Franchise Group, Inc. Announces Fourth Quarter and Full Fiscal Year 2020 Financial Results

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ORLANDO, Fla., March 10, 2021 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the results of its fourth quarter and fiscal year ended December 26, 2020. For the fourth quarter of 2020, total reported revenue for Franchise Group was $496.3 million, net loss was $4.2 million or $0.12 per share, Adjusted EBITDA was $28.8 million and Supplemental Information encompassing cost synergies and other acquisition impacts was $5.2 million.

For the full fiscal year 2020, total reported revenue for Franchise Group was $2.15 billion, net income was $25.1 million or $0.70 per share, and Adjusted EBITDA was $227.6 million with Supplemental Information of $32.4 million. Adjusted EBITDA in the fourth quarter was reduced by approximately $1 million from the previously reported Buddy’s refranchising transaction completed in November 2020.  

Brian Kahn, Franchise Group’s President and CEO stated, “Our management teams, associates and franchisees overcame challenging obstacles in 2020 and adapted in a manner that has strengthened our brands and positioned them favorably for the future. In the fourth quarter of 2020, we continued to enhance our cash flow by driving revenue and cost synergies from an increasingly diverse set of operating brands. We expect to carry this momentum into 2021.”

The Company has four reportable segments: American Freight; The Vitamin Shoppe; Liberty Tax and Buddy’s. The following table summarizes Revenue, Net Income/(Loss), Adjusted EBITDA and Supplemental Information 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 For the Twelve Months
 Ended December 26, 2020 Ended December 26, 2020
   Adjusted Supplemental
 Net   Adjusted Supplemental
 Net
 Revenue EBITDA Information Income/(Loss)
 Revenue EBITDA Information Income/(Loss)
    
 (In thousands) (In thousands)
American Freight 214.0  18.9   2.9  (9.0)  896.4  89.6   25.6   (29.3)
Vitamin Shoppe 255.4  15.7   2.3  8.2   1,036.0  77.8   9.2   (7.4)
Liberty Tax 4.8  (12.4)  -  (16.2)  122.8  37.0   -   18.1 
Buddy's 22.1  7.8   -  4.1   97.3  26.9   -   2.3 
Corporate -  (1.2)  -  8.6   -  (3.7)  (2.4)  43.5 
Total$496.3 $28.8  $5.2 $(4.2) $2,152.5 $227.6  $32.4  $27.2 
                

Outlook

For the fiscal year 2021, the Company expects revenue of $3.0 - $3.1 billion, net income of at least $40 million or $1.00 per share, Adjusted EBITDA of at least $310 million and Non-GAAP EPS of at least $3.25 per share. In calculating EPS, the Company is using 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 26%. Actual cash taxes are expected to be minimal in 2021.

In formulating guidance, the Company is: (i) removing Liberty Tax since it is expected to become a discontinued operation in 2021; (ii) including Pet Supplies Plus from March 10, 2021, the acquisition date; (iii) excluding approximately $10 million of Adjusted EBITDA generated by Pet Supplies Plus in 2021 prior to March 10, 2021; (iv) including the impact of the 47 store Buddy’s refranchising transaction in November 2020 which equates to a reduction of approximately $6 million of Adjusted EBITDA annually; and (v) excluding the impact of any additional acquisitions, divestitures or refranchising activity.

The Company does not provide quantitative reconciliation of forward-looking, Non-GAAP financial measures such as forecasted Adjusted EBITDA or Supplemental Information 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. Supplemental Information adjustments represent realized and unrealized synergies consistent with the Company’s credit agreement. 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 March 10th at 4:30 P.M. ET to discuss its business, review financial results for the fourth quarter of 2020 and discuss its outlook for 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 (877) 784-1793. The passcode is 2193847. 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 shareholders. 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) December 26, 2020 December 28, 2019
Assets (Unaudited) (Audited)
Current assets:    
Cash and cash equivalents $151,502  $39,581 
Current receivables, net  90,610   79,693 
Inventories, net  302,307   300,312 
Other current assets  20,772   20,267 
Total current assets  565,191   439,853 
Property, equipment, and software, net  143,506   150,147 
Non-current receivables, net  16,689   18,638 
Goodwill  456,977   134,301 
Intangible assets, net  134,695   77,590 
Operating lease right-of-use assets  510,875   462,610 
Other non-current assets  9,728   15,406 
Total assets $1,837,661  $1,298,545 
Liabilities and Stockholders Equity    
Current liabilities:    
Current installments of long-term obligations $105,388  $218,384 
Current operating lease liabilities  131,690   107,680 
Accounts payable and accrued expenses  265,016   158,995 
Other current liabilities  36,879   16,409 
Total current liabilities  538,973   501,468 
Long-term obligations, excluding current installments  468,655   245,236 
Non-current operating lease liabilities  407,014   394,307 
Other non-current liabilities  37,852   5,773 
Total liabilities  1,452,494   1,146,784 
     
Stockholders equity:    
Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 40,092,260 and 18,250,225 shares issued and outstanding at December 26, 2020 and December 28, 2019, respectively  401   183 
Preferred stock, $0.01 par value per share, 20,000,000 and 20,000,000 shares authorized, 1,250,000 and 1,886,667 shares issued and outstanding at December 26, 2020 and December 28, 2019, respectively  13   19 
Additional paid-in capital  382,383   108,339 
Accumulated other comprehensive loss, net of taxes  (1,399)  (1,538)
Retained earnings  3,769   18,388 
Total equity attributable to Franchise Group, Inc.  385,167   125,391 
Non-controlling interest  -   26,370 
Total equity  385,167   151,761 
Total liabilities and equity $1,837,661  $1,298,545 
     


FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
       
       
  Three Months Ended Twelve Months Ended Transition Period from 5/1/2019 -
(In thousands, except share count and per share data) December 26, 2020 December 26, 2020 December 28, 2019
Revenues:      
Product $458,985  $1,899,662  $96,139 
Service and other  24,067   188,575   29,735 
Rental  13,267   64,267   23,636 
Total revenues  496,319   2,152,504   149,510 
Operating expenses:      
Cost of revenue:      
Product  273,734   1,136,054   71,820 
Service and other  14   2,149   768 
Rental  4,578   21,905   8,661 
Total cost of revenue  278,326   1,160,108   81,249 
Selling, general, and administrative expenses  218,604   916,274   173,860 
Total operating expenses  496,930   2,076,382   255,109 
Income (loss) from operations  (611)  76,122   (105,599)
Other expense:      
Other  106   (5,187)  37 
Interest expense, net  (18,109)  (101,751)  (9,349)
Income (loss) before income taxes  (18,614)  (30,816)  (114,911)
Income tax expense (benefit)  (14,409)  (57,970)  (10,445)
Net income (loss)  (4,205)  27,154   (104,466)
Less: Net (income) loss attributable to non-controlling interest  -   (2,090)  36,039 
Net income (loss) attributable to Franchise Group, Inc. $(4,205) $25,064  $(68,427)
       
Net income (loss) per share of common stock:      
Basic $(0.12) $0.70  $(4.11)
Diluted  (0.12)  0.70   (4.11)
       
Weighted-average shares outstanding:      
Basic  40,086,720   34,531,362   16,669,065 
Diluted  40,086,720   34,971,935   16,669,065 


FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
     
     
  Twelve Months Ended Transition Period from 5/1/2019 -
(In thousands) December 26, 2020 December 28, 2019
Operating Activities    
Net (loss) income $27,154  $(104,466)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Provision for doubtful accounts  5,930   4,751 
Depreciation, amortization and impairment charges  62,543   32,401 
Amortization of deferred financing costs  30,635   319 
Loss on disposal of fixed assets  85   900 
Stock-based compensation expense  9,484   3,102 
Loss (gain) on bargain purchases and sales of Company-owned offices  (4,133)  (1,106)
Deferred income taxes  1,092   (9,275)
Change in    
Accounts, notes, and interest receivable  (19,811)  (226)
Income taxes  (8,059)  (2,012)
Other assets  (5,573)  27,038 
Accounts payable and accrued expenses  23,927   (4,414)
Inventory  97,681   10,134 
Deferred revenue  20,537   1,369 
Net cash provided by (used in) operating activities  241,492   (41,485)
Investing Activities    
Issuance of operating loans to franchisees and area developers  (34,136)  (22,483)
Payments received on operating loans to franchisees and area developers  50,291   827 
Purchases of Company-owned offices, area developer rights, and acquired customer lists  (6,587)  (3,491)
Proceeds from sale of Company-owned offices and area developer rights  36,349   279 
Acquisition of business, net of cash acquired  (353,423)  (317,251)
Proceeds from sale of property, equipment, and software  1,224   - 
Purchases of property, equipment, and software  (34,931)  (1,136)
Net cash used in investing activities  (341,213)  (343,255)
Financing Activities    
Proceeds from the exercise of stock options  520   2,202 
Dividends paid  (29,350)  - 
Non-controlling interest distribution  (4,716)  - 
Repayment of other long-term obligations  (505,486)  (13,054)
Borrowings under revolving credit facility  184,665   129,260 
Repayments under revolving credit facility  (235,614)  (25,403)
Issuance of common stock  198,004   96,143 
Issuance of preferred stock  29,482   - 
Tender offer    (47,229)
Payment for debt issue costs  (16,865)  (15,071)
Issuance of debt  586,000   280,000 
Cash paid for taxes on exercises/vesting of stock-based compensation  (487)  (110)
Net cash provided by financing activities  206,153   406,738 
Effect of exchange rate changes on cash, net  (76)  165 
Net increase in cash equivalents and restricted cash  106,356   22,163 
Cash, cash equivalents and restricted cash at beginning of year  45,146   22,983 
Cash, cash equivalents and restricted cash at end of year $151,502  $45,146 
Supplemental Cash Flow Disclosure    
Cash paid for taxes, net of refunds $1,858  $1,140 
Cash paid for interest $49,825  $4,180 
Accrued capital expenditures $5,025  $- 
Deferred financing costs from issuance of common stock $31,013  $- 
Tax receivable agreement included in other long-term liabilities $16,775  $- 

Non-GAAP Financial Measures and Key Metrics
In order to conform with SEC rules consistent with concepts in Article 11 of Regulation S-X for non-GAAP reporting, Franchise Group will no longer report synergies and other acquisition costs as part of Pro Forma Adjusted EBITDA. The Company expects to continue to report Adjusted EBITDA in the same format as it has in the past and will provide Supplemental Information that reflects cost synergies and other acquisition impacts as discussed below. The specific amounts included in each measure are fully discussed in detail below under “Non-GAAP Financial Measures and Key Metrics.”

Adjusted EBITDA and Supplemental Information 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. Adjusted EBITDA is also the primary operating metric used in the determination of executive management's compensation. 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 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) 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 judgements 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 and Supplemental Information are financial measures that are not prepared in accordance with GAAP.

Below is a reconciliation of Net Income/(Loss) to Adjusted EBITDA for the three months and full fiscal year ended December 26, 2020.

   
  For the Three Months Ended December 26, 2020
(In thousands) Buddy's Liberty American Freight Vitamin Shoppe Corporate Total
Net income (loss) $4,107 $(16,152) $(8,967) $8,211  $8,598  $(4,204)
Add back:            - 
Interest expense $2,272 $(6) $15,366  $479  $(1)  18,110 
Income tax expense (benefit) $- $(246) $-  $(104) $(14,060)  (14,409)
Depreciation and amortization charges $1,102 $3,172  $1,930  $5,085  $-   11,289 
Total Adjustments $3,374 $2,920  $17,296  $5,460  $(14,061)  14,989 
EBITDA $7,481 $(13,232) $8,329  $13,670  $(5,463)  10,785 
Adjustments to EBITDA            
Executive severance and related costs $70 $116  $301  $(40)    446 
Stock based compensation   $132  $187    $2,801   3,120 
Shareholder litigation costs       $(717) $500   (217)
Corporate compliance costs   $33  $127       159 
Prepayment penalty on early debt repayment $223   $3,234       3,458 
Accrued judgments and settlements   $585  $12       597 
Store closures / Related Costs     $34  $(127)    (93)
Rebranding costs     $4,217       4,217 
Acquistion costs $1   $326    $942   1,268 
ROU Impairment       $2,895     2,895 
Integration / Related Costs     $1,073  $25     1,097 
Inventory fair value step up amortization     $1,091       1,091 
Total Adjustments to EBITDA $294 $865  $10,601  $2,036  $4,243   18,039 
Adjusted EBITDA $7,774 $(12,367) $18,931  $15,706  $(1,220) $28,823 
             


  For the Fiscal Year Ended December 26, 2020
(In thousands) Buddy's Liberty American Freight Vitamin Shoppe Corporate Total
Net income (loss) $2,285 $18,080 $(29,295) $(7,371) $43,455  $27,154 
Add back:            - 
Interest expense $15,029 $4,977 $69,988  $11,971  $(214)  101,751 
Income tax expense (benefit)   $661 $(1,714) $(104) $(56,814)  (57,970)
Depreciation and amortization charges $5,661 $10,391 $5,897  $40,289  $1   62,238 
Total Adjustments $20,690 $16,029 $74,170  $52,156  $(57,026)  106,020 
EBITDA $22,975 $34,109 $44,876  $44,785  $(13,571)  133,174 
Adjustments to EBITDA            
Executive severance and related costs $278 $717 $658  $4,707  $0   6,360 
Stock based compensation   $561 $465    $8,458   9,484 
Shareholder litigation costs       $(431) $1,006   575 
Corporate compliance costs   $253 $543       796 
Prepayment penalty on early debt repayment $3,273   $4,604  $875     8,752 
Accrued judgments and settlements   $1,407 $63  $(1,708)    (238)
Store closures / Related Costs     $62  $530     592 
Rebranding costs     $8,725       8,725 
Acquistion costs $330   $11,289  $5,531  $435   17,584 
ROU Impairment       $2,895     2,895 
Integration / Related Costs     $2,678  $25     2,703 
Inventory fair value step up amortization     $15,677  $20,567     36,244 
Total Adjustments to EBITDA $3,881 $2,938 $44,764  $32,991  $9,900   94,474 
Adjusted EBITDA $26,856 $37,047 $89,640  $77,775  $(3,671) $227,647 

Supplemental Information: Cost Synergies and Acquisition Impacts
The following supplemental information reflects the estimated cost savings related to various management actions taken at our acquired businesses and other impacts of our acquisitions. It primarily presents the realized and unrealized cost synergies assuming such actions were taken as of December 29, 2019. The majority of the cost synergies or dis-synergies have been realized. Management believes this information is useful to investors as it provides relevant information regarding the status of the Company's transformation activities and the estimated impacts during the period. Reasonable estimates were made by considering the cost reductions from contract termination charges or modifications to achieve more favorable pricing, reductions in duplicative costs upon integration and optimization activities that reduce overall spend. As these amounts are estimates and certain activities have not been fully implemented, these amounts are subject to change. Management believes that there is a reasonable basis for its estimates and they fairly present the estimated effects of management actions related to the Company’s acquisitions.

  For the Three Months Ended December 26, 2020
 (In thousands)   Buddy's  Liberty  American Freight  Vitamin Shoppe  Corporate  Total
Estimated realized and unrealized cost savings       $2,853       $2,853
Other acquisition-related compensation costs           2,309     2,309
  $- $- $2,853 $2,309 - $5,162


  For the Twelve Months Ended December 26, 2020
(In thousands)  Buddy's Liberty American Freight Vitamin Shoppe Corporate Total
Estimated realized and unrealized cost savings     $25,597 $4,561 $(2,360) $27,798
Other acquisition-related compensation costs        4,640    4,640
  $- $- $25,597 $9,201 $(2,360) $32,438

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. 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 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


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