Papa John International : Presentation

Published 11/15/23

Overview of North America Commissary Segment

The purpose of this document is to help investors and analysts be er understand our North America Commissary segment and the changes to margins and incen ve-based rebates that will be implemented over the next four years.

Background

Our North America Commissary (NA Commissary) segment in place today was developed more than 25 years ago to support early U.S. brand expansion into newly penetrated markets. Our NA Commissary is a ver cally integrated manufacturer of dough and a distributor of all core ingredients and supplies. NA Commissary is our largest source of total revenue and a source of profit for Papa Johns. However, at a 4% opera ng margin, it is a lower margin than Papa Johns' other business segments.

Today, the NA Commissary segment comprises 11 full-service regional dough produc on and distribu on Quality Control Centers ("QCCs") in the U.S., which supply pizza sauce, dough, food products, paper products, smallwares, and cleaning supplies twice weekly to each restaurant served. This system enables us to monitor and control product quality and consistency while lowering food and other costs. We also have one QCC in Canada, which produces and distributes fresh dough to our Toronto and surrounding area franchised restaurants. We also export certain products to mul ple markets where sourcing is limited due to scale or lack of supply close to our restaurants. We evaluate the QCC system capacity in rela on to exis ng restaurants' volumes and planned restaurant growth, and facili es are developed or upgraded as opera onal or economic condi ons warrant. To ensure consistent food quality, each domes c franchisee is required to purchase dough and pizza sauce from our QCCs and to purchase all other supplies from our QCCs or other approved suppliers.

As the NA Commissary segment con nues to scale, Papa Johns will con nue to evolve its approach to increase investment in our supply chain infrastructure. These efforts will ensure that Papa Johns will con nue to deliver high-quality ingredients to our restaurants and support our system growth as well as incen vize our franchisees to grow.

Third-Party Review of QSR Supply Chain Structure

Recently, we conducted a third-party review of our U.S. supply chain structure as well as a review of food manufacturing and warehousing industry benchmark structures and profit standards. We determined that our current model operates well below industry and QSR peer supply chain margin rates. Our current model operates on a fixed opera ng margin of 4%.

Analysis indicated that changes to the U.S. model can structurally improve Papa Johns' long-term profit profile. By transi oning to an incen ve model with variable supply chain rates, Papa Johns can drive an increase in both volume and unit growth in our North America system.

As a result of the study, Papa Johns will roll out incremental opera ng margin changes combined with new incen ve-based rebates to the U.S. supply chain model beginning January 1, 2024, to drive the following:

• Market share growth in the U.S. through transac ons and unit development;

	Investment in supply chain innova on & assets to stay compe ve; and
	Opera onal efficiencies and lower costs to improve unit profitability.

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These changes will allow Papa Johns to realize more supply chain fixed cost leverage, favorable supplier costs, and produc vity for the benefit of the en re system.

Impact to Franchisees

Beginning in 2024, we will increase the fixed opera ng margin that our U.S. commissaries charge by 100 basis points in each of the next four years, moving from 4% today to 8% in 2027.

At the same me, we are offering new opportuni es for our franchisees to earn annual incen ve-based rebates as they increase volume and open new restaurants, which will drive even more con nued produc vity for our system. The incen ve-based rebates will provide the opportunity for our franchisees to earn a reduced effec ve supply chain rate as they con nue to grow on an annual basis.

The recent changes apply to all franchisees who buy from our U.S. QCCs and provide substan al incen ves to franchisee en es that are growing their businesses through increasing transac ons. The new model will be rolled out incrementally over the next four years through 2027. At the end of 2027, rates are projected to be at the low end of QSR peer benchmarks.

Franchisees who are increasing case-volume purchases from the QCC at the highest volume growth could realize target market rates lower than the current 4% rate in place today. Franchisees that are not growing case-volume purchases annually will pay the full target opera ng margin rate.

Changes to Margin Structure
Metric	Old	New
Target Opera ng	Fixed 4% pre-tax	8% pre-tax opera ng margin
Margin Rate	opera ng margin	 Incremental 1% increase per year to begin in
		2024 and con nue un l reaching 8% in 2027.
Incen ve Rebate	None	Case-volume rebates for franchisee en es
		 Every 2.0% year over year increase in case

volume lowers the pre-tax opera ng margin (See "Volume Rebate Matrix" below)

 Case volume growth at or above 8% year over year results in a pre-tax margin of 3.75%, which is belowthe previous 4% pre-tax opera ng margin

 New store development by exis ng franchisees likely the biggest driver of incen ve-based rebates

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Applying the New Model:

• Na onal fixed pricing remains unchanged throughout the year.
• The franchisee growth band is determined at the end of every year based on total case purchases of all stores owned by the franchise en ty vs. prior year inclusive of new and closed stores.
• Case volume growth and incen ve rebates will be based on the franchise en ty's total annual sales dollars purchased from our US Commissaries.
• Store transfers between franchisees will be adjusted for both the buyer and seller and historical case volumes will move with the acquired stores.

Before any incen ve rebates are applied at the end of every year, the impact on a franchisee P&L is es mated to be approximately 25 basis points in incremental food costs, annually, on a gross basis for each of the next four years, or approximately 100 bps in total by 2027. However, as market share growth through new development and transac ons in exis ng stores increases over me, we would an cipate the en re system benefi ng from economies of scale (efficiencies and purchasing leverage) to help offset the food cost impact from this change. Addi onally, the business outside of the supply chain will also benefit from economies of scale, including marke ng and digital and technology innova ons.

Impact to Papa Johns Interna onal

Segment Data Disclosure

Papa Johns discloses the opera ng income for its NA Commissary segment within the "Segment Informa on" footnote in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. Opera ng margin is calculated by dividing Opera ng income for North America commissaries by the sum of North America commissaries revenues and North America commissaries Intersegment revenues. Over the last 5 years, opera ng margins have ranged from 3.8% to 4.1%, well below the rates iden fied within the peer benchmarking study.

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The North America commissary expenses on Papa Johns' Consolidated Statements of Opera ons do not include Deprecia on and amor za on (D&A) and General and administra ve expenses (G&A) that are allocated to the NA Commissary when calcula ng the target opera ng margin rate. Over the last 5 years, when excluding D&A and G&A, opera ng margins have ranged from 6.7% to 7.7%. We an cipate that every 1% increase in opera ng margin within our NA commissary segment will increase the NA Commissary opera ng margin on Papa Johns' Consolidated Statements of Opera ons, excluding D&A and G&A, by approximately 125 basis points.

Addi onally, we an cipate for every 1% increase in opera ng margin within our NA commissary segment will increase our Total Adjusted Opera ng Income margin by approximately 50 basis points.

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Forward-Looking Statements

Certain ma ers discussed in this document and other Company communica ons that are not statements of historical fact cons tute forward-looking statements within the meaning of the federal securi es laws. Generally, the use of words such as "expect," "intend," "es mate," "believe," "an cipate," "will," "forecast," "outlook", "plan," "project," or similar words iden fy forward-looking statements that we intend to be included within the safe harbor protec ons provided by the federal securi es laws. Such forward-looking statements include or may relate to projec ons or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, share repurchases, the current economic environment, commodity and labor costs, currency fluctua ons, profit margins, supply chain opera ng margin, net unit growth, unit level performance, capital expenditures, restaurant and franchise development, restaurant acquisi ons, labor shortages, labor cost increases, infla on, royalty relief, franchisee support and incen ves, the effec veness of our menu innova ons and other business ini a ves, investments in product and digital innova on, marke ng efforts and investments, liquidity, compliance with debt covenants, impairments, strategic decisions and ac ons, dividends, effec ve tax rates, regulatory changes and impacts, adop on of new accoun ng standards, and other financial and opera onal measures. Such statements are not guarantees of future performance and involve certain risks, uncertain es and assump ons, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and results may differ materially from those ma ers expressed or implied in such forward-looking statements.

Our forward-looking statements are based on our assump ons which are based on currently available informa on. Actual outcomes and results may differ materially from those ma ers expressed or implied in our forward-looking statements as a result of various factors, including but not limited to risks related to: deteriora ng economic condi ons in the U.S.; labor shortages at Company and/or franchised stores and our quality control centers; increases in labor costs, commodity costs, supply chain incen ve-based rebates, or sustained higher other opera ng costs, including as a result of supply chain disrup on, infla on or climate change; the poten al for delayed new store openings, both domes cally and interna onally, or lower net unit development due to changing circumstances outside of our control; the increased risk of phishing, ransomware and other cyber-a acks; risks and disrup ons to the global economy and our business related to the conflict in Ukraine and other interna onal conflicts; risks related to a possible economic recession or downturn that could reduce consumer spending or demand; and con nuing risks related to outbreak of COVID-19 and other health crises. These and other risks, uncertain es and assump ons that are involved in our forward-looking statements are discussed in detail in "Part I. Item 1A. - Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 25, 2022 as updated by those included in our Quarterly Report on Form 10-Q for the quarter ended November 2, 2023. We undertake no obliga on to update publicly any forward-looking statements, whether as a result of future events, new informa on or otherwise, except as required by law.

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