Franchise Group, Inc. Announces First Quarter Fiscal Year 2023 Financial Results
05/10/2023 - 07:09 AM
DELAWARE, Ohio, May 10, 2023 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group,” “FRG” or the “Company”) today announced the financial results for its fiscal first quarter ended April 1, 2023. For the first quarter of fiscal 2023, total reported revenue for Franchise Group was approximately $1.1 billion , net loss from operations was approximately $108.3 million or $3.16 per fully diluted share, Adjusted EBITDA was approximately $66.0 million and Non-GAAP EPS was $0.11 per share. On April 1, 2023, total cash on hand was approximately $98.3 million and outstanding term debt was approximately $1.4 billion .
The Board of Directors approved a quarterly dividend of $0.46 875 per share to the Company’s Series A Cumulative Perpetual Preferred stockholders. The cash dividend will be paid on or about July 17, 2023 to holders of record of the Company’s Series A preferred stock on the close of business on July 3, 2023. FRG management was unable to recommend that the Board of Directors declare a regular quarterly common stock dividend this quarter due to restrictions in FRG’s credit agreements. FRG’s credit agreements permit dividends so long as the Company’s leverage ratio remains below a specified level, and the Company is currently in excess of this level.
The Company currently 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 April 1, 2023 Adjusted Net Revenue EBITDA Income/(Loss) (In thousands) American Freight $ 236,561 $ (7,542 ) $ (93,859 ) Vitamin Shoppe 321,702 35,120 11,892 Pet Supplies Plus 334,071 29,625 7,759 Buddy's 14,968 4,507 1,724 Sylvan Learning 10,232 3,338 (121 ) Badcock 187,287 4,306 (27,188 ) Corporate - (3,354 ) (8,524 ) Total $ 1,104,821 $ 66,000 $ (108,317 )
Outlook In light of today’s announcement and our first quarter results, Franchise Group is withdrawing its previous financial outlook for 2023.
Conference Call Information In light of today’s announcement, Franchise Group will conduct a conference call later this morning at 8:30 A.M. ET to discuss its business and financial results for the fiscal 2023 first quarter. A real-time webcast of the conference call will be available on the Events page of Franchise Group’s website at www.franchisegrp.com. Dial in access is also accessible through the link on the website. Please register 5-10 minutes prior to the scheduled start time.
About Franchise Group, Inc.
FRANCHISE GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share count and per share data) April 1, 2023 December 31, 2022 Assets (Unaudited) (Unaudited) Current assets: Cash and cash equivalents $ 98,266 $ 80,783 Current receivables, net of allowance for credit losses of $(3,038) and $(4,106) , respectively 151,723 170,162 Current securitized receivables, net of allowance for credit losses of $(71,148) and $(57,095) , respectively 290,367 292,913 Inventories, net 759,891 736,841 Current assets held for sale 7,633 8,528 Other current assets 29,610 27,272 Total current assets 1,337,490 1,316,499 Property, plant, and equipment, net 234,705 223,718 Non-current receivables, net of allowance for credit losses of $(1,064) and $(892) , respectively 11,202 11,735 Non-current securitized receivables, net of allowance for credit losses of $(9,418) and $(7,705) , respectively 38,437 39,527 Goodwill 663,466 737,402 Intangible assets, net 114,000 116,799 Tradenames 222,703 222,703 Operating lease right-of-use assets 910,269 890,949 Investment in equity securities 9,758 11,587 Other non-current assets 65,232 59,493 Total assets $ 3,607,262 $ 3,630,412 Liabilities and Stockholders’ Equity Current liabilities: Current installments of long-term obligations, net $ 11,771 $ 6,935 Current installments of debt secured by accounts receivable, net 412,862 340,021 Current operating lease liabilities 179,246 179,519 Accounts payable and accrued expenses 415,665 376,895 Other current liabilities 40,983 40,541 Total current liabilities 1,060,527 943,911 Long-term obligations, excluding current installments 1,394,320 1,374,479 Non-current installments of debt secured by accounts receivable, net 68,163 107,448 Non-current operating lease liabilities 741,174 720,474 Other non-current liabilities 65,431 62,720 Total liabilities 3,329,615 3,209,032 Stockholders’ equity: Common stock, $0.01 par value per share, 180,000,000 shares authorized, 35,148,564 and 34,925,733 shares issued and outstanding at April 1, 2023 and December 31, 2022, respectively 351 349 Preferred stock, $0.01 par value per share, 20,000,000 shares authorized and 4,541,125 issued and outstanding at April 1, 2023 and December 31, 2022 45 45 Additional paid-in capital 310,160 311,069 Retained earnings (32,909 ) 109,917 Total equity 277,647 421,380 Total liabilities and equity $ 3,607,262 $ 3,630,412
FRANCHISE GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations Three Months Ended (In thousands, except share count and per share data) April 1, 2023 March 26, 2022 (Unaudited) (Unaudited) Revenues: Product $ 976,808 $ 979,164 Service and other 120,567 148,282 Rental 7,446 8,024 Total revenues 1,104,821 1,135,470 Operating expenses: Cost of revenue: Product 656,904 616,585 Service and other 9,579 8,663 Rental 2,626 2,861 Total cost of revenue 669,109 628,109 Selling, general, and administrative expenses 387,241 376,995 Goodwill impairment 75,000 - Total operating expenses 1,131,350 1,005,104 Income from operations (26,529 ) 130,366 Other expense: Bargain purchase gain - (67 ) Other (1,834 ) (21,977 ) Interest expense, net (87,129 ) (92,327 ) Income (loss) before income taxes (115,492 ) 15,995 Income tax expense (benefit) (7,175 ) 3,678 Income (loss) attributable to Franchise Group, Inc. $ (108,317 ) $ 12,317 Net income (loss) per share: Basic $ (3.16 ) $ 0.25 Diluted (3.16 ) 0.25 Weighted-average shares outstanding: Basic 35,002,174 40,307,412 Diluted 35,002,174 41,107,793
FRANCHISE GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Three Months Ended (In thousands) April 1, 2023 March 26, 2022 (Unaudited) (Unaudited) Operating Activities Net income (loss) $ (108,317 ) $ 12,317 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses for accounts receivable 20,327 15,103 Depreciation, amortization, and impairment charges 21,851 22,033 Goodwill impairment 75,000 - Amortization of deferred financing costs 2,830 6,379 Securitized financing costs 27,000 29,801 Stock-based compensation expense 2,719 5,447 Change in fair value of investment 1,830 23,723 Gain on bargain purchases and sales of Company-owned stores - (2,206 ) Other non-cash items (42 ) (2,227 ) Changes in other assets and liabilities (23,511 ) (101,227 ) Net cash provided by operating activities 19,687 9,143 Investing Activities Purchases of property, plant, and equipment (14,219 ) (9,752 ) Proceeds from sale of property, plant, and equipment 1,166 2,554 Acquisition of business, net of cash and restricted cash acquired (3,682 ) (3,930 ) Net cash (used in) investing activities (16,735 ) (11,128 ) Financing Activities Dividends paid (25,698 ) (27,315 ) Issuance of long-term debt and other obligations 415,000 67,000 Repayment of long-term debt and other obligations (387,585 ) (182,096 ) Proceeds from secured debt obligations 132,151 57,358 Repayment of secured debt obligations (97,210 ) (55,096 ) Principal payments of finance lease obligations (1,207 ) (768 ) Payment for debt issue costs (17,393 ) - Cash paid for exercises/vesting of stock-based compensation, net (3,626 ) (215 ) Net cash provided by (used in) financing activities 14,432 (141,132 ) Net increase (decrease) in cash equivalents and restricted cash 17,384 (143,117 ) Cash, cash equivalents and restricted cash at beginning of period 81,250 292,714 Cash, cash equivalents and restricted cash at end of period $ 98,634 $ 149,597 Supplemental Cash Flow Disclosure Cash paid for taxes, net of refunds $ 1,562 $ 274 Cash paid for interest 30,841 21,424 Cash paid for interest on secured debt 23,757 16,830 Accrued capital expenditures 2,229 3,177 Capital expenditures funded by finance lease liabilities 12,741 -
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, the Badcock segment’s in-house financing operations, 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 25.8% .
Reconciliation of Adjusted EBITDA
For the Three Months Ended April 1, 2023 ($ In thousands) Buddy's Pet Supplies American Vitamin Sylvan Badcock Corporate Total Net income (loss) $ 1,724 $ 7,759 $ (93,859 ) $ 11,892 $ (121 ) $ (27,188 ) $ (8,524 ) $ (108,317 ) Add back: Interest expense 1,417 8,286 13,592 11,172 1,227 51,374 61 87,129 Income tax expense (benefit) 599 3,321 (6,363 ) 4,131 42 (9,444 ) 539 (7,175 ) Depreciation and amortization charges 767 7,704 3,265 6,694 2,107 1,077 10 21,624 Total Adjustments 2,783 19,311 10,494 21,997 3,376 43,007 610 101,578 EBITDA 4,507 27,070 (83,365 ) 33,889 3,255 15,819 (7,914 ) (6,739 ) Adjustments to EBITDA Executive severance and related costs - (6 ) 390 1,185 - - - 1,569 Litigation costs and settlements - - 40 46 7 - - 94 Stock-based and long term executive compensation - 1,688 (34 ) - 76 - 2,719 4,450 Corporate compliance costs - - - - - - (4 ) (4 ) Store closures - - 18 - - - - 18 Securitized accounts receivable interest income - - - - - (30,584 ) - (30,584 ) Securitized accounts receivable allowance for credit losses - - - - - 21,995 - 21,995 W.S. Badcock financing operations - - - - - (3,122 ) - (3,121 ) Right-of-use asset and long-term asset impairment - 135 409 - - - - 544 Goodwill impairment - - 75,000 - - - - 75,000 Integration costs - 637 - - - - 12 649 Divestiture costs - - - - - 198 - 198 Acquisition costs - 101 - - - - - 101 Loss on investment in equity securities - - - - - - 1,830 1,830 Acquisition bargain purchase gain - - - - - - - - Total Adjustments to EBITDA - 2,555 75,823 1,231 83 (11,513 ) 4,557 72,739 Adjusted EBITDA $ 4,507 $ 29,625 $ (7,542 ) $ 35,120 $ 3,338 $ 4,306 $ (3,357 ) $ 66,000
Reconciliation of Non-GAAP Net Income and EPS
Below is the reconciliation 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 April 1, 2023.
For the Three Months Ended ($ In thousands except share count and per share data) April 1, 2023 Net income (loss) / Net income (loss) per diluted share $ (108,317 ) $ (3.09 ) Less: Preferred dividend declared (2,128 ) (0.06 ) Adjusted Net Income available to Common Stockholder (110,446 ) (3.16 ) Add back: Executive severance and related costs 1,569 0.04 Litigation costs and settlements 94 - Stock-based and long term executive compensation 4,450 0.13 Corporate compliance costs (4 ) - Store closures 18 - Securitized accounts receivable interest income (30,584 ) (0.87 ) Securitized accounts receivable allowance for credit losses 21,995 0.63 W.S. Badcock financing operations (3,121 ) (0.09 ) Right-of-use asset and long-term asset impairment 544 0.02 Goodwill impairment 75,000 2.14 Integration costs 649 0.02 Divestiture costs 198 0.01 Acquisition costs 101 - Loss on investment in equity securities 1,830 0.05 Acquisition bargain purchase gain - - Adjustments to EBITDA 72,739 2.08 Non-cash amortization of debt issuance costs 2,830 0.08 Amortization of acquisition-related intangibles 4,367 0.12 Securitized receivables interest expense 48,125 1.38 Tax impact (13,678 ) (0.39 ) Impact of diluted share count assuming non-GAAP net income - - Total Adjustments to Net income (loss) 114,383 3.27 Non-GAAP Net Income / Non-GAAP diluted EPS $ 3,937 $ 0.11 Basic weighted average shares 35,002,174 Non-GAAP diluted weighted average shares outstanding 35,002,174
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. 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 or matters pertaining to the proposed merger will not differ materially from any projected future results, performance, achievements or other matters expressed or implied by such forward-looking statements. Actual future results, performance, achievements or other matters 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 31, 2022, 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.
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