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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Freshworks Inc | NASDAQ:FRSH | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.13 | 0.92% | 14.26 | 14.10 | 14.21 | 14.58 | 14.07 | 14.12 | 3,731,243 | 21:39:53 |
Delaware
|
|
27-2349094
|
(State or Other Jurisdiction of Incorporation or Organization)
|
|
(IRS Employer Identification No.)
|
8000 NE Parkway Drive, Suite 350, Vancouver, WA
|
|
98662
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(360) 260-7272
|
||
(Registrant’s telephone number, including area code)
|
Securities registered pursuant to Section 12(b) of the Act:
|
||
Common Stock, $0.01 par value
|
|
NASDAQ Global Select Market
|
(Title of Each Class)
|
|
(Name of Each Exchange on Which Registered)
|
Securities registered pursuant to Section 12(g) of the Act:
|
||
NONE
|
Large accelerated filer [ ]
|
|
Accelerated filer [X]
|
Non-accelerated filer [ ]
|
|
Smaller reporting company [ ]
|
|
|
|
PART I
|
||
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|
Item 1.
|
Business
|
|
Item 1A.
|
Risk Factors
|
|
Item 1B.
|
Unresolved Staff Comments
|
|
Item 2.
|
Properties
|
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Item 3.
|
Legal Proceedings
|
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Item 4.
|
Mine Safety Disclosures
|
|
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|
PART II
|
||
|
|
|
Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
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Item 6.
|
Selected Financial Data
|
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
|
Item 7A.
|
Quantitative and Qualitative Disclosures about Market Risk
|
|
Item 8.
|
Financial Statements and Supplementary Data
|
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
|
Item 9A.
|
Controls and Procedures
|
|
Item 9B.
|
Other Information
|
|
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|
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|
PART III
|
|
|
|
|
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
|
Item 11.
|
Executive Compensation
|
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
|
Item 14.
|
Principal Accountant Fees and Services
|
|
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PART IV
|
||
|
|
|
Item 15.
|
Exhibits and Financial Statement Schedules
|
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|
SIGNATURES
|
General
|
Our Concept
|
•
|
CREATE their fresh, customized pizza with high-quality ingredients;
|
•
|
TAKE their fresh pizza home; and
|
•
|
BAKE their pizza fresh in their ovens, at their convenience, for a home-cooked meal served hot.
|
•
|
We make our dough fresh in each store daily, starting with flour, water and yeast;
|
•
|
We grate our cheese daily from blocks of 100% whole-milk mozzarella cheese;
|
•
|
We slice fresh, never-frozen vegetables by hand;
|
•
|
We feature specialty, premium ingredients;
|
•
|
We use only high-quality meats with no added fillers; and
|
•
|
We use no trans-fats.
|
▪
|
Signature pizzas: classic combinations plus some unique twists;
|
▪
|
Gourmet Delite pizzas: our artisan thin crust with 35% fewer calories and 25% less fat than our Signature pizzas;
|
▪
|
Stuffed pizzas: two-layer, four-pound pizzas with meats and vegetables stuffed in two layers of dough;
|
▪
|
Fresh Pan pizzas: signature recipes with a thick, buttery crust;
|
▪
|
“C.Y.O.” or Create Your Own pizzas: customer selection of crust, sauce and any combination of our cheese, meat and vegetable toppings; and
|
▪
|
FAVES: three simple pizza classics offered at value price points.
|
▪
|
Great Quality.
We have continually focused on quality since our founding and we believe customers can taste the difference. Unlike some of our competitors, we do not use pre-shredded, pre-packaged or frozen cheese and our dough is made from scratch daily, never frozen.
|
▪
|
Great Value.
We offer a high-quality pizza at a value price point.
|
▪
|
Great Customer Service.
We train our store crews to greet each customer, to promote the latest new products and to assist each customer in choosing the combination of fresh made pizzas and side items to complete the customer's meal.
|
•
|
Focus on creating fresh pizzas for carry out, reducing operational complexity for franchise owners and their employees;
|
•
|
Maintain shorter operating hours (typically 11:00 a.m. to 9:00 p.m.) that are attractive to franchise owners and their employees;
|
•
|
Require fewer employees each shift compared to other restaurant concepts, resulting in lower labor costs;
|
•
|
Accept
electronic benefit transfer (“
EBT
”) payment systems
(food stamps); and
|
•
|
Receive strong franchisor support through training, operating standards, supply-chain management and development assistance.
|
Our Strategy
|
•
|
Increased Awareness.
Starting in 2017, we have added national cable advertising on top of our current local broadcast media. This addition will help educate the marketplace about our concept and grow customer awareness and loyalty. Currently, 42% of our stores are in markets with no TV advertising, and of those with some TV advertising, 79% are not at optimal levels year-round. We believe the addition of national cable advertising will
|
•
|
New Product Innovation.
New product innovation is another tool we use to attract new customers and increase frequency with existing customers. New products have historically been effective in growing comparable store sales. After limited new product introductions in 2016, we are planning some exciting new innovations for 2017 and beyond. In addition to new core products, we work to market new add-on product options and meal deal promotions that bundle together multiple items for an increased value to the customer.
|
•
|
New Store Openings.
New stores will be opened primarily from franchised unit development. Given our unit growth potential, attractive store-level economics and simplicity of store operations, we believe existing franchise owners will expand their current footprint and we will continue to attract new franchise owners. We may introduce development incentives from time to time to expedite store development in select markets.
|
•
|
Refranchising of Company-Owned Stores.
To expedite store development in select under penetrated markets, we have built 53 Company-owned stores over the past two years. We are now entering the next phase of our strategic development plan which will involve refranchising more than 100 of our Company-owned stores to experienced, well-capitalized operators that can acquire the stores and continue building units to achieve full market penetration. We are targeting a Company-owned store base of about 50 stores by 2020.
|
•
|
International Development.
We are still in the early stages of international expansion, which we believe represents a long-term growth opportunity. All international stores are developed under a master franchisor arrangement. We currently have two master franchise agreements, one for Canada and one for the six Gulf Cooperation Council states in the Middle East (development so far has been exclusively in the United Arab Emirates).
|
•
|
E-commerce / Online Ordering.
In 2016 we were able to grow our online ordering to about 8% of all transactions, with a goal of reaching 50% in the next few years. Our online ordering platform is programmed to consistently offer additional purchase options based on the customer's current and past ordering patterns. Early evidence demonstrates that orders placed through our online ordering channel deliver an increased average check, averaging more than 20% when compared to other ordering channels in 2016. As the percentage of orders placed through our e-commerce platform increases, this higher average check may moderate.
|
•
|
Increased Digital Marketing.
In 2016 we continued to focus on building our digital marketing and precision marketing capabilities. We began to communicate more offers exclusively through digital marketing. We anticipate that this trend will continue and grow in 2017 now that almost all stores have a POS system and online ordering capabilities.
|
•
|
Testing of Delivery.
Online ordering addressed only half of the convenience cycle. In 2017 we plan to begin testing of delivery through the use of various third-party delivery options. Our research indicates a strong demand for delivery from our customers, with more than half indicating they would order more often if delivery was available. We have a unique opportunity with delivery in that because our pizzas are not baked, customers receive the same high-quality fresh food when delivered as when the customer picks up their order in-store.
|
Our Industry and Competition
|
Suppliers and Distribution
|
Intellectual Property and Trademarks
|
Management Information/Technology Systems
|
Franchising Overview
|
Employees
|
Seasonality
|
Government Regulation
|
Risks Relating to Our Business and Industry
|
▪
|
declining economic conditions, including downturns in the housing market, increases in unemployment rates, reductions in consumer disposable income, adverse credit market conditions, increases in fuel prices, drops in consumer confidence and other events or factors that adversely affect consumer spending in the markets that we serve;
|
▪
|
increased competition in the restaurant industry, particularly in the pizza, casual and fast-casual dining segments, and from grocery stores, convenience stores and online meal delivery services;
|
▪
|
changes in consumer tastes and preferences;
|
▪
|
demographic trends;
|
▪
|
customers’ budgeting constraints;
|
▪
|
customers’ willingness to accept menu price increases;
|
▪
|
adverse weather conditions;
|
▪
|
our reputation and consumer perception of our concepts’ offerings in terms of quality, price, value, ambiance and service; and
|
▪
|
customers’ experiences in our stores.
|
▪
|
food costs, particularly for mozzarella cheese and other raw materials, many of which we do not or cannot effectively hedge;
|
▪
|
labor costs, including wages, which are affected by minimum wage requirements, workers’ compensation, health care and other benefits expenses;
|
▪
|
rent expenses and construction, remodeling, maintenance and other costs under leases for our new and existing stores;
|
▪
|
compliance costs as a result of changes in legal, regulatory or industry standards;
|
▪
|
energy, water and other utility costs;
|
▪
|
insurance costs;
|
▪
|
information technology and other logistics costs; and
|
▪
|
litigation expenses.
|
▪
|
identification and availability of suitable store locations with the appropriate size, visibility, traffic patterns, local residential neighborhoods, local retail and business attractions and infrastructure that will drive high levels of customer traffic and sales per store;
|
▪
|
competition with other restaurants and retail concepts for potential store sites;
|
▪
|
anticipated commercial, residential and infrastructure development near new or potential stores;
|
▪
|
ability to negotiate acceptable lease arrangements;
|
▪
|
availability of financing and ability to negotiate acceptable financing terms;
|
▪
|
recruiting, hiring and training of qualified personnel;
|
▪
|
construction and development cost management;
|
▪
|
completing our construction activities on a timely basis;
|
▪
|
hiring qualified contractors to build, remodel and maintain our stores;
|
▪
|
obtaining all necessary governmental licenses, permits and approvals and complying with local, state and federal laws and regulations to open, construct or remodel and operate our stores;
|
▪
|
unforeseen engineering or environmental problems with the leased premises;
|
▪
|
adverse weather during the construction period of new stores; and
|
▪
|
other unanticipated increases in costs or delays.
|
▪
|
requires us to utilize a substantial portion of our cash flow from operations to make payments on our indebtedness, reducing the availability of our cash flow to fund working capital, capital expenditures, development activity and other general corporate purposes;
|
▪
|
increases our vulnerability to adverse general economic or industry conditions;
|
▪
|
limits our flexibility in planning for, or reacting to, changes in our business or the industries in which we operate;
|
▪
|
makes us more vulnerable to increases in interest rates, as borrowings under our new senior secured credit facilities are made at variable rates;
|
▪
|
limits our ability to obtain additional financing in the future for working capital or other purposes; and
|
▪
|
places us at a competitive disadvantage compared to our competitors that have less indebtedness.
|
▪
|
pay dividends on, redeem or repurchase our stock or make other distributions;
|
▪
|
incur or guarantee additional indebtedness;
|
▪
|
sell stock in our subsidiaries;
|
▪
|
create or incur liens;
|
▪
|
make acquisitions or investments;
|
▪
|
transfer or sell certain assets or merge or consolidate with or into other companies;
|
▪
|
make certain payments or prepayments of indebtedness subordinated to our obligations under our new senior secured credit facilities; and
|
▪
|
enter into certain transactions with our affiliates.
|
•
|
Franchise owner independence.
Franchise owners are independent operators, and their employees are not our employees. Accordingly, their actions are outside of our control. Although we have developed criteria to evaluate and screen prospective franchise owners, we cannot be certain that our franchise owners will have the business acumen or financial resources necessary to operate successful franchises in their locations and state franchise laws may limit our ability to terminate or modify these franchise agreements. Moreover, despite our training, support and monitoring, franchise owners may not successfully operate stores in a manner consistent with our standards and requirements, or may not hire and adequately train qualified managers and other store personnel. The failure of our franchise owners to operate their franchises successfully and actions taken by their employees could each have a material and adverse effect on our reputation, brand, ability to attract prospective franchise owners, business, financial condition or results of operations.
|
•
|
Franchise agreement termination or non-renewal.
Each franchise agreement is subject to termination by us as the franchisor in the event of a default, generally after expiration of applicable cure periods, although under certain circumstances a franchise agreement may be terminated by us upon notice without an opportunity to cure. The default provisions under the franchise agreements are drafted broadly and include, among other things, any failure to meet operating standards and actions that may threaten our licensed intellectual property.
|
•
|
Franchise owner insurance.
The franchise agreements require each franchise owner to maintain certain insurance types and levels. Certain extraordinary hazards, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks. Moreover, any loss incurred could exceed policy limits and any policy payments made to franchise owners may not be made on a timely basis. Any such loss or delay in payment could have a material and adverse effect on a franchise owner’s ability to satisfy obligations under the franchise agreement, including the ability to make royalty payments and perform indemnity obligations. Further, the franchise owner may fail to obtain or maintain the required insurance types and levels, and we may not be aware of that failure until a loss is incurred.
|
•
|
Product liability exposure.
We require franchise owners to maintain general liability insurance coverage to protect against the risk of product liability and other risks and demand strict franchise owner compliance with health and safety regulations. However, franchise owners may receive or produce defective food or beverage products, which may materially and adversely affect our brand’s goodwill and our business. Further, a franchise owner’s failure to comply with health and safety regulations, including requirements relating to food quality or preparation and the sourcing of food from vendors, could subject the franchise owner, and possibly us, to litigation. Any litigation, including the imposition of fines or damage awards, could adversely affect the ability of a franchise owner to make royalty payments, or could generate negative publicity, or otherwise adversely affect us.
|
•
|
Franchise owners’ participation in our strategy.
Our franchise owners are an integral part of our business. We may be unable to successfully implement our growth strategy if our franchise owners do not actively participate in such implementation. From time to time, franchise owners have disagreed with or resisted elements of our strategy, including new product initiatives and investments in their stores such as remodeling and implementing the
POS system
. Franchise owners may also fail to participate in our marketing initiatives, which could materially and adversely affect their sales trends, average weekly sales (“
AWS
”) and results of operations. In addition, the failure of our franchise owners to focus on the fundamentals of restaurant operations, such as quality, service and cleanliness, would have a negative impact on our success. It also may be difficult for us to monitor our international franchise owners’ implementation of our growth strategy due to our lack of personnel in the markets served by such franchise owners.
|
•
|
Franchise owner litigation and conflicts with franchise owners.
Franchise owners are subject to a variety of litigation risks, including customer claims, personal-injury claims, environmental claims, employee claims, intellectual property claims and claims related to violations of the Americans with Disabilities Act, religious freedom, the Fair Labor Standards Act (“
FLSA
”), the Employee Retirement Income Security Act of 1974, as amended, and advertising laws. Each of these claims may increase costs and limit the funds available to make royalty payments and reduce entries into new franchise agreements. We also may be named in lawsuits against our franchise owners.
|
•
|
Americans with Disabilities Act.
Restaurants located in the United States must comply with Title III of the Americans with Disabilities Act. Although we believe newer restaurants meet the Americans with Disabilities Act construction standards and, further, that most franchise owners have historically been diligent in the remodeling of older restaurants, a finding of noncompliance with the Americans with Disabilities Act could result in the imposition of injunctive relief, fines, awards of damages to private litigants or additional capital expenditures to remedy such noncompliance. In addition, the Americans with Disabilities Act may also require modifications to guest-facing technologies, including our website, to provide service to, or make reasonable accommodations for, disabled persons. Any imposition of injunctive relief, fines, damage awards or capital expenditures could adversely affect the ability of a franchise owner to make royalty payments, or could generate negative publicity, or otherwise adversely affect us.
|
•
|
Pre-Sale Development Program.
In 2015, we began building stores in our Domestic Company Stores segment under our pre-sale development program. Under this program, from time to time we develop a new store and incur the costs of development of the store, which we ultimately expect to recoup through the sale of the store to a franchise owner. If for any reason we fail to sell a store we have developed under this program and we otherwise are unable to recoup the costs of development of the store, our financial position, results of operations and cash flows could be adversely affected.
|
•
|
Development Billing Agreement.
In connection with development of new stores by our franchise owners, we currently require them to enter into a development billing agreement under which we pay on the franchise owner’s behalf certain third-party vendors for the development of the new store. Under the agreement, the franchise owner is required to place funds in a specified account and authorize us to collect the funds electronically based on an agreed upon schedule. As a result of these agreements, we may expose our credit to risk resulting from franchise owner defaults, acquire excess inventory and experience unintended tax consequences.
|
•
|
Access to credit.
Our franchise owners typically finance new operations and new store openings with loans or other forms of credit. If our franchise owners are unable to access credit or obtain sufficient credit, if interest rates on loans that our franchise owners use to finance operations of current stores or to open new stores increase or if franchise owners are unable to service their debt, our franchise owners may have difficulty operating their stores or opening new stores, which could materially and adversely affect our results of operations as well as our ability to expand our franchise system.
|
•
|
Franchise owner bankruptcy.
The bankruptcy of a multi-unit franchise owner could negatively impact our ability to collect payments due under such franchise owner’s franchise agreement. In a franchise owner bankruptcy, the bankruptcy trustee may reject its franchise agreements pursuant to Section 365 under the United States Bankruptcy Code, in which case there would be no further royalty payments from such franchise owner. There is no assurance as to the proceeds, if any, that may ultimately be recovered in a bankruptcy proceeding of such franchise owner in connection with a damage claim resulting from such rejection.
|
▪
|
recessionary or expansive trends in international markets;
|
▪
|
changing labor conditions and difficulties in staffing and managing our foreign operations;
|
▪
|
increases in the taxes we pay and other changes in applicable tax laws;
|
▪
|
legal and regulatory changes, and the burdens and costs of our compliance with a variety of foreign laws;
|
▪
|
changes in inflation rates;
|
▪
|
changes in exchange rates and the imposition of restrictions on currency conversion or the transfer of funds;
|
▪
|
difficulty in protecting our brand, reputation and intellectual property;
|
▪
|
difficulty in collecting our royalties and longer payment cycles;
|
▪
|
expropriation of private enterprises;
|
▪
|
increases in anti-American sentiment and the identification of the Papa Murphy’s brand as an American brand;
|
▪
|
restrictions on immigration and international travel;
|
▪
|
political and economic instability and civil unrest; and
|
▪
|
other external factors.
|
▪
|
the preparation, sale and labeling of food;
|
▪
|
building and zoning requirements;
|
▪
|
environmental laws;
|
▪
|
compliance with the
FLSA
, which governs such matters as minimum wage, overtime and other working conditions, family leave mandates and a variety of other laws enacted by states that govern these and other employment matters;
|
▪
|
compliance with securities laws and NASDAQ listed company rules;
|
▪
|
compliance with the Americans with Disabilities Act;
|
▪
|
working and safety conditions;
|
▪
|
sales taxes or other transaction taxes;
|
▪
|
compliance with the Payment Card Industry Data Security Standards and similar requirements; and
|
▪
|
compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules promulgated thereunder.
|
Risks Relating to Our Company and Our Ownership Structure
|
▪
|
authorize our
Board
to issue, without further action by the stockholders, up to 15,000,000 shares of undesignated preferred stock;
|
▪
|
require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;
|
▪
|
specify that special meetings of our stockholders can be called only by or at the direction of our
Board
or, at the request of
Lee Equity
or its transferee that has privately acquired from
Lee Equity
at least 10% of our outstanding common stock, so long as
Lee Equity
or its transferee owns at least 10% of our outstanding common stock;
|
▪
|
establish an advance notice procedure for stockholder proposals to be brought before an annual or special meeting, including proposed nominations of persons for election to our
Board
;
|
▪
|
establish that our
Board
is divided into three classes, with each class serving three-year staggered terms;
|
▪
|
prohibit cumulative voting in the election of directors;
|
▪
|
provide that our directors may be removed only for cause by a majority of the remaining members of our
Board
or the holders of at least 66 2/3% of our outstanding voting stock
|
▪
|
empower our
Board
to cancel, postpone or reschedule an annual meeting of stockholders, at any time before the holding of the annual meeting and for any reason; and
|
▪
|
require comprehensive disclosures and affirmations from any individual who has been proposed by a stockholder as a nominee for election to our
Board
.
|
|
Domestic Franchised
Stores
|
|
Company-
Owned
Stores
|
|
Total
|
|||
Alabama
|
29
|
|
|
—
|
|
|
29
|
|
Alaska
|
12
|
|
|
—
|
|
|
12
|
|
Arizona
|
59
|
|
|
—
|
|
|
59
|
|
Arkansas
|
5
|
|
|
7
|
|
|
12
|
|
California
|
170
|
|
|
—
|
|
|
170
|
|
Colorado
|
62
|
|
|
28
|
|
|
90
|
|
Florida
|
17
|
|
|
16
|
|
|
33
|
|
Georgia
|
6
|
|
|
—
|
|
|
6
|
|
Idaho
|
25
|
|
|
9
|
|
|
34
|
|
Illinois
|
25
|
|
|
—
|
|
|
25
|
|
Indiana
|
39
|
|
|
—
|
|
|
39
|
|
Iowa
|
38
|
|
|
—
|
|
|
38
|
|
Kansas
|
39
|
|
|
—
|
|
|
39
|
|
Kentucky
|
17
|
|
|
—
|
|
|
17
|
|
Louisiana
|
5
|
|
|
—
|
|
|
5
|
|
Maryland
|
2
|
|
|
—
|
|
|
2
|
|
Michigan
|
8
|
|
|
13
|
|
|
21
|
|
Minnesota
|
76
|
|
|
25
|
|
|
101
|
|
Mississippi
|
2
|
|
|
2
|
|
|
4
|
|
Missouri
|
53
|
|
|
4
|
|
|
57
|
|
Montana
|
14
|
|
|
—
|
|
|
14
|
|
Nebraska
|
19
|
|
|
—
|
|
|
19
|
|
Nevada
|
27
|
|
|
—
|
|
|
27
|
|
New Mexico
|
12
|
|
|
6
|
|
|
18
|
|
North Carolina
|
19
|
|
|
—
|
|
|
19
|
|
North Dakota
|
13
|
|
|
—
|
|
|
13
|
|
Ohio
|
3
|
|
|
—
|
|
|
3
|
|
Oklahoma
|
26
|
|
|
—
|
|
|
26
|
|
Oregon
|
98
|
|
|
7
|
|
|
105
|
|
South Carolina
|
2
|
|
|
—
|
|
|
2
|
|
South Dakota
|
15
|
|
|
—
|
|
|
15
|
|
Texas
|
95
|
|
|
8
|
|
|
103
|
|
Tennessee
|
32
|
|
|
24
|
|
|
56
|
|
Utah
|
59
|
|
|
—
|
|
|
59
|
|
Virginia
|
5
|
|
|
—
|
|
|
5
|
|
Washington
|
132
|
|
|
17
|
|
|
149
|
|
Wisconsin
|
99
|
|
|
2
|
|
|
101
|
|
Wyoming
|
10
|
|
|
—
|
|
|
10
|
|
Total
|
1,369
|
|
|
168
|
|
|
1,537
|
|
|
High
|
|
Low
|
||||
Fiscal Year 2015
|
|
|
|
||||
First quarter (December 30, 2014 - March 30, 2015)
|
$
|
20.00
|
|
|
$
|
10.60
|
|
Second quarter (March 31, 2015 - June 29, 2015)
|
$
|
22.72
|
|
|
$
|
16.05
|
|
Third quarter (June 30, 2015 - September 28, 2015)
|
$
|
21.66
|
|
|
$
|
12.53
|
|
Fourth quarter (September 29, 2015 - December 28, 2015)
|
$
|
15.19
|
|
|
$
|
10.41
|
|
Fiscal Year 2016
|
|
|
|
||||
First quarter (December 29, 2015 - March 28, 2016)
|
$
|
12.15
|
|
|
$
|
8.45
|
|
Second quarter (March 29, 2016 - June 27, 2016)
|
$
|
12.96
|
|
|
$
|
6.48
|
|
Third quarter (June 28, 2016 - September 26, 2016)
|
$
|
7.80
|
|
|
$
|
5.15
|
|
Fourth quarter (September 27, 2016 - January 2, 2017)
|
$
|
6.88
|
|
|
$
|
3.56
|
|
Dividends
|
Performance Graph
|
|
FISCAL YEAR
|
||||||||||||||||||
(in thousands, except share and per share data)
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
||||||||||
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenues
|
|
|
|
|
|
|
|
|
|
||||||||||
Franchise royalties
|
$
|
39,851
|
|
|
$
|
40,243
|
|
|
$
|
39,305
|
|
|
$
|
36,897
|
|
|
$
|
35,113
|
|
Franchise and development fees
|
2,912
|
|
|
4,222
|
|
|
4,531
|
|
|
4,330
|
|
|
2,826
|
|
|||||
Company-owned store sales
|
82,080
|
|
|
74,300
|
|
|
50,598
|
|
|
39,148
|
|
|
28,813
|
|
|||||
Other
|
2,040
|
|
|
1,444
|
|
|
2,965
|
|
|
120
|
|
|
164
|
|
|||||
Total revenues
|
126,883
|
|
|
120,209
|
|
|
97,399
|
|
|
80,495
|
|
|
66,916
|
|
|||||
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
||||||||||
Store operating costs:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of food and packaging
|
28,347
|
|
|
26,603
|
|
|
19,686
|
|
|
14,700
|
|
|
10,741
|
|
|||||
Compensation and benefits
|
23,746
|
|
|
19,858
|
|
|
12,673
|
|
|
10,687
|
|
|
8,160
|
|
|||||
Advertising
|
8,203
|
|
|
7,888
|
|
|
5,041
|
|
|
3,820
|
|
|
2,711
|
|
|||||
Occupancy
|
6,226
|
|
|
4,750
|
|
|
2,873
|
|
|
2,365
|
|
|
1,980
|
|
|||||
Other store operating costs
|
10,268
|
|
|
7,517
|
|
|
4,434
|
|
|
3,988
|
|
|
2,961
|
|
|||||
Selling, general and administrative
|
28,108
|
|
|
28,207
|
|
|
29,263
|
|
|
24,180
|
|
|
21,225
|
|
|||||
Depreciation and amortization
|
12,236
|
|
|
10,002
|
|
|
8,052
|
|
|
6,973
|
|
|
6,187
|
|
|||||
Loss (gain) on disposal or impairment of property and equipment
|
101
|
|
|
(251
|
)
|
|
72
|
|
|
847
|
|
|
193
|
|
|||||
Total costs and expenses
|
117,235
|
|
|
104,574
|
|
|
82,094
|
|
|
67,560
|
|
|
54,158
|
|
|||||
Operating Income
|
9,648
|
|
|
15,635
|
|
|
15,305
|
|
|
12,935
|
|
|
12,758
|
|
|||||
Interest expense, net
|
4,868
|
|
|
4,523
|
|
|
8,025
|
|
|
10,429
|
|
|
10,368
|
|
|||||
Loss on early retirement of debt
|
—
|
|
|
—
|
|
|
4,619
|
|
|
4,029
|
|
|
5,138
|
|
|||||
Loss on impairment of investments
|
—
|
|
|
4,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Other expense, net
|
188
|
|
|
133
|
|
|
178
|
|
|
44
|
|
|
248
|
|
|||||
Income (Loss) Before Income Taxes
|
4,592
|
|
|
6,479
|
|
|
2,483
|
|
|
(1,567
|
)
|
|
(2,996
|
)
|
|||||
Provision for (benefit from) income taxes
|
1,943
|
|
|
2,068
|
|
|
1,235
|
|
|
1,024
|
|
|
(882
|
)
|
|||||
Net Income (Loss)
|
2,649
|
|
|
4,411
|
|
|
1,248
|
|
|
(2,591
|
)
|
|
(2,114
|
)
|
|||||
Net loss attributable to noncontrolling interests
|
—
|
|
|
500
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|||||
Net Income (Loss) Attributable to Papa Murphy’s
|
$
|
2,649
|
|
|
$
|
4,911
|
|
|
$
|
1,248
|
|
|
$
|
(2,572
|
)
|
|
$
|
(2,114
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
(1)
|
$
|
0.16
|
|
|
$
|
0.29
|
|
|
$
|
(0.07
|
)
|
|
$
|
(2.34
|
)
|
|
$
|
(2.33
|
)
|
Diluted
(1)
|
0.16
|
|
|
0.29
|
|
|
(0.07
|
)
|
|
(2.34
|
)
|
|
(2.33
|
)
|
|||||
Weighted average common stock outstanding:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
16,743,285
|
|
|
16,653,127
|
|
|
12,101,236
|
|
|
3,847,861
|
|
|
3,673,185
|
|
|||||
Diluted
|
16,773,493
|
|
|
16,870,693
|
|
|
12,101,236
|
|
|
3,847,861
|
|
|
3,673,185
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
||||||||||||||||||
(in thousands, except share and per share data)
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
||||||||||
Consolidated Statement of Cash Flows:
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash provided by operating activities
|
$
|
16,804
|
|
|
$
|
23,743
|
|
|
$
|
15,509
|
|
|
$
|
9,874
|
|
|
$
|
9,356
|
|
Net cash used in investing activities
|
(19,390
|
)
|
|
(19,554
|
)
|
|
(9,527
|
)
|
|
(15,249
|
)
|
|
(5,904
|
)
|
|||||
Net cash (used in) provided by financing activities
|
(2,212
|
)
|
|
(2,378
|
)
|
|
(4,631
|
)
|
|
6,613
|
|
|
(5,864
|
)
|
(in thousands, except selected operating data, unless otherwise noted)
|
FISCAL YEAR
|
||||||||||||||||||
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|||||||||||
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Capital expenditures
(4)
|
18,010
|
|
|
10,430
|
|
|
4,067
|
|
|
3,037
|
|
|
1,343
|
|
|||||
Selected Operating Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Number of stores at end of period
|
|
|
|
|
|
|
|
|
|
||||||||||
Domestic franchised
|
1,369
|
|
|
1,369
|
|
|
1,342
|
|
|
1,327
|
|
|
1,270
|
|
|||||
Domestic Company-owned
|
168
|
|
|
127
|
|
|
91
|
|
|
69
|
|
|
59
|
|
|||||
International
|
40
|
|
|
40
|
|
|
28
|
|
|
22
|
|
|
18
|
|
|||||
Total
|
1,577
|
|
|
1,536
|
|
|
1,461
|
|
|
1,418
|
|
|
1,347
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Number of comparable stores at end of period
(5)
|
|
|
|
|
|
|
|
|
|
||||||||||
Domestic franchised
|
1,298
|
|
|
1,279
|
|
|
1,247
|
|
|
1,226
|
|
|
1,194
|
|
|||||
Domestic Company-owned
|
136
|
|
|
110
|
|
|
88
|
|
|
68
|
|
|
57
|
|
|||||
International
|
35
|
|
|
28
|
|
|
20
|
|
|
17
|
|
|
15
|
|
|||||
Total
|
1,469
|
|
|
1,417
|
|
|
1,355
|
|
|
1,311
|
|
|
1,266
|
|
|||||
AWS
per store (whole dollars)
(6)
|
$
|
10,958
|
|
|
$
|
11,651
|
|
|
$
|
11,480
|
|
|
$
|
11,099
|
|
|
$
|
10,923
|
|
Comparable store sales growth (decline)
(7)
|
(5.2
|
)%
|
|
1.9
|
%
|
|
4.5
|
%
|
|
2.8
|
%
|
|
2.9
|
%
|
|||||
System-wide sales
(8)
|
$
|
898,709
|
|
|
$
|
892,249
|
|
|
$
|
849,682
|
|
|
$
|
785,630
|
|
|
$
|
739,091
|
|
System-wide sales growth
(9)
|
0.7
|
%
|
|
5.0
|
%
|
|
8.2
|
%
|
|
6.3
|
%
|
|
5.3
|
%
|
(1)
|
Basic and Diluted EPS is a loss for 2014 as a result of cumulative dividends to preferred stockholders prior to our IPO. More information can be found in
Financial Statements and Supplementary Data
in
Note 16 — Earnings per Share (EPS)
of the accompanying
Notes to Consolidated Financial Statements
.
|
(2)
|
Represents total outstanding indebtedness, including current portion and excluding unamortized, deferred financing costs.
|
(3)
|
Represents total current assets less total current liabilities.
|
(4)
|
Represents cash paid for long-lived asset capital expenditures related to the acquisition of property and equipment and excludes expenditures relating to acquisitions of businesses and the acquisition of property and equipment in accounts payable.
|
(5)
|
A comparable store is a store that has been open for at least 52 weeks from the comparable date, which is the Tuesday following the opening date.
|
(6)
|
AWS
consists of the average weekly sales of domestic franchised and Company-owned stores over a specified period of time.
AWS
is calculated by dividing the total net sales of our system-wide stores for the relevant time period by the number of weeks these same stores were open in such time period.
|
(7)
|
System-wide comparable store sales growth (decline) represents year-over-year sales comparisons for comparable domestic stores.
|
(8)
|
System-wide sales include net sales by all of our system-wide stores.
|
(9)
|
System-wide sales growth represents year-over-year sales comparisons for system-wide sales.
|
Overview
|
2016 Highlights
|
|
Fiscal Year
|
|||||||
|
2016
|
|
2015
|
|
2014
|
|||
Domestic Franchise
|
(5.0
|
)%
|
|
1.9
|
%
|
|
4.3
|
%
|
Domestic Company Stores
|
(7.3
|
)%
|
|
1.8
|
%
|
|
8.1
|
%
|
Total domestic stores
|
(5.2
|
)%
|
|
1.9
|
%
|
|
4.5
|
%
|
Our Segments
|
|
Fiscal Year
|
||||||||||
(in thousands)
|
2016
|
|
2015
|
|
2014
|
||||||
Revenues
|
|
|
|
|
|
||||||
Domestic Franchise
|
$
|
44,434
|
|
|
$
|
45,579
|
|
|
$
|
46,233
|
|
Domestic Company Stores
|
82,080
|
|
|
74,300
|
|
|
50,598
|
|
|||
International
|
369
|
|
|
330
|
|
|
568
|
|
|||
Total
|
$
|
126,883
|
|
|
$
|
120,209
|
|
|
$
|
97,399
|
|
Segment Operating Income (Loss)
|
|
|
|
|
|
||||||
Domestic Franchise
|
$
|
17,186
|
|
|
$
|
20,750
|
|
|
$
|
21,939
|
|
Domestic Company Stores
|
(2,803
|
)
|
|
1,359
|
|
|
1,307
|
|
|||
International
|
269
|
|
|
238
|
|
|
20
|
|
|||
Corporate and unallocated
|
(5,004
|
)
|
|
(6,712
|
)
|
|
(7,961
|
)
|
|||
Total
|
$
|
9,648
|
|
|
$
|
15,635
|
|
|
$
|
15,305
|
|
Depreciation and amortization
|
|
|
|
|
|
||||||
Domestic Franchise
|
$
|
6,606
|
|
|
$
|
5,392
|
|
|
$
|
5,046
|
|
Domestic Company Stores
|
5,599
|
|
|
4,579
|
|
|
2,975
|
|
|||
International
|
31
|
|
|
31
|
|
|
31
|
|
|||
Total
|
$
|
12,236
|
|
|
$
|
10,002
|
|
|
$
|
8,052
|
|
Key Operating Metrics
|
|
2016
|
|
2015
|
|
2014
|
||||||
Domestic store average weekly sales (AWS)
|
$
|
10,958
|
|
|
$
|
11,651
|
|
|
$
|
11,480
|
|
Domestic comparable store sales growth (decline)
|
(5.2
|
)%
|
|
1.9
|
%
|
|
4.5
|
%
|
|||
Domestic comparable stores
|
1,434
|
|
|
1,389
|
|
|
1,335
|
|
|||
System-wide sales (in thousands)
|
$
|
898,709
|
|
|
$
|
892,249
|
|
|
$
|
849,682
|
|
Number of system-wide stores at period end
|
1,577
|
|
|
1,536
|
|
|
1,461
|
|
|||
Adjusted EBITDA (in thousands)
|
$
|
24,796
|
|
|
$
|
28,118
|
|
|
$
|
27,678
|
|
|
Domestic Company Stores
|
|
Domestic Franchise
|
|
Total Domestic
|
|
International
|
|
Total
|
|||||
Store count at December 30, 2013
|
69
|
|
|
1,327
|
|
|
1,396
|
|
|
22
|
|
|
1,418
|
|
Openings
|
2
|
|
|
85
|
|
|
87
|
|
|
8
|
|
|
95
|
|
Closings
|
(1
|
)
|
|
(49
|
)
|
|
(50
|
)
|
|
(2
|
)
|
|
(52
|
)
|
Net transfers
|
21
|
|
|
(21
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Store count at December 29, 2014
|
91
|
|
|
1,342
|
|
|
1,433
|
|
|
28
|
|
|
1,461
|
|
Openings
|
18
|
|
|
81
|
|
|
99
|
|
|
12
|
|
|
111
|
|
Closings
|
(1
|
)
|
|
(35
|
)
|
|
(36
|
)
|
|
—
|
|
|
(36
|
)
|
Net transfers
|
19
|
|
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Store count at December 28, 2015
|
127
|
|
|
1,369
|
|
|
1,496
|
|
|
40
|
|
|
1,536
|
|
Openings
|
35
|
|
|
69
|
|
|
104
|
|
|
5
|
|
|
109
|
|
Closings
|
(1
|
)
|
|
(62
|
)
|
|
(63
|
)
|
|
(5
|
)
|
|
(68
|
)
|
Net transfers
|
7
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Store count at January 2, 2017
|
168
|
|
|
1,369
|
|
|
1,537
|
|
|
40
|
|
|
1,577
|
|
▪
|
All non-cash losses or expenses (including non-cash share-based compensation expenses and the non-cash portion of rent expenses relating to the difference between
GAAP
and cash rent expenses), excluding any non-cash loss or expense that is an accrual of a reserve for a cash expenditure or payment to be made, or anticipated to be made, in a future period;
|
▪
|
Non-recurring or unusual cash fees, costs, charges, losses and expenses;
|
▪
|
Fees, costs and expenses related to acquisitions;
|
▪
|
Pre-opening costs with respect to new stores;
|
▪
|
Historical management fees and expenses incurred under our advisory services and monitoring agreement with
Lee Equity
, which terminated in connection with the
IPO
; and
|
▪
|
Fees and expenses incurred in connection with the issuance of debt.
|
▪
|
As a measurement used in comparing our operating performance on a consistent basis;
|
▪
|
To calculate incentive compensation for our employees;
|
▪
|
For planning purposes, including the preparation of our internal annual operating budget; and
|
▪
|
To evaluate the performance and effectiveness of our operational strategies.
|
▪
|
Adjusted EBITDA
does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
|
▪
|
Adjusted EBITDA
excludes pre-opening costs and non-cash
GAAP
rent expense with respect to new stores;
|
▪
|
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and
Adjusted EBITDA
does not reflect the cash requirements for such replacements; and
|
▪
|
Adjusted EBITDA
does not reflect our tax expense or the cash requirements to pay our taxes.
|
|
Fiscal Year
|
||||||||||
(in thousands)
|
2016
|
|
2015
|
|
2014
|
||||||
Net Income
|
$
|
2,649
|
|
|
$
|
4,411
|
|
|
$
|
1,248
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
500
|
|
|
—
|
|
|||
Net Income Attributable to Papa Murphy’s
|
2,649
|
|
|
4,911
|
|
|
1,248
|
|
|||
Depreciation and amortization
|
12,236
|
|
|
10,002
|
|
|
8,052
|
|
|||
Income tax provision
|
1,943
|
|
|
2,068
|
|
|
1,235
|
|
|||
Interest expense, net
|
4,868
|
|
|
4,523
|
|
|
8,025
|
|
|||
EBITDA
|
21,696
|
|
|
21,504
|
|
|
18,560
|
|
|||
Loss (gain) on disposal or impairment of property and equipment
(1)
|
101
|
|
|
(251
|
)
|
|
72
|
|
|||
Expenses not indicative of future operations:
|
|
|
|
|
|
||||||
Secondary offering and IPO preparation costs
(2)
|
—
|
|
|
345
|
|
|
622
|
|
|||
Loss on Project Pie impairment and disposal
(3)
|
—
|
|
|
4,325
|
|
|
—
|
|
|||
Management fees and related expenses
(4)
|
—
|
|
|
—
|
|
|
1,678
|
|
|||
Transaction costs
(5)
|
—
|
|
|
65
|
|
|
78
|
|
|||
New store pre-opening expenses
(6)
|
1,331
|
|
|
696
|
|
|
32
|
|
|||
Non-cash expenses and non-income based state taxes
(7)
|
1,668
|
|
|
1,434
|
|
|
2,017
|
|
|||
Loss on settlement of liabilities
(8)
|
—
|
|
|
—
|
|
|
4,619
|
|
|||
Adjusted EBITDA
|
$
|
24,796
|
|
|
$
|
28,118
|
|
|
$
|
27,678
|
|
(1)
|
Represents non-cash losses resulting from disposal or impairment of property and equipment, including divested Company stores.
|
(2)
|
Represents costs related to the secondary offering of the Company's common stock, non-recurring advisory expenses in connection with our
IPO
and non-recurring management transition and restructuring costs, consisting of severance, recruitment, relocation and other costs in connection with recruiting a new chief financial officer and strategic restructuring activities.
|
(3)
|
Represents a $4 million loss recognized upon impairment of
Project Pie
, a cost-method investment, and its subsequent disposal, and the write-off as bad debt receivables totaling $325,000.
|
(4)
|
Represents the elimination of management fees and related costs paid to
Lee Equity
for advisory services provided pursuant to an advisory services and monitoring agreement and the termination fee incurred with the
IPO
. More information can be found in
Financial Statements and Supplementary Data
in
Note 19 — Related Party Transactions
of the accompanying
Notes to Consolidated Financial Statements
.
|
(5)
|
Represents transaction costs relating to the acquisition of multiple franchised stores and the investments in and divestiture of
Project Pie
.
|
(6)
|
Represents expenses directly associated with the opening of new stores and incurred primarily in advance of the store opening, including wages, benefits and travel for training of opening teams, grand opening marketing costs and other store operating costs.
|
(7)
|
Represents (i) non-cash expenses related to equity-based compensation; (ii) non-cash expenses related to the difference between
GAAP
and cash rent expense; (iii) non-cash gains from settlement of asset retirement obligations; and (iv) state revenue taxes levied in lieu of an income tax.
|
(8)
|
Represents losses resulting from refinancing of long-term debt.
|
Key Financial Definitions
|
Results of Operations
|
|
Fiscal Year
|
|||||||||||||||||||
|
2016
|
|
2015
|
|
2014
|
|||||||||||||||
(in thousands)
|
$
|
|
Total
% of Revenues |
|
$
|
|
Total
% of Revenues |
|
$
|
|
Total
% of Revenues |
|||||||||
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Franchise royalties
|
$
|
39,851
|
|
|
31.4
|
%
|
|
$
|
40,243
|
|
|
33.5
|
%
|
|
$
|
39,305
|
|
|
40.4
|
%
|
Franchise and development fees
|
2,912
|
|
|
2.3
|
%
|
|
4,222
|
|
|
3.5
|
%
|
|
4,531
|
|
|
4.7
|
%
|
|||
Company-owned store sales
|
82,080
|
|
|
64.7
|
%
|
|
74,300
|
|
|
61.8
|
%
|
|
50,598
|
|
|
51.9
|
%
|
|||
Other
(1)
|
2,040
|
|
|
1.6
|
%
|
|
1,444
|
|
|
1.2
|
%
|
|
2,965
|
|
|
3.0
|
%
|
|||
Total revenues
(1)
|
126,883
|
|
|
100.0
|
%
|
|
120,209
|
|
|
100.0
|
%
|
|
97,399
|
|
|
100.0
|
%
|
|||
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Store operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Cost of food and packaging
(2)
|
28,347
|
|
|
22.3
|
%
|
|
26,603
|
|
|
22.0
|
%
|
|
19,686
|
|
|
20.2
|
%
|
|||
Compensation and benefits
(2)
|
23,746
|
|
|
18.7
|
%
|
|
19,858
|
|
|
16.5
|
%
|
|
12,673
|
|
|
13.0
|
%
|
|||
Advertising
(2)
|
8,203
|
|
|
6.5
|
%
|
|
7,888
|
|
|
6.6
|
%
|
|
5,041
|
|
|
5.2
|
%
|
|||
Occupancy
(2)
|
6,226
|
|
|
4.9
|
%
|
|
4,750
|
|
|
4.0
|
%
|
|
2,873
|
|
|
2.9
|
%
|
|||
Other store operating costs
(2)
|
10,268
|
|
|
8.1
|
%
|
|
7,517
|
|
|
6.3
|
%
|
|
4,434
|
|
|
4.6
|
%
|
|||
Selling, general and administrative
(1)
|
28,108
|
|
|
22.2
|
%
|
|
28,207
|
|
|
23.5
|
%
|
|
29,263
|
|
|
30.0
|
%
|
|||
Depreciation and amortization
|
12,236
|
|
|
9.6
|
%
|
|
10,002
|
|
|
8.3
|
%
|
|
8,052
|
|
|
8.3
|
%
|
|||
Loss (gain) on disposal or impairment of property and equipment
|
101
|
|
|
0.1
|
%
|
|
(251
|
)
|
|
(0.2
|
)%
|
|
72
|
|
|
0.1
|
%
|
|||
Total costs and expenses
|
117,235
|
|
|
92.4
|
%
|
|
104,574
|
|
|
87.0
|
%
|
|
82,094
|
|
|
84.3
|
%
|
|||
Operating Income
(1)
|
9,648
|
|
|
7.6
|
%
|
|
15,635
|
|
|
13.0
|
%
|
|
15,305
|
|
|
15.7
|
%
|
|||
Interest expense, net
|
4,868
|
|
|
3.9
|
%
|
|
4,523
|
|
|
3.8
|
%
|
|
8,025
|
|
|
8.3
|
%
|
|||
Loss on early retirement of debt
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
4,619
|
|
|
4.7
|
%
|
|||
Loss on impairment of investments
|
—
|
|
|
—
|
%
|
|
4,500
|
|
|
3.7
|
%
|
|
—
|
|
|
—
|
%
|
|||
Other expense, net
|
188
|
|
|
0.1
|
%
|
|
133
|
|
|
0.1
|
%
|
|
178
|
|
|
0.2
|
%
|
|||
Income Before Income Taxes
|
4,592
|
|
|
3.6
|
%
|
|
6,479
|
|
|
5.4
|
%
|
|
2,483
|
|
|
2.5
|
%
|
|||
Provision for income taxes
|
1,943
|
|
|
1.5
|
%
|
|
2,068
|
|
|
1.7
|
%
|
|
1,235
|
|
|
1.3
|
%
|
|||
Net Income
|
$
|
2,649
|
|
|
2.1
|
%
|
|
$
|
4,411
|
|
|
3.7
|
%
|
|
1,248
|
|
|
1.3
|
%
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
%
|
|
500
|
|
|
0.4
|
%
|
|
—
|
|
|
—
|
%
|
|||
Net Income Attributable to Papa Murphy’s
|
$
|
2,649
|
|
|
2.1
|
%
|
|
$
|
4,911
|
|
|
4.1
|
%
|
|
$
|
1,248
|
|
|
1.3
|
%
|
(1)
|
During
2016
,
2015
and
2014
, we incurred
$0.7 million
,
$1.0 million
and
$2.7 million
, respectively, in expenses related to
POS system
software licenses resold to franchise owners at cost. The revenue and expense from these transactions are included in other revenues and selling, general
|
(2)
|
Please see the table presented in
Costs and Expenses
below, which presents Company store expenses as a percentage of Company store revenue for
2016
,
2015
and
2014
.
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||||
Franchise royalties
|
$
|
39,851
|
|
|
(1.0
|
)%
|
|
$
|
40,243
|
|
|
2.4
|
%
|
|
$
|
39,305
|
|
Percentage of total revenues
|
31.4
|
%
|
|
|
|
33.5
|
%
|
|
|
|
40.4
|
%
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||||
Franchise and development fees
|
$
|
2,912
|
|
|
(31.0
|
)%
|
|
$
|
4,222
|
|
|
(6.8
|
)%
|
|
$
|
4,531
|
|
Percentage of total revenues
|
2.3
|
%
|
|
|
|
3.5
|
%
|
|
|
|
4.7
|
%
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||||
Company-owned store sales
|
$
|
82,080
|
|
|
10.5
|
%
|
|
$
|
74,300
|
|
|
46.8
|
%
|
|
$
|
50,598
|
|
Percentage of total revenues
|
64.7
|
%
|
|
|
|
61.8
|
%
|
|
|
|
51.9
|
%
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
|||||||
Other revenue
|
$
|
2,040
|
|
|
41.3
|
%
|
|
$
|
1,444
|
|
|
(51.3)%
|
|
$
|
2,965
|
|
Percentage of total revenues
|
1.6
|
%
|
|
|
|
1.2
|
%
|
|
|
|
3.0
|
%
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||||
Store operating costs
|
$
|
76,790
|
|
|
15.3
|
%
|
|
$
|
66,616
|
|
|
49.0
|
%
|
|
$
|
44,707
|
|
Percentage of total revenues
|
60.5
|
%
|
|
|
|
55.4
|
%
|
|
|
|
45.9
|
%
|
|
Fiscal Year
|
|||||||
|
2016
|
|
2015
|
|
2014
|
|||
As a % of Company-owned store sales:
|
|
|
|
|
|
|||
Cost of food and packaging
|
34.5
|
%
|
|
35.8
|
%
|
|
38.9
|
%
|
Compensation and benefits
|
28.9
|
%
|
|
26.7
|
%
|
|
25.0
|
%
|
Advertising
|
10.0
|
%
|
|
10.6
|
%
|
|
10.0
|
%
|
Occupancy
|
7.6
|
%
|
|
6.4
|
%
|
|
5.7
|
%
|
Other store operating costs
|
12.6
|
%
|
|
10.2
|
%
|
|
8.8
|
%
|
Total store operating costs
|
93.6
|
%
|
|
89.7
|
%
|
|
88.4
|
%
|
▪
|
Effect of store portfolio changes.
We acquired 10 stores and refranchised three in
2016
, and acquired 23 stores and refranchised four in
2015
. We also built 35 new stores in
2016
and 18 stores in
2015
. Additionally, one store was closed in both
2016
and
2015
. All of the new stores built or acquired in
2016
had average unit sales volumes lower than the average of stores we owned in
2015
. Similarly, all the new stores built in
2015
and 13 of the stores acquired in
2015
had average unit sales volumes lower than the stores we owned in
2014
. Costs as a percentage of Company-owned store sales that are primarily fixed at the individual store level, such as Occupancy and Other store operating costs, increased overall because of the addition of these lower sales volume stores. Compensation and benefits also increased as we saw inefficiencies in labor utilization due to the rapid increase of Company-owned stores.
|
▪
|
Cost of food and packaging
.
Fluctuations in cheese prices affected our cost of food and packaging as a percentage of Company-owned store sales. Our average cheese price in
2016
decreased 1.2% compared to
2015
and the average cheese price in
2015
decreased 17.6% over
2014
.
|
▪
|
Advertising.
The decrease in advertising as a percentage of Company-owned store sales in
2016
compared to
2015
was driven by a reduction in spending on print advertising. Advertising as a percentage of Company-owned store sales increased for
2015
compared to
2014
primarily due to the de-leveraging impact of advertising spending in stores with lower sales volume.
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||||
Selling, general and administrative
|
$
|
28,108
|
|
|
(0.4
|
)%
|
|
$
|
28,207
|
|
|
(3.6
|
)%
|
|
$
|
29,263
|
|
Percentage of total revenues
|
22.2
|
%
|
|
|
|
23.5
|
%
|
|
|
|
30.0
|
%
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||||
Depreciation and amortization
|
$
|
12,236
|
|
|
22.3
|
%
|
|
$
|
10,002
|
|
|
24.2
|
%
|
|
$
|
8,052
|
|
Percentage of total revenues
|
9.6
|
%
|
|
|
|
8.3
|
%
|
|
|
|
8.3
|
%
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||
Loss (gain) on disposal or impairment of property and equipment
|
$
|
101
|
|
|
N/M
|
|
$
|
(251
|
)
|
|
N/M
|
|
$
|
72
|
|
Percentage of total revenues
|
0.1
|
%
|
|
|
|
(0.2
|
)%
|
|
|
|
0.1
|
%
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||||
Interest expense, net
|
$
|
4,868
|
|
|
7.6
|
%
|
|
$
|
4,523
|
|
|
(43.6
|
)%
|
|
$
|
8,025
|
|
Percentage of total revenues
|
3.9
|
%
|
|
|
|
3.8
|
%
|
|
|
|
8.3
|
%
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||||
Provision for income taxes
|
$
|
1,943
|
|
|
(6.0
|
)%
|
|
$
|
2,068
|
|
|
67.4
|
%
|
|
$
|
1,235
|
|
Percentage of total revenues
|
1.5
|
%
|
|
|
|
1.7
|
%
|
|
|
|
1.3
|
%
|
|||||
Effective tax rate
|
42.3
|
%
|
|
|
|
31.9
|
%
|
|
|
|
49.7%
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||||
Total revenues
|
$
|
44,434
|
|
|
(2.5
|
)%
|
|
$
|
45,579
|
|
|
(1.4
|
)%
|
|
$
|
46,233
|
|
Percentage of total revenues
|
35.0
|
%
|
|
|
|
37.9
|
%
|
|
|
|
47.5
|
%
|
|||||
Operating Income
|
17,186
|
|
|
(17.2
|
)%
|
|
20,750
|
|
|
(5.4
|
)%
|
|
21,939
|
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||||
Total revenues
|
$
|
82,080
|
|
|
10.5
|
%
|
|
$
|
74,300
|
|
|
46.8
|
%
|
|
$
|
50,598
|
|
Percentage of total revenues
|
64.7
|
%
|
|
|
|
61.8
|
%
|
|
|
|
51.9
|
%
|
|||||
Operating (Loss)
Income
|
(2,803
|
)
|
|
N/M
|
|
|
1,359
|
|
|
4.0%
|
|
1,307
|
|
(in thousands)
|
2016
|
|
Change
|
|
2015
|
|
Change
|
|
2014
|
||||||||
Total revenues
|
$
|
369
|
|
|
11.8
|
%
|
|
$
|
330
|
|
|
(41.9
|
)%
|
|
$
|
568
|
|
Percentage of total revenues
|
0.3
|
%
|
|
|
|
0.3
|
%
|
|
|
|
0.6
|
%
|
|||||
Operating Income
|
269
|
|
|
13.0
|
%
|
|
238
|
|
|
N/M
|
|
20
|
|
Liquidity and Capital Resources
|
|
Twelve Months Ended
|
||||||||||
(in thousands)
|
2016
|
|
2015
|
|
2014
|
||||||
Net cash provided by operating activities
|
$
|
16,804
|
|
|
$
|
23,743
|
|
|
$
|
15,509
|
|
Net cash used in investing activities
|
(19,390
|
)
|
|
(19,554
|
)
|
|
(9,527
|
)
|
|||
Net cash used in financing activities
|
(2,212
|
)
|
|
(2,378
|
)
|
|
(4,631
|
)
|
|||
Total cash flows
|
$
|
(4,798
|
)
|
|
$
|
1,811
|
|
|
$
|
1,351
|
|
Contractual Obligations
|
|
Payments Due by Period
|
||||||||||||||||||
(in millions)
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
||||||||||
Long-term debt obligations
|
$
|
109.7
|
|
|
$
|
7.9
|
|
|
$
|
101.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating lease obligations
|
24.8
|
|
|
5.5
|
|
|
9.6
|
|
|
5.4
|
|
|
4.3
|
|
|||||
Total
(1)
|
$
|
134.5
|
|
|
$
|
13.4
|
|
|
$
|
111.4
|
|
|
$
|
5.4
|
|
|
$
|
4.3
|
|
(1)
|
We have a technology license contract that provides for a purchase commitment which results in our being contingently liable for licenses not purchased by us or our franchise owners. We are contingently liable under this agreement for approximately $0.5 million annually through 2018, and considering various factors including internal forecasts, prior history, and the ability to use or resell any licenses purchased under this commitment in future periods, no accrual was required related to this commitment. This amount is not included in the table above because timing of payment, if any, is uncertain.
|
Off-Balance Sheet Arrangements
|
Critical Accounting Policies
|
Commodity Price Risk
|
Interest Rate Risk
|
Foreign Currency Exchange Rate Risk
|
|
|
Consolidated Statements of Income for the Fiscal Years ended January 2, 2017, December 28, 2015, and December 29, 2014
|
|
Consolidated Balance Sheets as of January 2, 2017 and December 28, 2015
|
|
Consolidated Statements of Shareholders’ Equity for the Fiscal Years ended January 2, 2017, December 28, 2015 and December 29, 2014
|
|
Consolidated Statements of Cash Flows for the Fiscal Years ended January 2, 2017, December 28, 2015 and December 29, 2014
|
|
Notes to Consolidated Financial Statements
|
|
Report of Independent Registered Public Accounting Firm
|
Papa Murphy’s Holdings, Inc. and Subsidiaries
|
|
Fiscal Year Ended
|
||||||||||
(In thousands, except share and per share data)
|
January 2,
2017 |
|
December 28, 2015
|
|
December 29, 2014
|
||||||
Revenues
|
|
|
|
|
|
||||||
Franchise royalties
|
$
|
39,851
|
|
|
$
|
40,243
|
|
|
$
|
39,305
|
|
Franchise and development fees
|
2,912
|
|
|
4,222
|
|
|
4,531
|
|
|||
Company-owned store sales
|
82,080
|
|
|
74,300
|
|
|
50,598
|
|
|||
Other
|
2,040
|
|
|
1,444
|
|
|
2,965
|
|
|||
Total revenues
|
126,883
|
|
|
120,209
|
|
|
97,399
|
|
|||
|
|
|
|
|
|
||||||
Costs and Expenses
|
|
|
|
|
|
||||||
Store operating costs:
|
|
|
|
|
|
||||||
Cost of food and packaging
|
28,347
|
|
|
26,603
|
|
|
19,686
|
|
|||
Compensation and benefits
|
23,746
|
|
|
19,858
|
|
|
12,673
|
|
|||
Advertising
|
8,203
|
|
|
7,888
|
|
|
5,041
|
|
|||
Occupancy
|
6,226
|
|
|
4,750
|
|
|
2,873
|
|
|||
Other store operating costs
|
10,268
|
|
|
7,517
|
|
|
4,434
|
|
|||
Selling, general and administrative
|
28,108
|
|
|
28,207
|
|
|
29,263
|
|
|||
Depreciation and amortization
|
12,236
|
|
|
10,002
|
|
|
8,052
|
|
|||
Loss (gain) on disposal or impairment of property and equipment
|
101
|
|
|
(251
|
)
|
|
72
|
|
|||
Total costs and expenses
|
117,235
|
|
|
104,574
|
|
|
82,094
|
|
|||
Operating Income
|
9,648
|
|
|
15,635
|
|
|
15,305
|
|
|||
|
|
|
|
|
|
||||||
Interest expense, net
|
4,868
|
|
|
4,523
|
|
|
8,025
|
|
|||
Loss on early retirement of debt
|
—
|
|
|
—
|
|
|
4,619
|
|
|||
Loss on impairment of investments
|
—
|
|
|
4,500
|
|
|
—
|
|
|||
Other expense, net
|
188
|
|
|
133
|
|
|
178
|
|
|||
Income Before Income Taxes
|
4,592
|
|
|
6,479
|
|
|
2,483
|
|
|||
|
|
|
|
|
|
||||||
Provision for income taxes
|
1,943
|
|
|
2,068
|
|
|
1,235
|
|
|||
Net Income
|
2,649
|
|
|
4,411
|
|
|
1,248
|
|
|||
|
|
|
|
|
|
||||||
Net loss attributable to noncontrolling interests
|
—
|
|
|
500
|
|
|
—
|
|
|||
Net Income Attributable to Papa Murphy’s
|
$
|
2,649
|
|
|
$
|
4,911
|
|
|
$
|
1,248
|
|
|
|
|
|
|
|
||||||
Earnings (loss) per share of common stock
|
|
|
|
|
|
||||||
Basic
|
$
|
0.16
|
|
|
$
|
0.29
|
|
|
$
|
(0.07
|
)
|
Diluted
|
$
|
0.16
|
|
|
$
|
0.29
|
|
|
$
|
(0.07
|
)
|
Weighted average common stock outstanding
|
|
|
|
|
|
||||||
Basic
|
16,743,285
|
|
|
16,653,127
|
|
|
12,101,236
|
|
|||
Diluted
|
16,773,493
|
|
|
16,870,693
|
|
|
12,101,236
|
|
Papa Murphy’s Holdings, Inc. and Subsidiaries
|
(In thousands, except par value and share data)
|
January 2,
2017 |
|
December 28, 2015
|
||||
ASSETS
|
|
|
|
||||
Current Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
2,069
|
|
|
$
|
6,867
|
|
Accounts receivable, net
|
5,330
|
|
|
4,944
|
|
||
Current portion of notes receivable
|
92
|
|
|
78
|
|
||
Inventories
|
917
|
|
|
868
|
|
||
Prepaid expenses and other current assets
|
4,708
|
|
|
6,139
|
|
||
Total current assets
|
13,116
|
|
|
18,896
|
|
||
Property and equipment, net
|
28,516
|
|
|
21,261
|
|
||
Notes receivable, net of current portion
|
57
|
|
|
143
|
|
||
Goodwill
|
108,470
|
|
|
106,506
|
|
||
Trade name and trademarks
|
87,002
|
|
|
87,002
|
|
||
Definite-life intangibles, net
|
36,313
|
|
|
41,366
|
|
||
Other assets
|
398
|
|
|
297
|
|
||
Total assets
|
$
|
273,872
|
|
|
$
|
275,471
|
|
|
|
|
|
||||
LIABILITIES AND EQUITY
|
|
|
|
||||
Current Liabilities
|
|
|
|
||||
Accounts payable
|
$
|
6,160
|
|
|
$
|
9,798
|
|
Accrued expenses and other current liabilities
|
7,503
|
|
|
9,756
|
|
||
Current portion of unearned franchise and development fees
|
1,358
|
|
|
1,795
|
|
||
Current portion of long-term debt
|
7,879
|
|
|
2,800
|
|
||
Total current liabilities
|
22,900
|
|
|
24,149
|
|
||
Long-term debt, net of current portion
|
100,965
|
|
|
108,237
|
|
||
Unearned franchise and development fees, net of current portion
|
410
|
|
|
540
|
|
||
Deferred tax liability, net
|
44,179
|
|
|
42,439
|
|
||
Other liabilities
|
3,922
|
|
|
2,450
|
|
||
Total liabilities
|
172,376
|
|
|
177,815
|
|
||
Commitments and contingencies (Note 17)
|
|
|
|
|
|
||
Equity
|
|
|
|
||||
Preferred stock ($0.01 par value; 15,000,000 shares authorized; no shares issued or outstanding)
|
—
|
|
|
—
|
|
||
Common stock ($0.01 par value; 200,000,000 shares authorized; 16,955,970 and 16,949,720 shares issued and outstanding, respectively)
|
170
|
|
|
169
|
|
||
Additional paid-in capital
|
119,932
|
|
|
118,801
|
|
||
Stock subscriptions receivable
|
—
|
|
|
(100
|
)
|
||
Accumulated deficit
|
(18,606
|
)
|
|
(21,214
|
)
|
||
Total equity
|
101,496
|
|
|
97,656
|
|
||
Total liabilities and equity
|
$
|
273,872
|
|
|
$
|
275,471
|
|
Papa Murphy’s Holdings, Inc. and Subsidiaries
|
|
Cumulative
Series A
Preferred Stock
|
|
Cumulative
Series B Preferred Stock |
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Stock
Subscription
Receivable
|
|
Accumulated
Deficit
|
|
Total Papa
Murphy’s
Holdings, Inc.
Shareholders’
Equity
|
|
Non-
Controlling
Interests
|
|
Total
Equity
|
|||||||||||||||||||||||||||
(In thousands)
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
BALANCE, December 30, 2013
|
2,854
|
|
|
$
|
60,156
|
|
|
27
|
|
|
$
|
741
|
|
|
4,348
|
|
|
$
|
43
|
|
|
$
|
1,555
|
|
|
$
|
(1,197
|
)
|
|
$
|
(27,373
|
)
|
|
$
|
33,925
|
|
|
$
|
222
|
|
|
$
|
34,147
|
|
Common stock issued, net of transaction costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,840
|
|
|
58
|
|
|
54,590
|
|
|
—
|
|
|
—
|
|
|
54,648
|
|
|
—
|
|
|
54,648
|
|
|||||||||
Common stock repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(156
|
)
|
|
(1
|
)
|
|
(1,517
|
)
|
|
—
|
|
|
—
|
|
|
(1,518
|
)
|
|
—
|
|
|
(1,518
|
)
|
|||||||||
Conversion of preferred stock to common stock
|
(2,854
|
)
|
|
(60,156
|
)
|
|
(27
|
)
|
|
(741
|
)
|
|
6,912
|
|
|
69
|
|
|
60,828
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||||
Repayment of note receivable issued to fund the purchase of stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,097
|
|
|
—
|
|
|
1,097
|
|
|
—
|
|
|
1,097
|
|
|||||||||
Stock based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,898
|
|
|
—
|
|
|
—
|
|
|
1,898
|
|
|
—
|
|
|
1,898
|
|
|||||||||
Noncontrolling interest transactions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
222
|
|
|
222
|
|
|||||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,248
|
|
|
1,248
|
|
|
—
|
|
|
1,248
|
|
|||||||||
BALANCE, December 29, 2014
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
16,944
|
|
|
$
|
169
|
|
|
$
|
117,354
|
|
|
$
|
(100
|
)
|
|
$
|
(26,125
|
)
|
|
$
|
91,298
|
|
|
$
|
444
|
|
|
$
|
91,742
|
|
Common stock issued
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42
|
|
|
—
|
|
|
376
|
|
|
—
|
|
|
—
|
|
|
376
|
|
|
—
|
|
|
376
|
|
|||||||||
Common stock repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(36
|
)
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
(10
|
)
|
|||||||||
Stock based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,081
|
|
|
—
|
|
|
—
|
|
|
1,081
|
|
|
—
|
|
|
1,081
|
|
|||||||||
Noncontrolling interest transactions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
56
|
|
|||||||||
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,911
|
|
|
4,911
|
|
|
(500
|
)
|
|
4,411
|
|
|||||||||
BALANCE, December 28, 2015
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
16,950
|
|
|
$
|
169
|
|
|
$
|
118,801
|
|
|
$
|
(100
|
)
|
|
$
|
(21,214
|
)
|
|
$
|
97,656
|
|
|
$
|
—
|
|
|
$
|
97,656
|
|
Cumulative effect adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41
|
|
|
—
|
|
|
(41
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||||
Common stock issued
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
1
|
|
|
292
|
|
|
—
|
|
|
—
|
|
|
293
|
|
|
—
|
|
|
293
|
|
|||||||||
Common stock repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(38
|
)
|
|
—
|
|
|
(84
|
)
|
|
—
|
|
|
—
|
|
|
(84
|
)
|
|
—
|
|
|
(84
|
)
|
|||||||||
Stock based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
882
|
|
|
—
|
|
|
—
|
|
|
882
|
|
|
—
|
|
|
882
|
|
|||||||||
Repayment of note receivable issued to fund the purchase of stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100
|
|
|
—
|
|
|
100
|
|
|
—
|
|
|
100
|
|
|||||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,649
|
|
|
2,649
|
|
|
—
|
|
|
2,649
|
|
|||||||||
BALANCE, January 2, 2017
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
16,956
|
|
|
$
|
170
|
|
|
$
|
119,932
|
|
|
$
|
—
|
|
|
$
|
(18,606
|
)
|
|
$
|
101,496
|
|
|
$
|
—
|
|
|
$
|
101,496
|
|
Papa Murphy’s Holdings, Inc. and Subsidiaries
|
|
Fiscal Year Ended
|
||||||||||
(In thousands)
|
January 2, 2017
|
|
December 28, 2015
|
|
December 29, 2014
|
||||||
Operating Activities
|
|
|
|
|
|
||||||
Net Income
|
$
|
2,649
|
|
|
$
|
4,411
|
|
|
$
|
1,248
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
500
|
|
|
—
|
|
|||
Net Income Attributable to Papa Murphy’s
|
2,649
|
|
|
4,911
|
|
|
1,248
|
|
|||
Adjustments to reconcile to cash from operating activities
|
|
|
|
|
|
||||||
Depreciation and amortization
|
12,236
|
|
|
10,002
|
|
|
8,052
|
|
|||
Loss (gain) on disposal or impairment of property and equipment
|
101
|
|
|
(251
|
)
|
|
72
|
|
|||
Deferred taxes
|
1,724
|
|
|
1,707
|
|
|
1,123
|
|
|||
Loss on early retirement of debt
|
—
|
|
|
—
|
|
|
4,619
|
|
|||
Non-cash employee equity compensation
|
898
|
|
|
1,081
|
|
|
1,898
|
|
|||
Loss on impairment of cost-method investment
|
—
|
|
|
4,000
|
|
|
—
|
|
|||
Other non-cash items
|
329
|
|
|
646
|
|
|
563
|
|
|||
Change in operating assets and liabilities
|
|
|
|
|
|
||||||
Accounts receivable
|
(522
|
)
|
|
641
|
|
|
(3,302
|
)
|
|||
Prepaid expenses and other assets
|
2,197
|
|
|
(1,988
|
)
|
|
2,265
|
|
|||
Unearned franchise and development fees
|
(567
|
)
|
|
(1,213
|
)
|
|
(507
|
)
|
|||
Accounts payable
|
(1,103
|
)
|
|
3,628
|
|
|
(766
|
)
|
|||
Accrued expenses and other liabilities
|
(1,138
|
)
|
|
579
|
|
|
244
|
|
|||
Net cash provided by operating activities
|
16,804
|
|
|
23,743
|
|
|
15,509
|
|
|||
|
|
|
|
|
|
||||||
Investing Activities
|
|
|
|
|
|
||||||
Acquisition of property and equipment
|
(18,010
|
)
|
|
(10,430
|
)
|
|
(4,067
|
)
|
|||
Acquisition of stores, less cash acquired
|
(2,562
|
)
|
|
(9,691
|
)
|
|
(4,608
|
)
|
|||
Proceeds from sale of stores
|
1,110
|
|
|
1,250
|
|
|
179
|
|
|||
Issuance of notes receivable
|
—
|
|
|
(250
|
)
|
|
—
|
|
|||
Payments received on notes receivable
|
72
|
|
|
67
|
|
|
969
|
|
|||
Investment in cost-method investee
|
—
|
|
|
(500
|
)
|
|
(2,000
|
)
|
|||
Net cash used in investing activities
|
(19,390
|
)
|
|
(19,554
|
)
|
|
(9,527
|
)
|
|||
|
|
|
|
|
|
||||||
Financing Activities
|
|
|
|
|
|
||||||
Proceeds from issuance of long-term debt
|
—
|
|
|
—
|
|
|
112,000
|
|
|||
Payments on long-term debt
|
(3,321
|
)
|
|
(2,800
|
)
|
|
(169,900
|
)
|
|||
Advances on revolver, net
|
800
|
|
|
—
|
|
|
—
|
|
|||
Issuance of common stock, net of underwriting fees
|
—
|
|
|
—
|
|
|
59,675
|
|
|||
Repurchases of common stock
|
(84
|
)
|
|
(10
|
)
|
|
(1,518
|
)
|
|||
Proceeds from exercise of stock options
|
293
|
|
|
376
|
|
|
—
|
|
|||
Debt issuance and modification costs, including prepayment penalties
|
—
|
|
|
—
|
|
|
(2,717
|
)
|
|||
Payments received on subscription receivables
|
100
|
|
|
—
|
|
|
1,097
|
|
|||
Costs associated with initial public offering
|
—
|
|
|
—
|
|
|
(3,490
|
)
|
|||
Investment by noncontrolling interest holders
|
—
|
|
|
56
|
|
|
222
|
|
|||
Net cash used in financing activities
|
(2,212
|
)
|
|
(2,378
|
)
|
|
(4,631
|
)
|
|||
|
|
|
|
|
|
||||||
Net change in cash and cash equivalents
|
(4,798
|
)
|
|
1,811
|
|
|
1,351
|
|
|||
Cash and Cash Equivalents, beginning of year
|
6,867
|
|
|
5,056
|
|
|
3,705
|
|
|||
Cash and Cash Equivalents, end of period
|
$
|
2,069
|
|
|
$
|
6,867
|
|
|
$
|
5,056
|
|
|
|
|
|
|
|
||||||
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
||||||
Cash paid during the period for interest
|
$
|
4,894
|
|
|
$
|
3,624
|
|
|
$
|
7,385
|
|
Cash paid during the period for income taxes
|
$
|
169
|
|
|
$
|
3,078
|
|
|
$
|
134
|
|
Deferred offering costs paid in 2013 reclassified to equity
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,537
|
|
Noncash Supplemental Disclosures of Investing and Financing Activities
|
|
|
|
|
|
||||||
Issuance of note payable for acquisition of stores
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,900
|
|
Acquisition of property and equipment in accounts payable
|
$
|
607
|
|
|
$
|
3,098
|
|
|
$
|
97
|
|
Papa Murphy’s Holdings, Inc. and Subsidiaries
|
Note 1
|
Description of Business
|
|
Note 2
|
Summary of Significant Accounting Policies
|
|
Note 3
|
Acquisitions
|
|
Note 4
|
Prepaid Expenses and Other Current Assets
|
|
Note 5
|
Property and Equipment
|
|
Note 6
|
Divestitures
|
|
Note 7
|
Goodwill
|
|
Note 8
|
Intangible Assets
|
|
Note 9
|
Notes Receivable
|
|
Note 10
|
Financing Arrangements
|
|
Note 11
|
Fair Value Measurement
|
|
Note 12
|
Accrued and Other Liabilities
|
|
Note 13
|
Income Taxes
|
|
Note 14
|
Shareholders’ Equity
|
|
Note 15
|
Share-based Compensation
|
|
Note 16
|
Earnings per Share (EPS)
|
|
Note 17
|
Commitments and Contingencies
|
|
Note 18
|
Retirement Plans
|
|
Note 19
|
Related Party Transactions
|
|
Note 20
|
Segment Information
|
|
Note 21
|
Selected Quarterly Financial Data (unaudited)
|
|
Note 22
|
Subsequent Events
|
Note 1 — Description of Business
|
Note 2 — Summary of Significant Accounting Policies
|
Property and Equipment
|
Estimated Useful Life
|
Leasehold improvements
|
Shorter of lease term or estimated useful life, not to exceed 10 years
|
Restaurant equipment and fixtures
|
5 to 7 years
|
Office furniture and equipment
|
3 to 7 years
|
Software
|
3 to 5 years
|
Vehicles
|
5 years
|
Note 3 — Acquisitions
|
Cash and cash equivalents
|
$
|
5
|
|
Inventory
|
26
|
|
|
Prepaid expenses and other current assets
|
27
|
|
|
Property and equipment
|
604
|
|
|
Asset retirement obligations
|
(67
|
)
|
|
Total identifiable net assets acquired
|
595
|
|
|
Goodwill
|
1,964
|
|
|
Total net assets acquired
|
2,559
|
|
|
Dispute settlement
|
500
|
|
|
Total consideration
|
$
|
3,059
|
|
Cash and cash equivalents
|
$
|
5
|
|
Inventories
|
39
|
|
|
Prepaid expenses and other current assets
|
38
|
|
|
Property and equipment
|
406
|
|
|
Reacquired franchise rights
|
1,139
|
|
|
Asset retirement obligations
|
(75
|
)
|
|
Total identifiable net assets acquired
|
1,552
|
|
|
Goodwill
|
2,554
|
|
|
Total consideration
|
$
|
4,106
|
|
(in thousands)
|
2015
|
|
2014
|
||||
Pro forma revenues
|
$
|
121,287
|
|
|
$
|
102,592
|
|
Pro forma net income
|
4,958
|
|
|
1,331
|
|
Revenues
|
$
|
4,220
|
|
Net income
|
307
|
|
Cash and cash equivalents
|
$
|
10
|
|
Inventories
|
85
|
|
|
Prepaid expenses and other current assets
|
69
|
|
|
Property and equipment
|
1,360
|
|
|
Reacquired franchise rights
|
1,041
|
|
|
Asset retirement obligations
|
(185
|
)
|
|
Total identifiable net assets acquired
|
2,380
|
|
|
Goodwill
|
3,134
|
|
|
Total consideration
|
$
|
5,514
|
|
(in thousands)
|
2015
|
|
2014
|
||||
Pro forma revenues
|
$
|
122,183
|
|
|
$
|
105,222
|
|
Pro forma net income
|
4,932
|
|
|
1,244
|
|
Revenues
|
$
|
6,594
|
|
Net loss
|
(322
|
)
|
Cash and cash equivalents
|
$
|
4
|
|
Inventories
|
46
|
|
|
Prepaid expenses and other current assets
|
33
|
|
|
Property and equipment
|
546
|
|
|
Reacquired franchise rights
|
516
|
|
|
Asset retirement obligations
|
(61
|
)
|
|
Total identifiable net assets acquired
|
1,084
|
|
|
Goodwill
|
2,369
|
|
|
Total consideration
|
$
|
3,453
|
|
(in thousands)
|
2014
|
||
Pro forma revenues
|
$
|
100,307
|
|
Pro forma net income
|
1,208
|
|
Revenues
|
$
|
2,039
|
|
Net loss
|
(56
|
)
|
Cash and cash equivalents
|
$
|
5
|
|
Inventories
|
67
|
|
|
Prepaid expenses and other current assets
|
58
|
|
|
Property and equipment
|
1,191
|
|
|
Reacquired franchise rights
|
292
|
|
|
Asset retirement obligations
|
(111
|
)
|
|
Total identifiable net assets acquired
|
1,502
|
|
|
Goodwill
|
2,633
|
|
|
Total consideration
|
$
|
4,135
|
|
(in thousands)
|
2014
|
||
Pro forma revenues
|
$
|
102,975
|
|
Pro forma net income
|
1,087
|
|
Revenues
|
$
|
538
|
|
Net loss
|
(16
|
)
|
Note 4 — Prepaid Expenses and Other Current Assets
|
(in thousands)
|
2016
|
|
2015
|
||||
Prepaid media development costs
|
$
|
606
|
|
|
$
|
352
|
|
Prepaid software and support
|
985
|
|
|
464
|
|
||
Prepaid rent
|
622
|
|
|
477
|
|
||
Prepaid insurance
|
453
|
|
|
602
|
|
||
Taxes receivable
|
547
|
|
|
2,872
|
|
||
POS software licenses for resale
|
—
|
|
|
660
|
|
||
Assets held for sale
|
1,406
|
|
|
605
|
|
||
Advertising cooperative assets, restricted
|
48
|
|
|
26
|
|
||
Other
|
41
|
|
|
81
|
|
||
Total prepaid expenses and other current assets
|
$
|
4,708
|
|
|
$
|
6,139
|
|
Note 5 — Property and Equipment
|
(in thousands)
|
2016
|
|
2015
|
||||
Leasehold improvements
|
$
|
11,726
|
|
|
$
|
7,099
|
|
Restaurant equipment and fixtures
|
15,361
|
|
|
10,803
|
|
||
Office furniture and equipment
|
2,535
|
|
|
5,575
|
|
||
Software
|
14,929
|
|
|
5,291
|
|
||
Vehicles
|
92
|
|
|
92
|
|
||
Construction in progress
|
987
|
|
|
6,193
|
|
||
|
45,630
|
|
|
35,053
|
|
||
Accumulated depreciation and amortization
|
(17,114
|
)
|
|
(13,792
|
)
|
||
Property and equipment, net
|
$
|
28,516
|
|
|
$
|
21,261
|
|
Note 6 — Divestitures
|
Leasehold improvements
|
$
|
386
|
|
Restaurant equipment and fixtures
|
438
|
|
|
Property and equipment
|
824
|
|
|
Prepaid expenses and other current assets
|
19
|
|
|
Total assets sold
|
$
|
843
|
|
Leasehold improvements
|
$
|
341
|
|
Restaurant equipment and fixtures
|
367
|
|
|
Property and equipment
|
708
|
|
|
Prepaid expenses and other current assets
|
22
|
|
|
Intangible assets
|
8
|
|
|
Goodwill
|
263
|
|
|
Total assets sold
|
$
|
1,001
|
|
Note 7 — Goodwill
|
(in thousands)
|
Domestic Company Stores
|
|
Domestic Franchise
|
|
Total
|
||||||
Balance at December 29, 2014
|
$
|
19,536
|
|
|
$
|
81,546
|
|
|
$
|
101,082
|
|
Acquisitions
|
5,687
|
|
|
—
|
|
|
5,687
|
|
|||
Disposition
|
(263
|
)
|
|
—
|
|
|
(263
|
)
|
|||
Balance at December 28, 2015
|
24,960
|
|
|
81,546
|
|
|
106,506
|
|
|||
Acquisitions
|
1,964
|
|
|
—
|
|
|
1,964
|
|
|||
Balance at January 2, 2017
|
$
|
26,924
|
|
|
$
|
81,546
|
|
|
$
|
108,470
|
|
Note 8 — Intangible Assets
|
|
2016
|
|
|
||||||||||
(in thousands)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
|
Weighted Average Amortization Period
|
||||||
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
||||||
Franchise relationships
|
$
|
56,000
|
|
|
$
|
(23,355
|
)
|
|
$
|
32,645
|
|
|
16.0
|
Reacquired franchise rights
|
6,914
|
|
|
(3,246
|
)
|
|
3,668
|
|
|
6.3
|
|||
Net intangible assets subject to amortization
|
$
|
62,914
|
|
|
$
|
(26,601
|
)
|
|
$
|
36,313
|
|
|
14.5
|
Intangible assets not subject to amortization
|
|
|
|
|
|
|
|
||||||
Trade name and trademarks
|
|
|
|
|
$
|
87,002
|
|
|
|
|
2015
|
|
|
||||||||||
(in thousands)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
|
Weighted Average Amortization Period
|
||||||
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
||||||
Franchise relationships
|
$
|
56,000
|
|
|
$
|
(19,788
|
)
|
|
$
|
36,212
|
|
|
16.0
|
Reacquired franchise rights
|
8,366
|
|
|
(3,212
|
)
|
|
5,154
|
|
|
6.0
|
|||
Net intangible assets subject to amortization
|
$
|
64,366
|
|
|
$
|
(23,000
|
)
|
|
$
|
41,366
|
|
|
14.5
|
Intangible assets not subject to amortization
|
|
|
|
|
|
|
|
||||||
Trade name and trademarks
|
|
|
|
|
$
|
87,002
|
|
|
|
Fiscal year
|
2017
|
$
|
4,656
|
|
|
2018
|
4,331
|
|
|
|
2019
|
4,068
|
|
|
|
2020
|
3,945
|
|
|
|
2021
|
3,878
|
|
|
|
Thereafter
|
15,435
|
|
|
|
|
$
|
36,313
|
|
Note 9 — Notes Receivable
|
(in thousands)
|
2016
|
|
2015
|
||||
Note maturing in 2020 bearing interest at 9.0% and collateralized by store assets
|
$
|
149
|
|
|
$
|
221
|
|
Total notes receivable
|
149
|
|
|
221
|
|
||
Less current portion
|
(92
|
)
|
|
(78
|
)
|
||
Notes receivable, net of current portion
|
$
|
57
|
|
|
$
|
143
|
|
Note 10 — Financing Arrangements
|
(in thousands)
|
2016
|
|
2015
|
||||
Term loan under 2014 credit facility
|
$
|
105,879
|
|
|
$
|
109,200
|
|
Revolving line of credit under 2014 credit facility
|
800
|
|
|
—
|
|
||
Notes payable
|
3,000
|
|
|
3,000
|
|
||
Total principal amount of long-term debt
|
109,679
|
|
|
112,200
|
|
||
Less unamortized debt issuance costs
|
(835
|
)
|
|
(1,163
|
)
|
||
Total long-term debt
|
108,844
|
|
|
111,037
|
|
||
Less current portion
|
(7,879
|
)
|
|
(2,800
|
)
|
||
Total long-term debt, net of current portion
|
$
|
100,965
|
|
|
$
|
108,237
|
|
(in thousands)
|
Senior Secured Credit Facility
|
|
Notes Payable
|
|
Total
|
|||||||
Fiscal Years
|
2017
|
$
|
7,879
|
|
|
$
|
—
|
|
|
$
|
7,879
|
|
|
2018
|
10,500
|
|
|
3,000
|
|
|
13,500
|
|
|||
|
2019
|
88,300
|
|
|
—
|
|
|
88,300
|
|
|||
|
|
$
|
106,679
|
|
|
$
|
3,000
|
|
|
$
|
109,679
|
|
Fiscal Years
|
2017
|
$
|
328
|
|
|
2018
|
312
|
|
|
|
2019
|
195
|
|
|
|
|
$
|
835
|
|
Note 11 — Fair Value Measurement
|
▪
|
Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
|
▪
|
Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data
|
▪
|
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
|
|
2016
|
|
2015
|
|
|
||||||||||||
(in thousands)
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Fair Value Measurements
|
||||||||
Financial assets
|
|
|
|
|
|
|
|
|
|
||||||||
Notes receivable
(1)
|
$
|
149
|
|
|
$
|
150
|
|
|
$
|
221
|
|
|
$
|
224
|
|
|
Level 3
|
(1)
|
The fair value of notes receivable was estimated primarily using a discounted cash flow method based on a discount rate, reflecting the applicable credit spread.
|
Note 12 — Accrued and Other Liabilities
|
(in thousands)
|
2016
|
|
2015
|
||||
Accrued compensation and related costs
|
$
|
2,192
|
|
|
$
|
3,699
|
|
Gift cards and certificates payable
|
3,033
|
|
|
2,902
|
|
||
Accrued interest and non-income taxes payable
|
524
|
|
|
855
|
|
||
Convention fund balance
|
1,025
|
|
|
626
|
|
||
Unearned product rebates
|
—
|
|
|
922
|
|
||
Advertising cooperative liabilities
|
204
|
|
|
137
|
|
||
Other
|
525
|
|
|
615
|
|
||
|
$
|
7,503
|
|
|
$
|
9,756
|
|
Note 13 — Income Taxes
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
||||||
Current tax provision
|
|
|
|
|
|
||||||
Federal
|
$
|
5
|
|
|
$
|
83
|
|
|
$
|
9
|
|
State
|
214
|
|
|
278
|
|
|
103
|
|
|||
|
219
|
|
|
361
|
|
|
112
|
|
|||
Deferred tax provision (benefit)
|
|
|
|
|
|
||||||
Federal
|
1,508
|
|
|
2,211
|
|
|
958
|
|
|||
State
|
216
|
|
|
(504
|
)
|
|
165
|
|
|||
|
1,724
|
|
|
1,707
|
|
|
1,123
|
|
|||
Total provision for income taxes
|
$
|
1,943
|
|
|
$
|
2,068
|
|
|
$
|
1,235
|
|
(in thousands)
|
2016
|
|
2015
|
||||
Deferred income tax assets:
|
|
|
|
||||
Unearned franchise and development fees
|
$
|
379
|
|
|
$
|
858
|
|
Convention and Advertising funds balance
|
380
|
|
|
232
|
|
||
Compensation accruals
|
102
|
|
|
422
|
|
||
Gift card accruals
|
458
|
|
|
414
|
|
||
Asset retirement obligation
|
201
|
|
|
172
|
|
||
Deferred rent
|
434
|
|
|
206
|
|
||
Share-based compensation
|
1,082
|
|
|
901
|
|
||
Net operating loss
|
1,598
|
|
|
—
|
|
||
Other
|
387
|
|
|
619
|
|
||
Total deferred tax assets
|
5,021
|
|
|
3,824
|
|
||
Valuation allowance
|
(61
|
)
|
|
—
|
|
||
Total deferred tax assets after valuation allowance
|
4,960
|
|
|
3,824
|
|
||
Deferred income tax liabilities:
|
|
|
|
||||
Fixed asset, goodwill, and intangible asset basis differences
|
(46,836
|
)
|
|
(44,491
|
)
|
||
Other
|
(2,303
|
)
|
|
(1,772
|
)
|
||
Total deferred tax liabilities
|
(49,139
|
)
|
|
(46,263
|
)
|
||
Net deferred tax liability
|
$
|
(44,179
|
)
|
|
$
|
(42,439
|
)
|
Balance at fiscal 2015
|
$
|
—
|
|
Additions for tax positions of the current year
|
19
|
|
|
Additions for tax positions of prior years
|
53
|
|
|
Balance at fiscal 2016
|
$
|
72
|
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
||||||
Federal income tax provision based on statutory rate
|
$
|
1,561
|
|
|
$
|
2,203
|
|
|
$
|
844
|
|
State and local income tax effect
|
284
|
|
|
314
|
|
|
177
|
|
|||
Effect of change in blended state rate
|
—
|
|
|
(464
|
)
|
|
—
|
|
|||
Non-deductible expenses
|
255
|
|
|
133
|
|
|
254
|
|
|||
Tax credits and other
|
(157
|
)
|
|
(118
|
)
|
|
(40
|
)
|
|||
Provision for income taxes
|
$
|
1,943
|
|
|
$
|
2,068
|
|
|
$
|
1,235
|
|
Note 14 — Shareholders’ Equity
|
Note 15 — Share-based Compensation
|
|
Number of Shares of
Restricted Common Stock
|
|
|
||||||
|
Time
Vesting
|
|
Market
Condition
|
|
Weighted Average
Award Date
Fair Value per Share
|
||||
Unvested, 2015
|
49,513
|
|
|
186,515
|
|
|
$
|
3.11
|
|
Granted
|
18,000
|
|
|
—
|
|
|
7.66
|
|
|
Vested
|
(21,456
|
)
|
|
—
|
|
|
10.26
|
|
|
Forfeited/Repurchased
|
(15,387
|
)
|
|
(37,569
|
)
|
|
1.48
|
|
|
Unvested, 2016
|
30,670
|
|
|
148,946
|
|
|
$
|
2.70
|
|
(in thousands, except per share amounts)
|
2016
|
|
2015
|
|
2014
|
||||||
Weighted average grant date fair value per share
|
$
|
7.66
|
|
|
$
|
19.05
|
|
|
$
|
8.80
|
|
Total fair value of shares issued
|
$
|
138
|
|
|
$
|
150
|
|
|
$
|
60
|
|
Total fair value of shares vested
|
$
|
220
|
|
|
$
|
171
|
|
|
$
|
509
|
|
|
Number of Shares
Subject to Stock Options
|
|
|
|
|
|
|
||||||||
|
Time
Vesting |
|
Market
Condition |
|
Weighted
Average Exercise Price per Share |
|
Weighted
Average Remaining Contractual Term |
|
Aggregate
Intrinsic Value (in thousands) |
||||||
Outstanding, 2015
|
841,956
|
|
|
200,481
|
|
|
$
|
11.55
|
|
|
|
|
|
||
Granted
|
177,450
|
|
|
—
|
|
|
10.94
|
|
|
|
|
|
|||
Exercised
|
(26,644
|
)
|
|
—
|
|
|
11.00
|
|
|
|
|
|
|||
Forfeited
|
(41,074
|
)
|
|
(28,986
|
)
|
|
11.40
|
|
|
|
|
|
|||
Outstanding, 2016
|
951,688
|
|
|
171,495
|
|
|
$
|
11.48
|
|
|
7.7 years
|
|
$
|
—
|
|
Exercisable, 2016
|
522,543
|
|
|
—
|
|
|
$
|
11.39
|
|
|
7.4 years
|
|
$
|
—
|
|
(in thousands, except per share amounts)
|
2016
|
|
2015
|
|
2014
|
||||||
Weighted average grant date fair value per share
|
$
|
3.67
|
|
|
$
|
5.41
|
|
|
$
|
4.27
|
|
Total fair value of awards granted
|
$
|
651
|
|
|
$
|
1,039
|
|
|
$
|
4,151
|
|
Total fair value of awards vested
|
$
|
594
|
|
|
$
|
431
|
|
|
$
|
1,635
|
|
Total intrinsic value of stock options exercised
|
$
|
25
|
|
|
$
|
189
|
|
|
N/A
|
|
2016
|
|
2015
|
|
2014
|
Risk free rate
|
1.74%
|
|
1.94%
|
|
2.05%
|
Expected volatility
|
30.4%
|
|
37.9%
|
|
35.0%
|
Expected term
|
6.3 years
|
|
6.3 years
|
|
6.3 years
|
Expected dividend yield
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
2014
(1)
|
Risk free rate
|
0.36%
|
Volatility of the underlying assets
|
45%
|
Estimated time until a liquidation event
|
(2)
|
Marketability discount—common stock
|
(2)
|
Marketability discount—preferred stock
|
(2)
|
(1)
|
The last valuation of the Company was performed as of March 31, 2014.
|
(2)
|
The Company applied a probability weighted expected return method, where equity values were calculated using an option pricing model under
IPO
and non-
IPO
scenarios and each value was weighted based on estimated probability of occurrence. During the period,
0.58
~
1.75 years
were used as estimated time until a liquidation event and
10
~
25%
and
8
~
15%
of marketability discount were used for common and preferred stock, respectively, depending on
IPO
or non-
IPO
scenarios. As of March 31, 2014, the date of the last valuation performed by the Company, a
95%
weight was given to the
IPO
scenario.
|
Note 16 — Earnings per Share (EPS)
|
(in thousands, except per share data)
|
2016
|
|
2015
|
|
2014
|
||||||
Earnings:
|
|
|
|
|
|
||||||
Net income
|
$
|
2,649
|
|
|
$
|
4,411
|
|
|
$
|
1,248
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
500
|
|
|
—
|
|
|||
Net income attributable to Papa Murphy’s
|
2,649
|
|
|
4,911
|
|
|
1,248
|
|
|||
Cumulative Series A and B Preferred dividends
|
—
|
|
|
—
|
|
|
(2,150
|
)
|
|||
Net income (loss) available to common shareholders
|
$
|
2,649
|
|
|
$
|
4,911
|
|
|
$
|
(902
|
)
|
Shares:
|
|
|
|
|
|
||||||
Basic weighted average common shares outstanding
|
16,743
|
|
|
16,653
|
|
|
12,101
|
|
|||
Dilutive effect of restricted equity awards
(1)
|
30
|
|
|
218
|
|
|
—
|
|
|||
Diluted weighted average number of shares outstanding
|
16,773
|
|
|
16,871
|
|
|
12,101
|
|
|||
Earnings (loss) per share:
|
|
|
|
|
|
||||||
Basic earnings (loss) per share
|
$
|
0.16
|
|
|
$
|
0.29
|
|
|
$
|
(0.07
|
)
|
Diluted earnings (loss) per share
|
$
|
0.16
|
|
|
$
|
0.29
|
|
|
$
|
(0.07
|
)
|
(1)
|
The Company’s potential common stock instruments such as stock options and restricted stock awards were not included in the computation of diluted
EPS
for 2014 as the effect of including these shares in the calculation would have been anti-dilutive. An aggregated total of
746,000
,
78,000
and
344,000
potential common shares have been excluded from the diluted
EPS
calculation for
2016
,
2015
and
2014
, respectively, because their effect would have been anti-dilutive.
|
Note 17 — Commitments and Contingencies
|
(in thousands)
|
Total lease minimum payments
|
|
Sublease income
|
|
Net lease minimum payments
|
|||||||
Fiscal years
|
2017
|
$
|
5,534
|
|
|
$
|
72
|
|
|
$
|
5,462
|
|
|
2018
|
5,139
|
|
|
72
|
|
|
5,067
|
|
|||
|
2019
|
4,440
|
|
|
72
|
|
|
4,368
|
|
|||
|
2020
|
3,460
|
|
|
45
|
|
|
3,415
|
|
|||
|
2021
|
1,988
|
|
|
—
|
|
|
1,988
|
|
|||
|
Thereafter
|
4,255
|
|
|
—
|
|
|
4,255
|
|
|||
|
|
$
|
24,816
|
|
|
$
|
261
|
|
|
$
|
24,555
|
|
Fiscal Years
|
2017
|
$
|
532
|
|
|
2018
|
466
|
|
|
|
2019
|
445
|
|
|
|
2020
|
317
|
|
|
|
2021
|
104
|
|
|
|
|
$
|
1,864
|
|
Note 18 — Retirement Plans
|
Note 19 — Related Party Transactions
|
Note 20 — Segment Information
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
||||||
Revenues
|
|
|
|
|
|
||||||
Domestic Franchise
|
$
|
44,434
|
|
|
$
|
45,579
|
|
|
$
|
46,233
|
|
Domestic Company Stores
|
82,080
|
|
|
74,300
|
|
|
50,598
|
|
|||
International
|
369
|
|
|
330
|
|
|
568
|
|
|||
Total
|
$
|
126,883
|
|
|
$
|
120,209
|
|
|
$
|
97,399
|
|
Segment Operating Income (Loss)
|
|
|
|
|
|
||||||
Domestic Franchise
|
$
|
17,186
|
|
|
$
|
20,750
|
|
|
$
|
21,939
|
|
Domestic Company Stores
|
(2,803
|
)
|
|
1,359
|
|
|
1,307
|
|
|||
International
|
269
|
|
|
238
|
|
|
20
|
|
|||
Corporate and unallocated
|
(5,004
|
)
|
|
(6,712
|
)
|
|
(7,961
|
)
|
|||
Total
|
$
|
9,648
|
|
|
$
|
15,635
|
|
|
$
|
15,305
|
|
Depreciation and amortization
|
|
|
|
|
|
||||||
Domestic Franchise
|
$
|
6,606
|
|
|
$
|
5,392
|
|
|
$
|
5,046
|
|
Domestic Company Stores
|
5,599
|
|
|
4,579
|
|
|
2,975
|
|
|||
International
|
31
|
|
|
31
|
|
|
31
|
|
|||
Total
|
$
|
12,236
|
|
|
$
|
10,002
|
|
|
$
|
8,052
|
|
Interest expense (income), net
|
|
|
|
|
|
||||||
Domestic Franchise
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
Domestic Company Stores
|
136
|
|
|
2,301
|
|
|
2,547
|
|
|||
International
|
—
|
|
|
(3
|
)
|
|
(27
|
)
|
|||
Other
|
4,733
|
|
|
2,225
|
|
|
5,507
|
|
|||
Total
|
$
|
4,868
|
|
|
$
|
4,523
|
|
|
$
|
8,025
|
|
Provision for income taxes
|
|
|
|
|
|
||||||
Domestic Franchise
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Domestic Company Stores
|
—
|
|
|
—
|
|
|
—
|
|
|||
International
|
7
|
|
|
9
|
|
|
9
|
|
|||
Other
|
1,936
|
|
|
2,059
|
|
|
1,226
|
|
|||
Total
|
$
|
1,943
|
|
|
$
|
2,068
|
|
|
$
|
1,235
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Total Assets
|
|
|
|
|
|
||||||
Domestic Franchise
|
$
|
133,466
|
|
|
$
|
139,705
|
|
|
$
|
137,417
|
|
Domestic Company Stores
|
52,531
|
|
|
45,217
|
|
|
34,953
|
|
|||
International
|
318
|
|
|
438
|
|
|
447
|
|
|||
Other
(1)
|
87,557
|
|
|
90,111
|
|
|
91,310
|
|
|||
Total
|
$
|
273,872
|
|
|
$
|
275,471
|
|
|
$
|
264,127
|
|
(1)
|
Other assets which are not allocated to the individual segments primarily include trade names & trademarks.
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
||||||
Revenues
|
|
|
|
|
|
||||||
United States
|
$
|
126,514
|
|
|
$
|
119,879
|
|
|
$
|
96,831
|
|
International
|
369
|
|
|
330
|
|
|
568
|
|
|||
Total
|
$
|
126,883
|
|
|
$
|
120,209
|
|
|
$
|
97,399
|
|
Note 21 — Selected Quarterly Financial Data (unaudited)
|
(in thousands, except per share data)
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
||||||||
2016
|
|
|
|
|
|
|
|
||||||||
Revenue
|
$
|
32,985
|
|
|
$
|
29,894
|
|
|
$
|
28,519
|
|
|
$
|
35,485
|
|
Operating Income
|
2,323
|
|
|
2,813
|
|
|
691
|
|
|
3,821
|
|
||||
Net Income (Loss)
|
642
|
|
|
952
|
|
|
(421
|
)
|
|
1,476
|
|
||||
Basic earnings (loss) per share
|
$
|
0.04
|
|
|
$
|
0.06
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.09
|
|
Diluted earnings (loss) per share
|
$
|
0.04
|
|
|
$
|
0.06
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
||||||||
2015
|
|
|
|
|
|
|
|
||||||||
Revenue
|
$
|
29,168
|
|
|
$
|
29,121
|
|
|
$
|
28,132
|
|
|
$
|
33,788
|
|
Operating Income
|
5,348
|
|
|
2,588
|
|
|
3,045
|
|
|
4,654
|
|
||||
Net Income (Loss)
|
2,596
|
|
|
(1,939
|
)
|
|
1,122
|
|
|
2,632
|
|
||||
Net Income (Loss) Attributable to Papa Murphy's
|
2,596
|
|
|
(1,439
|
)
|
|
1,122
|
|
|
2,632
|
|
||||
Basic earnings (loss) per share
|
$
|
0.16
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.07
|
|
|
$
|
0.16
|
|
Diluted earnings (loss) per share
|
$
|
0.15
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.07
|
|
|
$
|
0.16
|
|
Note 22 — Subsequent Events
|
Evaluation of Disclosure Controls and Procedures
|
Management's Annual Report on Internal Control over Financial Reporting
|
Changes in Internal Control over Financial Reporting
|
(a)
|
The following documents are filed as part of this report:
|
|
|
|
Form 10-K Page No.
|
1.
|
Financial Statements: The following financial statements are included in Item 8. “Financial Statements and Supplementary Data”:
|
|
|
Consolidated Statements of Income for the Fiscal Years ended January 2, 2017, December 28, 2015, and December 29, 2014
|
|
|
Consolidated Balance Sheets as of January 2, 2017 and December 28, 2015
|
|
|
Consolidated Statements of Shareholders’ Equity for the Fiscal Years ended January 2, 2017, December 28, 2015 and December 29, 2014
|
|
|
Consolidated Statements of Cash Flows for the Fiscal Years ended January 2, 2017, December 28, 2015 and December 29, 2014
|
|
|
Notes to Consolidated Financial Statements
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
2.
|
Financial Statement Schedule:
|
|
|
Schedule I - Condensed Financial Information of the Registrant
|
|
|
Schedule II - Valuation and Qualifying Accounts
|
|
|
All other schedules are omitted because they are not applicable, not required or the required information is shown in the financial statements or the notes thereto.
|
|
3.
|
Exhibits:
|
|
|
|
Incorporated By Reference
|
|||
Exhibit
|
|
|
File
|
|
Filing
|
Number
|
Description Of Exhibits
|
Form
|
Number
|
Exhibit
|
Date
|
31.1*
|
Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
31.2*
|
Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
32.1*
|
Certificate of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
32.2*
|
Certificate of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
101.INS*
|
XBRL Instance Document
|
|
|
|
|
101.SCH*
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
|
Papa Murphy’s Holdings, Inc.
|
|
Fiscal Year
|
||||||||||
(in thousands)
|
2016
|
|
2015
|
|
2014
|
||||||
Equity in earnings of subsidiaries
|
$
|
6,905
|
|
|
$
|
9,486
|
|
|
$
|
4,046
|
|
Selling, general and administrative expense
|
2,140
|
|
|
2,380
|
|
|
1,392
|
|
|||
Operating Income
|
4,765
|
|
|
7,106
|
|
|
2,654
|
|
|||
|
|
|
|
|
|
||||||
Other expense, net
|
180
|
|
|
136
|
|
|
180
|
|
|||
Income Before Income Taxes
|
4,585
|
|
|
6,970
|
|
|
2,474
|
|
|||
|
|
|
|
|
|
||||||
Provision for income taxes
|
1,936
|
|
|
2,059
|
|
|
1,226
|
|
|||
Net Income
|
2,649
|
|
|
4,911
|
|
|
1,248
|
|
Papa Murphy’s Holdings, Inc.
|
(in thousands, except par value and share data)
|
January 2, 2017
|
|
December 28, 2015
|
||||
Assets
|
|
|
|
||||
Current Assets
|
|
|
|
||||
Prepaid expenses and other current assets
|
$
|
547
|
|
|
$
|
3,109
|
|
Total current assets
|
547
|
|
|
3,109
|
|
||
Investment in affiliates
|
145,349
|
|
|
138,444
|
|
||
Total assets
|
$
|
145,896
|
|
|
$
|
141,553
|
|
Liabilities and Equity
|
|
|
|
||||
Current Liabilities
|
|
|
|
||||
Other current liabilities
|
$
|
36
|
|
|
$
|
70
|
|
Due to consolidated affiliates
|
185
|
|
|
1,388
|
|
||
Total current liabilities
|
221
|
|
|
1,458
|
|
||
Deferred tax liability
|
44,179
|
|
|
42,439
|
|
||
Total liabilities
|
$
|
44,400
|
|
|
$
|
43,897
|
|
Commitments and contingencies
|
|
|
|
||||
Shareholders’ Equity
|
|
|
|
||||
Preferred stock ($0.01 par value; 15,000,000 shares authorized; no shares issued or outstanding)
|
—
|
|
|
—
|
|
||
Common stock ($0.01 par value; 200,000,000 shares authorized; 16,955,970 and 16,949,720 shares issued and outstanding, respectively)
|
170
|
|
|
169
|
|
||
Additional paid-in capital
|
119,932
|
|
|
118,801
|
|
||
Stock subscription receivable
|
—
|
|
|
(100
|
)
|
||
Accumulated deficit
|
(18,606
|
)
|
|
(21,214
|
)
|
||
Total shareholders’ equity
|
101,496
|
|
|
97,656
|
|
||
Total liabilities and shareholders’ equity
|
$
|
145,896
|
|
|
$
|
141,553
|
|
Papa Murphy’s Holdings, Inc.
|
|
Fiscal Year
|
||||||||||
(in thousands)
|
2016
|
|
2015
|
|
2014
|
||||||
Net cash (used in) provided by operating activities
|
$
|
(209
|
)
|
|
$
|
(7,278
|
)
|
|
$
|
6,106
|
|
|
|
|
|
|
|
||||||
Investing Activities
|
|
|
|
|
|
||||||
Investment in subsidiary
|
—
|
|
|
—
|
|
|
(59,675
|
)
|
|||
(Deemed) dividend from subsidiary
|
—
|
|
|
6,912
|
|
|
(1,098
|
)
|
|||
Net cash provided by (used in) investing activities
|
—
|
|
|
6,912
|
|
|
(60,773
|
)
|
|||
|
|
|
|
|
|
||||||
Financing Activities
|
|
|
|
|
|
||||||
Issuance of common stock, net of underwriting fees
|
—
|
|
|
—
|
|
|
59,675
|
|
|||
Repurchases of common stock
|
(84
|
)
|
|
(10
|
)
|
|
(1,518
|
)
|
|||
Proceeds from exercise of stock options
|
293
|
|
|
376
|
|
|
—
|
|
|||
Costs associated with initial public offering
|
—
|
|
|
—
|
|
|
(3,490
|
)
|
|||
Net cash provided by financing activities
|
209
|
|
|
366
|
|
|
54,667
|
|
|||
|
|
|
|
|
|
||||||
Net change in cash and cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|||
|
|
|
|
|
|
||||||
Cash and Cash Equivalents, beginning of year
|
—
|
|
|
—
|
|
|
—
|
|
|||
Cash and Cash Equivalents, end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Papa Murphy’s Holdings, Inc.
|
Note 1—Basis of Presentation
|
Papa Murphy’s Holdings, Inc. and Subsidiaries
|
|
Balance at
Beginning of
Period
|
|
Charged to costs and expenses
|
|
(Write-offs), Net of Recoveries
|
|
Currency
Translation
Adjustments
|
|
Balance at
End of Period |
||||||||||
Fiscal year 2016
|
|
|
|
|
|
|
|
|
|
||||||||||
Allowance for trade and other receivables
|
$
|
31
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37
|
|
Fiscal year 2015
|
|
|
|
|
|
|
|
|
|
||||||||||
Allowance for trade and other receivables
|
$
|
60
|
|
|
$
|
(30
|
)
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
31
|
|
Fiscal year 2014
|
|
|
|
|
|
|
|
|
|
||||||||||
Allowance for trade and other receivables
|
$
|
37
|
|
|
$
|
26
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
60
|
|
Allowance for notes receivable
|
825
|
|
|
—
|
|
|
(763
|
)
|
|
(62
|
)
|
|
—
|
|
|||||
Total
|
$
|
862
|
|
|
$
|
26
|
|
|
$
|
(766
|
)
|
|
$
|
(62
|
)
|
|
$
|
60
|
|
PAPA MURPHY’S HOLDINGS, INC.
|
|||
|
|
|
|
By:
|
|
/s/ Mark Hutchens
|
|
|
|
Name:
|
Mark Hutchens
|
|
|
Title:
|
Chief Financial Officer
|
|
SIGNATURE
|
TITLE
|
DATE
|
|
|
|
|
|
/s/ Jean Birch
|
Chair of the Board and Interim Chief Executive Officer
|
March 15, 2017
|
|
Jean Birch
|
(Principal Executive Officer) and Director
|
|
|
|
|
|
|
/s/ Mark Hutchens
|
Chief Financial Officer
|
March 15, 2017
|
|
Mark Hutchens
|
(Principal Financial Officer and Principal Accounting Officer)
|
|
|
|
|
|
|
/s/ Benjamin Hochberg*
|
Director
|
March 15, 2017
|
|
Benjamin Hochberg
|
|
|
|
|
|
|
|
/s/ Yoo Jin Kim*
|
Director
|
March 15, 2017
|
|
Yoo Jin Kim
|
|
|
|
|
|
|
|
/s/ L. David Mounts*
|
Director
|
March 15, 2017
|
|
L. David Mounts
|
|
|
|
|
|
|
|
/s/ John Shafer*
|
Director
|
March 15, 2017
|
|
John Shafer
|
|
|
|
|
|
|
|
|
Director
|
March 15, 2017
|
|
Rob Weisberg
|
|
|
|
|
|
|
|
/s/ Jeffrey B. Welch*
|
Director
|
March 15, 2017
|
|
Jeffrey B. Welch
|
|
|
|
|
|
|
|
/s/ Katherine L. Scherping*
|
Director
|
March 15, 2017
|
|
Katherine L. Scherping
|
|
|
*By:
|
|
/s/ Mark Hutchens
|
|
|
Mark Hutchens
|
|
|
Attorney-in-fact pursuant to filed Power of Attorney
|
1 Year Freshworks Chart |
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