GlobeNewswire Inc | Nov 2, 2021 04:01PM EDT

November 02, 2021

-- Increases 2021 Financial Outlook to at Least $3.1 Billion in Revenue and at Least $3.80 in Non-GAAP EPS -- Expects Significant Growth in Revenue and Cash Flow in Fiscal 2022 -- Franchising Momentum Accelerating

DELAWARE, Ohio, Nov. 02, 2021 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (Franchise Group or the Company) today announced the financial results of its fiscal 2021 third quarter. For the third quarter of fiscal 2021, total reported revenue for Franchise Group was $828.8 million, net income from continuing operations was $36.0 million or $0.83 per fully diluted share, Adjusted EBITDA was $80.8 million and Non-GAAP EPS was $0.97 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 Companys Liberty Tax segment are presented as discontinued operations and have been excluded from the Companys fiscal 2021 third quarter results. Total cash was $160.0 million and outstanding debt at the end of the third quarter of fiscal 2021 was $1.1 billion.

Brian Kahn, Franchise Groups President and CEO stated, Our management teams, associates, and franchisees are performing well. Despite continuing supply chain constraints and overall inflationary pressures, the underlying strength of the Franchise Group brands allows us to increase our financial expectations for fiscal year 2021. Franchising momentum is continuing to accelerate with new development agreements for 153 new locations in addition to 124 new store openings year to date. As we look towards fiscal 2022, we see significant growth for Franchise Group as systemwide unit growth is compounded by overall same store sales growth. We also remain active in pursuit of additional brands that we believe will further diversify our cash flow streams or add scale to existing platforms, and we expect to execute on at least one accretive transaction in the near term.

The Company has four reportable segments: American Freight; The Vitamin Shoppe; Pet Supplies Plus and Buddys. The following table summarizes Revenue, Adjusted EBITDA, and Net Income/(Loss) 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 Ended For the Nine Months Ended September 25, 2021 September 25, 2021 Adjusted Net Adjusted Net Revenue EBITDA Income/ Revenue EBITDA Income/(Loss) (Loss) (In thousands) (In thousands)American $ 223,591 $ 16,045 $ 959 $ 750,914 $ 75,887 $ 27,538 FreightVitamin Shoppe 300,813 35,886 21,086 898,108 113,904 73,875 Pet Supplies 286,643 24,994 13,642 613,712 52,655 13,677 PlusBuddy's 17,779 4,433 5,159 50,195 14,004 10,639 Corporate - (515 ) (4,848 ) - (4,683 ) (85,544 )Total $ 828,826 $ 80,843 $ 35,998 $ 2,312,929 $ 251,766 $ 40,185

OutlookFranchise Group is increasing its expectations for annual Adjusted EBITDA for 2021 from at least $320 million to at least $325 million, Non-GAAP EPS from at least $3.45 per share to at least $3.80 per share and revenue from at least $3.05 billion to at least $3.1 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 18.5%.

The Company does not provide a 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 InformationFranchise Group will conduct a conference call on November 2nd at 4:30 P.M. ET to discuss its business, review financial results for the third 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 Groups website at www.franchisegrp.com. The conference call can also be accessed live via telephone at (877) 784-1793. The passcode is 2978952. 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 Groups business lines include Pet Supplies Plus, American Freight, The Vitamin Shoppe, Buddys Home Furnishings and Sylvan Learning. On a combined basis, Franchise Group currently operates over 2,600 locations predominantly located in the U.S. 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 September December 26,share data) 25, 2021 2020Assets (Unaudited) (Audited)Current assets: Cash and cash equivalents $ 159,972 $ 148,780 Current receivables, net 95,686 67,335 Inventories, net 533,552 302,307 Current assets held for sale - 43,023 Other current assets 18,643 13,997 Total current assets 807,853 575,442 Property, equipment, and software, net 202,968 135,872 Non-current receivables, net 12,000 12,800 Goodwill 787,441 448,258 Intangible assets, net 308,905 109,892 Operating lease right-of-use assets 656,561 502,104 Non-current assets held for sale - 55,116 Other non-current assets 55,856 8,428 Total assets $ 2,831,584 $ 1,847,912 Liabilities and Stockholders Equity Current liabilities: Current installments of long-term $ 1,420 $ 104,053 obligationsCurrent operating lease liabilities 158,577 127,032 Accounts payable and accrued expenses 360,274 252,389 Current liabilities held for sale - 40,576 Other current liabilities 34,095 25,174 Total current liabilities 554,366 549,224 Long-term obligations, excluding current 1,072,909 466,944 installmentsNon-current operating lease liabilities 513,461 402,276 Non-current liabilities held for sale - 8,779 Other non-current liabilities 51,366 35,522 Total liabilities 2,192,102 1,462,745 Stockholders equity: Common stock, $0.01 par value per share,180,000,000 and 180,000,000 sharesauthorized, 40,237,297 and 40,092,260 shares 402 401 issued and outstanding at September 25, 2021and December 26, 2020, respectivelyPreferred 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 45 13 outstanding at September 25, 2021 andDecember 26, 2020, respectivelyAdditional paid-in capital 471,405 382,383 Accumulated other comprehensive loss, net of - (1,399 )taxesRetained earnings 167,630 3,769 Total equity attributable to Franchise 639,482 385,167 Group, Inc.Non-controlling interest - - Total equity 639,482 385,167 Total liabilities and equity $ 2,831,584 $ 1,847,912

FRANCHISE GROUP,INC. AND SUBSIDIARIESConsolidated Statements of Operations Three Months Ended Nine Months Ended(In thousands,except share September 25, September 26, September 25, September 26,count and per 2021 2020 2021 2020share data) (Unaudited) (Unaudited) (Unaudited) (Unaudited)Revenues: Product $ 782,608 $ 500,462 $ 2,172,193 $ 1,440,677 Service and 37,891 19,826 114,659 46,516 otherRental 8,327 17,404 26,077 51,000 Total revenues 828,826 537,692 2,312,929 1,538,193 Operating expenses:Cost of revenue: Product 485,682 296,920 1,347,673 862,320 Service and 8,737 678 10,076 2,135 otherRental 2,930 5,877 8,869 17,327 Total cost of 497,349 303,475 1,366,618 881,782 revenueSelling,general, and 276,714 209,537 780,416 619,799 administrativeexpensesTotal operating 774,063 513,012 2,147,034 1,501,581 expensesIncome from 54,763 24,680 165,895 36,612 operationsOther expense: Other (13,090 ) (1,246 ) (49,816 ) (5,295 )Interest (21,194 ) (26,269 ) (91,494 ) (78,658 )expense, netIncome (loss)from continuingoperations 20,479 (2,835 ) 24,585 (47,341 )before incometaxesIncome taxexpense (15,519 ) 1,891 (15,600 ) (50,217 )(benefit)Income (loss)from continuing 35,998 (4,726 ) 40,185 2,876 operationsIncome (loss)fromdiscontinued 128,072 (3,871 ) 176,434 28,483 operations, netof taxNet income 164,070 (8,597 ) 216,619 31,359 (loss)Less: Net income(loss)attributable to - - - (2,090 )non-controllinginterestNet income(loss)attributable to $ 164,070 $ (8,597 ) $ 216,619 $ 29,269 Franchise Group,Inc. Amountsattributable to Franchise Group,Inc.:Net income(loss) from $ 35,998 $ (4,726 ) $ 40,185 $ (11,005 )continuingoperationsNet income(loss) from 128,072 (3,871 ) 176,434 40,274 discontinuedoperationsNet income(loss)attributable to $ 164,070 $ (8,597 ) $ 216,619 $ 29,269 Franchise Group,Inc. Basic earnings(loss) per share:Continuing $ 0.84 $ (0.12 ) $ 0.84 $ (0.34 )operationsDiscontinued 3.18 (0.10 ) 4.39 1.23 operationsTotal basicearnings per $ 4.02 $ (0.22 ) $ 5.23 $ 0.89 share Diluted earnings(loss) per share:Continuing $ 0.83 $ (0.12 ) $ 0.83 $ (0.34 )operationsDiscontinued 3.13 (0.10 ) 4.31 1.23 operationsTotal dilutedearnings per $ 3.96 $ (0.22 ) $ 5.14 $ 0.89 share Weighted-averageshares outstanding:Basic 40,229,232 39,692,384 40,171,458 32,679,576 Diluted 40,973,736 39,692,384 40,931,423 32,679,576

FRANCHISE GROUP,INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows Nine Months Ended(In thousands) September 25, September 26, 2021 2020 (Unaudited) (Unaudited)Operating Activities Net income $ 216,619 $ 31,359 Adjustments to reconcile net income to net cash provided by operating activities:Provision for doubtful accounts 2,010 3,412 Depreciation, amortization and impairment 50,127 51,254 chargesAmortization of deferred financing costs 35,590 28,703 Loss (gain) on disposal of other (374 ) 75 Stock-based compensation expense - equity 9,561 6,294 awards(Gain) on bargain purchases and sales of (3,368 ) (1,761 )Company-owned officesDeferred tax (income) expense (17 ) 7,851 Prepayment penalty for early debt 36,726 - extinguishmentGain on divestiture of Liberty Tax (173,699 ) - Change in Accounts, notes, and interest 5,748 (2,223 )receivable Income taxes receivable (13,473 ) (23,721 ) Other assets 26,026 3,971 Accounts payable and accrued 21,959 38,884 expenses Inventory (108,947 ) 79,967 Deferred revenue 10,952 5,649 Net cash provided by operating 115,440 229,714 activitiesInvesting Activities Issuance of operating loans to franchisees (17,749 ) (30,368 )and area developersPayments received on operating loans to 23,103 50,064 franchisees and area developersPurchases of Company-owned offices and (1,086 ) (4,830 )acquired customer listsProceeds from sale of Company-owned 3,189 1,118 officesAcquisition of business, net of cash and (462,821 ) (353,423 )restricted cash acquiredDivestiture of business, net of cash and 179,471 - restricted cash soldPurchases of property, equipment, and (36,871 ) (26,702 )softwareProceeds from sale of property, equipment, 195 1,474 and software Net cash (used in) investing (312,569 ) (362,667 )activitiesFinancing Activities Proceeds from the exercise of stock 386 520 optionsDividends paid (50,016 ) (19,167 )Non-controlling interest distribution - (4,716 )Repayment of other long-term obligations (957,382 ) (455,811 )Borrowings under revolving credit facility 6,724 174,665 Repayments under revolving credit facility (84,874 ) (218,260 )Issuance of common stock - 198,003 Issuance of preferred stock 79,542 28,366 Payment for debt issue costs and original (51,288 ) (16,673 )issuance discountsPrepayment penalty for early debt (36,726 ) - extinguishmentIssuance of debt 1,300,000 586,000 Cash paid for taxes on exercises/vesting (433 ) (85 )of stock-based compensation Net cash provided by 205,933 272,842 financing activitiesEffect of exchange rate changes on cash, 34 (142 )net Net increase in cash 8,838 139,747 equivalents and restricted cashCash, cash equivalents and restricted cash 151,502 45,146 at beginning of periodCash, cash equivalents and restricted cash $ 160,340 $ 184,893 at end of periodSupplemental Cash Flow Disclosure Cash paid for taxes, net of refunds $ 39,618 $ 944 Cash paid for interest $ 79,074 $ 41,226 Accrued capital expenditures $ 3,496 $ 3,633 Non-cash proceeds from divestiture of $ 59,680 $ - Liberty TaxDeferred financing costs from issuance of $ - $ 31,013 common stockCapital expenditures funded by finance $ 1,211 $ - lease liabilitiesTax receivable agreement included in other $ - $ 17,156 long-term liabilities

Non-GAAP Financial Measures and Key MetricsAdjusted 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 Companys 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 18.5%

Reconciliation of Adjusted EBITDABelow are reconciliations of Net Income/(Loss) from continuing operations to Adjusted EBITDA for the three and nine months ended September 25, 2021.

For the Three Months Ended September 25, 2021 Pet American Vitamin($ In thousands) Buddy's Supplies Freight Shoppe Corporate Total Plus Net income (loss) from $ 5,159 $ 13,642 $ 959 $ 21,086 $ (4,848 ) $ 35,998 continuing operations Add back: Interest expense 832 5,004 8,615 6,777 (33 ) 21,194 Income tax expense - 1 - (71 ) (15,449 ) (15,519 ) (benefit) Depreciation and amortization 853 6,219 2,668 8,094 - 17,834 charges Total 1,685 11,224 11,283 14,800 (15,482 ) 23,509 AdjustmentsEBITDA 6,844 24,866 12,242 35,886 (20,330 ) 59,507 Adjustments to EBITDA Executive severance and - 10 - - - 10 related costs Stock based 70 - - - 4,014 4,084 compensation Non-cash executive - - 494 - - 494 compensation expense Gain on Sale of Company-Owned (2,481 ) - - - - (2,481 ) Stores Prepayment penalty on early - - - - - - debt repayment Store closures / Related Costs / - 2,991 - - 2,991 Impairment Integration / - 90 362 - 274 726 Related Costs Acquisition - 28 (43 ) - 2,211 2,196 costs Loss on Investment in - - (0 ) - 13,175 13,175 Equity Securities Divestiture - - - - 135 135 costs Compliance costs - - - - 6 6 Total Adjustments to (2,411 ) 128 3,803 - 19,815 21,336 EBITDAAdjusted EBITDA $ 4,433 $ 24,994 $ 16,045 $ 35,886 $ (515 ) $ 80,843

For the Nine Months Ended September 25, 2021 Pet American Vitamin($ In thousands) Buddy's Supplies Freight Shoppe Corporate Total Plus Net income (loss) from $ 10,639 $ 13,677 $ 27,538 $ 73,875 $ (85,544 ) $ 40,185 continuing operations Add back: Interest expense 2,991 11,378 29,122 17,023 30,980 91,494 Income tax expense - 1 - (68 ) (15,533 ) (15,600 ) (benefit) Depreciation and amortization 2,645 13,773 6,913 23,075 1 46,407 charges Total 5,637 25,153 36,034 40,029 15,448 122,301 AdjustmentsEBITDA 16,276 38,830 63,572 113,904 (70,096 ) 162,486 Adjustments to EBITDA Executive severance and - 19 - - - 19 related costs Stock based 209 - - - 9,135 9,344 compensation Non-cash executive - - 1,319 - - 1,319 compensation expense Gain on Sale of Company-Owned (2,481 ) - - - - (2,481 ) Stores Prepayment penalty on early - - - - 36,726 36,726 debt repayment Store closures / Related Costs / - - 3,213 - - 3,213 Impairment Integration / - 520 7,450 - 572 8,542 Related Costs Acquisition - 13,286 333 - 2,226 15,845 costs Loss on Investment in - - - - 13,175 13,175 Equity Securities Divestiture - - - - 2,794 2,794 costs Compliance costs - - - - 785 785 Total Adjustments to (2,272 ) 13,825 12,315 - 65,413 89,281 EBITDAAdjusted EBITDA $ 14,004 $ 52,655 $ 75,887 $ 113,904 $ (4,683 ) $ 251,767

Reconciliation of Non-GAAP Net Income and EPSBelow 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 nine months ended September 25, 2021.

For the Three Months Ended For the Nine Months Ended($ In thousandsexcept share count September 25, 2021 September 25, 2021and per share data) Net income (loss)from continuingoperations / Netincome (loss) from $ 35,998 $ 0.88 $ 40,185 $ 0.98 continuingoperations perdiluted shareLess: Preferred (2,128 ) (0.05 ) (6,385 ) (0.15 )dividend declaredAdjusted Net Incomeavailable to Common 33,870 0.83 33,800 0.83 StockholderAdd back: Executive severance 10 - 19 - and related costsStock based 4,084 0.10 9,344 0.23 compensationLong-term executivecompensation 494 0.01 1,319 0.03 expenseGain on Sale ofCompany-Owned (2,481 ) (0.06 ) (2,481 ) (0.06 )StoresPrepayment penaltyon early debt - - 36,726 0.90 repaymentStore closures / 2,991 0.07 3,213 0.08 Related CostsIntegration / 726 0.02 8,542 0.21 Related CostsAcquisition costs 2,196 0.05 15,845 0.39 Loss on Investmentin Equity 13,175 0.32 13,175 0.32 SecuritiesDivestiture costs 135 - 2,794 0.07 Compliance costs 6 - 785 0.02 Adjustments to 21,335 0.51 89,281 2.19 EBITDANon-cashamortization of 2,394 0.06 35,590 0.87 debt issuance costsAmortization ofacquisition-related 2,390 0.06 5,901 0.14 intangiblesTax impact (4,832 ) (0.11 ) (24,193 ) (0.59 )Valuation Allowance (15,519 ) (0.38 ) (15,519 ) (0.38 )Tax BenefitImpact of dilutedshare count - - - - assuming non-GAAPnet incomeTotal Adjustments toNet income (loss) from 5,768 0.14 91,060 2.23 continuing operationsNon-GAAP Net Incomefrom continuingoperations / $ 39,638 $ 0.97 $ 124,860 $ 3.05 Non-GAAP dilutedEPS from continuingoperationsBasic weighted 40,229,232 40,171,458 average sharesNon-GAAP dilutedweighted average 40,973,736 40,931,423 shares outstanding

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, its outlook for the remainder of fiscal 2021 and its growth expectations for fiscal 2022 and acquisition strategy. 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 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