Franchise Group, Inc. Announces First Quarter 2020 Financial Results
06/18/2020 - 04:09 PM
Exceeds Earnings Guidance for the First Quarter Increases Guidance for 2020 VIRGINIA BEACH, Va., June 18, 2020 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the results of its first quarter ended March 28, 2020. For the first quarter of 2020, total reported revenue for Franchise Group was $592.6 million, GAAP Net Income was $61.9 million or $2.51 per share, Proforma Adjusted EBITDA was $112.2 million and Non-GAAP EPS was $2.11 per share. In calculating GAAP EPS, the Company utilized 23.7 million weighted average fully diluted shares outstanding for the first quarter. In calculating Non-GAAP EPS and formulating guidance, the Company utilized 35.1 million fully diluted shares outstanding. The Company ended the quarter with $147 million in cash and outstanding debt of $811.5 million.
During the first quarter of 2020, Franchise Group completed the $450 million acquisition of American Freight, closed on a $675 million credit facility, and paid another quarterly dividend of $0.25 per share. Despite the impacts of Covid-19, the Company was able to exceed its previously announced guidance for the first quarter due to its resilient business model and achievement of operational efficiencies.
Brian Kahn, Franchise Group’s President and CEO stated, “We established Franchise Group with the ultimate goal of paying dependable and growing dividends to its shareholders. We have assembled a mix of franchise and franchisable businesses that provide us balance and resiliency which have allowed us to be successful before, during, and after the recent crisis. We believe our performance to date validates our strategy and is evidenced by our financial results and updated guidance.”
Mr. Kahn continued, “As all of us know, the last few months have been unprecedented in countless ways. We have been transparent with our stakeholders and have been communicating our operating plans and performance through the pandemic. I want to reiterate that we have continued to prioritize the health and safety of our employees, customers and communities. I am very grateful for the support and professionalism of our operating management teams throughout this crisis and our successes are a reflection of their strong performance.”
The Company has four reportable segments: American Freight; The Vitamin Shoppe; Liberty Tax and Buddy’s. The following table summarizes revenue and Proforma Adjusted EBITDA by these segments. A reconciliation of Proforma Adjusted EBITDA to the most comparable GAAP measure is included below.
For the Three Months Ended March 28, 2020 Proforma Adjusted Net Revenue EBITDA Income (In thousands) American Freight $ 202,747 $ 28,396 $ (14,722 ) Vitamin Shoppe 275,888 30,195 (9,023 ) Liberty Tax 89,618 51,359 47,103 Buddy's 24,312 5,268 (5,189 ) Corporate - (3,023 ) 43,729 Total $ 592,565 $ 112,194 $ 61,898
Outlook (1)
On March 11, 2020, the Company provided preliminary guidance for 2020 of revenue of $2.1 - $2.15 billion, Proforma Adjusted EBITDA of $230 - $240 million and Non-GAAP EPS of $2.35 - $2.55 per share, all assumed American Freight was owned for the full year. As of today, the Company believes it will be at the high end of that range for revenue and Proforma Adjusted EBITDA and is raising its Non-GAAP EPS guidance to at least $2.60 per share.
(1) The Company does not provide quantitative reconciliation of forward-looking, non-GAAP financial measures such as forecasted 2020 Proforma Adjusted EBITDA or non-GAAP EPS to the most directly comparable GAAP financial measure 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. Proforma adjustments represent realized and unrealized synergies consistent with the Company’s credit agreement. Estimates exclude potential refranchising activities.
Conference Call Information Franchise Group will conduct a conference call today at 4:30 p.m. ET to discuss its business, financial results for the first quarter and outlook for the rest of 2020. 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 1898649. Please dial in 5-10 minutes prior to the scheduled start time.
About Franchise Group, Inc. Franchise Group, Inc. (NASDAQ: FRG) is an operator of franchised and franchisable businesses and uses its operating expertise to drive cost efficiencies and grow its brands. Franchise Group’s business lines include Liberty Tax Service, Buddy’s Home Furnishings, American Freight and The Vitamin Shoppe. On a combined basis, Franchise Group currently operates over 4,100 locations predominantly located in the U.S. and Canada that are either Company-run or operated pursuant to franchising agreements.
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 include statements regarding the Company’s performance during the crisis, its strategy and its outlook for the remainder of 2020. 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. We refer you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Transition Report on Form 10-K/T for the transition period ended December 28, 2019, 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.
FRANCHISE GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share count and per share data) March 28, 2020 December 28, 2019 Assets Current assets: Cash and cash equivalents $ 147,028 $ 39,581 Current receivables, net 136,254 79,693 Inventories, net 359,447 300,312 Other current assets 28,279 20,267 Total current assets 671,008 439,853 Property, equipment, and software, net 154,713 150,147 Non-current receivables, net 15,581 18,638 Goodwill 469,459 134,301 Intangible assets, net 148,779 77,590 Operating lease right-of-use assets 535,092 462,610 Other non-current assets 24,891 15,406 Total assets $ 2,019,523 $ 1,298,545 Liabilities and Stockholders Equity Current liabilities: Current installments of long-term obligations $ 257,466 $ 218,384 Current operating lease liabilities 126,701 107,680 Accounts payable and accrued expenses 259,803 158,995 Other current liabilities 36,444 16,409 Total current liabilities 680,414 501,468 Long-term obligations, excluding current installments 554,004 245,236 Non-current operating lease liabilities 434,677 394,307 Other non-current liabilities 21,408 5,773 Total liabilities 1,690,503 1,146,784 Stockholders equity: Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 29,653,052 and 18,250,225 shares issued and outstanding at March 28, 2020 and December 28, 2019, respectively 297 183 Preferred stock, $0.01 par value per share, 20,000,000 and 20,000,000 shares authorized, 1,099,122 and 1,886,667 shares issued and outstanding at March 28, 2020 and December 28, 2019, respectively 11 19 Additional paid-in capital 237,354 108,339 Accumulated other comprehensive loss, net of taxes (2,306 ) (1,538 ) Retained earnings 73,652 18,388 Total equity attributable to Franchise Group, Inc. 309,008 125,391 Non-controlling interest 20,012 26,370 Total equity 329,020 151,761 Total liabilities and equity $ 2,019,523 $ 1,298,545
FRANCHISE GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended (In thousands, except share count and per share data) March 28, 2020 March 31, 2019 Revenues: Product $ 473,505 $ - Service and other 102,640 95,838 Rental 16,420 - Total revenues 592,565 95,838 Operating expenses: Cost of revenue: Product 287,818 - Service and other 756 - Rental 5,942 - Total cost of revenue 294,516 - Selling, general, and administrative expenses 252,212 40,965 Total operating expenses 546,728 40,965 Income from operations 45,837 54,873 Other income (expense): Other (4,056 ) 7 Interest expense, net (25,752 ) (1,055 ) Income before income taxes 16,029 53,825 Income tax expense (benefit) (45,869 ) 15,634 Net income 61,898 38,191 Less: Net income attributable to non-controlling interest (2,359 ) - Net income attributable to Franchise Group, Inc. $ 59,539 $ 38,191 Net income per share of common stock: Basic $ 2.55 $ 2.72 Diluted 2.51 2.71 Weighted-average shares outstanding: Basic 23,373,980 14,055,752 Diluted 23,693,035 14,112,659
FRANCHISE GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended (In thousands) March 28, 2020 March 31, 2019 Operating Activities Net income 61,898 38,191 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 1,672 1,930 Depreciation, amortization and impairment charges 15,927 4,073 Amortization of deferred financing costs 11,744 100 Stock-based compensation expense - equity awards 2,485 388 Loss (gain) on bargain purchases and sales of Company-owned offices (808 ) 555 Equity in (gain) loss of affiliate 88 (1 ) Deferred tax expense (benefit) 5,010 1,949 Change in Accounts, notes, and interest receivable (10,203 ) (16,195 ) Income taxes receivable (51,857 ) 13,186 Other assets (2,364 ) 270 Accounts payable and accrued expenses 41,921 7,146 Inventory 40,066 - Deferred revenue 189 (836 ) Net cash provided by operating activities 115,768 50,756 Investing Activities Issuance of operating loans to franchisees and ADs (28,212 ) (38,402 ) Payments received on operating loans to franchisees and ADs 47,800 63,127 Purchases of Company-owned offices, AD rights, and acquired customer lists (2,251 ) (91 ) Proceeds from sale of Company-owned offices and AD rights 950 22 Acquisition of business, net of cash acquired (357,263 ) - Purchases of property, equipment, and software (6,184 ) (359 ) Net cash used in investing activities (345,160 ) 24,297 Financing Activities Proceeds from the exercise of stock options - 153 Dividends paid (3,943 ) - Non-controlling interest distribution (2,358 ) - Repayment of other long-term obligations (370,503 ) (1,801 ) Borrowings under revolving credit facility 142,000 47,668 Repayments under revolving credit facility (79,260 ) (114,459 ) Issuance of common stock 80,682 - Payment for debt issue costs (14,408 ) - Issuance of debt 586,000 - Cash paid for taxes on exercises/vesting of stock-based compensation (36 ) - Net cash provided by (used in) financing activities 338,174 (68,439 ) Effect of exchange rate changes on cash, net (1,335 ) 80 Net increase (decrease) in cash equivalents and restricted cash 107,447 6,694 Cash and cash equivalents and restricted cash at beginning of period 45,146 3,981 Cash and cash equivalents and restricted cash at end of period $ 152,593 $ 10,675 Supplemental Cash Flow Disclosure Cash paid for taxes, net of refunds $ 466 $ - Cash paid for interest $ 15,332 $ 916 Accrued capital expenditures $ 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 $ 7,449 $ -
Non-GAAP Financial Measures and Key Metrics This press release includes Adjusted EBITDA and non-GAAP earnings per share. Adjusted EBITDA represents net income before interest, income taxes, depreciation and amortization adjusted for certain non-core or non-operational items related to restructuring and related charges, early extinguishment of debt costs, litigation settlement costs, transaction-related costs, and fair value acquisition accounting adjustments related to inventory. Adjusted EBITDA is a financial measure not prepared in accordance with generally accepted accounting principles (“GAAP”). Management believes that Adjusted EBITDA is useful to investors as a supplemental measure 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. Adjusted EBITDA is the measure that is used by our management to evaluate performance and make resource allocation decisions each period. Adjusted EBITDA is also the primary operating metric used in the determination of executive management's compensation. In addition, a measure similar to Adjusted EBITDA is used in the Company’s credit facilities. Adjusted EBITDA 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 Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.
Below is a reconciliation of management’s estimate of net income to estimated Proforma Adjusted EBITDA and GAAP EPS to Non-GAAP EPS for the three months ended March 28, 2020. In the table below, we provide an estimated range of the items we exclude from our calculation of Proforma Adjusted EBITDA and Non-GAAP EPS.
For the Three Months Ended March 28, 2020 American Vitamin Buddy's Liberty Freight Shoppe Corporate Total (In Thousands) Net Income $ (5,189 ) $ 47,103 $ (14,722 ) $ (9,023 ) $ 43,729 $ 61,898 Add back: Interest Expense 5,541 1,240 15,420 3,575 (25 ) 25,752 Income Tax benefit - 303 (169 ) - (46,004 ) (45,869 ) Depreciation, Amortization & Impairment 1,640 2,065 912 11,310 - 15,927 Total Adjustments 7,181 3,608 16,164 14,885 (46,028 ) (4,191 ) EBITDA 1,992 50,711 1,442 5,862 (2,300 ) 57,708 Adjustments to EBITDA: Executive Severance and Related - - - 4,657 0 4,657 Stock-Based Compensation 70 149 - - 2,267 2,485 Shareholder Litigation - - - - 131 131 Corporate Compliance - 99 - - - 99 Prepayment Penalty on Early Debt Extinguishment 2,992 6 1,050 - - 4,048 Accrued Judgments & Settlements - 393 30 (1,708 ) - (1,285 ) Store Closures - - 0 259 - 259 Acquisition Costs 214 - 5,976 4,926 (762 ) 10,354 Inventory Fair Value Step-up Amortization - - 8,245 12,545 - 20,790 Total Adjustments to EBITDA 3,275 647 15,300 20,679 1,636 41,538 Adjusted EBITDA 5,268 51,359 16,742 26,541 (664 ) 99,246 Proforma Adjustments - - 11,654 3,654 (2,360 ) 12,948 Proforma Adjusted EBITDA $ 5,268 $ 51,359 $ 28,396 $ 30,195 $ (3,023 ) $ 112,194
Investor Relations Contact: Andrew F. Kaminsky EVP & Chief Administrative Officer Franchise Group, Inc.akaminsky@franchisegrp.com (914) 939-5161