Papa Murphy’s Holdings, Inc. (NASDAQ:FRSH) today announced
financial results for its fiscal second quarter ended
July 2, 2018.
Key financial highlights for the second
quarter of 2018 include the following(1):
- Revenue was $30.8 million compared to $36.1 million in the
second quarter of 2017.
- Comparable store sales decreased 2.4% compared to the second
quarter of 2017, including a 2.2% decrease at global
franchise-owned stores and a 4.6% decrease at Company-owned
stores.
- Selling, general and administrative expense was $11.4 million,
compared to $10.8 million in the second quarter of 2017.
- Reported Net Income was $1.4 million, or $0.08 per diluted
share, compared to a Reported Net Loss of $(6.1) million, or
$(0.36) per diluted share in the prior year second quarter.
- Pro-Forma Net Income(2) in the quarter was $1.0 million, or
$0.06 per diluted share, compared to Pro-Forma Net Income of $1.2
million, or $0.07 per diluted share, in the prior year second
quarter.
- Adjusted EBITDA(2) was $4.6 million, compared to Adjusted
EBITDA of $8.0 million in the prior year second quarter. Prior year
second quarter Adjusted EBITDA included a benefit from the Brand
Marketing Fund of approximately $2.8 million driven by a
combination of an additional Brand Marketing Fund contribution of
0.85% of sales during 2017 and the timing of marketing expenses
that were heavily weighted to the first quarter of the prior
year.
- Franchise-owners opened two new stores in the quarter, all in
the US market.
- Please note that results reflect the first quarter adoption by
the Company of two new accounting standards (ASC topic 606 –
Revenue from contracts with customers, and ASC topic 842 – Leases).
2017 financial results have been adjusted to reflect the
implementation of these standards.
- 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 the Company considers
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 continue to stay focused on
our strategy of relevance and convenience, and during our first
full quarter with our new e-commerce platform, OLO.com, we were
pleased with the improvement in mix, the stability of the platform
and the enhanced guest experience that the platform has
delivered.
“We have also seen significant comp sales
improvement where compelling consumer value initiatives have been
deployed. And this is increasing momentum across the system as
additional franchise owners understand the benefits and adopt value
as a key relevance driver.”
Spangler added, “During the second quarter we
concluded the refranchising of 22 Company-owned stores. We remain
committed to return to upwards of a 95% franchised system and are
in active discussions to secure additional refranchising
transactions.”
Key Operating Metrics
|
Three Months Ended |
|
July 2, 2018 |
|
July 3, 2017 |
|
unaudited |
|
as adjusted* |
Comparable
store sales: |
|
|
|
Franchised stores |
(2.2 |
)% |
|
(4.0 |
)% |
Company-owned stores |
(4.6 |
)% |
|
(6.6 |
)% |
Combined |
(2.4 |
)% |
|
(4.2 |
)% |
|
|
|
|
System-wide
sales ($’s in 000s) |
$ |
196,141 |
|
|
$ |
204,536 |
|
|
|
|
|
Adjusted
EBITDA ($’s in 000s) |
$ |
4,581 |
|
|
$ |
8,030 |
|
|
|
|
|
Store
Count |
|
|
|
Franchised |
1,355 |
|
|
1,401 |
|
Company-owned |
122 |
|
|
149 |
|
System-wide |
1,477 |
|
|
1,550 |
|
* Prior year results have been adjusted to reflect the impact of
adopting the new revenue (ASC Topic 606) and lease (ASC Topic 842)
accounting standards effective January 2, 2018.
The Company uses a variety of operating and
performance metrics to evaluate the performance of the business.
Below is a description of certain key operating metrics:
Comparable Store Sales
represents the change in year-over-year sales for all comparable
stores, including international. 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
second quarter of 2018 and 2017, we had 1,454 and 1,477 comparable
stores, respectively.
System-wide Sales include net
sales by all franchise-owned and Company-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 the
Company considers 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.
2018 Financial Outlook
Based on current information, and the refranchising of the
Company-owned stores in Colorado, Papa Murphy’s Holdings, Inc. is
providing the following guidance for full-year outlook for fiscal
2018, which ends on December 31, 2018:
- Full-year system-wide comparable store sales are expected to
decline low single digits compared to previous guidance of about
flat for the year;
- We expect domestic franchise new store openings of
approximately 10 units;
- We expect full-year Selling, general and administrative
expenses of approximately $49 million, a reduction of $1
million compared to previous guidance. These expenses include
approximately $24 million of expenditures from the Brand Funds, and
exclude certain non-recurring costs totaling around
$4 million;
- We expect Adjusted EBITDA of at least $20 million, flat to
prior quarter guidance, after adjusting for the second quarter
refranchising activities;
- We expect Net cash provided by operating activities of around
$12.3 million, excluding expected legal settlements totaling
approximately $6.7 million, and Net cash provided by investing
activities of approximately $6.0 million (which includes $7.0
million of net proceeds from refranchising activities less
approximately $1.0 million in capital expenditures);
- We expect a full-year effective book tax rate of approximately
27.8%; and
- We expect a diluted share-count of approximately
17.0 million.
The Company expects to update the financial
outlook for the effects of additional refranchising when it has
greater certainty around specific transactions and timing.
Conference Call
Papa Murphy’s Holdings, Inc. will host a
conference call to discuss the second quarter financial results on
Wednesday, August 1, 2018 at 5:00 PM 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 13681662. The replay will be
available until Wednesday, August 8, 2018. 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’s
Papa 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
hand-crafted fresh pizzas for customers to bake at home. The
Company was founded in 1981 and currently operates nearly 1,500
franchised and corporate-owned stores in 37 States, Canada, and
United Arab Emirates. Papa Murphy’s core purpose is to help anyone
with an oven and 15 minutes serve a scratch-made meal. In addition
to fresh pizzas, the Company offers hand-crafted salads, sides and
desserts to complete the meal. [Order online today at
www.papamurphys.com for easy pick up everywhere, and find us on
your favorite delivery apps in select markets.]
Forward-looking Statements
This 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, projected
Adjusted EBITDA, projected refranchising activities, projected cash
provided by investing activities, projected cash provided by
operating activities, projected effective tax rate, projected
diluted share count, plants for refranchising and future financial
or operational results and business strategy, including the
expected effects of the Company’s strategic 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 1, 2018, (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 Measures
To 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 income (loss) (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 income (loss) 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 |
|
July 2, 2018 |
|
July 3, 2017 |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
Revenues |
|
|
|
Franchise related |
$ |
14,814 |
|
|
$ |
17,392 |
|
Company-owned stores |
15,979 |
|
|
18,715 |
|
Total revenues |
30,793 |
|
|
36,107 |
|
|
|
|
|
Costs and Expenses |
|
|
|
Store operating costs: |
|
|
|
Cost of food and packaging |
5,315 |
|
|
6,303 |
|
Compensation and benefits |
5,211 |
|
|
5,924 |
|
Advertising |
1,301 |
|
|
1,739 |
|
Occupancy and other store operating costs |
3,102 |
|
|
3,541 |
|
Selling, general, and administrative |
11,423 |
|
|
10,823 |
|
Depreciation and amortization |
1,874 |
|
|
2,906 |
|
(Gain) loss on disposal or impairment of property and
equipment |
(715 |
) |
|
11,568 |
|
Total costs and expenses |
27,511 |
|
|
42,804 |
|
|
|
|
|
Operating Income (Loss) |
3,282 |
|
|
(6,697 |
) |
|
|
|
|
Interest expense, net |
1,296 |
|
|
1,286 |
|
Other expense, net |
52 |
|
|
49 |
|
Income (Loss) Before Income Taxes |
1,934 |
|
|
(8,032 |
) |
|
|
|
|
Provision for (benefit from) income taxes |
548 |
|
|
(1,947 |
) |
Net
Income (Loss) |
$ |
1,386 |
|
|
$ |
(6,085 |
) |
|
|
|
|
Earnings
(Loss) per share of common stock |
|
|
|
Basic |
$ |
0.08 |
|
|
$ |
(0.36 |
) |
Diluted |
$ |
0.08 |
|
|
$ |
(0.36 |
) |
Weighted
average common stock outstanding |
|
|
|
Basic |
16,921,597 |
|
|
16,867,929 |
|
Diluted |
16,960,265 |
|
|
16,867,929 |
|
|
|
|
|
|
|
* Prior year results have been adjusted to reflect the
impact of adopting the new revenue (ASC Topic 606) and lease (ASC
Topic 842) accounting standards effective January 2, 2018. |
|
|
|
|
|
PAPA MURPHY’S HOLDINGS, INC. AND
SUBSIDIARIESSelected Balance Sheet
Data(In thousands of dollars) |
|
|
|
|
|
July 2, 2018 |
|
January 1, 2018 |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
Cash and
cash equivalents |
$ |
1,689 |
|
|
$ |
2,174 |
|
Total
current assets |
7,080 |
|
|
8,962 |
|
Total
assets |
246,446 |
|
|
262,115 |
|
Total
current liabilities |
21,092 |
|
|
31,117 |
|
Long-term
debt, net of current portion |
81,454 |
|
|
86,994 |
|
Total
stockholders’ equity |
97,555 |
|
|
94,142 |
|
|
|
|
|
|
|
* Prior year results have been adjusted to reflect the impact
of adopting the new revenue (ASC Topic 606) and lease (ASC Topic
842) accounting standards effective January 2, 2018. |
|
|
|
|
|
|
|
|
PAPA MURPHY’S HOLDINGS, INC. AND
SUBSIDIARIESReconciliation of Net Income (Loss) to
EBITDA and Adjusted EBITDA(In thousands of dollars) |
|
|
|
Three Months Ended |
|
July 2, 2018 |
|
July 3, 2017 |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
Net
Income (Loss) |
$ |
1,386 |
|
|
$ |
(6,085 |
) |
Depreciation and amortization |
1,874 |
|
|
2,906 |
|
Provision for (benefit from) income taxes |
548 |
|
|
(1,947 |
) |
Interest expense, net |
1,296 |
|
|
1,286 |
|
EBITDA |
$ |
5,104 |
|
|
$ |
(3,840 |
) |
|
|
|
|
Expenses
not indicative of future operations: |
|
|
|
CEO transition & restructuring (a) |
119 |
|
|
131 |
|
E-commerce impairment and transition costs (b) |
(8 |
) |
|
9,124 |
|
Store divestitures, closures, and impairment (c) |
(723 |
) |
|
2,615 |
|
Litigation settlements and reserves (d) |
89 |
|
|
— |
|
Adjusted EBITDA |
$ |
4,581 |
|
|
$ |
8,030 |
|
|
|
|
|
Adjusted EBITDA margin (e) |
14.9 |
% |
|
22.2 |
% |
- Represents non-recurring management transition and
restructuring costs in connection with the recruitment of a new
Chief Executive Officer and other executive positions.
- Represents impairment charges on the write-down of our
e-commerce platform based on the decision to move to a third-party
developed and hosted solution and non-recurring costs incurred to
complete the transition.
- In 2018, this represents primarily gains on the refranchising
of Company-owned stores. In 2017, this represents primarily
non-cash charges associated with the impairment and disposal of
store assets upon the decision to close stores.
- Accruals made for franchisee litigation settlements.
- Adjusted EBITDA margin is calculated by dividing Adjusted
EBITDA by total revenues.
* Prior year results have been adjusted to reflect the impact of
adopting the new revenue (ASC Topic 606) and lease (ASC Topic 842)
accounting standards effective January 2, 2018.
|
|
PAPA MURPHY’S HOLDINGS, INC. AND
SUBSIDIARIESReconciliation of Net Income (Loss) to
Pro Forma Net Income(In thousands of dollars, except share
and per share data) |
|
|
|
Three Months Ended |
|
July 2, 2018 |
|
July 3, 2017 |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
Net
Income (Loss) As Reported |
$ |
1,386 |
|
|
$ |
(6,085 |
) |
Expenses not indicative of future operations: |
|
|
|
CEO transition & restructuring (a) |
119 |
|
|
131 |
|
E-commerce transition costs (b) |
(8 |
) |
|
9,124 |
|
Store divestitures, closures, and impairment(c) |
(723 |
) |
|
2,615 |
|
Litigation settlement and reserves (d) |
89 |
|
|
— |
|
Income tax expense on adjustments (e) |
133 |
|
|
(4,571 |
) |
Pro
Forma Net Income |
$ |
996 |
|
|
$ |
1,214 |
|
|
|
|
|
Earnings
per share - pro forma: |
|
|
|
Basic |
$ |
0.06 |
|
|
$ |
0.07 |
|
Diluted |
$ |
0.06 |
|
|
$ |
0.07 |
|
|
|
|
|
Weighted
average shares outstanding - pro forma: |
|
|
|
Basic |
16,921,597 |
|
|
16,770,579 |
|
Diluted |
16,960,265 |
|
|
16,788,481 |
|
- Represents non-recurring management transition and
restructuring costs in connection with the recruitment of a new
Chief Executive Officer and other executive positions.
- Represents impairment charges on the write-down of our
e-commerce platform based on the decision to move to a third-party
developed and hosted solution and non-recurring costs incurred to
complete the transition.
- In 2018, this represents primarily gains on the refranchising
of Company-owned stores. In 2017, this represents primarily
non-cash charges associated with the impairment and disposal of
store assets upon the decision to close stores.
- Accruals made for franchisee litigation settlements.
- Reflects the tax expense associated with above adjustments at a
normalized tax rate of 25.5% (2018) and 38.5% (2017), which
represents the estimated long-term effective tax rate in effect in
the respective quarter.
* Prior year results have been adjusted to reflect the impact of
adopting the new revenue (ASC Topic 606) and lease (ASC Topic 842)
accounting standards effective January 2, 2018.
Investor Contact:Maurice
Hinesmaurice.hines@papamurphys.com360-449-4008
Media Contact:Alexis Diltz or Daniel
Evanscommunications@papamurphys.com360-449-4001
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