Washington, D.C. 20549

Form 8-K


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

Date of Report (Date of earliest event Reported): August 5, 2020  

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

(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 August 5, 2020, Franchise Group, Inc. (the “Company”) issued a press release regarding its financial results for the second quarter ended June 27, 2020. A copy of the release is being furnished as Exhibit 99.1 hereto and incorporated herein by reference. In addition, on August 6, 2020 at 8:30 a.m. Eastern Time, the Company will hold a teleconference for analysts, institutional investors and stockholders to discuss results for the second quarter of the fiscal year ended June 27, 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 August 5, 2020.


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: August 5, 2020By: /s/ Eric F. Seeton        
  Eric F. Seeton
  Chief Financial Officer



Franchise Group, Inc. Announces Second Quarter 2020 Financial Results

ORLANDO, Fla., Aug. 05, 2020 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the results of its second quarter ended June 27, 2020.  For the second quarter of 2020, total reported revenue for Franchise Group was $512.6 million, GAAP Net Loss was $21.7 million or $0.62 per share, Proforma Adjusted EBITDA was $62.7 million and Non-GAAP EPS was $0.53 per share.  In calculating GAAP EPS, the Company utilized approximately 35 million weighted average fully diluted shares of common stock outstanding for the second quarter. In calculating Non-GAAP EPS and formulating guidance, the Company utilized approximately 40 million fully diluted shares of common stock outstanding which accounts for the recent underwritten public offering of 4.8 million shares.  The net proceeds from the follow-on offering closed after the end of the quarter and is not included in the end of quarter cash balance of $105.5 million.  Total outstanding debt at the end of the second quarter was $740.6 million.

During the second quarter of 2020, Franchise Group priced an approximate $106 million follow-on offering of common stock, reduced debt by $70.9 million and declared another quarterly dividend of $0.25 per share.  The Company’s business model was extremely resilient during the height of Covid-19 and was able to exceed its plan for the quarter due to strong revenue and continued achievement of operational efficiencies. 

Brian Kahn, Franchise Group’s President and CEO stated, “Our businesses continued to benefit from the shift in consumer spending.  Our associates have maintained their dedication to our businesses and have again delivered robust financial results despite difficult circumstances.  Our performance through fiscal July, to begin the third quarter, continues to demonstrate resilience and is allowing us to further raise guidance for the full fiscal year.”

The Company has four reportable segments: American Freight; The Vitamin Shoppe; Liberty Tax and Buddy’s.  The following table summarizes revenue, net loss 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 June 27, 2020
 Revenue EBITDA
 (In thousands)
American Freight$234,427 $40,384  $(6,747)
Vitamin Shoppe 237,735  16,292   (3,961)
Liberty Tax 15,073  (538)  (7,322)
Buddy's 25,392  7,037   1,522 
Corporate -  (452)  (5,434)
Total$512,627 $62,723  $(21,942)
Net income (loss) attributable to non-controlling interest  269 
Net income (loss) attributable to Franchise Group, Inc. $(21,673)

Outlook (1)

For fiscal 2020, we believe we will exceed our previous guidance of $240 million of Proforma Adjusted EBITDA and $2.60 of Non-GAAP EPS and now expect Proforma Adjusted EBITDA to exceed $255 million and Non-GAAP EPS of over $2.70. Please note that our $2.70 of Non-GAAP EPS includes approximately $0.30 pro forma dilution from our recent follow-on offering and excludes any assumption for acquisitions, divestitures or refranchising activity.

(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 acquisitions, divestitures or refranchising activities.  

Conference Call Information
Franchise Group will conduct a conference call on August 6th at 8:30 A.M. ET to discuss its business, review financial results for the second quarter of 2020 and provide an update on its expected 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 (800) 697-5978. The passcode is 6075494. 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 may include statements regarding the Company’s results of operation and financial condition, performance during the COVID-19 pandemic, and its strategy and outlook for the remainder of fiscal 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.

Condensed Consolidated Balance Sheets
(In thousands, except share count and per share data) June 27, 2020 December 28, 2019
Assets (Unaudited) (Audited)
Current assets:    
Cash and cash equivalents $105,473  $39,581 
Current receivables, net  111,857   79,693 
Inventories, net  315,078   300,312 
Other current assets  24,298   20,267 
Total current assets  556,706   439,853 
Property, equipment, and software, net  152,520   150,147 
Non-current receivables, net  15,105   18,638 
Goodwill  468,088   134,301 
Intangible assets, net  145,887   77,590 
Operating lease right-of-use assets  529,891   462,610 
Other non-current assets  15,434   15,406 
Total assets $1,883,631  $1,298,545 
Liabilities and Stockholders Equity    
Current liabilities:    
Current installments of long-term obligations $203,490  $218,384 
Current operating lease liabilities  130,307   107,680 
Accounts payable and accrued expenses  222,461   158,995 
Other current liabilities  38,008   16,409 
Total current liabilities  594,266   501,468 
Long-term obligations, excluding current installments  537,148   245,236 
Non-current operating lease liabilities  426,255   394,307 
Other non-current liabilities  35,253   5,773 
Total liabilities  1,592,922   1,146,784 
Stockholders equity:    
Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 35,185,710 and 18,250,225 shares issued and outstanding at June 27, 2020 and December 28, 2019, respectively  352   183 
Preferred stock, $0.01 par value per share, 20,000,000 and 20,000,000 shares authorized, 0 and 1,886,667 shares issued and outstanding at June 27, 2020 and December 28, 2019, respectively  -   19 
Additional paid-in capital  249,525   108,339 
Accumulated other comprehensive loss, net of taxes  (2,103)  (1,538)
Retained earnings  42,935   18,388 
Total equity attributable to Franchise Group, Inc.  290,709   125,391 
Non-controlling interest  -   26,370 
Total equity  290,709   151,761 
Total liabilities and equity $1,883,631  $1,298,545 

Condensed Consolidated Statements of Operations (Unaudited)
  Three Months Ended Six Months Ended
(In thousands, except share count and per share data) June 27, 2020 June 30, 2019 June 27, 2020 June 30, 2019
Product $466,709  $-  $940,214  $- 
Service and other  28,742   23,820   131,383   119,658 
Rental  17,176   -   33,596   - 
Total revenues  512,627   23,820   1,105,193   119,658 
Operating expenses:        
Cost of revenue:        
Product  277,582   -   565,400   - 
Service and other  701   -   1,456   - 
Rental  5,508   -   11,450   - 
Total cost of revenue  283,791   -   578,306   - 
Selling, general, and administrative expenses  217,264   29,482   469,476   70,447 
Total operating expenses  501,055   29,482   1,047,782   70,447 
Income (loss) from operations  11,572   (5,662)  57,411   49,211 
Other expense:        
Other  (6)  (106)  (4,064)  (99)
Interest expense, net  (31,626)  (415)  (57,378)  (1,470)
Income (loss) before income taxes  (20,060)  (6,183)  (4,031)  47,642 
Income tax expense (benefit)  1,882   (928)  (43,987)  14,706 
Net income (loss)  (21,942)  (5,255)  39,956   32,936 
Less: Net (income) loss attributable to non-controlling interest  269   -   (2,090)  - 
Net income (loss) attributable to Franchise Group, Inc. $(21,673) $(5,255) $37,866  $32,936 
Net income (loss) per share of common stock:        
Basic $(0.62) $(0.37) $1.30  $2.34 
Diluted  (0.62)  (0.37)  1.29   2.33 
Weighted-average shares outstanding:        
Basic  34,972,364   14,062,766   29,173,172   14,059,279 
Diluted  34,972,364   14,062,766   29,335,633   14,124,104 

Condensed Consolidated Statements of Cash Flows (Unaudited)
  Six Months Ended
(In thousands) June 27, 2020 June 30, 2019
Operating Activities    
Net income $39,956  $32,936 
Adjustments to reconcile net income to net cash provided by operating activities:    
Provision for doubtful accounts  3,403   4,770 
Depreciation, amortization and impairment charges  33,792   7,772 
Amortization of deferred financing costs  21,554   358 
Loss (gain) on disposal of fixed assets  (166)  270 
Stock-based compensation expense - equity awards  4,339   1,047 
Loss (gain) on bargain purchases and sales of Company-owned offices  (1,258)  424 
Equity in loss of affiliate  15   1 
Deferred tax expense  7,739   742 
Change in    
Accounts, notes, and interest receivable  (1,784)  1,380 
Income taxes receivable  (53,156)  13,341 
Other assets  1,015   1,870 
Accounts payable and accrued expenses  134   222 
Inventory  84,434   - 
Deferred revenue  8,938   (1,538)
Net cash provided by operating activities  148,955   63,595 
Investing Activities    
Issuance of operating loans to franchisees and ADs  (28,876)  (44,346)
Payments received on operating loans to franchisees and ADs  49,612   66,204 
Purchases of Company-owned offices, AD rights, and acquired customer lists  (2,299)  (404)
Proceeds from sale of Company-owned offices and AD rights  989   22 
Acquisition of business, net of cash acquired  (353,423)  - 
Purchases of property, equipment, and software  (16,212)  (647)
Net cash provided by (used in) investing activities  (350,209)  20,829 
Financing Activities    
Proceeds from the exercise of stock options  187   153 
Dividends paid  (10,406)  - 
Non-controlling interest distribution  (4,716)  - 
Repayment of other long-term obligations  (410,798)  (16,178)
Borrowings under revolving credit facility  142,000   93,874 
Repayments under revolving credit facility  (112,760)  (161,128)
Issuance of common stock  92,082   - 
Payment for debt issue costs  (14,604)  (2,260)
Issuance of debt  586,000   - 
Cash paid for taxes on exercises/vesting of stock-based compensation  (73)  (21)
Net cash provided by (used in) financing activities  266,912   (85,560)
Effect of exchange rate changes on cash, net  (234)  131 
Net increase (decrease) in cash equivalents and restricted cash  65,424   (1,005)
Cash, cash equivalents and restricted cash at beginning of period  45,146   3,981 
Cash, cash equivalents and restricted cash at end of period $110,570  $2,976 
Supplemental Cash Flow Disclosure    
Cash paid for taxes, net of refunds $493  $70 
Cash paid for interest $26,857  $993 
Accrued capital expenditures $2,608  $- 
Deferred financing costs from issuance of common stock $31,013  $- 
Tax receivable agreement included in other long-term liabilities $17,156  $- 

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, including our chief operating decision maker, 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. 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 for the three months ended June 27, 2020. In the table below, we provide an estimated range of the items we exclude from our calculation of Proforma Adjusted EBITDA.

 For the Three Months Ended June 27, 2020
     American Vitamin    
 Buddy's Liberty Freight Shoppe Corporate Total
 (In Thousands)
Net Income$1,522 $(7,322) $(6,747) $(3,961) $(5,165) $(21,673)
Add back:           
Interest Expense 3,816  3,749   20,715   3,347   -   31,626 
Income Tax benefit -  389   (1,545)  -   3,037   1,882 
Depreciation, Amortization & Impairment 1,514  2,379   1,553   12,419   -   17,865 
Total Adjustments 5,329  6,517   20,723   15,766   3,037   51,373 
EBITDA 6,852  (805)  13,976   11,805   (2,128)  29,700 
Adjustments to EBITDA:           
Executive Severance and Related -  -   573   90   -   663 
Stock-Based Compensation 70  148   -   -   1,636   1,854 
Shareholder Litigation -  -   -   -   156   156 
Corporate Compliance -  4   -   -   -   4 
Prepayment Penalty on Early Debt Extinguishment -  -   -   -   -   - 
Accrued Judgments & Settlements -  115   2   -   -   117 
Store Closures 62  -   -   195   -   257 
Acquisition Costs 54  -   9,158   605   153   9,969 
Inventory Fair Value Step-up Amortization -  -   5,932   1,470   -   7,403 
Total Adjustments to EBITDA 185  267   15,665   2,360   1,945   20,422 
Adjusted EBITDA 7,037  (538)  29,641   14,165   (183)  50,122 
Proforma Adjustments -  -   10,743   2,127   (269)  12,601 
Proforma Adjusted EBITDA$7,037 $(538) $40,384  $16,292  $(452) $62,723 

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