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

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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)


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 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.

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 

Consolidated Statements of Operations
  Three Months Ended
(In thousands, except share count and per share data) March 27, 2021 March 28, 2020
  (Unaudited) (Unaudited)
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 

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 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.
(914) 939-5161

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