Company Announces Extension of Credit
Agreement
Papa Murphy’s Holdings, Inc. (the “Company”) (NASDAQ: FRSH) today
announced results for its fiscal third quarter ended
October 1, 2018. The Company also announced that its
Board of Directors is considering a range of financial and
strategic alternatives to enhance shareholder value.
Key financial highlights for the third
quarter of 2018 include the following(1):
- Revenue was $28.8 million compared to $33.7 million in the
third quarter of 2017, primarily due to the refranchising of 29 and
closure of six Company-owned stores since October 2, 2017.
- Comparable store sales decreased 2.1% compared to the third
quarter of 2017, including a 1.8% decrease at global
franchise-owned stores and a 6.9% decrease at Company-owned
stores.
- Selling, general and administrative expenses were $11.7
million, compared to $12.5 million in the third quarter of
2017.
- Reported net loss was $0.6 million, or $0.04 per diluted share,
compared to a reported net loss of $2.7 million, or $0.16 per
diluted share in the prior year third quarter.
- Pro-Forma Net Income(2) in the quarter was $1.3 million, or
$0.07 per diluted share, compared to Pro-Forma Net Income of $1.4
million, or $0.08 per diluted share, in the prior year third
quarter.
- Adjusted EBITDA(2) was $4.7 million, compared to Adjusted
EBITDA of $5.5 million in the prior year third quarter.
- Franchise-owners opened two new stores in the quarter.
______________________
- Please note that results reflect the first quarter 2018
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 (loss) income 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, “While the third quarter same
store sales percentage is still negative, the third quarter result
represents our best percentage change in same store sales in 12
quarters. We are also pleased to note that sales trends have
continued to improve and are currently tracking slightly positive
through the first five weeks of the fourth quarter, though we
maintain a conservative outlook for the balance of the fourth
quarter. The comp sales result continues to be driven by the
adoption of key marketing messages, as well as by progress on our
strategic initiatives.”
Financial and Strategic Review
In conjunction with conducting a comprehensive
review of its business strategy, Papa Murphy’s announced that it is
conducting a process to explore and evaluate strategic alternatives
to maximize shareholder value and position the Company for
long-term success. The Company has engaged North Point
Advisors to act as its financial advisor to assist with the review.
Papa Murphy’s remains open to all strategic options that
would enhance shareholder value for the long-term.
Financial and strategic alternatives may
include, but are not limited to, a possible sale of the business.
There is no specific timetable for identifying potential
transactions or transaction candidates and there is no assurance
that any transaction will be completed. The Company does not
intend to make any further comment regarding such process unless
its Board of Directors has approved a specific course of
action.
Subsequent Event
Subsequent to the end of the third quarter, the
Company signed a second amendment to its current credit facility,
effective as of November 6, 2018. The amendment, among
other things, extends the Company’s credit facility by twelve
months, setting the maturity date at August 28, 2020. Further
information can be found in the Company’s Form 10-Q, which is
expected to be filed today, Wednesday, November 7, 2018, with the
Securities and Exchange Commission.
Key Operating Metrics
|
Three Months Ended |
|
October 1, 2018 |
|
October 2, 2017 |
|
unaudited |
|
as adjusted* |
Comparable store
sales: |
|
|
|
Franchised stores |
(1.8 |
)% |
|
(4.2 |
)% |
Company-owned stores |
(6.9 |
)% |
|
(2.7 |
)% |
Combined |
(2.1 |
)% |
|
(4.1 |
)% |
|
|
|
|
System-wide sales ($’s
in 000s) |
$ |
184,163 |
|
|
$ |
192,903 |
|
|
|
|
|
Adjusted EBITDA ($’s in
000s) |
$ |
4,666 |
|
|
$ |
5,546 |
|
|
|
|
|
Store Count |
|
|
|
Franchised |
1,347 |
|
|
1,394 |
|
Company-owned |
113 |
|
|
148 |
|
System-wide |
1,460 |
|
|
1,542 |
|
* 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
third quarter of 2018 and 2017, we had 1,442 and 1,483 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, Papa Murphy’s Holdings, Inc. is
providing the following updated 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;
- We expect domestic franchise new store openings of
approximately 10 units;
- We expect full-year Selling, general and administrative
expenses of approximately $47 million, without non-recurring
items, a reduction of $2 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 $21 million, $1 million
higher than prior quarter guidance;
- We expect Net cash provided by operating activities of around
$12 million, excluding expected legal settlements totaling
approximately $6 million, and Net cash provided by investing
activities of approximately $7 million (which includes $8.7
million of net proceeds from refranchising activities less
approximately $1.5 million in capital expenditures);
- We expect a full-year effective book tax rate of approximately
26.8%; 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 third quarter financial results on
Wednesday, November 7, 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 13682981. The replay will be
available until Wednesday, November 14, 2018. The conference call
will also be webcast live from the Company’s corporate website at
http://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 over 1,400
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 ahead and skip the line
at your local Papa Murphy's store. Place orders online, at
www.papamurphys.com, or download the App and place orders via your
favorite device, 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 review of strategic
alternatives, 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, plans
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 |
|
Nine Months Ended |
|
October 1, 2018 |
|
October 2, 2017 |
|
October 1, 2018 |
|
October 2, 2017 |
|
|
|
unaudited and |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
|
unaudited |
|
as adjusted* |
Revenues |
|
|
|
|
|
|
|
Franchise related |
$ |
15,872 |
|
|
$ |
16,171 |
|
|
$ |
46,876 |
|
|
$ |
52,961 |
|
Company-owned stores |
12,958 |
|
|
17,520 |
|
|
47,519 |
|
|
57,010 |
|
Total revenues |
28,830 |
|
|
33,691 |
|
|
94,395 |
|
|
109,971 |
|
|
|
|
|
|
|
|
|
Costs and
Expenses |
|
|
|
|
|
|
|
Store
operating costs: |
|
|
|
|
|
|
|
Cost of
food and packaging |
4,216 |
|
|
5,858 |
|
|
15,657 |
|
|
19,376 |
|
Compensation and benefits |
4,341 |
|
|
5,478 |
|
|
15,183 |
|
|
17,735 |
|
Advertising |
1,147 |
|
|
1,604 |
|
|
3,700 |
|
|
5,055 |
|
Occupancy
and other store operating costs |
2,720 |
|
|
3,012 |
|
|
8,925 |
|
|
10,255 |
|
Selling,
general, and administrative |
11,710 |
|
|
12,517 |
|
|
36,146 |
|
|
49,042 |
|
Depreciation and amortization |
1,662 |
|
|
2,336 |
|
|
5,677 |
|
|
8,359 |
|
Loss on
disposal or impairment of property and equipment |
2,521 |
|
|
6,253 |
|
|
1,808 |
|
|
17,830 |
|
Total costs and expenses |
28,317 |
|
|
37,058 |
|
|
87,096 |
|
|
127,652 |
|
|
|
|
|
|
|
|
|
Operating
Income (Loss) |
513 |
|
|
(3,367 |
) |
|
7,299 |
|
|
(17,681 |
) |
|
|
|
|
|
|
|
|
Interest
expense, net |
1,254 |
|
|
1,305 |
|
|
3,842 |
|
|
3,818 |
|
Other
expense, net |
57 |
|
|
57 |
|
|
160 |
|
|
149 |
|
(Loss) Income
Before Income Taxes |
(798 |
) |
|
(4,729 |
) |
|
3,297 |
|
|
(21,648 |
) |
|
|
|
|
|
|
|
|
(Benefit
from) provision for income taxes |
(159 |
) |
|
(2,051 |
) |
|
970 |
|
|
(7,678 |
) |
Net (Loss)
Income |
$ |
(639 |
) |
|
$ |
(2,678 |
) |
|
$ |
2,327 |
|
|
$ |
(13,970 |
) |
|
|
|
|
|
|
|
|
(Loss) earnings per
share of common stock |
|
|
|
|
|
|
|
Basic |
$ |
(0.04 |
) |
|
$ |
(0.16 |
) |
|
$ |
0.04 |
|
|
$ |
(0.83 |
) |
Diluted |
$ |
(0.04 |
) |
|
$ |
(0.16 |
) |
|
$ |
0.04 |
|
|
$ |
(0.83 |
) |
Weighted average common
stock outstanding |
|
|
|
|
|
|
|
Basic |
16,944,777 |
|
|
16,882,193 |
|
|
16,924,037 |
|
|
16,863,122 |
|
Diluted |
16,944,777 |
|
|
16,882,193 |
|
|
16,963,084 |
|
|
16,863,122 |
|
* 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)
|
October 1, 2018 |
|
January 1, 2018 |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
Cash and cash
equivalents |
$ |
3,359 |
|
|
$ |
2,174 |
|
Total current
assets |
10,001 |
|
|
8,962 |
|
Total assets |
245,827 |
|
|
262,115 |
|
Total current
liabilities |
21,675 |
|
|
31,117 |
|
Long-term debt, net of
current portion |
81,527 |
|
|
86,994 |
|
Total stockholders’
equity |
97,109 |
|
|
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 to EBITDA and
Adjusted EBITDA(In thousands of dollars)
|
Three Months Ended |
|
Nine Months Ended |
|
October 1, 2018 |
|
October 2, 2017 |
|
October 1, 2018 |
|
October 2, 2017 |
|
|
|
unaudited and |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
|
unaudited |
|
as adjusted* |
Net (Loss)
Income |
$ |
(639 |
) |
|
$ |
(2,678 |
) |
|
$ |
2,327 |
|
|
$ |
(13,970 |
) |
Depreciation and amortization |
1,662 |
|
|
2,336 |
|
|
5,677 |
|
|
8,359 |
|
(Benefit
from) provision for income taxes |
(159 |
) |
|
(2,051 |
) |
|
970 |
|
|
(7,678 |
) |
Interest
expense, net |
1,254 |
|
|
1,305 |
|
|
3,842 |
|
|
3,818 |
|
EBITDA |
$ |
2,118 |
|
|
$ |
(1,088 |
) |
|
$ |
12,816 |
|
|
$ |
(9,471 |
) |
|
|
|
|
|
|
|
|
Expenses not indicative
of future operations: |
|
|
|
|
|
|
|
CEO
transition & restructuring (a) |
27 |
|
|
190 |
|
|
390 |
|
|
2,519 |
|
E-commerce impairment and transition costs (b) |
— |
|
|
— |
|
|
350 |
|
|
9,124 |
|
Store
divestitures, closures, and impairment (c) |
2,521 |
|
|
5,981 |
|
|
1,797 |
|
|
8,595 |
|
Litigation settlements and reserves (d) |
— |
|
|
463 |
|
|
1,029 |
|
|
463 |
|
Adjusted
EBITDA |
$ |
4,666 |
|
|
$ |
5,546 |
|
|
$ |
16,382 |
|
|
$ |
11,230 |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
margin (e) |
16.2 |
% |
|
16.5 |
% |
|
17.4 |
% |
|
10.2 |
% |
- 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 net losses on the
refranchising of Company-owned stores primarily from the recording
of contingent liabilities for committed marketing support
expenditures in addition to impairments for Company-owned stores
held for sale. 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 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 (Loss) Income to
Pro Forma Net Income (Loss)(In thousands of dollars,
except share and per share data)
|
Three Months Ended |
|
Nine Months Ended |
|
October 1, 2018 |
|
October 2, 2017 |
|
October 1, 2018 |
|
October 2, 2017 |
|
|
|
unaudited and |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
|
unaudited |
|
as adjusted* |
Net (Loss)
Income As Reported |
$ |
(639 |
) |
|
$ |
(2,678 |
) |
|
$ |
2,327 |
|
|
$ |
(13,970 |
) |
Expenses
not indicative of future operations: |
|
|
|
|
|
|
|
CEO
transition & restructuring (a) |
27 |
|
|
190 |
|
|
390 |
|
|
2,519 |
|
E-commerce transition costs (b) |
— |
|
|
— |
|
|
350 |
|
|
9,124 |
|
Store
divestitures, closures, and impairment(c) |
2,521 |
|
|
5,981 |
|
|
1,797 |
|
|
8,595 |
|
Litigation settlement and reserves (d) |
— |
|
|
463 |
|
|
1,029 |
|
|
463 |
|
Income
tax expense on adjustments (e) |
(650 |
) |
|
(2,554 |
) |
|
(909 |
) |
|
(7,970 |
) |
Pro Forma Net
Income (Loss) |
$ |
1,259 |
|
|
$ |
1,402 |
|
|
$ |
4,984 |
|
|
$ |
(1,239 |
) |
|
|
|
|
|
|
|
|
Earnings (loss) per
share - pro forma: |
|
|
|
|
|
|
|
Basic |
$ |
0.07 |
|
|
$ |
0.08 |
|
|
$ |
0.29 |
|
|
$ |
(0.07 |
) |
Diluted |
$ |
0.07 |
|
|
$ |
0.08 |
|
|
$ |
0.29 |
|
|
$ |
(0.07 |
) |
|
|
|
|
|
|
|
|
Weighted average shares
outstanding - pro forma: |
|
|
|
|
|
|
|
Basic |
16,944,777 |
|
|
16,882,193 |
|
|
16,924,037 |
|
|
16,863,122 |
|
Diluted |
16,987,911 |
|
|
16,919,639 |
|
|
16,963,084 |
|
|
16,863,122 |
|
- 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 net losses on the
refranchising of Company-owned stores primarily from the recording
of contingent liabilities for committed marketing support
expenditures in addition to impairments for Company-owned stores
held for sale. 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 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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