Papa Murphy’s Holdings, Inc. (NASDAQ:FRSH) today announced
financial results for its third quarter ended
October 2, 2017.
Key financial highlights for the third quarter of 2017
include the following:
- Revenue was $26.8 million compared to $28.5 million in the
third quarter of 2016.
- Domestic system comparable store sales decreased 4.1% compared
to the third quarter of 2016, including a 2.7% decline at
company-owned stores.
- Selling, general and administrative expense was $5.6 million,
including approximately $0.7 million of non-recurring costs and a
credit of $1.7 million related to a partial recovery of the
advertising fund (ADF) deficit. The Company expects to recover
about $2.9 million of the remaining $5.4 million deficit in the
fourth quarter of this year.
- The Company recorded a non-cash charge of $4.4 million pre-tax
related to the impairment of fixed assets in four company store
markets.
- Reported Net Loss was $1.9 million, or $0.11 per diluted share,
compared to Net Loss of $421,000, or $0.03 per diluted share in the
prior year third quarter.
- Pro-Forma Net income(1) in the quarter was $1.3 million, or
$0.07 per diluted share.
- Adjusted EBITDA(1) was $5.3 million, compared to $3.8 million
in the prior year third quarter.
______________________
(1) Pro-Forma Net Income and Adjusted EBITDA are non-GAAP
measures. For a reconciliation of Pro-Forma Net Income and Adjusted
EBITDA to GAAP net income/(loss) and discussion of why we consider
Pro-Forma Net Income and Adjusted EBITDA to be useful measures, see
the financial tables accompanying this release and the paragraph
below entitled “Non-GAAP Financial Measures.”
Weldon Spangler, Chief Executive Officer of Papa Murphy’s
Holdings, Inc., stated, “We are committed to serving our franchise
owners and returning the system to profitable growth. Our
immediate priority is the stability of our comparable store sales,
and while third quarter results were below our expectations,
company-owned stores did show a marked improvement in trend
compared to recent quarters. We also saw improving sales
trends intra-quarter across the system, driven in large part by
expanded digital marketing tests and a renewed focus on
value. As a company, we continue to be focused on generating
positive cash flow and continue to expect to use excess cash to
further reduce leverage, which we believe is prudent in the current
sales environment.”
Spangler added, “We are committed to returning to a 95%
franchise system with a sense of urgency and are supplementing our
internal refranchising initiative with a proven third-party service
provider that will market our company stores through a structured
process set to launch next week. As the system focuses on
top-line growth and absorbing the refranchising of over one hundred
company stores, we don’t believe near term new unit openings will
be significant. As such, subsequent to the quarter end we
took the opportunity to reduce capacity in the franchise sales and
development functions, an action that will reduce SG&A expenses
in 2018 by over $1.0 million.”
Key Operating Metrics
|
|
|
|
|
|
|
Three Months
Ended |
|
|
|
October
2, 2017 |
|
September
26, 2016 |
|
|
Domestic comparable
store sales: |
|
|
|
|
|
Franchised stores |
|
-4.2 |
% |
|
|
-5.6 |
% |
|
|
Company-owned stores |
|
-2.7 |
% |
|
|
-7.7 |
% |
|
|
Combined |
|
-4.1 |
% |
|
|
-5.8 |
% |
|
|
|
|
|
|
|
|
System-wide sales ($'s
in 000s) |
$ |
192,903 |
|
|
$ |
199,318 |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA ($'s in
000s) |
$ |
5,297 |
|
|
$ |
3,787 |
|
|
|
|
|
|
|
|
|
Store Count: |
|
|
|
|
|
Franchised |
|
1,353 |
|
|
|
1,375 |
|
|
|
Company-owned |
|
148 |
|
|
|
166 |
|
|
|
International |
|
41 |
|
|
|
41 |
|
|
|
System-wide |
|
1,542 |
|
|
|
1,582 |
|
|
|
|
|
|
|
|
|
We use a variety of operating and performance metrics to
evaluate the performance of our business. Below is a description of
our key operating metrics:
Comparable Store Sales represents the change in
year-over-year sales for domestic comparable stores. A comparable
store is a store that has been open for at least 52 full weeks from
the comparable date (the Tuesday following the opening date). As of
the end of the third quarter of 2017 and 2016, we had 1,448 and
1,418 domestic comparable stores, respectively.
System-wide Sales include net sales by all of
our company-owned and franchisee-owned stores.
Adjusted EBITDA is defined as net income/(loss)
before interest expense, provision for (benefit from) income taxes
and depreciation and amortization, with further adjustments to
reflect the elimination of various expenses that we consider not
indicative of ongoing operations. For a reconciliation of
Adjusted EBITDA to net income/(loss), the most directly comparable
GAAP measure, see the financial tables accompanying this
release.
2017 Financial Outlook
Based on current information, Papa Murphy’s Holdings, Inc. is
updating its full-year outlook for fiscal 2017, which ends on
January 1, 2018, as follows:
- Domestic system-wide comparable store sales decline in the
mid-to-low single digits, consistent with previous guidance;
- Domestic franchise new store openings of between 30 and 35
units, compared to previous guidance of approximately 40
units;
- Full-year refranchising of up to 35 company-owned units,
consistent with previous guidance;
- Selling, general and administrative expenses of approximately
$30.7 million, including non-recurring costs totaling $5.1 million,
compared with previous guidance of approximately $30 million,
including non-recurring costs totaling $4.0 million;
- Adjusted EBITDA of at least $19 million, compared with previous
guidance of at least $20 million;
- Cash Used in Investing Activities of no more than $2 million,
consistent with previous guidance;
- Cash Flow from Operations less Cash Used in Investing
Activities of around $14 million, exclusive of any additional
refranchising, compared to previous guidance of at least $15
million;
- Full-year effective book tax rate of approximately 34.3%,
consistent with previous guidance; and
- Diluted share-count of approximately 16.8 million, consistent
with previous guidance.
Conference Call
Papa Murphy’s Holdings, Inc. will host a conference call to
discuss the third quarter financial results on Wednesday, November
8, 2017 at 5:00 p.m. Eastern Time. The conference call can be
accessed live over the phone by dialing 877-407-3982 or for
international callers by dialing 201-493-6780. A replay will be
available after the call and can be accessed by dialing
844-512-2921 or for international callers by dialing 412-317-6671;
the passcode is 13672494. The replay will be available until
Wednesday, November 15, 2017. The conference call will also be
webcast live from the Company’s corporate website at
investors.papamurphys.com, under the “Events & Presentations”
page. An archive of the webcast will be available at this location
shortly after the call has concluded.
About Papa Murphy’sPapa Murphy's Holdings, Inc.
(“Papa Murphy’s” or the “Company”) (NASDAQ:FRSH) is a franchisor
and operator of the largest Take ‘n’ Bake pizza brand in the United
States, selling fresh, hand-crafted pizzas ready for customers to
bake at home. The company was founded in 1981 and currently
operates more than 1,500 franchised and corporate-owned fresh pizza
stores in 39 states, Canada and United Arab Emirates. Papa
Murphy's core purpose is to bring all families together through
food people love with a goal to create fun, convenient and
fulfilling family dinners. In addition to scratch-made
pizzas, the Company offers a growing menu of grab 'n' go items,
including salads, sides and desserts. Order online today at
www.papamurphys.com.
Forward-looking StatementsThis press release,
as well as other information provided from time to time by Papa
Murphy's Holdings, Inc. or its employees, may contain
forward-looking statements that involve risks and uncertainties
that could cause actual results to differ materially from those
anticipated in the forward-looking statements. Forward-looking
statements give the Company's current expectations and projections
relating to the Company's financial condition, results of
operations, plans, objectives, future performance and business. You
can identify forward-looking statements by the fact that they do
not relate strictly to historical or current facts. These
statements may include words such as “guidance,” “anticipate,”
“estimate,” “expect,” “forecast,” “project,” “plan,” “intend,”
“believe,” “confident,” “may,” “should,” “can have,” “likely,”
“future” and other words and terms of similar meaning in connection
with any discussion of the timing or nature of future operating or
financial performance or other events.
Forward-looking statements in this press release include
statements relating to the Company’s projected comparable stores
sales growth or decline, projected new store openings, projected
selling, general and administrative expenses, including projected
severance and restructuring costs, advertising fund deficit
amounts, projected Adjusted EBITDA, projected capital expenditures,
projected refranchising activities, projected cash used in
investing activities, projected cash flow from operations,
projected effective tax rate, expected use of excess cash,
projected diluted share count, future financial or operational
results and business strategy, including the expected effects of
our digital marketing initiatives.
Any such forward-looking statements are not guarantees of
performance or results, and involve risks, uncertainties (some of
which are beyond the Company's control) and assumptions. Although
the Company believes any forward-looking statements are based on
reasonable assumptions, you should be aware that many factors could
affect our actual financial results and cause them to differ
materially from those anticipated in any forward-looking
statements. Please refer to the risk factors discussed in the
Company’s annual report on Form 10-K for the fiscal year ended
January 2, 2017, (which can be found at the SEC’s website
www.sec.gov); each such risk factor is specifically incorporated
into this press release. Should one or more of these risks or
uncertainties materialize, the Company's actual results may vary in
material respects from those projected in any forward-looking
statements.
Any forward-looking statement made by the Company in this press
release speaks only as of the date on which it is made. The Company
undertakes no obligation to update any forward-looking statement,
whether as a result of new information, future developments or
otherwise.
Non-GAAP Financial MeasuresTo supplement its
financial information presented in accordance with generally
accepted accounting principles (GAAP), the Company is also
providing with this press release the non-GAAP financial measures
of EBITDA, Adjusted EBITDA and Pro-Forma Net Income. EBITDA,
Adjusted EBITDA, and Pro-Forma Net Income are not derived in
accordance with GAAP. EBITDA, Adjusted EBITDA and Pro-Forma Net
Income should not be considered by the reader as an alternative to
net (loss) income (the most comparable GAAP financial measure to
EBITDA, Adjusted EBITDA and Pro-Forma Net Income). The Company’s
management believes that EBITDA, Adjusted EBITDA, and Pro-Forma Net
Income are helpful as indicators of the current financial
performance of the Company because EBITDA, Adjusted EBITDA, and
Pro-Forma Net Income reflect the additions and eliminations of
various income statement items that management does not consider
indicative of ongoing operating results. We have provided
reconciliations of EBITDA, Adjusted EBITDA and Pro-Forma Net Income
to GAAP net (loss) income in the financial tables accompanying this
release.
The Company is also providing with this press release a forward
looking estimate of the non-GAAP financial measure of Adjusted
EBITDA. We do not, however, provide a reconciliation of this
forward-looking non-GAAP measure to the most comparable GAAP
measure because of the inherent difficulty in forecasting and
quantifying various adjustments that are necessary for this
reconciliation and, accordingly, the reconciling information cannot
be obtained without unreasonable effort.
PAPA MURPHY’S HOLDINGS, INC. AND
SUBSIDIARIESCondensed Consolidated Statements of
Operations (In thousands of dollars, except share and per
share data)
|
|
|
|
|
|
|
Three Months
Ended |
|
|
|
|
|
|
|
October
2, 2017 |
|
September
26, 2016 |
|
|
|
|
|
|
|
Unaudited |
|
Unaudited |
|
|
|
Revenues |
|
|
|
|
|
|
|
Franchise
royalties |
$ |
8,539 |
|
|
$ |
8,834 |
|
|
|
|
|
Franchise
and development fees |
|
310 |
|
|
|
645 |
|
|
|
|
|
Company-owned store sales |
|
17,520 |
|
|
|
18,705 |
|
|
|
|
|
Other |
|
455 |
|
|
|
335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
26,824 |
|
|
|
28,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
Store
operating costs: |
|
|
|
|
|
|
|
|
Cost of
food and packaging |
|
5,858 |
|
|
|
6,488 |
|
|
|
|
|
|
Compensation and benefits |
|
5,478 |
|
|
|
5,748 |
|
|
|
|
|
|
Advertising |
|
1,954 |
|
|
|
1,727 |
|
|
|
|
|
|
Occupancy |
|
1,390 |
|
|
|
1,608 |
|
|
|
|
|
|
Other store
operating costs |
|
1,967 |
|
|
|
2,762 |
|
|
|
|
|
Selling,
general, and administrative |
|
5,595 |
|
|
|
6,198 |
|
|
|
|
|
Depreciation and amortization |
|
2,336 |
|
|
|
3,137 |
|
|
|
|
|
Loss on
disposal or impairment of property and equipment |
|
4,327 |
|
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and
expenses |
|
28,905 |
|
|
|
27,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income |
|
(2,081 |
) |
|
|
691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net |
|
1,305 |
|
|
|
1,201 |
|
|
|
|
|
Other
expense, net |
|
57 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes |
|
(3,443 |
) |
|
|
(551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
from income taxes |
|
(1,574 |
) |
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss |
$ |
(1,869 |
) |
|
$ |
(421 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share of common stock |
|
|
|
|
|
|
|
Basic |
|
$ |
(0.11 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
Diluted |
$ |
(0.11 |
) |
|
$ |
(0.03 |
) |
|
|
|
Weighted
average common stock outstanding |
|
|
|
|
|
|
|
Basic |
|
|
16,882,193 |
|
|
|
16,753,292 |
|
|
|
|
|
Diluted |
|
16,882,193 |
|
|
|
16,753,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAPA MURPHY’S HOLDINGS, INC. AND
SUBSIDIARIESSelected Balance Sheet
Data(In thousands of dollars)(unaudited)
|
|
|
|
|
October
2, 2017 |
|
January
2, 2017 |
Cash and cash
equivalents |
$ |
900 |
|
$ |
2,069 |
Total current
assets |
|
7,745 |
|
|
13,116 |
Total assets |
|
246,674 |
|
|
273,872 |
Total current
liabilities |
|
24,632 |
|
|
22,900 |
Long-term debt, net of
current portion |
|
92,013 |
|
|
100,965 |
Total stockholders'
equity |
|
88,510 |
|
|
101,496 |
|
|
|
|
|
|
PAPA MURPHY’S HOLDINGS, INC. AND
SUBSIDIARIESReconciliation of Net (Loss) to EBITDA
and Adjusted EBITDA(In thousands of dollars)
|
|
|
|
Three Months
Ended |
|
|
|
October
2, 2017 |
|
September
26, 2016 |
|
|
Net Loss As
Reported |
$ |
(1,869 |
) |
|
$ |
(421 |
) |
|
|
Depreciation and amortization |
|
2,336 |
|
|
|
3,137 |
|
|
|
Benefit
from income taxes |
|
(1,574 |
) |
|
|
(130 |
) |
|
|
Interest
expense, net |
|
1,305 |
|
|
|
1,201 |
|
|
|
EBITDA |
|
198 |
|
|
|
3,787 |
|
|
|
Expenses
not indicative of future operations: |
|
|
|
|
|
CEO
transition & restructuring (a) |
|
190 |
|
|
|
|
|
Store
closures and impairment (b) |
|
4,446 |
|
|
|
|
|
Litigation setttlements(c) |
|
463 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA |
$ |
5,297 |
|
|
$ |
3,787 |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
margin (1) |
|
19.7 |
% |
|
|
13.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Represents non-recurring management transition and restructuring
costs in connection with the |
|
|
recruitment of a new Chief Executive Officer and other
executive positions. |
|
|
|
|
|
|
|
|
|
|
(b)
Represents non-cash charges associated with the disposal or
impairment of store assets upon the |
|
|
determination that the book value of certain stores was higher than
the fair value of those stores, plus |
|
|
lease
buyouts and reserves for the residual contractual lease obligations
on closed stores. |
|
|
|
|
|
|
|
|
(c) Payments made
towards franchisee litigation settlements. |
|
|
|
|
|
|
|
|
|
|
|
(1) Adjusted EBITDA margin is calculated by dividing Adjusted
EBITDA by total revenues. |
|
|
|
|
|
PAPA MURPHY'S HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net (Loss) to Pro Forma Net
Income (In thousands of dollars, except share and
per share data)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
|
|
October
2, 2017 |
|
September
26, 2016 |
|
|
|
|
|
|
|
|
Net
Loss As Reported |
$ |
(1,869 |
) |
|
$ |
(421 |
) |
|
|
Expenses not indicative of future operations: |
|
|
|
|
|
CEO transition & restructuring (a) |
|
190 |
|
|
|
|
|
Store closures & impairment (b) |
|
4,446 |
|
|
|
|
|
Litigation setttlements (c) |
|
463 |
|
|
|
|
|
Income tax expense on adjustments (d) |
|
(1,963 |
) |
|
|
|
Pro
Forma Net Income (Loss) |
$ |
1,267 |
|
|
$ |
(421 |
) |
|
|
|
|
|
|
|
|
Earnings
(loss) per share - pro forma: |
|
|
|
|
|
Basic |
$ |
0.08 |
|
|
$ |
(0.03 |
) |
|
|
Diluted |
$ |
0.07 |
|
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - pro forma: |
|
|
|
|
|
Basic |
|
16,882,193 |
|
|
|
16,753,292 |
|
|
|
Diluted |
|
16,919,639 |
|
|
|
16,753,292 |
|
|
|
|
|
|
|
|
|
(a)
Represents non-recurring management transition and restructuring
costs in connection with |
|
recruitment of a new Chief Executive Officer and other
executive positions. |
|
|
|
|
|
|
|
|
|
|
(b)
Represents non-cash charges associated with the disposal or
impairment of store assets upon the |
|
determination that the book value of certain stores was higher than
the fair value of those stores, plus |
|
lease
buyouts and reserves for the residual contractual lease obligations
on closed stores. |
|
|
|
|
|
|
|
|
|
(c)
Payments and accruals made towards franchisee litigation
settlements. |
|
|
|
|
|
|
|
|
|
|
(d)
Reflects the tax expense associated with above adjustments at a
normalized tax rate of 38.5%, in line |
|
with our
estimated long-term effective tax rate. |
|
|
|
|
|
|
|
|
|
Investor Contact:Alexis Tessier,
ICRpapamurphys-ir@icrinc.com877-747-7272
Media Contact:Christine Beggan,
ICRchristine.beggan@icrinc.com 203-682-8329
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