Papa Murphys Holdings, Inc.
Papa Murphy's Holdings, Inc. (Form: 8-K, Received: 03/15/2017 16:48:34)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
–––––––––––––––––––––––––––––––––––––
FORM 8-K
–––––––––––––––––––––––––––––––––––––
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report: March 15, 2017
(Date of earliest event reported)
–––––––––––––––––––––––––––––––––––––
LOGO.JPG
Papa Murphy’s Holdings, Inc.
(Exact name of registrant as specified in its charter)
–––––––––––––––––––––––––––––––––––––
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
 
001-36432
(Commission
File Number)
 
27-2349094
(IRS Employer
Identification No.)
8000 NE Parkway Drive, Suite 350
Vancouver, WA
(Address of principal executive offices)
 
98662
(Zip Code)

(360) 260-7272
(Registrant's telephone number, including area code)
–––––––––––––––––––––––––––––––––––––
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Item 2.02 Results of Operations and Financial Condition.
On March 15, 2017 , Papa Murphy’s Holdings, Inc. issued a press release announcing its financial results for the quarter ended January 2, 2017. A copy of the press release is furnished as Exhibit 99.1 to this current report and is incorporated by reference herein.
The information furnished on this Form 8-K, including the exhibit attached, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits . The following exhibits are filed with this report:
EXHIBIT NUMBER
 
DESCRIPTION OF EXHIBITS
99.1
 
Press Release dated March 15, 2017.





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

PAPA MURPHY’S HOLDINGS, INC.
 
 
 
By:
 
/s/ Mark Hutchens
 
 
Name:
Mark Hutchens
 
 
Title:
Chief Financial Officer

Date: March 15, 2017



Exhibit 99.1

LOGO.JPG
Papa Murphy’s Holdings, Inc. Reports Fourth Quarter
and Full-Year 2016 Results and 2017 Outlook

Vancouver, WA, March 15, 2017 (Globe Newswire) - Papa Murphy’s Holdings, Inc. (NASDAQ: FRSH) today announced complete financial results for the 14-week fourth quarter and 53-week fiscal year ended January 2, 2017, having previously announced preliminary results for those periods.
Key financial highlights for the 14-week fourth quarter of 2016 ended January 2, 2017, compared to the 13-week fourth quarter ended December 28, 2015, were as follows:
Revenue increased 5% to $35.5 million from $33.8 million. Revenue in the fourth quarter of 2016 included approximately $2.7 million attributed to the extra operating week.
Domestic system comparable store sales decreased 7.8% on a comparable 13-week basis, including a 7.5% decrease at domestic franchise-owned stores and an 11.1% decrease at company-owned stores.
Net income was $1.5 million for the fourth quarter of 2016, or $0.09 per diluted share, compared to net income of $2.6 million, or $0.16 per diluted share, for the fourth quarter of 2015. Net Income in the fourth quarter of 2016 included an approximate $0.1 million benefit attributed to the extra operating week.
Adjusted EBITDA (1) increased 3.4% to $7.8 million from $7.5 million. Adjusted EBITDA in the fourth quarter of 2016 included an approximate $0.5 million benefit attributed to the extra operating week.
Papa Murphy’s opened 28 new stores in the quarter, including 27 in the U.S., compared to 46 new stores opened in the fourth quarter of 2015, including 40 in the U.S.

Key financial highlights for the 53-week fiscal year ended January 2, 2017, compared to the 52-week fiscal year ended December 28, 2015, were as follows:
Revenue increased 5.6% to $126.9 million, from $120.2 million. Fiscal 2016 results included approximately $2.7 million in revenue attributed to the extra operating week.
Domestic system comparable store sales decreased 5.2% on a comparable 52-week basis, including a 5.0% decrease at domestic franchise-owned stores and an 7.3% decrease at company-owned stores.
Net income attributable to Papa Murphy's was $2.6 million, or $0.16 per diluted share, compared to $4.9 million, or $0.29 per diluted share, in fiscal year 2015. Net Income in fiscal 2016 included an approximate $0.1 million benefit attributed to the extra operating week.
Adjusted EBITDA (1) was $24.8 million, compared to $28.1 million. Adjusted EBITDA in fiscal 2016 included an approximate $0.5 million benefit attributed to the extra operating week.
Papa Murphy’s opened 109 new stores in the year, including 104 in the U.S., compared to 111 new stores in fiscal year 2015, including 99 in the U.S.
______________________
(1)
Adjusted EBITDA is a non-GAAP measure. For a reconciliation of Adjusted EBITDA to GAAP net income/(loss) and discussion of why we consider Adjusted EBITDA to be a useful measure, see the financial tables accompanying this release and the paragraph below entitled “Non-GAAP Financial Measures.”





Jean Birch, Board Chair and interim Chief Executive Officer of Papa Murphy’s Holdings, Inc., stated, “While top-line results continued to be challenged, we are pleased that we were able to maintain profitability in the quarter by focusing on cost controls and company-store margins. As we look ahead, we believe we have made progress in 2017 and are on the right track to return this system to growth. So far, we have tested national cable television advertising, generating brand awareness in many markets that have never benefited from television. We announced our first strategic refranchising transaction with an experienced operator committed to grow the business. We right-sized SG&A expenses while better focusing resources on our asset-light franchise business. And, just this week, we launched a delivery test with Amazon’s Restaurant Delivery Service, Prime Now. We have a long way to go in an increasingly competitive environment, but believe we are on the right track to ultimately reward all of our franchise owners, employees, and shareholders.”
Key Operating Metrics
 
Three Months Ended
 
Twelve Months Ended
 
January 2, 2017
 
December 28, 2015
 
January 2, 2017
 
December 28, 2015
Domestic comparable store sales:
 
 
 
 
 
 
 
Franchised stores
-7.5
 %
 
-3.2
 %
 
-5.0
 %
 
1.9
%
Company-owned stores
-11.1
 %
 
-2.7
 %
 
-7.3
 %
 
1.8
%
Combined
-7.8
 %
 
-3.1
 %
 
-5.2
 %
 
1.9
%
 
 
 
 
 
 
 
 
System-wide sales ($’s in 000s)
$
247,287

 
$
238,787

 
$
898,709

 
$
892,249

 
 
 
 
 
 
 
 
Adjusted EBITDA ($’s in 000s)
$
7,785

 
$
7,527

 
$
24,796

 
$
28,118

 
 
 
 
 
 
 
 
Store Count
 
 
 
 
 
 
 
Franchised
1,369

 
1,369

 
1,369

 
1,369

Company-owned
168

 
127

 
168

 
127

International
40

 
40

 
40

 
40

System-wide
1,577

 
1,536

 
1,577

 
1,536

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 fourth quarter of 2016 and 2015, we had 1,434 and 1,389 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 additions and eliminations of various income statement items including non-cash charges, income and expenses that we consider not indicative of ongoing operations and various other adjustments. 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 providing the following full-year outlook for fiscal 2017, which ends on January 1, 2018:
Domestic system-wide comparable store sales in the range of flat to +2%;
Domestic franchise new store openings of approximately 75 units;
Selling, general and administrative expenses of approximately $30.0 million, including approximately $2.6 million related to severance and CEO recruitment;
EBITDA, exclusive of severance and CEO recruitment, of at least $24 million;
Capex, net of cash proceeds from refranchising, in the range of $5.0 million to $7.0 million;
Cash Flow from Operations less Capex, net of cash proceeds from refranchising, of at least $13 million;
Full-year effective tax rate of approximately 41.7%; and
Diluted share-count of approximately 16.8 million.
Conference Call
Papa Murphy’s Holdings, Inc. will host a conference call to discuss the fourth-quarter financial results on Wednesday, March 15, 2017 at 5:00 p.m. Eastern Time.
The conference call can be accessed live 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 844-5121-2921 or for international callers by dialing 412-317-6671; the passcode is 13656328. The replay will be available until Wednesday, March 22, 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’s
Papa Murphy’s Holdings, Inc. (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 1,575 franchised and corporate-owned fresh pizza stores in 38 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. For more information visit www.papamurphys.com.
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 expected results of television advertising campaign, projected comparable stores sales, projected new store openings, projected selling, general, and administrative expenses, including projected severance costs, projected EBITDA, projected capital expenditures, projected cash proceeds from refranchising, projected cash flow from operations, projected effective tax rate, projected diluted share count, strategic, future financial or operational results, and marketing strategy.
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 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 measure of EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are not derived in accordance with GAAP and should not be considered by the reader as an alternative to net income (the most comparable GAAP financial measure to EBITDA and Adjusted EBITDA). The Company’s management believes that EBITDA and Adjusted EBITDA are helpful as indicators of the current financial performance of the Company because EBITDA and Adjusted EBITDA 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 and Adjusted EBITDA to GAAP net income in the financial tables accompanying this release.




PAPA MURPHY’S HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Net Income
(In thousands of dollars, except share and per share data)
(unaudited)

 
Three Months Ended
 
Twelve Months Ended
 
January 2,
2017
 
December 28,
2015
 
January 2,
2017
 
December 28,
2015
 
Unaudited
 
Unaudited
 
Unaudited
 
Unaudited
Revenues
 
 
 
 
 
 
 
Franchise royalties
$
10,983

 
$
10,687

 
$
39,851

 
$
40,243

Franchise and development fees
739

 
1,129

 
2,912

 
4,222

Company-owned store sales
23,231

 
21,373

 
82,080

 
74,300

Other
532

 
599

 
2,040

 
1,444

Total revenues
35,485

 
33,788

 
126,883

 
120,209

 
 
 
 
 
 
 
 
Costs and Expenses
 
 
 
 
 
 
 
Store operating costs:
 
 
 
 
 
 
 
Cost of food and packaging
7,806

 
7,662

 
28,347

 
26,603

Compensation and benefits
6,687

 
5,864

 
23,746

 
19,858

Advertising
2,413

 
2,660

 
8,203

 
7,888

Occupancy
1,740

 
1,363

 
6,226

 
4,750

Other store operating costs
2,660

 
2,155

 
10,268

 
7,517

Selling, general, and administrative
6,943

 
7,125

 
28,108

 
28,207

Depreciation and amortization
3,469

 
2,622

 
12,236

 
10,002

(Gain)/Loss on disposal of property and equipment
(54
)
 
(317
)
 
101

 
(251
)
Total costs and expenses
31,664

 
29,134

 
117,235

 
104,574

 
 
 
 
 
 
 
 
Operating Income
3,821

 
4,654

 
9,648

 
15,635

 
 
 
 
 
 
 
 
Interest expense, net
1,280

 
1,117

 
4,868

 
4,523

Loss on impairment of investments

 

 

 
4,500

Other expense, net
62

 
43

 
188

 
133

Income Before Income Taxes
2,479

 
3,494

 
4,592

 
6,479

 
 
 
 
 
 
 
 
Provision for income taxes
1,003

 
862

 
1,943

 
2,068

Net Income
$
1,476

 
$
2,632

 
$
2,649

 
$
4,411

 
 
 
 
 
 
 
 
Earnings per share of common stock
 
 
 
 
 
 
 
Basic
$
0.09

 
$
0.16

 
$
0.16

 
$
0.29

Diluted
$
0.09

 
$
0.16

 
$
0.16

 
$
0.29

Weighted average common stock outstanding
 
 
 
 
 
 
 
Basic
16,757,586

 
16,706,308

 
16,743,285

 
16,653,127

Diluted
16,775,488

 
16,805,559

 
16,773,493

 
16,870,693





PAPA MURPHY’S HOLDINGS, INC. AND SUBSIDIARIES
Selected Balance Sheet Data
(In thousands of dollars)
(unaudited)

 
January 2, 2017
 
December 28, 2015
Cash and cash equivalents
$
2,069

 
$
6,867

Total current assets
13,116

 
18,896

Total assets
273,872

 
275,471

Total current liabilities
22,900

 
24,149

Long-term debt, net of current portion
100,965

 
108,237

Total stockholders’ equity
101,496

 
97,656





PAPA MURPHY’S HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
(In thousands of dollars)
 
Three Months Ended
 
Twelve Months Ended
 
January 2,
2017
 
December 28,
2015
 
January 2,
2017
 
December 28,
2015
Net Income As Reported
$
1,476

 
$
2,632

 
$
2,649

 
$
4,411

Net loss attributable to noncontrolling interests

 

 

 
500

Net Income Attributable to Papa Murphy's
1,476

 
2,632

 
2,649

 
4,911

Depreciation and amortization
3,469

 
2,622

 
12,236

 
10,002

Provision for income taxes
1,003

 
862

 
1,943

 
2,068

Interest expense, net
1,280

 
1,117

 
4,868

 
4,523

EBITDA
7,228

 
7,233

 
21,696

 
21,504

(Gain)/Loss on disposal of property and equipment (a)
(54
)
 
(317
)
 
101

 
(251
)
Transaction costs (b)

 

 

 
65

New store pre-opening expenses (c)
115

 
232

 
1,331

 
696

Non-cash expenses and non-income based state taxes (d)
496

 
379

 
1,668

 
1,434

Expenses not indicative of future operations (e)

 

 

 
4,670

Adjusted EBITDA
$
7,785

 
$
7,527

 
$
24,796

 
$
28,118

 
 
 
 
 
 
 
 
Adjusted EBITDA margin (1)
21.9
%
 
22.3
%
 
19.5
%
 
23.4
%
(a)
Represents non-cash gains and losses resulting from disposal of property and equipment, including divested company-owned stores.
(b)
Represents transaction costs incurred in connection with the acquisition of multiple franchised stores.
(c)
Represents expenses directly associated with the opening of new stores and incurred primarily in advance of the store opening, including grand opening marketing costs, training wages and travel of opening teams and other store operating costs.
(d)
Represents (i) non-cash expenses related to equity-based compensation; (ii) non-cash expenses related to the difference between GAAP and cash rent expense; and (iii) state revenue taxes levied in lieu of an income tax.
(e)
Represents (i) a $4 million loss recognized upon impairment of Project Pie, LLC, a cost-method investment, and its subsequent disposal, and the write-off as bad debt of receivables totaling $325,000 and (ii) offering costs related to the 2015 secondary offering.
(1)
Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by total revenues.





Investor Contact:
Alexis Tessier, ICR
papamurphys-ir@icrinc.com
877-747-7272

Media Contact:
Christine Beggan, ICR
christine.beggan@icrinc.com
203-682-8329