Ladies and gentlemen, thank you for standing by, and welcome to the Papa John's third quarter 2020 conference call. At this time, all participants are on a listen-only mode. After speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any assistance, please press star zero. I would now like to hand the conference over to your speaker today, to Mr. Steve Coke, Vice President, Investor Relations and Strategy. Thank you. Please go ahead.
Thank you, and good morning. Joining me on the call today are President and CEO, Rob Lynch, and our CFO, Ann Gugino. Rob and Ann will comment on our business and provide a financial update. After the prepared remarks, both will be available for Q&A. Our discussion today will contain forward-looking statements involving risk 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. Please refer to our Earnings Release in the Investor Relations section of our website for a reconciliation of non-GAAP financial measures discussed on this call. Finally, we ask any members of the media to be in a listen-only mode. Now, I'd like to turn the call over to Rob Lynch for his comments. Rob?
Thank you, Steve, and good morning, everyone. I'd like to begin by saying that I hope everyone on this call and their loved ones are healthy and safe. It has been, and continues to be, a difficult time for many in the communities we serve across this country and across the globe. Throughout the pandemic, we at Papa John's have worked to do our part by delivering safe, high-quality food, protecting the health and safety of our team members and customers, and supporting our neighbors. Thanks to our focus on our core values and strategic priorities, and the dedication of our team members and franchisees, last quarter, Papa John's sustained its momentum and delivered double-digit comparable sales growth, higher earnings, and robust free cash flow. As I am sure you also saw, this morning we announced a new $75 million share repurchase program, effective through the end of 2021.
We are certainly pleased with our business momentum and the continuing cash build. We look forward to continuing to balance the best uses of cash as we invest in our future and enhance shareholder returns. This morning, I'd like to cover three things. First, our outstanding results, both domestically and internationally. Second, our progress against our strategic priorities, which is driving both top and bottom-line growth. Third, our business' outlook to continue growing and creating shareholder value now and in the future. First, I'd like to introduce Papa John's new CFO, Ann Gugino, who joined our team last month. Her appointment concluded a comprehensive search process for a CFO who not only had the highest acumen and best experience, but who also shared our beliefs and values, someone who would not only make our business better, but could also make our company better.
Ann meets those qualifications, and then some. She also completes one of the most capable and diverse leadership teams in our industry, something that I am very proud of. Our team comprises an unparalleled mix of Papa John's and pizza delivery experience, complemented by proven leaders from QSR, retail, and consumer sectors. Our diversity of backgrounds, viewpoints, and strengths sets the foundation for Papa John's long-term success. Most recently, Ann was Senior Vice President, Financial Planning and Analysis at the Target Corporation, providing overall strategy, guidance, and direction in the development and execution of Target's planning, analysis, and capital investment. Her experience in the consumer and retail sector, including her work driving long-term growth and profitability across digital and traditional channels at Target, is highly transferable to our business. I'm expecting Ann to be instrumental in helping Papa John's achieve industry-leading profitability through cash flow generation and long-term shareholder returns.
Papa John's is fortunate to already have a top-notch Finance Team. I want to express my deep thanks for their hard work, dedication, and diligence since the beginning of the year. I especially want to thank Steve Coke, our VP of Investor Relations and Strategic Planning, who stepped up as our interim Principal Financial Officer to lead the team with professionalism and commitment through an unprecedented period. We wouldn't be here today announcing these incredible results without Steve. Now to discuss the outstanding quarter that we just completed. As we reported, North America same-store comp sales rose 24% in Q3, reflecting millions of new and returning Papa John's customers who continue to rely on Papa John's to safely deliver high-quality, delicious food. A good balance of transactions and ticket growth drove these results.
As I'll discuss in a moment, strong performance of Papadias and other ticket add-ons, the success of the Shaq-a-Roni Pizza and charitable promotion, and more targeted and productive discounting all contributed to growing customer tickets and gross margins. Transaction volumes also grew, reflecting broader growth in the delivery sector, driven by changes in consumer behavior, our expanding partnerships with aggregators, and the rising effectiveness of our media spend and marketing. Internationally, comp sales rose 21% in the third quarter. Our strength across the globe, driven by accelerating growth in the U.K., Korea, and China, far exceeded our expectations. We also continued to reopen stores that had temporarily closed due to local restrictions and curfews. Of our approximately 2,100 international franchise stores at quarter end, 90 were temporarily closed as a result of COVID-19, down from 225 a quarter ago.
Strong top-line growth, enhanced by operating leverage and cost discipline, generated much higher earnings, operating income, and free cash flow in the quarter in spite of higher commodity costs and the investments we're making to take care of our team members and customers during the pandemic. As a result, we ended the quarter with our strongest balance sheet in terms of our debt to EBITDA leverage ratio in nearly three years. Our strong financial condition and confidence in Papa John's future make possible the $75 million share buyback authorization we announced this morning. In a moment, Ann will discuss our Q3 results. Strong top and bottom-line results in Q3 are an outcome of our consistent execution against our strategic priorities this year.
Let me begin by addressing how our actions to reestablish the superiority of Papa John's products through innovation have driven Papa John's share gains and outperformance, including last quarter. Beginning in Q4 of last year and accelerating since, a new culture of innovation has delivered multiple product, technology, and marketing successes, from Garlic Parmesan Crust to entirely new platforms like Papadias. While we had to adjust our innovation calendar at the onset of the pandemic, we were able to accelerate the launch of new products in Q3. We've successfully done so while carefully managing our operations and supply chain, despite big increases in demand and an unprecedented new operating environment. A highlight from Q3 was the Shaq-a-Roni Pizza, launched as part of a fundraiser for the Papa John's Foundation. This promotion significantly exceeded our expectations.
In partnership with our franchisees, we sold over 3 million pizzas, raising more than $3 million for communities to support COVID-19 relief, the fight against racial injustice, Boys & Girls Clubs of America, the United Negro College Fund, and general community involvement. The Shaq-a-Roni success really checks all the boxes of our innovation strategy. It was a differentiated, high-value product that didn't create operational complexity for our stores. It had a differentiated marketing message with a charitable component that supported highly meaningful causes aligned with the brand values. Finally, we launched it with a unique marketing platform, leveraging our board member and store owner, Shaquille O'Neal, in a very authentic way. In late August, we also launched the Buffalo Chicken Papadia, a tasty, easy-to-eat addition to our award-winning Papadia platform, which continues to be a customer favorite.
This new flavor was received enthusiastically and quickly became our number two Papadia. Given its strong results, we expect Buffalo Chicken will become a permanent menu item, expanding the Papadia line from four to five items. Papadias continue to be a major component of the growth we're seeing in our ticket size. At $6, they drive incremental value in sales as additions to orders without cannibalizing our pizza sales. Continuing the menu innovation, late last month, we brought back fan favorite Double Cheeseburger Pizza, along with new Double Cheeseburger Papadia. Consistent with the brand and our focus on food, these items' high-quality ingredients and taste differentiate them from any other product in the market. They feature a huge portion of seasoned beef, melty cheese, zesty pickles, and signature burger sauce, all held together by Papa John's fresh, never frozen, six-ingredient dough. Wow, is it lunchtime yet?
We're very optimistic that they will be a big hit. Next, I'd like to turn to our progress against driving superior unit profitability across our system. As I have said before, profitable stores and franchisees are the absolute foundation for a strong brand and long-term growth. Driven by double-digit comp sales growth and despite record cheese prices, third quarter North America median unit profits rose to the second highest level that we have seen in several years, surpassed only by the previous quarter. This was great news for our franchisees and for our company-owned stores' contribution to our bottom line. I want to emphasize that from the beginning of the pandemic, we have made investments and taken decisive actions to protect our team members and customers, including quickly re-engineering our ordering and delivery processes and technology to integrate no-contact delivery into our channels and customer experience.
It was these actions and the perseverance of our team members and franchisees that built trust with our customers and team members and enabled our corporate and franchise stores to stay open and serve our communities. Turning to technology, one of our competitive advantages is that at our core, Papa John's is an e-commerce first business, with approximately 70% of our orders placed over digital channels and mobile ordering being our fastest-growing platform. One key aspect of our growth strategy is our partnerships and technology integrations with three of the four top delivery aggregators. Year to date, our sales through aggregators have grown by a factor of over 3x , which contributed to our industry outperformance in Q3.
Aggregators continue to be a big part of our profitable growth story, and we are excited to be one of the largest QSR brands on their platforms. Our loyalty and one-to-one marketing platform is also a growth driver and strategic technology priority for us. In our more active segments in particular, they drive outsized revenue compared to non-loyalty customers. To leverage this, we continue to scale our efforts for greater personalization, all with the goal of unlocking greater customer lifetime value. Next, I would like to discuss unit growth and new store development. Though new store openings were mostly paused in Q3, as expected, with permitting still delayed by most local governments, Papa John's improved franchisee investment proposition, and a new development team to support it, are beginning to bear long-term fruit.
Last quarter, we saw an uptick in interest from potential and existing franchisees who are attracted to the brand's growth and profitability, resilient delivery model, and the potential for new retail real estate opportunities opening in the months ahead. We have made good progress ramping up our development efforts to match that interest with new leadership and resources, and early results show it. Last quarter, we signed the largest traditional store development agreement in North America in over 20 years. This deal will accelerate our growth in the important Philadelphia and Southern New Jersey market. Under the agreement, HB Restaurant Group, who joined the Papa John's system in 2019, and already owns 43 restaurants in the Mid-Atlantic area, will open 49 new stores between 2021 and 2028.
We're thrilled to see such a committed franchisee expanding within the Papa John's system, and look forward to growing with them and many more new and existing franchisees over the coming years. Lastly, I'd like to address the transformation of our organization and brand over the past quarter and year as we build our commitment to diversity, inclusion, and winning. In September, we announced another big step forward against this strategic priority. We announced that we will open a second headquarters in the Atlanta area to complement our existing headquarters in Louisville and our international headquarters in Milton Keynes, U.K., outside of London. Our new hub-based organization, which is the outcome of a process we began in late 2019, is an investment in our long-term growth, as well as in our ability to efficiently deliver on the company's purpose, values, and strategic business priorities.
We're excited to be expanding in Atlanta, an energetic, diverse, global city where we already have a significant presence. It is our largest corporate-owned restaurant market and the location of our newest and most sophisticated QCC. Atlanta is the home of a large number of consumer and QSR brands and provides great access for us to a deep talent pool. Atlanta's world-class airport will also connect us to the domestic and international markets that are key to our brand's future. Our Louisville headquarters, home for 36 years, remains essential to our long-term success. Under the new organizational structure, the majority of our corporate staff will continue to be located in Louisville. Their experience and dedication, providing essential support and managing key infrastructure for our franchisees and customers, will continue to be a bedrock of our business.
The third element of our new hub design will be an international headquarters based in our current U.K. offices. Consolidating our international operations in the U.K. allows for greater collaboration and best practice sharing, reduces travel overheads, and leverages our significant resources located there across our international portfolio. We expect to open our new office in Atlanta in the summer of 2021. We look forward to providing updates as we move forward with our plans. Now that I've discussed our strong Q3 results and how progress against our strategic priorities contributed to them, our new CFO, Ann Gugino, will address the quarter's financial results in more detail before I return to discuss our outlook. Ann?
Thank you, Rob. I'm excited to be here this morning and look forward to partnering with you and the outstanding Papa John's team. It's a unique moment for Papa John's. Through its value-led transformation and innovation, the company is emerging as a leader in its category, opening enormous opportunities not only domestically, but around the world. I want to thank Steve Coke and my new colleagues in Papa John's Finance Team for their warm welcome over the past month, the extra effort they've made during the transition, and most importantly, the high-quality work they've been doing over the past nine months, which has allowed the company to reach this point. I am so very proud to be part of this team.
In my role as CFO, my top priorities include driving profitable growth, setting a long-term plan to maximize our potential, and managing our balance sheet and capital to create value for the benefit of our shareholders, franchisees, team members, and all stakeholders. Addressing our investors and analysts on this call, I'd like to say that as CFO, I believe it's a unique privilege to be able to engage with investors and analysts in a two-way dialogue. On the one hand, communicating the company's results, strategy, and potential, and on the other hand, listening and learning from your perspective. In my experience, this active conversation and engagement with shareholders is absolutely essential to a company's long-term success. Working with Rob and the team, I look forward to continuing to build this relationship with you over the coming months.
Now let me turn to our financial results, which mirrored our outstanding operational progress during the quarter. There are four highlights I'd like to call out in particular. First, a 22% rise in global restaurant sales last quarter yielded a tenfold increase in adjusted operating income, clearly demonstrating the business's operating leverage, cost discipline, and earnings potential. I note we achieved these superior results in spite of higher commodity prices and the investments we are making to protect and support our team members. Second, we produced $134 million in free cash flow, defined as cash flow from operations, less capital expenditures and dividends paid to preferred shareholders through the end of Q3. This is a reflection of the strong cash generation capabilities of our operating model.
Third, we ended the third quarter with net debt of only $210 million, down $140 million from a year ago, and a compliance debt to EBITDA leverage ratio of 2.5x , indicating the strength, optionality, and security provided by our balance sheet. Fourth, Q3 was the last quarter of our We Win Together Franchise Support Program. This $80 million investment, in addition to greatly improved sales and unit economics, has left our franchisees in a better financial position than ever. Equally, the significant cash no longer required by this program, including nearly $55 million invested over the past four quarters, leaves Papa John's even better positioned to drive earnings and free cash flow growth, and ultimately, shareholder returns. These factors capture, in a nutshell, why I am so excited about Papa John's opportunity.
Working with Rob, one of my top priorities is to align our long-term capital allocation and return priorities with the business' growth, cash generation potential, and strong balance sheet to maximize shareholder value. We've taken an initial step today with the new buyback, and I look forward to developing a comprehensive long-term capital allocation strategy for the future. Now, I'd like to turn to our Q3 results. I'll address some specific points around our outlook, including expected one-time costs associated with our corporate realignment. In the third quarter, we reported earnings per diluted share on a GAAP basis of $0.35 compared to a loss of $0.10 a year ago. Excluding a $0.03 net impact from special charges in the prior year, adjusted earnings per diluted share rose from a loss of $0.07 a year ago to $0.35 this year.
The $0.42 year-over-year increase reflects a $0.44 positive benefit from improved operating results, primarily driven by our continuing impressive North America comparable sales. This was slightly offset by a $0.02 negative impact from the allocation of undistributed earnings to participating securities, primarily the Series B Preferred Shareholders. Per GAAP, we compute earnings per common share using the Two-Class Method. This means that in addition to preferred stock dividends and accretion, a portion of undistributed earnings that would be attributable to participating securities on an as-converted basis is also deducted from net income at the company level to determine earnings per common share. Note, because the company did not have undistributed earnings before Q2 of this year, that is, our net income did not exceed our Common and Preferred Dividend payments, we had not recorded this deduction to common earnings per share.
To clear up any potential confusion about this accounting treatment, we have provided an additional table in this morning's earnings press release. Turning now back to Q3 results. In the quarter, we provided $13.5 million of support to franchisees under the We Win Together Program, our last quarter, as I mentioned, compared to a total of $11.4 million in support a year ago. On a per-share basis, this amounted to approximately $0.31 for the quarter, compared to $0.28 a year ago. In the third quarter of 2020, pre-tax income on a GAAP basis was $20.9 million, compared to approximately $700,000 in 2019. Consolidated third-quarter revenues rose 17.1% to $472.9 million. Excluding the impact of refranchising 46 domestic restaurants in 2019, consolidated revenues increased approximately 20%.
The increase was primarily due to strong comparable sales, as we've described, which drove higher North America commissary revenues, sales for domestic company-owned restaurants, North America franchisee royalties, and international revenues. Now, turning to cash. As I previously described, free cash flow was $134 million in the first nine months of 2020, compared to $15.8 million a year ago. The $118 million increase was driven by higher net income, as well as favorable changes in working capital items, including the timing of payments associated with our marketing fund. We paid a cash dividend of $10.8 million to our Common and Preferred Shareholders during the third quarter of 2020. Subsequent to the third quarter, on October 30th, 2020, our board of directors declared fourth quarter cash dividends of approximately $10.8 million to be paid to Common and Preferred Shareholders.
The fourth quarter common stock cash dividends will be $0.225 per common share. The new $75 million share repurchase authorization is an additional option we are making available on top of our dividend to enhance shareholder value. With this buyback, our intent is to opportunistically repurchase shares in the open market. The buyback is the logical outcome of our healthy cash position and confidence in Papa John's near and longer-term prospects. I want to emphasize, however, that we see the buyback as one piece of a larger, multifaceted, long-term capital allocation and return strategy. I look forward to providing more color in the future. Turning to restaurant development. During the third quarter, we opened 14 restaurants in North America and closed 12 restaurants for a net increase of two restaurants. Internationally, we opened 40 restaurants and closed 29 restaurants for an increase of 11 restaurants.
These changes in our unit count exclude any temporary closures as a result of the COVID-19 pandemic. As you know, we withdrew our 2020 guidance at the start of the pandemic, given the volatility and business uncertainty we have faced, and have not replaced it. However, I would like to address three specific items related to our outlook and reporting. First, to reiterate my prior comments, we will continue to record an expense for the allocation of undistributed earnings to participating securities whenever net income exceeds common and preferred dividends. This means that, hypothetically speaking, if fourth quarter net income attributable to the company comes in the same as Q3, we will again incur $0.02 of expense for the allocation of undistributed earnings to participating securities.
Second, we expect to incur approximately $15 million-$20 million in one-time severance, relocation, and other expenses through fiscal 2021 related to our corporate realignment and new Atlanta office plans. Of this amount, approximately $4 million-$5 million, or $0.09-$0.12 per share of one-time expense, is expected during the fourth quarter of 2020. As Rob discussed, we see these expenses as an investment in both the company's innovation and top-line growth, as well as in our efficiencies and commitment to reduce overhead. Third, I'd like to comment on our reporting. As you are probably aware, when the pandemic first triggered shutdowns across North America in March, creating extraordinary conditions for the country and our business, Papa John's began to provide monthly updates on comparable sales in addition to our normal quarterly reporting.
We've continued to do so since, with the goal of providing investors additional transparency during a period of suddenly higher volatility and uncertainty. Though there remains uncertainty and volatility around the impact of the pandemic going forward, on a relative basis, the sudden increase in uncertainty and volatility that initially led us to institute monthly sales reporting has passed. For that reason, we will return to our quarterly reporting frequency going forward, in line with our industry peers. As always, we will continue to evaluate our reporting procedures and disclosures based on business conditions and disclosure best practices. I'll now turn the call back over to Rob to discuss our outlook. Rob?
Thanks, Ann. Congratulations on your amazing start as our CFO. We're so thankful and happy to have you as part of our team. I'd like to conclude by discussing how Papa John's is positioned for the short and long term. Papa John's is on a growth trajectory, having now achieved positive North America and international comp sales for five and six consecutive quarters respectively. So far in 2020, we have delivered record results and outperformed the overall pizza delivery market every quarter this year. As we look to the future, we expect the underlying factors that have contributed to our performance year to date to continue to benefit us in the longer term.
We have built a scalable, sustainable innovation process that is producing winning new menu items, backed by a highly effective marketing model that makes our food the hero and has driven new levels of consumer awareness and favorability. We're just beginning to realize the benefits of these changes. Looking ahead at Q4 and into 2021, we have an exciting pipeline of opportunities lined up across pizza, Papadias, and new platforms, which we look forward to telling you about in the near future. The growth in our business this year has connected millions of new customers with our brand, including over 8 million across our digital channels alone. These new customers are showing great promise, with a higher portion purchasing multiple times shortly after their first purchase, a strong indicator of their stickiness. Additionally, Papa John's franchisee investment proposition and development capabilities are more compelling today than ever.
We also have more domestic and international white space than other top pizza brands. Together, these factors indicate our great potential for long-term unit growth, in addition to continued comp sales growth. To sum up, at Papa John's, we're working hard to take care of our team members and customers, deliver great pizza, and realize our tremendous potential today and in the future. I'd like to thank our shareholders and everyone on this call for their interest in our company and for their continued support. With that, I'll turn the call over to the operator for Q&A.
Thank you, sir. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound key. Due to the essence of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. I show our first question comes from the line of Peter Saleh from BTIG. Please go ahead.
Good morning. Rob, thanks for making me hungry this morning as well. I just wanted to ask, I know you guys aren't really providing a ton of detail on the go-forward comps, any qualitative comments you guys care to make on the momentum in October? Maybe just circling back, I think in the past you had talked about maybe half of the comp coming from pandemic tailwinds and maybe the other half from some of your initiatives. Do you think that still holds, just any more detail around that would be helpful.
Hi, Peter. Great to hear from you. Yeah, we are very excited about the path forward. As we mentioned, we launched Double Cheeseburger Papadia. It's being received extremely well, better than we had even expected. We've got a whole pipeline of innovation that's ready to roll, and we're kind of back into our operating model. As you know, we kind of pulled back a little bit at the beginning of the pandemic to make sure we could execute our operations seamlessly in the new operating environment. We were able to accomplish that and be able to support the restaurants with 15% transaction growth. Now that we've got that nailed, we're ready to move forward with our plan that we put in place back in 2019. Our plan hasn't changed. It's just accelerated. We've got a much stronger foundation on which to build.
The pandemic definitely provided a tailwind and supported all the initiatives that we had put in place prior to the pandemic. Looking forward, as long as we're in this environment, we'll continue to benefit as the industry continues to benefit. Coming out of this situation, we're hoping, like everyone, for this to end as soon as possible. We feel like we've got a great foundation to continue to drive outperformance and higher levels of comp sales growth.
Great. Then on the unit growth going forward into 2021, I know you guys are probably still working through some of the details, but how should we think about and maybe model company unit growth versus franchise? Maybe if you just look out a couple of years, what is that mix going to look like in terms of company ownership versus franchise? Is the franchise mix going to go up, or is it going to stay around the same? Just any details around that would be helpful.
Yeah. The disproportionate amount of our development will come from franchisees, no question. We're looking forward to getting back to building restaurants internationally. As we called out in the call, it's been a challenge in a lot of markets as local governments have been challenged to support the construction process and the permitting process. We look to 2021, and really as we come out of the pandemic globally, to be able to get back and start building a lot of franchisee restaurants internationally. As you know, our international business is 100% franchise. Those will all be franchised. Domestically, we are looking to build some company restaurants next year. That's really a commitment to the kind of operating margins that we're seeing, and we feel that we can benefit from that and deploy some of our cash flow that Ann highlighted back into the organic growth of our business.
Even with that, the disproportionate amount of new builds will come from franchisees. Over time, our system will definitely move more towards the franchise ownership versus company ownership, despite the fact that we are planning for the first time in a long time to have some company building going on next year.
Thank you. Our next question comes from-
Thank you
the line of Alex Slagle from Jefferies. Please go ahead.
Hey, thanks. Good morning. Congrats on the quarter. Ann, welcome aboard. I appreciate if you want to keep this high level at this point, just with the buyback authorization in place. Wonder if you could provide a little more on your capital allocation priorities heading into 2021 between re-acceleration in company development, the headquarters changes, some potential debt pay down, and now the buyback. I also know that you have accelerated, your volumes have really grown significantly this year and plans to accelerate growth next year. If you could touch on the opportunity on the processing and distribution centers, if you're in good shape there, and it doesn't seem like you've grown too many of them in the past, but whether that's something in the plans for the next couple of years.
Hi, Alex. I'll let Ann speak to some of the specifics. I know she's excited about the plans that we're just starting to formulate. In general, what I can tell you is that this business is transforming right now. After a year and a half of helping franchisees get through some tough times, we are now ready to invest the capital back into our business. We have a lot of opportunities to do that, through both new store development as well as technology investments, as well as investments in productivity in our restaurants. We're right now vetting out a whole litany of opportunities to drive operating income growth and accelerate operating income growth. Even with those investments, which are plentiful and robust, we still anticipate having a lot of cash from operations and a lot of cash on the balance sheet.
We're looking at ways that we can deploy that capital in the most efficient and productive way. How we can make sure that we're driving shareholder returns as we do that. With that, I'll turn it over to Ann, and she can talk about the planning process of the capital allocation plans that we're putting in place.
Good morning, Alex. I am so excited about the outlook. We have an incredibly strong balance sheet that provides optionality and security. Rob talked about the business model with the strong fundamental cash flow generation capabilities, and he talked a little bit about not only will the business continue to generate strong cash flows, but the significant cash no longer required for the We Win Together Program just leaves Papa John's in an even better position to drive earnings and free cash flow. Clearly, there are opportunities to leverage the balance sheet as well to further create value for shareholders. It's a bit premature to give specifics beyond that, but know that it's something that we are laser focused on as a leadership team. I look forward to coming back with more details in the future.
That's great. Just on the margin side, if you could talk about implications of the headquarters changes and reorg on the underlying G&A expense heading into 2021, 2022, what we should think about there?
Sure. As we talk about going into 2021, we do have some one-time expenses in total of about $15 million-$20 million. A portion of that we actually expect to hit here in Q4 of 2020. What I would reiterate, as you think longer term, this investment is one that positions us to accelerate our long-term growth, and we're absolutely committed to doing that without a long-term increase in G&A.
Yeah. In fact, I'll build on that. This will make us more efficient from a G&A standpoint, and that was part of the intention around the reorganization. I know the opening of an additional office in Atlanta is garnering a lot of the news and a lot of the coverage, but this is about restructuring our organization in such a way that will allow us to most productively and efficiently continue to drive shareholder value moving forward. That's a big driver of these changes. It's not just opening up a new location.
Thank you. Our next question comes from the line of Alton Stump from Longbow Research. Please go ahead.
Great. Thanks so much, and congrats on the quarter. Just wanted to ask on the unit count front, a hard question, obviously, it's a tough environment to get permits and all that due to COVID, but how soon do you think that will kind of ramp up here in the U.S. anyway, next year? Is it a first half of story, or is it more of a back half 2021 story, as you said here today?
Yeah. Alton, I wish I had a definitive answer for you on that. We absolutely thought that we were going to be back to building restaurants at scale in early 2021. Now everyone's talking about the second wave of corona, and as you know, the U.K. right now is in a shutdown, and if that moves on to other markets, it's going to delay the development process. The flip side of that is it is going to continue to provide additional tailwind for our business above and beyond our organic growth. We are ready. We are prepared. We have the infrastructure in place. We've already had a lot of the conversations with the franchisees who want to open up these markets and continue to grow these markets. It really is a macroeconomic situation that's impeding the development.
As soon as these governments and these markets are ready, we will be ready to go and build restaurants.
Great. Very helpful. Thanks, Rob. Just a quick follow-up to a question earlier. Just as a capacity standpoint, obviously with the huge growth you've seen, is there any concerns over the next 12- 18 months of having to build more capacity, particularly here in the U.S.?
It's a great question. I'm sorry I didn't answer it when Alex asked it. Right now, we're not foreseeing that we need to invest a significant amount of capital in building supply chain capacity. You know, the last couple of years for the brand, the volumes had slowed down, and we had excess capacity, and we moved to new manufacturing schedules and new distribution models to try to productively manage that excess capacity. We've grown back the volumes this year, we're back into a more productive manufacturing situation with enough capacity to support lots of growth in this business. Right now, we don't foresee any significant capital expenditures in the supply chain.
Great. Thank you.
Thank you.
Thank you. Our next question comes from the line of Brian Bittner from Oppenheimer & Co. Please go ahead.
Thanks. Good morning, Rob, and congratulations, Ann. Rob, question for you. Investors, they seem to have anxiety that sales trends have decelerated recently from the third quarter, and we all knew the elevated trends during the pandemic weren't necessarily sustainable, but I guess what this is doing is creating uncertainty regarding 2021 and your ability to hold on to the financial gains from COVID. Do you think that based on all your insights, that you are going to be able to hold on to your AUVs in 2021?
What can you say today to help us understand how you expect to fight this lap and retain the business in 2021?
Great question, Brian. Probably the number one question surrounding our business right now. Brian, every day that we continue to operate within the pandemic, we continue to gain disproportionate number of new customers. The more new customers we bring in, the greater opportunity we have to serve them and take good care of them and create future customers. I think the way we need to frame all this up is that, transactions is what we're really talking about here. Transactions are a function of number of customers and frequency, right? As other segments open up, as dining capacity expands, as people get more comfortable with going out and eating with 50 people they don't know in close proximity, it would only be logical to assume that there's going to be an impact to frequency. Right?
What we need to do is we need to make sure that we are generating the number of new customers that can offset some of that frequency, coupled with ticket growth. I'll talk to the new customers. We've added over 8 million new customers this year. That's a huge number for our business. What we're finding is that a lot of them are coming in through our loyalty channels, and a lot of them have higher frequency and higher ticket averages than the customers prior to the pandemic. That gives us a lot of confidence that they have come in, they are enjoying their experience, and they're coming back. It's not a one and done scenario for the most part. We think the stickiness of those customers will help us support these AUVs moving forward. The other piece is on the ticket side.
On the ticket side, Papadias has been a grand plan. We launched Papadias because we wanted to expand lunch daypart, and we started to see some progress there back in February. The pandemic hit, and the commuting and work outside of home kind of crashed. What happened was we saw Papadias starting to show up a significant number of our pizza orders. They become additional items on our current pizza orders, which is actually a bigger value for us as a company, a bigger contributor for us as a company than even lunch daypart. as we continue to see that, and we continue to see the mix on Papadias grow, we continue to see ticket growth. Programs like Shaq-a-Roni, a $12 pizza, sounds like a discounted pizza.
It's actually higher than our average pizza price on a ticket. Without taking pricing, we're increasing our ticket averages through innovation. That, coupled with the new customer stickiness, gives us a ton of confidence that we're going to be able to maintain these types of AUVs moving forward.
Thank you. I show our next question comes from the line of Chris O'Cull from Stifel. Please go ahead.
Good morning, Rob, welcome, Ann. Rob, just as a follow-up to that question, that prior question, I'm wondering what you think are the primary reasons the rate of growth has been slowing the last few periods.
I think that in the industry in general, people have gotten a little bit more comfortable leaving their homes, and we all anticipated that, right? We've all expected that to happen. I mean, the rate of growth that we were delivering, our company, 28% in Q2 and now 24% in Q3. I mean, it would be crazy for me to tell you that that's going to continue on in perpetuity. It's just not. There is, at some point, going to be a deceleration in this business. The question becomes, well, how much of it can we hold on to, and how much of it is foundational that we can then build on top of? We have been focused not on any deceleration. In fact, we're very happy, very pleased with the continued growth of our business. We have been focused on the foundation.
We've been focused on the investments we're making in the quality of our core products. We've been focused on the investments we're making in the innovation that's going to continue to bring in new customers and continue to drive frequency. We've been focused on getting more productive, both forwardly with our G&A as well as at the restaurant level through some of the investments we've made in our infrastructure, both technology as well as process and equipment, to make sure that our operators are making great profits that they can reinvest back into development. We are not concerned about the industry's deceleration.
Okay, that's helpful. What do you think is necessary to attract new, large, well-capitalized franchise groups to the domestic system?
It's all about the money. It's all about the profitability of the restaurants. That's why we have been so focused on that. Our restaurant margins have grown dramatically over the last 12 months. That gives us the ability to go in and talk with people who have investors and respective franchisees who have a lot of alternative uses for their capital and make the case that we're a great investment opportunity. I mean, our return on investment, our paybacks are as good as pretty much anybody in the industry. We have a lot more development space than most of our primary competitors who have significantly more restaurants already in the ground. When you're somebody of scale, who has capital and wants to come in and have a significant size opportunity, don't just want to come in for 10 or 15 restaurants, want to come in for 100 restaurants.
We have white space opportunity for them to come in and make that type of investment and have that type of scale in our system.
Thank you. I show our next question comes from the line of Eric Gonzalez from KeyBanc Capital Markets. Please go ahead.
Hey, thanks. Good morning. The recent development deal in the Mid-Atlantic seems like it was a step in the right direction in terms of unit growth. To what extent should we expect to see more of those types of deals in the months and years ahead? One thing I was wondering as it relates to that deal and possibly others, is what types of franchisee incentives have you put in place to get those types of deals done, whether it be co-investment, royalty relief, marketing fund relief, et cetera?
Hi, Eric. We've actually gone the opposite direction. We've actually scaled back the incentives. Two years ago, three years ago, when the business was really challenged and they were still trying to drive store growth, there were some very robust incentives. Now the incentive is that you can make a ton of money owning Papa John's. We've restructured our incentives to align with the reality that we don't need to give the stores away, and we're not. We've actually gone in the opposite direction. The excitement around development is significant, both internally and externally. As we mentioned, HB Restaurant Group, that's a current franchisee that is saying, "I want a bigger chunk of this pie." A lot of our conversations right now are with external prospective franchisees that we are working with.
Obviously they want to come in and have some scale out of the gate so that they can build from. We have 600 company restaurants that provide that opportunity for the right partner. We have a lot of those conversations going right now with external partners who want to come in and buy a number of restaurants and then build on top of that. We anticipate that being our growth model domestically. Internationally, it's wide open. We are in 47 countries. Our competitors are in twice that. We've got a lot white space yet to be developed, and we still have a lot white space in markets that we currently compete in. We only have 200 restaurants in China. That's less than 20% some of our larger competitors. We are big on development.
We've just rebuilt our development organization to support that level of growth, and we're working on that coming out of the pandemic.
Thanks.
Thank you.
Thank you. Our next question comes from the line of Dennis Geiger from UBS. Please go ahead.
Great. Rob, thanks for all the detail on the sales drivers. Just wondering maybe if you could help us frame up what the most impactful are looking into next year as you lose maybe some of the mobility tailwinds from this year. I'm sure it's a combination of everything, but given you've got, I would say, a lot more sales drivers than most, wondering if you could just kind of frame up what you view as the most impactful for next year.
I'd just reiterate that our Papadias platform is both a transaction and a check driver, and we have a whole slew of innovation up against that platform that we believe could continue, even though we're going to start lapping it in February. We launched it last February. We think that we have enough great ideas that are going to continue to drive growth there and continue to get those added to checks. We're also working on our core business, our core pizza business. We've got a lot of innovation that, frankly, this brand decided not to move forward with for a lot of years. We think that those could be check drivers for us as well, as people add on unique crust toppings and other types of things. Like we highlighted with Garlic Parmesan.
The other piece, like non-organic piece that I would talk to, is our partnership with the aggregators. You guys know their business is growing at 100%, and we're a big part of that. We're a piece of that, and they're a piece of our business, and we've gone from 2% of our sales with aggregators up to 6% of our sales with aggregators in just the last six months. We're finding that to be very incremental and as we've highlighted before, very profitable for us. Those partnerships have been really strong and we continue to build both distribution and number of stores that are signed up with the aggregators as well as the profitability of those transactions as we build scale and mitigate some of the fees and overhead costs. The last thing I'll call out is our media and marketing.
We have gotten significantly more efficient on our media investments than we used to be. By the way, all these sales that we're announcing, 28% in Q2, 24% in Q3, that is filling our media buckets. Not only is our amount of media going up, the productivity and efficiency at which we invested is significantly increasing. We should be able to derive outpaced top-line sales growth from our media dollars as well.
Great. Just wondering quick if you could talk at all about any impact that you've seen in certain regions or countries that have seen a more notable COVID spike impact in recent months or weeks?
Yeah. New York continues to be one of our best markets. As you know, New York was impacted right out of the gate, but it's still a very different place than it was nine months ago. We continue to see disproportionate gains there. California, which is a market that we have struggled in for a long time, is having an amazing year as the dynamics change out there. Internationally, China. Obviously, China was shut down for a long time, and China's opened back up. We're seeing, as we announced, double-digit sales gains in China at this point. There's been a strong rebound as they've opened back up. Korea continues to be a very strong market for us. Chile, which is one of our largest and most profitable international markets, has opened fully back up, and we're seeing strength there.
In the U.K., the U.K. is the bright spot of the whole world for us this year. The team over there has done unbelievable work and continues to not just drive great sales gains but share gains. That business is on fire, as you know, they just went on lockdown today, I believe. We're anticipating some continued acceleration in that business as a result of that.
Thank you. Our next question comes from the line of Lauren Silberman from Credit Suisse. Please go ahead.
Thanks, and congratulations on the role. Just to start with the international unit growth pipeline, you have nearly 2,100 international units currently. I recognize there's wide variability across markets, but the average AUVs are about 50%-55% of what you see in North America. Can you give any color on where you've signed development agreements in international markets and examples of where you see the most meaningful opportunities? Then any color on how you're thinking about the composition of North America versus international new unit growth going forward?
Sure. Hi, Lauren. Yes, as I mentioned, China is a huge opportunity for us. We actually have strong AUVs there and only 200 restaurants. We see significant development opportunity there. The Middle East performs extremely well for us, and the Middle East has been a tough market during COVID. A lot of it has been shut down over multiple long-term periods, and we've just reconfigured some of our franchisees in that region, and we feel like we are stronger and better prepared to grow there coming out of this. Russia has continued to be a strong market for us. The pandemic has impacted that market differently than a lot of other markets. It has not experienced the kind of growth that we've seen globally. We think that there is a lot of upside as we come out of the pandemic there.
The pandemic's actually had a bit of a negative impact on that market, so should be able to return to growth once we come out of there. Lastly, I'll just call out South America. Brazil is still a white space opportunity for us, and that would fill out. We do really well in South America. Chile and Peru are great markets for us. Peru has been negatively impacted. They've been on a complete shutdown, but Peru and Chile are great markets. Brazil will be a great market for us. As you know, all of our international business is franchisees. As we bring on new franchisees, we'll continue to just build restaurants. We're having those discussions right now.
That coupled with the 28% comp sales growth, which we see the ability to continue or even accelerate moving forward, will make our international business a much larger piece of our holistic proposition.
Thank you. Our last question comes from the line of Brett Levy from MKM Partners. Please go ahead.
Great. Good morning and thank you for taking my call. Just following back on Brian and Chris's topics from earlier, when you think about the upcoming tough compares that you're dealing with, how are you thinking about what you need to invest in structurally within the box? How are you going to manage costs? Obviously, it won't be financial support, but what kind of operational and strategic support are you going to integrate to the franchise system? Thanks.
That's a great question. We had started some of these initiatives, Brett, prior to the pandemic. We had been working with the aggregators and integrating them into our systems. The aggregators increased our capacity. Our number one bottleneck, frankly, is drivers. Adding a significant number of drivers through models like DoorDash Drive helps us in a big way, it helps us manage our labor but also helps us manage our throughput as they can show up and take delivery. We've also made some infrastructure investments. We invested, as we called out, I think a couple quarters ago, in a new call center platform we call Papa Call, which eliminates the need for our stores to answer phones.
If you think about how distracting the phones can be, especially on a Friday or Saturday night when you're cranking and doing huge volumes, and then also the labor opportunity, right? You don't need somebody to open or answer the phone. You can either redeploy that labor to accelerate your throughput on your make line, which is where we make the pizzas to go into the oven, or you can bring another driver in. That type of investment has paid big dividends. We have it throughout our company restaurants and is rapidly expanding throughout our franchisee restaurants. The other big investment we made, though, is what we call dough spinners. The dough spinners allow us to take about 40 seconds off the making of a pizza.
They pre-flatten the pizza, which allows the person making the pizza to slap it out much more quickly without any negative impact on quality or anything like that. Same process, same dough, except it takes about 40 seconds out. All of those investments are being made in the infrastructure and the restaurants to increase our productivity and increase our throughput, and we're going to see productivity gains as early as next year in terms of restaurant margins. More to come on that.
Thank you. That concludes our Q&A session. At this time, I'd like to turn the call back over to Mr. Rob Lynch, President and CEO, for closing remarks.
Great questions, everyone. I always enjoy being able to share our story with you and having a dialogue around how excited we are about the business. Thank you all for joining us today. I hope that all of you share our excitement about the trajectory that this business is on. I know that there's a lot of questions around the pandemic and its impact on this business and its impact, the lack thereof moving forward. I just continue to reiterate, we were building momentum back in Q1 before the pandemic ever hit, up over 7% prior to the onset of the pandemic. It really was the beginning of seeing the benefit of our strategic priorities that we had put in place, and the pandemic has simply accelerated every one of those initiatives.
We are further forward and much better prepared than we ever thought we would've been heading into 2021, and we've built the foundation that's going to continue to drive this business. Our winning strategy and our momentum are going to continue for the foreseeable future, and the foundation is going to deliver long-term results. We look forward to continuing to share those results with you, and we look forward to sharing the great success that we are delivering on the business. I wish all of you and your families, please be well and safe, and take care, and thank you again for being here with us today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.