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


  • 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