Franchise Group, Inc. Announces Fiscal 2022 Second Quarter Financial Results
08/04/2022 - 04:01 PM
DELAWARE, Ohio, Aug. 04, 2022 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group,” “FRG” or the “Company”) today announced the financial results of its fiscal 2022 second quarter. For the second quarter of fiscal 2022, total reported revenue for Franchise Group was $1.1 billion , net income from continuing operations was $41.0 million or $0.94 per fully diluted share, Adjusted EBITDA was $103.4 million and Non-GAAP EPS was $1.19 per share. On June 25, 2022, total cash on hand was approximately $95.0 million and outstanding term debt was approximately $1.1 billion .
“Core to FRG is an intentional model of operational and end market diversification that is serving us well during the recent supply and demand turbulence. Accelerating franchising and continued profitable growth in pet, health & wellness, and education services are countering reduced top and bottom-line performance in our home furnishings businesses. Currently, we are seeing signs that inflation is cresting and even reversing in the areas of freight and home furnishing product costs. We believe that market forces will continue to shift in our favor over the balance of the year and begin to restore our home furnishings unit volumes and profit margins to historical levels next year,” stated Brian Kahn, Franchise Group’s President and CEO.
The Company 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 For the Six Months Ended June 25, 2022 June 25, 2022 Adjusted Net Adjusted Net Revenue EBITDA Income/(Loss) Revenue EBITDA Income/(Loss) (In thousands) (In thousands) American Freight $ 226,428 $ 7,443 $ 2,236 $ 467,843 $ 23,325 $ 803 Vitamin Shoppe 306,897 38,414 18,332 617,851 78,908 39,737 Pet Supplies Plus 302,733 27,244 11,298 603,946 51,465 19,423 Buddy's 14,129 4,093 1,883 29,713 9,328 4,448 Sylvan Learning 11,512 3,887 408 21,556 6,715 574 Badcock 233,299 26,163 14,422 489,558 52,273 11,563 Corporate - (3,825 ) (7,596 ) - (6,255 ) (23,247 ) Total $ 1,094,998 $ 103,418 $ 40,983 $ 2,230,467 $ 215,759 $ 53,301
Outlook
Franchise Group is updating its previously announced financial outlook for fiscal year 2022 to revenue of approximately $4.3 billion from $4.45 billion , Adjusted EBITDA to approximately $390 million from $450 million and Non-GAAP EPS to approximately $4.00 per share from $5.00 per share. In calculating EPS, the Company is using approximately 41.0 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 GAAP and Non-GAAP EPS, the Company is currently using an effective tax rate of approximately 27% .
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 August 4th at 4:30 P.M. ET to discuss its business, review financial results for its fiscal 2022 first and discuss its outlook for the balance of fiscal year 2022. 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) June 25, 2022 December 25, 2021 Assets (Unaudited) (Unaudited) Current assets: Cash and cash equivalents $ 95,038 $ 292,714 Current receivables, net 178,687 118,698 Current securitized receivables, net 322,028 369,567 Inventories, net 825,393 673,170 Current assets held for sale 27,999 - Other current assets 26,389 24,063 Total current assets 1,475,534 1,478,212 Property, plant, and equipment, net 226,771 449,886 Non-current receivables, net 10,402 11,755 Non-current securitized receivables, net 40,820 47,252 Goodwill 806,653 806,536 Intangible assets, net 122,347 127,951 Tradenames 222,703 222,687 Operating lease right-of-use assets 866,226 714,741 Investment in equity securities 24,394 35,249 Other non-current assets 19,151 18,902 Total assets $ 3,815,001 $ 3,913,171 Liabilities and Stockholders' Equity Current liabilities: Current installments of long-term obligations $ 322,363 $ 486,170 Current operating lease liabilities 178,278 173,101 Accounts payable and accrued expenses 425,728 410,552 Other current liabilities 41,671 50,833 Total current liabilities 968,040 1,120,656 Long-term obligations, excluding current installments 1,281,530 1,383,725 Non-current operating lease liabilities 701,185 557,071 Other non-current liabilities 95,392 88,888 Total liabilities 3,046,147 3,150,340 Stockholders' equity: Common stock, $0.01 par value per share, 180,000,000 shares authorized, 40,358,754 and 404 403 Preferred stock, $0.01 par value per share, 20,000,000 shares authorized, and 4,541,125 45 45 Additional paid-in capital 486,059 475,396 Retained earnings 282,346 286,987 Total equity 768,854 762,831 Total liabilities and equity $ 3,815,001 $ 3,913,171
FRANCHISE GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations Three Months Ended Six Months Ended (In thousands, except share count and per share data) June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues: Product $ 952,009 $ 805,768 $ 1,931,173 $ 1,389,585 Service and other 135,648 48,193 283,929 76,768 Rental 7,341 8,797 15,365 17,750 Total revenues 1,094,998 862,758 2,230,467 1,484,103 Operating expenses: Cost of revenue: Product 600,780 522,576 1,217,364 861,991 Service and other 8,732 934 17,395 1,339 Rental 2,741 2,935 5,603 5,940 Total cost of revenue 612,253 526,445 1,240,362 869,270 Selling, general, and administrative expenses 405,639 278,157 782,633 503,702 Total operating expenses 1,017,892 804,602 2,022,995 1,372,972 Income from operations 77,106 58,156 207,472 111,131 Other expense: Bargain purchase gain 3,581 - 3,514 - Gain on sale-leaseback transactions, net 49,854 - 49,854 - Other 12,853 - (9,122) (36,726 ) Interest expense, net (88,839 ) (22,865 ) (181,167 ) (70,300 ) Income from continuing operations before income taxes 54,555 35,291 70,551 4,105 Income tax expense (benefit) 13,572 2,770 17,250 (81 ) Income from continuing operations 40,983 32,521 53,301 4,186 Income from discontinued operations, net of tax - 6,215 - 48,363 Net income attributable to Franchise Group, Inc. $ 40,983 $ 38,736 $ 53,301 $ 52,549 Income per share from continuing operations: Basic $ 0.96 $ 0.76 $ 1.22 $ - Diluted 0.94 0.74 1.19 - Net income per share: Basic $ 0.96 $ 0.91 $ 1.22 $ 1.20 Diluted 0.94 0.89 1.19 1.20 Weighted-average shares outstanding: Basic 40,356,299 40,175,058 40,331,855 40,142,571 Diluted 41,126,605 40,905,567 41,148,668 40,142,571
FRANCHISE GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Six Months Ended (In thousands) June 25, 2022 June 26, 2021 (Unaudited) (Unaudited) Operating Activities Net income $ 53,301 $ 52,549 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for doubtful accounts 56,840 1,910 Depreciation, amortization, and impairment charges 42,236 31,157 Amortization of deferred financing costs and prepayment penalties 12,032 69,923 Amortization of securitized debt discount 128,208 - Stock-based compensation expense 10,853 5,478 Change in fair value of investment 10,855 - Gain on sale-leaseback, bargain purchases, and sales of Company-owned stores (55,883 ) (731 ) Other non-cash items (2,182 ) 645 Changes in other assets and liabilities (206,572 ) (55,305 ) Net cash provided by operating activities 49,688 105,626 Investing Activities Purchases of property, plant, and equipment (21,809 ) (25,028 ) Proceeds from sale of property, plant, and equipment 240,558 293 Acquisition of business, net of cash and restricted cash acquired (3,754 ) (462,821 ) Issuance of operating loans to franchisees - (17,612 ) Payments received on operating loans to franchisees 1,000 23,013 Net cash (used in) investing activities 215,995 (482,155 ) Financing Activities Dividends paid (54,665 ) (32,808 ) Issuance of long-term debt and other obligations 219,056 1,306,724 Repayment of long-term debt and other obligations (625,746 ) (856,385 ) Issuance of common stock 49 - Issuance of preferred stock - 79,542 Principal payments of finance lease obligations (1,383 ) - Payment for debt issue costs and prepayment penalty on extinguishment (431 ) (87,502 ) Other stock compensation transactions (239 ) (18 ) Net cash provided by (used in) financing activities (463,359 ) 409,553 Effect of exchange rate changes on cash, net - 142 Net increase (decrease) in cash equivalents and restricted cash (197,676 ) 33,166 Cash, cash equivalents and restricted cash at beginning of period 292,714 151,502 Cash, cash equivalents and restricted cash at end of period $ 95,038 $ 184,668 Supplemental Cash Flow Disclosure Cash paid for taxes, net of refunds $ 17,842 $ 1,284 Cash paid for interest 42,013 61,249 Accrued capital expenditures 2,751 3,406 Tax receivable agreement included in other long-term liabilities - 1,211
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 27% .
Reconciliation of Adjusted EBITDA
For the Three Months Ended June 25, 2022 ($ In thousands) Buddy's Pet Supplies Plus American Freight Vitamin Shoppe Sylvan Badcock Corporate Total Net income (loss) from continuing operations $ 1,883 $ 11,298 $ 2,236 $ 18,332 $ 408 $ 14,422 $ (7,596 ) $ 40,983 Add back: Interest expense 826 4,774 7,592 6,432 731 68,103 381 88,839 Income tax expense (benefit) 852 2,582 (4,799 ) 6,253 480 1,813 6,390 13,572 Depreciation and amortization charges 750 5,607 2,528 7,082 2,129 1,459 - 19,554 Total Adjustments 2,428 12,963 5,321 19,767 3,340 71,375 6,771 121,965 EBITDA 4,311 24,261 7,557 38,099 3,748 85,797 (825 ) 162,948 Adjustments to EBITDA Executive severance and related costs - 161 - - - - - 161 Litigation costs and settlements (288 ) - (296 ) 315 - - - (269 ) Stock-based and long term executive compensation 70 2,567 (71 ) - 139 - 5,337 8,041 Corporate compliance costs - - - - - - - - Store closures - 173 (20 ) - - - - 153 W.S. Badcock financing operations - - - - - (6,928 ) - (6,928 ) Prepayment penalty on early debt repayment - - - - - - - - Right-of-use asset impairment - - 273 - - - - 273 Integration costs - 64 - - - - - 64 Divestiture costs - - - - - 493 - 493 Acquisition costs - 18 - - - 236 4,522 4,776 Gain on investment in equity securities - - - - - - (12,859 ) (12,859 ) Acquisition bargain purchase gain - - - - - (3,581 ) - (3,581 ) Gain on sale-leaseback and owned properties, net - - - - - (49,854 ) - (49,854 ) Total Adjustments to EBITDA (218 ) 2,983 (114 ) 315 139 (59,634 ) (3,000 ) (59,530 ) Adjusted EBITDA $ 4,093 $ 27,244 $ 7,443 $ 38,414 $ 3,887 $ 26,163 $ (3,825 ) $ 103,418
For the Six Months Ended June 25, 2022 ($ In thousands) Buddy's Pet Supplies Plus American Freight Vitamin Shoppe Sylvan Badcock Corporate Total Net income (loss) from continuing operations $ 4,448 $ 19,423 $ 803 $ 39,737 $ 574 $ 11,563 $ (23,247 ) $ 53,301 Add back: Interest expense 1,634 9,505 15,161 12,831 1,450 140,133 453 181,167 Income tax expense (benefit) 1,545 6,747 279 13,803 540 2,806 (8,470 ) 17,250 Depreciation and amortization charges 1,507 11,736 5,087 13,945 3,985 5,328 - 41,588 Total Adjustments 4,686 27,988 20,527 40,579 5,975 148,267 (8,017 ) 240,005 EBITDA 9,134 47,411 21,330 80,316 6,549 159,830 (31,264 ) 293,306 Adjustments to EBITDA Executive severance and related costs - 154 - - - 102 - 256 Litigation costs and settlements 55 - 786 865 - - (1,745 ) (39 ) Stock-based and long term executive compensation 139 3,442 224 - 148 - 10,714 14,667 Corporate compliance costs - - - - - - 51 51 Store closures - 293 218 - - - 575 1,086 W.S. Badcock financing operations - - - - - (57,799 ) - (57,799 ) Prepayment penalty on early debt repayment - - - - - - - - Right-of-use asset impairment - - 648 - - - - 648 Integration costs - 108 105 - 18 297 - 528 Divestiture costs - - - - - 2,429 - 2,429 Acquisition costs - 57 14 - - 782 4,550 5,403 Gain on investment in equity securities - - - - - - 10,864 10,864 Acquisition bargain purchase gain - - - - - (3,514 ) - (3,514 ) Gain on sale-leaseback and owned properties, net - - - (2,273 ) - (49,854 ) - (52,127 ) Total Adjustments to EBITDA 194 4,054 1,995 (1,408 ) 166 (107,557 ) 25,009 (77,547 ) Adjusted EBITDA $ 9,328 $ 51,465 $ 23,325 $ 78,908 $ 6,715 $ 52,273 $ (6,255 ) $ 215,759
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 six months ended June 25, 2022.
For the Three Months Ended For the Six Months Ended ($ In thousands except share count and per share data) June 25, 2022 June 25, 2022 Net income (loss) from continuing operations / Net income (loss) from continuing operations per diluted share $ 40,983 1.00 $ 53,301 $ 1.30 Less: Preferred dividend declared (2,129 ) (0.06 ) (4,257 ) (0.11 ) Adjusted Net Income available to Common Stockholder 38,854 0.94 49,044 1.19 Add back: Executive severance and related costs 161 0.01 256 0.01 Litigation costs and settlements (269 ) (0.01 ) (39 ) - Stock-based and long term executive compensation 8,041 0.20 14,667 0.36 Corporate compliance costs - - 51 - Store closures 153 - 1,086 0.03 W.S. Badcock financing operations (6,928 ) (0.17 ) (57,799 ) (1.40 ) Prepayment penalty on early debt repayment - - - - Right-of-use asset impairment 273 0.01 648 0.02 Integration costs 64 - 528 0.01 Divestiture costs 493 0.01 2,429 0.06 Acquisition costs 4,776 0.12 5,403 0.13 Gain on investment in equity securities (12,859 ) (0.31 ) 10,864 0.26 Acquisition bargain purchase gain (3,581 ) (0.09 ) (3,514 ) (0.09 ) Gain on sale-leaseback and owned properties, net (49,854 ) (1.21 ) (52,127 ) (1.27 ) Adjustments to EBITDA (59,530 ) (1.44 ) (77,547 ) (1.88 ) Non-cash amortization of debt issuance costs 5,653 0.13 12,032 0.28 Amortization of acquisition-related intangibles 4,359 0.11 8,445 0.21 Securitized receivables interest expense 62,909 1.53 128,208 3.12 Tax impact (3,452 ) (0.08 ) (18,339 ) (0.45 ) Impact of diluted share count assuming non-GAAP net income - - - - Total Adjustments to Net income (loss) from continuing operations 9,939 0.25 52,798 1.28 Non-GAAP Net Income from continuing operations / Non-GAAP diluted EPS from continuing operations $ 48,793 $ 1.19 $ 101,842 $ 2.47 Basic weighted average shares 40,356,299 40,331,855 Non-GAAP diluted weighted average shares outstanding 41,126,605 41,148,668
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, statements regarding product and freight costs, home furnishings unit volumes and profit margins and its outlook for fiscal 2022. 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 25, 2021, 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: akaminsky@franchisegrp.com
