Franchise (TAX) 9 May 212021 Q1 Earnings call transcript

Ladies and gentlemen, thank you for standing by and welcome to Franchise Group's Fiscal 2021 First Quarter Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. I would now like to hand the conference over to your host Andrew Kaminsky, Executive Vice President and Chief Administrative Officer of Franchise Group.

Thank you. you our thank call. and afternoon for conference joining Good Franchise with and Group's I'm call Kahn, CFO. Group's Franchise on the Seeton, Brian President Eric CEO; and

not could expressed Before to XXXX the These or law. results based meaning certain of by the Actual Private forward-looking securities mention in guarantees implied call getting them. revise laws. undue in Reform call forward-looking contain of differ place made provisions of the like this cautioned these on on reliance Act of Litigation update expectations on required are federal as Franchise The of may within are discussed and Investors other performance. management's are statements. Group forward-looking or this that and materially statements forward-looking from except statements. of Securities started, date I'd and statements are matters assumes those the future no current to not statements as to forward-looking obligation the

For and differ the a cause XX, News in be from and to substitute information peer results financial Form a we release include financial please periods for results limitations from and section for our actual franchisegrp.com comparative other non-GAAP ended financial regarding non-GAAP those comparing provides and Franchise information companies. year the superior considered believe in earnings assessing differ other because operating indicated uses it measures Please website Group's Events our the not detailed GAAP investors and measures that SEC. believes we among for to The these supplemental to and information see or in Non-GAAP measures. with a measures uncertainties for financial filings have between and but non-GAAP purposes. results that isolation make XXXX our other see risks companies. informational The is the to from management discussed today and measures of the company our forward-looking may could useful those focus XX-K in statements, our as investors discussion December fiscal should materially GAAP used more of business by of included at financial when reconciliation meaningful on

like I'd over Now, to Brian? the to Brian. turn call

listeners answer turning Thanks Andrew to to of the and current highlights markets briefly provide you corporate further acquisition then provide pet to over the joining financial discuss and and Group's our quarter questions. quarter, good details. recent will Eric the first brands of afternoon us. call Plus, franchise Group into happy established Supplies be Pet thank with our our first the I of our entry trends for which enhancing and operationally, update to continued in execute while businesses before Franchise on We'll to activities, and an discuss Franchise diversifying industry. In XXXX, the

brands. XX on average cost flow acquiring we that a franchisee for dealer. new the because a filed a like franchisor add to we We held value. we one of we cash potential flow rent-to-own an position typically We corporate and agreement a shareholder Buddy's, opportunities to mature to locations immediate and revenue that would available ramp are reported over At call plan franchisees. experience. generate novo to long-term more and independent last signed reduced existing flow period free add days to there to conversion documents will a an purchase an Rent-A-Center franchising of of XX awarded team Shoppe to We our our year. nine-store this facility gradual our this efforts two-year our our cash we that brands continue a allocate cash are our have incremental recently and definitive of of increase discovery uses to at new all stores of multiple combine the Corp., for agreement our that signed Group's fragmented attractive Group new franchise conversion and accelerate discretionary you disclosure Franchise recently franchise and highly for Conversions they're store additional the best de combined Aaron's that FFO capital. has conference a remains area of independents of discretionary credit that franchisee and all Year-to-date The highest Additionally, Vitamin agreements. to franchisees industry weighted many that these and Home, Tax NextPoint on The closed management Acquisition the with instead development and closed Franchise across outside Liberty particularly higher acquisition believe significantly believe definitive actions

store XXth. March value new to selectively backlog locations grooming have Essentially refranchised that XX to acquisition Our and and seven addition the change needed the Supplies' accelerate locations in since to been for they come. closing pet more able plans stores inventory been locations to franchise favorable Rowland added signed stores. teams more These on terms also were has growth Freight Franchise Plus Pet has development pet a these in purchasing American great team do cherry-picked fixtured XX with opened had to Pet his agreement XX a refranchising the targeted stations. and markets they already to came locations XXX is Chris with get and team of XX by these existing Supplies Group. because and fully all lease signage wash their already

XXX stores. generating from comp first stores quarter. restrictions. than all sales that of part to March XX.X% positive been we including platforms FFO X% of PSP's of Not PSP was XXX improved As the onboarded team during comp during converted of Home with the running only successfully locations smoothly. management but of to have and locations acquired have Freight due same-store franchise COVID our as American revenue revenue these coming quarter XXXX the them American banner less they're minimal many locations first the latter to service today, Freight service has rebranded, XX were

today, source stores American ramp American As operates Freight franchise Despite X.X% to stores able furniture revenue mid-February. mattresses product forma compared the grow revenue has before opening Freight stores. new the in pro constraints enough been quarter to stores. XXXX American as Freight generated first Total to and by and we acquisition of six overall managed the in closed of steadily actually to FFO continue Freight appliances, former supply American pro includes first quarter XXX including the locations of forma that at management

the side, manufacturing disrupted last new chain quarters. as-is of trickled and has in down year's our as the few On last limits appliances disruption merchandise of supply significantly the availability appliance has become for

store comps sales to supply to positive stream overcome grew and ways States. Buddy's and X.X%, QX. Our XX.X% as-is normalizes when goods, to than squarely down is XX%, these and case is beneficiary. XX% still supply comp compared in American consisting continued comparisons that tax in And home Freight, to to will well, and a year-over-year. same-store year-over-year similar favor compared recurring of primary had Buddy's total X.X% start constraints that of sales supply big Freight franchisees categories. constraints, season And comparisons. trends to out a Freight Buddy's revenue positive health mattress EBITDA count wellness, and comp nature current potential comps is year's XXX nominal is The sales their experiencing was X% focus was are Despite last in almost levels the furnishings locations year. beneficiaries. of and Vitamin this increasing time constraints. of to on and direct-to-consumer. same-store finding for same Vitamin in-store year of count period last Due similar the American to X,XXX is down Shoppe Buddy's to Operationally, from to category and franchise and due this last Shoppe clearly the high-margin lease, the has delayed less start buying very inventory the supply United X.X% continued the in American COVID-related over revenue operate be store binge of on of inventory its include were this have primarily XX% from Buddy's its upholstery, COVID XX% down with able and management

still As merger is with for quarter. anticipated later Liberty close in NextPoint the second to the Tax, announced

while to turns of sectors bringing with will of various unit policy. that from further As us drive reminder, with PSP the Group we services various de-levering, three companies a grow additional this finance our to de-levering will near-term come opportunities like of allow maintain time. significantly still our that financial across Franchise opportunities in will to earnings established under attractive economy. allow cash significant forms believe interest leverage diversify M&A flow multiple continue brands and can and our products evaluate long-term we With nascent expectation growth over we aggregating consistent to net acquisition in These ranging larger of consumer the economics transaction economic strategy us the

avenues continue will be opportunities. at all to look We find creative and to the right

to associates the Group. of and Eric, our ultimately our Before other each Franchise for once again over like all the I'd in Eric? hard thank and supporting success dedicated turning call of their to franchisees work

Brian. you, Thank

call. references be remind Before would of many like address the this to results to forma I we'll operations, throughout pro I you items that making

and releases refer the to of adjusted acquisition of not the filings to pro to the calendar items may discuss when for Group. Comparison due reasonable. acquisition. the results period been acquired our with have and historical us extent the fiscal accounting comparable performance press will policies These by prior results timing acquired evaluate Our align available Franchise businesses their to allow to financial to companies and to forma is a

has information fully the reporting of the other to included reminder, Article time, discussed GAAP in S-X do earnings in Regulation non rules report in not amounts synergies format order measures we the part in detail anticipate will in metrics as for costs the adjusted The release. and financial with of XXXX. Franchise supplemental company EBITDA it disclosure The consistent forma non-GAAP will conform be past. reporting XX our reporting, continue acquisition in At a for not specific in the this concepts section pro are SEC to EBITDA. and with adjusted of each same As any Group

discontinued reported per a Adjusted $XX.X GAAP $XX.X expense, segments: total Supplies We associated was million. was GAAP Franchise The was net was Vitamin of Freight, $X.XX currently the Pet $X.XX million Tax now per revenue primarily loss the and with have quarter included XXXX, operation. Group which million For for and EPS and American Shoppe, net operations or The purchase deferred and quarter $XXX.X non-GAAP was from share. for financing continuing EBITDA reportable first financing share. accounting recent price report and Buddy's, Liberty by costs as interest our one-time driven activity. items four Plus loss

adjusted Vitamin And ended and the respectively. $XX.X EBITDA million $XX.X and million American and million million $XXX.X respectively. March respectively. and XX, revenue of had For million quarter Shoppe and and EBITDA PSP and for revenue $XX.X revenue million Buddy's period. had XXXX, adjusted EBITDA $X.X million $XXX.X had and $X.X EBITDA revenue $XX.X had respectively our million of of The adjusted ownership of adjusted Freight

the had approximately adjusted Supplies approximately revenue of For quarter, and full million Pet $XXX.X Plus $XX.X EBITDA million. and

capital of for from million $XX.X expenditures. consolidated as capital FRG million expenditures million For defined operating quarter, the netting cash less of cash to free was flow and activities operating cash flow $XX.X flow $XX.X

flow million. cash of Within flow is reduced our the future. to $XXX and less these million. operating conversion value FRG Freight's $XX.X pet approximately Tax million activities from capital net $XX.X for operations $XX operations had ongoing with continuing for netting spend locations and cash million with PSP's was free associated to to conversion re-branding of of activities, Home $X.X The of operating flow from $XXX,XXX locations; million amounts, attributed one-time cash million. American during included Free NextPoint. by FFO $X.X expenditures capital expenditures associated business expected in Liberty $X.X upon performance, revolver In capital million cash million debt costs of we and to Tax for quarter the closing our The to all all Liberty balance million the $XXX of undrawn debt, and continue ownership transaction conjunction period. of our term with the obligations businesses a ABL believe billion $XXX.X foreseeable be fully with with and we approximately $X.X of our We have meet sheet ended approximately liquidity of support of sufficient term

$X.XX non-GAAP EPS, for XX to and shares As of at at our our EBITDA prior to to today, are EPS $X of outstanding. billion. least average we million; $XXX $X.X using $XXX we while at increasing are billion adjusted at In maintaining least XXXX calculating from guidance of least guidance least million weighted our million from revenue guidance $X.XX approximately

any payments, want Our activity. support to stimulus for other questions. guidance open re-franchising to Thank thank for government I or you. the date. divestitures our assumptions for not their please of Liberty Operator, lenders all include does additional than shareholders acquisitions, line and

Instructions] question Larry go Solow Securities. sir. Thank from And CJS have you. Please our [Operator ahead, first we with

afternoon. Lee Hi. Good It's Larry. for actually Jagoda

each the within start, to talk those and bit Just physical do strategy, with can stores e-commerce and Amazons can can that the in little there of of and I are end Supplies? we guess I things the that your Chewys that, your Shoppe specifically And around a guess about markets? world compete Vitamin Pet you better with

what's how the actually people Pet their date, strategy. they effectively stores is neighborhood placing local happened. with that orders. to e-commerce for think the centers local that's that Well, Yes. -- specifically, And as distribution use is area Supplies To I

don't from we directly So, themselves. the ship actually centers distribution

With So Shoppe, is they'll same And buy when or that distribution delivery for have that and it's customers. is the many do pickup distribution locations essentially becomes with They fulfilled buy get very they through online e-commerce the Shoppe higher from directly two works. margin thing Vitamin And the the But faster Vitamin the Locally, can from distribution FedEx centers that fulfill in the sources for right large you can centers. stores. really deliver online store. pickup store, product use now now product as in way different. competitive cases. very in the where XXX-plus the get

So it works for everybody.

willing know M&A. pipeline you've got And soon mentioned, what's additional to acquisition. at. stuff looking we deals? did for up would just be the platform that temporarily even too think it know to would that to type Great. leverage you're Supplies that appetite then I a Is Pet you gears to you the terms shifting be at the in And your I just you of looking deal? of right go

Sure.

– think think concrete for of about turns backwards, very need three-turn I the we getting we have quickly We'd right stretch answering for I to back plan EBITDA deal. four this would threshold. to below question our very a We clearly we we turns the want will two under over we long to four with term. but didn't Plus – Pet to be three Supplies be the that all way And very in three back to quickly. did go turns turns

we companies. larger Franchise we that As or looking far deals Group looking businesses We're today with it's smaller as Most not at deals, that in working involved of but the businesses on years have many process. many may a businesses, always for the been that portfolio involved we at years. of have in we're for get currently

involved was a and typical banker. you like can just a Get in if happened at or not you" transaction date a just that it It's see that Do was started. don't you So a it transaction because the make mean work. a a "Hire doesn't certain process process.

not question. are our the larger Vitamin is transaction Group make go be that to think we we're and American could long very on Yes. a or characterize totally could them. be transact we're large. jobs is And a of Whether a is would would those and always Freight good businesses as brands So so that for Franchise small term. part working Shoppe so PSP those for sense? to be us I certainly different about Does find

you. Thank

with next go Zaffino our Please have question from Oppenheimer. We Ian ahead.

chain ability very maybe to you to and upon facing opportunity all you're Thanks. pressures the you And for that pass and that through? also inflationary Can inventory. other then on able your pass touch supply Hi, the labor, that Thank maybe your to guys. much color through? be

Sure.

nothing It's for there's and our relates to I for the really time depleting just to that's it This it labor or been last common chain. shuts all then think well businesses COVID. manufacturing So the it add new, many a as for particularly going demand for inventory, theme as because you down supply has and and sense. us again. when others makes it of takes the months And get

– we're dealing getting really to with used So it. that's

like to hours working everybody They're longer You'd because it inventory, have with is fill harder. the not to just to enough deal working to procure stores.

around it's So normally it vendors easy. right easy just not and are product. to And other the is begging way you very their just It's take now.

it's to I As similar. guess labor, it relates

would to who to people of lot a have have work would not work, got to typically that that prefer work. You've don't

you're really other overall for force has reduced And – forces with and companies you're got there. competitive been so So the labor. labor you've two competing

other of got not then market not whether work the seeing employee because We're labor got of I miss a we're you've material increases virus people and a or work the companies But anymore labor tight just the in is rates. not lot to getting that's not. or any You've and seeing wants positive. think

for not a us And really so problem this point. at it's been

these are believe Shoppe. what maybe over question, now, Pet demographic that stimulus, I and delivery lot were And Buddy's American as line the seeing they actually help wanted on of ask do to that a Okay. – imagine you supply employees have should of I the enjoying as you as on their lot a Freight. looking is in-house. to you chain a of extend the Supplies far to and same And are which kind follow-up Vitamin But top I that

you might synergies. talk of can you've you us Vitamin some and Pet share mentioned over over walk how things that the you So knowledge you're – Shoppe? I and through learned maybe maybe Thanks. know to going But Supplies not about at

business. the I just Supplies, Pet customers, apply at that think don't of from I'd say just certainly learn can I – as what any other have it a the we franchisees way they're get can not one Supplies mean business the and really pros. to we've I helps that think get run as service the instead particular to Plus it's model a the only they that that their helps distribution faster. not But real Sure. overall advantage but e-commerce business, And a product we take it we learned helps or distribution from several businesses Pet the strategies what only

– how to apply everybody. we of system be So elsewhere in road, really may may benefit distribution future the because run a that to good we transaction other of one for businesses we the that example and down that learnings of is more own the just attractive able may find it. becomes far We this a can of apply

good But definitely Supplies this and So wouldn't Shoppe a say or that it's relationship. I a example. Vitamin issue Pet is Plus

I think in our it businesses. can all of be used

pretty right. All That’s impressive.

So much listening. you very thank for

you. Thank

question next Susan Our from with Anderson comes Riley. B.

give could Good evening. quarter. there? maybe I Shoppe and was bit more if the for Hi. at job on you little at expectations of on color a rest with franchising the the your Vitamin Nice where wondering, you're Freight locations year the and American

Sure.

quarter programs. franchise stores. There's interest. interest all launched right the in just interest in American a seven-store about development deals It's in those stores. opening development interest those Freight doing has on signing signed a So, refranchising is -- there's this of when we really They're refranchising hand agreements. ton agreement. getting There's

so the I'd year a a about significant needs Very want there's know I finished in to schedule certainly, quote have meet-the-team bit on say a as Franchise And at franchising gains sell just They Shoppe, that they'll territories. there refranchising management actually FDD. team quickly. to that I franchise Freight. see they're Vitamin catch think year Vitamin effort And very American efforts we'll the some -- on, their day-to-day. At to lot behind up of on. team franchising they have you'll the the expect or And goes and but say, little later, overall, to impressive. by Shoppe more that me goes expect as

EBITDA Freight up And then, about Vitamin Buddy's and of quarter, was if quarter Great. the by looks could performance the maybe are margin of were thinking year-over-year And rest the bit. think you it talk in margins in I down the year? Shoppe the about then and you segment, those a American but the drivers how like second

do Sure. you Eric, Do take me to want you take want to that? that?

a profile generally I expect If it'd by going business the look margin and continues at rest lift the in be lighter with the in Yes. year, traditionally second quarter the Year's additional think the year that quarter through to steady benefited making not from we PSP do related half think look to the as there pretty margin normally because it be their the business consistent expect and you've within from I'd American year, to anticipating just if year Yes, in Freight, in same of from -- a the be we is relatively health if COVID. just and trends expect And a stimulus stimulus softer are overall, back spot. certainly anything of bit Shoppe, one call wellness. we're first they're little their New the QX. seeing to resolution year, I we're starting Vitamin half them we the strongest at the I not may the full be then margin over profile. profile. little the around perspective. to Again, In it margin of within you Buddy's aspect got I bit them that as positive over

so very Thanks That’s helpful. Great. much.

Instructions] Thank Baker question you. Davidson. with from [Operator have next our D.A. We Mike

A guys. questions, if can. Thanks, Okay. modeling boring couple I of

confusion or these results to how of you difficulty characterize quarters maybe consensus. segments the around each in Because just minutiae I modeling into your there's confirm your relative to So results, your some plan? some think would

could you your by internal segment plans the versus just characterize results if So, please?

a scattered. we I Yes. that it's noticed bit think Mike,

the have we quarter. don't We actually and externally by -- forecast not businesses

franchising group, we to as want firm are where we business want understand everybody believers well. else as -- we that look We that -- at a and the

not be quarterly Liberty seasonality to bogged able how to I removal where get that the -- numbers. yet. Everybody because said, with understand businesses. to sold be haven't trying some with you That the with help is but we'll used created confusion you what about Liberty in we has should Liberty, thinking there. we're the Liberty not the down is So, of

first would So as typically be. it the the revenue isn't quarter, as lopsided to

we're we we a think because help, can I But quarterly with just going year-over-year of overall but the not to well. year. very not comparisons out it's into complicated. going So, go forecasts too -- are coming where it's normal Especially COVID, just it's obviously things are

guess, No, the asking -- Right. for two I One, appreciate But what just so guess is happened. that. I'm that what I follow-ups. I more I'm quarter

So this is not...

Yes.

how those results versus guidance plan? your internal Forecasting would just you characterize

Okay. That's yes. --

for That's because, raised the fair plays the quarter. look, guidance year. plan. exceeded were end how the We our quarter We'll guidance. out this So rest raised question. on next at exceeded see of readdress a We we our not our and opining of the plan, the the first year quarter

Right.

maybe pro a then forma us maybe to the question, have so don't there follow-up that relevant and in history -- usually we think know… this in seasonality look the of anything to concept, quarter? should terms And if not Understood. because but for we annual second hard Okay. your characterize of this fair as it's is to does How you'd of

No, that's fine.

all almost for think I strongest, seasonally is our businesses. quarter of First

buying refunds quite stores coming So our a our consumer bit Eric only would make understand be first Year's previously from the getting certainly the bit But seasonality. businesses PSP Does is Liberty not I American Buddy's. question. and due always have quite strongest kind into as benefit products. sense? but Freight That quarter their businesses a tax mentioned other and of remember the Vitamin -- resolutions. benefits seasonality New the and your doesn't to that Shoppe And that business

will That us. help Yeah.

you do by other guess the to American business, And in comps or do the XX% other impacted you I chain you at that other much yeah, revenues. were properly supply to So, have your I did in business, words the quarter? had make if that that how the what In down get what of think been expectations for quarter. second stock for that questions. was fully XX% XX%? One -- said down? XX% I'm was are been follow-ups, appliance right think think in Freight that reduction set large the I as-is I American you think Two just on so Is sure down trying And part say a is if comps in could Freight you issue? could

hard know. can Yeah. what know. some don't you been Well, otherwise I'm would it's I but give facts the Yes. they to of conclusion I drawing have And

would apples-to-apples on So those an -- down comparison all been a for on comps those have XX% of reasons.

great If we at to you in. out But be just a -- in revenue not and chain is category want supply category the -- the is that -- with us, tight quarter as-is just a actual the this for is look look appliances. it turns as-is appliances

think to it's don't category want category other well. a but it's a people be dominate because anyway as can just in we I very business that high-margin that

$XXX $XXX $XX revenue -- American year and appliances. attribution million million at this our million revenue you last Freight call it of from as-is million million appliances. look $XXX.X if So This was of last that it the or minus of as-is and from guess year, year I revenue plus came XX% came $XX for

from inventory. little $XX went as-is less now. So million of bit. million revenue million And this to year We time $XX a $XX appliances last it's not just inventory because of of

that a available. back it's returning road margin now get inventory trickle as we're benefit at and much relative we'll than come has will to less rapidly But higher we'll as more manufacturing new-in-the-box back far down And online just so that there's get but again us appliances down So well. the that benefit.

illuminates the savings talk I'm one you that that. Could quickly appreciate I on it. for time your we you'll of the but from about about What air a could. the going down -- ask when interest line more Yeah That gotten closing to the lot rate your I've expense see expense I if reduction more for pay post year? as you some as delivery think in well interest the you've debt? tax should gotten perfectly

so well, that'll $XXX close I $X.X go the you look of X%. – course we've that down got unfortunately. basis interest million the we've negative that and on a really a R got north will the of paying. we've of because proceeds that's could now, down as we what interest Liberty Tax. it's do portion that billion, on a of the -- billion of And of right daily $X.X once cash little -- rate think today But got we're daily For And where pay

it Now closed we reason, the is I March is. to had assumption interest that it for include guess forma we're our that pro It's even the transaction, pro our can talk whatever I but But numbers starting but before we we PSP. confusing had mean world, I numbers the when which was GAAP what forma XX. paying it

Okay.

the it. get you. it think I Thank time. Appreciate

Sure.

Thank I And you. the see [Operator any Instructions] would further no now turn remarks. over Brian like questions queue. for Kahn in I further to to call

Great. joining you And the conclude afternoon. call. this Well, us operator again please thank for you can all

we ladies and our Thank thank gentlemen. your you concludes conference for you sir. And This thank participation. you, call, and

You may disconnect. now