Home / Top News / Franchise Group, Inc. Announces Second Quarter 2020 Financial Results

Franchise Group, Inc. Announces Second Quarter 2020 Financial Results

  • 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.
Franchise Group, Inc. (NASDAQ: FRG) is an operator of franchised and franchisable businesses and uses its operating expertise to drive cost efficiencies and grow its brands.  Franchise Group’s business lines include Liberty Tax Service, Buddy’s Home Furnishings, American Freight and The Vitamin Shoppe.  On a combined basis, Franchise Group currently operates over 4,100 locations predominantly located in the U.S. and Canada that are either Company-run or operated pursuant to franchising agreements.

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, performance during the COVID-19 pandemic, and its strategy and outlook for the remainder of fiscal 2020. 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 Transition Report on Form 10-K/T for the transition period ended December 28, 2019, 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.

 
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
EVP & Chief Administrative Officer
Franchise Group, Inc.
[email protected]
(914) 939-5161

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