Franchise Group, Inc. Announces Fiscal 2021 Second Quarter Financial Results

Rhea-AI Summary

Franchise Group reported strong fiscal Q2 2021 results, with total revenue of $862.8 million and net income of $32.5 million, translating to $0.74 per diluted share. Non-GAAP EPS reached $1.16, while Adjusted EBITDA stood at $91.8 million. Following the sale of Liberty Tax, the company is excluding its results from ongoing operations. The annual financial outlook has been revised upwards, projecting Adjusted EBITDA of at least $320 million, Non-GAAP EPS of $3.45 per share, and revenue exceeding $3.05 billion.

Positive

• Increase in annual Adjusted EBITDA forecast from at least $315 million to at least $320 million.
• Raised Non-GAAP EPS guidance from at least $3.35 to at least $3.45 per share.
• Total revenue expectation increased from $3.0 - $3.1 billion to at least $3.05 billion.
• Operational performance includes 96 new development agreements and 111 new store openings year to date.

Negative

• Outstanding debt at $1.3 billion, although partially mitigated by repayment with Liberty Tax proceeds.

• Increases Annual Financial Outlook Again
  
• Reports Net Income from Continuing Operations of $32.5 million, Non-GAAP EPS of $1.16 per Fully Diluted Share and Adjusted EBITDA of $91.8 million

DELAWARE, Ohio, Aug. 03, 2021 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the financial results of its fiscal 2021 second quarter. For the second quarter of fiscal 2021, total reported revenue for Franchise Group was $862.8 million, net income from continuing operations was $32.5 million or $0.74 per fully diluted share, Adjusted EBITDA was $91.8 million and Non-GAAP EPS was $1.16 per share. On July 2, 2021, the Company completed the sale of Liberty Tax 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 second quarter results. Total cash was $165.4 million and outstanding debt at the end of the second quarter of fiscal 2021 was $1.3 billion which excludes the approximate $182 million repayment of debt with the proceeds from the Liberty Tax transaction.

Brian Kahn, Franchise Group’s President and CEO stated, “Our management teams, associates, and franchisees are executing operationally, and franchising momentum is accelerating with development agreements for 96 new locations in addition to 111 new store openings year to date. Franchise Group’s businesses are proving they are stronger together and therefore we are further increasing our financial 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. Reconciliations of Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP EPS to their respective most comparable GAAP measures, are included below under “Non-GAAP Financial Measures and Key Metrics.”

		For the Three Months												For the Six Months
		Ended June 26, 2021												Ended June 26, 2021
					Adjusted				Net								Adjusted				Net
		Revenue			EBITDA				Income/(Loss)					Revenue			EBITDA				Income/(Loss)
		(In thousands)												(In thousands)
American Freight		$	268,807		$	28,934			$	12,670				$	527,323		$	59,546			$	26,579
Vitamin Shoppe			302,555			37,502				22,444					597,295			78,018				52,789
Pet Supplies Plus			275,760			22,906				5,219					327,069			27,659				34
Buddy's			15,636			4,334				2,469					32,416			9,571				5,480
Corporate			-			(1,912	)			(10,281	)				-			(3,868	)			(80,696	)
Total		$	862,758		$	91,764			$	32,521				$	1,484,103		$	170,926			$	4,186

 

Outlook
Franchise Group is increasing its expectations for annual Adjusted EBITDA for 2021 from at least $315 million to at least $320 million, Non-GAAP EPS from at least $3.35 per share to at least $3.45 per share and revenue from $3.0 - $3.1 billion to at least $3.05 billion. In calculating EPS, the Company is using approximately 41 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 August 3^rd at 4:30 P.M. ET to discuss its business, review financial results for the second quarter of fiscal 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 (877) 784-1793. The passcode is 5154388. 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 philosophy to generate strong cash flow for its shareholders. Franchise Group’s business lines include, Pet Supplies Plus, American Freight, The Vitamin Shoppe and Buddy’s Home Furnishings. On a combined basis, Franchise Group currently operates over 1,800 locations predominantly located in the U.S. 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)		June 26, 2021				December 26, 2020
Assets		(Unaudited)				(Audited)
Current assets:
Cash and cash equivalents		$	165,432			$	148,780
Current receivables, net			81,075				67,335
Inventories, net			504,726				302,307
Current assets held for sale			113,671				43,023
Other current assets			21,558				13,997
Total current assets			886,462				575,442
Property, equipment, and software, net			208,499				135,872
Non-current receivables, net			12,200				12,800
Goodwill			787,241				448,258
Intangible assets, net			312,180				109,892
Operating lease right-of-use assets			666,537				502,104
Non-current assets held for sale			-				55,116
Other non-current assets			14,332				8,428
Total assets		$	2,887,451			$	1,847,912
Liabilities and Stockholders Equity
Current liabilities:
Current installments of long-term obligations		$	11,544			$	104,053
Current operating lease liabilities			158,801				127,032
Accounts payable and accrued expenses			351,096				252,389
Current liabilities held for sale			33,422				40,576
Other current liabilities			30,261				25,174
Total current liabilities			585,124				549,224
Long-term obligations, excluding current installments			1,245,377				466,944
Non-current operating lease liabilities			522,005				402,276
Non-current liabilities held for sale			-				8,779
Other non-current liabilities			46,950				35,522
Total liabilities			2,399,456				1,462,745
Stockholders equity:
Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 40,208,564 and 40,092,260 shares issued and outstanding at June 26, 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 June 26, 2021 and December 26, 2020, respectively			45				13
Additional paid-in capital			467,351				382,383
Accumulated other comprehensive loss, net of taxes			(973	)			(1,399	)
Retained earnings			21,170				3,769
Total equity attributable to Franchise Group, Inc.			487,995				385,167
Non-controlling interest			-				-
Total equity			487,995				385,167
Total liabilities and equity		$	2,887,451			$	1,847,912

FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
		Three Months Ended								Six Months Ended
(In thousands, except share count and per share data)		June 26, 2021				June 27, 2020				June 26, 2021				June 27, 2020
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenues:
Product		$	805,768			$	466,709			$	1,389,585			$	940,214
Service and other			48,193				13,669				76,768				26,691
Rental			8,797				17,176				17,750				33,596
Total revenues			862,758				497,554				1,484,103				1,000,501
Operating expenses:
Cost of revenue:
Product			522,576				277,582				861,991				565,400
Service and other			934				701				1,339				1,457
Rental			2,935				5,508				5,940				11,450
Total cost of revenue			526,445				283,791				869,270				578,307
Selling, general, and administrative expenses			278,157				198,986				503,702				410,262
Total operating expenses			804,602				482,777				1,372,972				988,569
Income from operations			58,156				14,777				111,131				11,932
Other expense:
Other			-				(28	)			(36,726	)			(4,048	)
Interest expense, net			(22,865	)			(27,877	)			(70,300	)			(52,389	)
Income (loss) from continuing operations before income taxes			35,291				(13,128	)			4,105				(44,505	)
Income tax expense (benefit)			2,770				3,510				(81	)			(52,108	)
Income (loss) from continuing operations			32,521				(16,638	)			4,186				7,603
Income (loss) from discontinued operations, net of tax			6,215				(5,304	)			48,363				32,353
Net income (loss)			38,736				(21,942	)			52,549				39,956
Less: Net income (loss) attributable to non-controlling interest			-				269				-				(2,090	)
Net income (loss) attributable to Franchise Group, Inc.		$	38,736			$	(21,673	)		$	52,549			$	37,866
Amounts attributable to Franchise Group, Inc.:
Net income (loss) from continuing operations		$	32,521			$	(16,361	)		$	4,186			$	(6,278	)
Net income (loss) from discontinued operations			6,215				(5,312	)			48,363				44,144
Net income (loss) attributable to Franchise Group, Inc.		$	38,736			$	(21,673	)		$	52,549			$	37,866
Basic earnings (loss) per share:
Continuing operations		$	0.76			$	(0.47	)		$	-			$	(0.22	)
Discontinued operations			0.15				(0.15	)			1.20				1.51
Total basic earnings per share		$	0.91			$	(0.62	)		$	1.20			$	1.29
Diluted earnings (loss) per share:
Continuing operations		$	0.74			$	(0.47	)		$	-			$	(0.22	)
Discontinued operations			0.15				(0.15	)			1.20				1.51
Total diluted earnings per share		$	0.89			$	(0.62	)		$	1.20			$	1.29
Weighted-average shares outstanding:
Basic			40,175,058				34,972,364				40,142,571				29,173,172
Diluted			40,905,567				34,972,364				40,142,571				29,173,172

FRANCHISE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
		Six Months Ended
(In thousands)		June 26, 2021				June 27, 2020
		(Unaudited)				(Unaudited)
Operating Activities
Net income		$	52,549			$	39,956
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts			1,910				3,403
Depreciation, amortization and impairment charges			31,157				33,792
Amortization of deferred financing costs			33,197				21,554
Loss (gain) on disposal of fixed assets			645				(166	)
Stock-based compensation expense - equity awards			5,478				4,339
(Gain) on bargain purchases and sales of Company-owned offices			(731	)			(1,258	)
Equity in loss of affiliate			-				15
Deferred tax expense			-				7,739
Prepayment penalty for early debt extinguishment			36,726				-
Change in
Accounts, notes, and interest receivable			3,832				(1,784	)
Income taxes receivable			2,215				(53,156	)
Other assets			3,867				1,015
Accounts payable and accrued expenses			9,089				134
Inventory			(77,410	)			84,434
Deferred revenue			3,102				8,938
Net cash provided by operating activities			105,626				148,955
Investing Activities
Issuance of operating loans to franchisees and area developers			(17,612	)			(28,876	)
Payments received on operating loans to franchisees and area developers			23,013				49,612
Purchases of Company-owned offices, area developer rights, and acquired customer lists			(401	)			(2,299	)
Proceeds from sale of Company-owned offices and area developer rights			293				989
Acquisition of business, net of cash and restricted cash acquired			(462,821	)			(353,423	)
Purchases of property, equipment, and software			(24,627	)			(16,212	)
Net cash (used in) investing activities			(482,155	)			(350,209	)
Financing Activities
Proceeds from the exercise of stock options			386				187
Dividends paid			(32,808	)			(10,406	)
Non-controlling interest distribution			-				(4,716	)
Repayment of other long-term obligations			(771,511	)			(410,798	)
Borrowings under revolving credit facility			6,724				142,000
Repayments under revolving credit facility			(84,874	)			(112,760	)
Issuance of common stock			-				92,082
Issuance of preferred stock			79,542				-
Payment for debt issue costs and original issuance discounts			(50,776	)			(14,604	)
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			(404	)			(73	)
Net cash provided by financing activities			409,553				266,912
Effect of exchange rate changes on cash, net			142				(234	)
Net increase in cash equivalents and restricted cash			33,166				65,424
Cash, cash equivalents and restricted cash at beginning of period			151,502				45,146
Cash, cash equivalents and restricted cash at end of period		$	184,668			$	110,570
Supplemental Cash Flow Disclosure
Cash paid for taxes, net of refunds		$	1,284			$	493
Cash paid for interest		$	61,249			$	26,857
Accrued capital expenditures		$	3,406			$	2,608
Deferred financing costs from issuance of common stock		$	-			$	31,013
Capital expenditures funded by finance lease liabilities		$	1,211			$	-
Tax receivable agreement included in other long-term liabilities		$	-			$	17,156

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 the Company’s operating businesses and in comparing its results from period to period because they exclude items that the Company does not believe are reflective of its core or ongoing operating results. These measures are used by 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 penalties 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 and six months ended June 26, 2021.

				For the Three Months Ended June 26, 2021
	($ In thousands)			Buddy's			Pet Supplies Plus				American Freight				Vitamin Shoppe			Corporate				Total
	Net income (loss) from continuing operations			$	2,469		$	5,219			$	12,670			$	22,444		$	(10,281	)		$	32,521
	Add back:
	Interest expense				898			5,363				9,286				7,319			-				22,865
	Income tax expense (benefit)				-			(4	)			-				-			2,774				2,770
	Depreciation and amortization charges				897			6,123				2,354				7,739			0				17,115
	Total Adjustments				1,795			11,482				11,640				15,058			2,774				42,750
	EBITDA				4,264			16,701				24,310				37,502			(7,507	)			75,271
	Adjustments to EBITDA
	Executive severance and related costs				-			(2	)			-				-			-				(2	)
	Stock based compensation				70			-				-				-			2,755				2,825
	Non-cash executive compensation expense				-			-				325				-			-				325
	Shareholder litigation costs				-			-				(295	)			-			209				(86	)
	Prepayment penalty on early debt repayment				-			-				-				-			-				-
	Store closures / Related Costs				-							-				-			-				-
	Integration / Related Costs				-			61				4,335				-			298				4,694
	Acquisition costs				-			6,146				259				-			15				6,419
	Divestiture costs				-			-				-				-			2,318				2,318
	Compliance costs				-			-				-				-			-				-
	Total Adjustments to EBITDA				70			6,205				4,624				-			5,595				16,493
	Adjusted EBITDA			$	4,334		$	22,906			$	28,934			$	37,502		$	(1,912	)		$	91,764

				For the Six Months Ended June 26, 2021
	($ In thousands)			Buddy's			Pet Supplies Plus			American Freight				Vitamin Shoppe			Corporate				Total
	Net income (loss) from continuing operations			$	5,480		$	34		$	26,579			$	52,789		$	(80,696	)		$	4,186
	Add back:
	Interest expense				2,159			6,374			20,506				10,246			31,014				70,300
	Income tax expense (benefit)				-			-			-				3			(83	)			(81	)
	Depreciation and amortization charges				1,792			7,554			4,244				14,981			1				28,572
	Total Adjustments				3,952			13,928			24,751				25,230			30,931				98,791
	EBITDA				9,432			13,963			51,330				78,018			(49,766	)			102,977
	Adjustments to EBITDA
	Executive severance and related costs				-			9			-				-			-				9
	Stock based compensation				139			-			-				-			5,121				5,260
	Non-cash executive compensation expense				-			-			824				-			-				824
	Shareholder litigation costs				-			-			(295	)			-			298				3
	Prepayment penalty on early debt repayment				-			-			-				-			36,726				36,726
	Store closures / Related Costs				-			-			222				-			-				222
	Integration / Related Costs				-			430			7,089				-			298				7,817
	Acquisition costs				-			13,257			376				-			16				13,649
	Divestiture costs				-			-			-				-			2,660				2,660
	Compliance costs				-			-			-				-			779				779
	Total Adjustments to EBITDA				139			13,696			8,216				-			45,898				67,949
	Adjusted EBITDA			$	9,571		$	27,659		$	59,546			$	78,018		$	(3,868	)		$	170,926

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 and six months ended June 26, 2021.

		For the Three Months Ended							For the Six Months Ended
($ In thousands except share count and per share data)		June 26, 2021							June 26, 2021
Net income (loss) from continuing operations / Net income (loss) from continuing operations per diluted share		32,521			$	0.80			4,186			$	0.10
Less: Preferred dividend declared		(2,128	)			(0.06	)		(4,257	)			(0.10	)
Adjusted Net Income available to Common Stockholder		30,393				0.74			(71	)			-
Add back:
Executive severance and related costs		(2	)			-			9				-
Stock based compensation		2,825				0.07			5,260				0.13
Long-term executive compensation expense		325				0.01			824				0.02
Shareholder litigation costs		(86	)			-			3				-
Prepayment penalty on early debt repayment		-				-			36,726				0.90
Store closures / Related Costs		-				-			222				0.01
Integration / Related Costs		4,694				0.11			7,817				0.19
Acquisition costs		6,419				0.16			13,649				0.32
Divestiture costs		2,318				0.06			2,660				0.07
Compliance costs		-				-			779				0.02
Adjustments to EBITDA		16,493				0.42			67,949				1.66
Non-cash amortization of debt issuance costs		2,223				0.05			33,197				0.81
Amortization of acquisition-related intangibles		2,232				0.05			3,511				0.09
Tax impact		(3,917	)			(0.10	)		(19,571	)			(0.48	)
Impact of diluted share count assuming non-GAAP net income		-				-			-				-
Total Adjustments to Net income (loss) from continuing operations		17,031				0.42			85,086				2.08
Non-GAAP Net Income from continuing operations / Non-GAAP diluted EPS from continuing operations		47,424			$	1.16			85,015			$	2.08
Basic weighted average shares						40,175,058							40,142,571
Non-GAAP diluted weighted average shares outstanding						40,905,567							40,877,626

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, 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

FAQ

What were Franchise Group's Q2 2021 financial results?

Franchise Group reported Q2 2021 revenue of $862.8 million, net income of $32.5 million, and Non-GAAP EPS of $1.16.

What is Franchise Group's updated annual revenue outlook for 2021?

Franchise Group has increased its revenue outlook to at least $3.05 billion for 2021.

How much is Franchise Group's projected Adjusted EBITDA for 2021?

The company's projected Adjusted EBITDA for 2021 is now at least $320 million.

What are the key segments contributing to Franchise Group's revenue?

Key segments include American Freight, The Vitamin Shoppe, Pet Supplies Plus, and Buddy's.

How many new store openings did Franchise Group achieve in 2021?

Franchise Group has achieved 111 new store openings year to date.