Franchise Group, Inc. Announces First Quarter 2020 Financial Results
- Exceeds Earnings Guidance for the First Quarter
- Increases Guidance for 2020
VIRGINIA BEACH, Va., June 18, 2020 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced the results of its first quarter ended March 28, 2020. For the first quarter of 2020, total reported revenue for Franchise Group was $592.6 million, GAAP Net Income was $61.9 million or $2.51 per share, Proforma Adjusted EBITDA was $112.2 million and Non-GAAP EPS was $2.11 per share. In calculating GAAP EPS, the Company utilized 23.7 million weighted average fully diluted shares outstanding for the first quarter. In calculating Non-GAAP EPS and formulating guidance, the Company utilized 35.1 million fully diluted shares outstanding. The Company ended the quarter with $147 million in cash and outstanding debt of $811.5 million.
During the first quarter of 2020, Franchise Group completed the $450 million acquisition of American Freight, closed on a $675 million credit facility, and paid another quarterly dividend of $0.25 per share. Despite the impacts of Covid-19, the Company was able to exceed its previously announced guidance for the first quarter due to its resilient business model and achievement of operational efficiencies.
Brian Kahn, Franchise Group’s President and CEO stated, “We established Franchise Group with the ultimate goal of paying dependable and growing dividends to its shareholders. We have assembled a mix of franchise and franchisable businesses that provide us balance and resiliency which have allowed us to be successful before, during, and after the recent crisis. We believe our performance to date validates our strategy and is evidenced by our financial results and updated guidance.”
Mr. Kahn continued, “As all of us know, the last few months have been unprecedented in countless ways. We have been transparent with our stakeholders and have been communicating our operating plans and performance through the pandemic. I want to reiterate that we have continued to prioritize the health and safety of our employees, customers and communities. I am very grateful for the support and professionalism of our operating management teams throughout this crisis and our successes are a reflection of their strong performance.”
The Company has four reportable segments: American Freight; The Vitamin Shoppe; Liberty Tax and Buddy’s. The following table summarizes revenue and Proforma Adjusted EBITDA by these segments. A reconciliation of Proforma Adjusted EBITDA to the most comparable GAAP measure is included below.
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For the Three Months |
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Ended March 28, 2020 |
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| Proforma | |||||||||||||
| Adjusted |
Net |
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| Revenue | EBITDA |
Income |
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|
(In thousands) |
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| American Freight | $ | 202,747 | $ | 28,396 | $ | (14,722 | ) | ||||||
| Vitamin Shoppe | 275,888 | 30,195 | (9,023 | ) | |||||||||
| Liberty Tax | 89,618 | 51,359 | 47,103 | ||||||||||
| Buddy's | 24,312 | 5,268 | (5,189 | ) | |||||||||
| Corporate | - | (3,023 | ) | 43,729 | |||||||||
| Total | $ | 592,565 | $ | 112,194 | $ | 61,898 | |||||||
Outlook (1)
On March 11, 2020, the Company provided preliminary guidance for 2020 of revenue of $2.1 - $2.15 billion, Proforma Adjusted EBITDA of $230 - $240 million and Non-GAAP EPS of $2.35 - $2.55 per share, all assumed American Freight was owned for the full year. As of today, the Company believes it will be at the high end of that range for revenue and Proforma Adjusted EBITDA and is raising its Non-GAAP EPS guidance to at least $2.60 per share.
(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 refranchising activities.
Conference Call Information
Franchise Group will conduct a conference call today at 4:30 p.m. ET to discuss its business, financial results for the first quarter and 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 1898649. 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 include statements regarding the Company’s performance during the crisis, its strategy and its outlook for the remainder of 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 (Unaudited) | ||||||||
| (In thousands, except share count and per share data) | March 28, 2020 | December 28, 2019 | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 147,028 | $ | 39,581 | ||||
| Current receivables, net | 136,254 | 79,693 | ||||||
| Inventories, net | 359,447 | 300,312 | ||||||
| Other current assets | 28,279 | 20,267 | ||||||
| Total current assets | 671,008 | 439,853 | ||||||
| Property, equipment, and software, net | 154,713 | 150,147 | ||||||
| Non-current receivables, net | 15,581 | 18,638 | ||||||
| Goodwill | 469,459 | 134,301 | ||||||
| Intangible assets, net | 148,779 | 77,590 | ||||||
| Operating lease right-of-use assets | 535,092 | 462,610 | ||||||
| Other non-current assets | 24,891 | 15,406 | ||||||
| Total assets | $ | 2,019,523 | $ | 1,298,545 | ||||
| Liabilities and Stockholders Equity | ||||||||
| Current liabilities: | ||||||||
| Current installments of long-term obligations | $ | 257,466 | $ | 218,384 | ||||
| Current operating lease liabilities | 126,701 | 107,680 | ||||||
| Accounts payable and accrued expenses | 259,803 | 158,995 | ||||||
| Other current liabilities | 36,444 | 16,409 | ||||||
| Total current liabilities | 680,414 | 501,468 | ||||||
| Long-term obligations, excluding current installments | 554,004 | 245,236 | ||||||
| Non-current operating lease liabilities | 434,677 | 394,307 | ||||||
| Other non-current liabilities | 21,408 | 5,773 | ||||||
| Total liabilities | 1,690,503 | 1,146,784 | ||||||
| Stockholders equity: | ||||||||
| Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 29,653,052 and 18,250,225 shares issued and outstanding at March 28, 2020 and December 28, 2019, respectively | 297 | 183 | ||||||
| Preferred stock, $0.01 par value per share, 20,000,000 and 20,000,000 shares authorized, 1,099,122 and 1,886,667 shares issued and outstanding at March 28, 2020 and December 28, 2019, respectively | 11 | 19 | ||||||
| Additional paid-in capital | 237,354 | 108,339 | ||||||
| Accumulated other comprehensive loss, net of taxes | (2,306 | ) | (1,538 | ) | ||||
| Retained earnings | 73,652 | 18,388 | ||||||
| Total equity attributable to Franchise Group, Inc. | 309,008 | 125,391 | ||||||
| Non-controlling interest | 20,012 | 26,370 | ||||||
| Total equity | 329,020 | 151,761 | ||||||
| Total liabilities and equity | $ | 2,019,523 | $ | 1,298,545 | ||||
| FRANCHISE GROUP, INC. AND SUBSIDIARIES | ||||||||
| Condensed Consolidated Statements of Operations (Unaudited) | ||||||||
| Three Months Ended | ||||||||
| (In thousands, except share count and per share data) | March 28, 2020 | March 31, 2019 | ||||||
| Revenues: | ||||||||
| Product | $ | 473,505 | $ | - | ||||
| Service and other | 102,640 | 95,838 | ||||||
| Rental | 16,420 | - | ||||||
| Total revenues | 592,565 | 95,838 | ||||||
| Operating expenses: | ||||||||
| Cost of revenue: | ||||||||
| Product | 287,818 | - | ||||||
| Service and other | 756 | - | ||||||
| Rental | 5,942 | - | ||||||
| Total cost of revenue | 294,516 | - | ||||||
| Selling, general, and administrative expenses | 252,212 | 40,965 | ||||||
| Total operating expenses | 546,728 | 40,965 | ||||||
| Income from operations | 45,837 | 54,873 | ||||||
| Other income (expense): | ||||||||
| Other | (4,056 | ) | 7 | |||||
| Interest expense, net | (25,752 | ) | (1,055 | ) | ||||
| Income before income taxes | 16,029 | 53,825 | ||||||
| Income tax expense (benefit) | (45,869 | ) | 15,634 | |||||
| Net income | 61,898 | 38,191 | ||||||
| Less: Net income attributable to non-controlling interest | (2,359 | ) | - | |||||
| Net income attributable to Franchise Group, Inc. | $ | 59,539 | $ | 38,191 | ||||
| Net income per share of common stock: | ||||||||
| Basic | $ | 2.55 | $ | 2.72 | ||||
| Diluted | 2.51 | 2.71 | ||||||
| Weighted-average shares outstanding: | ||||||||
| Basic | 23,373,980 | 14,055,752 | ||||||
| Diluted | 23,693,035 | 14,112,659 | ||||||
| FRANCHISE GROUP, INC. AND SUBSIDIARIES | ||||||||
| Condensed Consolidated Statements of Cash Flows (Unaudited) | ||||||||
| Three Months Ended | ||||||||
| (In thousands) | March 28, 2020 | March 31, 2019 | ||||||
| Operating Activities | ||||||||
| Net income | 61,898 | 38,191 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Provision for doubtful accounts | 1,672 | 1,930 | ||||||
| Depreciation, amortization and impairment charges | 15,927 | 4,073 | ||||||
| Amortization of deferred financing costs | 11,744 | 100 | ||||||
| Stock-based compensation expense - equity awards | 2,485 | 388 | ||||||
| Loss (gain) on bargain purchases and sales of Company-owned offices | (808 | ) | 555 | |||||
| Equity in (gain) loss of affiliate | 88 | (1 | ) | |||||
| Deferred tax expense (benefit) | 5,010 | 1,949 | ||||||
| Change in | ||||||||
| Accounts, notes, and interest receivable | (10,203 | ) | (16,195 | ) | ||||
| Income taxes receivable | (51,857 | ) | 13,186 | |||||
| Other assets | (2,364 | ) | 270 | |||||
| Accounts payable and accrued expenses | 41,921 | 7,146 | ||||||
| Inventory | 40,066 | - | ||||||
| Deferred revenue | 189 | (836 | ) | |||||
| Net cash provided by operating activities | 115,768 | 50,756 | ||||||
| Investing Activities | ||||||||
| Issuance of operating loans to franchisees and ADs | (28,212 | ) | (38,402 | ) | ||||
| Payments received on operating loans to franchisees and ADs | 47,800 | 63,127 | ||||||
| Purchases of Company-owned offices, AD rights, and acquired customer lists | (2,251 | ) | (91 | ) | ||||
| Proceeds from sale of Company-owned offices and AD rights | 950 | 22 | ||||||
| Acquisition of business, net of cash acquired | (357,263 | ) | - | |||||
| Purchases of property, equipment, and software | (6,184 | ) | (359 | ) | ||||
| Net cash used in investing activities | (345,160 | ) | 24,297 | |||||
| Financing Activities | ||||||||
| Proceeds from the exercise of stock options | - | 153 | ||||||
| Dividends paid | (3,943 | ) | - | |||||
| Non-controlling interest distribution | (2,358 | ) | - | |||||
| Repayment of other long-term obligations | (370,503 | ) | (1,801 | ) | ||||
| Borrowings under revolving credit facility | 142,000 | 47,668 | ||||||
| Repayments under revolving credit facility | (79,260 | ) | (114,459 | ) | ||||
| Issuance of common stock | 80,682 | - | ||||||
| Payment for debt issue costs | (14,408 | ) | - | |||||
| Issuance of debt | 586,000 | - | ||||||
| Cash paid for taxes on exercises/vesting of stock-based compensation | (36 | ) | - | |||||
| Net cash provided by (used in) financing activities | 338,174 | (68,439 | ) | |||||
| Effect of exchange rate changes on cash, net | (1,335 | ) | 80 | |||||
| Net increase (decrease) in cash equivalents and restricted cash | 107,447 | 6,694 | ||||||
| Cash and cash equivalents and restricted cash at beginning of period | 45,146 | 3,981 | ||||||
| Cash and cash equivalents and restricted cash at end of period | $ | 152,593 | $ | 10,675 | ||||
| Supplemental Cash Flow Disclosure | ||||||||
| Cash paid for taxes, net of refunds | $ | 466 | $ | - | ||||
| Cash paid for interest | $ | 15,332 | $ | 916 | ||||
| Accrued capital expenditures | $ | 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 | $ | 7,449 | $ | - | ||||
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 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. In addition, a measure similar to Adjusted EBITDA is used in the Company’s credit facilities. 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 and GAAP EPS to Non-GAAP EPS for the three months ended March 28, 2020. In the table below, we provide an estimated range of the items we exclude from our calculation of Proforma Adjusted EBITDA and Non-GAAP EPS.
| For the Three Months Ended March 28, 2020 | |||||||||||||||||||||||
| American | Vitamin | ||||||||||||||||||||||
| Buddy's | Liberty | Freight | Shoppe | Corporate | Total | ||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Net Income | $ | (5,189 | ) | $ | 47,103 | $ | (14,722 | ) | $ | (9,023 | ) | $ | 43,729 | $ | 61,898 | ||||||||
| Add back: | |||||||||||||||||||||||
| Interest Expense | 5,541 | 1,240 | 15,420 | 3,575 | (25 | ) | 25,752 | ||||||||||||||||
| Income Tax benefit | - | 303 | (169 | ) | - | (46,004 | ) | (45,869 | ) | ||||||||||||||
| Depreciation, Amortization & Impairment | 1,640 | 2,065 | 912 | 11,310 | - | 15,927 | |||||||||||||||||
| Total Adjustments | 7,181 | 3,608 | 16,164 | 14,885 | (46,028 | ) | (4,191 | ) | |||||||||||||||
| EBITDA | 1,992 | 50,711 | 1,442 | 5,862 | (2,300 | ) | 57,708 | ||||||||||||||||
| Adjustments to EBITDA: | |||||||||||||||||||||||
| Executive Severance and Related | - | - | - | 4,657 | 0 | 4,657 | |||||||||||||||||
| Stock-Based Compensation | 70 | 149 | - | - | 2,267 | 2,485 | |||||||||||||||||
| Shareholder Litigation | - | - | - | - | 131 | 131 | |||||||||||||||||
| Corporate Compliance | - | 99 | - | - | - | 99 | |||||||||||||||||
| Prepayment Penalty on Early Debt Extinguishment | 2,992 | 6 | 1,050 | - | - | 4,048 | |||||||||||||||||
| Accrued Judgments & Settlements | - | 393 | 30 | (1,708 | ) | - | (1,285 | ) | |||||||||||||||
| Store Closures | - | - | 0 | 259 | - | 259 | |||||||||||||||||
| Acquisition Costs | 214 | - | 5,976 | 4,926 | (762 | ) | 10,354 | ||||||||||||||||
| Inventory Fair Value Step-up Amortization | - | - | 8,245 | 12,545 | - | 20,790 | |||||||||||||||||
| Total Adjustments to EBITDA | 3,275 | 647 | 15,300 | 20,679 | 1,636 | 41,538 | |||||||||||||||||
| Adjusted EBITDA | 5,268 | 51,359 | 16,742 | 26,541 | (664 | ) | 99,246 | ||||||||||||||||
| Proforma Adjustments | - | - | 11,654 | 3,654 | (2,360 | ) | 12,948 | ||||||||||||||||
| Proforma Adjusted EBITDA | $ | 5,268 | $ | 51,359 | $ | 28,396 | $ | 30,195 | $ | (3,023 | ) | $ | 112,194 | ||||||||||
Investor Relations Contact:
Andrew F. Kaminsky
EVP & Chief Administrative Officer
Franchise Group, Inc.
akaminsky@franchisegrp.com
(914) 939-5161
