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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):  May 5, 2022

  

Franchise Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 001-35588 27-3561876
(State or Other Jurisdiction of
Incorporation)
(Commission File Number) (I.R.S. Employer Identification No.)

 

109 Innovation Court, Suite J

Delaware, Ohio 43015

(Address of Principal Executive Offices) (Zip Code)

 

(740) 363-2222

(Registrant's telephone number, including area code)

 

n/a

(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 class Trading Symbol(s) Name of each exchange on which
registered
Common Stock, par value $0.01 per share FRG Nasdaq Global Market
     
7.50% Series A Cumulative Perpetual Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share FRGAP Nasdaq 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 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

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 May 5, 2022, Franchise Group, Inc. (the “Company”) issued a press release regarding its financial results for the first quarter ended March 26, 2022.  A copy of the release is being furnished as Exhibit 99.1 hereto and incorporated herein by reference.  In addition, on May 5, 2022 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 ending December 31, 2022.

 

The information in this Current Report on Form 8-K, including Exhibit 99.1, is being furnished to the Securities and Exchange Commission (the “SEC”) pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any of the Company’s filings with the SEC under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

Item 9.01.Financial Statements and Exhibits.

 

(d) Exhibits

 

99.1Press Release dated May 5, 2022.
104Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

 

 

 

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: May 5, 2022 By: /s/ Eric Seeton
  Eric Seeton
    Chief Financial Officer

 

 

EdgarFiling

EXHIBIT 99.1

Franchise Group, Inc. Announces Fiscal 2022 First Quarter Financial Results

· Reaffirms financial outlook for fiscal 2022
· Franchising momentum continues

DELAWARE, Ohio, May 05, 2022 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group,” “FRG” or the “Company”) today announced the financial results of its fiscal 2022 first quarter. For the first quarter of fiscal 2022, total reported revenue for Franchise Group was $1.1 billion, net income from continuing operations was $12.3 million or $0.25 per fully diluted share, Adjusted EBITDA was $112.3 million and Non-GAAP EPS was $1.29 per share. On March 26, 2022, total cash on hand was approximately $149.6 million and outstanding term debt was approximately $1.3 billion.  

The outstanding term debt balance does not include repayments from the net proceeds received from the $94 million sale of the W.S. Badcock Corporation (“Badcock”) retail real estate portfolio which closed on March 31, 2022. FRG anticipates closing the previously announced $150 million sale of the Badcock distribution centers and the $18.5 million sale of the Badcock corporate headquarters by the end of its fiscal second quarter, as well as an additional sale of other Badcock real estate for approximately $5.6 million by the end of fiscal 2022. FRG intends to use the net cash proceeds from these real estate sales to repay the remaining $175 million of Badcock acquisition financing.  

Brian Kahn, Franchise Group’s President and CEO stated, “I am proud of FRG’s overall performance in the first quarter. FRG’s diversification across various discretionary and non-discretionary products and services continued to serve us well.” Mr. Kahn continued, “I can’t stress enough how resilient and nimble our management teams have been while staying true to our brands’ ethos and value propositions. Their collective success is strengthening the foundation of FRG  as we seek to further diversify and scale through strategic internal and external investment opportunities.”        

The Company has six reportable segments: American Freight; The Vitamin Shoppe; Pet Supplies Plus; Buddy’s; Sylvan; and Badcock. 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
 March 26, 2022
   Adjusted Net
 Revenue EBITDA Income/(Loss)
 (In thousands)
American Freight$241,416  $15,879  $(1,434)
Vitamin Shoppe 310,953   40,493   21,405 
Pet Supplies Plus 301,214   24,221   8,125 
Buddy's 15,585   5,235   2,564 
Sylvan Learning 10,043   2,828   166 
Badcock 256,259   26,111   (2,859)
Corporate -   (2,429)  (15,650)
Total$1,135,470  $112,338  $12,317 
            

Outlook
Franchise Group is reaffirming its previously announced financial outlook for fiscal year 2022 of revenue of approximately $4.45 billion, Adjusted EBITDA of approximately $450 million and Non-GAAP EPS of approximately $5.00 per share. In formulating its outlook, the Company expects to reduce net debt to below $1.1 billion by the end of its fiscal year 2022. In calculating EPS, the Company is using approximately 41.0 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 GAAP and Non-GAAP EPS, the Company is currently using an effective tax rate of approximately 27%.

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 May 5th at 4:30 P.M. ET to discuss its business, review financial results for its fiscal 2022 first and discuss its outlook for the balance of fiscal year 2022. 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 (866) 374-5140. The passcode is 42926723#. 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, Badcock Home Furniture & more, Buddy’s Home Furnishings and Sylvan Learning. On a combined basis, Franchise Group currently operates over 3,000 locations predominantly located in the U.S. that are either Company-run or operated pursuant to franchising and dealer agreements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
     
(In thousands, except share count and per share data) March 26, 2022 December 25, 2021
Assets (Unaudited) (Unaudited)
Current assets:    
Cash and cash equivalents $149,597  $292,714 
Current receivables, net  110,368   118,698 
Current securitized receivables, net  386,886   369,567 
Inventories, net  779,279   673,170 
Current assets held for sale  203,679   - 
Other current assets  28,403   24,063 
Total current assets  1,658,212   1,478,212 
Property, plant, and equipment, net  237,056   449,886 
Non-current receivables, net  11,156   11,755 
Non-current securitized receivables, net  48,355   47,252 
Goodwill  806,697   806,536 
Intangible assets, net  125,222   127,951 
Tradenames  222,687   222,687 
Operating lease right-of-use assets  713,820   714,741 
Investment in equity securities  11,626   35,249 
Other non-current assets  18,578   18,902 
Total assets $3,853,409  $3,913,171 
Liabilities and Stockholders' Equity    
Current liabilities:    
Current installments of long-term obligations $487,957  $486,170 
Current operating lease liabilities  173,295   173,101 
Accounts payable and accrued expenses  458,776   410,552 
Other current liabilities  51,572   50,833 
Total current liabilities  1,171,600   1,120,656 
Long-term obligations, excluding current installments  1,286,972   1,383,725 
Non-current operating lease liabilities  552,412   557,071 
Other non-current liabilities  90,739   88,888 
Total liabilities  3,101,723   3,150,340 
     
Stockholders' equity:    
Common stock, $0.01 par value per share, 180,000,000 shares authorized, 40,353,865 and 40,296,688 shares issued and outstanding at March 26, 2022 and December 25, 2021, respectively  404   403 
Preferred stock, $0.01 par value per share, 20,000,000 shares authorized and 4,541,125 issued and outstanding at March 26, 2022 and December 25, 2021  45   45 
Additional paid-in capital  480,628   475,396 
Retained earnings  270,609   286,987 
Total equity  751,686   762,831 
Total liabilities and equity $3,853,409  $3,913,171 
         

        

FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
     
  Three Months Ended
(In thousands, except share count and per share data) March 26, 2022 March 27, 2021
  (Unaudited) (Unaudited)
Revenues:    
Product $979,164  $583,816 
Service and other  148,282   28,576 
Rental  8,024   8,953 
Total revenues  1,135,470   621,345 
Operating expenses:    
Cost of revenue:    
Product  616,585   339,414 
Service and other  8,663   405 
Rental  2,861   3,005 
Total cost of revenue  628,109   342,824 
Selling, general, and administrative expenses  376,995   225,545 
Total operating expenses  1,005,104   568,369 
Income from operations  130,366   52,976 
Other expense:    
Bargain purchase gain  (67)  - 
Other  (21,977)  (36,726)
Interest expense, net  (92,327)  (47,435)
Income (loss) from continuing operations before income taxes  15,995   (31,185)
Income tax expense (benefit)  3,678   (2,851)
Income (loss) from continuing operations  12,317   (28,334)
Income (loss) from discontinued operations, net of tax  -   42,147 
Net income attributable to Franchise Group, Inc. $12,317  $13,813 
     
Income (loss) per share from continuing operations:    
Basic $0.25  $(0.76)
Diluted  0.25   (0.76)
     
Net income (loss) per share:    
Basic $0.25  $0.29 
Diluted  0.25   0.29 
     
Weighted-average shares outstanding:    
Basic  40,307,412   40,110,084 
Diluted  41,107,793   40,110,084 
         


FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
     
  Three Months Ended
(In thousands) March 26, 2022 March 27, 2021
  (Unaudited) (Unaudited)
Operating Activities    
Net income $12,317  $13,813 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Provision for doubtful accounts  15,103   710 
Depreciation, amortization, and impairment charges  22,033   14,176 
Amortization of deferred financing costs and prepayment penalties  71,679   67,699 
Stock-based compensation expense  5,447   2,550 
Change in fair value of investment  23,723   - 
(Gain) on bargain purchases and sales of Company-owned stores  (2,206)  (623)
Other non-cash items  (2,227)  (62)
Changes in other assets and liabilities  (83,716)  (22,512)
Net cash provided by operating activities  62,153   75,751 
Investing Activities    
Purchases of property, plant, and equipment  (9,752)  (11,667)
Proceeds from sale of property, plant, and equipment  2,554   277 
Acquisition of business, net of cash and restricted cash acquired  (3,930)  (463,753)
Issuance of operating loans to franchisees  -   (17,058)
Payments received on operating loans to franchisees  -   21,644 
Net cash (used in) investing activities  (11,128)  (470,557)
Financing Activities    
Dividends paid  (27,315)  (15,620)
Issuance of long-term debt and other obligations  124,358   1,306,724 
Repayment of long-term debt and other obligations  (290,202)  (854,665)
Issuance of common stock  24   - 
Issuance of preferred stock  -   79,541 
Principal payments of finance lease obligations  (768)  - 
Payment for debt issue costs and prepayment penalty on extinguishment  -   (87,490)
Other stock compensation transactions  (239)  (336)
Net cash provided by (used in) financing activities  (194,142)  428,154 
Effect of exchange rate changes on cash, net  -   56 
Net increase (decrease) in cash equivalents and restricted cash  (143,117)  33,404 
Cash, cash equivalents and restricted cash at beginning of period  292,714   151,502 
Cash, cash equivalents and restricted cash at end of period $149,597  $184,906 
Supplemental Cash Flow Disclosure    
Cash paid for taxes, net of refunds $274  $65 
Cash paid for interest  21,424   39,730 
Accrued capital expenditures  3,177   3,019 
Tax receivable agreement included in other long-term liabilities  -   16,775 
         

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 the Company’s 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 27%.

Reconciliation of Adjusted EBITDA
Below are reconciliations of Net Income/(Loss) from continuing operations to Adjusted EBITDA for the three months ended March 26, 2022.

  For the Three Months Ended March 26, 2022
($ In thousands) Buddy's Pet Supplies Plus American Freight Vitamin Shoppe Sylvan Badcock Corporate Total
Net income (loss) from continuing operations $2,564 $8,125  $(1,434) $21,405  $166 $(2,859) $(15,650) $12,317 
Add back:                
Interest expense  808  4,731   7,568   6,398   719  72,030   73   92,327 
Income tax expense (benefit)  693  4,165   5,078   7,550   60  993   (14,862)  3,678 
Depreciation and amortization charges  757  6,129   2,559   6,863   1,856  3,870   -   22,033 
Total Adjustments  2,258  15,025   15,205   20,811   2,635  76,893   (14,789)  118,038 
EBITDA   4,822    23,150     13,771     42,216     2,801    74,034     (30,439)   130,355  
Adjustments to EBITDA                
Executive severance and related costs  -  (6)  -   -   -  102   -   96 
Stock based compensation  70  875   294   -   9  -   5,377   6,626 
Litigation costs and settlements  343  -   1,082   550   -  -   (1,745)  230 
Corporate compliance costs  -  -   -   -   -  -   51   51 
Store closures  -  120   238   -   -  -   575   933 
Securitized receivables, net  -  -   -   -   -  (50,871)  -   (50,871)
Prepayment penalty on early debt repayment  -  -   -   -   -  -   -   - 
Right-of-use asset impairment  -  -   375   -   -  -   -   375 
Integration costs  -  44   105   -   18  297   -   464 
Divestiture costs  -  -   -   (2,273)  -  1,936   -   (337)
Acquisition costs  -  38   14   -   -  546   29   626 
Loss on investment in equity securities  -  -   -   -   -  -   23,723   23,723 
Acquisition bargain purchase gain  -  -   -   -   -  67   -   67 
Total Adjustments to EBITDA  413  1,071   2,108   (1,723)  27  (47,923)  28,010   (18,017)
Adjusted EBITDA $ 5,235  $ 24,221   $ 15,879   $ 40,493   $ 2,828  $ 26,111   $ (2,429) $ 112,338  
                               

Reconciliation of Non-GAAP Net Income and EPS
Below are reconciliations of Net Income/(Loss) from continuing operations to Non-GAAP Net Income and Net Income/(Loss) from continuing operations per diluted share to Non-GAAP EPS for the three months ended March 26, 2022.

  For the Three Months Ended
($ In thousands except share count and per share data) March 26, 2022
     
Net income (loss) from continuing operations / Net income (loss) from continuing operations per diluted share $12,317  $0.30 
Less: Preferred dividend declared  (2,128)  (0.05)
Adjusted Net Income available to Common Stockholder  10,189   0.25 
Add back:    
Executive severance and related costs  96   - 
Stock based compensation  6,626   0.16 
Litigation costs and settlements  230   0.01 
Corporate compliance costs  51   - 
Store closures  933   0.02 
Securitized receivables, net  (50,871)  (1.24)
Prepayment penalty on early debt repayment  -   - 
Right-of-use asset impairment  375   0.01 
Integration costs  464   0.01 
Divestiture costs  (337)  (0.01)
Acquisition costs  626   0.02 
Loss on investment in equity securities  23,723   0.58 
Acquisition bargain purchase gain  67   - 
Adjustments to EBITDA  (18,017)  (0.44)
Non-cash amortization of debt issuance costs  6,379   0.15 
Amortization of acquisition-related intangibles  4,086   0.10 
Securitized Receivables Interest Expense  65,300   1.59 
Tax impact  (14,887)  (0.36)
Impact of diluted share count assuming non-GAAP net income  -   - 
Total Adjustments to Net income (loss) from continuing operations  42,860   1.04 
Non-GAAP Net Income from continuing operations / Non-GAAP diluted EPS from continuing operations $ 53,049   $ 1.29  
Basic weighted average shares    40,307,412 
Non-GAAP diluted weighted average shares outstanding    41,107,793 
       

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 outlook for fiscal 2022, the expected timing of the completion of the sale-leaseback of Badcock’s real estate portfolio and the use of proceeds therefrom. 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 25, 2021, 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