Franchise Group, Inc. Announces Second Quarter 2020 Financial Results
08/05/2020 - 05:09 PM
Increases Guidance for 2020 ORLANDO, Fla., Aug. 05, 2020 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the results of its second quarter ended June 27, 2020. For the second quarter of 2020, total reported revenue for Franchise Group was $512.6 million , GAAP Net Loss was $21.7 million or $0.62 per share, Proforma Adjusted EBITDA was $62.7 million and Non-GAAP EPS was $0.53 per share. In calculating GAAP EPS, the Company utilized approximately 35 million weighted average fully diluted shares of common stock outstanding for the second quarter. In calculating Non-GAAP EPS and formulating guidance, the Company utilized approximately 40 million fully diluted shares of common stock outstanding which accounts for the recent underwritten public offering of 4.8 million shares. The net proceeds from the follow-on offering closed after the end of the quarter and is not included in the end of quarter cash balance of $105.5 million . Total outstanding debt at the end of the second quarter was $740.6 million .
During the second quarter of 2020, Franchise Group priced an approximate $106 million follow-on offering of common stock, reduced debt by $70.9 million and declared another quarterly dividend of $0.25 per share. The Company’s business model was extremely resilient during the height of Covid-19 and was able to exceed its plan for the quarter due to strong revenue and continued achievement of operational efficiencies.
Brian Kahn, Franchise Group’s President and CEO stated, “Our businesses continued to benefit from the shift in consumer spending. Our associates have maintained their dedication to our businesses and have again delivered robust financial results despite difficult circumstances. Our performance through fiscal July, to begin the third quarter, continues to demonstrate resilience and is allowing us to further raise guidance for the full fiscal year.”
The Company has four reportable segments: American Freight; The Vitamin Shoppe; Liberty Tax and Buddy’s. The following table summarizes revenue, net loss 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 June 27, 2020 Proforma Adjusted Net Revenue EBITDA Income/(Loss) (In thousands) American Freight $ 234,427 $ 40,384 $ (6,747 ) Vitamin Shoppe 237,735 16,292 (3,961 ) Liberty Tax 15,073 (538 ) (7,322 ) Buddy's 25,392 7,037 1,522 Corporate - (452 ) (5,434 ) Total $ 512,627 $ 62,723 $ (21,942 ) Net income (loss) attributable to non-controlling interest 269 Net income (loss) attributable to Franchise Group, Inc. $ (21,673 )
Outlook (1)
For fiscal 2020, we believe we will exceed our previous guidance of $240 million of Proforma Adjusted EBITDA and $2.60 of Non-GAAP EPS and now expect Proforma Adjusted EBITDA to exceed $255 million and Non-GAAP EPS of over $2.70 . Please note that our $2.70 of Non-GAAP EPS includes approximately $0.30 pro forma dilution from our recent follow-on offering and excludes any assumption for acquisitions, divestitures or refranchising activity.
(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 acquisitions, divestitures or refranchising activities.
Conference Call Information Franchise Group will conduct a conference call on August 6th at 8:30 A.M. ET to discuss its business, review financial results for the second quarter of 2020 and provide an update on its expected 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 (800) 697-5978. The passcode is 6075494. Please dial in 5-10 minutes prior to the scheduled start time.
About Franchise Group, Inc.
Forward-Looking Statements
FRANCHISE GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except share count and per share data) June 27, 2020 December 28, 2019 Assets (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 105,473 $ 39,581 Current receivables, net 111,857 79,693 Inventories, net 315,078 300,312 Other current assets 24,298 20,267 Total current assets 556,706 439,853 Property, equipment, and software, net 152,520 150,147 Non-current receivables, net 15,105 18,638 Goodwill 468,088 134,301 Intangible assets, net 145,887 77,590 Operating lease right-of-use assets 529,891 462,610 Other non-current assets 15,434 15,406 Total assets $ 1,883,631 $ 1,298,545 Liabilities and Stockholders Equity Current liabilities: Current installments of long-term obligations $ 203,490 $ 218,384 Current operating lease liabilities 130,307 107,680 Accounts payable and accrued expenses 222,461 158,995 Other current liabilities 38,008 16,409 Total current liabilities 594,266 501,468 Long-term obligations, excluding current installments 537,148 245,236 Non-current operating lease liabilities 426,255 394,307 Other non-current liabilities 35,253 5,773 Total liabilities 1,592,922 1,146,784 Stockholders equity: Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 35,185,710 and 18,250,225 shares issued and outstanding at June 27, 2020 and December 28, 2019, respectively 352 183 Preferred stock, $0.01 par value per share, 20,000,000 and 20,000,000 shares authorized, 0 and 1,886,667 shares issued and outstanding at June 27, 2020 and December 28, 2019, respectively - 19 Additional paid-in capital 249,525 108,339 Accumulated other comprehensive loss, net of taxes (2,103 ) (1,538 ) Retained earnings 42,935 18,388 Total equity attributable to Franchise Group, Inc. 290,709 125,391 Non-controlling interest - 26,370 Total equity 290,709 151,761 Total liabilities and equity $ 1,883,631 $ 1,298,545
FRANCHISE GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Six Months Ended (In thousands, except share count and per share data) June 27, 2020 June 30, 2019 June 27, 2020 June 30, 2019 Revenues: Product $ 466,709 $ - $ 940,214 $ - Service and other 28,742 23,820 131,383 119,658 Rental 17,176 - 33,596 - Total revenues 512,627 23,820 1,105,193 119,658 Operating expenses: Cost of revenue: Product 277,582 - 565,400 - Service and other 701 - 1,456 - Rental 5,508 - 11,450 - Total cost of revenue 283,791 - 578,306 - Selling, general, and administrative expenses 217,264 29,482 469,476 70,447 Total operating expenses 501,055 29,482 1,047,782 70,447 Income (loss) from operations 11,572 (5,662 ) 57,411 49,211 Other expense: Other (6 ) (106 ) (4,064 ) (99 ) Interest expense, net (31,626 ) (415 ) (57,378 ) (1,470 ) Income (loss) before income taxes (20,060 ) (6,183 ) (4,031 ) 47,642 Income tax expense (benefit) 1,882 (928 ) (43,987 ) 14,706 Net income (loss) (21,942 ) (5,255 ) 39,956 32,936 Less: Net (income) loss attributable to non-controlling interest 269 - (2,090 ) - Net income (loss) attributable to Franchise Group, Inc. $ (21,673 ) $ (5,255 ) $ 37,866 $ 32,936 Net income (loss) per share of common stock: Basic $ (0.62 ) $ (0.37 ) $ 1.30 $ 2.34 Diluted (0.62 ) (0.37 ) 1.29 2.33 Weighted-average shares outstanding: Basic 34,972,364 14,062,766 29,173,172 14,059,279 Diluted 34,972,364 14,062,766 29,335,633 14,124,104
FRANCHISE GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended (In thousands) June 27, 2020 June 30, 2019 Operating Activities Net income $ 39,956 $ 32,936 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 3,403 4,770 Depreciation, amortization and impairment charges 33,792 7,772 Amortization of deferred financing costs 21,554 358 Loss (gain) on disposal of fixed assets (166 ) 270 Stock-based compensation expense - equity awards 4,339 1,047 Loss (gain) on bargain purchases and sales of Company-owned offices (1,258 ) 424 Equity in loss of affiliate 15 1 Deferred tax expense 7,739 742 Change in Accounts, notes, and interest receivable (1,784 ) 1,380 Income taxes receivable (53,156 ) 13,341 Other assets 1,015 1,870 Accounts payable and accrued expenses 134 222 Inventory 84,434 - Deferred revenue 8,938 (1,538 ) Net cash provided by operating activities 148,955 63,595 Investing Activities Issuance of operating loans to franchisees and ADs (28,876 ) (44,346 ) Payments received on operating loans to franchisees and ADs 49,612 66,204 Purchases of Company-owned offices, AD rights, and acquired customer lists (2,299 ) (404 ) Proceeds from sale of Company-owned offices and AD rights 989 22 Acquisition of business, net of cash acquired (353,423 ) - Purchases of property, equipment, and software (16,212 ) (647 ) Net cash provided by (used in) investing activities (350,209 ) 20,829 Financing Activities Proceeds from the exercise of stock options 187 153 Dividends paid (10,406 ) - Non-controlling interest distribution (4,716 ) - Repayment of other long-term obligations (410,798 ) (16,178 ) Borrowings under revolving credit facility 142,000 93,874 Repayments under revolving credit facility (112,760 ) (161,128 ) Issuance of common stock 92,082 - Payment for debt issue costs (14,604 ) (2,260 ) Issuance of debt 586,000 - Cash paid for taxes on exercises/vesting of stock-based compensation (73 ) (21 ) Net cash provided by (used in) financing activities 266,912 (85,560 ) Effect of exchange rate changes on cash, net (234 ) 131 Net increase (decrease) in cash equivalents and restricted cash 65,424 (1,005 ) Cash, cash equivalents and restricted cash at beginning of period 45,146 3,981 Cash, cash equivalents and restricted cash at end of period $ 110,570 $ 2,976 Supplemental Cash Flow Disclosure Cash paid for taxes, net of refunds $ 493 $ 70 Cash paid for interest $ 26,857 $ 993 Accrued capital expenditures $ 2,608 $ - Deferred financing costs from issuance of common stock $ 31,013 $ - Tax receivable agreement included in other long-term liabilities $ 17,156 $ -
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, including our chief operating decision maker, 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 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 for the three months ended June 27, 2020. In the table below, we provide an estimated range of the items we exclude from our calculation of Proforma Adjusted EBITDA.
For the Three Months Ended June 27, 2020 American Vitamin Buddy's Liberty Freight Shoppe Corporate Total (In Thousands) Net Income $ 1,522 $ (7,322 ) $ (6,747 ) $ (3,961 ) $ (5,165 ) $ (21,673 ) Add back: Interest Expense 3,816 3,749 20,715 3,347 - 31,626 Income Tax benefit - 389 (1,545 ) - 3,037 1,882 Depreciation, Amortization & Impairment 1,514 2,379 1,553 12,419 - 17,865 Total Adjustments 5,329 6,517 20,723 15,766 3,037 51,373 EBITDA 6,852 (805 ) 13,976 11,805 (2,128 ) 29,700 Adjustments to EBITDA: Executive Severance and Related - - 573 90 - 663 Stock-Based Compensation 70 148 - - 1,636 1,854 Shareholder Litigation - - - - 156 156 Corporate Compliance - 4 - - - 4 Prepayment Penalty on Early Debt Extinguishment - - - - - - Accrued Judgments & Settlements - 115 2 - - 117 Store Closures 62 - - 195 - 257 Acquisition Costs 54 - 9,158 605 153 9,969 Inventory Fair Value Step-up Amortization - - 5,932 1,470 - 7,403 Total Adjustments to EBITDA 185 267 15,665 2,360 1,945 20,422 Adjusted EBITDA 7,037 (538 ) 29,641 14,165 (183 ) 50,122 Proforma Adjustments - - 10,743 2,127 (269 ) 12,601 Proforma Adjusted EBITDA $ 7,037 $ (538 ) $ 40,384 $ 16,292 $ (452 ) $ 62,723
Investor Relations Contact: Andrew F. Kaminsky
