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

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  • INCREASES ANNUAL GUIDANCE

ORLANDO, Fla., May 06, 2021 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the financial results of its fiscal 2021 first quarter. For the first quarter of fiscal 2021, total reported revenue for Franchise Group was $621.3 million, net loss from continuing operations was $(28.3) million or $(0.76) per share, Adjusted EBITDA was $79.2 million and Non-GAAP EPS was $0.90 per share. As previously disclosed, on February 21, 2021, the Company entered into a purchase agreement whereby Liberty Tax is expected to become part of NextPoint Acquisition Corp.’s diversified financial services platform 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 first quarter results. Total cash was $164.9 million and outstanding debt at the end of the first quarter of fiscal 2021 was $1.3 billion.

Brian Kahn, Franchise Group’s President and CEO stated, “Our management teams, associates, and franchisees have continued their momentum into 2021. Our franchising teams have had an exceptionally strong start to the year, adding 90 new franchise locations and area development agreements to date. I am pleased that our businesses are proving to be stronger together as we exceeded our overall financial expectations for Franchise Group and are raising our 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. A reconciliation of Adjusted EBITDA to Net Income/(Loss), the most comparable GAAP measure, is included below under “Non-GAAP Financial Measures and Key Metrics.”

For the Three Months

Ended March 27, 2021

Adjusted

Net

Revenue

EBITDA

Income/(Loss)

(In thousands)

American Freight

$

258,517

$

30,611

$

13,909

Vitamin Shoppe

294,739

40,516

30,345

Pet Supplies Plus

51,309

4,754

(5,184

)

Buddy's

16,780

5,238

3,011

Corporate

-

(1,954

)

(70,415

)

Total

$

621,345

$

79,165

$

(28,334

)

Outlook

Franchise Group is increasing its Adjusted EBITDA guidance from over $310 million to over $315 million and Non-GAAP EPS guidance from at least $3.25 to at least $3.35 while maintaining its prior guidance of revenue of $3.0 - $3.1 billion. In calculating EPS, the Company is using approximately 40 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 May 6th at 4:30 P.M. ET to discuss its business, review financial results for the first quarter of 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 (888) 771-4371. The passcode is 50145213. 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 philosophies to generate strong cash flow for its stockholders. Franchise Group’s business lines include Pet Supplies Plus, American Freight, The Vitamin Shoppe, Buddy’s Home Furnishings, and Liberty Tax Service. On a combined basis, Franchise Group currently operates over 4,600 locations predominantly located in the U.S. and Canada 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)

March 27, 2021

December 26, 2020

Assets

(Unaudited)

(Unaudited)

Current assets:

Cash and cash equivalents

$

164,858

$

148,780

Current receivables, net

88,263

67,335

Inventories, net

447,811

302,307

Current assets held for sale

138,319

43,023

Other current assets

22,357

13,997

Total current assets

861,608

575,442

Property, equipment, and software, net

212,983

135,872

Non-current receivables, net

11,706

12,800

Goodwill

786,685

448,258

Intangible assets, net

314,413

109,892

Operating lease right-of-use assets

659,482

502,104

Non-current assets held for sale

-

55,116

Other non-current assets

15,060

8,428

Total assets

$

2,861,937

$

1,847,912

Liabilities and Stockholders Equity

Current liabilities:

Current installments of long-term obligations

$

12,014

$

104,053

Current operating lease liabilities

155,949

127,032

Accounts payable and accrued expenses

338,450

252,389

Current liabilities held for sale

47,515

40,576

Other current liabilities

37,635

25,174

Total current liabilities

591,563

549,224

Long-term obligations, excluding current installments

1,243,132

466,944

Non-current operating lease liabilities

517,573

402,276

Non-current liabilities held for sale

-

8,779

Other non-current liabilities

46,209

35,522

Total liabilities

2,398,477

1,462,745

Stockholders equity:

Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 40,157,102 and 40,092,260 shares issued and outstanding at March 27, 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 March 27, 2021 and December 26, 2020, respectively

45

13

Additional paid-in capital

464,106

382,383

Accumulated other comprehensive loss, net of taxes

(1,112

)

(1,399

)

Retained earnings

19

3,769

Total equity attributable to Franchise Group, Inc.

463,460

385,167

Non-controlling interest

-

-

Total equity

463,460

385,167

Total liabilities and equity

$

2,861,937

$

1,847,912


FRANCHISE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Three Months Ended

(In thousands, except share count and per share data)

March 27, 2021

March 28, 2020

(Unaudited)

(Unaudited)

Revenues:

Product

$

583,816

$

473,505

Service and other

28,576

13,022

Rental

8,953

16,420

Total revenues

621,345

502,947

Operating expenses:

Cost of revenue:

Product

339,414

287,818

Service and other

405

756

Rental

3,005

5,942

Total cost of revenue

342,824

294,516

Selling, general, and administrative expenses

225,545

211,276

Total operating expenses

568,369

505,792

Income (loss) from operations

52,976

(2,845

)

Other expense:

Other

(36,726

)

(4,021

)

Interest expense, net

(47,435

)

(24,511

)

(Loss) before income taxes

(31,185

)

(31,377

)

Income tax expense (benefit)

(2,851

)

(55,921

)

Income (loss) from continuing operations

(28,334

)

24,544

Income from discontinued operations, net of tax

42,147

37,354

Net Income

13,813

61,898

Less: Net (income) attributable to non-controlling interest

-

(2,359

)

Net income attributable to Franchise Group, Inc.

$

13,813

$

59,539

Amounts attributable to Franchise Group, Inc.:

Net income (loss) from continuing operations

$

(28,334

)

$

33,984

Net income from discontinued operations

42,147

25,555

Net income attributable to Franchise Group, Inc.

$

13,813

$

59,539

Basic earnings (loss) per share:

Continuing operations

$

(0.76

)

$

1.45

Discontinued operations

1.05

1.09

Total basic earnings per share

$

0.29

$

2.54

Diluted earnings (loss) per share:

Continuing operations

$

(0.76

)

$

1.43

Discontinued operations

1.05

1.08

Total diluted earnings per share

$

0.29

$

2.51

Weighted-average shares outstanding:

Basic

40,110,084

23,373,980

Diluted

40,110,084

23,693,035


FRANCHISE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Three Months Ended

(In thousands)

March 27, 2021

March 28, 2020

(Unaudited)

(Unaudited)

Operating Activities

Net income

$

13,813

$

61,898

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for doubtful accounts

710

1,672

Depreciation, amortization and impairment charges

14,176

15,927

Amortization of deferred financing costs

30,973

11,744

Loss on disposal of fixed assets

(62

)

-

Stock-based compensation expense - equity awards

2,550

2,485

(Gain) on bargain purchases and sales of Company-owned offices

(623

)

(808

)

Equity in loss of affiliate

-

88

Deferred income taxes

-

5,010

Prepayment penalty for early debt extinguishment

36,726

-

Change in

Accounts, notes, and interest receivable

(7,648

)

(10,203

)

Income taxes receivable

(1,032

)

(51,857

)

Other assets

(6,271

)

(2,364

)

Accounts payable and accrued expenses

8,718

41,921

Inventory

(20,454

)

40,066

Deferred revenue

4,175

189

Net cash provided by operating activities

75,751

115,768

Investing Activities

Issuance of operating loans to franchisees and area developers

(17,058

)

(28,212

)

Payments received on operating loans to franchisees and area developers

21,644

47,800

Purchases of Company-owned offices, area developer rights, and acquired customer lists

(132

)

(2,251

)

Proceeds from sale of Company-owned offices and area developer rights

277

950

Acquisition of business, net of cash and restricted cash acquired

(463,753

)

(357,263

)

Purchases of property, equipment, and software

(11,535

)

(6,184

)

Net cash (used in) investing activities

(470,557

)

(345,160

)

Financing Activities

Proceeds from the exercise of stock options

25

-

Dividends paid

(15,620

)

(3,943

)

Non-controlling interest distribution

-

(2,358

)

Repayment of other long-term obligations

(769,791

)

(370,503

)

Borrowings under revolving credit facility

6,724

142,000

Repayments under revolving credit facility

(84,874

)

(79,260

)

Issuance of common stock

-

80,682

Issuance of preferred stock

79,541

-

Payment for debt issue costs and original issuance discounts

(50,764

)

(14,408

)

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

(361

)

(36

)

Net cash provided by financing activities

428,154

338,174

Effect of exchange rate changes on cash, net

56

(1,335

)

Net increase in cash equivalents and restricted cash

33,404

107,447

Cash, cash equivalents and restricted cash at beginning of year

151,502

45,146

Cash, cash equivalents and restricted cash at end of year

$

184,906

$

152,593

Supplemental Cash Flow Disclosure

Cash paid for taxes, net of refunds

$

65

$

466

Cash paid for interest

$

39,730

$

15,332

Accrued capital expenditures

$

3,019

$

4,061

Deferred financing costs from issuance of common stock

$

-

$

31,013

Share issuance proceeds included in accounts receivable

$

-

$

11,385

Tax receivable agreement included in other long-term liabilities

$

16,775

$

7,449

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 our operating businesses and in comparing our results from period to period because they exclude items that we do not believe are reflective of our core or ongoing operating results. These measures are used by our 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 penalty 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 months ended March 27, 2021.

For the Three Months Ended March 27, 2021

($ In thousands)

Buddy's

Pet Supplies Plus

American Freight

Vitamin Shoppe

Corporate

Total

Net income (loss) from continuing operations

$

3,011

$

(5,184

)

$

13,909

$

30,345

$

(70,415

)

$

(28,334

)

Add back:

-

-

-

-

-

-

Interest expense

1,262

1,011

11,221

2,927

31,014

47,435

Income tax expense (benefit)

-

4

-

3

(2,857

)

(2,851

)

Depreciation and amortization charges

895

1,431

1,890

7,242

0

11,458

Total Adjustments

2,157

2,446

13,111

10,172

28,157

56,042

EBITDA

5,168

(2,739

)

27,020

40,516

(42,258

)

27,708

Adjustments to EBITDA

-

-

-

-

-

-

Executive severance and related costs

-

11

-

-

-

11

Stock based compensation

70

-

-

-

2,366

2,436

Long-term executive compensation expense

-

-

499

-

-

499

Shareholder litigation costs

-

-

-

-

89

89

Prepayment penalty on early debt repayment

-

-

-

-

36,726

36,726

Store closures / Related Costs

-

-

222

-

-

222

Rebranding costs

-

-

17

-

-

17

Acquisition costs

-

4,812

117

-

1

4,930

Divestiture costs

-

-

-

-

342

342

Compliance costs

-

-

-

-

779

779

Integration / Related Costs

-

369

2,737

-

-

3,106

Inventory fair value step up amortization

-

2,300

-

-

-

2,300

Total Adjustments to EBITDA

70

7,492

3,591

-

40,303

51,457

Adjusted EBITDA

$

5,238

$

4,754

$

30,611

$

40,516

$

(1,954

)

$

79,165

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 27, 2021.

For the Three Months Ended

($ In thousands except share count and per share data)

March 27, 2021

Net income (loss) from continuing operations / Net income (loss) from continuing operations per diluted share

$

(28,334

)

$

(0.71

)

Less: Preferred dividend declared

(2,129

)

(0.05

)

Adjusted Net Income available to Common Stockholder

(30,463

)

(0.76

)

Add back:

Executive severance and related costs

11

0.00

Stock based compensation

2,436

0.06

Long-term executive compensation expense

499

0.01

Shareholder litigation costs

89

0.00

Prepayment penalty on early debt repayment

36,726

0.90

Store closures / Related Costs

222

0.01

Rebranding costs

17

0.00

Acquisition costs

4,930

0.12

Divestiture costs

342

0.01

Compliance costs

779

0.02

Integration / Related Costs

3,106

0.08

Inventory fair value step up amortization

2,300

0.06

Adjustments to EBITDA

51,457

-

1.26

Non-cash amortization of debt issuance costs

30,973

0.76

Amortization of acquisition-related intangibles

1,279

0.03

Tax impact

(15,654

)

(0.38

)

Impact of diluted share count assuming non-GAAP net income

-

(0.01

)

Total Adjustments to Net income (loss) from continuing operations

68,055

1.65

Non-GAAP Net Income from continuing operations / Non-GAAP EPS from continuing operations

$

37,592

$

0.90

Basic weighted average shares

40,110,084

Non-GAAP diluted weighted average shares outstanding

40,818,921

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, 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