UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________

Form 8-K
_____________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event Reported): June 18, 2020  

Franchise Group, Inc.
(Exact Name of Registrant as Specified in Charter)

Delaware001-3558827-3561876
(State or Other Jurisdiction of Incorporation)(Commission File Number)(I.R.S. Employer Identification Number)

 

1716 Corporate Landing Parkway, Virginia Beach, Virginia 23454
(Address of Principal Executive Offices) (Zip Code)

(757) 493-8855
(Registrant's telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 [   ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 [   ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 [   ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 [   ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareFRGNasdaq Global Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [   ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]

 
 

Item 2.02. Results of Operations and Financial Condition.

On June 18, 2020, Franchise Group, Inc. (the “Company”) issued a press release regarding its financial results for the first quarter ended March 28, 2020. A copy of the release is being furnished as Exhibit 99.1 hereto and incorporated herein by reference. In addition, on June 18, 2020 at 4:30 p.m. Eastern Time, the Company will hold a teleconference for analysts, institutional investors and stockholders to discuss results for the first quarter of the fiscal year ended March 28, 2020.

The information under Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits

99.1 Press Release dated June 18, 2020.


SIGNATURES

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

 Franchise Group, Inc.
   
  
Date: June 18, 2020By: /s/ Eric Seeton        
  Eric Seeton
  Chief Financial Officer
  

EdgarFiling

EXHIBIT 99.1

Franchise Group, Inc. Announces First Quarter 2020 Financial Results

VIRGINIA BEACH, Va., June 18, 2020 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the results of its first quarter ended March 28, 2020.  For the first quarter of 2020, total reported revenue for Franchise Group was $592.6 million, GAAP Net Income was $61.9 million or $2.51 per share, Proforma Adjusted EBITDA was $112.2 million and Non-GAAP EPS was $2.11 per share.  In calculating GAAP EPS, the Company utilized 23.7 million weighted average fully diluted shares outstanding for the first quarter.  In calculating Non-GAAP EPS and formulating guidance, the Company utilized 35.1 million fully diluted shares outstanding.  The Company ended the quarter with $147 million in cash and outstanding debt of $811.5 million.

During the first quarter of 2020, Franchise Group completed the $450 million acquisition of American Freight, closed on a $675 million credit facility, and paid another quarterly dividend of $0.25 per share.  Despite the impacts of Covid-19, the Company was able to exceed its previously announced guidance for the first quarter due to its resilient business model and achievement of operational efficiencies. 

Brian Kahn, Franchise Group’s President and CEO stated, “We established Franchise Group with the ultimate goal of paying dependable and growing dividends to its shareholders.  We have assembled a mix of franchise and franchisable businesses that provide us balance and resiliency which have allowed us to be successful before, during, and after the recent crisis.  We believe our performance to date validates our strategy and is evidenced by our financial results and updated guidance.”

Mr. Kahn continued, “As all of us know, the last few months have been unprecedented in countless ways.  We have been transparent with our stakeholders and have been communicating our operating plans and performance through the pandemic.  I want to reiterate that we have continued to prioritize the health and safety of our employees, customers and communities. I am very grateful for the support and professionalism of our operating management teams throughout this crisis and our successes are a reflection of their strong performance.”  

The Company has four reportable segments: American Freight; The Vitamin Shoppe; Liberty Tax and Buddy’s.  The following table summarizes revenue and Proforma Adjusted EBITDA by these segments.  A reconciliation of Proforma Adjusted EBITDA to the most comparable GAAP measure is included below.

   For the Three Months
 
   Ended March 28, 2020
 
     Proforma   
     Adjusted Net
 
   Revenue EBITDA Income
 
         
   (In thousands)
 
 American Freight $  202,747 $  28,396  $  (14,722) 
 Vitamin Shoppe    275,888    30,195     (9,023) 
 Liberty Tax    89,618    51,359     47,103  
 Buddy's    24,312    5,268     (5,189) 
 Corporate    -     (3,023)    43,729  
 Total $  592,565 $  112,194  $  61,898  
  

 

Outlook (1)

On March 11, 2020, the Company provided preliminary guidance for 2020 of revenue of $2.1 - $2.15 billion, Proforma Adjusted EBITDA of $230 - $240 million and Non-GAAP EPS of $2.35 - $2.55 per share, all assumed American Freight was owned for the full year.  As of today, the Company believes it will be at the high end of that range for revenue and Proforma Adjusted EBITDA and is raising its Non-GAAP EPS guidance to at least $2.60 per share. 

(1) The Company does not provide quantitative reconciliation of forward-looking, non-GAAP financial measures such as forecasted 2020 Proforma Adjusted EBITDA or non-GAAP EPS to the most directly comparable GAAP financial measure 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. Proforma adjustments represent realized and unrealized synergies consistent with the Company’s credit agreement. Estimates exclude potential refranchising activities.

Conference Call Information
Franchise Group will conduct a conference call today at 4:30 p.m. ET to discuss its business, financial results for the first quarter and outlook for the rest of 2020.  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 (877) 784-1793. The passcode is 1898649. Please dial in 5-10 minutes prior to the scheduled start time.

About Franchise Group, Inc.
Franchise Group, Inc. (NASDAQ: FRG) is an operator of franchised and franchisable businesses and uses its operating expertise to drive cost efficiencies and grow its brands.  Franchise Group’s business lines include Liberty Tax Service, Buddy’s Home Furnishings, American Freight and The Vitamin Shoppe.  On a combined basis, Franchise Group currently operates over 4,100 locations predominantly located in the U.S. and Canada that are either Company-run or operated pursuant to franchising agreements.

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 include statements regarding the Company’s performance during the crisis, its strategy and its outlook for the remainder of 2020.  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.  We refer you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Transition Report on Form 10-K/T for the transition period ended December 28, 2019, 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.

 
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
       
(In thousands, except share count and per share data)  March 28, 2020  December 28, 2019
Assets      
Current assets:      
Cash and cash equivalents $147,028  $39,581 
Current receivables, net  136,254   79,693 
Inventories, net  359,447   300,312 
Other current assets  28,279   20,267 
Total current assets  671,008   439,853 
Property, equipment, and software, net  154,713   150,147 
Non-current receivables, net  15,581   18,638 
Goodwill  469,459   134,301 
Intangible assets, net  148,779   77,590 
Operating lease right-of-use assets  535,092   462,610 
Other non-current assets  24,891   15,406 
Total assets $2,019,523  $1,298,545 
Liabilities and Stockholders Equity      
Current liabilities:      
Current installments of long-term obligations $257,466  $218,384 
Current operating lease liabilities  126,701   107,680 
Accounts payable and accrued expenses  259,803   158,995 
Other current liabilities  36,444   16,409 
Total current liabilities  680,414   501,468 
Long-term obligations, excluding current installments  554,004   245,236 
Non-current operating lease liabilities  434,677   394,307 
Other non-current liabilities  21,408   5,773 
Total liabilities  1,690,503   1,146,784 
       
Stockholders equity:      
Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 29,653,052 and 18,250,225 shares issued and outstanding at March 28, 2020 and December 28, 2019, respectively  297   183 
Preferred stock, $0.01 par value per share, 20,000,000 and 20,000,000 shares authorized, 1,099,122 and 1,886,667 shares issued and outstanding at March 28, 2020 and December 28, 2019, respectively  11   19 
Additional paid-in capital  237,354   108,339 
Accumulated other comprehensive loss, net of taxes  (2,306)  (1,538)
Retained earnings  73,652   18,388 
Total equity attributable to Franchise Group, Inc.  309,008   125,391 
Non-controlling interest  20,012   26,370 
Total equity  329,020   151,761 
Total liabilities and equity $2,019,523  $1,298,545 
       


FRANCHISE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
       
   Three Months Ended
(In thousands, except share count and per share data)  March 28, 2020  March 31, 2019
Revenues:      
Product $473,505  $- 
Service and other  102,640   95,838 
Rental  16,420   - 
Total revenues  592,565   95,838 
Operating expenses:      
Cost of revenue:      
Product  287,818   - 
Service and other  756   - 
Rental  5,942   - 
Total cost of revenue  294,516   - 
Selling, general, and administrative expenses  252,212   40,965 
Total operating expenses  546,728   40,965 
Income from operations  45,837   54,873 
Other income (expense):      
Other  (4,056)  7 
Interest expense, net  (25,752)  (1,055)
Income before income taxes  16,029   53,825 
Income tax expense (benefit)  (45,869)  15,634 
Net income  61,898   38,191 
Less: Net income attributable to non-controlling interest  (2,359)  - 
Net income attributable to Franchise Group, Inc. $59,539  $38,191 
       
Net income per share of common stock:      
Basic $2.55  $2.72 
Diluted  2.51   2.71 
       
Weighted-average shares outstanding:      
Basic  23,373,980   14,055,752 
Diluted  23,693,035   14,112,659 


FRANCHISE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
       
       
  Three Months Ended
(In thousands) March 28, 2020 March 31, 2019
Operating Activities      
Net income  61,898   38,191 
Adjustments to reconcile net income to net cash provided by operating activities:      
Provision for doubtful accounts  1,672   1,930 
Depreciation, amortization and impairment charges  15,927   4,073 
Amortization of deferred financing costs  11,744   100 
Stock-based compensation expense - equity awards  2,485   388 
Loss (gain) on bargain purchases and sales of Company-owned offices  (808)  555 
Equity in (gain) loss of affiliate  88   (1)
Deferred tax expense (benefit)  5,010   1,949 
Change in      
Accounts, notes, and interest receivable  (10,203)  (16,195)
Income taxes receivable  (51,857)  13,186 
Other assets  (2,364)  270 
Accounts payable and accrued expenses  41,921   7,146 
Inventory  40,066   - 
Deferred revenue  189   (836)
Net cash provided by operating activities  115,768   50,756 
Investing Activities      
Issuance of operating loans to franchisees and ADs  (28,212)  (38,402)
Payments received on operating loans to franchisees and ADs  47,800   63,127 
Purchases of Company-owned offices, AD rights, and acquired customer lists  (2,251)  (91)
Proceeds from sale of Company-owned offices and AD rights  950   22 
Acquisition of business, net of cash acquired  (357,263)  - 
Purchases of property, equipment, and software  (6,184)  (359)
Net cash used in investing activities  (345,160)  24,297 
Financing Activities      
Proceeds from the exercise of stock options  -   153 
Dividends paid  (3,943)  - 
Non-controlling interest distribution  (2,358)  - 
Repayment of other long-term obligations  (370,503)  (1,801)
Borrowings under revolving credit facility  142,000   47,668 
Repayments under revolving credit facility  (79,260)  (114,459)
Issuance of common stock  80,682   - 
Payment for debt issue costs  (14,408)  - 
Issuance of debt  586,000   - 
Cash paid for taxes on exercises/vesting of stock-based compensation  (36)  - 
Net cash provided by (used in) financing activities  338,174   (68,439)
Effect of exchange rate changes on cash, net  (1,335)  80 
Net increase (decrease) in cash equivalents and restricted cash  107,447   6,694 
Cash and cash equivalents and restricted cash at beginning of period  45,146   3,981 
Cash and cash equivalents and restricted cash at end of period $152,593  $10,675 
Supplemental Cash Flow Disclosure      
Cash paid for taxes, net of refunds $466  $- 
Cash paid for interest $15,332  $916 
Accrued capital expenditures $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 $7,449  $- 


Non-GAAP Financial Measures and Key Metrics
This press release includes Adjusted EBITDA and non-GAAP earnings per share. Adjusted EBITDA represents net income before interest, income taxes, depreciation and amortization adjusted for certain non-core or non-operational items related to restructuring and related charges, early extinguishment of debt costs, litigation settlement costs, transaction-related costs, and fair value acquisition accounting adjustments related to inventory. Adjusted EBITDA is a financial measure not prepared in accordance with generally accepted accounting principles (“GAAP”). Management believes that Adjusted EBITDA is useful to investors as a supplemental measure 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. Adjusted EBITDA is the measure that is used by our management to evaluate performance and make resource allocation decisions each period. Adjusted EBITDA is also the primary operating metric used in the determination of executive management's compensation.  In addition, a measure similar to Adjusted EBITDA is used in the Company’s credit facilities.  Adjusted EBITDA 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 Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

Below is a reconciliation of management’s estimate of net income to estimated Proforma Adjusted EBITDA and GAAP EPS to Non-GAAP EPS for the three months ended March 28, 2020. In the table below, we provide an estimated range of the items we exclude from our calculation of Proforma Adjusted EBITDA and Non-GAAP EPS.

 
   For the Three Months Ended March 28, 2020
       American   Vitamin     
   Buddy's   Liberty   Freight   Shoppe   Corporate   Total
             
   (In Thousands)
 Net Income  $(5,189) $47,103 $(14,722) $(9,023) $43,729  $61,898 
Add back:            
Interest Expense  5,541   1,240  15,420   3,575   (25)  25,752 
Income Tax benefit  -   303  (169)  -   (46,004)  (45,869)
Depreciation, Amortization & Impairment  1,640   2,065  912   11,310   -   15,927 
Total Adjustments  7,181   3,608  16,164   14,885   (46,028)  (4,191)
 EBITDA   1,992   50,711  1,442   5,862   (2,300)  57,708 
Adjustments to EBITDA:            
Executive Severance and Related  -   -  -   4,657   0   4,657 
Stock-Based Compensation  70   149  -   -   2,267   2,485 
Shareholder Litigation  -   -  -   -   131   131 
Corporate Compliance  -   99  -   -   -   99 
Prepayment Penalty on Early Debt Extinguishment  2,992   6  1,050   -   -   4,048 
Accrued Judgments & Settlements  -   393  30   (1,708)  -   (1,285)
Store Closures  -   -  0   259   -   259 
Acquisition Costs  214   -  5,976   4,926   (762)  10,354 
Inventory Fair Value Step-up Amortization  -   -  8,245   12,545   -   20,790 
Total Adjustments to EBITDA  3,275   647  15,300   20,679   1,636   41,538 
 Adjusted EBITDA   5,268   51,359  16,742   26,541   (664)  99,246 
Proforma Adjustments  -   -  11,654   3,654   (2,360)  12,948 
 Proforma Adjusted EBITDA  $5,268  $51,359 $28,396  $30,195  $(3,023) $112,194 


Investor Relations Contact:

Andrew F. Kaminsky
EVP & Chief Administrative Officer
Franchise Group, Inc.
akaminsky@franchisegrp.com 
(914) 939-5161