Franchise Group, Inc. Announces Third Quarter 2020 Financial Results
11/04/2020 - 04:05 PM
• Raises full year guidance
ORLANDO, Fla., Nov. 04, 2020 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the results of its third quarter ended September 26, 2020. For the third quarter of 2020, total reported revenue for Franchise Group was $551 million , GAAP Net Loss was $8.6 million or $0.22 per share, Adjusted EBITDA was $50 million and Supplemental Information encompassing cost synergies and acquisition impacts was $1.2 million . Total cash was $179.9 million and outstanding debt at the end of the third quarter of 2020 was $628.7 million .
Brian Kahn, Franchise Group’s President and CEO stated, “Our businesses continued to perform well in the third quarter, which included further benefit from the sustained shift in consumer spending and the focus on health and wellness. Once again, our businesses and their teams have delivered robust financial results despite challenging circumstances. We believe that our performance as evidenced by strong comparable same store sales, as well as cash flow generation, continues to demonstrate the economic resilience of our business model. Comparable same store sales grew 15% at American Freight, approximately 14.7% for Buddy’s and approximately 8.6% for The Vitamin Shoppe. We continue to generate a high level of discretionary cash flow which enabled us to further reduce our outstanding debt by $111.9 million this quarter, including retiring the balance of our $70 million Vitamin Shoppe term loan while paying another quarterly dividend of $0.25 per share to our common stockholders.”
The Company has four reportable segments: American Freight; The Vitamin Shoppe; Liberty Tax and Buddy’s. The following table summarizes Revenue, Net Loss, Adjusted EBITDA and Supplemental Information by these segments. A reconciliation of Adjusted EBITDA to the most comparable GAAP measure is included below under “Non-GAAP Financial Measures and Key Metrics.”
For the Three Months Ended September 26, 2020 Adjusted Supplemental Net Revenue EBITDA Information Income/(Loss) (In thousands) American Freight $ 245,212 $ 24,625 $ 42 $ 1,141 Vitamin Shoppe 266,965 21,364 1,111 (2,597 ) Liberty Tax 13,300 (1,400 ) - (5,549 ) Buddy's 25,515 6,778 - 1,845 Corporate - (1,337 ) - (3,437 ) Total $ 550,992 $ 50,030 $ 1,153 $ (8,597 )
Outlook (1) $2.15 billion of revenue, Adjusted EBITDA to exceed $232 million and Supplemental Information encompassing cost synergies and acquisition impacts of $28 million .
(1) 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 November 4th at 4:30 P.M. ET to discuss its business, review financial results for the third quarter of 2020 and provide an update on its 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 (877) 784-1793. The passcode is 7849566. Please dial in 5-10 minutes prior to the scheduled start time.
About Franchise Group, Inc.
FRANCHISE GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except share count and per share data) September 26, 2020 December 28, 2019 Assets (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 179,932 $ 39,581 Current receivables, net 84,277 79,693 Inventories, net 319,545 300,312 Other current assets 22,845 20,267 Total current assets 606,599 439,853 Property, equipment, and software, net 143,512 150,147 Non-current receivables, net 16,095 18,638 Goodwill 469,788 134,301 Intangible assets, net 145,478 77,590 Operating lease right-of-use assets 516,398 462,610 Other non-current assets 14,634 15,406 Total assets $ 1,912,504 $ 1,298,545 Liabilities and Stockholders Equity Current liabilities: Current installments of long-term obligations $ 112,374 $ 218,384 Current operating lease liabilities 131,685 107,680 Accounts payable and accrued expenses 257,387 158,995 Other current liabilities 36,461 16,409 Total current liabilities 537,907 501,468 Long-term obligations, excluding current installments 516,353 245,236 Non-current operating lease liabilities 412,613 394,307 Other non-current liabilities 37,099 5,773 Total liabilities 1,503,972 1,146,784 Stockholders equity: Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 40,056,665 and 18,250,225 shares issued and outstanding at September 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, 1,200,000 and 1,886,667 shares issued and outstanding at September 26, 2020 and December 28, 2019, respectively 12 19 Additional paid-in capital 386,030 108,339 Accumulated other comprehensive loss, net of taxes (1,838 ) (1,538 ) Retained earnings 23,927 18,388 Total equity attributable to Franchise Group, Inc. 408,532 125,391 Non-controlling interest - 26,370 Total equity 408,532 151,761 Total liabilities and equity $ 1,912,504 $ 1,298,545
FRANCHISE GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended (In thousands, except share count and per share data) September 26, 2020 September 30, 2019 September 26, 2020 September 30, 2019 Revenues: Product $ 500,462 $ 557 $ 1,440,677 $ 557 Service and other 33,126 10,284 164,508 129,942 Rental 17,404 8,079 51,000 8,079 Total revenues 550,992 18,920 1,656,185 138,578 Operating expenses: Cost of revenue: Product 296,920 438 862,320 438 Service and other 678 - 2,135 - Rental 5,877 3,048 17,327 3,048 Total cost of revenue 303,475 3,486 881,782 3,486 Selling, general, and administrative expenses 228,194 40,481 697,670 110,928 Total operating expenses 531,669 43,967 1,579,452 114,414 Income (loss) from operations 19,323 (25,047 ) 76,733 24,164 Other expense: Other (1,229 ) (1 ) (5,293 ) (101 ) Interest expense, net (26,264 ) (2,755 ) (83,642 ) (4,225 ) Income (loss) before income taxes (8,170 ) (27,803 ) (12,202 ) 19,838 Income tax expense (benefit) 427 (4,339 ) (43,561 ) 10,367 Net income (loss) (8,597 ) (23,464 ) 31,359 9,471 Less: Net (income) loss attributable to non-controlling interest - 8,578 (2,090 ) 8,578 Net income (loss) attributable to Franchise Group, Inc. $ (8,597 ) $ (14,886 ) $ 29,269 $ 18,049 Net income (loss) per share of common stock: Basic $ (0.22 ) $ (0.93 ) $ 0.89 $ 1.23 Diluted (0.22 ) (0.93 ) 0.88 1.22 Weighted-average shares outstanding: Basic 39,692,384 15,997,041 32,679,576 14,712,297 Diluted 39,692,384 15,997,041 32,961,905 14,770,973
FRANCHISE GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended (In thousands) September 26, 2020 September 30, 2019 Operating Activities Net income $ 31,359 $ 9,471 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 3,412 6,401 Depreciation, amortization and impairment charges 51,254 12,239 Amortization of deferred financing costs 28,703 1,013 Loss on disposal of fixed assets 75 703 Stock-based compensation expense 6,294 1,339 Gain on bargain purchases and sales of Company-owned offices (1,761 ) (438 ) Deferred income taxes 7,851 706 Change in Accounts, notes, and interest receivable (2,223 ) 10,054 Income taxes receivable (23,721 ) 8,977 Other assets 3,971 (1,076 ) Accounts payable and accrued expenses 38,884 7,693 Inventory 79,967 579 Deferred revenue 5,649 (3,394 ) Net cash provided by operating activities 229,714 54,267 Investing Activities Issuance of operating loans to franchisees and area developers (30,368 ) (51,484 ) Payments received on operating loans to franchisees and area developers 50,064 66,303 Purchases of Company-owned offices, area developer rights, and acquired customer lists (4,830 ) (2,232 ) Proceeds from sale of Company-owned offices and area developer rights 1,118 22 Acquisition of business, net of cash acquired (353,423 ) (26,443 ) Proceeds from sale of property, equipment, and software 1,474 Purchases of property, equipment, and software (26,702 ) (1,183 ) Net cash used in investing activities (362,667 ) (15,017 ) Financing Activities Proceeds from the exercise of stock options 520 1,214 Dividends paid (19,167 ) - Non-controlling interest distribution (4,716 ) - Repayment of other long-term obligations (455,811 ) (16,213 ) Borrowings under revolving credit facility 174,665 121,874 Repayments under revolving credit facility (218,260 ) (186,099 ) Issuance of common stock 198,003 25,000 Issuance of preferred stock 28,366 Payment for debt issue costs (16,673 ) (4,382 ) Issuance of debt 586,000 105,000 Cash paid for taxes on exercises/vesting of stock-based compensation (85 ) (20 ) Net cash provided by financing activities 272,842 46,374 Effect of exchange rate changes on cash, net (142 ) 111 Net increase (decrease) in cash equivalents and restricted cash 139,747 85,735 Cash, cash equivalents and restricted cash at beginning of period 45,146 3,981 Cash, cash equivalents and restricted cash at end of period $ 184,893 $ 89,716 Supplemental Cash Flow Disclosure Cash paid for taxes, net of refunds $ 944 $ 84 Cash paid for interest $ 41,226 $ 1,484 Accrued capital expenditures $ 3,633 $ 478 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 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 in the 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 management’s estimate of net income to estimated Adjusted EBITDA for the three months ended September 26, 2020.
For the Three Months Ended September 26, 2020 (In thousands) Buddy's Liberty American Freight Vitamin Shoppe Corporate Total Net income (loss) $ 1,845 $ (5,549 ) $ 1,141 $ (2,597 ) $ (3,437 ) $ (8,597 ) Add back: - Interest expense 3,400 (6 ) 18,486 4,571 (187 ) 26,264 Income tax expense (benefit) - 214 - - 213 427 Depreciation and amortization charges 1,406 2,775 1,806 11,475 17,462 Total Adjustments 4,806 2,983 20,292 16,046 26 44,153 EBITDA 6,651 (2,566 ) 21,433 13,449 (3,411 ) 35,556 Adjustments to EBITDA Executive severance and related costs - 602 62 - - 664 Stock based compensation 70 132 - - 1,754 1,956 Shareholder litigation costs - - - - 219 219 Corporate compliance costs - 117 416 - - 533 Prepayment penalty on early debt repayment 57 - 314 875 - 1,246 Accrued judgments and settlements - 315 19 - - 334 Store closures - - - 203 - 203 Rebranding costs 1,286 - 1,286 Acquisition costs - - 686 286 101 1,073 Inventory fair value step up amortization - - 409 6,551 6,960 Total Adjustments to EBITDA 127 1,166 3,192 7,915 2,074 14,474 Adjusted EBITDA $ 6,778 $ (1,400 ) $ 24,625 $ 21,364 $ (1,337 ) $ 50,030
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 January 1, 2020. The majority of the cost synergies or dis-synergies have been realized or expected to be realized by the end of 2020. 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 September 26, 2020 (In thousands) Buddy's Liberty American Freight Vitamin Shoppe Corporate Total Estimated realized and unrealized cost savings $ - $ - $ 42 $ 587 $ - $ 630 Other acquisition-related compensation costs - - - 524 - 524 $ - $ - $ 42 $ 1,111 $ - $ 1,153
Forward-Looking Statements
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