Papa Murphy’s Holdings, Inc. (NASDAQ:FRSH) today announced
financial results for its fiscal first quarter ended
April 2, 2018.
Key financial highlights for the first
quarter of 2018 include the following(1):
- Revenue was $34.8 million compared to $40.2 million in the
first quarter of 2017.
- Comparable store sales decreased 3.9% compared to the first
quarter of 2017, including a 4.0% decrease at global
franchise-owned stores and a 2.7% decrease at Company-owned
stores.
- Selling, general and administrative expense was $13.0 million,
including $6.3 million associated with gross expenditures at the
Brand Fund, a litigation reserve of approximately $1.0 million,
transition costs related to the Company's e-commerce platform of
$0.3 million, and CEO transition and restructuring costs of $0.2
million.
- Reported Net Income was $1.6 million, or $0.09 per diluted
share, compared to a Reported Net Loss of $5.2 million, or
$0.31 per diluted share in the prior year first quarter.
- Pro-Forma Net income(2) in the quarter was $2.7 million, or
$0.16 per diluted share, compared to a Pro-Forma Net Loss of $3.9
million, or $0.23 per diluted share, in the prior year first
quarter.
- Adjusted EBITDA(2) was $7.1 million, compared to negative
Adjusted EBITDA of $2.3 million in the prior year first
quarter.
- Franchise-owners opened four new stores in the quarter, all in
the US market.
______________________
(1) |
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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 the standards. |
(2) |
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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.” |
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Weldon Spangler, Chief Executive Officer of Papa Murphy’s
Holdings, Inc., stated, “We are pleased with the progression of our
strategic initiatives that we believe will stabilize near-term
results and return this system to profitable growth. While
comparable store sales declined in the quarter, we are encouraged
by the sequential improvement of results, and by the positive sales
in certain markets that have been early adopters of a set of
marketing initiatives designed to improve brand relevance and
customer value.”
Spangler added, “Subsequent to the end of the
first quarter, we entered into a definitive agreement with an
existing franchise-owner, Fresh Take, LLC, to refranchise our
Company-owned stores in Colorado. We remain committed to return to
upward of a 95% franchised system and are in active discussions to
secure additional refranchising transactions.”
Key Operating Metrics
|
|
|
Three Months Ended |
|
April 2, 2018 |
|
April 3, 2017 |
|
unaudited |
|
as adjusted* |
Comparable store
sales: |
|
|
|
Franchised stores |
(4.0 |
)% |
|
(4.5 |
)% |
Company-owned stores |
(2.7 |
)% |
|
(9.9 |
)% |
Combined |
(3.9 |
)% |
|
(5.0 |
)% |
|
|
|
|
System-wide sales ($’s
in 000s) |
$ |
213,757 |
|
|
$ |
225,610 |
|
|
|
|
|
Adjusted EBITDA ($’s in
000s) |
$ |
7,136 |
|
|
$ |
(2,345 |
) |
|
|
|
|
Store Count |
|
|
|
Franchised |
1,359 |
|
|
1,398 |
|
Company-owned |
145 |
|
|
168 |
|
System-wide |
1,504 |
|
|
1,566 |
|
|
|
|
|
|
|
* 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. |
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|
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
first quarter of 2018 and 2017, we had 1,469 and 1,472 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.
Subsequent Events
Subsequent to the end of the first quarter, the Company signed
an agreement to refranchise the company owned stores across the
state of Colorado, with an existing franchise-owner, Fresh Take,
LLC. The cash flow generated from refranchising is expected to be
used for debt pay-down.
2018 Financial Outlook
Based on current information, and reflective of the adoption of
two new accounting standards (ASC topic 606 – Revenue from
contracts with customers and ASC topic 842 – Leases) 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 be
about flat for fiscal 2018 as compared to previous guidance of flat
to low single digit growth;
- Domestic franchise new store openings of approximately 10
units;
- Full-year selling, general and administrative expenses of
approximately $50 million, including $23.8 million associated
with gross expenditures in the Brand Funds, and excluding expected
non-recurring costs totaling around $4.0 million;
- Adjusted EBITDA, of approximately $21 million;
- Cash Flow from Operations of around $7.4 million (net of
expected legal settlements totaling approximately $5.0 million) and
Cash provided by Investing Activities of approximately
$6.1 million (which includes $7.1 million net proceeds from
refranchising activities less approximately $1.0 million in capital
expenditures);
- Full-year effective book tax rate of approximately 27.7%;
and
- Diluted share-count of approximately 16.9 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 first quarter financial results on
Wednesday, May 9, 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 13678359. The replay will be available until
Wednesday, May 16, 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 38 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 Company-owned store
count, projected new store openings, projected selling, general and
administrative expenses, including projected non-recurring costs,
projected Adjusted EBITDA, projected refranchising activities,
projected cash used in investing activities, projected cash flow
from operations, projected effective tax rate, projected diluted
share count, 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 (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 |
|
April 2, 2018 |
|
April 3, 2017 |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
Revenues |
|
|
|
Franchise
related |
$ |
16,190 |
|
|
$ |
19,398 |
|
Company-owned stores |
18,582 |
|
|
20,775 |
|
Total
revenues |
34,772 |
|
|
40,173 |
|
|
|
|
|
Costs and
Expenses |
|
|
|
Store
operating costs: |
|
|
|
Cost of
food and packaging |
6,126 |
|
|
7,215 |
|
Compensation and benefits |
5,631 |
|
|
6,334 |
|
Advertising |
1,252 |
|
|
1,712 |
|
Occupancy
and other store operating costs |
3,103 |
|
|
3,701 |
|
Selling,
general, and administrative |
13,013 |
|
|
25,702 |
|
Depreciation and amortization |
2,141 |
|
|
3,117 |
|
Loss on
disposal of property and equipment |
2 |
|
|
9 |
|
Total
costs and expenses |
31,268 |
|
|
47,790 |
|
|
|
|
|
Operating
Income (Loss) |
3,504 |
|
|
(7,617 |
) |
|
|
|
|
Interest
expense, net |
1,292 |
|
|
1,227 |
|
Other
expense, net |
51 |
|
|
43 |
|
Income (Loss)
Before Income Taxes |
2,161 |
|
|
(8,887 |
) |
|
|
|
|
Provision
for (benefit from) income taxes |
581 |
|
|
(3,680 |
) |
Net Income
(Loss) |
$ |
1,580 |
|
|
$ |
(5,207 |
) |
|
|
|
|
Earnings (loss) per
share of common stock |
|
|
|
Basic |
$ |
0.09 |
|
|
$ |
(0.31 |
) |
Diluted |
$ |
0.09 |
|
|
$ |
(0.31 |
) |
Weighted average common
stock outstanding |
|
|
|
Basic |
16,905,738 |
|
|
16,839,244 |
|
Diluted |
16,944,894 |
|
|
16,839,244 |
|
|
|
|
|
|
|
|
|
|
|
PAPA MURPHY’S HOLDINGS, INC. AND
SUBSIDIARIESSelected Balance Sheet
Data(In thousands of dollars) |
|
|
|
|
|
April 2, 2018 |
|
January 1, 2018 |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
Cash and cash
equivalents |
$ |
1,519 |
|
|
$ |
2,174 |
|
Total current
assets |
9,450 |
|
|
8,962 |
|
Total assets |
259,892 |
|
|
262,115 |
|
Total current
liabilities |
30,317 |
|
|
31,117 |
|
Long-term debt, net of
current portion |
84,971 |
|
|
86,994 |
|
Total stockholders’
equity |
95,907 |
|
|
94,142 |
|
|
|
PAPA MURPHY’S HOLDINGS, INC. AND
SUBSIDIARIESReconciliation of Net Income (Loss) to
EBITDA and Adjusted EBITDA(In thousands of dollars) |
|
|
|
Three Months Ended |
|
April 2, 2018 |
|
April 3, 2017 |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
Net Income
(Loss) As Reported |
$ |
1,580 |
|
|
$ |
(5,207 |
) |
Depreciation and amortization |
2,141 |
|
|
3,117 |
|
Provision
for (benefit from) income taxes |
581 |
|
|
(3,680 |
) |
Interest
expense, net |
1,292 |
|
|
1,227 |
|
EBITDA |
$ |
5,594 |
|
|
$ |
(4,543 |
) |
|
|
|
|
Expenses not indicative
of future operations: |
|
|
|
CEO
transition & restructuring (a) |
244 |
|
|
2,198 |
|
E-commerce transition costs (b) |
358 |
|
|
— |
|
Litigation settlements and reserves (c) |
940 |
|
|
— |
|
Adjusted
EBITDA |
$ |
7,136 |
|
|
$ |
(2,345 |
) |
|
|
|
|
Adjusted EBITDA
margin (1) |
20.5 |
% |
|
(5.8 |
)% |
|
|
|
|
|
|
(a) Represents non-recurring management transition and
restructuring costs in connection with the recruitment of a new
CEO, CFO and other executive positions.(b) Non-recurring costs
incurred to complete the transition to a new e-commerce
platform.(c) Accruals for franchisee litigation settlements.(1)
Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by
total revenues.
|
|
|
|
PAPA MURPHY’S HOLDINGS, INC. AND
SUBSIDIARIESReconciliation of Net Income (Loss) to
Pro Forma Net Income (Loss)(In thousands of dollars,
except share and per share data) |
|
|
|
Three Months Ended |
|
April 2, 2018 |
|
April 3, 2017 |
|
|
|
unaudited and |
|
unaudited |
|
as adjusted* |
Net Income
(Loss) As Reported |
$ |
1,580 |
|
|
$ |
(5,207 |
) |
Expenses
not indicative of future operations: |
|
|
|
CEO
transition & restructuring (a) |
244 |
|
|
2,198 |
|
E-commerce transition costs (b) |
358 |
|
|
— |
|
Litigation settlement and reserves (c) |
940 |
|
|
— |
|
Income
tax expense on adjustments (d) |
(393 |
) |
|
(845 |
) |
Pro Forma Net
Income |
$ |
2,729 |
|
|
$ |
(3,854 |
) |
|
|
|
|
Earnings per share -
pro forma: |
|
|
|
Basic |
$ |
0.16 |
|
|
$ |
(0.23 |
) |
Diluted |
$ |
0.16 |
|
|
$ |
(0.23 |
) |
|
|
|
|
Weighted average shares
outstanding - pro forma: |
|
|
|
Basic |
16,905,738 |
|
|
16,839,244 |
|
Diluted |
16,944,894 |
|
|
16,839,244 |
|
(a) Represents non-recurring management transition and
restructuring costs in connection with recruitment of a new CEO,
CFO and other executive positions.(b) Non-recurring costs incurred
to complete the transition to a new e-commerce platform.(c)
Accruals for franchisee litigation settlements.(d) Reflects the tax
expense associated with above adjustments at a normalized tax rate
of 38.5% (2017) and 25.5% (2018) which represents the estimated
long-term effective tax rate in effect in the respective
quarter.
Investor Contact:Alexis Tessier,
ICRpapamurphys-ir@icrinc.com877-747-7272
Media Contact:Rachael Smith,
ICRRachael.Smith@icrinc.com646-277-1261
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