SEC Filing | Franchise Group, Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 26, 2020

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-35588

Franchise Group, Inc.

(Exact name of registrant as specified in its charter)



Delaware		27-3561876
(State of incorporation)		(IRS employer identification no.)

2387 Liberty Way

Virginia Beach, Virginia 23456

(Address of principal executive offices)

(757) 493-8855

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $.01 per share	FRG	NASDAQ Global Market
7.50% Series A Cumulative Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share	FRGAP	NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant's common stock, par value $0.01 value per share, as of November 2, 2020 was 40,087,792 shares.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Form 10-Q for the Quarterly Period Ended September 26, 2020

Table of Contents



		Page
		Number

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of September 26, 2020 and December 28, 2019	2
	Condensed Consolidated Statements of Operations for the three and nine months ended September 26, 2020 and September 30, 2019	3
	Condensed Consolidated Statements of Comprehensive Operations for the three and nine months ended September 26, 2020 and September 30, 2019	4
	Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 26, 2020 and September 30, 2019	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 26, 2020 and September 30, 2019	7
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	52

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62
Signatures		65

PART I. FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS (UNAUDITED)

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets



(In thousands, except share count and per share data)	September 26, 2020			December 28, 2019
Assets	(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 obligations	$	112,374		$	218,384
Current 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 current installments	516,353			245,236
Non-current operating lease liabilities	412,613			394,307
Other non-current liabilities	37,099			5,773
Total liabilities	1,503,972			1,146,784

Stockholders' equity:
Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 40,056,665 and 18,250,225 shares issued and outstanding at September 26, 2020 and December 28, 2019, respectively	401			183
Preferred Stock, $0.01 par value per share, 20,000,000 and 20,000,000 shares authorized, 1,200,000 and 1,886,667 shares issued and outstanding at September 26, 2020 and December 28, 2019, respectively	12			19
Additional paid-in capital	386,030			108,339
Accumulated other comprehensive loss, net of taxes	(1,838		)	(1,538		)
Retained earnings	23,927			18,388
Total equity attributable to Franchise Group, Inc.	408,532			125,391
Non-controlling interest	—			26,370
Total equity	408,532			151,761
Total liabilities and equity	$	1,912,504		$	1,298,545

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)



	Three Months Ended						Nine Months Ended
(In thousands, except share count and per share data)	September 26, 2020			September 30, 2019			September 26, 2020			September 30, 2019
Revenues:
Product	$	500,462		$	557		$	1,440,677		$	557
Service and other	33,126			10,284			164,508			129,942
Rental	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 other	678			—			2,135			—
Rental	5,877			3,048			17,327			3,048
Total cost of revenue	303,475			3,486			881,782			3,486
Selling, general, and administrative expenses	228,194			40,481			697,670			110,928
Total operating expenses	531,669			43,967			1,579,452			114,414
Income (loss) from operations	19,323			(25,047		)	76,733			24,164
Other expense:
Other	(1,229		)	(1		)	(5,293		)	(101		)
Interest expense, net	(26,264		)	(2,755		)	(83,642		)	(4,225		)
Income (loss) before income taxes	(8,170		)	(27,803		)	(12,202		)	19,838
Income tax expense (benefit)	427			(4,339		)	(43,561		)	10,367
Net income (loss)	(8,597		)	(23,464		)	31,359			9,471
Less: Net (income) loss attributable to non-controlling interest	—			8,578			(2,090		)	8,578
Net income (loss) attributable to Franchise Group, Inc.	$	(8,597	)	$	(14,886	)	$	29,269		$	18,049

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-average shares 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

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)



	Three Months Ended						Nine Months Ended
(In thousands)	September 26, 2020			September 30, 2019			September 26, 2020			September 30, 2019
Net income (loss)	$	(8,597	)	$	(23,464	)	$	31,359		$	9,471
Other comprehensive income (loss)
Unrealized loss on interest rate swap agreement, net of taxes of $2, $(8), $(29) and $(29), respectively	(39		)	(21		)	(119		)	(75		)
Foreign currency translation adjustment	303			41			(188		)	382
Forward contracts related to foreign currency exchange rates	1			—			7			—
Other comprehensive income (loss)	265			20			(300		)	307
Comprehensive income (loss)	(8,332		)	(23,444		)	31,059			9,778
Less: comprehensive (income) loss attributable to non-controlling interest	—			8,569			(1,915		)	8,569
Comprehensive income (loss) attributable to Franchise Group, Inc.	$	(8,332	)	$	(14,875	)	$	29,144		$	18,347

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)



	Three Months Ended September 26, 2020
(In thousands)	Common stock shares	Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital		Accumulated other comprehensive loss			Retained earnings			Total Franchise Group equity			Non-controlling interest		Total equity
Balance at June 28, 2020	35,186	$	352	—	$	—	$	249,525	$	(2,103	)	$	42,935		$	290,709		$	—	$	290,709
Net loss	—	—		—	—		—		—			(8,597		)	(8,597		)	—		(8,597		)
Total other comprehensive income	—	—		—	—		—		265			—			265			—		265
Exercise of stock options	28	1		—	—		333		—			—			334			—		334
Stock-based compensation expense, net	13	—		—	—		1,945		—			—			1,945			—		1,945
Issuance of common stock	4,830	48		—	—		105,873		—			—			105,921			—		105,921
Issuance of Series A Preferred Stock	—	—		1,200	12		28,354		—			—			28,366			—		28,366
Common dividend declared ($0.25 per share)	—	—		—	—		—		—			(10,242		)	(10,242		)	—		(10,242		)
Preferred dividend declared ($0.14 per share)	—	—		—	—		—		—			(169		)	(169		)	—		(169		)
Balance at September 26, 2020	40,057	$	401	1,200	$	12	$	386,030	$	(1,838	)	$	23,927		$	408,532		$	—	$	408,532



	Nine Months Ended September 26, 2020
(In thousands)	Common stock shares	Common stock		Preferred stock shares		Preferred stock			Additional paid-in-capital			Accumulated other comprehensive loss			Retained earnings			Total Franchise Group equity			Non-controlling interest			Total equity
Balance at December 29, 2019	18,250	$	183	1,887		$	19		$	108,339		$	(1,538	)	$	18,388		$	125,391		$	26,370		$	151,761
Changes and distributions of non-controlling interest in New Holdco	—	—		—		—			23,744			(175		)	—			23,569			(25,927		)	(2,358		)
Net income	—	—		—		—			—			—			29,269			29,269			2,090			31,359
Total other comprehensive loss	—	—		—		—			—			(125		)	—			(125		)	(175		)	(300		)
Exercise of stock options	50	1		—		—			520			—			—			521			—			521
Stock-based compensation expense, net	31	—		—		—			6,209			—			—			6,209			—			6,209
Issuance of common stock	12,292	123		—		—			228,892			—			—			229,015			—			229,015
Issuance of Series A Preferred Stock	—	—		1,200		12			28,354			—			—			28,366			—			28,366
Conversion of preferred to common stock	9,434	94		(1,887	)	(19		)	(10,028		)	—			—			(9,953		)	—			(9,953		)
Common dividend declared ($0.25 per share)	—	—		—		—			—			—			(25,919		)	(25,919		)	—			(25,919		)
Preferred dividend declared ($0.14 per share)	—	—		—		—			—			—			(169		)	(169		)	—			(169		)
Adjustment	—	—		—		—			—			—			2,358			2,358			(2,358		)	—
Balance at September 26, 2020	40,057	$	401	1,200		$	12		$	386,030		$	(1,838	)	$	23,927		$	408,532		$	—		$	408,532

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)



	Three Months Ended September 30, 2019
(In thousands)	Common stock shares	Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital			Accumulated other comprehensive loss			Retained earnings			Total Franchise Group equity			Non-controlling interest			Total equity
Balance at July 1, 2019	14,100	$	141	—	$	—	$	13,183		$	(1,732	)	$	85,290		$	96,882		$	—		$	96,882
Cumulative effect of adopted accounting standards, net	—	—		—	—		—			—			—			—			—			—
Changes and distributions of non-controlling interest in New Holdco LLC	—	—		—	—		(64,142		)	—			—			(64,142		)	64,142			—
Net loss	—	—		—	—		—			—			(14,886		)	(14,886		)	(8,578		)	(23,464		)
Buddy's Acquisition - issuance of Preferred Stock and New Holdco LLC units	—	—		1,617	16		96,984			—			—			97,000			—			97,000
Buddy's Partners Asset Acquisition - issuance of Preferred Stock and New Holdco LLC units	—	—		270	3		16,197			—			—			16,200			—			16,200
Total other comprehensive income	—	—		—	—		—			11			—			11			9			20
Exercise of stock options	100	1		—	—		1,060			—			—			1,061			—			1,061
Stock-based compensation, net	—	—		—	—		292			—			—			292			—			292
Issuance of common stock	2,083	21		—	—		24,979			—			—			25,000			—			25,000
Balance at September 30, 2019	16,283	$	163	1,887	$	19	$	88,553		$	(1,721	)	$	70,404		$	157,418		$	55,573		$	212,991



	Nine Months Ended September 30, 2019
(In thousands)	Common stock shares		Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital			Accumulated other comprehensive loss			Retained earnings		Total Franchise Group equity			Non-controlling interest			Total equity
Balance at January 1, 2019	14,044		$	140	—	$	—	$	12,091		$	(2,019	)	$	52,029	$	62,241		$	—		$	62,241
Cumulative effect of adopted accounting standards, net	—		—		—	—		—			—			322		322			—			322
Changes and distributions of non-controlling interest in New Holdco LLC	—		—		—	—		(64,142		)	—			—		(64,142		)	64,142			—
Net income	—		—		—	—		—			—			18,049		18,049			(8,578		)	9,471
Buddy's Acquisition - issuance of Preferred Stock and New Holdco LLC units	—		—		1,617	16		96,984			—			—		97,000			—			97,000
Buddy's Partners Asset Acquisition - issuance of Preferred Stock and New Holdco LLC units	—		—		270	3		16,197			—			—		16,200			—			16,200
Total other comprehensive income	—		—		—	—		—			298			—		298			9			307
Cancellation of common stock	(9	)	—		—	—		(88		)	—			—		(88		)	—			(88		)
Exercise of stock options	114		1		—	—		1,213			—			—		1,214			—			1,214
Stock-based compensation, net	51		1		—	—		1,319			—			—		1,320			—			1,320
Issuance of common stock	2,083		21		—	—		24,979			—			—		25,000			—			25,000
RSU dividend accrual	—		—		—