Franchise Group, Inc. Announces Fiscal 2021 First Quarter Financial Results
05/06/2021 - 04:01 PM
INCREASES ANNUAL GUIDANCE 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 )
Outlook
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 t o 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 www.franchisegrp.com. 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.
FRANCHISE GROUP, INC. AND SUBSIDIARIES 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
FRANCHISE GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations Three Months Ended (In thousands, except share count and per share data) March 27, 2021 March 28, 2020 (Unaudited) (Unaudited) Revenues: 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
FRANCHISE GROUP, INC. AND SUBSIDIARIES 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 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