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Press release content from Globe Newswire. The AP news staff was not involved in its creation.
PRESS RELEASE: Paid content from Globe Newswire
Press release content from Globe Newswire. The AP news staff was not involved in its creation.

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

March 10, 2021 GMT

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.  

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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.

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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