Franchise Group, Inc. Announces Fiscal 2021 Second Quarter Financial Results

08/03/21
  • Increases Annual Financial Outlook Again
  • Reports Net Income from Continuing Operations of $32.5 million, Non-GAAP EPS of $1.16 per Fully Diluted Share and Adjusted EBITDA of $91.8 million

DELAWARE, Ohio, Aug. 03, 2021 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the financial results of its fiscal 2021 second quarter. For the second quarter of fiscal 2021, total reported revenue for Franchise Group was $862.8 million, net income from continuing operations was $32.5 million or $0.74 per fully diluted share, Adjusted EBITDA was $91.8 million and Non-GAAP EPS was $1.16 per share. On July 2, 2021, the Company completed the sale of Liberty Tax 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 second quarter results. Total cash was $165.4 million and outstanding debt at the end of the second quarter of fiscal 2021 was $1.3 billion which excludes the approximate $182 million repayment of debt with the proceeds from the Liberty Tax transaction.

Brian Kahn, Franchise Group’s President and CEO stated, “Our management teams, associates, and franchisees are executing operationally, and franchising momentum is accelerating with development agreements for 96 new locations in addition to 111 new store openings year to date. Franchise Group’s businesses are proving they are stronger together and therefore we are further increasing our financial 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. Reconciliations of Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP EPS to their respective most comparable GAAP measures, are included below under “Non-GAAP Financial Measures and Key Metrics.”


    For the Three Months     For the Six Months
    Ended June 26, 2021     Ended June 26, 2021
        Adjusted   Net         Adjusted   Net
    Revenue   EBITDA   Income/(Loss)     Revenue   EBITDA   Income/(Loss)
    (In thousands)     (In thousands)
American Freight   $ 268,807   $ 28,934     $ 12,670       $ 527,323   $ 59,546     $ 26,579  
Vitamin Shoppe     302,555     37,502       22,444         597,295     78,018       52,789  
Pet Supplies Plus     275,760     22,906       5,219         327,069     27,659       34  
Buddy's     15,636     4,334       2,469         32,416     9,571       5,480  
Corporate     -     (1,912 )     (10,281 )       -     (3,868 )     (80,696 )
Total   $ 862,758   $ 91,764     $ 32,521       $ 1,484,103   $ 170,926     $ 4,186  
                           

 

Outlook
Franchise Group is increasing its expectations for annual Adjusted EBITDA for 2021 from at least $315 million to at least $320 million, Non-GAAP EPS from at least $3.35 per share to at least $3.45 per share and revenue from $3.0 - $3.1 billion to at least $3.05 billion. In calculating EPS, the Company is using approximately 41 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 August 3rd at 4:30 P.M. ET to discuss its business, review financial results for the second quarter of fiscal 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 (877) 784-1793. The passcode is 5154388. 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 philosophy to generate strong cash flow for its shareholders. Franchise Group’s business lines include, Pet Supplies Plus, American Freight, The Vitamin Shoppe and Buddy’s Home Furnishings. On a combined basis, Franchise Group currently operates over 1,800 locations predominantly located in the U.S. 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)   June 26, 2021   December 26, 2020
Assets   (Unaudited)   (Audited)
Current assets:        
Cash and cash equivalents   $ 165,432     $ 148,780  
Current receivables, net     81,075       67,335  
Inventories, net     504,726       302,307  
Current assets held for sale     113,671       43,023  
Other current assets     21,558       13,997  
Total current assets     886,462       575,442  
Property, equipment, and software, net     208,499       135,872  
Non-current receivables, net     12,200       12,800  
Goodwill     787,241       448,258  
Intangible assets, net     312,180       109,892  
Operating lease right-of-use assets     666,537       502,104  
Non-current assets held for sale     -       55,116  
Other non-current assets     14,332       8,428  
Total assets   $ 2,887,451     $ 1,847,912  
Liabilities and Stockholders Equity        
Current liabilities:        
Current installments of long-term obligations   $ 11,544     $ 104,053  
Current operating lease liabilities     158,801       127,032  
Accounts payable and accrued expenses     351,096       252,389  
Current liabilities held for sale     33,422       40,576  
Other current liabilities     30,261       25,174  
Total current liabilities     585,124       549,224  
Long-term obligations, excluding current installments     1,245,377       466,944  
Non-current operating lease liabilities     522,005       402,276  
Non-current liabilities held for sale     -       8,779  
Other non-current liabilities     46,950       35,522  
Total liabilities     2,399,456       1,462,745  
         
Stockholders equity:        
Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized,
40,208,564 and 40,092,260 shares issued and outstanding at June 26, 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 June 26, 2021 and December 26,
2020, respectively
    45       13  
Additional paid-in capital     467,351       382,383  
Accumulated other comprehensive loss, net of taxes     (973 )     (1,399 )
Retained earnings     21,170       3,769  
Total equity attributable to Franchise Group, Inc.     487,995       385,167  
Non-controlling interest     -       -  
Total equity     487,995       385,167  
Total liabilities and equity   $ 2,887,451     $ 1,847,912  


FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
                 
                 
    Three Months Ended   Six Months Ended
(In thousands, except share count and per share data)   June 26, 2021   June 27, 2020   June 26, 2021   June 27, 2020
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Revenues:                
Product   $ 805,768     $ 466,709     $ 1,389,585     $ 940,214  
Service and other     48,193       13,669       76,768       26,691  
Rental     8,797       17,176       17,750       33,596  
Total revenues     862,758       497,554       1,484,103       1,000,501  
Operating expenses:                
Cost of revenue:                
Product     522,576       277,582       861,991       565,400  
Service and other     934       701       1,339       1,457  
Rental     2,935       5,508       5,940       11,450  
Total cost of revenue     526,445       283,791       869,270       578,307  
Selling, general, and administrative expenses     278,157       198,986       503,702       410,262  
Total operating expenses     804,602       482,777       1,372,972       988,569  
Income from operations     58,156       14,777       111,131       11,932  
Other expense:                
Other     -       (28 )     (36,726 )     (4,048 )
Interest expense, net     (22,865 )     (27,877 )     (70,300 )     (52,389 )
Income (loss) from continuing operations before income taxes     35,291       (13,128 )     4,105       (44,505 )
Income tax expense (benefit)     2,770       3,510       (81 )     (52,108 )
Income (loss) from continuing operations     32,521       (16,638 )     4,186       7,603  
Income (loss) from discontinued operations, net of tax     6,215       (5,304 )     48,363       32,353  
Net income (loss)     38,736       (21,942 )     52,549       39,956  
Less: Net income (loss) attributable to non-controlling interest     -       269       -       (2,090 )
Net income (loss) attributable to Franchise Group, Inc.   $ 38,736     $ (21,673 )   $ 52,549     $ 37,866  
                 
Amounts attributable to Franchise Group, Inc.:                
Net income (loss) from continuing operations   $ 32,521     $ (16,361 )   $ 4,186     $ (6,278 )
Net income (loss) from discontinued operations     6,215       (5,312 )     48,363       44,144  
Net income (loss) attributable to Franchise Group, Inc.   $ 38,736     $ (21,673 )   $ 52,549     $ 37,866  
                 
Basic earnings (loss) per share:                
Continuing operations   $ 0.76     $ (0.47 )   $ -     $ (0.22 )
Discontinued operations     0.15       (0.15 )     1.20       1.51  
Total basic earnings per share   $ 0.91     $ (0.62 )   $ 1.20     $ 1.29  
                 
Diluted earnings (loss) per share:                
Continuing operations   $ 0.74     $ (0.47 )   $ -     $ (0.22 )
Discontinued operations     0.15       (0.15 )     1.20       1.51  
Total diluted earnings per share   $ 0.89     $ (0.62 )   $ 1.20     $ 1.29  
                 
Weighted-average shares outstanding:                
Basic     40,175,058       34,972,364       40,142,571       29,173,172  
Diluted     40,905,567       34,972,364       40,142,571       29,173,172  


FRANCHISE GROUP, INC. AND SUBSIDIARIES  
Consolidated Statements of Cash Flows  
           
           
    Six Months Ended  
(In thousands)   June 26, 2021   June 27, 2020  
    (Unaudited)   (Unaudited)  
Operating Activities          
Net income   $ 52,549     $ 39,956    
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for doubtful accounts     1,910       3,403    
Depreciation, amortization and impairment charges     31,157       33,792    
Amortization of deferred financing costs     33,197       21,554    
Loss (gain) on disposal of fixed assets     645       (166 )  
Stock-based compensation expense - equity awards     5,478       4,339    
(Gain) on bargain purchases and sales of Company-owned offices     (731 )     (1,258 )  
Equity in loss of affiliate     -       15    
Deferred tax expense     -       7,739    
Prepayment penalty for early debt extinguishment     36,726       -    
Change in          
Accounts, notes, and interest receivable     3,832       (1,784 )  
Income taxes receivable     2,215       (53,156 )  
Other assets     3,867       1,015    
Accounts payable and accrued expenses     9,089       134    
Inventory     (77,410 )     84,434    
Deferred revenue     3,102       8,938    
Net cash provided by operating activities     105,626       148,955    
Investing Activities          
Issuance of operating loans to franchisees and area developers     (17,612 )     (28,876 )  
Payments received on operating loans to franchisees and area developers     23,013       49,612    
Purchases of Company-owned offices, area developer rights, and acquired customer lists     (401 )     (2,299 )  
Proceeds from sale of Company-owned offices and area developer rights     293       989    
Acquisition of business, net of cash and restricted cash acquired     (462,821 )     (353,423 )  
Purchases of property, equipment, and software     (24,627 )     (16,212 )  
Net cash (used in) investing activities     (482,155 )     (350,209 )  
Financing Activities          
Proceeds from the exercise of stock options     386       187    
Dividends paid     (32,808 )     (10,406 )  
Non-controlling interest distribution     -       (4,716 )  
Repayment of other long-term obligations     (771,511 )     (410,798 )  
Borrowings under revolving credit facility     6,724       142,000    
Repayments under revolving credit facility     (84,874 )     (112,760 )  
Issuance of common stock     -       92,082    
Issuance of preferred stock     79,542       -    
Payment for debt issue costs and original issuance discounts     (50,776 )     (14,604 )  
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     (404 )     (73 )  
Net cash provided by financing activities     409,553       266,912    
Effect of exchange rate changes on cash, net     142       (234 )  
Net increase in cash equivalents and restricted cash     33,166       65,424    
Cash, cash equivalents and restricted cash at beginning of period     151,502       45,146    
Cash, cash equivalents and restricted cash at end of period   $ 184,668     $ 110,570    
Supplemental Cash Flow Disclosure          
Cash paid for taxes, net of refunds   $ 1,284     $ 493    
Cash paid for interest   $ 61,249     $ 26,857    
Accrued capital expenditures   $ 3,406     $ 2,608    
Deferred financing costs from issuance of common stock   $ -     $ 31,013    
Capital expenditures funded by finance lease liabilities   $ 1,211     $ -    
Tax receivable agreement included in other long-term liabilities   $ -     $ 17,156    


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 the Company’s operating businesses and in comparing its results from period to period because they exclude items that the Company does not believe are reflective of its core or ongoing operating results. These measures are used by 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 penalties 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 and six months ended June 26, 2021.


        For the Three Months Ended June 26, 2021
  ($ In thousands)     Buddy's    Pet Supplies Plus    American Freight    Vitamin Shoppe
   Corporate    Total
  Net income (loss) from continuing operations     $ 2,469   $ 5,219     $ 12,670     $ 22,444   $ (10,281 )   $ 32,521  
  Add back:                          
  Interest expense       898     5,363       9,286       7,319     -       22,865  
  Income tax expense (benefit)       -     (4 )     -       -     2,774       2,770  
  Depreciation and amortization charges       897     6,123       2,354       7,739     0       17,115  
  Total Adjustments       1,795     11,482       11,640       15,058     2,774       42,750  
  EBITDA       4,264     16,701       24,310       37,502     (7,507 )     75,271  
  Adjustments to EBITDA                          
  Executive severance and related costs       -     (2 )     -       -     -       (2 )
  Stock based compensation       70     -       -       -     2,755       2,825  
  Non-cash executive compensation expense       -     -       325       -     -       325  
  Shareholder litigation costs       -     -       (295 )     -     209       (86 )
  Prepayment penalty on early debt repayment       -     -       -       -     -       -  
  Store closures / Related Costs       -         -       -     -       -  
  Integration / Related Costs       -     61       4,335       -     298       4,694  
  Acquisition costs       -     6,146       259       -     15       6,419  
  Divestiture costs       -     -       -       -     2,318       2,318  
  Compliance costs       -     -       -       -     -       -  
  Total Adjustments to EBITDA       70     6,205       4,624       -     5,595       16,493  
  Adjusted EBITDA     $ 4,334   $ 22,906     $ 28,934     $ 37,502   $ (1,912 )   $ 91,764  


        For the Six Months Ended June 26, 2021
  ($ In thousands)     Buddy's    Pet Supplies Plus    American Freight    Vitamin Shoppe
   Corporate    Total
  Net income (loss) from continuing operations     $ 5,480   $ 34   $ 26,579     $ 52,789   $ (80,696 )   $ 4,186  
  Add back:                          
  Interest expense       2,159     6,374     20,506       10,246     31,014       70,300  
  Income tax expense (benefit)       -     -     -       3     (83 )     (81 )
  Depreciation and amortization charges       1,792     7,554     4,244       14,981     1       28,572  
  Total Adjustments       3,952     13,928     24,751       25,230     30,931       98,791  
  EBITDA       9,432     13,963     51,330       78,018     (49,766 )     102,977  
  Adjustments to EBITDA                          
  Executive severance and related costs       -     9     -       -     -       9  
  Stock based compensation       139     -     -       -     5,121       5,260  
  Non-cash executive compensation expense       -     -     824       -     -       824  
  Shareholder litigation costs       -     -     (295 )     -     298       3  
  Prepayment penalty on early debt repayment       -     -     -       -     36,726       36,726  
  Store closures / Related Costs       -     -     222       -     -       222  
  Integration / Related Costs       -     430     7,089       -     298       7,817  
  Acquisition costs       -     13,257     376       -     16       13,649  
  Divestiture costs       -     -     -       -     2,660       2,660  
  Compliance costs       -     -     -       -     779       779  
  Total Adjustments to EBITDA       139     13,696     8,216       -     45,898       67,949  
  Adjusted EBITDA     $ 9,571   $ 27,659   $ 59,546     $ 78,018   $ (3,868 )   $ 170,926  


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 and six months ended June 26, 2021.


    For the Three Months Ended   For the Six Months Ended
($ In thousands except share count and per share data)   June 26, 2021   June 26, 2021
                 
Net income (loss) from continuing operations / Net income (loss)
from continuing operations per diluted share
  32,521     $ 0.80     4,186     $ 0.10  
Less: Preferred dividend declared   (2,128 )     (0.06 )   (4,257 )     (0.10 )
Adjusted Net Income available to Common Stockholder   30,393       0.74     (71 )     -  
Add back:                
Executive severance and related costs   (2 )     -     9       -  
Stock based compensation   2,825       0.07     5,260       0.13  
Long-term executive compensation expense   325       0.01     824       0.02  
Shareholder litigation costs   (86 )     -     3       -  
Prepayment penalty on early debt repayment   -       -     36,726       0.90  
Store closures / Related Costs   -       -     222       0.01  
Integration / Related Costs   4,694       0.11     7,817       0.19  
Acquisition costs   6,419       0.16     13,649       0.32  
Divestiture costs   2,318       0.06     2,660       0.07  
Compliance costs   -       -     779       0.02  
Adjustments to EBITDA   16,493       0.42     67,949       1.66  
Non-cash amortization of debt issuance costs   2,223       0.05     33,197       0.81  
Amortization of acquisition-related intangibles   2,232       0.05     3,511       0.09  
Tax impact   (3,917 )     (0.10 )   (19,571 )     (0.48 )
Impact of diluted share count assuming non-GAAP net income   -       -     -       -  
Total Adjustments to Net income (loss) from continuing operations 17,031       0.42     85,086       2.08  
Non-GAAP Net Income from continuing operations / Non-GAAP
diluted EPS from continuing operations
  47,424     $ 1.16     85,015     $ 2.08  
Basic weighted average shares         40,175,058           40,142,571  
Non-GAAP diluted weighted average shares outstanding         40,905,567           40,877,626  
                 

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, 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.
akaminsky@franchisegrp.com
(914) 939-5161


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Source: Franchise Group, Inc.