GlobeNewswire Inc | Mar 10, 2021 04:01PM EST

March 10, 2021

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 Buddys refranchising transaction completed in November 2020.

Brian Kahn, Franchise Groups 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 Buddys. 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/ Revenue EBITDA Information Income/ (Loss) (Loss) (In thousands) (In thousands)American 214.0 18.9 2.9 (9.0 ) 896.4 89.6 25.6 (29.3 )FreightVitamin 255.4 15.7 2.3 8.2 1,036.0 77.8 9.2 (7.4 )ShoppeLiberty 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 Buddys 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.

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 Companys credit agreement. Estimates exclude potential acquisitions, divestitures or refranchising activities. See Non-GAAP Financial Measures and Key Metrics.

Conference Call InformationFranchise 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 Groups 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 Groups business lines include Pet Supplies Plus, American Freight, The Vitamin Shoppe, Buddys 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 SUBSIDIARIESConsolidated Balance Sheets (In thousands, except share count and per December 26, December 28,share data) 2020 2019Assets (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 $ 105,388 $ 218,384 obligationsCurrent 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 468,655 245,236 installmentsNon-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 sharesauthorized, 40,092,260 and 18,250,225 401 183 shares issued and outstanding at December26, 2020 and December 28, 2019,respectivelyPreferred stock, $0.01 par value pershare, 20,000,000 and 20,000,000 sharesauthorized, 1,250,000 and 1,886,667 13 19 shares issued and outstanding at December26, 2020 and December 28, 2019,respectivelyAdditional paid-in capital 382,383 108,339 Accumulated other comprehensive loss, net (1,399 ) (1,538 )of taxesRetained earnings 3,769 18,388 Total equity attributable to Franchise 385,167 125,391 Group, Inc.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 SUBSIDIARIESConsolidated Statements of Operations (Unaudited) Three Months Twelve Months Transition Ended Ended Period from 5/1/ 2019 -(In thousands, December 26, December 26, December 28,except share count 2020 2020 2019and per share data)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 278,326 1,160,108 81,249 revenueSelling, general,and administrative 218,604 916,274 173,860 expensesTotal operating 496,930 2,076,382 255,109 expensesIncome (loss) from (611 ) 76,122 (105,599 )operationsOther expense: Other 106 (5,187 ) 37 Interest expense, (18,109 ) (101,751 ) (9,349 )netIncome (loss) (18,614 ) (30,816 ) (114,911 )before income taxesIncome tax expense (14,409 ) (57,970 ) (10,445 )(benefit)Net income (loss) (4,205 ) 27,154 (104,466 )Less: Net (income)loss attributable - (2,090 ) 36,039 to non-controllinginterestNet income (loss)attributable to $ (4,205 ) $ 25,064 $ (68,427 )Franchise Group,Inc. 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 SUBSIDIARIESConsolidated Statements of Cash Flows (Unaudited) Twelve Months Transition Ended Period from 5/1/ 2019 -(In thousands) December 26, December 28, 2020 2019Operating 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 62,543 32,401 chargesAmortization 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 (4,133 ) (1,106 )sales of Company-owned officesDeferred 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 241,492 (41,485 )activitiesInvesting Activities Issuance of operating loans to (34,136 ) (22,483 )franchisees and area developersPayments received on operating loans to 50,291 827 franchisees and area developersPurchases of Company-owned offices, areadeveloper rights, and acquired customer (6,587 ) (3,491 )listsProceeds from sale of Company-owned 36,349 279 offices and area developer rightsAcquisition of business, net of cash (353,423 ) (317,251 )acquiredProceeds from sale of property, 1,224 - equipment, and softwarePurchases of property, equipment, and (34,931 ) (1,136 )softwareNet cash used in investing activities (341,213 ) (343,255 )Financing Activities Proceeds from the exercise of stock 520 2,202 optionsDividends paid (29,350 ) - Non-controlling interest distribution (4,716 ) - Repayment of other long-term obligations (505,486 ) (13,054 )Borrowings under revolving credit 184,665 129,260 facilityRepayments under revolving credit (235,614 ) (25,403 )facilityIssuance 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 (487 ) (110 )of stock-based compensationNet cash provided by financing activities 206,153 406,738 Effect of exchange rate changes on cash, (76 ) 165 netNet increase in cash equivalents and 106,356 22,163 restricted cashCash, cash equivalents and restricted 45,146 22,983 cash at beginning of yearCash, cash equivalents and restricted $ 151,502 $ 45,146 cash at end of yearSupplemental 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 $ 31,013 $ - common stockTax receivable agreement included in $ 16,775 $ - other long-term liabilities

Non-GAAP Financial Measures and Key MetricsIn 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 Buddy's Liberty American Vitamin Corporate Totalthousands) Freight ShoppeNet income $ 4,107 $ (16,152 ) $ (8,967 ) $ 8,211 $ 8,598 $ (4,204 )(loss)Add back: - Interest $ 2,272 $ (6 ) $ 15,366 $ 479 $ (1 ) 18,110 expenseIncome taxexpense $ - $ (246 ) $ - $ (104 ) $ (14,060 ) (14,409 )(benefit)Depreciationand $ 1,102 $ 3,172 $ 1,930 $ 5,085 $ - 11,289 amortizationchargesTotal $ 3,374 $ 2,920 $ 17,296 $ 5,460 $ (14,061 ) 14,989 AdjustmentsEBITDA $ 7,481 $ (13,232 ) $ 8,329 $ 13,670 $ (5,463 ) 10,785 Adjustments to EBITDAExecutiveseverance $ 70 $ 116 $ 301 $ (40 ) 446 and relatedcostsStock based $ 132 $ 187 $ 2,801 3,120 compensationShareholderlitigation $ (717 ) $ 500 (217 )costsCorporatecompliance $ 33 $ 127 159 costsPrepaymentpenalty on $ 223 $ 3,234 3,458 early debtrepaymentAccruedjudgments $ 585 $ 12 597 andsettlementsStoreclosures / $ 34 $ (127 ) (93 )RelatedCostsRebranding $ 4,217 4,217 costsAcquistion $ 1 $ 326 $ 942 1,268 costsROU $ 2,895 2,895 ImpairmentIntegration/ Related $ 1,073 $ 25 1,097 CostsInventoryfair value $ 1,091 1,091 step upamortizationTotalAdjustments $ 294 $ 865 $ 10,601 $ 2,036 $ 4,243 18,039 to EBITDAAdjusted $ 7,774 $ (12,367 ) $ 18,931 $ 15,706 $ (1,220 ) $ 28,823 EBITDA

For the Fiscal Year Ended December 26, 2020(In Buddy's Liberty American Vitamin Corporate Totalthousands) Freight ShoppeNet income $ 2,285 $ 18,080 $ (29,295 ) $ (7,371 ) $ 43,455 $ 27,154 (loss)Add back: - Interest $ 15,029 $ 4,977 $ 69,988 $ 11,971 $ (214 ) 101,751 expenseIncome taxexpense $ 661 $ (1,714 ) $ (104 ) $ (56,814 ) (57,970 )(benefit)Depreciationand $ 5,661 $ 10,391 $ 5,897 $ 40,289 $ 1 62,238 amortizationchargesTotal $ 20,690 $ 16,029 $ 74,170 $ 52,156 $ (57,026 ) 106,020 AdjustmentsEBITDA $ 22,975 $ 34,109 $ 44,876 $ 44,785 $ (13,571 ) 133,174 Adjustments to EBITDAExecutiveseverance $ 278 $ 717 $ 658 $ 4,707 $ 0 6,360 and relatedcostsStock based $ 561 $ 465 $ 8,458 9,484 compensationShareholderlitigation $ (431 ) $ 1,006 575 costsCorporatecompliance $ 253 $ 543 796 costsPrepaymentpenalty on $ 3,273 $ 4,604 $ 875 8,752 early debtrepaymentAccruedjudgments $ 1,407 $ 63 $ (1,708 ) (238 )andsettlementsStoreclosures / $ 62 $ 530 592 RelatedCostsRebranding $ 8,725 8,725 costsAcquistion $ 330 $ 11,289 $ 5,531 $ 435 17,584 costsROU $ 2,895 2,895 ImpairmentIntegration/ Related $ 2,678 $ 25 2,703 CostsInventoryfair value $ 15,677 $ 20,567 36,244 step upamortizationTotalAdjustments $ 3,881 $ 2,938 $ 44,764 $ 32,991 $ 9,900 94,474 to EBITDAAdjusted $ 26,856 $ 37,047 $ 89,640 $ 77,775 $ (3,671 ) $ 227,647 EBITDA

Supplemental Information: Cost Synergies and Acquisition ImpactsThe 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 Companys acquisitions.

For the Three Months Ended December 26, 2020(In thousands) Buddy's Liberty American Vitamin Corporate Total Freight ShoppeEstimated realizedand unrealized cost $ 2,853 $ 2,853savingsOtheracquisition-related 2,309 2,309compensation costs $ - $ - $ 2,853 $ 2,309 $ - $ 5,162

For the Twelve Months Ended December 26, 2020(In thousands) Buddy's Liberty American Vitamin Corporate Total Freight ShoppeEstimated realizedand unrealized cost $ 25,597 $ 4,561 $ (2,360 ) $ 27,798savingsOtheracquisition-related 4,640 4,640compensation costs $ - $ - $ 25,597 $ 9,201 $ (2,360 ) $ 32,438

Forward-Looking StatementsThis 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 Companys 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 Managements Discussion and Analysis of Financial Condition and Results of Operations sections of the Companys Form 10-K for the fiscal year ended December 26, 2020, and comparable sections of the Companys Quarterly Reports on Form 10-Q and other filings, which have been filed with the SEC and are available on the SECs 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. KaminskyEVP & Chief Administrative OfficerFranchise Group, Inc.akaminsky@franchisegrp.com(914) 939-5161