GlobeNewswire Inc | Nov 4, 2020 04:05PM EST

November 04, 2020

Raises full year guidance

ORLANDO, Fla., Nov. 04, 2020 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (Franchise Group or the Company) today announced the results of its third quarter ended September 26, 2020. For the third quarter of 2020, total reported revenue for Franchise Group was $551 million, GAAP Net Loss was $8.6 million or $0.22 per share, Adjusted EBITDA was $50 million and Supplemental Information encompassing cost synergies and acquisition impacts was $1.2 million. Total cash was $179.9 million and outstanding debt at the end of the third quarter of 2020 was $628.7 million.

Brian Kahn, Franchise Groups President and CEO stated, Our businesses continued to perform well in the third quarter, which included further benefit from the sustained shift in consumer spending and the focus on health and wellness. Once again, our businesses and their teams have delivered robust financial results despite challenging circumstances. We believe that our performance as evidenced by strong comparable same store sales, as well as cash flow generation, continues to demonstrate the economic resilience of our business model. Comparable same store sales grew 15% at American Freight, approximately 14.7% for Buddys and approximately 8.6% for The Vitamin Shoppe. We continue to generate a high level of discretionary cash flow which enabled us to further reduce our outstanding debt by $111.9 million this quarter, including retiring the balance of our $70 million Vitamin Shoppe term loan while paying another quarterly dividend of $0.25 per share to our common stockholders.

The Company has four reportable segments: American Freight; The Vitamin Shoppe; Liberty Tax and Buddys. The following table summarizes Revenue, Net Loss, Adjusted EBITDA and Supplemental Information by these segments. A reconciliation of Adjusted EBITDA to the most comparable GAAP measure is included below under Non-GAAP Financial Measures and Key Metrics.

For the Three Months Ended September 26, 2020 Adjusted Supplemental Net Revenue EBITDA Information Income/(Loss) (In thousands)American Freight $ 245,212 $ 24,625 $ 42 $ 1,141 Vitamin Shoppe 266,965 21,364 1,111 (2,597 )Liberty Tax 13,300 (1,400 ) - (5,549 )Buddy's 25,515 6,778 - 1,845 Corporate - (1,337 ) - (3,437 )Total $ 550,992 $ 50,030 $ 1,153 $ (8,597 )

Outlook(1)For fiscal 2020, the Company is maintaining its prior guidance of $2.10 - $2.15 billion of revenue, Adjusted EBITDA to exceed $232 million and Supplemental Information encompassing cost synergies and acquisition impacts of $28 million.

(1)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 November 4th at 4:30 P.M. ET to discuss its business, review financial results for the third quarter of 2020 and provide an update on its outlook for the rest of 2020. 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 7849566. Please dial in 5-10 minutes prior to the scheduled start time.

About Franchise Group, Inc.Franchise Group is an 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 Liberty Tax Service, Buddys Home Furnishings, American Freight and The Vitamin Shoppe. On a combined basis, Franchise Group currently operates over 4,000 locations predominantly located in the U.S. and Canada that are either Company-run or operated pursuant to franchising agreements.

FRANCHISE GROUP,INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except share count and September 26, December 28, per share data) 2020 2019Assets (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 179,932 $ 39,581 Current receivables, net 84,277 79,693 Inventories, net 319,545 300,312 Other current assets 22,845 20,267 Total current assets 606,599 439,853 Property, equipment, and software, net 143,512 150,147 Non-current receivables, net 16,095 18,638 Goodwill 469,788 134,301 Intangible assets, net 145,478 77,590 Operating lease right-of-use assets 516,398 462,610 Other non-current assets 14,634 15,406 Total assets $ 1,912,504 $ 1,298,545 Liabilities and Stockholders Equity Current liabilities: Current installments of long-term $ 112,374 $ 218,384 obligationsCurrent operating lease liabilities 131,685 107,680 Accounts payable and accrued expenses 257,387 158,995 Other current liabilities 36,461 16,409 Total current liabilities 537,907 501,468 Long-term obligations, excluding 516,353 245,236 current installmentsNon-current operating lease 412,613 394,307 liabilitiesOther non-current liabilities 37,099 5,773 Total liabilities 1,503,972 1,146,784 Stockholders equity: Common stock, $0.01 par value pershare, 180,000,000 and 180,000,000shares authorized, 40,056,665 and 401 183 18,250,225 shares issued andoutstanding at September26, 2020 andDecember 28, 2019, respectivelyPreferred stock, $0.01 par value pershare, 20,000,000 and 20,000,000shares authorized, 1,200,000 and 12 19 1,886,667 shares issued andoutstanding at September 26, 2020 andDecember 28, 2019, respectivelyAdditional paid-in capital 386,030 108,339 Accumulated other comprehensive loss, (1,838 ) (1,538 ) net of taxesRetained earnings 23,927 18,388 Total equity attributable to Franchise 408,532 125,391 Group, Inc.Non-controlling interest - 26,370 Total equity 408,532 151,761 Total liabilities and equity $ 1,912,504 $ 1,298,545





FRANCHISE GROUP,INC. AND SUBSIDIARIESCondensed Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended(In thousands,except share September 26, September 30, September 26, September 30,count and per 2020 2019 2020 2019share data)Revenues: Product $ 500,462 $ 557 $ 1,440,677 $ 557 Service and 33,126 10,284 164,508 129,942 otherRental 17,404 8,079 51,000 8,079 Total revenues 550,992 18,920 1,656,185 138,578 Operating expenses:Cost of revenue: Product 296,920 438 862,320 438 Service and 678 - 2,135 - otherRental 5,877 3,048 17,327 3,048 Total cost of 303,475 3,486 881,782 3,486 revenueSelling,general, and 228,194 40,481 697,670 110,928 administrativeexpensesTotal operating 531,669 43,967 1,579,452 114,414 expensesIncome (loss) 19,323 (25,047 ) 76,733 24,164 from operationsOther expense: Other (1,229 ) (1 ) (5,293 ) (101 )Interest (26,264 ) (2,755 ) (83,642 ) (4,225 )expense, netIncome (loss)before income (8,170 ) (27,803 ) (12,202 ) 19,838 taxesIncome taxexpense 427 (4,339 ) (43,561 ) 10,367 (benefit)Net income (8,597 ) (23,464 ) 31,359 9,471 (loss)Less: Net(income) lossattributable to - 8,578 (2,090 ) 8,578 non-controllinginterestNet income(loss)attributable to $ (8,597 ) $ (14,886 ) $ 29,269 $ 18,049 Franchise Group,Inc. Net income(loss) per share of common stock:Basic $ (0.22 ) $ (0.93 ) $ 0.89 $ 1.23 Diluted (0.22 ) (0.93 ) 0.88 1.22 Weighted-averageshares outstanding:Basic 39,692,384 15,997,041 32,679,576 14,712,297 Diluted 39,692,384 15,997,041 32,961,905 14,770,973





FRANCHISE GROUP,INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended (In thousands) September 26, September 30, 2020 2019Operating Activities Net income $ 31,359 $ 9,471 Adjustments to reconcile net income tonet cash provided by operating activities:Provision for doubtful accounts 3,412 6,401 Depreciation, amortization and 51,254 12,239 impairment chargesAmortization of deferred financing costs 28,703 1,013 Loss on disposal of fixed assets 75 703 Stock-based compensation expense 6,294 1,339 Gain on bargain purchases and sales of (1,761 ) (438 ) Company-owned officesDeferred income taxes 7,851 706 Change in Accounts, notes, and interest receivable (2,223 ) 10,054 Income taxes receivable (23,721 ) 8,977 Other assets 3,971 (1,076 ) Accounts payable and accrued expenses 38,884 7,693 Inventory 79,967 579 Deferred revenue 5,649 (3,394 ) Net cash provided by operating 229,714 54,267 activitiesInvesting Activities Issuance of operating loans to (30,368 ) (51,484 ) franchisees and area developersPayments received on operating loans to 50,064 66,303 franchisees and area developersPurchases of Company-owned offices, areadeveloper rights, and acquired customer (4,830 ) (2,232 ) listsProceeds from sale of Company-owned 1,118 22 offices and area developer rightsAcquisition of business, net of cash (353,423 ) (26,443 ) acquiredProceeds from sale of property, 1,474 equipment, and softwarePurchases of property, equipment, and (26,702 ) (1,183 ) softwareNet cash used in investing activities (362,667 ) (15,017 ) Financing Activities Proceeds from the exercise of stock 520 1,214 optionsDividends paid (19,167 ) - Non-controlling interest distribution (4,716 ) - Repayment of other long-term obligations (455,811 ) (16,213 ) Borrowings under revolving credit 174,665 121,874 facilityRepayments under revolving credit (218,260 ) (186,099 ) facilityIssuance of common stock 198,003 25,000 Issuance of preferred stock 28,366 Payment for debt issue costs (16,673 ) (4,382 ) Issuance of debt 586,000 105,000 Cash paid for taxes on exercises/vesting (85 ) (20 ) of stock-based compensationNet cash provided by financing 272,842 46,374 activitiesEffect of exchange rate changes on cash, (142 ) 111 netNet increase (decrease) in cash 139,747 85,735 equivalents and restricted cashCash, cash equivalents and restricted 45,146 3,981 cash at beginning of periodCash, cash equivalents and restricted $ 184,893 $ 89,716 cash at end of periodSupplemental Cash Flow Disclosure Cash paid for taxes, net of refunds $ 944 $ 84 Cash paid for interest $ 41,226 $ 1,484 Accrued capital expenditures $ 3,633 $ 478 Deferred financing costs from issuance $ 31,013 $ - of common stockTax receivable agreement included in $ 17,156 $ - 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 in the 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 managements estimate of net income to estimated Adjusted EBITDA for the three months ended September 26, 2020.

For the Three Months Ended September 26, 2020(In Buddy's Liberty American Vitamin Corporate Totalthousands) Freight ShoppeNet income $ 1,845 $ (5,549 ) $ 1,141 $ (2,597 ) $ (3,437 ) $ (8,597 )(loss)Add back: - Interest 3,400 (6 ) 18,486 4,571 (187 ) 26,264 expenseIncome taxexpense - 214 - - 213 427 (benefit)Depreciationand 1,406 2,775 1,806 11,475 17,462 amortizationchargesTotal 4,806 2,983 20,292 16,046 26 44,153 AdjustmentsEBITDA 6,651 (2,566 ) 21,433 13,449 (3,411 ) 35,556 Adjustments to EBITDAExecutiveseverance - 602 62 - - 664 and relatedcostsStock based 70 132 - - 1,754 1,956 compensationShareholderlitigation - - - - 219 219 costsCorporatecompliance - 117 416 - - 533 costsPrepaymentpenalty on 57 - 314 875 - 1,246 early debtrepaymentAccruedjudgments - 315 19 - - 334 andsettlementsStore - - - 203 - 203 closuresRebranding 1,286 - 1,286 costsAcquisition - - 686 286 101 1,073 costsInventoryfair value - - 409 6,551 6,960 step upamortizationTotalAdjustments 127 1,166 3,192 7,915 2,074 14,474 to EBITDAAdjusted $ 6,778 $ (1,400 ) $ 24,625 $ 21,364 $ (1,337 ) $ 50,030 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 January 1, 2020. The majority of the cost synergies or dis-synergies have been realized or expected to be realized by the end of 2020. 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 September 26, 2020(In thousands) Buddy's Liberty American Vitamin Corporate Total Freight ShoppeEstimated realized and unrealized cost $ - $ - $ $ $ $ savings 42 - 630 587 Other acquisition-related compensation - - costs 524 - - 524 $ - $ - $ $ $ $ - 1,153 1,111 42



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, performance during the COVID-19 pandemic, and its strategy and outlook for the remainder of fiscal 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 Managements Discussion and Analysis of Financial Condition and Results of Operations sections of the Companys Transition Report on Form 10-K/T for the transition period ended December 28, 2019, 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 ContactAndrew F. KaminskyEVP & Chief Administrative OfficerFranchise Group, Inc.akaminsky@franchisegrp.com(914) 939-5161