Press Release Details

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

Nov 02, 2021 at 4:01 PM EDT
  • Increases 2021 Financial Outlook to at Least $3.1 Billion in Revenue and at Least $3.80 in Non-GAAP EPS
  • Expects Significant Growth in Revenue and Cash Flow in Fiscal 2022
  • Franchising Momentum Accelerating

DELAWARE, Ohio, Nov. 02, 2021 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the financial results of its fiscal 2021 third quarter. For the third quarter of fiscal 2021, total reported revenue for Franchise Group was $828.8 million, net income from continuing operations was $36.0 million or $0.83 per fully diluted share, Adjusted EBITDA was $80.8 million and Non-GAAP EPS was $0.97 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 fiscal 2021 third quarter results. Total cash was $160.0 million and outstanding debt at the end of the third quarter of fiscal 2021 was $1.1 billion.

Brian Kahn, Franchise Group’s President and CEO stated, “Our management teams, associates, and franchisees are performing well. Despite continuing supply chain constraints and overall inflationary pressures, the underlying strength of the Franchise Group brands allows us to increase our financial expectations for fiscal year 2021. Franchising momentum is continuing to accelerate with new development agreements for 153 new locations in addition to 124 new store openings year to date. As we look towards fiscal 2022, we see significant growth for Franchise Group as systemwide unit growth is compounded by overall same store sales growth. We also remain active in pursuit of additional brands that we believe will further diversify our cash flow streams or add scale to existing platforms, and we expect to execute on at least one accretive transaction in the near term.”

The Company has four reportable segments: American Freight; The Vitamin Shoppe; Pet Supplies Plus and Buddy’s. The following table summarizes Revenue, Adjusted EBITDA, and Net Income/(Loss) 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 Ended     For the Nine Months Ended
    September 25, 2021     September 25, 2021
        Adjusted   Net         Adjusted   Net
    Revenue   EBITDA   Income/(Loss)     Revenue   EBITDA   Income/(Loss)
    (In thousands)     (In thousands)
American Freight   $ 223,591   $ 16,045     $ 959       $ 750,914   $ 75,887     $ 27,538  
Vitamin Shoppe     300,813     35,886       21,086         898,108     113,904       73,875  
Pet Supplies Plus     286,643     24,994       13,642         613,712     52,655       13,677  
Buddy's     17,779     4,433       5,159         50,195     14,004       10,639  
Corporate     -     (515 )     (4,848 )       -     (4,683 )     (85,544 )
Total   $ 828,826   $ 80,843     $ 35,998       $ 2,312,929   $ 251,766     $ 40,185  

Outlook
Franchise Group is increasing its expectations for annual Adjusted EBITDA for 2021 from at least $320 million to at least $325 million, Non-GAAP EPS from at least $3.45 per share to at least $3.80 per share and revenue from at least $3.05 billion to at least $3.1 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 18.5%.

The Company does not provide a 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 November 2nd at 4:30 P.M. ET to discuss its business, review financial results for the third 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 2978952. 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, Buddy’s Home Furnishings and Sylvan Learning. On a combined basis, Franchise Group currently operates over 2,600 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)   September 25, 2021   December 26, 2020
Assets   (Unaudited)   (Audited)
Current assets:        
Cash and cash equivalents   $ 159,972   $ 148,780  
Current receivables, net     95,686     67,335  
Inventories, net     533,552     302,307  
Current assets held for sale     -     43,023  
Other current assets     18,643     13,997  
Total current assets     807,853     575,442  
Property, equipment, and software, net     202,968     135,872  
Non-current receivables, net     12,000     12,800  
Goodwill     787,441     448,258  
Intangible assets, net     308,905     109,892  
Operating lease right-of-use assets     656,561     502,104  
Non-current assets held for sale     -     55,116  
Other non-current assets     55,856     8,428  
Total assets   $ 2,831,584   $ 1,847,912  
Liabilities and Stockholders Equity        
Current liabilities:        
Current installments of long-term obligations   $ 1,420   $ 104,053  
Current operating lease liabilities     158,577     127,032  
Accounts payable and accrued expenses     360,274     252,389  
Current liabilities held for sale     -     40,576  
Other current liabilities     34,095     25,174  
Total current liabilities     554,366     549,224  
Long-term obligations, excluding current installments     1,072,909     466,944  
Non-current operating lease liabilities     513,461     402,276  
Non-current liabilities held for sale     -     8,779  
Other non-current liabilities     51,366     35,522  
Total liabilities     2,192,102     1,462,745  
         
Stockholders equity:        
Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 40,237,297 and 40,092,260 shares issued and outstanding at September 25, 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 September 25, 2021 and December 26, 2020, respectively     45     13  
Additional paid-in capital     471,405     382,383  
Accumulated other comprehensive loss, net of taxes     -     (1,399 )
Retained earnings     167,630     3,769  
Total equity attributable to Franchise Group, Inc.     639,482     385,167  
Non-controlling interest     -     -  
Total equity     639,482     385,167  
Total liabilities and equity   $ 2,831,584   $ 1,847,912  



FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
                 
                 
    Three Months Ended   Nine Months Ended
(In thousands, except share count and per share data)   September 25, 2021   September 26, 2020   September 25, 2021   September 26, 2020
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Revenues:                
Product   $ 782,608     $ 500,462     $ 2,172,193     $ 1,440,677  
Service and other     37,891       19,826       114,659       46,516  
Rental     8,327       17,404       26,077       51,000  
Total revenues     828,826       537,692       2,312,929       1,538,193  
Operating expenses:                
Cost of revenue:                
Product     485,682       296,920       1,347,673       862,320  
Service and other     8,737       678       10,076       2,135  
Rental     2,930       5,877       8,869       17,327  
Total cost of revenue     497,349       303,475       1,366,618       881,782  
Selling, general, and administrative expenses     276,714       209,537       780,416       619,799  
Total operating expenses     774,063       513,012       2,147,034       1,501,581  
Income from operations     54,763       24,680       165,895       36,612  
Other expense:                
Other     (13,090 )     (1,246 )     (49,816 )     (5,295 )
Interest expense, net     (21,194 )     (26,269 )     (91,494 )     (78,658 )
Income (loss) from continuing operations before income taxes     20,479       (2,835 )     24,585       (47,341 )
Income tax expense (benefit)     (15,519 )     1,891       (15,600 )     (50,217 )
Income (loss) from continuing operations     35,998       (4,726 )     40,185       2,876  
Income (loss) from discontinued operations, net of tax     128,072       (3,871 )     176,434       28,483  
Net income (loss)     164,070       (8,597 )     216,619       31,359  
Less: Net income (loss) attributable to non-controlling interest     -       -       -       (2,090 )
Net income (loss) attributable to Franchise Group, Inc.   $ 164,070     $ (8,597 )   $ 216,619     $ 29,269  
                 
Amounts attributable to Franchise Group, Inc.:                
Net income (loss) from continuing operations   $ 35,998     $ (4,726 )   $ 40,185     $ (11,005 )
Net income (loss) from discontinued operations     128,072       (3,871 )     176,434       40,274  
Net income (loss) attributable to Franchise Group, Inc.   $ 164,070     $ (8,597 )   $ 216,619     $ 29,269  
                 
Basic earnings (loss) per share:                
Continuing operations   $ 0.84     $ (0.12 )   $ 0.84     $ (0.34 )
Discontinued operations     3.18       (0.10 )     4.39       1.23  
Total basic earnings per share   $ 4.02     $ (0.22 )   $ 5.23     $ 0.89  
                 
Diluted earnings (loss) per share:                
Continuing operations   $ 0.83     $ (0.12 )   $ 0.83     $ (0.34 )
Discontinued operations     3.13       (0.10 )     4.31       1.23  
Total diluted earnings per share   $ 3.96     $ (0.22 )   $ 5.14     $ 0.89  
                 
Weighted-average shares outstanding:                
Basic     40,229,232       39,692,384       40,171,458       32,679,576  
Diluted     40,973,736       39,692,384       40,931,423       32,679,576  



FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
         
         
    Nine Months Ended
(In thousands)   September 25, 2021   September 26, 2020
    (Unaudited)   (Unaudited)
Operating Activities        
Net income   $ 216,619     $ 31,359  
Adjustments to reconcile net income to net cash provided by operating activities:        
Provision for doubtful accounts     2,010       3,412  
Depreciation, amortization and impairment charges     50,127       51,254  
Amortization of deferred financing costs     35,590       28,703  
Loss (gain) on disposal of other     (374 )     75  
Stock-based compensation expense - equity awards     9,561       6,294  
(Gain) on bargain purchases and sales of Company-owned offices     (3,368 )     (1,761 )
Deferred tax (income) expense     (17 )     7,851  
Prepayment penalty for early debt extinguishment     36,726       -  
Gain on divestiture of Liberty Tax     (173,699 )     -  
Change in        
    Accounts, notes, and interest receivable     5,748       (2,223 )
    Income taxes receivable     (13,473 )     (23,721 )
    Other assets     26,026       3,971  
    Accounts payable and accrued expenses     21,959       38,884  
    Inventory     (108,947 )     79,967  
    Deferred revenue     10,952       5,649  
        Net cash provided by operating activities     115,440       229,714  
Investing Activities        
Issuance of operating loans to franchisees and area developers     (17,749 )     (30,368 )
Payments received on operating loans to franchisees and area developers     23,103       50,064  
Purchases of Company-owned offices and acquired customer lists     (1,086 )     (4,830 )
Proceeds from sale of Company-owned offices     3,189       1,118  
Acquisition of business, net of cash and restricted cash acquired     (462,821 )     (353,423 )
Divestiture of business, net of cash and restricted cash sold     179,471       -  
Purchases of property, equipment, and software     (36,871 )     (26,702 )
Proceeds from sale of property, equipment, and software     195       1,474  
        Net cash (used in) investing activities     (312,569 )     (362,667 )
Financing Activities        
Proceeds from the exercise of stock options     386       520  
Dividends paid     (50,016 )     (19,167 )
Non-controlling interest distribution     -       (4,716 )
Repayment of other long-term obligations     (957,382 )     (455,811 )
Borrowings under revolving credit facility     6,724       174,665  
Repayments under revolving credit facility     (84,874 )     (218,260 )
Issuance of common stock     -       198,003  
Issuance of preferred stock     79,542       28,366  
Payment for debt issue costs and original issuance discounts     (51,288 )     (16,673 )
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     (433 )     (85 )
        Net cash provided by financing activities     205,933       272,842  
Effect of exchange rate changes on cash, net     34       (142 )
        Net increase in cash equivalents and restricted cash     8,838       139,747  
Cash, cash equivalents and restricted cash at beginning of period     151,502       45,146  
Cash, cash equivalents and restricted cash at end of period   $ 160,340     $ 184,893  
Supplemental Cash Flow Disclosure        
Cash paid for taxes, net of refunds   $ 39,618     $ 944  
Cash paid for interest   $ 79,074     $ 41,226  
Accrued capital expenditures   $ 3,496     $ 3,633  
Non-cash proceeds from divestiture of Liberty Tax   $ 59,680     $ -  
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 18.5%

Reconciliation of Adjusted EBITDA
Below are reconciliations of Net Income/(Loss) from continuing operations to Adjusted EBITDA for the three and nine months ended September 25, 2021.

        For the Three Months Ended September 25, 2021
($ In thousands)     Buddy's     Pet Supplies Plus     American Freight     Vitamin Shoppe
    Corporate     Total
  Net income (loss) from continuing operations     $ 5,159       $ 13,642     $ 959       $ 21,086       $ (4,848 )     $ 35,998  
  Add back:                                                          
  Interest expense       832         5,004       8,615         6,777         (33 )       21,194  
  Income tax expense (benefit)       -         1       -         (71 )       (15,449 )       (15,519 )
  Depreciation and amortization charges       853         6,219       2,668         8,094         -         17,834  
  Total Adjustments       1,685         11,224       11,283         14,800         (15,482 )       23,509  
EBITDA       6,844         24,866       12,242         35,886         (20,330 )       59,507  
  Adjustments to EBITDA                                                          
  Executive severance and related costs       -         10       -         -         -         10  
  Stock based compensation       70         -       -         -         4,014         4,084  
  Non-cash executive compensation expense       -         -       494         -         -         494  
  Gain on Sale of Company-Owned Stores       (2,481 )       -       -         -         -         (2,481 )
  Prepayment penalty on early debt repayment       -         -       -         -         -         -  
  Store closures / Related Costs / Impairment       -               2,991         -         -         2,991  
  Integration / Related Costs       -         90       362         -         274         726  
  Acquisition costs       -         28       (43 )       -         2,211         2,196  
  Loss on Investment in Equity Securities       -         -       (0 )       -         13,175         13,175  
  Divestiture costs       -         -       -         -         135         135  
  Compliance costs       -         -       -         -         6         6  
  Total Adjustments to EBITDA       (2,411 )       128       3,803         -         19,815         21,336  
 Adjusted EBITDA     $ 4,433       $ 24,994     $ 16,045       $ 35,886       $ (515 )     $ 80,843  



                                         
        For the Nine Months Ended September 25, 2021
($ In thousands)     Buddy's     Pet Supplies Plus     American Freight       Vitamin Shoppe
    Corporate     Total
  Net income (loss) from continuing operations     $ 10,639       $ 13,677     $ 27,538       $ 73,875       $ (85,544 )     $ 40,185  
  Add back:                                      
  Interest expense       2,991         11,378       29,122         17,023         30,980         91,494  
  Income tax expense (benefit)       -         1       -         (68 )       (15,533 )       (15,600 )
  Depreciation and amortization charges       2,645         13,773       6,913         23,075         1         46,407  
  Total Adjustments       5,637         25,153       36,034         40,029         15,448         122,301  
EBITDA       16,276         38,830       63,572         113,904         (70,096 )       162,486  
  Adjustments to EBITDA                                      
  Executive severance and related costs       -         19       -         -         -         19  
  Stock based compensation       209         -       -         -         9,135         9,344  
  Non-cash executive compensation expense       -         -       1,319         -         -         1,319  
  Gain on Sale of Company-Owned Stores       (2,481 )       -       -         -         -         (2,481 )
  Prepayment penalty on early debt repayment       -         -       -         -         36,726         36,726  
  Store closures / Related Costs / Impairment       -         -       3,213         -         -         3,213  
  Integration / Related Costs       -         520       7,450         -         572         8,542  
  Acquisition costs       -         13,286       333         -         2,226         15,845  
  Loss on Investment in Equity Securities       -         -       -         -         13,175         13,175  
  Divestiture costs       -         -       -         -         2,794         2,794  
  Compliance costs       -         -       -         -         785         785  
  Total Adjustments to EBITDA       (2,272 )       13,825       12,315         -         65,413         89,281  
 Adjusted EBITDA     $ 14,004       $ 52,655     $ 75,887       $ 113,904       $ (4,683 )     $ 251,767  


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 nine months ended September 25, 2021.


    For the Three Months Ended     For the Nine Months Ended
($ In thousands except share count and per share data)   September 25, 2021     September 25, 2021
                   
Net income (loss) from continuing operations / Net income (loss) from continuing operations per diluted share   $ 35,998     $ 0.88       $ 40,185     $ 0.98  
Less: Preferred dividend declared     (2,128 )     (0.05 )       (6,385 )     (0.15 )
Adjusted Net Income available to Common Stockholder     33,870       0.83         33,800       0.83  
Add back:                  
Executive severance and related costs     10       -         19       -  
Stock based compensation     4,084       0.10         9,344       0.23  
Long-term executive compensation expense     494       0.01         1,319       0.03  
Gain on Sale of Company-Owned Stores     (2,481 )     (0.06 )       (2,481 )     (0.06 )
Prepayment penalty on early debt repayment     -       -         36,726       0.90  
Store closures / Related Costs     2,991       0.07         3,213       0.08  
Integration / Related Costs     726       0.02         8,542       0.21  
Acquisition costs     2,196       0.05         15,845       0.39  
Loss on Investment in Equity Securities     13,175       0.32         13,175       0.32  
Divestiture costs     135       -         2,794       0.07  
Compliance costs     6       -         785       0.02  
Adjustments to EBITDA     21,335       0.51         89,281       2.19  
Non-cash amortization of debt issuance costs     2,394       0.06         35,590       0.87  
Amortization of acquisition-related intangibles     2,390       0.06         5,901       0.14  
Tax impact     (4,832 )     (0.11 )       (24,193 )     (0.59 )
Valuation Allowance Tax Benefit     (15,519 )     (0.38 )       (15,519 )     (0.38 )
Impact of diluted share count assuming non-GAAP net income     -       -         -       -  
Total Adjustments to Net income (loss) from continuing operations   5,768       0.14         91,060       2.23  
Non-GAAP Net Income from continuing operations / Non-GAAP diluted EPS from continuing operations   $ 39,638     $ 0.97       $ 124,860     $ 3.05  
Basic weighted average shares         40,229,232             40,171,458  
Non-GAAP diluted weighted average shares outstanding         40,973,736             40,931,423  

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, its outlook for the remainder of fiscal 2021 and its growth expectations for fiscal 2022 and acquisition strategy. 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.