EX-99.1 2 exh_991.htm EXHIBIT 99.1 EdgarFiling

EXHIBIT 99.1

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

  • 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 3rd 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 operations17,031   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