Franchise Group, Inc. Announces Fiscal 2021 First Quarter

0


  • INCREASES ANNUAL GUIDANCE

ORLANDO, Fla., May 06, 2021 (GLOBE NEWSWIRE) — Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the financial results of its fiscal 2021 first quarter. For the first quarter of fiscal 2021, total reported revenue for Franchise Group was $621.3 million, net loss from continuing operations was $(28.3) million or $(0.76) per share, Adjusted EBITDA was $79.2 million and Non-GAAP EPS was $0.90 per share. As previously disclosed, on February 21, 2021, the Company entered into a purchase agreement whereby Liberty Tax is expected to become part of NextPoint Acquisition Corp.’s diversified financial services platform and as such the financial position and results of operations of the Company’s Liberty Tax segment are presented as discontinued operations and have been excluded from the Company’s first quarter results. Total cash was $164.9 million and outstanding debt at the end of the first quarter of fiscal 2021 was $1.3 billion.

Brian Kahn, Franchise Group’s President and CEO stated, “Our management teams, associates, and franchisees have continued their momentum into 2021. Our franchising teams have had an exceptionally strong start to the year, adding 90 new franchise locations and area development agreements to date.  I am pleased that our businesses are proving to be stronger together as we exceeded our overall financial expectations for Franchise Group and are raising our expectations for the full year.”

The Company has four reportable segments: American Freight; The Vitamin Shoppe; Pet Supplies Plus and Buddy’s.  The following table summarizes Revenue, Net Income/(Loss), and Adjusted EBITDA for each of these segments.  A reconciliation of Adjusted EBITDA to Net Income/(Loss), the most comparable GAAP measure, is included below under “Non-GAAP Financial Measures and Key Metrics.”

    For the Three Months
    Ended March 27, 2021
        Adjusted   Net
    Revenue   EBITDA   Income/(Loss)
     
    (In thousands)
American Freight   $ 258,517   $ 30,611     $ 13,909  
Vitamin Shoppe     294,739     40,516       30,345  
Pet Supplies Plus     51,309     4,754       (5,184 )
Buddy’s     16,780     5,238       3,011  
Corporate         (1,954 )     (70,415 )
Total   $ 621,345   $ 79,165     $ (28,334 )
             

Outlook

Franchise Group is increasing its Adjusted EBITDA guidance from over $310 million to over $315 million and Non-GAAP EPS guidance from at least $3.25 to at least $3.35 while maintaining its prior guidance of revenue of $3.0 – $3.1 billion. In calculating EPS, the Company is using approximately 40 million weighted average shares outstanding. Non-GAAP EPS is calculated by adding the tax effected impact of adjustments to EBITDA to net income on a per share basis. In calculating Non-GAAP EPS, the Company is currently using an effective tax rate of 18.7% although actual cash taxes are expected to be minimal in fiscal 2021.

The Company does not provide quantitative reconciliation of forward-looking, Non-GAAP financial measures such as forecasted Adjusted EBITDA or Non-GAAP EPS to the most directly comparable GAAP financial measures because it is difficult to reliably predict or estimate the relevant components without unreasonable effort due to future uncertainties that may potentially have significant impact on such calculations, and providing them may imply a degree of precision that would be confusing or potentially misleading. Estimates exclude potential acquisitions, divestitures or refranchising activities. See “Non-GAAP Financial Measures and Key Metrics.”

Conference Call Information
Franchise Group will conduct a conference call on May 6th at 4:30 P.M. ET to discuss its business, review financial results for the first quarter of 2021 and discuss its outlook for the remainder of fiscal 2021. A real-time webcast of the conference call will be available on the Events page of Franchise Group’s website at www.franchisegrp.com. The conference call can also be accessed live via telephone at (888) 771-4371. The passcode is 50145213. Please dial in 5-10 minutes prior to the scheduled start time.

About Franchise Group, Inc.
Franchise Group is an owner and operator of franchised and franchisable businesses that continually looks to grow its portfolio of brands while utilizing its operating and capital allocation philosophies to generate strong cash flow for its stockholders. Franchise Group’s business lines include Pet Supplies Plus, American Freight, The Vitamin Shoppe, Buddy’s Home Furnishings, and Liberty Tax Service. On a combined basis, Franchise Group currently operates over 4,600 locations predominantly located in the U.S. and Canada that are either Company-run or operated pursuant to franchising agreements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
         
(In thousands, except share count and per share data)   March 27, 2021   December 26, 2020
Assets   (Unaudited)   (Unaudited)
Current assets:        
Cash and cash equivalents   $ 164,858     $ 148,780  
Current receivables, net     88,263       67,335  
Inventories, net     447,811       302,307  
Current assets held for sale     138,319       43,023  
Other current assets     22,357       13,997  
Total current assets     861,608       575,442  
Property, equipment, and software, net     212,983       135,872  
Non-current receivables, net     11,706       12,800  
Goodwill     786,685       448,258  
Intangible assets, net     314,413       109,892  
Operating lease right-of-use assets     659,482       502,104  
Non-current assets held for sale           55,116  
Other non-current assets     15,060       8,428  
Total assets   $ 2,861,937     $ 1,847,912  
Liabilities and Stockholders Equity        
Current liabilities:        
Current installments of long-term obligations   $ 12,014     $ 104,053  
Current operating lease liabilities     155,949       127,032  
Accounts payable and accrued expenses     338,450       252,389  
Current liabilities held for sale     47,515       40,576  
Other current liabilities     37,635       25,174  
Total current liabilities     591,563       549,224  
Long-term obligations, excluding current installments     1,243,132       466,944  
Non-current operating lease liabilities     517,573       402,276  
Non-current liabilities held for sale           8,779  
Other non-current liabilities     46,209       35,522  
Total liabilities     2,398,477       1,462,745  
         
Stockholders equity:        
Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 40,157,102 and 40,092,260 shares issued and outstanding at March 27, 2021 and December 26, 2020, respectively     402       401  
Preferred stock, $0.01 par value per share, 20,000,000 and 20,000,000 shares authorized, 4,541,125 and 1,250,000 shares issued and outstanding at March 27, 2021 and December 26, 2020, respectively     45       13  
Additional paid-in capital     464,106       382,383  
Accumulated other comprehensive loss, net of taxes     (1,112 )     (1,399 )
Retained earnings     19       3,769  
Total equity attributable to Franchise Group, Inc.     463,460       385,167  
Non-controlling interest            
Total equity     463,460       385,167  
Total liabilities and equity   $ 2,861,937     $ 1,847,912  
         
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
         
         
    Three Months Ended
(In thousands, except share count and per share data)   March 27, 2021   March 28, 2020
    (Unaudited)   (Unaudited)
Revenues:        
Product   $ 583,816     $ 473,505  
Service and other     28,576       13,022  
Rental     8,953       16,420  
Total revenues     621,345       502,947  
Operating expenses:        
Cost of revenue:        
Product     339,414       287,818  
Service and other     405       756  
Rental     3,005       5,942  
Total cost of revenue     342,824       294,516  
Selling, general, and administrative expenses     225,545       211,276  
Total operating expenses     568,369       505,792  
Income (loss) from operations     52,976       (2,845 )
Other expense:        
Other     (36,726 )     (4,021 )
Interest expense, net     (47,435 )     (24,511 )
(Loss) before income taxes     (31,185 )     (31,377 )
Income tax expense (benefit)     (2,851 )     (55,921 )
Income (loss) from continuing operations     (28,334 )     24,544  
Income from discontinued operations, net of tax     42,147       37,354  
Net Income     13,813       61,898  
Less: Net (income) attributable to non-controlling interest           (2,359 )
Net income attributable to Franchise Group, Inc.   $ 13,813     $ 59,539  
         
Amounts attributable to Franchise Group, Inc.:        
Net income (loss) from continuing operations   $ (28,334 )   $ 33,984  
Net income from discontinued operations     42,147       25,555  
Net income attributable to Franchise Group, Inc.   $ 13,813     $ 59,539  
         
Basic earnings (loss) per share:        
Continuing operations   $ (0.76 )   $ 1.45  
Discontinued operations     1.05       1.09  
Total basic earnings per share   $ 0.29     $ 2.54  
         
Diluted earnings (loss) per share:        
Continuing operations   $ (0.76 )   $ 1.43  
Discontinued operations     1.05       1.08  
Total diluted earnings per share   $ 0.29     $ 2.51  
         
Weighted-average shares outstanding:        
Basic     40,110,084       23,373,980  
Diluted     40,110,084       23,693,035  
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
         
         
    Three Months Ended
(In thousands)   March 27, 2021   March 28, 2020
    (Unaudited)   (Unaudited)
Operating Activities        
Net income   $ 13,813     $ 61,898  
Adjustments to reconcile net income to net cash provided by operating activities:        
Provision for doubtful accounts     710       1,672  
Depreciation, amortization and impairment charges     14,176       15,927  
Amortization of deferred financing costs     30,973       11,744  
Loss on disposal of fixed assets     (62 )      
Stock-based compensation expense – equity awards     2,550       2,485  
(Gain) on bargain purchases and sales of Company-owned offices     (623 )     (808 )
Equity in loss of affiliate           88  
Deferred income taxes           5,010  
Prepayment penalty for early debt extinguishment     36,726        
Change in        
Accounts, notes, and interest receivable     (7,648 )     (10,203 )
Income taxes receivable     (1,032 )     (51,857 )
Other assets     (6,271 )     (2,364 )
Accounts payable and accrued expenses     8,718       41,921  
Inventory     (20,454 )     40,066  
Deferred revenue     4,175       189  
Net cash provided by operating activities     75,751       115,768  
Investing Activities        
Issuance of operating loans to franchisees and area developers     (17,058 )     (28,212 )
Payments received on operating loans to franchisees and area developers     21,644       47,800  
Purchases of Company-owned offices, area developer rights, and acquired customer lists     (132 )     (2,251 )
Proceeds from sale of Company-owned offices and area developer rights     277       950  
Acquisition of business, net of cash and restricted cash acquired     (463,753 )     (357,263 )
Purchases of property, equipment, and software     (11,535 )     (6,184 )
Net cash (used in) investing activities     (470,557 )     (345,160 )
Financing Activities        
Proceeds from the exercise of stock options     25        
Dividends paid     (15,620 )     (3,943 )
Non-controlling interest distribution           (2,358 )
Repayment of other long-term obligations     (769,791 )     (370,503 )
Borrowings under revolving credit facility     6,724       142,000  
Repayments under revolving credit facility     (84,874 )     (79,260 )
Issuance of common stock           80,682  
Issuance of preferred stock     79,541        
Payment for debt issue costs and original issuance discounts     (50,764 )     (14,408 )
Prepayment penalty for early debt extinguishment     (36,726 )      
Issuance of debt     1,300,000       586,000  
Cash paid for taxes on exercises/vesting of stock-based compensation     (361 )     (36 )
Net cash provided by financing activities     428,154       338,174  
Effect of exchange rate changes on cash, net     56       (1,335 )
Net increase in cash equivalents and restricted cash     33,404       107,447  
Cash, cash equivalents and restricted cash at beginning of year     151,502       45,146  
Cash, cash equivalents and restricted cash at end of year   $ 184,906     $ 152,593  
Supplemental Cash Flow Disclosure        
Cash paid for taxes, net of refunds   $ 65     $ 466  
Cash paid for interest   $ 39,730     $ 15,332  
Accrued capital expenditures   $ 3,019     $ 4,061  
Deferred financing costs from issuance of common stock   $     $ 31,013  
Share issuance proceeds included in accounts receivable   $     $ 11,385  
Tax receivable agreement included in other long-term liabilities   $ 16,775     $ 7,449  

Non-GAAP Financial Measures and Key Metrics
Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP EPS are financial measures that are not prepared in accordance with GAAP. Management believes the presentation of these measures is useful to investors as supplemental measures in evaluating the aggregate performance of our operating businesses and in comparing our results from period to period because they exclude items that we do not believe are reflective of our core or ongoing operating results. These measures are used by our management to evaluate performance and make resource allocation decisions each period. These metrics are also used in the determination of executive management’s compensation. Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP EPS should not be considered in isolation or as a substitute for net income or other income statement information prepared in accordance with GAAP and our presentation of these non-GAAP measures may not be comparable to similarly titled measures used by other companies.

Management defines and calculates Adjusted EBITDA as net income (loss) from continuing operations before interest, income taxes, depreciation and amortization adjusted for certain non-core or non-operational items related to executive severance and related costs, stock-based compensation, shareholder litigation costs, corporate governance costs, accrued judgments and settlements, net of estimated revenue, store closures, rebranding costs, acquisition costs, inventory fair value step up amortization and prepayment penalty on early debt repayment. Adjusted EBITDA is a financial measure that is not prepared in accordance with GAAP.

Management defines and calculates Non-GAAP Net Income and Non-GAAP EPS as net income (loss) and net income (loss) per diluted share from continuing operations adjusted for non-core or non-operational items related to executive severance and related costs, stock-based compensation, non-cash executive compensation expense, shareholder litigation costs, prepayment penalty on early debt repayment, non-cash amortization of debt issuance costs, store closures, rebranding costs, acquisition costs, inventory fair value step up amortization, and amortization of acquired intangible assets. Although amortization of acquired intangible assets is excluded from these non-GAAP measures, it is important for investors to understand that such intangible assets support revenue generation. Management excludes amortization of intangible assets because these are non-cash amounts for which the amount and frequency are significantly impacted by the timing and size of our acquisitions, which vary from period to periods and across companies. The tax effect on the related non-GAAP adjustments was calculated based on an estimated annual non-GAAP effective tax rate of 18.7%.

Reconciliation of Adjusted EBITDA
Below are reconciliations of Net Income/(Loss) from continuing operations to Adjusted EBITDA for the three months ended March 27, 2021.

                         
    For the Three Months Ended March 27, 2021
($ In thousands)   Buddy’s   Pet Supplies Plus   American Freight   Vitamin Shoppe
  Corporate   Total
Net income (loss) from continuing operations   $ 3,011   $ (5,184 )   $ 13,909   $ 30,345   $ (70,415 )   $ (28,334 )
Add back:                              
Interest expense     1,262     1,011       11,221     2,927     31,014       47,435  
Income tax expense (benefit)         4           3     (2,857 )     (2,851 )
Depreciation and amortization charges     895     1,431       1,890     7,242     0       11,458  
Total Adjustments     2,157     2,446       13,111     10,172     28,157       56,042  
EBITDA     5,168     (2,739 )     27,020     40,516     (42,258 )     27,708  
Adjustments to EBITDA                              
Executive severance and related costs         11                     11  
Stock based compensation     70                   2,366       2,436  
Long-term executive compensation expense               499               499  
Shareholder litigation costs                       89       89  
Prepayment penalty on early debt repayment                       36,726       36,726  
Store closures / Related Costs               222               222  
Rebranding costs               17               17  
Acquisition costs         4,812       117         1       4,930  
Divestiture costs                       342       342  
Compliance costs                       779       779  
Integration / Related Costs         369       2,737               3,106  
Inventory fair value step up amortization         2,300                     2,300  
Total Adjustments to EBITDA     70     7,492       3,591         40,303       51,457  
Adjusted EBITDA   $ 5,238   $ 4,754     $ 30,611   $ 40,516   $ (1,954 )   $ 79,165  

Reconciliation of Non-GAAP Net Income and EPS
Below are reconciliations of Net Income/(Loss) from continuing operations to Non-GAAP Net Income and Net Income/(Loss) from continuing operations per diluted share to Non-GAAP EPS for the three months ended March 27, 2021.

    For the Three Months Ended
($ In thousands except share count and per share data)   March 27, 2021
Net income (loss) from continuing operations / Net income (loss) from continuing operations per diluted share   $ (28,334 )   $ (0.71 )
Less: Preferred dividend declared     (2,129 )     (0.05 )
Adjusted Net Income available to Common Stockholder     (30,463 )     (0.76 )
Add back:        
Executive severance and related costs     11       0.00  
Stock based compensation     2,436       0.06  
Long-term executive compensation expense     499       0.01  
Shareholder litigation costs     89       0.00  
Prepayment penalty on early debt repayment     36,726       0.90  
Store closures / Related Costs     222       0.01  
Rebranding costs     17       0.00  
Acquisition costs     4,930       0.12  
Divestiture costs     342       0.01  
Compliance costs     779       0.02  
Integration / Related Costs     3,106       0.08  
Inventory fair value step up amortization     2,300       0.06  
Adjustments to EBITDA     51,457     1.26  
Non-cash amortization of debt issuance costs     30,973       0.76  
Amortization of acquisition-related intangibles     1,279       0.03  
Tax impact     (15,654 )     (0.38 )
Impact of diluted share count assuming non-GAAP net income           (0.01 )
Total Adjustments to Net income (loss) from continuing operations   68,055       1.65  
Non-GAAP Net Income from continuing operations / Non-GAAP EPS from continuing operations   $ 37,592     $ 0.90  
Basic weighted average shares         40,110,084  
Non-GAAP diluted weighted average shares outstanding         40,818,921  

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, projections, predictions, expectations, or beliefs about future events or results and are not statements of historical fact. Such statements may include statements regarding the Company’s results of operation and financial condition, its performance during the COVID-19 pandemic, and its strategy and outlook for fiscal 2021. Such forward-looking statements are based on various assumptions as of the time they are made, and are inherently subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are often accompanied by words that convey projected future events or outcomes such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” “may,” “view,” “opportunity,” “potential,” or words of similar meaning or other statements concerning opinions or judgment of the Company or its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from any projected future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results, performance or achievements may differ materially from historical results or those anticipated depending on a variety of factors, many of which are beyond the control of the Company. The Company refers you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Form 10-K for the fiscal year ended December 26, 2020, and comparable sections of the Company’s Quarterly Reports on Form 10-Q and other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. All of the forward-looking statements made in this press release are expressly qualified by the cautionary statements contained or referred to herein. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Company or its business or operations. Readers are cautioned not to rely on the forward-looking statements contained in this press release. Forward-looking statements speak only as of the date they are made and the Company does not undertake any obligation to update, revise or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

Investor Relations Contact:
Andrew F. Kaminsky
EVP & Chief Administrative Officer
Franchise Group, Inc.
[email protected]
(914) 939-5161



Source link

Leave A Reply

Your email address will not be published.