and specifically if there's any change you've noticed within the lower income consumer?

Yes. We haven't really seen dramatic shifts in the consumer. I mean, clearly, the K-shaped economy is what everybody has been talking about. Some of the consumer sentiment, consumer trends that we talked about in the second quarter continued into the third quarter. And you heard a lot around the health of the lower-end consumer from a lot of the competitors that are out there. So it has been very similar.

I mean the opportunity that we have is how do we continue to connect with the consumer at moments that matter. And what we've seen is when folks really want to gather around the center of the plate and really want to make sure that they have a celebratory opportunity, whether that's the most recent Halloween or election night or going back during the summer during World Cup, Papa John's is at the center of the plate. We just need to create more opportunities where folks want to trade up to us with the great quality that we deliver, delivering it consistently time and again. But we'll see where the consumer goes. To Chris' comments, we've assumed the same environment moving forward. If things do get a little healthier, that's an opportunity to have us some trends moving forward.

Great. And just a follow-up. On the restaurants with -- in the top quintile of operation scores, can you give us a little bit more color on the outperformance? And how are you thinking about transferring some of the successful experience to the lower volume stores?

Yes. The top quintile restaurants outperformed the bottom quintile by about 400 basis points on sales and margin. And what we're really focusing on U Box Better is really going to raise the floor across the system. So the first area of focus for training is really going out and supporting those restaurants that are in the bottom quintile, so we can elevate that floor, create better experiences and start to close down the inconsistency gap that we have across the system. So we do think that is an opportunity to continue to support our business with a commitment to retraining and the operations teams on that. And we're going to involve the consumer and the customer in the journey.

So next Monday, you'll see us launch a bounce-back offer, which will be Snap a Pick, Get a Free Pizza. It's really about capturing consumer feedback on our journey of continuous improvement. So we're going to engage the consumer to help us become even better. Those pictures will be available for the restaurants, and we'll use that feedback from the consumer to help our individual restaurant teams continue to elevate the experiences for our customers.

Our next question will come from the line of Jim Salera from Stephens.

This is Tyler Prause on for Jim. A couple of follow-ups from earlier. As we think about '27, it seems likely North America comps could remain negative through at least the first half of the year. Assuming the operating environment doesn't improve much, do you think there's enough traction from your internal initiatives to potentially exit the year with positive comps?

I'm not going to get into 2027 guidance at the moment. But our goal with Unbox Better and the focus on the elements across operations marketing and technology, is to continue to show sequential improvement in same-restaurant sales as we go into 2027. And with the support that we're providing the system, the commissary margin rollback, the technology fee rollback, the work we're doing to drive supply chain cost savings, we do believe we've got significant fuel to fight, especially at the local level as we reestablish the co-ops.

Great. That's super helpful. And on gas prices, have you noticed any differences in sales trends across markets where prices have moved substantially higher? And more broadly, are you seeing any changes in delivery frequency?

No. When we look at kind of the regionality, I mean, it's similar to where we've been in the past. We've seen strong performance in the Midwest and Southeast, Northeast and West where we got a little different positioning with the brand have been just a little bit softer. But we haven't seen anything that really differentiates on fuel prices across the country. I think we got to look at all elements of disposable personal income. As the consumer feels a little stressed on disposable personal income, that's when we do see them have an impact on the frequency of sales. And that's what we continue to watch to make sure that the overall consumer gets healthy with more dollars in their pocket, fuel being one of those elements.

Our next question will come from the line of Sara Senatore from Bank of America.

This is Grace on for Sarah. So you started the year matching your biggest competitors on promotions and then pulled back. And then you mentioned protecting margin cost transactions. So as you sharpen the barbell, where does that balance stand now? And how do you win the customers back without going back to deep discounting? And then I have a follow-up after that.

I think it's going to be a balance. And it really is -- we'll continue to bring out some innovation, and we've got some news coming here in the fourth quarter. But the real focus is on the renovation of the core. What do we need to do to continue to manage the melt points and amp up the cheese -- flavor of our cheese, -- how do we continue to optimize our dough, how do we continue to drive improved heat retention for the consumer, so we create great experiences on our core product.

We will run a healthy barbell, and you've seen us do that more recently with specialty pizzas at affordable price points. The works is out there today at $14.99. But we'll continue to complement that with some pulsing of promotions. During the third quarter, we had a 50% carryout offer and a buy one, get one. But we also have Papa Pairing, which is a good low end of the barbell. But we'll continue to pulse where appropriate with promotions, continue to leverage all the data we have across our 43 million-plus loyalty customers to make sure that we've got personalized offers to better connect to them.

And then we'll continue to drive the trust and the frequency of our existing customers by really leveraging that data that we have within the loyalty program. But importantly, as I said earlier, it's not just the game played nationally with the franchise alignment that we now have and co-ops being set up across the vast majority of the system and spending at least 2% to be able to fight and complement the national message at the local level is a really important tool that we didn't have in full force over the last couple of years.

Okay. And then my follow-up question is that you mentioned strong sales transfers from your own closures. Are you seeing anything similar as Pizza Hut closes restaurants in markets where you overlap?

Probably as we look at it, we focus on all closures out there. And the world has changed a little bit as delivery is available from all QSR. It's not just delivery from pizza. But we do look and really track and we've seen it in about 50 restaurants so far where we've seen some real good sales transfer when we close at Papa John's. And we do watch and see that, not just in the U.S. but across the globe when Pizza Hut have closed. We've been really focused on recapturing some of those volumes, and that has been an opportunity for us, not just in the U.S., but we've seen it in a couple of markets internationally where they've exited, which has actually created some strong results for us.

Our next question will come from the line of Todd Brooks from Stonex Financial.

First one, I know we've set up the co-ops and what percentage of the markets have the local co-ops again or have had them for a little while now?

So we've had, in the back half of the year, about 50% of the system is now set up in a co-op. So the alignment will allow us to get the rest of the system set up during the course of '27, but really pushing as soon as humanly possible to get the administrative pieces all set up so they can be working as a cohesive unit.

So the kind of the leading edge of markets that brought co-ops back into the fold and start local marketing activities again. What are you seeing for any sort of same-store sales spread between co-op supported markets locally and the ones that don't have it yet?

Yes. So what we're seeing is a little over 200 basis points delta on sales performance in the markets that have co-ops. And I would say as we have established the co-ops, they've been working together to compete in the local community, but we haven't fully coordinated how they work locally against the national calendar. So as we reset the field marketing teams during the course of this year, I think we now have an opportunity to really get ahead of the 2027 national calendar and then partner with the co-ops that have been established or are being reestablished to make sure that the message at the local level truly complements and it's optimized against the national calendar, which is an opportunity to be even more efficient and effective with the spend that comes from both the national and the local level.

So that's the opportunity ahead and really making sure that the dollars are spent with some of the best practices across the country at the local level because some folks were spending some dollars during the course of last year that weren't in co-ops. And I think we just got an opportunity to make sure those dollars work even harder for them, partnering with them as part of working as a team and a unit in their local DMAs.

Okay. Perfect. And then my follow-up, you talked about within the brand pillar reigniting the core menu. Just wondering if you look at the product offering, and I know we got rid of some of the operational rhythm breakers and replaced it with things like toasted sandwiches. But if you're looking at the core menu and wanting to reignite around really the pizza core, it seems like how are you thinking about the current offering? And do you see kind of contractions in what you're offering and flexing in some other categories? Or how does that play into the overall strategy you're trying to accomplish?

No, it's a great question, Todd. I do think we got to be super conscious of complexity. We got to set our teams up to really be focused on making great pizzas every time. We removed Papadias and brought sandwiches in to manage the handheld. So that was with less complexity, and not as big of a rhythm breaker. But what we really need to do is get back into the restaurants, support our teams, retrain them. We know we've got some opportunities to continue to improve heat retention through our hot bags and how we deliver the pizzas with ease to the consumer.

The work that we're doing on the new POS system will come with some driver routing optimization to make sure that we can best support delivery, whether it's coming from our first P or third P, so we can get it to the consumer faster and hotter. And the upgrades on technology in the restaurant with the new POS, our existing POS is 35 years old. And there's a lot of menial tasks that are non-consumer-facing that are happening day in and day out.

And as the POS rolls out to the vast majority of the system by the end of 2027, it will free up our restaurant teams to spend a lot more time making great pizzas and really being focused on creating great experiences with the customers. So we're super excited that technology can be a big enabler to really focus us with the training and then create the time to create great pizzas because we know when we make our pizzas right, the consumer gives us a ton of credit. And we start from a really good position on better. The opportunity is the journey of continuous improvement and inconsistency across the system to really raise that floor, and that's the focus moving forward.

This concludes the question-and-answer session. I would now like to turn it back over to Todd for any closing remarks.

Well, thanks, everybody, for joining us today. I just want to say a big thank you to our restaurant teams for the work they do every day to execute at the restaurant level. The franchise community for the partnership as we work to roll forward together and execute Unbox better as one system moving forward as one unit and to the restaurant teams for the support and commitment to really creating special experiences for our customers with this great brand. So thanks for joining us this morning. Look forward to any follow-up questions as we get together later during the course of the day. Appreciate everybody's time. Thanks for joining.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good day, and thank you for standing by. Welcome to the Papa John's Second Quarter 2026 Conference Call and Webcast. [Operator Instructions] 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 in 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 advisers.

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 interest 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 continued 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 Papa 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 unrelenting, 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 Lyn-Sue, 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 Lyn-Sue assumes this role, Chris Phylactou, who serves as Managing Director, U.K., 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 Moter, 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 Lyn-Sue and Chris Phylactou 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 U.K., 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 up 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 Papadias 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 million 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 2 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, our rebuilt innovation pipeline and a reenergized local presence through reestablished 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 while balancing restaurant margin.

This quarter, we featured our Papa Pairings offer and local carryout specials. Our sandwiches were added to Papa 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 1 of the rollout of our new personalization engine within our CRM platform. This engine is sophisticated, multichannel, 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 2 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 touch points 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 and 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, earn 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 long-standing 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 U.K., a lighter, thinner, more premium pizza focused on expanding our addressable market. This product is distinctive with scaled QSR 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 U.S. to improve market-level targeting, increase relevance, and better connect with customers in local communities.

Today, approximately 50% of our U.S. 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 4 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 4 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. Lou 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 agentic 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 Lou AI are converting at an 18% higher rate and completing their orders approximately 3 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 Papa 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 4-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 4-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 investment and establish 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 road map, 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 4-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 reengage customers with what is new, better, and distinct about Papa John's. With our 6 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. Chris, over to you.

Thank you, Todd, and good morning, everyone. I'm excited to join the call today as the Papa John's Interim Chief Financial Officer and look forward to working alongside you and our team to advance our transformation.

I'll begin by reviewing our second quarter results in further detail, and then I'll share our updated 2026 outlook.

Please note that all comparisons and growth rates referenced today are compared to the prior year period, unless otherwise noted.

For the second quarter, global system-wide restaurant sales were $1.2 billion, down 5% in constant currency as higher international comparable sales were more than offset by lower comparable sales in North America as well as strategic closures to strengthen our system.

As Todd shared, our International business continues to outperform with comparable sales growing 1.5%, even as we saw pressure in the markets directly impacted by the Middle East conflict.

Total consolidated revenue for the second quarter was $482 million, down 9% as lower revenue for our domestic company-owned restaurants, North America Commissary, North America Franchising and all other business units was partially offset by higher international revenues.

Domestic company-owned restaurant revenues decreased $37 million, primarily due to the refranchising of 85 corporate restaurants in the fourth quarter of 2025 in addition to lower comparable sales.

Revenues in our North America Commissary segment decreased $12 million, primarily due to lower volumes, partially offset by higher pricing.

Revenues in our North America Franchising segment decreased $3 million, primarily due to lower comparable sales at our franchise restaurants. And all other business unit revenues decreased $8 million, driven by lower advertising fund revenue and digital fees as a function of lower system sales. Partially offsetting these declines was a $1 million increase in international revenue.

Consolidated adjusted EBITDA of $53 million was up slightly despite top line pressure, primarily driven by lower overall G&A spend due to strong cost management and lower supplemental advertising spend, lower cost of sales due to lower volumes in the prior year refranchising transaction, and improved performance in our international markets. These gains were partially offset by lower sales flow-through and softer QCC volumes in North America.

We captured approximately $7 million in system-wide supply chain benefits during the second quarter through increased efficiency and reduced cost to serve at our North America Commissary. Through Q2, we have captured approximately $16 million in supply chain savings, representing 43 basis points of restaurant margin benefit.

North America Commissary segment adjusted EBITDA margins were 8.7%, an improvement of approximately 140 basis points, primarily reflecting supply chain cost savings benefits and higher pricing, partially offset by lower volumes during the quarter.

Domestic company-owned restaurants delivered 4-wall EBITDA of $15.6 million and 4-wall margins of 11.2%, a decrease of 130 basis points, primarily driven by lower transactions and higher food costs, partially offset by the benefits of our transformation initiatives, including restaurant labor productivity and refranchising activity.

Turning to our balance sheet. At the end of the quarter, our total available liquidity was approximately $500 million, and our covenant leverage ratio was 3.3x as we continue to maintain a very strong balance sheet, which provides flexibility to support our transformation initiatives.

Turning now to cash flows. Net cash provided by operating activities through the second quarter was $36 million. Free cash flow through the first half was $9 million compared with last year's $37 million, primarily reflecting lower net income, timing of marketing spend within our advertising fund, more normalized incentive payments and investments in the company's Enterprise Transformation Plan, offset somewhat by lower first half cash taxes due to new tax legislation passed in July last year.

Now turning to our 2026 outlook. As discussed, we are revising our outlook to incorporate year-to-date results in a challenging environment, which we expect to continue for the balance of the year. For 2026, we now expect global system-wide sales declines to range between 2% and 4%.

For North America, we expect comparable sales to be down 6% to 8%. July North America comparable sales trended in line with Q2 on a year-over-year basis but decelerated on a 3-year stack. We expect sequential improvement in North America comp sales in the second half of the year, supported by our marketing co-op activations, a strengthened aggregator marketing strategy, our new CRM program and prior year comparisons.

Accounting for the impact of geopolitical and consumer conditions, we now expect international comparable sales to increase between 1% and 3%.

We have entered into an asset purchase agreement to refranchise 28 company restaurants in Orlando, Florida, and expect to close this transaction in the third quarter. With the closing time line shifting to the end of third quarter, we now expect that this transaction will reduce 2026 consolidated revenues by approximately $4 million, including the impact of eliminations and benefit adjusted EBITDA by approximately $500,000, all of which is factored into our 2026 financial guidance.

As we pursue an asset-light model, we remain on track to reduce company restaurant ownership to mid-single-digit percentage of our North America system. We are actively assessing several additional North America markets for refranchising, while also evaluating opportunities internationally.

We expect these actions will support incremental growth opportunities and strengthen our franchise network by transitioning select restaurants to high-performing franchise partners, and we look forward to providing updates as these transactions progress.

For 2026, we now expect consolidated adjusted EBITDA to be between $180 million and $190 million. We now plan to invest approximately $35 million in total supplemental marketing and franchisee subsidies, including the incremental $18 million added for the back half of this year to accelerate our transformation, as Todd described. We expect that elevated investment to continue into 2027.

Our 2026 consolidated adjusted EBITDA outlook reflects continued disciplined cost management and includes $13 million of G&A savings, excluding marketing. Looking ahead, we have line of sight to generate at least $30 million of cumulative cost savings by the end of 2027.

We also expect the stock-based compensation will be approximately $5 million per quarter.

Consistent with our prior guidance for nonoperating expense items, we expect net interest between $35 million and $40 million, adjusted D&A between $70 million and $75 million and capital expenditures between $70 million and $80 million.

We expect our 2026 GAAP effective tax rate to be in the range of 30% to 34%.

Finally, we expect diluted shares outstanding of approximately 33 million.

Turning to restaurant development. We are on track to open between 40 and 50 gross new restaurants in North America in 2026, having opened 17 restaurants through the second quarter. We now expect 2026 North America restaurant closures to range between 200 and 250 as our portfolio optimization work with our franchisees is progressing faster than expected.

For our International business, we still expect 180 to 220 gross restaurant openings in 2026 and we expect closures within the range of 5% to 6% of our international system. We're also exploring new formats and distribution channels such as nontraditional locations to expand our footprint and attract new customers to the Papa John's brand.

As we invest to accelerate our transformation, we remain committed to maintaining our strong balance sheet and positioning the business for stronger cash flow generation.

Through refranchising, we are creating a more asset-light model and through disciplined cost reduction and operating model optimization, we will build a more efficient, profitable system.

Overall, we remain focused on executing our transformation strategy to improve the customer experience, drive sales growth, enhance profitability and deliver value for our stakeholders.

And with that, we'd like to open the call up for any questions you may have. Operator?

[Operator Instructions] And our first question will be coming from the line of Andrew Strelzik of BMO.

Obviously, a lot going on, a lot of strategies that you're implementing and working through. I guess, if you take a step back in your view, where have broadly the turnaround strategies had the intended impact or had the most impact as you intended?

And, kind of, where are you most lagging versus your expectations in trying to make up ground, understanding, obviously, it's a difficult operating environment.

Yes. Thanks, Andrew, for the question. On the transformation, I think some of the work that we've done over the course of the last couple of years to really rebuild our technology platform create less friction in our ordering through our app, through the website, the work we've done with AI to leverage the data and better connect to the consumer through our CRM program. All of those are strong foundational elements that we've continued to build.

We rebuilt our innovation pipeline. We brought some news to the table. We're not bringing in as many new consumers with the innovation as we had expected. But I do feel good that we've done a nice job on those fronts. And we've raised the bar on operational excellence, even though we know we've got some inconsistencies and opportunities to continue to do that.

I think where we've been probably the most challenged is we haven't been able to get the full force of the local co-ops reestablished across the entire system. We're making progress on that front, but we've now hired out our field marketing team to better support those co-ops and make sure we've got a really balanced and thoughtful approach to what national messaging does as well as local messaging to really compete and win and really have a strong barbell at both the national and the local level.

And importantly, what we need to really get aligned on is where do we find the right balance between driving transactions and protecting margin. We know we have to meet the consumer where they're at.

We can't just live on the quality and the messaging of better ingredients, better pizza. We're going to continue to do that with our fan favorites at affordable price points and continue to deliver on the rest of this year. But we know we're going to have to pulse in some appropriate discounting to continue to drive frequency and keep our existing customers engaged. But we try to recruit some new customers through that.

But we're going to be smart about the discounting. We're going to pulse it appropriately, and we're going to leverage the tools at our disposal, especially CRM with some of the optimized AI engine work that we've done to really target those investments.

Okay. That's helpful. And I wanted to ask about the franchisee incentives that you talked about this morning. Can you kind of help us better understand how that's incorporated into the outlook, how that's going to impact the P&L? A little more color on that would be helpful.

Yes. So within our guidance of $180 million to $190 million, as we said in the prepared remarks, total investment that we're making off of our P&L in 2026 is about $35 million. We've got about $10 million that's really been established to support the setup of local co-ops where we've co-invested with franchisees that have established the co-ops and are investing at the local level.

We've got about $13 million of supplemental marketing that we put in place to make sure we've got the right pressure to tell our story on both the premium and the value side of the barbell. We've got about $5 million in operational incentives to allow franchisees to continue to earn incentives with strong customer overall satisfaction scores, strong restaurant inspection scores, and good out-the-door times. So that's a nice incentive to continue to raise the bar.

And we've got about $7 million of what I would call subsidies where we help support the system to co-invest to go drive some of the promotional activity that we've had year-to-date and plan to do for the rest of this year. That level of spending, we would expect would continue into 2027, pending some of the conversations that we have with our franchise community to align on how we want to co-invest together to compete.

And our next question will be coming from the line of Brian Bittner of Oppenheimer & Company.

This is Mike Tamas on for Brian. Todd, you deployed a lot of new initiatives, and I would have thought that you'd see some improvements in the business by now. So do you think there's a category headwind that you're fighting?

And maybe specifically to the second quarter, what do you believe the category sales trends were in the quarter versus the negative 8% that you guys saw?

Yes, no, it's a great question. I do think all of QSR has had a lot of aggressive discounting. Pizza QSR has been even more so aggressive, and we probably didn't meet the consumer as much as we should have in the course of the second quarter as we protected margin a little bit more.

But I would -- from where we sit, we'd say that the QSR pizza category was down slightly within the quarter. But the pizza category is quite broad. There's a lot of other folks now competing in pizza, when you think about convenience stores, gas stations, et cetera.

So there still is an appetite for broader pizza, and we've got to really consider how we compete, where we show up and how we provide access to the brand. And those are all things that we're addressing in the acceleration of the transformation efforts that we have with the investment that we discussed today.

Our next question will be coming from the line of Jim Salera of Stephens Inc.

This is Tyler Prause on for Jim. We appreciate all the color around internal initiatives. But as we look to 2027, given no material change in the operating environment, is it more likely than not that North America comps will be negative again for the year?

Yes. A little too early to be providing guidance. We would expect clearly sequential improvement on our same-restaurant sales comps into 2027 with the investments that we're making. We do know that we're in a stage where we're going to have to continue to co-invest with our franchise community to raise the bar on operational excellence, meet the consumer where they're at, and continue to tell the story on why we're better, unique, and different than the competitive set.

But we're going to be methodical around where we invest. We're going to be really smart about making sure we can get a good return, some of it offensive, some of it defensive. And what we really want to do is leverage the co-investment to get the entire system all rolling in the same direction.

So whatever initiatives and whatever focus we have as we go into '27, we execute with excellence as one system moving forward. And that's why we're going to continue to invest together. We want to really set this brand up for long-term success, not just chasing short-term sales.

And we're making all of the foundational moves through technology, raising the bar on operational excellence, continue to tell our story on why we're unique, better, different through the marketing messaging that we've had. Those are things that are foundational to build this brand for the long run.

Great. Very helpful. And then were there any geographies that you can point to that performed ahead of the system?

Yes. I mean, if you look at where the second quarter ended, and you look at the Northeast, it was probably a little bit softer than the rest of the country. That was primarily a function of them actually being stronger last year.

But if you look at where we performed across Midwest, Southeast, that was probably our better performing regions and the West was somewhere in between. But nothing that was dramatically outsized when you look at it on a 2-year basis.

Our next question will be coming from the line of Todd Brooks of Benchmark StoneX.

I think at the end of the year, we got a partial stat from you folks about franchisee unit level profitability. I think there was a stat that 75% of franchisees were making about $125,000 per unit.

Is there a final stat for the whole system? And are some of these actions that we're seeing you take, whether it's on incentives, marketing investment besides the franchisees, kind of symptomatic that there's not much more to give on franchisee profitability over these next couple of years as you look to improve profitability out of the supply chain and build momentum in the business?

Yes, Todd, I think the biggest opportunity we have right now is we've done a really nice job managing labor in the restaurants. We've got the 4-wall wired pretty tight. So each incremental transaction that we can actually bring through a restaurant, the variable profit margin is quite high.

And that is the same on supply chain. With every case unit that we move through our supply chain, we can actually provide some good cost efficiencies to the system. So our biggest opportunity at this stage is to continue to drive transactions.

What we're trying to do is incent the system to raise the bar on operational excellence. We don't want to just discount to drive transactions, we want to make sure the consumer understands the total experience is worth what you pay, a great experience with a high-quality pizza to get customers to come back time and again.

And what we're trying to do is make sure that we incent the system to get ourselves in a position to compete better, get all the co-ops set back up so we can have a strong, coordinated national and local message, continue to work to make sure that the bottom quintile of our restaurants continues to raise the bar on operational excellence. So we don't have the Achilles' heel of inconsistency as a perception across the United States for our consumer base.

But I do think there is a lot of opportunity for our system to continue to work together to accelerate profitability from where we stand today. We're going to be part of the solution with some of the co-investment, but the system knows they're going to have to fight also at the local and partner with us on the national level to bring that to reality.

Okay. Great. And then my follow-up, Todd, is product innovation was a driver that you got -- and actually more of a strategy pivot coming into this year versus just trying to compete on value. You spoke about -- and which is almost offsetting the lost revenues from Papadias and Papa Bites.

I'm just wondering, given that we're not necessarily seeing it in the same-store sales results, how are the different innovations performing relative to plan? And is this just a tough environment to get a consumer that's so value-focused to want to try something new versus just the tried and true at a lower price point?

Yes, no, I think the consumer is very cautious in making choices with their hard-earned dollars. And in an environment where you want to make sure every one of your dollars works as hard as possible for yourself, you do kind of go back to your tried-and-true favorites that you know can deliver on the experience and not disappoint. And in an environment like that, the role of innovation is a little more challenging to break through.

We think about our pan launch, it mixed really well with our existing consumers, but didn't bring in the number of new consumers that we probably would have expected. The same thing with Toy Story, we got a lot of great excitement to keep the brand cool, hip in the discussion, but it mixed well with existing customers but didn't bring as many new in as we would have wanted.

And I would look at sandwiches as a little more of a long-term opportunity to expand our TAM, as we really think about that as a replacement for Papadias and taking the rhythm-breakers out of the restaurant.

But you are right, innovation in and of itself is a little more challenged to bring in new customers in this environment. I think we can do a better job really telling our story on the third-party aggregator channel and what we can bring that's new, unique, and different to provide new access to innovation, and we're adjusting some of our plans moving forward to do that.

I think that's an opportunity for us. And we're going to continue to really make sure that we find that right balance between innovation, talking about our tried-and-true favorites on the more premium side of the menu at affordable price points and being a little sharper and pulse in a little more value messaging to make sure that we've got a really strong barbell to drive awareness.

But those are good innovations. They're going to play a nice role on our calendar. Over time, I do think they will bring in new customers. We're just not seeing that in the environment today.

And our next question will be coming from the line of Jim Sanderson of Northcoast Research.

I wanted to go back to the second quarter to see if you could break out for us same-store sales or sales trends for carryout versus one party -- first-party and third-party delivery?

Yes. So if you think about our second quarter, I mean, we were down in North America, 8.3%. That was almost entirely driven by transactions as check was flat. If you look at across carryout, first-party and third-party, our carryout business was down, but hung in there relatively good.

So I would say that would have been down mid-single digit. Our third-party aggregator business would have been down low single digit. And then our first-party delivery business would have been down double digits.

So we got an opportunity to continue to work to optimize the mix across all of our delivery channels and carryout channel. And you see in more recent times, we've rebalanced our calendar a little bit more with Epic Stuffed Pepperoni at a nice price point of $14.99 while having a 50% carryout offer that's great value for our consumers. So we've already gone and made the adjustments to rework our barbell a little stronger to compete better in the back half of the year.

And a follow-up to that. As you lean into third-party delivery as a sales channel, how do you plan to drive client acquisition through that channel with the marketing investment you're going to make?

Yes. We are an early mover, as you know, in 3P. So we got to ride that wave if you go back 5 or 6 years ago. And now it's gotten to be a lot more crowded.

I think what we really need to do is make sure that as we spend the dollars, and I believe we're spending enough dollars in that channel, we've got an opportunity to make those dollars work harder with the promotions that we're putting in place to become more effective, and we're going to make those adjustments in the back half of the year.

And we do know that we're going to have to fight in the 3P channel, not just from a national perspective, but also strongly coordinated at a local perspective. And that's why getting the co-ops set up are so important.

We've got some small things that we can do on how our brand shows up from a visibility perspective in 3P, but we've got good visibility into the things we need to do to check and adjust to compete even stronger in that channel.

And we do think it's a great channel to provide some visibility and opportunity into our innovation to get the consumer to trial us.

That was helpful. And just last question for me is the rework of the national and local co-ops advertising. How does that fundamentally change the contribution that franchisees pay and the type of budget you could develop over time as your gross sales improve?

Yes. So today, the way we're set is 6% national contribution and local is entirely optional. But if we look at what the system is doing between the co-ops that have been reestablished and folks just spending at the local level, we're probably spending in the 1.5% to 2% range today. So there's probably almost an 8%, 7.5%, 8% total that's being spent out there in the marketplace.

What we do know is we've probably got to rebalance that. We probably could use a little bit less on the national contribution and ensure that we've got a mandated amount at the local level.

But more importantly, have the mandated amount to allow us to set up the co-ops to make sure that we got a voice at the table, that we're working with the franchisees and the communities that they're competing in to have a unified message at the local level that then complements the messaging that we have at the national level.

And we just haven't had that coordination. We're making progress on it, but we need to get the whole system there. And we will have to work with the broader system to get a vote to get the right level of national and local in place because we did that both the last time around back in 2023, and we're having those active discussions with the franchise community right now.

And our last question will come from the line of Sara Senatore from Bank of America.

This is [ Grace ] on for Sara. You cited a softer consumer environment as a reason for the U.S. comp weakness, but some other restaurants have reported stronger results this quarter. What do you believe explains that difference?

Is the difference the customer base since Papa John's skews lower income than other QSRs? Is it the competition within the pizza category, including independence on the aggregators or maybe competition from non-pizza competitors, other QSRs, and also convenience stores? And then I have one follow-up after that.

Yes. I think the pizza category has evolved, not just on who competes in the third-party aggregator space. And it's not just competition now against pizza, it's competition against all of QSR, but good quality pizza is showing up everywhere. You look at some of the big C-store chains, your local gas stations, they all have pizza.

So we've got to be positioned to compete both on price and quality in a broader environment moving forward. But if you look at QSR pizza category, as I said earlier, it would be down slightly.

But what has happened in our category has become very competitive on price. We had our 2 largest competitors have deep discounting for the better part of at least half the quarter in one instance and the full quarter in another instance. And we didn't answer the bell as strongly as we should have.

We had deep discounting for 1 week in the quarter. We had Papa Pairings running throughout. We had sharp price points on our everyday favorites on the premium side of the menu. But we've got to get that -- the balance of the barbell reworked to compete more strongly in the competitive and the consumer landscape that we're facing today.

Okay. And then you also discussed the possibility of more strategic closures in the 10-Q. And you just mentioned the Northeast as being a bit softer. Are there specific geographies that are underperforming? Prior store closures don't seem to have bolstered comps for the remaining system. So where have the sales gone?

Yes. So it's a little early. So if you think about where we are in closures, we've got about 100 closures to date, and those closures have just been happening. So you're not really seeing the full impact of the closures yet on the recapture. We are seeing good recapture on many of those restaurants.

As you go through the rest of this year, we've now telegraphed that with the work that we're doing, partnering with the franchise community of the 300 closures we expected between 2026 and 2027, we may now see about 200 to 250 of those happen in this calendar year.

That is really strong portfolio optimization, and we know we can get some good recapture on many of those restaurants that we closed to shore up not only the restaurant economic model and the existing restaurants, but bolster the balance sheet for our franchise community.

So we think we are pulling some of those closures into this year. I think we're still there, thereabouts on 300 between this year and next year. So we're feeling pretty good about that, especially with some of the co-investment incentives and investment that we're going to put out into the system to support, to compete better as we move forward.

That concludes today's...

I guess that was the last question. So I just want to say, hey, thank you, everybody, for tuning into the call. I know we provided a lot in the earnings call to continue to drive and accelerate our transformation moving forward.

I really appreciate our teams and everything they do day in and day out to help support and fight for this brand to drive our long-term success and the partnership with the franchise community to invest together to continue to move the brand forward.

So thanks for tuning in. We're super confident that we're taking the right steps to achieve our goals and deliver on sustainable growth and value creation for all of our stakeholders. We look forward to keeping you updated on our progress.

Have a great day, everyone.

Good day, and thank you for standing by. Welcome to Papa John's First Quarter 2026 Earnings Conference Call and webcast. [Operator Instructions] Please be advised, today's conference is being recorded.

I would now like to turn the conference over to your speaker today, Heather Hollander. Please go ahead.

Good morning, and welcome to our first 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 Ravi Thanawala, Chief Financial Officer and President, North America. 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. During the first quarter, we continued to execute our transformation plan to be the best pizza makers in the business. I am proud of the work our team is doing to navigate the current consumer backdrop and highly promotional QSR marketplace. Although certain competitors have outlined their strategy to compress restaurant margins in the sector, we are taking a disciplined approach, executing a balanced transformation that extends well beyond price, meeting customers where they are while improving 4-wall margins, elevating our fleet and supporting our franchisees to build this business for the long term. While transformation work is neither linear nor instant, we are confident that the progress we are making in Papa John's transformation, combined with the strength of our brand and quality of our pizza will fuel profitable growth and value creation over the long term for all our stakeholders.

Now turning to our quarterly results. In our international business, results continue to be strong. We delivered 3.6% comparable sales growth, marking six consecutive quarters of positive comps, driven by the benefits of our transformation initiatives. We continue to see strong performance in our focus markets in the first quarter, including Europe, the Middle East and Asia Pacific. In the U.K., comparable sales growth accelerated to 11% compared with 7% in the fourth quarter, driven by strong operational execution and enhanced customer experience and increased media investment that is strengthening our brand awareness and foundation for growth in the market. Comparable sales in the Middle East increased 9%, driven by sustained transaction growth, while Asia Pacific increased 5%, reflecting continued strength in Korea, supported by product innovation, partnerships and holiday demand.

As anticipated, North America comparable sales ended the first quarter down mid-single digits, primarily driven by declining orders, which were pressured by lower new customer acquisition. During the quarter, we continued to see resilience in core pizza and customers ordering multiple pizzas, with flat year-over-year pizza volumes, excluding 2 weeks that were impacted by severe weather and pies per order increasing 5% versus last year. Our loyalty customers continue to be a force for the company, and we added nearly 1 million new loyalty members in Q1. We also saw growth among our frequent and super frequent customers. And combined, these tiers make up approximately 30% of our customer base. Our loyalty customers are our most valuable customers, generating 5% higher ticket per order and ordering twice as often as non-loyalty members. This upside was offset by pizza mix shifting to smaller nonspecialty pizzas, resulting in low single-digit declines in overall pizza sales, excluding severe weather impacts.

Outside of pizza, comparable sales were pressured by declines in size and desserts and lower new customer acquisition compared with last year. We are working with urgency to address areas of opportunity and capitalize on areas of strength through our transformation work. Our two largest opportunities to gain share are building on our improved value perception and leveraging our rebuilt innovation pipeline to win new customers, elevate our pizza order mix to more premium pizzas, drive add-ons and expand our total addressable market.

Starting with our value proposition, we are meeting customers where they are with popular offers, including Buy One pizza, Get One free, $9.99 3-topping and our Papa Pairings. Leveraging our CRM platform, we meaningfully increased engagement with existing customers, which translated into higher subscriber order frequency in Q1. We are also leaning into innovation because newness is critical to winning new customers. We rebuilt our pipeline to deliver more frequent, compelling new product launches. And in the first 3 months of 2026 alone, we introduced 2 new menu platforms, Pan Pizza and oven-toasted sandwiches. These launches elevate our pizza mix and expand our total addressable market.

Our first innovation of the year was Pan Pizza, which launched at the end of January and filled a critical menu gap developed through extensive consumer research and rigorous testing, our Pan Pizza is truly a best-in-category product. Since launch, it has delivered strong repurchase rates, and we plan to build on this momentum throughout the year in North America by driving trial and awareness. We also have plans to expand Pan Pizza into several priority international markets.

Next, we introduced oven-toasted sandwiches at the end of March, opening an entirely new category for Papa John's. This platform features 3 chef-crafted handhelds, each available at an accessible price point. We integrated sandwiches into our Papa Pairings value offer, where they've mixed well since launch. We're encouraged by the early results we're seeing with sandwiches driving participation across both dayparts, contributing to sales expansion and already exceeding sales of Papadias without complicating our makeline. The feedback from our restaurant teams on the introduction of sandwiches and the removal of Papadias and Papa Bites has been overwhelmingly positive. Not only have we removed operational complexity, but we are seeing benefits to the brand as we introduce new menu items outside our core pizza.

Great pizza deserves great pairings. Part of our 2026 innovation agenda is crafting compelling side items at accessible price points to encourage customers to look beyond the center of the plate and drive higher ticket, increase sales and improve 4-wall margins. We introduced Cheesy Garlic Bread in April, a new value side baked on the same tasty ciabatta bread as our sandwiches. This operationally friendly side item is designed to be a strong add-on, increase check and expand non-pizza sales.

We're also unlocking new sales layers to expand our top line. I'm excited to share that this summer, our iconic Papa John's garlic sauce will be available for retail purchase across 7,500 distribution points at Walmart, Kroger, Albertsons, Safeway and other leading retailers across the country. This launch builds awareness by extending our brand beyond our restaurants and gives customers a convenient way to add Papa John's signature flavor to their everyday meals.

Finally, we're partnering with iconic global brands to introduce Papa John's to new customers in powerful and highly relevant ways. I'm excited to share that Papa John's has announced a global collaboration for the theatrical release of Toy Story 5 on June 19, the first time Disney and Pixar have collaborated with a pizza brand for a Toy Story movie release. We're fully leaning into this activation with new product innovation, custom packaging and a special custom animated spot created by the team at Pixar Animation Studios. At participating international restaurants, customers will also be able to receive an exclusive Toy Story 5 collectible. Papa Rewards members can also join in on the fun and earn Papado through our new Toy Story 5-themed in-app game. As part of the collaboration, we're also launching a new lineup of Toy Story 5 personal pizzas.

Looking ahead, we believe that our individual 8-inch pizza can become a new innovation platform with a compelling price point to drive customer acquisition. We're thinking big with our innovation strategy and all our newest offerings, Pan Pizza, oven-toasted sandwiches and our Toy Story 5 activation, including our single-serve pizza creations will also be available across select international markets. Our international innovation continues to raise the bar with the U.K. launching an on-trend Artisanal Salerno pizza last month. Backed by consumer-led insights, this lighter, thinner, more premium pizza is designed to attract new customers and further elevate the Papa John's brand.

Our reimagined innovation pipeline is fully stocked and purpose-built to win new customers, elevate our pizza lineup, drive add-on sales and expand our total addressable market. In addition to our compelling product innovation, we're sharpening our marketing message to drive greater impact at the local level.

As we discussed on our last earnings call, we reinstated advertising co-ops across the U.S. to improve local targeting and relevance. While still early, 50% of our U.S. restaurant system is now supported by local co-ops across more than 50 markets. With our reestablished co-ops and sharpened value proposition, our local operators are aligning around a unified market strategy, accelerating our ability to win at the local level and driving benefits that will build throughout the year.

Investing in technology and our tech stack is essential to delivering a seamless customer experience across our digital assets and own channels, strengthening customer connections and driving operational efficiency. For example, we have now made to-the-door delivery tracking a brand standard across our U.S. restaurant system. Through our app, customers can see real-time updates on their order, including its progress through the bake process and when it is ready, creating greater transparency and confidence in their experience.

We continue to build on our partnership with Google Cloud to transform our digital ordering experience with Google's Food AI. This partnership is highly customized to Papa John's and grounded in a customer-first approach, focused on solving real customer problems and removing friction from the ordering journey. Across our U.S. system, we rolled out advanced voice and group ordering, enabling customers to order using voice and text inputs, significantly reducing friction in the order process. Our agentic ordering technology further enhances the customer experience by applying the best deals and enabling high-speed and seamless reordering for Papa Rewards members.

Together, these innovations underscore our commitment to leveraging technology to make the customer experience even more seamless. We are pleased with the early results, showing faster ordering and higher conversion rates.

As part of our ongoing efforts to improve workflows across our U.S. restaurant operations, we began piloting our new POS solution in our first restaurant in April. Our new PAR POS is designed to simplify restaurant operations by bringing inventory management, makeline operations and labor inventory and restaurant management systems onto a single integrated platform. It will help us also innovate faster through improved SKU management and faster deployment of menu changes across our restaurant system. This modernized POS solution will equip our operators with more actionable insights, enabling them to run more efficiently while delivering a better experience for our customers. Designed to utilize existing hardware, it minimize implementation expense and accelerates deployment across our restaurant fleet. We continue to differentiate our customer experience across every demand channel to support top line growth.

As of the end of the first quarter, we are approaching 42 million loyalty members and year-over-year loyalty redemption sales continue to grow. Leveraging our robust CRM platform, we are engaging customers more frequently and using targeted personalized communications across e-mail, push and SMS to drive incremental visits and deepen engagement. Our restaurant general managers and their teams are hard at work driving a more consistent experience in our restaurants. Ravi will share more about their progress in a moment.

Finally, we continue to partner with and evolve our franchisee base. Our efforts to optimize our North American supply chain and reduce overall cost to serve are gaining momentum on a path to unlocking the full potential of our vertically integrated model. We captured $7 million of benefits in the first quarter and are now on track to realize at least $25 million of these savings this year. We are confident 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 4-wall EBITDA improvement by 2028 for both company and franchise restaurants. In total, we expect to generate at least 200 basis points of 4-wall EBITDA improvement for both company and franchise restaurants over the medium term, driven by supply chain savings, operational efficiency and restaurant portfolio optimization.

In summary, while the consumer environment has impacted the pace of our transformation, we are managing through these short-term headwinds and building for the future. We are confident that we are taking the right actions to transform the business and set Papa John's up for long-term success. We are making progress and are excited about the opportunities ahead.

And with that, I'd like to turn the call over to Ravi.

Thank you, Todd, and good morning, everyone. I will begin by sharing an update on the progress we've made in the first quarter to drive 4-wall profitability across our restaurants, elevate our service model and optimize our restaurant portfolio. I'll then provide a summary of our first quarter financial results and conclude with our outlook. Improving 4-wall profitability remains a core pillar of our transformation. We have clear line of sight to delivering at least 200 basis points of store level profitability through supply chain productivity, labor optimization, market optimization and dedicated coaching and financial incentives for our franchisees. As Todd shared, we are on track to achieve at least 160 basis points of 4-wall EBITDA improvement through our supply chain productivity work with 24 basis points of margin improvement captured to date through Q1.

We're also encouraged by the early results of our labor optimization efforts, supported by new tools that more accurately forecast sales and help our restaurants align staffing with intraday demand. While it's still early, we're seeing meaningful labor productivity gains and improved operation scores in our test. We're also leveraging new AI capabilities, including our Google Cloud partnership to further reduce costs and enhance customer service.

Optimizing our restaurant portfolio is also a key lever to improve profitability and overall fleet health. We are making progress on our previously announced efforts to address locations that are failing to meet brand standards, lack a clear path to sustainable improvement or represent an opportunity for strong sales transfer to nearby restaurants. These sites, primarily decade-old franchise units with AUVs below $600,000, predominantly generate negative EBITDA.

During the first quarter, we closed 44 of the 300 identified locations. Early results are encouraging as we have observed a strong transfer of sales to neighboring restaurants. These results, along with the demonstrated success of our international transformation underpinned by a focus on priority markets and strategic closures give us confidence that our strategy will enhance our competitiveness and support our efforts to increase North America market share.

We are also addressing low-volume restaurants where operational improvements can drive significant value. Currently, there is a 400 basis point gap in comparable sales performance between restaurants and the highest quintile of operation scores versus the lowest quintile. To close this gap, we are planning to provide certain franchisees with dedicated coaching and financial incentives to elevate operational execution, boost sales and enhance unit economics.

Turning now to our first quarter results. Please note that all comparisons and growth rates referenced today are compared to the prior year period, unless otherwise noted. For the first quarter, global system-wide restaurant sales were $1.2 billion, down 3% in constant currency as higher international comparable sales were more than offset by lower comparable sales in North America.

As Todd shared, our international teams delivered another exceptional quarter with comparable sales growing 4%. Our international focus markets continue to outperform as we build momentum through new menu offerings, aggregator expansion and improved brand and marketing performance.

Total consolidated revenue for the first quarter was $479 million, down 8% as lower revenue at our domestic company-owned restaurants, North America commissary and all other business units was partially offset by higher international revenues. Domestic company-owned revenues decreased $31 million, primarily due to refranchising of 85 corporate restaurants in the fourth quarter of 2025 in addition to lower comparable sales. Revenues at our North America commissary segment decreased $18 million, primarily due to food cost deflation, partially offset by higher pricing and all other business unit revenues decreased $4 million, driven by lower digital fees and advertising funds revenue as a function of lower sales.

Partially offsetting these declines was a $4 million increase in international revenue. Consolidated adjusted EBITDA decreased $2 million to approximately $48 million, impacted by pressure flow-through due to lower sales and QCC volumes in North America and increased food costs in the supply chain, which will be covered by pricing in subsequent quarters, partially offset by improved performance in our international markets, lower overall G&A spend due to our biannual franchisee conference, which did not repeat this year, as well as lower supplemental advertising and lower cost of sales due to commodities deflation and lower volumes to our restaurants.

As Todd stated, we recognized approximately $7 million of benefits or approximately 20 basis points of 4-wall margin improvements related to our efforts to increase efficiency and reduce our overall cost to serve at our North America commissary during the first quarter. North America commissary segment adjusted EBITDA margins were 5%, a decline of 230 basis points, primarily reflecting franchisee food cost subsidies, increased food costs, which will be covered by pricing increases in subsequent quarters and lower volume during the quarter.

Domestic company-owned restaurants delivered 4-wall EBITDA of $16.6 million and a 4-wall margin of 11.9%, an improvement of 140 basis points. Importantly, 4-wall margins have remained resilient, supported by our benefits of our transformation work and our disciplined approach to sharpening our value proposition.

Turning to our balance sheet. At the end of the quarter, our total available liquidity was approximately $498 million, and our covenant leverage ratio was 3.3x as we continue to maintain a strong balance sheet.

Turning now to cash flows. Net cash provided by operating activities in the first quarter was $7 million. Free cash flow was an outflow of $6 million compared with the last year's cash inflow of $19 million, primarily reflecting lower net income and a more normalized incentive payments, inclusive of the company's enterprise transformation plan.

Now turning to our 2026 outlook. As discussed, we are making progress advancing the actions we're taking to transform the business. We have taken steps to accelerate the top line throughout the year through an enhanced value offering, our rebuilt innovation pipeline and improved mix of national and local media through our reestablished local co-ops. We're also driving efficiencies across our business with our supply chain optimization and cost savings initiatives and evaluating refranchising actions, which are progressing our business towards an asset-light model with higher free cash flow.

With that in mind, we are reiterating our 2026 financial and operational metrics. For 2026, we expect global system-wide sales to range between flat and low single-digit declines. For North America, we still expect comparable sales to be down 2% to 4%. Our guidance reflects both the benefit of our innovation pipeline and enhanced marketing strategy and considerations around the current cautious consumer environment. April North American comparable sales are trending slightly worse than Q1 on a year-over-year basis, but consistent with Q1 on a 3-year stack.

We expect to build top line momentum in the second half of the year with sequential improvements versus the first half as we benefit from our product innovation, marketing co-op activations and meaningful brand collaborations and strengthened aggregator marketing strategy. We expect the North America quarterly comps will be relatively consistent for the remainder of the year on a 3-year stack.

Internationally, we continue to build on our transformation momentum and still expect comparable sales to increase between 2% and 4%. Our outlook reflects current geopolitical and consumer conditions, and we'll continue to monitor developments closely. We are currently in negotiations to refranchise 29 restaurants in the Southeast, and we expect to close the transaction in the third quarter of 2026.

Consistent with our prior expectations, we expect that this transaction will reduce 2026 consolidated revenues by approximately $9 million, including the impact of eliminations and benefit adjusted EBITDA by approximately $1 million, all of which is factored into our 2026 financial guidance. We are on track to reduce our company-owned restaurant ownership to mid-single digits of the North America system, and we expect to unlock growth opportunity as we refranchise certain restaurants with well-capitalized growing franchisees.

We will provide an update on future earnings calls as these transactions move forward. For 2026, we continue to expect consolidated adjusted EBITDA to be between $200 million and $210 million. We now plan to invest approximately $18 million in supplemental marketing and franchisee subsidies to support our promotional strategy and this year's reinvigorated innovation calendar. Our 2026 consolidated adjusted EBITDA outlook also includes $13 million of G&A savings outside of marketing.

We now have line of sight to achieve at least $30 million of total cost savings by the end of 2027. We also expect that stock-based compensation will be approximately $5 million per quarter. Consistent with our prior guidance for nonoperating expense items, we expect net interest between $35 million and $40 million, adjusted D&A between $70 million and $75 million and capital expenditures between $70 million and $80 million. We expect our 2026 GAAP effective tax rate to be in the range of 30% to 34%. Finally, we expect diluted shares outstanding of approximately 33 million.

Turning to restaurant development. We are on track to open between 40 and 50 gross new restaurants in North America in 2026, having opened 8 restaurants in the first quarter. We continue to expect 200 restaurant closures in North America. Internationally, we expect to open between 180 to 220 gross new restaurants in 2026 with closures representing 5% to 6% of our international system.

Overall, we continue to execute on our transformation efforts to deliver a better customer experience, accelerate sales, improve restaurant level profitability and move to a more asset-light model and become a more nimble organization to deliver value creation for all of our stakeholders.

With that, we'd like to open the call up for any questions you may have. Operator?

[Operator Instructions]

Our first question comes from Brian Bittner with Oppenheimer.

Just a question on the same-store sales guidance. As we look to the rest of the year, your comparisons don't get much easier for the rest of the year until the fourth quarter, but you are baking in a big improvement from the first half of the year. And I'm just curious why maybe not derisk the guidance a bit. I know you have a lot of initiatives to bend the trend in the second half of the year, but why not derisk the guidance a bit? And why, Ravi, should the 3-year trend be the right way for us to model comps as the year unfolds? Just any other color you can provide on 3-year trends being the right metric?

Yes, Brian, I'll start and see if Ravi has anything to add on. If you start to think about where our year-over-year comparisons starting to soften and lapping over some of the competitive pressure from a year ago, the back half, not all the way to the fourth quarter, starts to get a little bit easier. But what we really wanted to look at is how does the business normalize with all the choppiness over the last couple of years. So very clear that our business, our transactions, how we're actually forecasting the outlook, and we think we've derisked it with really providing guidance that it remains fairly consistent on a stack 3-year basis.

If you think about where we stand with all the second half of the year initiatives, we've launched some compelling innovation. We've got Pan in the world. It's mixing really well with existing consumers. The opportunity is to continue to wear it in and recruit new with that great product. We've got sandwiches in play, again, mixing well with existing consumers, plays to refresh our Papa pairing offering, so great value with that in it. And we're really excited about our partnership with Toy Story 5 and driving 8-inch pizzas with some news as we work to compete in the back half of the year.

We'll continue to work to make sure we got our mix well so we compete on third party as the year progresses. But we think it's a prudent and realistic outlook for the year with lots of initiatives to support it, and that's considering the competitive and the consumer landscape that we're faced with at the moment.

Anything else you'd say, Ravi?

Yes. And Brian, you asked the question of why the 3-year stack. One, like as we looked at month-over-month and where we saw a bit of the trend come through is we saw some consistency there. So one, the underpinning data from Q1 and quarter-to-date Q2 has reflected that. Second is middle of 2025, we saw a meaningful step-up in competitive pressure from a promotional standpoint. And if you go back one more year, that was really when we saw the competitive pressure step up from an aggregator standpoint. So we're trying to take into account the competitive landscape, both from what's happening in the respective channels as well as what's been happening from a pricing pressure standpoint.

Our next question comes from Alex Slagle with Jefferies.

I just wanted to ask on some of the new menu categories with sandwiches and pan and then, I guess, the personal pies and ask about your confidence that all these changes don't drive too much complexity. I realize you're going to pull out the Papadias and Bites and that helps. But maybe you could kind of walk us through and help envision what changes happen that keep this simple to execute.

Yes. No, it really starts with a focus on operational excellence and delivering great product with everything we do. And we really stepped back as we started to introduce all these new products to make sure that we set our restaurants up for success starts with great training and making sure that we're ready to deliver on the promise when the new customers show up.

What we really wanted to do is ensure that pan was designed to be best-in-class in the industry, but be able to do it with a one pass through our oven. And that's different than what we've done in the past. We did all the oven calibration work. We're able to make a great Pan Pizza simply with one pass to the oven that takes the complexity out of how we've done it relative to the past.

Sandwiches is a very easy build with the oven recalibration, a great one pass. The ciabatta bread cooks really well in the oven and a lot simpler than what we were doing with Papadias, really getting into that handheld occasion, taking Papa Bites out. Those 2 things, Papadias, Papa Bites were our biggest rhythm breakers in the restaurant and really distracted from making great food day in and day out.

We do make small pizzas today. So as you start to think about the simplistic builds, the unique builds that we're going to have that go along with Toy Story 5 at the 8-inch, that is a very easy build and can be managed quite nicely within our restaurants. So I think we've really set our teams up with less operational complexity and operational focus to really deliver great products with the innovation pipeline we've had. We've taken some of the friction out of our restaurants today to be able to do that.

Our next question comes from Todd Brooks with Benchmark StoneX.

First, I was wondering, Ravi, can you decompose the same-store sales between check and traffic? I'm just trying to get a sense of this more competitive approach to value as innovation ramps, kind of what was the drag on check that was part of that down 6.4% North American comp?

Yes. Check was effectively flat in Q1, and that's been the trend in Q2 quarter-to-date as well. So the check has been there. And as a reminder, there was slight food cost deflation in Q1, some labor productivity and supply chain benefit. So 4-wall margins hung in there fairly well in Q1 because of that. But where the sales comp drag has really come has been from a transaction standpoint. If I take -- go one more click down, it was really in small transaction size from a number of pizzas. The transaction loss was in orders that contain only one or no pizzas. We continue to see order growth in multi-pie orders.

That's why we feel confident with the incoming of Toy Story 5 and that partnership that can address that one pie order. Our challenge really is people are managing their overall check, right? And we're still seeing some of the leakage in size. We've not got cheesy garlic bread as a compelling price point side. We're going to have to continue to make sure sides are relevant. That's the opportunity to allow us to drive some check and mix up, but haven't planned for that with the tough consumer environment. So our guidance reflects where we stand today.

And I'm sure there was a weather reality that hit the same-store sales as well. Can you size that for us? And should we be normalizing for that when we're thinking about the 3-year stack trend or just build off of the trend that we saw with the weather impacts this quarter?

Yes. The weather impact was about just under 40 basis points of impact for the quarter. But what I would say is build off of the 3-year stack, that probably best reflects how we're thinking about it. And as we talked about, like that applies to all the quarters for the year. And as a reminder, like this is about us like taking into account a more intense competitive pressure, also the competitive landscape in each of the channels, and that's been the underpinning driver of that.

Our next question comes from Sara Senatore, Bank of America.

Isiah Austin on for Sara. Just in the line of questioning about competition, where do you guys see the competition coming from? Just when you think of the 3 large major chains seem to be struggling. So is it national, regional, maybe there's a resurgence in local? Just curious on your thoughts on that.

Yes. I think if you look at where overall competition, clearly, the pizza category has been very promotional, not just where we participated at times and tried to do it smartly to make sure that we are managing margin while meeting the consumer where they're at. But 2 of the larger competitors have been aggressive on price.

But the total QSR industry has been very aggressive on price. You start to look at some of my past life, the burger players, others with scale. There's a lot of promotional pressure out there to really try to make sure they're meeting the consumer where they're at. And we're going to pick our spots where we need to do that. We're going to leverage innovation to balance it. We're going to take a long-term approach to make sure we set our business up for long-term success.

But we are conscious of where the consumer dynamic is with some of the headwinds that we're seeing with gas prices and impacts on discretionary income. But we also know we're going to have to play a long-term game to really set this brand up for sustainable long-term success, and we're going to use the opportunity to continue to build a really strong foundation, whether that be operationally, whether that be upgrading our tech stack, whether that's continuing to rebuild our momentum on innovation and importantly, making sure that we've got a local co-op environment set up so we can compete as a unit at the local level. There is regional and local pressures out there, but we do think the co-ops getting reestablished will help us compete at that level quite nicely as the national calendar balances with our local calendar.

Great. And just as a follow-up, thinking about third-party versus first-party delivery, is third-party still outperforming? And just if you guys can broadly speak about your performance on third party, do you feel like you're still taking share on platforms? Or are you more growing in line with aggregator demand?

Yes. So third party is still outperforming first party from an order and from a comp sales standpoint. We have seen competitive intensity really ramp up over the last 9 months in the aggregators. And it's a fairly dynamic space. So checking and adjusting on pricing and promotion is a really important part of the cadence. So there are definitely some weeks where we're taking market share. There are other weeks where we're in line. And we just continue to adjust. But I would say that broadly speaking, the space has just gotten more competitive from a pricing standpoint. We're still really focused in on winning across all of our channels and also balancing at the same time, volume, customer count and 4-wall margins to make sure that we navigate this environment well.

I see there are no more questions in the queue. I will now turn the call back to Todd Penegor for closing remarks.

Well, thank you, everyone, for joining the call this morning and for your continued interest in Papa John's. I'd like to extend a special thanks to our team members and our franchisees for their continued commitment to serving our customers. We are focused on continuing our transformation work to be the best pizza makers in the business and generate profitable growth and value creation for all of our stakeholders. Have a great day, everyone.

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

Good morning. I'm Dennis Geiger, restaurant analyst at UBS. I'm pleased to welcome and excited to have with us on stage, Todd Penegor, Papa John's President and CEO; Ravi Thanawala, Papa John's CFO and President, North America. Also representing Papa John's today are Heather Hollander, SVP, Investor Relations, FP&A and Strategy; and Sarah Burnett, Director of Investor Relations.

Papa John's is a top 5 QSR pizza chain in the U.S. and has about 6,000 stores globally. The brand went through a transformational 2025 as it focuses on improving the health of franchisees in North America while continuing to deliver strong same-store sales growth internationally. And with that, Todd and Ravi, thanks so much for being here today.

Thanks for having us, Dennis. It's our pleasure.

Appreciate it. This is a treat. Todd, maybe start with you. You've been at Papa John's for about 1.5 years or so now. So I want to get some of your observations about the brand, the company and the opportunity ahead at a high level.

Yes. I guess a couple of reflections after the 18 months on the job. I mean it's a brand that clearly, consumers are pulling for. We've got a lot of brand loyalty. We had work to do to get back into position on value, which we have done. We wanted to continue to accentuate the quality and the aspects of how we stand out different in the category. And we've accomplished a lot of that. And we made a lot of progress on those brand health metrics side of the business. Where we've really been focused is what did we need to do to really attract new customers to the brand. And we had a lot of work to rebuild our innovation pipeline. We've done that. We've talked about the introduction of pan pizza that just launched here in the first quarter with a steady lineup, which we can come back to and talk about a little bit more, if you want, the rest of this year. So we're going to continue to lean into news.

We had work to do to really make sure that we could deliver the innovation pipeline and really improve the core product, and we did that with the oven calibration work that we did last year where we slowed the ovens down and took the temperatures down, and that really set ourselves up for success. Lots of work on the technology front, some foundational, but some consumer-facing. The work that we've done to take the friction out of the app, the work that we continue to do on our website to make the ordering experience easier. The work that we're doing with Google around leveraging their ordering agent to drive some group ordering, voice ordering for our Papa John's Rewards members is going to pay its dividends over time. And we got our loyalty program back into position. Our loyalty customer is very loyal. We've seen redemptions double over the course of the last year for folks that are in the Papa John's Rewards program. It's a great long-term investment.

Frequency is 2.5x that of a non-Rewards member. And we're seeing the fruits of all the hard work that was done in the international business before I even got there. And we've got a lot of momentum in the international business at the moment. And the last piece that has probably taken me a little longer with the team is really standing up our co-ops back out in the system. Pizza is a game played nationally but fought locally. We needed to get the local fight back. And as we talked about in our earnings call a couple of weeks ago, we now got 50 co-ops up representing about half of the U.S. system sales, which is really going to help us as the year progresses as we're going to have some more pressure local to complement the national spend that we have, but really do it in a unified force. So we're fighting as one team at the local level. So a lot of foundational work that's been done.

We're on the trajectory of closing some of the nonperforming restaurants. I'm sure we'll talk a little bit about that. We continue the journey on the refranchising front, 85 restaurants sold last year and another 29 or so in the Southeast that will get done here in shorter order, but really working down on the company ownership side to that mid-single-digit level in our North American business.

Terrific. Lots going on, lots to unpack. Before we get into that, though, maybe could you comment a little bit on reports out yesterday of a bid for the business? Any comments there to give?

Yes, I really can't comment any on the market speculation or market rumors. Thanks for asking, Dennis. I mean it's been a constant, right? I've been in the role 18 months, and I think almost the full 18 months, we've always had some kind of rumor out there around the brand. And we're really focused on being the best Papa John's that we can be and the best pizza makers in the business and really working hard to execute the strategy that we've laid out.

Terrific. Maybe we could start high level with the pizza category itself, particularly given your experience in some other large categories. Particularly in the U.S., how do you view the category? How do you view the long-term growth potential of the category and of course, Papa John's position within the category looking out over the coming years?

Yes, I think we're well positioned in the category. I think when you think about where we stand with a quality message, fresh, never frozen, original dough, 6 simple ingredients, all of those things are super relevant to the next generation of consumer. The pizza category is going to be a tried-and-true category. It will ebb and flow, but it will continue to grow over time. There's great value and a great connection from the consumer base to the product. The opportunity we have is to continue to innovate, bring news, bring folks in. News can be around the product, but the news can also be around technology to connect to the hearts and minds of that next generation of consumer. It is growing a little slower as a category than we've seen historically. But that's in the QSR pizza space.

When you look at broader pizza, I mean, there is a lot of access to pizza, whether that's C-store, whether that's retail, whether that's in the frozen aisle. And we just got to really make sure that we stand out to really bring the bulk of the customer back into the QSR pizza category and tilt them in favor of a great quality and affordable price at Papa John's. So that's what we're focused on doing.

Great. You touched on affordability there and value a few minutes ago. How are you thinking about value for the brand in 2026, given the environment, given the competitive backdrop? Just how the Papa John's value -- you're positioned on value right now?

Yes. No, we've been partnering with the franchise system on that. And I know Ravi has spent a lot of time talking with them on that side of the equation. And you looked at where we went in the fourth quarter, we had the 50% carryout offer. We did have to meet the consumer where they were at with $9.99 create your own. We're able to trade folks up from $9.99 to $11.99 with the Pan launch, which is a good thing for our business, but still at a very affordable price point. And we'll continue to work and partner with the franchise community to make sure we work the barbell hard, having appropriate promotions, leveraging our rewards program where there's great value, leveraging CRM to be even more targeted. But anything else, Ravi, on that front? I know you spent a lot of time with the franchise community.

We've been really consistent in our Papa Pairings offering, which is our mix and match, and we've really focused in on driving like meaningful wear in with the consumer on that. And we see a lot of benefit in terms of our value perception from consistency and an offer that gives the consumer incredible choice. They know what to expect and continue to focus in on that. And we think that, that strategy applies to how we're going to think about like pan pizzas and sandwiches that with time and where in we'll have compelling premium products at solid price points, and we'll have the other part of the barbell really come to life. And over time, we'll have consistency in the mix and match and consistency in real premium innovation.

And I do think getting the local co-ops back up and having the local fight and making sure that whatever we're actually promoting nationally, they can complement either on the high end or the low end of the barbell at the local level and putting some of those dollars even to work in the aggregator environment where we know it's important to meet the consumer and compete there. Those are all levers that we have as the year progresses.

Great.

Let's touch on -- I don't know if it's the other end of the barbell, but as we think about menu innovation, lots going on there as we think about '26 and longer term, you've talked about pan pizza, the sandwich, which is the protein crust pizza sounds really interesting. How do you think about innovation and how some of those items and others fit within the Papa John's menu?

Yes. What we really needed to do is bring in new customers and bring back some of the lapsed customers. I mean we're doing really well with our existing customer base. The loyalty program is working really hard for us. But we needed to create some news and excitement. And some of the news is to break out of the sea of sameness. The work I said earlier on the oven calibration has really set all of this up. Pan is a big move. We didn't play there. It's a big part of the category, and we've got a great pan that we can make without operational complexity. It's a pass. The old days, it was a 1.5 pass through the oven, which is really challenging. But we do know that we've struggled beyond core pizza, right? We've had challenges with sides.

So we've got some work coming on affordable sides to make sure that, that add-on can be at an appropriate price point. We talked about taking Papadias and Papa Bites off the menu. They're truly rhythm breakers. They -- you could be making a lot of pizzas and then you get into those two products and they take it right out of rhythm. There's operational complexity, and they've been in decline, and there isn't great repeat. So we're pulling those out. We've been testing how do you manage into the handheld space. And our sandwich business has tested really well, and that's a lot less operationally complex. And then we've got some fun stuff coming.

We know we got to meet the consumer where they're at. And single-serve pizza, especially in today's environment, is an important one to have on the menu, and we got a really cool collaboration on a partnership that will come to life over the summer, which we're really excited about. But anything else, Ravi, that I missed on that front?

I think from an innovation standpoint, we continue to think really carefully about products that drive great repeat and products that are simple enough for us to execute well within our entire menu, and we're always thinking about like how are we going to execute perfect pizzas on Friday night. And that's an important part of our innovation strategy. And it's an important tweak. We've really been focused in on making sure that the restaurants are well supported to deliver great pizzas in peak periods.

And that's been our focus, Dennis. It's like first and foremost, how do we become the best pizza makers in the business? How do we train, how do we support? How do we take some of the complexity out to make sure there's a great experience with every visit. And Ravi has really been pushing that customer service mindset out across the system. But over time, as we really calibrate and work those ovens, we can become the best bakers in the business. And there's opportunities to continually expand our TAM and total addressable market and be more akin to your local mom-and-pop pizzeria with the offerings that we have, do it in an operationally efficient manner, but do it at much more affordable price points. And that's how we're starting to evolve to make sure we can compete even better and really stay true to that better ingredients, better pizza quality messaging we've always had.

And just on that, Todd, do you guys think you're getting the credit currently? I know this has kind of been a debate in recent years for the better quality, the better ingredients. Where do you think that journey stands with the customer recognition?

Yes, it's interesting. Folks know us and can repeat the moniker, right, better ingredients, better pizza. I think they do give us some credit for quality. But in today's environment where it is so price sensitive, it's not as big of a tiebreaker today as I would have hoped it would be. But I do think over time, it's clearly one that will set us apart. And especially as we evolve to be more like akin to a hometown pizzeria at an affordable price point, our quality will shine through. And we get credit. I mean, as you look at our quality perception scores, we do get credit, but the consumer is a little more strapped and really focused on value first and quality second. But we'll continue to tell our story.

Everything we've done with the Meat the Makers campaign and really talking about our 6 simple ingredients and what we do and the full customization and how we can really set up a high-quality pizza for the consumer is spot on where we need to be long term. We just have to stay true and deliver on that promise day in and day out. And that's why Ravi has been focused on the customer experience, setting our teams up for success and even upgrading some of our storefronts.

Yes. And we design parts of our menu to have pricing parity with the competitive set to allow for trial and low barrier switching. So we want to win consumers over. We believe that consumers need to trial our product, and that's why our mix and match, which is called Papa Pairings is at $6.99 and comparable to the competitive set. So we'll balance our barbell strategy to win consumers' hearts and minds through innovation and give low barrier trial through strategies like our mix and match.

Just as -- you both mentioned operations as it related to innovation a few minutes ago. Any additional items, at least at a high level that have to come off the menu as you bring some of the new items on? I mean it seems like everything is being done through the lens of operations and making sure operations are smooth.

No, I think we've taken off what we need to take off. I mean the big focus was the major rhythm breakers. I mean we've done a few nips and tucks around some SKUs, but those are two products that have been on the menu for a while. But I think it's beyond just pulling the SKUs off. It's what do we need to reinforce around being out in our restaurants and making sure that we're out there, not just holding folks accountable with coaching. But why don't you talk about some of the service mindset work that you've been doing with the system, Ravi?

Yes. What's really been driving our strategy in terms of menu simplification, it's through the filter of what drives consumer satisfaction, what is -- have healthy flow-throughs to profitability and what ultimately drives repeat of consumer behavior. So as we're spending more time with the franchisee community talking about the future of the menu. We've been really rallying around those notions. It's like we want great satisfaction scores and do those products drive repeat. And from a service standpoint, we're just laser-focused on friendliness and service and carryout is a meaningful part of our business. So we have a moment to have a meaningful rich engagement with the consumer, and we cherish those moments because that's part of the overall experience we're trying to drive.

Yes. No doubt. How about on the marketing side? Todd, you just made some comments about local as part of that. How do we think about the marketing strategy, investment levels in marketing? And any insights into -- you touched on kind of partnerships and maybe a collaboration just now. Anything high level to touch on the marketing side?

I think our opportunity is, one, we'll continue to be out there telling our story around the high quality that we deliver in our pizza experience. Two, with a steady dose of innovation, you'll see us really making sure that we recruit those new customers into our brand, still through the lens of quality, but with news. And we did plus up and are continuing to investment spend off of our P&L. I mean we spent $24.5 million last year to support the system. This year, we've talked about spending $22 million. Some of that is incremental marketing. Some of that is helping fund margin to make sure we compete at appropriate price points. But some of that incremental marketing is allowing us to get those co-ops stood back up. So what we're really working is make sure that the efficiency and the media mix is strong.

We continue to evolve kind of our linear and digital mix to make sure it meets the customer where they're at and connects with that next generation of customer. But we know we've been competing without that local layer and a coordinated local layer. And it's not just coordination within the DMA, which is important. And today, we don't have that in many DMAs. But coordination what happens at the local level across that DMA with the national message. So it truly complements it. And as the year progresses and we set up those co-ops, we'll have all the national pressure, which is very efficient. And then you'll complement it with the local message, which may not be as efficient, but it's very effective.

So we're really trying to make sure we got that mix right. And that will be a benefit back half of this year as those co-ops get stood back up and into next year as we start to lap over that co-ops because you'll have incremental more pressure, especially this year with us spending off our P&L and the co-ops getting stood back up. But when you get the full year impact of the co-ops in 2027, that's when we know we can start pulling some of that investment down off of our P&L because we'll have net-net even more pressure into the market with the local set back up.

And when we look at 2026, our marketing pressure will be up low teens versus last year. So we continually see in the metrics, the impact of the local co-ops being stood up and that was designed to be coordinated as we're pressing further into our innovation calendar now and driving wear in, which we believe will drive long-term value as the products we're launching, we believe have strong repeat rates for the long term.

Terrific. You both touched a bit on the importance of recruiting new customers to the brand, and I suspect we touched on a lot of the drivers there. Are there sort of key initiatives, key parts of the strategy that are most important to bring those customers in? Because I think you've talked about when the customers are in, you've done a really good job of retaining those customers. Anything in particular that you would highlight, hey, this is what we really have to get right to bring some of those customers and recruit them.

The steady dose of innovation will clearly help us bring in new customers. We will have to pulse in some attractive price points because price does bring in some new customers along the way. And we're going to have to continue to stay sharp and compete well in third-party aggregator space. There is an opportunity to bring customers in. They're a little harder to convert and make as a loyalist in the 3P channel, but there is that opportunity for them to fall in love with Papa John's all over again if we can drive trial in that channel. Anything else you'd add, Ravi?

We need to continue to communicate to consumers that we have great value and you can find products on our menu that are comparable price to the competition. We have an opportunity to wear that in, and that's a long-term strategy. We started that 18 months ago or slightly more, and we're still on that journey, but there's a lot more room to grow there because we need to drive trial and our value component of our menu is a great spot to try for the first time.

Great. How about -- as we think about those customers and as we just kind of break down the performance of the consumer within your customer base, any callouts there, any kind of shift that you guys have seen in recent quarters on performance by income cohort in particular?

As we lean deeper into value, particularly in Q4, and we saw a slight indexing higher with lower income consumers and entering the brand from that standpoint. So we do see value as effective at reaching more and more consumers. We continue to see innovation perform really well with our consumers who are loyal to brands, and that cuts across all income cohorts. Yes.

That's great. How about as it relates to sales growth for the year and kind of the expectation on the same-store sales trajectory domestically playing out through the year? And kind of what are the big levers, I guess, shaping that curve?

Yes. We believe that Q1 will be the softest quarter. As we think about shaping of the year, we're really focused in on wearing in on our two meaningful innovation platforms coming, our pan pizza, which has been out for a month and sandwiches, which are coming up very soon. We're also going to be posting in value across the year. And the third meaningful lever, as Todd talked about, is local co-ops, which is going to allow for our media pressure to continue to grow in this environment, and we see that as really valuable.

Terrific. And then just as you think about traffic and check and even kind of mix, and you've seen some dynamics with mix over the last year or two. How do you think about that, if you want to break that down at all for 2026?

Yes, I can start, Ravi, and add a little color. I mean we don't see a lot of check benefit coming in this calendar year. We're assuming that the consumer is going to continue to be challenged, that the competitive landscape is going to be tight, not just in pizza QSR, but across all the QSR. So we're going to be smart on how we deliver value to the consumer. And and not get too far ahead of our skis on what we're trying to do around check. So the declines that we kind of laid out, the down 2% to 4% in North America are really driven by transactions. But first quarter, we guided down kind of that mid-single-digit range.

So if you think about our full year impact, you've got 120, 140 basis points really coming out of the first quarter start on the full year. And we do know that Papa Bites and Papadia removals will have some impacts, right? Those are going to come out as the rhythm breaker, things like handheld sandwiches will come in, take a little time to recoup all of those sales. But we still have to address where we've really been challenged this last year. And it's on our non-pizza items. I mean you look at our core pizza sales, last year, we sold 4% more pies than we did the year before. Unfortunately, it was trade down from large to medium and from premium into core. But -- and that had an impact on check and price, but it was really the size, and we're addressing that with the innovation calendar and a pricing strategy and trying to figure out is there other cool things to really drive add-on that will help us get the check realization that's in control of the customer rather than us driving it.

Great. I want to touch on channel a little bit. We've touched on it for a little bit here, but maybe talking about the first-party delivery business and the focus there. Obviously, it's been a bit more challenged for the industry -- for the category, I would say. But how do you look at the opportunity for first-party delivery? And then for carryout. And I think you both talked about the carryout opportunity. So maybe if we take both of those channels.

Start with carryout. We see carryout as an important channel for the consumer to be able to get a great value from Papa John's. And it's part of our business that we believe that there is still a meaningful market share opportunity for us to continue to go get. And we see that as an important way to drive trial as well because it's a very price competitive component of the business.

On a first-party delivery standpoint, we're really thinking about attacking the opportunity through many of the things that Todd mentioned. It's innovation coming through the calendar, new digital experience that allows us to engage with the consumer really directly, innovation, particularly with our Google Cloud partnership to be more on the tip of the spear in terms of what consumer expectations are. Those are really the drivers that we're focused in on that. And our franchisees have their hearts and minds in terms of like what are we going to do as a group to continue in the system to transform that first-party delivery business.

Yes. I think we've been really looking at, especially in our priority markets, where do we need to refresh our storefronts to really make sure you got a full grade carryout experience. We've made some progress, but we know we've got more to make on that front. And I do think the partnership that we have with the Google team, really trying to figure out how do you make sure we have a truly differentiated experience in first party, whether that's voice ordering, whether that's easy group ordering, leveraging AI, those will be fun things that will only happen if you get into a first party and through our app. So we're going to continue to drive those things. And we got to think about is there an opportunity to reinvent.

We're behind on delivery tracking. Is there an opportunity to reinvent how that whole delivery experience happens, right, around the transparency of the product when it's getting down the make line, how the pizza is greater when it comes on the door, how it holds heat retention to the door. Don't know where that journey is going to quite take us yet, but we're working and testing a couple of hypotheses. And it should be fun to see if that can truly resonate with the consumer and then help us stand out versus the competitive set.

And then in our top 15 markets, we have like deep density. We have meaningful market share. We have a clear ability to reach consumers with great service, great speed. So as we think about leaning into our priority markets and innovating, we see those markets as great jumping off points to reshape what the first-party delivery experience can be for the consumer.

Let's shift over to third party in the channel there and maybe kind of what the latest update there is on third party. And I think, Todd, you kind of alluded to some opportunities maybe to lean in more there, I think, with marketing and other perhaps. So maybe just the biggest opportunities for you to grow and continue growing third party.

Yes. Why don't you start, Ravi, I'll provide some color. You spent a lot of time on that.

In Q4, the aggregators, third-party grew low single digits. The marketplace has gotten more competitive from a price point standpoint. And it's requiring us to continue to shift in terms of like how are we going to reach consumers, how are we going to drive relevance in this moment in time. So our marketing teams are thinking every day, every week right now on what are the minor tweaks we're going to make to continue to drive market share there. We've been in the aggregators for 5 years.

So our team has a lot of history and a lot of tests on what drives impact. At the highest level, though, we're going to compete where the consumer is. And if the consumer is in the aggregators, we're going to push hard to fight for share and continue to gain share there. And as we talked about, we're a top 5 QSR player -- top 5 QSR pizza player. We still have opportunity for consumers to drive trial. And we see the aggregators as a meaningful place where we get to win consumers' hearts and minds.

Terrific. Let's shift over to loyalty. A lot of focus there on enhancing the program. Can we touch on how that's going, the benefits and maybe where the further opportunity applies for loyalty?

Yes. No, I think we've made a lot of progress, clearly in the spirit of creating more value and driving more frequency in the loyalty program. The changes we made I don't know, 14, 15 months ago as we rebased kind of the rewards program has clearly engaged the Rewards member. I mean we're up to 41 million members in the loyalty program. The opportunity is always how do you continue to leverage CRM and hyper-personalized communication to continue to drive frequency. But we have seen frequency gains within our loyalty consumer. And as I said earlier, the frequency of our loyalty consumer is 2.5x our non-loyalty consumer.

So we've made it very easy to earn rewards. It's very transparent and clear because you're getting hard, cold cash back with each purchase, you start to earn. The question is, how do you gamify, how do you create some streaks? How do you continue to make it even more engaging? And then how do we continue to make sure that as we drive and bring in some of these new customers through innovation, to your earlier point, Dennis, how do we make sure that we get them to really know that they can get the best available deal and the best experience if they get over into the app. So we're feeling really good that that's working hard. Our core customer is really loyal, and we're seeing a lot of progress on that front. Biggest opportunity is really leveraging value now that we're in position on value, leveraging innovation to really bring in those new customers into our brand.

Terrific. Away from loyalty, but sticking with digital still, how do we feel the app and e-commerce is generally positioned? Are there opportunities to further enhance that? I think you touched a little bit on the app earlier, but...

Always opportunities. I mean we've done a lot of work on the app to really take a lot of the friction points out, how many clicks to order, how easy is to reorder, what's the role of voice to make it even easier? How do you actually help on a group order, which is always really hard when you're trying to coordinate a lot of folks. All of those things are in flight and on its way. We know we've got opportunities still to continue to enhance the web ordering, and we've made progress, and we'll continue to work that front. We're -- we know we've also got work at the restaurant level with our POS system. So our POS system is a homegrown 30-plus year old system. It is time for an upgrade and a refresh.

And we've partnered with PAR to bring that to life. That will take the better part of this year and next year to get that all up and running across the U.S. system. But it will be a great platform that will enable us to create better experiences, not just for the customers, but for our employees and teams as we get more visibility day in and day out to the business, a better back office to leverage, a better labor guide to leverage to drive the economic model. So lots of work on the tech front. We brought a lot of talent in on the tech side, and we're making a lot of progress. Some of it's the heavy lifting with partners on POS and a lot of it is where you lean in where the consumer is going with the partnership on the Google front. But any other thoughts on tech, Ravi?

We're thinking about technology through the filter of what's going to drive demand generation and ultimately, how are we going to leverage technology to continue to drive 4-wall profitability. And we see a clear path forward to drive meaningful improvement to the 4-wall margin rates. And technology is a component of that, and that comes to life through service proposition, ease of executing in the back office, continue to drive conversion rate on consumers coming to our platform.

I think the piece that the team moved really fast on, Dennis, is we had so much data, and our data was pristine, right, name, telephone number, address. And we just hadn't been able to mine it and parse it the way we should, and we're doing that now. We do -- we're on the journey to hyper-personalization. And I do think really understanding the consumer being able to connect to them has been a big part of what helps complement the loyalty program to drive the frequency there. The opportunity is how do we use that even more in the journey from recruiting new customers in and getting over into the loyalty program.

Terrific. Let's shift gears over to restaurant development, and we touched a little bit on some of the closures. But maybe first, as we think about -- as you think about 2026 gross opens on the closure side of things and then maybe we can jump to kind of beyond '26, how we think about the store growth trajectory.

Well, if you think about 2025, I mean, opening 279 restaurants across the globe was a big accomplishment in the market that we had. You think about our guidance this year, a little more tighter in the U.S. business with recent trends in North America being 40 to 50. But international, 180 to 220, still a lot of opportunity, a lot of white space and a lot of momentum in that business.

So working the pipeline hard, not just to solidify and deliver on those commitments for this year, but how do we really set ourselves up for success in 2027. Ravi can talk about a little bit of the work that we're doing on joint capital planning with some of our biggest franchisees. But before you even go there, Ravi, why don't you talk a little bit around the view we took to closures and the work we're doing to really set our system up for long-term success?

Yes. Like the view we took was even less about closures, but it was about having like really thoughtful marketplace plans for all the important DMAs across the U.S. and how we want to evolve and modernize the fleet and making sure we're serving the consumers well. So we took a filter of looking at AUV performance, age of the asset, quality of the trade zone, what the image of the restaurant is, what's the potential recapture. And we use all of those metrics to help inform like what is the future optimized version of the marketplace that is going to help to modernize the fleet and continue to drive 4-wall profitability gains.

We do see that the recapture rate in our business can be very meaningful. So as we've down this path of nipping and tucking within the fleet, we see real opportunity to create focus on the go-forward fleet and create some capacity to reinvest. The closures for 2026 and 2027, they have a slightly higher tilt to the West and Southwest parts of the U.S. We continue to perform really well across most of America, and we still see more opportunity. So we see like 2026 from a gross development standpoint as a year that we're focusing on being the best operators we can continue to lean into the innovation that we have coming and taking some very concrete steps to drive 4-wall margins and -- we talked about on our last call that the top 50% of our fleet is at a $1.4 million AUV and a 12% EBITDA margin roughly.

And the top 75% of the fleet is at 1.2 million AUVs and slightly north of a 10% EBITDA margin. And we're addressing much of the bottom quartile of our fleet through like this targeted approach to closures and the targeted approach to closures is really, really focused in on this notion of make the market stronger. And we think that's just the next phase of the transformational journey we're in. And Todd talked about like the local co-ops, like adding the local co-ops at this time is still allowing us to grow media pressure year-on-year. So we have slightly fewer restaurants, but we actually have more media pressure and better 4-wall economics.

I do think as we think about setting the system up for long-term success, I mean, closures play a role, right, to make sure we're not spending time, energy and effort chasing an asset that is not well positioned to succeed in the long run. There is probably some healthy system optimization that should happen. How do we reposition our franchise system. We've got a lot of franchisees that have been spread all over and how do we get them a little more consolidated in certain parts of the country. But we've got the tools to do that between doing joint capital plans on closures, but also having company restaurants that could be available for sale.

As Ravi gets out and sits down and has those discussions with some of our larger operators, there's a lot of tools that we have on the table to really evolve how our franchise base is set up and also to recruit some new franchisees into the system, which is always healthy. And I know that's taken a big part of your time right now, Ravi.

And we executed this playbook in the U.K. over the last few years, and we reduced the size of the fleet there of 15% to 20%, and it was done through almost the exact same marketplace filter, driving franchise to franchisee transfers. And during that time, we've seen AUVs grow 17% from 2023 to 2025. And we're building on that momentum and the comps continue to perform really well and the innovation calendars come to life, and we recalibrated the ovens. So many of the things that we're talking about doing in the U.S. is the playbook that our team has executed in the U.K. over the last two years.

Yes. Makes good sense. Maybe let's just stick with the U.S. and kind of touch on franchisee sentiment and how receptive they are to the work that you're doing as it relates to demand and understanding we're in sort of a transformational period at the moment, but how do we think about demand to grow incentives maybe coming from you folks as we think about that U.S. pipeline maybe looking ahead?

Yes. And franchisee sentiment is mixed at times, and it's mixed right now. And we see the bifurcation is in franchisees who have had a long-term strategy around high transaction count and a healthy mix of value, we see their financial performance and their sentiment higher than potentially lower transaction-oriented and more premium price points as we've leaned into value more on a national level. So when we think about the development mindset, I think there's a lot of encouragement in the franchisee community that we're calibrating around what the long-term fleet strategy is, how are we transforming markets, thinking about their balance sheets and their profitability to ensure that we are being really constructive as a franchisor to make sure they're positioned for long-term growth. And then secondly, we've rolled out long-term development incentives.

And what we're really focused in on there is we want to give visibility to the franchisee community for the next couple of years, what development incentives will look like so they can have a great long-term plan in terms of how they want to drive capital allocation. And to Todd's point, the last thing we've really started to lean into is this notion of joint capital planning, where my team is sitting down with the franchisee communities and starting to plot out like what do we want to change in their portfolio and how are we going to go from 2026 to 2028 and 2030 in terms of full transformation.

So with that said, there's a lot of demand and hunger in terms of like taking this transformational lens and bringing it down to that specific franchisees and how they are going to evolve their portfolio. And it's been great balancing that conversation with this hyper focus on operational excellence, service mindset and making sure we are executing the best pizzas every single day.

And the system knows we're taking a long-term vision on the business. They know it is a transformation. They know we got work to strengthen the foundation. They're seeing the early wins and early progress. And they know to get the fruits of all of that takes some time, but they know we're leaning in, right? We're investing, as we talked about earlier off our P&L. We're creating fuel to do that with the work we're doing on the noncustomer-facing G&A front and delivering over this year and next $25 million plus of G&A savings and $13 million in the guidance for this year. And then really turning over the supply chain network, and it's not a cost-plus model. It needs to be how do you drive efficiency across all the supply chain to drive the 4-wall margin to really set the franchise community up for long-term success to invest back into their restaurants and their people into technology.

And we've got great line of sight with the work that Kurt Milburn and the team have been doing over in supply chain. The $60 million plus of savings that we'll see over the period of now in 2028 and upping the $20 million to $25 million that's going to get delivered in this calendar year. That's going to help us over the near term, deliver upwards of 200 basis points of margin enhancement for the system. A portion of it from the supply chain work, a lot of it from some of the labor optimization that Ravi is doing and the closures certainly help contribute to that number, too. So really trying to set the foundation of the business for the long run and making sure that we are really thinking about this business for the long run, not just chasing short term, doing the things fundamentally strong that set the foundation up so we can have a great run on the backside of the transformation.

Great. I want to shift over to international and then just kind of touch on the growth strategy there, latest updates on progress. I know you talked about the U.K. and maybe how that becomes a bit of a blueprint to some extent for the U.S., but maybe just success internationally and then the growth strategy in those...

I'll let you talk, you had the international business last year, Ravi, before you turned it over to Chris Lyn-Sue. So want to talk about some of the great progress.

Yes. Look, our focus in international is really about taking a priority market strategy. So I almost never talk about the international business in total. We talk about what's happening with the individual consumer segments within those countries, and we're hyper focused on making sure we have a clear innovation strategy in those markets and strong partnership with the franchisees to talk about what are the next rounds of unlock of growth from either a product strategy standpoint or how we're leveraging the learnings from other markets. We have also, across the international portfolio, specifically taking steps to nip and tuck in the portfolio as well. So we're about 2 years ahead in the international business of executing this notion of like we're driving AUVs. We're highly product-centric. We think about our priority markets first. And we've just been on that drumbeat.

And we have great consumer-minded leaders that are plotted across the world that are in market often with the franchisees really executing the plan. And I see that business is just one that has momentum and the momentum is foundational. It's consumer-led, it's stronger and stronger AUVs and franchisees that are committed to a long-term growth narrative. So when we opened up the India market recently, our objective was is like only focus on one city. And within that city, we're going to go focus on a few trade zones. And let's get incredibly good at delivering fantastic service and driving amazing brand advocacy there, and we'll grow from that portion of that mindset. And we think that, that mindset has really penetrated the franchisee community and our entire team, and it's going to set us up for the long term to truly become a great global brand.

The narrow deep focus has been key. I mean, not just within a market, as Ravi just articulated, but across our 50-plus markets that we compete in internationally. I mean the core 8, which the team has been really focused on, some of the work we're doing to get to maybe the top 12 or 13, that is the focus that it's going to take. And those are the markets that are really going to drive the progress and the momentum. And momentum breeds more momentum. It's been a lot of great work on the innovation front.

The Croissant pizza that was done internationally was a killer. The work that they've done on their chicken renovation in the U.K. is really strong. We just had that whole team in for business review in the test kitchen this past week and lots of fun stuff that's about to come on the innovation pipeline internationally, but they set themselves up for success to do it really well operationally, high customer satisfaction scores across many of those markets.

Terrific. In the last 15 seconds or less, anything on Middle East? You've got some exposure, anything that you're seeing or kind of commentary there?

Yes. I mean, too early to tell. I mean we're going to continue to watch what the impact is back here in the U.S. around gas prices. And clearly, in all the QSR disposable personal income is the biggest driver. So we're going to have to watch that. That said, we've got great value on our menu. So maybe we do see some more trade down that actually helps our business. Early days in the Middle East, business has hung in there quite nicely. I mean folks have been sheltered in place and folks are getting a lot of pizzas delivered at the moment. We'll have to think about all the disruption to supply chain over time. So hopefully, it doesn't last too long, but we're working the contingency plans to manage through that.

Terrific. Well, Todd, Ravi, we're out of time, but this has been great. I appreciate you guys sharing your time and your insights, and we appreciate it very much.

Our pleasure. Thanks, Dennis. Appreciate it.

Hello and thank you for standing by. Welcome to Papa John's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to Heather Hollander. You may begin.

Good morning and welcome to our fourth quarter and full year 2025 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 Ravi Thanawala, Chief Financial Officer and President, North America.

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 1 question and 1 follow-up.

And now, I'll turn the call over to Todd.

Thank you, Heather, and good morning, everyone. 2025 was a year of transformation for Papa John's as we made improvements across the company to our brand health, technology platform, innovation pipeline, customer experience, restaurant fleet and cost structure. These actions, together with key leadership appointments and organizational changes, represent meaningful progress against our transformational objectives. We have substantially improved our brand health as well as our value and quality perception with our customers, which will translate into market share gains.

We achieved growth and higher utilization amongst our loyalty members or our most valuable customers, increasing loyalty orders redeeming Papa Dough from 24% last year to 48% at the end of 2025. In our international business, we've delivered 5 consecutive quarters of positive sales comps. We have made progress against our technology road map with the goal of establishing Papa John's as a best-in-class technology leader in QSR. We established a plan to deliver at least $60 million of system-wide supply chain cost savings to our company and franchise restaurants without compromising the customer experience.

We identified at least $25 million of noncustomer-facing corporate cost savings to be realized through 2027. And we ended the year meeting or exceeding our updated guidance targets while investing $21 million in supplemental marketing year-over-year to support our value proposition and our franchisees. As we work to build on this momentum, I am even more confident that Papa John's is well positioned for meaningful medium- and long-term growth and value creation than I was at this time last year. Still, our progress is just beginning and near-term performance is mixed as our transformation initiatives begin to take hold.

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, which pressured comparable sales. From a product perspective, core pizza remains resilient. We continue to see consumers buying more pizzas overall with the total number of pizzas sold actually increasing 1% as well as improvement in orders that included multiple pizzas. 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 nonspecialty 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 U.K. 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 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, I am confident Papa John's will capture this global market opportunity. Our 2 largest opportunities to gain share are: building on the advancements we've made in value perception and leveraging our rebuilt innovation pipeline to win new customers, elevate our pizza order mix to more premium pizzas, drive add-ons and expand our total addressable market.

Let me share more on each starting with our value proposition. In the fourth quarter, promotions such as our 50% out carryoff deal, $9.99 create your own pizza and our popular Papa Pairings were effective in improving our value perception scores, which increased mid-single digits compared with last year, even as QSR peers introduced aggressive new promotional offers. We'll continue to pulse compelling promotions to meet the customer where they are. We're also significantly evolving our promotional intensity across the third-party ecosystem to drive strong performance across all aggregators.

Second, a steady dose of innovation is critical for new customer acquisition and our innovation engine is firing on all cylinders. We are rolling out exciting new products that are showcasing our better ingredients, better pizza brand promise in new ways and delivering new products customers have requested. At the end of January, we launched our pan pizza platform. Following extensive culinary research and development, our teams have crafted an elevated differentiated pan pizza experience using our premium ingredients and featuring our signature sauce, a 6 cheese artisan blend and a fluffy soft interior with a crispy garlic Parmesan Crust.

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're 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 and is designed to drive incremental sales and attract a broader customer base throughout the day without complicating our make line.

For example, we're testing oven toasted sandwiches in North America and we'll soon begin testing in certain international markets to provide a handheld option at an accessible price point. These chef-crafted sandwiches are made on bakery fresh Ciabatta bread and packed with innovative flavors and high quality meats brushed with our signature garlic sauce. We are pleased with the early results of this new growth platform with our new sandwiches increasing sales of nonpizza items in test markets.

Part of our product innovation work in 2026 is centered around crafting compelling side items at accessible price points, which we believe will entice customers to look beyond the center of the plate and drive benefits to total ticket, sales and 4-wall margins. As we elevate our offerings outside of core pizza, in the U.K. we're serving up new crispy coated chicken tenders alongside new dipping sauces and we are pleased with the early results increasing sales of side items. We plan to build upon these learnings for chicken innovation in the U.S. 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 customers' 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. Though we are still in the early development phase, the protein crust pizza is an example of how we're rebuilding our innovation pipeline and aligning with the trends that matter most to our customers. The foundational work we have done to recalibrate our ovens, adjust baked temperatures and optimize bake times has made our expanded innovation pipeline possible and has improved product quality and consistency.

At Papa John's, innovation extends beyond the menu. We're also building partnerships with notable brands and strategic collaborations to introduce Papa John's to new customers. We're putting innovation behind these partnerships with a new single-serving pizza soon joining our menu lineup. While it's too early to share the details about these partnerships, we're excited about what's ahead and look forward to providing updates in the coming months. We expect the benefits of a sharpened comprehensive value proposition along with consumer-led data-driven product innovation to win new customers, drive incremental orders from existing customers and improve order mix on the path to sustainable profitable top line growth.

With the competitive dynamics in the QSR marketplace, we are equally focused on sharpening our marketing message. We know pizza is a game played nationally, but won locally. I'm 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. Now nearly half of our North American system-wide sales are supported by an advertising co-op with collaborative local campaigns.

As we bring innovation to market, we are supporting our product launches with an all-new creative platform developed in partnership with our new agency of record. While continuing to anchor on our 6 simple ingredients promise, these new campaigns will also connect with customers by leaning into culture-forward omnichannel storytelling. 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.

Earlier this month, we launched a campaign to be the first national pizzeria to be awarded a Michelin Star with pan front and center because we know great pizza deserves a star. Our messaging around pan is performing well especially among younger consumers with strong purchase intent and desirability results. 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 on to 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 with response times nearly 40% faster and in conversion, which has improved 70 basis points. To reduce complexity and improve workflow in our U.S. restaurant operations, we've partnered with leading food service technology provider, PAR Technology.

Over the next 2 years, we will migrate from our legacy system to PAR POS consolidating inventory management, make line operations and AI-powered labor, inventory and restaurant management systems on to 1 platform and enable real-time insights. The new system will utilize existing hardware, minimizing implementation expense and accelerating deployment. A modernized POS combined with 70% owned digital business provides us with a powerful data and insight to inform our decisions and better serve our customers. Additionally, we continue to expand our partnership with Google Cloud to transform digital ordering through its AI-powered food ordering agent.

In the second quarter, we plan to launch an advanced voice and group ordering feature and frictionless reordering for Papa Rewards members. Together, these enhanced tools will simplify the ordering experience, reduce card 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 million fans and helping to build advocacy among younger, value-orientated consumers. Our Papa Rewards loyalty program continues to increase order frequency and engagement across all customer cohorts. In 2025, our loyalty members placed 2.5x more orders than non-rewards members indicating both the strength of our loyalty program and the opportunity associated with capturing new members.

We're also engaging customers more frequently, leveraging personalization and exclusive offers to drive urgency, exclusivity and incremental visits. And given the importance of the carryout channel, we're also providing franchise incentives to support remodels and elevate the into store experience. Finally, we continue to partner with and evolve our franchisee base. I'm pleased to report that we continue to gain momentum with our efforts to optimize our North American supply chain and reduce overall cost to serve.

As we progress with the work, we have identified additional productivity opportunities and now expect to achieve at least $60 million of North American system-wide cost savings with $20 million to $25 million realized by the end of 2026. These cost savings will equate to at least 160 basis points of 4-wall EBITDA improvement by 2028 for both company and franchise restaurants and do not impact our commitment to product quality or our brand standards. Next, we are accelerating our refranchising program and expect to reduce company-owned restaurants to mid-single-digit percent of the North American system.

Partnering with well-capitalized, strategic growing franchisees enhances local execution, improves operational efficiency and unlocks future growth. 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. In addition to accelerating refranchising, we've completed a strategic review of our restaurant fleet and identified targeted opportunities to strengthen it through selective closures. Ravi will share more about our plans in a moment.

Turning now to our cost structure. We have conducted a comprehensive review of noncustomer-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 system. Together with the just reviewed actions to optimize our restaurant portfolio, we expect this program to deliver at least $25 million in cost savings outside of marketing through 2027 with approximately $13 million expected to be realized in 2026.

I'll briefly walk through the key drivers of these savings 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 and optimize spans and layers in our organizations. These changes are designed to increase efficiency and simplify operations. In parallel, we also evaluated noncustomer-facing costs and are executing against identified opportunities to reduce indirect spend.

A portion of these savings will be reinvested in business areas that we believe have the greatest potential to drive sustainable growth, including: innovation to ignite even more customer enthusiasm and expand our addressable market; marketing to remain agile and as needed to invest on behalf of the system 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 4-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. Our international business provides a compelling proof point delivering 5 consecutive quarters of positive comparable sales through focused investment in product, customer experience and priority markets. In summary, as we accelerate our transformation, we are making visible progress executing our strategy. We are confident in our direction and in our ability to deliver sustainable profitable long-term growth and capitalize on opportunities across the category.

And with that, I'd like to turn it over to Ravi.

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. I'll then provide an overview of our fourth quarter financial results and conclude with our outlook for fiscal 2026. First, I'm honored to step into the role of President, North America in addition to my CFO responsibilities. I've spent the last 3 months in our restaurants, collaborating with our franchisees and reviewing the North America restaurant fleet. I'm 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 system, I'm highly focused on improving 4-wall EBITDA for both company-owned and franchised 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 4-wall margin over the medium and long term. Lower costs and greater efficiencies are additional pillars of the 4-wall EBITDA improvements.

In addition to reducing our overall cost to serve through supply chain optimization, we are leveraging new AI capabilities including our Google Cloud partnership to simultaneously 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. 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've completed a strategic review of our restaurant fleet and identified targeted opportunities to strengthen it through selective 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, over a decade old, generate AUVs of under $600,000 and are mostly operating at negative 4-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, increasing AUVs by at least 3% and improve franchisee health by allowing franchisees to reallocate resources towards operational excellence in their remaining restaurants and open units in priority markets.

This is the same strategy we successfully deployed during my tenure managing our international business. We delivered significant upside, improving AUVs in the U.K. by 17% after implementing our transformation plans. Similarly, select strategic closures will allow our North American franchisees to redirect resources to drive operational excellence in their core restaurants and accelerate growth in priority markets.

While domestic 4-wall EBITDA has been pressured over the last 2 years by food costs, labor inflation and fixed cost leverage; we expect to generate at least 200 basis points of improvement in 4-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. 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'm 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 our 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. For 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 in fiscal 2025 with 96 restaurant openings in North America and 183 in international markets.

In 2025, our U.S. market share slightly softened reflecting a system-wide sales decline of just under 1%. As Todd described, we are taking actions to further increase our agility as we move throughout 2026 and build momentum behind our transformation. For the fourth quarter, global system-wide restaurant sales were $1.23 billion, down 1% in constant currency as higher international comparable sales and 1% global net restaurant growth were more than offset by lower comparable sales in North America.

North American comparable sales decreased 5% in the fourth quarter driven by a 5.5% decrease in transaction comps across our restaurants. 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 million, 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.

Domestic company-owned revenues decreased $24 million primarily due to refranchising of 85 corporate restaurants in addition to lower comparable sales and the prior year deferred revenue impact related to loyalty enhancements. North America commissary revenues decreased $7 million primarily due to lower pricing slightly offset by higher volumes. And all other business unit revenues decreased $7 million driven by lower advertising fund revenue as a function of lower sales. Partially offsetting these declines was a $4 million increase in international revenue driven by improved performance across our priority regions.

Consolidated adjusted EBITDA decreased to $51 million as we strengthened our value proposition during the quarter and built on foundational investments we made throughout 2025 to improve our brand health and position for sustainable growth. Fourth quarter consolidated adjusted EBITDA performance was impacted by marketing investments and subsidies of approximately $8 million and approximately $2 million of higher management incentive compensation. 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 million, including $21 million of incremental marketing investments building on approximately $4 million of incremental marketing investment in the fourth quarter of 2024. Our fourth quarter domestic company-owned restaurant segment adjusted EBITDA margin, which includes G&A expenses, was 6.3% improving by approximately 10 basis points as the flow-through from higher average ticket offset lower transaction volumes and labor inflation.

In the fourth quarter, domestic company-owned restaurant delivered 4-wall EBITDA of $19.2 million and a 4-wall margin of 12.7%, an improvement of 60 basis points primarily driven by lower cost of sales. Food costs and restaurant labor were each approximately 32% of domestic company-owned revenues during the quarter. North America commissary segment adjusted EBITDA margins were 7.7%, an increase of 150 basis points primarily reflecting higher volumes.

Turning to our balance sheet. At the end of the quarter, our total available liquidity was $515 million and our covenant leverage ratio was 3.2x. 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 million. Free cash flow was $61 million, an increase of $27 million 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 million.

Now turning to our 2026 outlook. As we improve our cost structure to support our transformation, 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 2% and 1% of annualized global system-wide sales, respectively. Accordingly, we expect to incur restructuring charges of approximately $16 million to $23 million associated with our transformation work to be recognized in 2026 and 2027. We expect that these will be primarily cash charges. Our financial guidance is provided on an adjusted basis excluding these charges.

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. We expect Q1 to be the softest quarter followed by improved trends in the second half of the year supported by the benefits of our product innovation, marketing co-ops and new aggregator marketing strategy.

Internationally, as we build on our transformation momentum, we expect comparable sales to increase between 2% and 4%. 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 million, including the impact of eliminations and benefit adjusted EBITDA by approximately $1 million. These impacts are reflected in our financial guidance. 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 $200 million and $210 million. Recall that 2025 and 2026 are investment years as we support our transformation initiatives. In 2026, we expect to invest approximately $22 million in supplemental marketing and franchisee subsidies to support our menu strategy and enhance franchisee profitability as we lean into our promotional strategy in this year's innovation calendar. As our transformation advances and we continue to stand up local co-ops, we do not expect to continue this $22 million investment after 2026.

As Todd described earlier, our 2026 consolidated adjusted EBITDA outlook includes $13 million of cost savings outside of marketing. We will continue to be prudent with cost management on our way to achieving $25 million of total cost savings by the end of 2027. In 2026, we expect that stock-based compensation will be approximately $5 million per quarter. For nonoperating expense items, we expect net interest expense between $35 million and $40 million, adjusted D&A between $70 million and $75 million and capital expenditures between $70 million and $80 million.

As we move to a more asset-light model after 2026, we expect capital expenditures to step down to approximately $60 million to $70 million 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% and 38% reflective of an anticipated shortfall from the vesting of restricted shares resulting in additional tax expense when compared with the prior year period. Finally, we expect diluted shares outstanding of approximately 33 million.

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 4-wall economics and our consumer experience with the intent of accelerating new restaurant development and capitalizing on significant market share opportunities over the medium term. After 2027, we expect new restaurant growth comparable to 2025 levels and closures returning to 1.5% to 2% per year. 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 of lower AUV restaurants to further strengthen our markets. Overall, we're 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'd like to open up the call for any questions you may have. Operator?

[Operator Instructions] Our first question comes from the line of Brian Bittner with Oppenheimer.

As it relates to your same-store sales, one of your competitors suggest that the QSR pizza industry as a whole is pretty stable, in fact growing and your same-store sales guidance for '26 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.

Brian, thanks for the question. 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, 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. We're 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've been doing in Papa Rewards and the targeted CRM offers. But we do think as we go through this year bringing to life pan pizza, we're already seeing a nice mix in that product.

The opportunity is to wear it in and really engage new customers into our brand and it's a great product once they try it and we're seeing good repeat rates early in the game. The sandwich opportunity is an opportunity for us to start to expand our total addressable market because we don't play in that category yet. It's doing really well in test so I would expect to see that coming to life during the course of this year. We know we have an opportunity to drive add-on with affordable sides. So we've got that news coming through this year. And the single-serve pizza opportunity is an opportunity for us and that will 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 got to really compete better at the local level and we've been working hard over the course of the last 18 months as I've been here to get the co-ops back up. And as you heard in the prepared remarks, we now got 50 co-ops representing half the system sales in the U.S. up and running. So all of those are the nice tailwinds in our business that we're 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've got a couple of things that we know we need to evolve and change.

We talked about pulling some of our rhythm breakers off the menu to really drive a focus on being not just the best pizza makers in the business, but over time being the best bakers. And the elimination of Papadias and Papa Bites will have an impact on our business, but it's absolutely the right thing to do from an ops complexity to create great service experiences time and again moving forward. So we're going to be focused on doing that. And we know we got to compete even stronger in the 3P channel and that's not just national offers, that's working local and the co-ops will help us really position to do that even stronger at the local level.

So we're going to do the things that are right for the long term of the business, bring news, continue to drive our core pizza business. 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 mix trade-downs and we think we'll continue to see some of the mix trade-downs from large and specialty into medium, which provides a little bit of pressure on our business. But we think it's a prudent approach to the business. We're managing our cost structure appropriately. We continue to invest to bring the news to life. And we really think that kind of prudent approach to our business will set ourselves up for long-term success. Anything else, Ravi?

Just, Brian, as we think about dimensionalizing the 2025 comp, 180 basis points of our comp pressure came from our sides business, 50 basis points were from channel mix and the balance was really a mix shift within the pizzas itself from larger sizes to some medium sizes and a little bit of a mix out of specialty into create your own. So there are a couple of dynamics there. But as Todd mentioned, we're really focused on like wearing in our innovation strategy and competing well.

Our next question comes from the line of Sara Senatore with Bank of America.

Isiah Austin on for Sara. Just briefly, how do you guys think about competing on value? I know it's 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.

I think on competing on value, we really think about how do we meet the consumer where they're at and we did that in partnership with our franchise system in the fourth quarter. Our 50% carryout offer met them where they're at and that's a great offer and a great overall service experience because we do really well on the carryout side. Having $9.99 create your own did meet the consumer where they're at. But we have to compete on both ends of the barbell and that's 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 and check and dollars.

So it's going to have to be a balance. The work we're doing on innovation to have affordable sides certainly helps us on value. But what we really need to do is continue to recruit new customers because if we can get them into our rewards program, we're driving -- we see higher frequency and there's a lot of value that can be created with Papa Dough redemptions that we've seen nice uptick in the Papa Dough redemptions. And our frequency, as we said on the call, is 2.5x more in that with a loyalty member than a non-loyalty member. So we're just going to have to continue to drive folks over into that channel. And as we said earlier, we're going to have to make sure that we've got the appropriate offers in 3P to compete even better to make sure we've got not just our fair share of the pizza category, but our fair share of QSR in the 3P channel.

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 4-wall basis in the system with 160 basis points coming from supply chain and the balance coming from labor and market efficiencies. So even in this value-centric world, we're pulling levers to continue to maintain and drive our 4 walls. And just more broadly from a 4-wall standpoint, in December 2024 we provided a figure that our domestic company-owned restaurant 4-wall margins were $150,000 and as we look at the numbers for year-end 2025, we're at $135,000.

So we went slightly backwards, but like we have a clear plan that we just laid out to reaccelerate there. And then just from like a broader system standpoint, when we look at the Top 50% of our fleet right now in the U.S., AUVs are roughly $1.4 million at a 12% EBITDA margin. And our Top 75% of our fleet is at a $1.25 million AUV roughly at a 10% EBITDA margin. So we see opportunities to continue to accelerate 4-wall margins and compete by having this balance of value messaging that Todd referenced and wearing in our innovation calendar.

And last thing I'll add, I think we really have the opportunity to lean in on our CRM program. So as you think about more personalized one-to-one communication to drive value and drive behavior with those customers, we'll continue to lean in on that. It's a great way to compete for the size and scale of the business that we are against the bigger competitors that are out there.

And then just as a follow-up, kind of just going on Todd's comment about on the different platforms. Do you mind letting me know how you guys see growth? Is that coming more from aggregator platforms or if there's an opportunity to drive growth primarily through the 1P platform?

We think there's an opportunity to drive growth in both. As we've talked about, we see a lot of runway still left from a carryout standpoint in our 1P business and we see that as a core focus. We continue to attack. We've been first movers on the aggregators and we continue to grow and expand that business. So we're going to continue to lean in both. I think we have to be agile both in first party and third party as look, there are lots of different offers that consumers are seeing in this value-centric world. But our teams have got lots of experience on managing the third-party experience and third-party business and we'll continue to shift and adjust as needed.

And we truly believe our strong innovation calendar will help us really bring in new customers and that's not just in our traditional channels to carry out in 1P, but also helps a lot in 3P as we bring all this news to life.

Our next question comes from the line of Todd Brooks with Benchmark StoneX.

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 declined in '25 versus '24?

Yes. I can't give specifics on the declines from a system standpoint, but what I would say is like we're the largest franchisee since we operate roughly 500 restaurants in the system. So it's not a one-for-one comparison, but it's probably a reasonable starting point to work from. I think more broadly like 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're all rallying around is recapturing 200 basis points of margin rate upside. And as I think about '26 relative to '25, we expect 4-wall profitability to slightly increase year-on-year on a dollar basis.

Yes. Todd, and I would add that's 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 take a look at restaurants that maybe moved; the trade areas have moved away or there was going to be significant investment to get them up to grade both from how we're operating them as well as how they're perceived because they may look a little more older and tired. That opportunity is an opportunity to really take care of our lowest AUV and our more challenged EBITDA restaurants to really strengthen the system and help on the 4-wall profitability and help on our overall AUVs.

Okay. Great. So I'm trying to dimensionalize that 300 that you've identified for closure, how much healthier does that make the rest of the system from an economic standpoint?

So AUVs increased about 3% on an average basis from the restaurant closures. And I would say like 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 of 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 we've had great partnership with the franchisees to make sure we're thinking about each market holistically, that we're setting ourselves up for a stronger system.

I 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 franchisees up in those markets for ultimate success. And whether that's a relocation, whether that's a closure, whether that's a reimage, whether that's a new build; we're working hard to really make sure that we partner with our franchise community to set them up for long-term success.

Our last question will come from the line of Jim Sanderson with Northcoast Research.

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?

So third-party delivery grew low single digits on a dollar basis in the quarter. 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's no one thing we're doing there. There's a number of things we continue to work on. We're leveraging our Google Cloud partnership to continue to evolve that digital experience journey too. We're looking at different strategies to make sure that we're improving taste of food, which is a key measure of consumer satisfaction on the delivery of product. And third is we're going to continue to leverage CRM to make sure we're getting our most loyal consumers into that delivery channel.

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.

Well, I'd like to thank everybody for joining the call this morning. I know it's a busy morning with a lot of other folks announcing. So I appreciate your continued interest in Papa John's. 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're 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 and look forward to some of the follow-up calls this morning. Thanks, everybody.

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

Good day, and thank you for standing by. Welcome to the Papa John's Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker for today, Heather Hollander. Please go ahead.

Good morning, and welcome to our third quarter 2025 earnings conference call. Earlier this morning, we issued our third quarter 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 Ravi Thanawala, Chief Financial Officer and Executive Vice President, International.

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. I want to start first by thanking our franchisees and team members for their continued commitment to our customers and for their dedication to advancing our strategic priorities as we transform the business.

Papa John's has a strong foundation from which to build, including an outstanding brand, a differentiated product proposition, a loyal customer base and a strong balance sheet. That said, we are navigating weaker consumer sentiment and a more promotional QSR marketplace, particularly in North America, resulting in mixed third quarter performance. Global comparable sales were flat for the third quarter, while North America comparable sales decreased 2.7%.

As we move through the third quarter, we saw the greatest order decline within small ticket web customers in North America. Small ticket web orders tend to over-index, with lower-income customers, corresponding with the disproportionate sales pressure we've seen with this cohort.

Within North America, core pizza sales were flat. We sold 3% more pizzas and 4% more pizzas per order, but total pizza sales were effectively flat as order mix shifted to more medium pizzas and fewer added toppings. The majority of North America sales pressure was driven by declines in product outside of our core pizza offering, including wings, bread sides, Papadias and Papa Bites.

As consumers are pressured, they tend to control their spend by focusing on center of plate rather than adding sides and desserts. As part of our product innovation work, we are taking action to develop more compelling sides and desserts at more accessible price points. I'll share more about that in a moment.

Outside of North America, however, we are encouraged by the upside that is being created as a result of the changes we are making. Our international business delivered exceptional results, generating comparable sales growth of 7% in the quarter. These results were driven by strength across key markets in Europe, the Middle East and Asia Pacific. Ravi will share more about third quarter results in his remarks.

While we address the immediate market headwinds, particularly in North America and execute our transformation strategy, we are also working to be a more nimble, efficient organization with a leaner G&A structure.

As we discussed last quarter, efforts to optimize our North American supply chain and reduce overall cost to serve are expected to result in at least $50 million in supply chain savings by 2028, $20 million of which are planned for 2026. We have identified productivity opportunities through procurement vendor negotiations, evaluating our freight and transportation services and reducing our fixed cost leverage throughout the commissary, all while maintaining our commitment to quality.

As for restaurant level financial impact, we expect that the cost savings will equate to approximately 100 basis points of 4-wall EBITDA improvement for both franchise and company-owned restaurants by 2028. This quarter, we are also announcing 2 new efficiency initiatives with respect to the company's overall cost structure and our refranchising program.

First, during the quarter, we initiated a comprehensive review of our expense structure to streamline our organization, reduce noncustomer-facing spend, simplify our operating model and better align our resources to support our transformation.

We have already identified at least $25 million of savings outside of marketing to be captured across fiscal years 2026 and 2027. These actions will create incremental flexibility across the business, provide fuel for future growth and improve the earnings power for both company and franchise restaurants and for Papa John's as a franchisor.

The review of our cost structure is ongoing. And based on this work, we expect there to be additional efficiency opportunities. We look forward to sharing more details about the cost review, including impact to our fiscal 2026 guidance when we report fourth quarter results.

Second, we are also announcing today that the company will be accelerating our refranchising program over the next 2 years, which we believe will strengthen our local markets and increase our operational efficiency. I'll share more on this shortly.

Ultimately, we are positioning Papa John's to compete better in 2026 and beyond. We are aligning our system around a more comprehensive value proposition to address near-term consumer pressure. We are building a stronger, more impactful product pipeline, with a relentless flow of innovation built around 3 major new platforms to extend our addressable market and expand margin, including reimagined sides to drive add-ons.

We are strengthening our competitiveness in strategic markets, both domestically and internationally. We are removing noncustomer-facing costs from the business. We are creating a more nimble, efficient organization. We are standing up a technology platform to differentiate the customer experience. We are building a more efficient supply chain and improving our food cost, and we are accelerating our North American refranchising program.

We are confident that our transformation work will ultimately position Papa John's to generate sustainable, profitable growth across our portfolio, better respond to customer needs and effectively navigate a variety of consumer environments, all while maintaining a healthy balance sheet.

With that backdrop, and before we move to a more detailed update on our transformation priorities, I want to address the recent M&A rumors and speculation regarding the company. As a Board and a management team, we are focused on maximizing shareholder value. We are open-minded about the path to do that. And to the extent there is an alternative to our strategy that is available and maximizes shareholder value, we would fully consider it.

At this time, the opportunity before the company to drive the greatest value creation is through the execution of our transformation strategy, and that is where we have directed our attention. While our transformation is in the early innings, we are making progress. And as you've heard today, we are committed to accelerating the momentum, including pursuing cost actions, faster refranchising and meaningful operational improvements. Let me share more.

First, we are relentlessly focusing on our core product proposition and premium innovation. Our culinary and product development teams have rebuilt and reinvigorated our innovation framework, which is now grounded on 3 approaches: form innovation, size innovation and platform innovation.

In September, we launched Papa Dippa, the first innovation under the new framework, showcasing form innovation. Papa Dippa is an on-trend shareable pizza cut into strips made specifically for dipping. Our newest innovation launched this week is built around size. The Grand Papa is our largest pizza ever with deli-style pepperoni and large foldable slices, perfect for sharing.

In 2026, we expect to have a consistent flow of impactful innovation at compelling price points, which will better allow us to drive sales in a challenging consumer environment and extend our addressable market. For example, we are reimagining our side offerings and developing more sides at accessible price points to drive add-on sales and margin expansion.

Additionally, our 2026 innovation pipeline begins to expand our aperture beyond traditional QSR pizza and adds new sales layers to our business, including menu items more akin to what you would find at your neighborhood pizzeria. Combining this kind of right price innovation with Papa John's quality, craftsmanship, variety and freshness results in a distinct competitive advantage to win new customers.

Importantly, our menu expansion and exciting platform innovations are supported by our Perfect Bake project, which encompasses oven calibration and operations excellence work and advances the quality and range of products we're able to prepare in our restaurants. As part of our incremental marketing spend this year, we've also invested in a comprehensive testing program, which allows us to rigorously vet our new products and ensure that innovation is truly customer-led and insight-driven, which will benefit the business in '26 and beyond.

In the third quarter, we continued to reinforce our barbell strategy by leveraging value messaging alongside full margin product, positioning our $6.99 pop-up pairings platform, alongside our Buy One Get One offer in addition to introducing our garlic 5 Cheese crust in August. Combined, these offerings helped deliver another quarter of growth in total number of pizzas ordered.

To remain competitive in the dynamic QSR marketplace, we must execute on our second strategic priority of amplifying our marketing message to differentiate our brand and win customer consideration. And in this environment, price is a key component.

Accordingly, we sharpened our value proposition. We pulsed in additional promotions such as, Buy One Get One Free Pizza offers in mid-September and mid-October, which were effective in driving orders with multiple pizzas and bending the trends for select weeks.

To capture the small ticket, lower frequency customer, we recently launched a 50% off carryout offer supported by media. Very preliminary results show improved order trends, but we would like to see the offer out in the market longer before making any definitive statements.

We are also very excited to have achieved our highest sales day ever in North America on Halloween last week. So we are managing the moment, with a more forward-leaning value proposition, we are also building for the future with initiatives that will grow sales and expand margin, including a robust innovation pipeline, new sales layers, elevated operations and a technology platform that delivers a seamless connected customer experience.

In the third quarter, we invested an incremental $4 million towards supplemental marketing to support our value proposition and build on the foundational investments we've made through the year. We directed part of this investment toward working media to support our BOGO offer during the quarter, which drove improvement in order trends while the promotion was in market.

By optimizing our channel mix and audience strategy, we achieved more efficient media spending. We also invested advertising dollars in non-working media to launch a comprehensive testing program and better inform future spend. These foundational investments will continue to deliver benefits heading into 2026 as we further optimize media mix, launch products and campaigns informed by our test and learn program and expand our social share of voice. These non-working media investments are onetime and not expected to repeat in 2026.

Turning to our brand positioning. We continue to showcase Papa John's differentiation, emphasizing the 6 simple ingredients of our fresh, never frozen original dough. Third-party research consistently tells us that customers value high-quality real ingredients, and we believe that our commitment to fresh, quality, simple ingredients is especially important given current customer trends.

For example, we have seen strong improvement in our brand perception quality score since the onset of our Meet the Makers marketing campaign, which emphasized our product differentiation and six simple ingredients.

Our third strategic priority is investing in technology and our tech stack to deliver a more seamless experience across our digital assets and own channels, better connect with customers and support greater efficiency across our operations by leveraging data and AI. We are especially excited about the power of building on our marketing advancements by inviting customers into the brand and then layering in hyper-personalization to drive additional engagement and retention. With approximately 70% of our sales generated through own digital platforms, delivering an effortless customer experience is essential.

We recently achieved a major milestone with the launch of a modernized first-party digital ordering platform across our mobile apps on both Android and iOS, which improves navigation, reduces clicks to purchase and improves order tracking and targeted communication. The platform improvements are already driving higher conversion rates, reflecting our continued focus on performance, usability and speed to market.

Building on this success, we are working to modernize the design and to deliver an elevated customer experience on our website, which we expect to launch in December. In addition to our improved digital ordering platforms, we continue to enhance our end-to-end digital customer experience and CRM platform to increase engagement, session conversions and repeat purchases.

Over the last quarter, we benefited from our higher CRM engagement, with customers through e-mails, app push notifications and SMS communications. This is important foundational work that will continue to drive benefits in 2026.

Our fourth priority is differentiating our customer experience to meet and exceed the convenience, value and quality expectations of our customers, across all of our demand channels. Starting with loyalty. Our loyalty program is a prime example of how we continue to evolve and build brand advocacy amongst our most valuable customers. It's been almost 1 year since we launched our enhanced loyalty program with a lower redemption threshold for Papa Dough, and a call to action for our loyalty members. We continue to see benefits of these changes with increased Papa Dough redemptions and higher order frequency amongst our loyalty members.

As of the third quarter, I'm pleased to say that, we've reached 40 million total loyalty accounts, an increase of almost 1 million new members over the last 3 months. It's crucial that we serve our customers with excellence every time, no matter which demand channel they choose. Despite increased competitive pressure and promotional activity during the quarter, we continue to generate positive sales and order growth in our aggregator channel, with sales through our partners remaining accretive and beneficial to 4-wall profitability.

The aggregators deliver a customer that is, on average, more affluent compared with customers utilizing our first-party digital platforms. We believe that with our premium product position, high-quality ingredients and our value message, Papa John's has a compelling competitive advantage with the aggregator ecosystem. This resulted in a low teens improvement in total net sales across the aggregators.

Turning to first-party delivery. Delivery is an important component of our business, and we are committed to consistently providing an excellent delivery experience, while also improving our performance in the channel. We continue to roll out our delivery tracking service across our system, with approximately 60% of the U.S. restaurants now offering the service. We expect to substantially complete the rollout to all U.S. restaurants by the first quarter of 2026.

Finally, our restaurant general managers and their teams are hard at work executing and delivering a more consistent experience in our restaurants. We've expanded our operations evaluation tools to additional restaurants, which is driving higher product quality, taste of food and customer satisfaction scores.

Our fifth strategic priority is partnering with and evolving our franchisee base to drive profitable growth by expanding our share in the most impactful markets and further improving our restaurant economic model. As mentioned at the outset of the call, we plan to accelerate our domestic refranchising program over the next 2 years.

In terms of scale, we expect to reduce our company restaurant ownership to a mid-single-digit percent of the North American system. We believe that refranchising with strategy forward, well-capitalized growing franchisees strengthens the long-term health of the Papa John's system and unlocks future growth opportunities.

We expect to finalize the sale of our ownership stake in a joint venture that operates 85 restaurants in the Mid-Atlantic region in the fourth quarter. Those restaurants will be operated by a growth-minded franchisee, with the requisite capital and strategic approach to grow their business.

In summary, we are navigating a challenging consumer and competitive environment and executing a strategy to ensure Papa John's delivers sustainable, profitable growth. While the full benefits will take some time, our transformation strategy is showing positive results, and we are taking far-reaching actions to accelerate the progress we are making.

We are driving noncustomer-facing costs out of the business, accelerating our refranchising program, rebuilding our innovation pipeline, sharpening our value proposition and making returns-driven investments in technology, all while maintaining a healthy balance sheet.

Transformations by their nature, aren't linear, but we are managing the moment, while building for the future. I am confident that the actions we are taking will position Papa John's to deliver long-term value creation, for all of our stakeholders.

And with that, I'd like to turn it over to Ravi to discuss our third quarter financial results in greater detail. Ravi?

Thank you, Todd, and good morning, everyone. I'll begin my comments with an overview of our third quarter results, followed by our financial outlook. Please note that, all comparisons and growth rates referenced today are compared to the prior year period, unless otherwise noted.

In the third quarter, global system-wide restaurant sales were $1.21 billion, up 2% in constant currency as higher international comparable sales and 1% global net restaurant growth on a trailing 12-month basis more than offset lower North America comparable sales.

As Todd discussed, North America comparable sales decreased 2.7% in the third quarter, with the majority of sales pressure driven by declines in products outside of our core pizza offering. To improve this trend, and drive add-ons and ancillary sales, we are rebuilding our innovation pipeline, including reimagining our sides offering.

Third quarter transaction comps decreased 4%, predominantly driven by a decline in orders from small ticket web customers. We are amplifying our value proposition accordingly to drive transactions, while maintaining our premium positioning. Third quarter ticket comps increased 2%, as we benefited from an increased number of pizzas sold per order, partially offset by mix shift into medium pizzas with fewer toppings, strategic changes we made last year to our loyalty program and a decline in add-ons.

Turning to our international business. International comparable sales increased 7.1%, supported by our cross-functional transformation initiatives, which are yielding operational improvements as we continue our focus on priority markets, adding compelling product innovation to our menus and taking a consumer-first mindset across our global operations, setting the stage for long-term value creation across the segment.

We expanded our exciting Croissant Pizza offering to 3 additional markets in the third quarter, generating significant media buzz and activations, alongside solid sales and order mix improvement, demonstrating the power of compelling product innovation.

I'm proud of how our international teams have come together to drive improvement across global operations, achieving 4 quarters of positive sales comps with sequential improvement each quarter.

Total consolidated revenue for the third quarter was essentially flat at $508 million, as higher international revenue was mostly offset by lower revenues generated in North American restaurants and QCCs.

Total international revenue increased approximately $6 million as our transformation initiatives in the U.K. and our priority markets have resulted in better performance across all lines of business.

Total North American revenues, inclusive of our full restaurant portfolio and our commissary decreased approximately $6 million in aggregate, primarily driven by lower comparable sales during the quarter.

Consolidated adjusted EBITDA declined slightly to $48 million as we continue to build on the foundational investments we have made through the year and position the brand for long-term growth. Third quarter consolidated adjusted EBITDA performance was impacted by incremental marketing investments of approximately $4 million and an anticipated elevated G&A related to approximately $2 million of higher incentive compensation, partially offset by commodity deflation and outperformance in international.

Our third quarter domestic company-owned restaurant segment EBITDA margin, which includes G&A expenses, was 2.4%, declined by approximately 20 basis points as the benefit of higher average ticket, almost fully offset lower transaction volume and labor inflation.

As we move forward, we are focused on driving sustainable, profitable growth. We're taking action to drive transactions and improve 4-wall margins through innovation, addressable market expansion and a more efficient supply chain, while making strategic investments to further differentiate our brand over the long term.

North American commissary segment adjusted EBITDA margins were 7.4% in the third quarter, an improvement of 100 basis points, primarily reflecting higher volumes as we sold 3% more pizzas versus last year.

Turning to our balance sheet. At the end of the third quarter, our total available liquidity was $502 million in cash and borrowings available under our credit facilities, and our gross leverage ratio was 3.4x, well within our permissible limits.

Turning now to cash flows. For the first 9 months of 2025, net cash provided by operating activities was $106 million. Free cash flow was $59 million, an increase of $50 million, primarily reflecting timing of cash payments for the National Marketing Fund and favorable changes in working capital, lower cash taxes and lower spend related to our international transformation initiatives.

Now turning to our outlook. We've revised our outlook to reflect the impact of a softer consumer backdrop and a more promotional QSR marketplace, which we expect to persist through the remainder of the year and into 2026. For 2025, we expect global system-wide sales to increase between 1% and 2%. We expect North America comparable sales will be down between 2% and 2.5%.

Softer comparable sales trends in September continued through October. As Todd mentioned, we recently launched our 50% off carryout offer. Very preliminary results show improved order trends, but we would like to see the offer out in market longer before making any definitive statements.

Internationally, our transformation is building momentum, and we continue to deliver results that are above our expectations. Accordingly, we are raising our 2025 international comparable sales outlook to a range of 5% to 6%.

As we shared last quarter, we expect to finalize the sale of our ownership stake in a joint venture that operates 85 U.S. restaurants in the fourth quarter. As a reminder, this transaction is expected to reduce fourth quarter consolidated revenues by approximately $5 million, including the impact of eliminations.

On an annualized basis, this transaction is expected to reduce consolidated revenues by approximately $60 million, including the impact of eliminations and have a negligible impact on net income. These impacts are reflected in our financial guidance.

For 2025, we expect consolidated adjusted EBITDA to be between $190 million and $200 million. Our outlook embeds a more competitive value proposition to address the softer consumer outlook and heightened competitive QSR environment in North America, which we expect to continue into 2026.

We believe that it is crucial for us to meet the consumer where they are, provide the value they expect given the near-term macro challenges and protect transaction share, while we execute on our strategy to deliver long-term profitable growth. We continue to expect that stock-based compensation will be between $4 million and $5 million per quarter.

For 2025 nonoperating expense items, we expect net interest expense to be between $40 million and $42 million, capital expenditures to be between $75 million and $85 million and adjusted G&A expense to be between $70 million and $75 million, which excludes accelerated depreciation related to the deployment of our modernized digital assets and retirement of our prior systems. We expect our 2025 effective tax rate to be in the range of 27% to 30%. Finally, we expect diluted shares outstanding of approximately 33 million in the fourth quarter.

Turning to restaurant development. We expect to open between 85 and 95 gross new restaurants in North America in 2025, with all remaining projected openings currently in construction design or later stages. We are working to improve the long-term health of our restaurants and making strategic closure decisions accordingly.

For 2025, we anticipate North America restaurant closures will be at the higher end of our historical average of approximately 1.5% to 2%. These closures are predominantly nontraditional or small market restaurants with a blended average sales volume of around $500,000, which is less than half of our system average. Internationally, we continue to accelerate our transformation, delivering positive results across our priority markets.

During the quarter, we opened 2 new restaurants in Bangalore, India, featuring a localized menu and a variety of vegetarian options paired with our high-quality ingredients. India is a priority market for us given its rapid growth and robust demand.

For 2025, we continue to expect to open 180 to 200 gross new restaurants across our international markets. We anticipate international closures will be at the higher end of our range of 4% to 5% of our international system.

Looking ahead, we are positioning Papa John's to compete better in 2026, play the game differently, while continuing to transform the brand and fuel sustainable profitable sales growth in the future. Papa John's is a strong brand, with a healthy balance sheet, and the work underway will position us to drive long-term earnings power across all aspects of our organization. We are confident in our strategy. We recognize the substantial upside ahead, and we are moving forward with excitement and focus as we transform the business.

Now, we'd like to open the call up for any questions you may have. Operator?

[Operator Instructions] The first question today will be coming from the line of Brian Mullan of Piper Sandler.

Just a question on the acceleration of the refranchising program. Can you just talk about how you see the current difficult operating environment influencing this process to refranchise, obviously, you've got to find a buyer and then there's a price you're willing to accept for your assets. So, just talk about the framework you're going to approach us with and what you're going to prioritize the most in this process?

No. Thanks for the question, Brian. As we think about accelerating refranchising, it's a combination of scaling up existing well-capitalized franchisees that are really focused forward to partner with us to really drive the business and bring in more customers more often and drive the 4-wall profitability.

We also got interest on folks from outside the system. So -- we've got the 85 restaurants that will complete the transaction here, hopefully, by the end of this month. We've got a pipeline of other refranchising already in place with existing buyers at multiples that we're comfortable with. And we're going to continue to look at an appropriate pacing of the refranchising through the course of this year and into next to make sure we work ourselves to that mid-single-digit ownership as a percent of the North American fleet.

Yes, the market is a little bit different, but there are a lot of well-capitalized franchisees that really want an opportunity to continue to come into the system, or scale up within our system, and we feel very confident that there are buyers at good multiples for our business.

Okay. And then to follow, just a question on G&A. I guess one for clarification. What is embedded in the guidance for this year? And then the real question is it sounds like you're going to find some efficiencies here. I know you'll guide next year in a few months, but just trying to understand, have you already taken some actions? Or do all of these actions kind of come later on? Just trying to understand, if G&A dollars are going to be headed lower next year.

Yes. G&A dollars will be heading lower next year. We've continued to prudently manage G&A in the softer sales environment in this calendar year. But as we said in the prepared remarks, we're embarking on an initiative to really look at how do we become a more nimble, efficient organization by streamlining operations, reduce noncustomer-facing spend, simplify our operating model and really better align our resources to our transformation.

And we believe we can get at least $25 million of savings, during the course of the next 2 years. And I'd expect about half of that at a minimum to come during the course of 2026. We'll give you all the details as we finish going through the work over the next couple of months here internally and reflected in the guidance for 2026 appropriately. And this is true. G&A costs not impacting any of the marketing investments that we've made.

And Brian, none of these savings are embedded in the 2025 guide.

Our next question will be coming from the line of Andrew Strelzik of BMO Capital Markets.

I wanted to ask, Todd, a little bit over a year since you joined Papa John's. I'd be curious to get your assessment of the turnaround progress and where you are today versus where you thought you might have been when you set out on this journey? And where do you feel like you're maybe farthest along? And what areas maybe been a little bit slower to materialize?

Yes. Thanks for that question, Andrew. And as you think about the things that I feel good about, right, over the course of the last 14, 15 months, we really improved the value proposition and perception of the Papa John's brand. We continue to improve the quality perception and our brand health, which are positive for the long run, and those are foundational work that we'll continue to do.

Our innovation pipeline needed to be rebuilt. You're starting to see some of that news come to life here at the back half of 2025. But really excited around a steady dose of innovation into 2026, not just around core pies, but around other occasions that can help drive the business, whether that be reimagined sides or other handheld opportunities into the future.

So, I think there's opportunities to do that. The work we've done to really work our oven calibration and perfect bake to make sure we're making better core pizzas and working with our franchise community to deliver quality product time and again, work always to do on that. But that has set a strong foundation for us to continue to lean into, and it allows us to really open up the opportunity to innovate even more as we get time and temperature set right in our ovens in the restaurants.

In our international business, we've made a tremendous amount of progress. A lot of heavy lifting was done just before I got here. We're starting to see the fruits of all of those hard work, and it's really driving our business, and we got really some strong momentum in that business across the globe, and it's widespread.

As you think about where the latest environment is around the consumer, around the competitive landscape, we need to make sure that we can continue to compete hard on both sides of the barbell. Quality is always going to be important. We need innovation to bring in those laps to new customers, but we also need to make sure we've got a really balanced barbell to make sure we can compete on the value proposition side too. Do it our way, do it appropriate for the Papa John's brand, do it in a way that brings in more customers more often to drive transactions for the long run. And that's where the focus is going to continue to be.

You'll see that in the promotional cadence that we have year to go and into next year. And you'll also see that in how we bring our innovation to life to make sure they're priced appropriate for where the consumer is today. So, we're going to meet the consumer where they're at today. We'll continue to build this brand for the future.

Okay. That was helpful color. And then I just wanted to ask with the 50% off. Can you talk a little bit about the impact or how you're balancing franchisee profitability and kind of the ability to stick with something with that kind of construct from a promotional perspective or from a value perspective, kind of longer term, pulsing in and out or what have you. How are you balancing that?

You got to remember, when you pulse anything that's on a national message, it's only about 1/4 of our business. So, some of it does provide a halo around the affordability of our brand, and we can play the barbell, because if we can get them in the consideration set, we can convert them either with news or with price.

As you think about how we went through the quarter, we pulsed in some BOGO offers, clearly helped us on our core pie business as we've seen our overall pizza sales flat and pie is up. But we did know we had some challenges on that single order customer, web customer, which is on the lower income cohort.

So, we wanted to make sure there was an offer there for them, too, and that was the 50% off promotion. It takes a little bit of time. You got to stay out there to make sure it wears in so the consumer is aware that, that offer is there. And we'll continue to partner with our franchise community to make sure that these promotions work not just for the consumer, but they work for the 4-wall economic model.

Remember, our business is a high variable margin business. We bring in incremental transactions. The flow-through can be quite nice, and that's where we need to stay focused. It's less about margin and more about driving penny profit and dollars to the bottom line.

And Andrew, the only other thing I'd want to add is the 50% off carryout is really a basket starter. And we see the consumers build a more holistic basket once they get into that promotion.

The next question will be coming from the line of Jim Salera of Stephens.

This is Tyler Prause on for Jim. I was curious if you could give us some color on the U.S. restaurants within your system that are outperforming. Is this regional-based, tenure-based, updated ovens, et cetera? Additionally, are there any learnings that you can incorporate to the broader store base? Or is it mostly sentiment-driven right now with macro?

Yes. No, I'll start, and I'll let Ravi talk a little bit about some of the regional differences. But as you think about any franchise system, there is a range across our operators out there. The folks that have leaned into transactions that have been really focused on bringing in more customers more often to really drive that variable margin profit have performed better than the folks that have really been focused on, how do they protect margin and food cost.

And our job as leaders is to make sure we find a sweet spot for both of those mindsets to make sure that we're executing and delivering as one system with our national messaging, and then complement it with appropriate local message for whatever that consumer base looks like in those individual local markets. So, we're working that hard with our system. We got work to do to stand up some co-ops into next year, and we're focused to do that in our priority markets that will help us fight at the local level, with some of these regional differences. But Ravi, why don't you talk a little bit about some of the regional differences we've seen?

Yes, yes. We've seen strong performance, particularly in some of our top markets across the U.S. And we've kind of talked about in some of our top 15 markets, there's still really meaningful market share to go get. Second is a strong compelling carryout offers on both a national and local level matter, relentless focus on promoting Papa Pairings on a local level absolutely helps. And more than anything, just like a clear focus to a transaction-driving mindset that is evergreen and the franchisees who have been in transaction-driving mode for multiple years are performing very well.

So for us, this is maybe a little bit less about region. It's really about strength of operators, transaction driving mindset where the brand is strong in some of these top 50 markets. And it gives us some real clarity in terms of conversations with the franchisee base, when there's different perspective. The data is exceptionally clear that transaction-driving mindset is good for variable profitability. It's good for brand health. It's good for taking market share for the long term.

Great. That was super helpful. And just one follow-up. Several of your competitors have called out a specific headwind to the younger and Hispanic demographics. We were just curious if you saw any noticeable step change amongst those cohorts during the quarter.

So what we see is like a very clear occasion that we're seeing a little bit of a headwind. It's small transaction size potentially like where consumers are making a trade-off decision on whether you eat at home or not. We've seen maybe a slightly higher pullback in the younger consumer. That really reinforces why we've been relentless focus on Papa Pairings, bringing the 50% carryout offer front and center, Papa Dippa, particularly around dipping sauces, like speaks to the younger consumer wow.

So, we're pulling multiple levers across that front. But more than anything, we kind of want to zone in the occasion is really around this notion of like small transaction size is where the transaction loss has been.

On the other side of the coin is like on peak days such as Halloween, the brand is performing really, really well. So, on key pizza moments, we are seeing the brand perform really well in transactions that are 2 pizzas or more, we're continuing to grow. And we're seeing the consumer really focus in on the center of plate right now. Pizza sales from a unit standpoint are up. Our pullback has really been in some of the sides business.

Well, that's why we want to continue to drive folks into our loyalty program, adding another 1 million folks into the loyalty program where there's great value over the course of the last quarter is going to be super important for all income cohorts, all demographics. And what we're seeing across the loyalty program is that our customer counts are up across every frequency cohort year-over-year.

So, the loyalty program is working how it needs to work. Can we drive more add-on? If we get appropriately priced sides, that could be some good add-on for those existing customers. The opportunity is really to bring in those laps to new. And that's where we're going to really amp up and lean into a more steady cadence of meaningful innovation at appropriate price points in 2026.

Yes. And our active counts from a loyalty standpoint are up across all cohorts from like consumers all the way up to our super frequent. So, what we feel good about the long term about is like there's brand advocacy there. There is loyalty to the business and to the brand. Our center of plate is doing well. There's clear opportunity for us to continue to drive AUVs and comps. And I think we've laid out both from a transaction standpoint as well as from a product standpoint, where those opportunities for the brand exists.

And the next question will come from the line of Alex Slagle of Jefferies.

Wonder if you could dissect the strong international results a bit and what actions really delivered the biggest improvements there and sort of what other external dynamics are at play as we try to assess sustainability of this momentum. It sounds like 4Q, you expect it to continue, but as we look ahead to 2026.

Yes. Thanks for the question. A couple of drivers we want to lay out. In the U.K., we've been on a multiyear journey, and we're starting to reap the rewards of that. A couple of things. We've really focused in on the priority trade zones that we wanted to compete well in. We've seen substantial sales comp acceleration in the U.K., particularly when we've driven franchise to franchise transfers to make sure we're building really solid trade zones where a franchisee can really dominate their marketplace.

Third is we've continued to have a real focus on product execution at the restaurant level. And then lastly, like we've continued to like see the benefits of the Perfect Bake program, and that's really paid off. And the U.K. ran high single-digit positive comps in Q3. Those trends have continued into Q4.

Another market where we've been in transformation mode is in China, very similar playbook. We focused in on the cities and trade zones that matter. As you remember, in Q2, we actually took some strategic closures in that market to make sure we were really dialed in on what markets and cities matter most for us right now in China. We continue to expand points of demand generation with further integration with more aggregators. And probably, again, there, we did a holistic consumer review of what our consumer is loving about our product and our service and where the opportunities were, and we found some opportunities.

We're going around the globe right now kind of executing this playbook of consumer first, product-driven mindset with a very sharp focus on the priority markets that matter most for us. And we've been encouraged by the sequential gains over the last couple of quarters and continue to be encouraged by what we see in Q4.

Just a big credit to the team with the focus on the priority markets across the globe and then having that kind of amplified to the rest of the globe. We've built a lot of momentum, continues into the fourth quarter. The pipeline for news and innovation is really strong going into '26. And they've across the globe, have had a steady dose of news and innovation, not just Croissant Pizza, which resonated across the globe. But innovation has been there on the heels of the Perfect Bake project for the course of the last year, and all those things are paying dividends in that business.

And when you look at our footprint relative to the competitive set, we still have a lot of runway to go in international and in these priority markets. We're making sure that we are executing as well as we can in driving AUVs. So, there is real long-term value creation here for the brand and the business, but we're focused on doing it the right way.

That's great progress. A follow-up on the U.S. and I guess, the outlook for more innovations, more focus on sides and add-ons. I mean, how do you ensure you're not sort of adding too much complexity or rhythm breakers as you kind of go down that route?

I do think there are some stuff that are naturally paring down within our portfolio today. You think about where Papa Bites are, where Papadias play. As we talk about some of the sides or other add-on purchases, those have led themselves down during the course of this year. So those are opportunities to potentially come out of the restaurant or be leveraged more regionally.

So, I do think we free up some capacity then to come back with some of the new news. Slowing the ovens down, getting the Perfect Bake project right, thinking about how we design the product, not only for the consumer, but for the operator and our folks in the restaurants to make sure that these new products have easy builds that can really drive a high-quality product out of the work we're doing with the ovens is paramount. And we're really working hard to make sure we set up our teams for success.

Coaching, training, going back to look at how we're leveraging the tools that we have in our restaurants. So, we're very conscious to not overcomplicate the restaurant. We will have an appropriate pace of innovation next year, but we'll do a really good job around training and set our teams up to deliver a great consumer experience because that's going to be key, right?

As we bring in those lapsed, we bring in some new customers, we need to wow them with an unbelievable experience to keep them coming back and drive the frequency through the course of next year. But we haven't had a steady pace dose of innovation that's really incremental that can drive our business for a little bit of time, and we're working hard to bring that to life next year. And I feel really good about the commercial calendar that's in place at the moment and the work that the culinary team has been doing to really deliver on our promise around being better.

Yes. Maybe 2 things I would add is we talked about in Q3, the vast majority of the negative comp came from our sides business. We did not want to simply just pull forward innovations before they were ready. The team has spent the last year really being consumer-led and obsessed on where does this brand have a right to play and what does the consumer really want. So, we talked about in our prepared remarks like multiple platforms of innovation are to come. They're designed to be operationally simple as well as TAM expanders for us because we want to make sure we are capturing the total addressable market, we can for our branded business, but do it truly from a place where this brand has a right to play and it's operationally simple enough where it's going to generate 4-wall margins and strong execution.

And our next question will be coming from the line of Dennis Geiger of UBS.

I wanted to ask another one on value. A lot of good detail here. But Todd, it sounds like you're driving product quality, taste of food, customer satisfaction scores broadly. And I think you mentioned to one of the questions, value scores also improving. I wanted to confirm that, though, if the scores are improving, or if you are seeing anything concerning on the value scores. And then as it relates to all those value opportunities that you've been talking about, including the 50% off promo, could you summarize sort of the primary value gaps maybe? Is it on the promotion side of things? Is it maybe some newer menu items at sharper price points? Is it the marketing and the customer just recognizing the value that the brand offers? Just a bit of a high-level summary take from you on that, please.

Yes. So, a couple of thoughts. So, on the -- over the course of the last 12 months, our value perception has steadily improved. We were out of position a little over a year ago. We continue to make improvements. That's not just with how we're playing the barbell strategy, but the loyalty program plays a role in that. And our personalization through CRM certainly helps, too. But it's not just about value perception around price. It's around worth what you pay at the end of the day.

And we continue to make sure that our better ingredients, better pizza message and pay it off with why we're better, 6 simple ingredients, fresh, never frozen original dough. Those things are actually driving our brand health. What we need to be conscious of is the consumer and meeting them where they are today as we know that the consumer is more strapped. And we have to have an appropriate pace of news on the promotional side with some innovation.

You think about what we launched in this quarter, the Papa Dippa, a great food form, a lot of excitement, a lot of social engagement. We learned a lot from it. The flight of dipping sauces, especially the roasted garlic parmesan played very well. But it came out at a price point at $13.99 at a time when the competitive and the consumer landscape pivoted dramatically.

So, I wouldn't say that it was a failure by any stretch of the imagination. It did its role on the menu. I think there's a time and place for it in the future. but we were just caught at a time when the consumer and the competitive landscape shifted, and it wasn't as incremental as we probably would have hoped. And we're conscious of that as we move forward.

I mean, Grand Papa is just our biggest pizza, big deli slice pepperoni. It's great value for the money when you think about the value for the money in the slice. And our large pizzas continue to do quite well when they're promoted. And we're going to be really conscious of that when we drive our innovation into next year to not only bring the news, but make sure there's an appropriate price point to really drive that trial to get folks to fall in love with our great food all over again when they come back to try those things. And that's how we're going to continue to amplify that message. Any other comments, Ravi?

Consumers are finding value in our center of plate. Pizza unit sales are up 3%. We are seeing consumers make different decisions in terms of what pizza they're buying. More mediums are being bought than largest, more Create Your Own with less toppings right now. And that just may be a little bit of a reflection of where the consumers are putting their dollars and how many dollars they have to spend right now. But what's really important for us is we want to be able to communicate 6 simple ingredients, our fresh, never frozen original dough, keep center of plate, like very much top of mind for the consumer with our great pizzas, and continue to build from there.

In terms of like opportunities from a value standpoint, like we're really focused in on making sure we have this seamless digital experience that's important for the consumer, especially when they're juggling many things in their lives. And then continue to remind them that, we offer great value in our menu today. And we need to like be on that steady drumbeat every single day right now. And we made that pivot 14 months ago or so that we were going to talk about value every single day. We're not done doing that. We need to continue to bring that notion to every consumer's mind and make sure they don't forget that Papa John's has great value and exceptional quality.

And that's why we're taking the initiatives that we talked about today. We know we need to create the fuel for growth. We need to be able to compete no matter what the consumer and competitive landscape is. And we've been talking about how do we drive supply chain savings even harder to make sure we improve the 4-wall economics. very confident on $20 million of those savings coming into 2026. And we've talked about $50 million plus over the -- between now and 2028. We're working hard to find even more.

The G&A savings play an important role to provide some fuel. Refranchising provides some fuel. Our strong balance sheet provides fuel. So, we got a lot of optionality to really set ourselves up to compete well no matter what the landscape looks like, while we work to continue to drive the transformation of our brand. And we're still in those early innings. We're building a stronger foundation. We still got levers to pull, but we know we can build a lot of momentum in this business over time, and we're going to continue to stay focused on that.

And our last question will be coming from the line of Jim Sanderson of Northcoast Research.

I wanted to go back to marketing spending. I think you've invested about $17 million incrementally. What's the plan for fourth quarter? And without quantifying, how should we look at that potential investment going into 2026, the importance or lack of incremental marketing spending for Papa John's?

If you look at how we laid out our guidance for this year and what we've talked to in the past is we would spend up to $25 million of incremental marketing. So, $17 million through the third quarter, we'll continue to do the right things to compete to finish the year. So as you look at the bookends of our guidance it complement -- it has up to that $25 million.

During the course of this year, some of that $25 million has been in non-working to really test and learn to make sure our testing protocol is set up. We've used some of that money to support some of our incremental advertising around some of the promotions that we had out there. But we also used it to help our franchise community to subsidize appropriately to compete.

So, we've used a lot of those levers to make sure we can lean in and make sure the right pressures in the market to make sure that our brand breaks through and resonates, and we're also supportive of the franchise economics to make that happen.

As we look to 2026, and we're not providing any guidance for 2026, but we're really trying to provide a lot of fuel to make sure that we have the optionality to invest back to our brand to appropriately connect to the consumer and appropriately support the 4-wall economics of the franchise community. But more to come on that. But any other thoughts, Ravi, that you'd put out there?

Yes. Over the last couple of quarters, we've launched a couple of efficiency initiatives to ensure that we have the right capacity within the franchisor model and the 4-wall economic model to make sure that we can compete and invest for the long term in this business. The pizza category is a large category. We think that there is more transaction share we can go get. We want to make sure we're balancing transactions, sales and 4-wall profitability, and that's why we're really getting aggressive on efficiency levers.

Okay. And just a quick follow-up question. One of your large QSR competitors indicated that about 30% of their sales are exposed to lower income consumers. Is there any way you could give us a context on how PJ's -- Papa John's is exposed to that lower income or low-ticket web-based consumer?

Yes. Maybe the way I'd frame it up is like we talked about more than 50% of our sales come from consumers above $100,000 in income. So that's one data point that we shared in prior periods.

Second, just like as you think about the composition of our business, aggregators are 20% of our business at this point. Second, our loyalty program is nearly half the business, and we talk about that, that loyalty business we're up across all cohorts. So that will give you a couple of data points that helps you to triangulate kind of like that web-based consumer.

Obviously, not all of that web-based consumer is small transaction. But this is why we've been so relentlessly focused on driving our loyalty business, making sure we maintain or take appropriate share in the aggregator marketplace, making sure that we are speaking with compelling messages across the top end of our barbell as well as the bottom end of our barbell.

Thank you. And thanks for that, Ravi. I'd like to thank everyone for joining the call this morning and for your continued interest in Papa John's.

Especially, I want to thank our team members and franchisees for their dedication to serving our customers. Our teams are hard at work. We're taking immediate action to streamline our organizational structure and become more efficient, while also advancing the strategic priorities that will ensure Papa John's delivers profitable, sustainable growth.

We're confident we have the right plan in place to create meaningful value across the organization for our team members, franchisees and our shareholders. We look forward to the journey ahead. Have a great day, everyone. Talk to you soon.

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