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 ~~25, 2021~~24, 2022

☐ 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.)

109 Innovation Court, Suite J

Delaware, Ohio 43015

(Address of principal executive offices)

(740) 363-2222

(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~~$0.01 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 October ~~29, 2021~~31, 2022 was ~~40,295,469~~38,205,831 shares.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Form 10-Q for the Quarterly Period Ended September ~~25, 2021~~24, 2022

Table of Contents


		Page
		Number

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated ~~Balance Sheets as~~Statements of ~~September~~ 2 5 ~~, 2021 and December 26, 2020~~Operations	2
	Condensed Consolidated Statements of ~~Operations for the three and~~ ~~nine~~ ~~months ended~~ ~~September~~ 2 5 ~~, 2021 and~~ ~~September~~ 2 6 ~~, 2020~~Comprehensive Income (Loss)	3
	Condensed Consolidated ~~Statements of Comprehensive Operations for the three and~~ ~~nine~~ ~~months ended~~ ~~September~~ 2 5 ~~, 2021 and~~ ~~September~~ 2 6 ~~, 2020~~Balance Sheets	4
	Condensed Consolidated Statements of Stockholders' Equity ~~for the three and~~ ni ne ~~months ended~~ ~~September~~ 2 5 ~~, 2021 and~~ ~~September~~ 2 6 ~~, 2020~~	5
	Condensed Consolidated Statements of Cash Flows ~~for the~~ ni ne ~~months ended~~ ~~September~~ 2 5 ~~, 2021 and~~ ~~September~~ 2 6 ~~, 2020~~	7
	Notes to Unaudited Condensed Consolidated Financial Statements	98
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2726
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3736
Item 4.	Controls and Procedures	3736

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	3837
Item 1A.	Risk Factors	3837
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3837
Item 3.	Defaults Upon Senior Securities	3837
Item 4.	Mine Safety Disclosures	3837
Item 5.	Other Information	3837
Item 6.	Exhibits	3938
Signatures		42

PART I. FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS (UNAUDITED)

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated ~~Balance Sheets~~Statements of Operations (Unaudited)

(In thousands, except share count and per share data) September 25, 2021 December 26, 2020
Assets (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 obligations $ 1,420 $ 104,053
Current 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 installments 1,072,909 466,944
Non-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 shares authorized, 40,237,297 and 40,092,260 shares issued and outstanding at September 25, 2021 and December 26, 2020, respectively 402 401
Preferred 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 outstanding at September 25, 2021 and December 26, 2020, respectively 45 13
Additional paid-in capital 471,405 382,383
Accumulated other comprehensive loss, net of taxes — (1,399)
Retained earnings 167,630 3,769
Total equity attributable to Franchise Group, Inc. 639,482 385,167
Non-controlling interest — —
Total equity 639,482 385,167
Total liabilities and equity $ 2,831,584 $ 1,847,912


	Three Months Ended				Nine Months Ended
(In thousands, except share count and per share data)	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Revenues:
Product	$	922,887	$	782,608	$	2,854,060	$	2,172,193
Service and other	121,738		37,891		405,666		114,659
Rental	6,851		8,327		22,217		26,077
Total revenues	1,051,476		828,826		3,281,943		2,312,929
Operating expenses:
Cost of revenue:
Product	604,969		485,682		1,822,334		1,347,673
Service and other	8,878		8,737		26,273		10,076
Rental	2,637		2,930		8,239		8,869
Total cost of revenue	616,484		497,349		1,856,846		1,366,618
Selling, general, and administrative expenses	390,999		276,714		1,173,633		780,416
Goodwill impairment	70,000		—		70,000		—
Total operating expenses	1,077,483		774,063		3,100,479		2,147,034
Income (loss) from operations	(26,007)		54,763		181,464		165,895
Other expense:
Bargain purchase gain	—		—		3,514		—
Gain on sale-leaseback transactions, net	9,371		—		59,225		—
Other, net	(11,278)		(13,090)		(20,400)		(49,816)
Interest expense, net	(61,236)		(21,194)		(242,402)		(91,494)
Income (loss) from continuing operations before income taxes	(89,150)		20,479		(18,599)		24,585
Income tax expense (benefit)	32,013		(15,519)		49,263		(15,600)
Income (loss) from continuing operations	(121,163)		35,998		(67,862)		40,185
Income from discontinued operations, net of tax	—		128,072		—		176,434
Net income (loss) attributable to Franchise Group, Inc.	$	(121,163)	$	164,070	$	(67,862)	$	216,619

Income (loss) per share from continuing operations:
Basic	$	(3.09)	$	0.84	$	(1.85)	$	0.84
Diluted	(3.09)		0.83		(1.85)		0.83

Net income per share:
Basic	$	(3.09)	$	4.02	$	(1.85)	$	5.23
Diluted	(3.09)		3.96		(1.85)		5.14

Weighted-average shares outstanding:
Basic	39,941,287		40,229,232		40,201,666		40,171,458
Diluted	39,941,287		40,973,736		40,201,666		40,931,423

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

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

Three Months Ended Nine Months Ended
(In thousands, except share count and per share data) September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020
Revenues:
Product $ 782,608 $ 500,462 $ 2,172,193 $ 1,440,677
Service and other 37,891 19,826 114,659 46,516
Rental 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 other 8,737 678 10,076 2,135
   Rental 2,930 5,877 8,869 17,327
Total cost of revenue 497,349 303,475 1,366,618 881,782
Selling, general, and administrative expenses 276,714 209,537 780,416 619,799
Total operating expenses 774,063 513,012 2,147,034 1,501,581
Income from operations 54,763 24,680 165,895 36,612
Other expense:
Other (13,090) (1,246) (49,816) (5,295)
Interest expense, net (21,194) (26,269) (91,494) (78,658)
Income (loss) from continuing operations before income taxes 20,479 (2,835) 24,585 (47,341)
Income tax expense (benefit) (15,519) 1,891 (15,600) (50,217)
Income (loss) from continuing operations 35,998 (4,726) 40,185 2,876
Income (loss) from discontinued operations, net of tax 128,072 (3,871) 176,434 28,483
Net income (loss) 164,070 (8,597) 216,619 31,359
Less: Net (income) attributable to non-controlling interest — — — (2,090)
Net income (loss) attributable to Franchise Group, Inc. $ 164,070 $ (8,597) $ 216,619 $ 29,269
Amounts attributable to Franchise Group, Inc.:
Net income (loss) from continuing operations $ 35,998 $ (4,726) $ 40,185 $ (11,005)
Net income (loss) from discontinued operations 128,072 (3,871) 176,434 40,274
Net income attributable to Franchise Group, Inc. $ 164,070 $ (8,597) $ 216,619 $ 29,269
Basic earnings (loss) per share:
Continuing operations $ 0.84 $ (0.12) $ 0.84 $ (0.34)
Discontinued operations 3.18 (0.10) 4.39 1.23
Total basic earnings per share $ 4.02 $ (0.22) $ 5.23 $ 0.89
Diluted earnings (loss) per share:
Continuing operations $ 0.83 $ (0.12) $ 0.83 $ (0.34)
Discontinued operations 3.13 (0.10) 4.31 1.23
Total diluted earnings per share $ 3.96 $ (0.22) $ 5.14 $ 0.89
Weighted-average shares 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


	Three Months Ended				Nine Months Ended
(In thousands)	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Net income (loss)	$	(121,163)	$	164,070	$	(67,862)	$	216,619
Other comprehensive income (loss)
Unrealized (gain) loss on interest rate swap agreement, net of taxes of $0, $0, $0, and $13, respectively	—		—		—		45
Foreign currency translation adjustment	—		—		—		381
Forward contracts related to foreign currency exchange rates	—		—		—		—
Reclassification of unrealized loss on interest rate swap agreement and foreign currency translation adjustments realized upon disposal of business	—		973		—		973
Other comprehensive income	—		973		—		1,399
Comprehensive income (loss)	$	(121,163)	$	165,043	$	(67,862)	$	218,018

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated ~~Statements of Comprehensive Income (Loss)~~Balance Sheets (Unaudited)

Three Months Ended Nine Months Ended
(In thousands) September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020
Net income (loss) $ 164,070 $ (8,597) $ 216,619 $ 31,359
Other comprehensive income (loss)
Unrealized (gain) loss on interest rate swap agreement, net of taxes of $—, $2, $13, and $(29), respectively — (39) 45 (119)
Foreign currency translation adjustment — 303 381 (188)
Forward contracts related to foreign currency exchange rates — 1 — 7
Reclassification of unrealized loss on interest rate swap agreement and foreign currency translation adjustments realized upon disposal of business 973 — 973 —
Other comprehensive income (loss) 973 265 1,399 (300)
Comprehensive income (loss) 165,043 (8,332) 218,018 31,059
Less: comprehensive (income) attributable to non-controlling interest — — — (1,915)
Comprehensive income (loss) attributable to Franchise Group, Inc. $ 165,043 $ (8,332) $ 218,018 $ 29,144


(In thousands, except share count and per share data)	September 24, 2022		December 25, 2021
Assets
Current assets:
Cash and cash equivalents	$	72,931	$	292,714
Current receivables, net	143,240		118,698
Current securitized receivables, net	341,083		369,567
Inventories, net	792,055		673,170
Current assets held for sale	8,816		—
Other current assets	27,128		24,063
Total current assets	1,385,253		1,478,212
Property, plant, and equipment, net	226,980		449,886
Non-current receivables, net	10,249		11,755
Non-current securitized receivables, net	44,801		47,252
Goodwill	738,083		806,536
Intangible assets, net	119,377		127,951
Tradenames	222,703		222,687
Operating lease right-of-use assets	884,197		714,741

Investment in equity securities	13,261		35,249
Other non-current assets	21,382		18,902
Total assets	$	3,666,286	$	3,913,171
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term obligations	$	392,772	$	486,170
Current operating lease liabilities	178,622		173,101
Accounts payable and accrued expenses	401,757		410,552

Other current liabilities	37,672		50,833
Total current liabilities	1,010,823		1,120,656
Long-term obligations, excluding current installments	1,286,351		1,383,725
Non-current operating lease liabilities	719,672		557,071

Other non-current liabilities	103,683		88,888
Total liabilities	3,120,529		3,150,340

Stockholders' equity:
Common stock, $0.01 par value per share, 180,000,000 shares authorized, 38,162,700 and 40,296,688 shares issued and outstanding at September 24, 2022 and December 25, 2021, respectively	382		403
Preferred stock, $0.01 par value per share, 20,000,000 shares authorized, and 4,541,125 shares issued and outstanding at September 24, 2022 and December 25, 2021, respectively	45		45
Additional paid-in capital	410,914		475,396
Retained earnings	134,416		286,987
Total equity	545,757		762,831
Total liabilities and equity	$	3,666,286	$	3,913,171

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

Three Months Ended September 25, 2021
(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
Balance at June 26, 2021 40,208 $ 402 4,541 $ 45 $ 467,351 $ (973) $ 21,170 $ 487,995
Net income — — — — — — 164,070 164,070
Total other comprehensive income — — — — — 973 — 973
Exercise of stock options — — — — — — — —
Stock-based compensation expense, net 29 — — — 4,054 — — 4,054
Issuance of Series A Preferred Stock — — — — — — — —
Common dividend declared ($0.375 per share) — — — — — — (15,482) (15,482)
Preferred dividend declared ($0.469 per share) — — — — — — (2,128) (2,128)
Balance at September 25, 2021 40,237 $ 402 4,541 $ 45 $ 471,405 $ — $ 167,630 $ 639,482


	Three Months Ended September 24, 2022
(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
Balance at June 25, 2022	40,359	$	404	4,541	$	45	$	486,059	$	—	$	282,346	$	768,854
Net loss	—	—		—	—		—		—		(121,163)		(121,163)
Exercise of stock options	21	—		—	—		(528)		—		—		(528)
Stock-based compensation expense, net	10	—		—	—		3,237		—		—		3,237

Common dividend declared ($0.625 per share)	—	—		—	—		—		—		(24,639)		(24,639)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(2,128)		(2,128)
Repurchase of common stock	(2,227)	(22)		—	—		(77,854)		—		—		(77,876)
Balance at September 24, 2022	38,163	$	382	4,541	$	45	$	410,914	$	—	$	134,416	$	545,757


		Nine Months Ended September 25, 2021															Nine Months Ended September 24, 2022
(In thousands)	(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		(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
Balance at December 26, 2020		40,092	$	401	1,250	$	13	$	382,383	$	(1,399)	$	3,769	$	385,167
Balance at December 25, 2021																Balance at December 25, 2021	40,297	$	403	4,541	$	45	$	475,396	$	—	$	286,987	$	762,831
Net income	Net income	—	—		—	—		—		—		216,619		216,619		Net income	—	—		—	—		—		—		(67,862)		(67,862)
Total other comprehensive income		—	—		—	—		—		1,399		—		1,399
Exercise of stock options	Exercise of stock options	36	—		—	—		385		—		—		385		Exercise of stock options	36	—		—	—		(348)		—		—		(348)
Stock-based compensation expense, net	Stock-based compensation expense, net	109	1		—	—		9,127		—		—		9,128		Stock-based compensation expense, net	57	1		—	—		13,720		—		—		13,721

Issuance of Series A Preferred Stock		—	—		3,291	32		79,510		—		—		79,542
Common dividend declared ($0.375 per share)		—	—		—	—		—		—		(46,372)		(46,372)
Common dividend declared ($0.625 per share)																Common dividend declared ($0.625 per share)	—	—		—	—		—		—		(78,323)		(78,323)
Preferred dividend declared ($0.469 per share)	Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(6,386)		(6,386)		Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(6,386)		(6,386)
Balance at September 25, 2021		40,237	$	402	4,541	$	45	$	471,405	$	—	$	167,630	$	639,482
Repurchase of stock																Repurchase of stock	(2,227)	(22)		—	—		(77,854)		—		—		(77,876)
Balance at September 24, 2022																Balance at September 24, 2022	38,163	$	382	4,541	$	45	$	410,914	$	—	$	134,416	$	545,757

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


	Three Months Ended September 25, 2021
(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
Balance at June 26, 2021	40,208	$	402	4,541	$	45	$	467,351	$	(973)	$	21,170	$	487,995
Net income	—	—		—	—		—		—		164,070		164,070
Total other comprehensive income	—	—		—	—		—		973		—		973

Stock-based compensation expense, net	29	—		—	—		4,054		—		—		4,054

Common dividend declared ($0.375 per share)	—	—		—	—		—		—		(15,482)		(15,482)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(2,128)		(2,128)
Balance at September 25, 2021	40,237	$	402	4,541	$	45	$	471,405	$	—	$	167,630	$	639,482

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


	Nine Months Ended September 25, 2021
(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
Balance at December 26, 2020	40,092	$	401	1,250	$	13	$	382,383	$	(1,399)	$	3,769	$	385,167
Net income	—	—		—	—		—		—		216,619		216,619
Total other comprehensive income	—	—		—	—		—		1,399		—		1,399
Exercise of stock options	36	—		—	—		385		—		—		385
Stock-based compensation expense, net	109	1		—	—		9,127		—		—		9,128
Issuance of Series A Preferred Stock	—	��		3,291	32		79,510		—		—		79,542
Common dividend declared ($0.375 per share)	—	—		—	—		—		—		(46,372)		(46,372)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(6,386)		(6,386)
Balance at September 25, 2021	40,237	$	402	4,541	$	45	$	471,405	$	—	$	167,630	$	639,482

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended
(In thousands) September 25, 2021 September 26, 2020
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 charges 50,127 51,254
Amortization of deferred financing costs 35,590 28,703
Loss (gain) on disposal of other (374) 75
Stock-based compensation expense - equity awards 9,561 6,294
(Gain) on bargain purchases and sales of Company-owned offices (3,368) (1,761)
Deferred tax (income) expense (17) 7,851
Prepayment penalty for early debt extinguishment 36,726 —
Gain on divestiture of Liberty Tax (173,699) —
Change in 0 0
Accounts, notes, and interest receivable 5,748 (2,223)
Income taxes receivable (13,473) (23,721)
Other assets 26,026 3,971
Accounts payable and accrued expenses 21,959 38,884
Inventory (108,947) 79,967
Deferred revenue 10,952 5,649
Net cash provided by operating activities 115,440 229,714
Investing Activities
Issuance of operating loans to franchisees (17,749) (30,368)
Payments received on operating loans to franchisees 23,103 50,064
Purchases of Company-owned offices and acquired customer lists (1,086) (4,830)
Proceeds from sale of Company-owned offices 3,189 1,118
Acquisition of business, net of cash and restricted cash acquired (462,821) (353,423)
Divestiture of business, net of cash and restricted cash sold 179,471 —
Purchases of property, equipment, and software (36,871) (26,702)
Proceeds from sale of property, equipment, and software 195 1,474
Net cash (used in) in investing activities (312,569) (362,667)
Financing Activities
Proceeds from the exercise of stock options 386 520
Dividends 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 issuance discounts (51,288) (16,673)
Prepayment penalty for early debt extinguishment (36,726) —
Issuance of debt 1,300,000 586,000
Cash paid for taxes on exercises/vesting of stock-based compensation (433) (85)
Net cash provided by financing activities 205,933 272,842
Effect of exchange rate changes on cash, net 34 (142)
Net increase in cash equivalents and restricted cash 8,838 139,747
Cash, cash equivalents and restricted cash at beginning of period 151,502 45,146
Cash, cash equivalents and restricted cash at end of period $ 160,340 $ 184,893
Supplemental 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 Liberty Tax $ 59,680 $ —
Deferred financing costs from issuance of common stock $ — $ 31,013
Capital expenditures funded by finance lease liabilities $ 1,211 $ —
Tax receivable agreement included in other long-term liabilities $ — $ 17,156


	Nine Months Ended
(In thousands)	September 24, 2022		September 25, 2021
Operating Activities
Net income (loss)	$	(67,862)	$	216,619
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for doubtful accounts	97,575		2,010
Goodwill impairment	70,000		—
Depreciation, amortization, and impairment charges	62,381		50,127
Amortization of deferred financing costs and prepayment penalties	15,069		72,316
Amortization of securitized debt discount	71,446		—
Stock-based compensation expense	14,147		9,561
Change in fair value of investment	22,138		(13,089)
Gain on sale-leaseback, bargain purchases, and sales of Company-owned stores, net	(65,254)		(177,067)
Other non-cash items	(2,265)		(391)
Changes in operating assets and liabilities	(264,550)		(44,646)






Net cash provided by (used in) operating activities	(47,175)		115,440
Investing Activities
Purchases of property, plant, and equipment	(39,127)		(37,957)
Proceeds from sale of property, plant, and equipment	268,239		3,384
Acquisition of business, net of cash and restricted cash acquired	(3,753)		(462,821)
Divestiture of business, net of cash and restricted cash sold	—		179,471
Issuance of operating loans to franchisees	—		(17,749)
Payments received on operating loans to franchisees	—		23,103
Net cash provided by (used in) investing activities	225,359		(312,569)
Financing Activities
Dividends paid	(82,019)		(50,016)
Issuance of long-term debt and other obligations	568,319		1,306,724
Repayment of long-term debt and other obligations	(802,268)		(1,042,256)
Issuance of common stock	83		—
Issuance of preferred stock	—		79,542
Payments for repurchase of common stock	(77,876)		—
Principal payments of finance lease obligations	(2,009)		—
Payment for debt issue costs and prepayment penalty on extinguishment	(1,339)		(88,014)
Other stock compensation transactions	(858)		(47)
Net cash provided by (used in) financing activities	(397,967)		205,933
Effect of exchange rate changes on cash, net	—		34
Net increase (decrease) in cash equivalents and restricted cash	(219,783)		8,838
Cash, cash equivalents and restricted cash at beginning of period	292,714		151,502
Cash, cash equivalents and restricted cash at end of period	$	72,931	$	160,340
Supplemental Cash Flow Disclosure
Cash paid for taxes, net of refunds	$	63,921	$	39,618
Cash paid for interest	63,072		79,074
Accrued capital expenditures	4,528		3,496
Non-cash proceeds from divestiture of Liberty Tax	—		59,680
Capital expenditures funded by finance lease liabilities	—		1,211

See accompanying notes to condensed consolidated financial statements.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the ~~condensed consolidated balance sheets that sum to the total~~Statements of ~~the same such amounts shown in the condensed consolidated statements of cash flows.~~

(In thousands) September 25, 2021 September 26, 2020
Cash and cash equivalents $ 159,972 $ 173,415
Restricted cash included in other non-current assets 368 4,961
Cash and cash equivalents for discontinued operations — 6,517
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 160,340 $ 184,893
Cash Flows.


(In thousands)	September 24, 2022		September 25, 2021
Cash and cash equivalents	$	72,931	$	159,972
Restricted cash included in other non-current assets	—		368

Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	72,931	$	160,340

Amounts included in other non-current assets represent those required to be set aside by a contractual agreement with an insurer for the payment of specific workers’ compensation claims.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September ~~25, 2021~~24, 2022 and September ~~26, 2020~~25, 2021

(1) Basis of Presentation

Unless otherwise stated, references to the "Company," "we," "us," and "our" in this Quarterly Report on Form 10-Q ~~(the~~(this "Quarterly Report") refer to Franchise Group, Inc. and its direct and indirect subsidiaries on a consolidated basis. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with ~~Exhibit 99.1 of Form 8-K filed on June 25, 2021, to reflect certain retrospective revisions for discontinued operations and changes in reportable segments in~~ the ~~consolidated financial statements of the Company in its Annual Report on~~Company's Form 10-K for the year ended December ~~26, 2020~~25, 2021 that was ~~previously~~ filed with the Securities and Exchange Commission (“SEC”) on ~~March 10, 2021~~February 23, 2022 (the “Form 10-K”).

In the opinion of management, all adjustments (including those of a normal recurring nature) necessary for a fair presentation of such condensed consolidated financial statements in accordance with GAAP have been recorded. The December ~~26, 2020~~25, 2021 balance sheet information was derived from the audited financial statements as of that date.

~~Discontinued Operations~~Repurchases of Common Stock

~~As previously disclosed, on February 21, 2021~~The Company's repurchases shares of its common stock through open market transactions. During the Company entered into a purchase agreement (the "Purchase Agreement") to sell its Liberty Tax business to NextPoint Acquisition Corp ("NextPoint"), a special purpose acquisition corporation incorporatednine months ended September 24, 2022, all purchases of common stock under the ~~laws~~Company's stock repurchase program were made at prices that exceeded the par value of the ~~Province of British Columbia (the "Transaction"). On July 2, 2021~~repurchased common stock, and the Company completed the Transaction and received total consideration of approximately $241.0 million consisting of approximately $181.2 million in cash and approximately $59.7 million in proportionate voting shares of NextPoint recorded as an investment in equity securities in "Other non-current assets" on the Condensed Consolidated Balance Sheet. The transaction resulted in a gain on the sale of $173.7 million recorded in "Income (loss) from discontinued operations, net of tax" on the Condensed Consolidated Statement of Operations. As partportions of the ~~divestiture, the Company incurred transaction costs of approximately $5.7 million which~~purchase prices that exceeded par value were paid using shares of NextPoint. As a result of the Transaction, the financial position and results of operations of the Liberty Tax business are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. The accompanying Notescharged to additional paid-in capital to the ~~Condensed Consolidated Financial Statements and all prior year balances have been reclassified~~extent that an excess was present. Once additional paid-in capital is fully depleted, remaining excess of cost over par value is charged to ~~conform~~retained earnings. Refer to “Note 10. Equity & Stock Compensation Plans” in this ~~presentation. Please refer to "Note 3. Divestitures"~~Quarterly Report for additional information regarding ~~discontinued operations.~~share repurchases.

Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, "Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which changes how companies will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The standard replaces the "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost (which generally will result in the earlier recognition of allowances for losses) and requires companies to record allowances for available-for-sale debt securities, rather than reduce the carrying amount. In addition, companies will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables. The ASU should be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the standard is effective. The ASU is effective for the Company for the fiscal year beginning January 1, 2023. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This standard eliminates Step 2 from the goodwill impairment test. Instead, an entity should compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company early adopted the ASU ~~is effective~~in the quarter ended September 24, 2022. Refer to "Note 5. Goodwill and Intangible Assets" for the ~~Company for~~calculation of the ~~fiscal year beginning January 1, 2023. The Company is currently evaluating the impact of~~Company's impairment test after the adoption of ~~this standard to its consolidated financial statements.~~ASU 2017-04.

The London Interbank Offered Rate ~~(“LIBOR”~~("LIBOR") is scheduled to be discontinued on ~~December 31, 2021.~~June 30, 2023. In an effort to address the various challenges created by such discontinuance, the FASB issued an amendment to existing guidance, ASU No. 2020-04 "Reference Rate ~~Reform~~Reform.." The amended guidance is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by the reference rate reform. It also provides ~~optional~~option expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by the reference rate reform. ~~Application of~~As further described in "Note 7. Long-Term Obligations", the ~~guidance in~~Company entered into an amendment to a debt agreement which changed the ~~amendment is optional, is only available in certain situations, and is only available for companies to apply until December 31, 2022. The Company expects no material impact as a result of~~ reference rate ~~reform and the new guidance on its consolidated financial statements.~~

~~In December 2019, the FASB issued~~from LIBOR to Secured Overnight Financing Rate ("SOFR"). The adoption of ASU ~~No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~", which amends and simplifies the requirements for income taxes. The ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The adoption2020-04 did not result in a material impact to the Company's financial results or disclosures.

(2) Acquisitions

The ~~assets acquired~~Company continually looks to diversify and ~~liabilities assumed in the acquisitions below are recorded at fair value in accordance with ASC 805 - "Business Combinations." Goodwill is calculated as the excess~~grow its portfolio of the purchase price over the fair value of the net assets acquired. The goodwill recognized is attributable to operational synergies in the expected franchise models and growth opportunities. The recorded goodwill is deductible for tax purposes.

~~Pet Supplies Plus Acquisition~~

brands through acquisitions. On ~~March 10,~~September 27, 2021, the Company completed its acquisition (the "Sylvan Acquisition") of ~~Pet Supplies Plus~~Sylvan Learning ("Sylvan"), and on November 22, 2021, the Company completed its acquisition (the ~~"Pet Supplies Plus~~"Badcock Acquisition" and, together with the Sylvan Acquisition "the “Acquisitions”) of W.S. Badcock Corporation ("Badcock").

Badcock Acquisition

On November 22, 2021, the Company completed the Badcock Acquisition. The preliminary fair value of the consideration transferred at the acquisition date was ~~$451.1~~$548.8 million. ~~As of~~For the nine months ended September ~~25, 2021, $5.5~~24, 2022, $0.8 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.

The table below summarizes the unaudited preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the ~~Pet Supplies Plus~~Badcock Acquisition ~~as of March 10,~~on November 22, 2021. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in an adjustment to the preliminary values presented below. In the nine months ended September ~~25, 2021,~~24, 2022, the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed were adjusted, which resulted in an increase ~~in goodwill~~to the bargain purchase gain of ~~$0.6~~$3.5 million. The increase was primarily due to ~~a $0.5 million~~the valuation of the property, plant, and equipment partially offset by an increase ~~of franchise fees receivable and $0.1 million of prepaid expenses.~~in other long-term liabilities for deferred taxes. The Company expects to complete the purchase price allocation as soon as reasonably possible but not to exceed one year from the date of completion of the ~~Pet Supplies Plus~~Badcock Acquisition.


(In thousands)	Preliminary ~~March 10,~~November 22, 2021
Cash and cash equivalents	$	~~2,131~~23,413
Inventories, net	130,045
Accounts receivable	411,268
Other current assets	~~39,844~~
~~Inventories, net~~	~~118,600~~5,023
Property, ~~equipment~~plant, and ~~software, net~~equipment	~~75,616~~
~~Goodwill~~	~~335,690~~238,865
Operating lease right-of-use assets	~~151,243~~
~~Other intangible assets, net~~	~~205,800~~55,626
Other non-current assets	~~6,393~~2,506
Total assets	~~935,317~~866,746
Current operating lease liabilities	~~25,405~~12,070
Accounts payable and accrued expenses	~~82,071~~71,436
Other current liabilities	~~1,705~~18,942
Current installments of long-term obligations	~~3,507~~5,261
Long-term obligations, excluding current installments	~~247,458~~7,247
Non-current operating lease liabilities	~~114,292~~39,599
Other long-term liabilities	~~9,761~~27,849
Total liabilities	~~484,199~~182,404

Bargain purchase gain	(135,557)

Consideration transferred	$	~~451,118~~548,785

Other intangible assets, net consists of the Pet Supplies Plus trade name as an indefinite-lived intangible asset with a fair value of $104.4 million. The trade name is not subject to amortization but will be evaluated annually for impairment. Also included are franchise agreements of $67.1 million and customer relationships of $34.3 million.

Operating lease right-of-use assets of $55.6 million and operating and lease liabilities of $51.7 million, consist of leases for retail store locations, warehouses and office equipment. Operating lease right-of-use assets incorporates a favorable adjustment of $12.4 million, net for favorable and unfavorable Pet Supplies Plus real estate leases (as compared to prevailing market rates) which will be amortized over the remaining lease terms.

Property, ~~equipment~~plant, and ~~software, net~~equipment consists of fixtures and equipment of ~~$37.0~~$93.0 million, buildings and building improvements of $98.0 million, land and land improvements of $33.4 million, leasehold improvements of ~~$33.5~~$23.7 million, and construction in progress of ~~$3.5 million and financing leases of $1.7~~$1.4 million.

~~Other non-current~~During the nine months ended September 24, 2022, the preliminary estimates of the fair value of identifiable assets ~~includes $0.4~~acquired and liabilities assumed were adjusted, which resulted in a $3.5 million increase to the bargain purchase gain for a

cumulative bargain purchase gain of ~~restricted cash.~~$135.6 million. The adjustment is classified as "Bargain purchase gain" on the Consolidated Statements of Operations. The Company believes the seller in the Badcock Acquisition was willing to accept a bargain purchase price in return for the Company's ability to act more quickly, partially due to the Company's access to capital to complete the transaction, and with greater certainty than any other prospective acquirer. Additionally, the Company believes the seller in the Badcock Acquisition was motivated to complete the transaction as part of an overall repositioning of its business. Upon completion of this reassessment, the Company concluded that recording a bargain purchase gain with respect to the Badcock Acquisition was appropriate and required under GAAP. The tax impact related to the bargain purchase gain was non-taxable and impacted the Company's effective tax rate for the period.

~~Furniture Factory Outlet~~Sylvan Acquisition

On ~~December~~September 27, ~~2020,~~2021, the Company completed the Sylvan Acquisition. The fair value of the consideration transferred at the acquisition ~~of Furniture Factory Outlet ("FFO Home"), a regional retailer of furniture and mattresses, for an all cash purchase price of $13.8~~date was $82.9 million. The Company acquired 31 operating locations which were rebranded as American Freight stores and included in its American Freight segment. As of September 25, 2021, $0.4 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.

The table below summarizes the fair values of the identifiable assets acquired and liabilities assumed in the Sylvan Acquisition on September 27, 2021.


(In thousands)	Preliminary DecemberSeptember 27, ~~2020~~2021
Cash and cash equivalents	$	64,364
Other current assets	96
~~Inventories, net~~	~~6,450~~3,592
Property, ~~equipment~~plant, and ~~software, net~~equipment	~~2,934~~26,324
Goodwill	~~3,293~~19,406
Tradenames	24,987
Operating lease right-of-use assets	~~26,571~~2,874
Other intangible assets	19,412
Other non-current assets	185
Total assets	~~39,350~~101,144
Current operating lease liabilities	~~2,587~~891
~~Other current liabilities~~Accounts payable and accrued expenses	~~299~~6,072
Non-current operating lease liabilities	~~22,624~~1,984
Other long-term liabilities	9,320
Total liabilities	~~25,510~~18,267
Consideration transferred	$	~~13,840~~82,877

~~Operating lease right-of-use~~Other intangible assets and lease liabilities consist of leases for retail store locations. Operating lease right-of-use assets incorporates a favorable adjustment of $1.4 million, net for favorable and unfavorable FFO Home leases (as compared to prevailing market rates) which will be amortized over the remaining lease terms.

~~The property, equipment and software, net~~ consists of ~~leasehold improvements~~the franchise agreements of ~~$2.5~~$18.3 million and proprietary content of $1.1 million.

Property, plant and equipment consists of fixtures and equipment of ~~$0.4~~$0.3 million, leasehold improvements of $0.7 million, and software and electronic content of $25.3 million.

~~American Freight~~Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The goodwill recognized is attributable to operational synergies in the expected franchise models and growth opportunities. None of the acquired goodwill is deductible for tax purposes.

Pet Supplies Plus Acquisition

On March 10, 2021, the Company completed its acquisition of Pet Supplies Plus. Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The goodwill recognized is attributable to operational synergies in the expected franchise models and growth opportunities. All of the acquired goodwill is deductible for tax purposes.

Wag N' Wash Acquisition

On February ~~14, 2020,~~22, 2022, the ~~Company~~Company's Pet Supplies Plus segment completed ~~its~~the acquisition of ~~American Freight (the "American Freight Acquisition")~~Wag N' Wash, an emerging natural pet food, self-wash, and grooming franchise, for an ~~aggregate~~all cash purchase price of ~~$357.3~~$0.9 million, and five of the Wag N' Wash stores were subsequently sold to a franchisee for $0.6 million. The ~~Company accounted for~~components of the purchase price allocation are not presented herein due to the immateriality of the transaction ~~as a business combination using~~to the ~~acquisition method of accounting.~~Company overall.

Pro forma financial information

The following unaudited consolidated pro forma summary has been prepared by adjusting the Company's historical data to give effect to the ~~Pet Supplies Plus and American Freight acquisitions~~Acquisitions as if they had occurred on ~~December 28, 2019.~~January 1, 2020.

Pro forma (Unaudited)
Three Months Ended Nine Months Ended
(In thousands) September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020
Revenue $ 828,826 $ 750,094 $ 2,506,519 $ 2,187,416
Net income $ 35,999 $ 6,167 $ 92,974 $ (38,583)
Basic net income per share $ 0.84 $ 0.15 $ 2.16 $ (1.19)
Diluted net income per share $ 0.83 $ 0.15 $ 2.12 $ (1.19)


	Pro forma (Unaudited)
	Three Months Ended				Nine Months Ended
(In thousands)	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Revenue	$	1,051,475	$	1,071,394	$	3,281,943	$	3,216,259
Net income (loss)	(121,163)		77,870		(70,470)		198,575
Basic net income (loss) per share	$	(3.09)	$	1.88	$	(1.91)	$	4.78
Diluted net income (loss) per share	$	(3.09)	$	1.85	$	(1.91)	$	4.70

These unaudited pro forma results include adjustments such as inventory step-up, amortization of acquired intangible assets, depreciation of acquired property, equipment, and software and interest expense on debt financing in connection with the Acquisitions. Material, nonrecurring pro forma adjustments directly attributable to the Acquisitions include:

•Acquired inventory step-up to its fair value of $2.3 million is assumed to be recorded in the first quarter of 2020 and therefore removed from the nine months ended September 25, 2021.

•Acquisition transaction related costs of $4.9 million that were incurred during the nine months ended September 25, 2021 are assumed to have occurred on the pro forma close date of January 1, 2020, and recognized as if incurred in the first quarter of 2020.

The unaudited consolidated pro forma financial information was prepared in accordance with GAAP and is not necessarily indicative of the results of operations that would have occurred if the ~~Pet Supplies Plus and American Freight acquisitions~~Acquisitions had been completed on the date indicated, nor is it indicative of the future operating results of the Company.

The unaudited pro forma results do not reflect events that either have occurred or may occur after the ~~acquisition,~~Acquisitions, including, but not limited to, the anticipated realization of operating synergies in subsequent periods. They also do not give effect to certain charges that the Company expects to incur in connection with the acquisition, including, but not limited to, additional professional fees and employee integration.

~~(3) Discontinued Operations and Assets Disposition~~

On February 21, 2021, the Company and NextPoint entered into the Purchase Agreement to sell its Liberty Tax business to NextPoint. In connection with the Purchase Agreement, the parties entered into a transition services agreement pursuant to

12(3) Divestitures

Liberty Tax Divestiture

~~which both parties agreed to provide certain transition services to each other for a period not to exceed twelve months.~~ On July 2, 2021, the Company completed the ~~transaction~~sale of its Liberty Tax business (the "Liberty Transaction") to NextPoint Acquisition Corp. ("NextPoint") and received total consideration of approximately ~~$241.0~~$255.3 million, consisting of approximately $181.2 million in cash and approximately ~~$59.7~~$74.1 million in proportionate voting shares of NextPoint recorded as an investment in equity securities in ~~"Other non-current assets"~~"Investment in equity securities" on the Condensed Consolidated Balance Sheet. The transaction resulted in a gain on the sale of $173.7 million recorded in "Income (loss) from discontinued operations, net of tax" on the Condensed Consolidated Statement of Operations. As part of the divestiture, the Company incurred transaction costs of approximately $5.7 million which were paid using shares of NextPoint.Sheets. As a result of the Liberty Transaction, the financial position and results of operations of the Liberty Tax business are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for ~~all periods presented.~~the three and nine months ended September 25, 2021.

The following is a summary of the major categories of assets and liabilities for the Liberty Tax business. The balances for all periods prior to the sale are included in assets and liabilities held for sale in the Condensed Consolidated Balance Sheet.

~~Assets~~

~~September 25, 2021~~

~~December 26, 2020~~

~~(In thousands)~~

~~Current assets:~~

~~Cash and cash equivalents~~

—

~~2,722~~

~~Current receivables, net~~

—

~~33,525~~

~~Other current assets~~

—

~~6,776~~

~~Total current assets~~

—

~~43,023~~

~~Property, equipment, and software, net~~

—

~~7,634~~

~~Non-current receivables, net~~

—

~~3,889~~

~~Goodwill~~

—

~~8,719~~

~~Intangible assets, net~~

—

~~24,804~~

~~Operating lease right-of-use assets~~

—

~~8,771~~

~~Other non-current assets~~

—

~~1,299~~

~~Total assets held for sale~~

—

~~98,139~~

~~Liabilities and Stockholders' Equity~~

~~Current liabilities:~~

~~Current installments of long-term obligations~~

—

~~1,335~~

~~Current operating lease liabilities~~

—

~~4,658~~

~~Accounts payable and accrued expenses~~

—

~~20,200~~

~~Other current liabilities~~

—

~~14,383~~

~~Total current liabilities~~

—

~~40,576~~

~~Long-term obligations, excluding current installments~~

—

~~1,711~~

~~Non-current operating lease liabilities~~

—

~~4,738~~

~~Other non-current liabilities~~

—

~~2,330~~

~~Total liabilities held for sale~~

—

~~49,355~~

The following is a Condensed Consolidated Statement of Operations for the Liberty Tax business. The amounts ~~for all periods~~ are included in "Income (loss) from discontinued operations, net of tax" in the Company's Condensed Consolidated Statements of Operations.


		Three Months Ended				Nine Months Ended					Three Months Ended		Nine Months Ended
(In thousands)	(In thousands)	September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020		(In thousands)	September 25, 2021		September 25, 2021
Revenue	Revenue	$	493	$	13,300	$	107,486	$	117,992	Revenue	$	493	$	107,486
Selling, general, and administrative expenses	Selling, general, and administrative expenses	6,886		18,657		64,672		77,871		Selling, general, and administrative expenses	6,886		64,672
Income from operations	Income from operations	(6,393)		(5,357)		42,814		40,121		Income from operations	(6,393)		42,814
Other expense:	Other expense:									Other expense:
Gain on sale of discontinued operation		173,699		—		173,699		—
Gain on sale of discontinued operations										Gain on sale of discontinued operations	173,699		173,699
Other	Other	(3)		16		165		1		Other	(3)		165
Interest expense, net	Interest expense, net	(3)		6		(4)		(4,983)		Interest expense, net	(3)		(4)
Income before income taxes	Income before income taxes	167,300		(5,335)		216,674		35,139		Income before income taxes	167,300		216,674
Income tax expense	Income tax expense	39,228		(1,464)		40,240		6,656		Income tax expense	39,228		40,240
Net Income		128,072		(3,871)		176,434		28,483
Less: Net (income) attributable to non-controlling interest		—		—		—		11,791
Net income attributable to discontinued operations	Net income attributable to discontinued operations	$	128,072	$	(3,871)	$	176,434	$	40,274	Net income attributable to discontinued operations	$	128,072	$	176,434

The following is the operating and investing activities for the Liberty Tax business. These amounts are included in the Company's Condensed Consolidated Statement of Cash Flows.

Nine Months Ended
(In thousands) September 25, 2021 September 26, 2020
Cash flows provided by operating activities from discontinued operations $ 39,334 $ 46,709
Cash flows provided by investing activities from discontinued operations $ 173,633 $ 13,066


	Nine Months Ended
(In thousands)	September 25, 2021
Cash flows provided by operating activities from discontinued operations	$	39,334
Cash flows provided by investing activities from discontinued operations	$	173,633

Assets Held for Sale

As of September 24, 2022, the Company's Badcock segment was negotiating sale transactions for certain non-operating properties that it expects to sell within one year. The net book value of the properties of $8.8 million is classified as "Current assets held for sale" on the Condensed Consolidated Balance Sheets.

Sale-Leaseback Transactions

In the nine months ended September 24, 2022, the Company's Badcock segment sold a number of its retail locations, distribution centers, and its corporate headquarters for a total of $265.8 million, resulting in a net gain of $59.2 million, comprised of $64.7 million of gains and $5.5 million of losses. The corporate headquarters was sold in the three months ended September 24, 2022 for a total of $23.5 million, resulting in a net gain of $9.4 million, comprised of $10.6 million in gains and $1.2 million in losses. Contemporaneously with these sales, the Company entered into lease agreements pursuant to which the Company leased back the retail locations, distribution centers, and corporate headquarters, all of which are being accounted for as operating leases. The net gain has been recognized as "Gain on sale-leaseback transactions" on the Consolidated Statements of Operations for the three and nine months ended September 24, 2022.

(4) Accounts and Notes Receivable

Current and non-current receivables as of September 24, 2022 and December 25, 2021 are presented in the Condensed Consolidated Balance Sheets as follows:


(In thousands)	September 24, 2022		December 25, 2021
Accounts receivable	$	101,485	$	86,087
Notes receivable	1,160		1,735
Income tax receivable	41,811		32,448
Allowance for doubtful accounts	(1,216)		(1,572)
Current receivables, net	143,240		118,698
Notes receivable, non-current	10,387		12,183
Allowance for doubtful accounts, non-current	(138)		(428)
Non-current receivables, net	10,249		11,755
Total receivables	$	153,489	$	130,453

Notes receivable are due from the Company's franchisees and are collateralized by the underlying franchise. The debtors' ability to repay the notes is dependent upon both the performance of the franchisee's industry as a whole and the individual franchise areas.

Secured Borrowing Accounting

On December 20, 2021, the Company's Badcock segment sold the existing consumer credit receivables portfolio of Badcock as of December 15, 2021 for a purchase price of $400.0 million in cash. The Company continues to sell the credit receivables portfolio generated from its in-house underwriting services and has securitized an additional $298.9 million of receivables in the nine months ended September 24, 2022. In connection with the sale of the receivables, Badcock has entered into a servicing agreements with the purchasers pursuant to which Badcock will provide to the purchasers certain customary servicing and account management services in respect of the receivables purchased.

As a result of the transactions, Badcock sold beneficial interests in revolving lines of credit that it originated. The sales of the beneficial interests in the revolving lines of credit are accounted for as secured borrowings on the Company's Condensed Consolidated Balance Sheets, with both assets and non-recourse liabilities, since the sales do not qualify as a sale under ASC 860 - "Transfers and Servicing," even though the underlying receivables are deemed to be legally sold. The Company's Badcock segment may periodically repay portions of the securitized debt early. The income earned on the securitized revolving lines of credit is recorded as interest income in "Service and other revenues" and the accretion of the securitized debt is recorded in "Interest expense, net" on the Condensed Consolidated Statements of Operations.

Current securitized receivables, net includes $417.8 million of securitized receivables, an unamortized discount of $36.7 million, and an allowance of $40.0 million. Non-current securitized receivables, net includes $54.9 million of securitized receivables, an unamortized discount of $4.8 million and an allowance of $5.3 million.

(5) Goodwill and Intangible Assets

The Company performs impairment tests for goodwill as of the end of July of each fiscal year and between annual impairment tests if an event occurs or circumstances change that would more likely than not reduce the fair values of the Company's reporting units below their carrying values. ~~There are no~~As part of the annual impairment test as of July 2022, the Company updated its long-term forecasts based on the operating results in 2022 and the current macro-economic environment. This resulted in the American Freight reporting unit fair value being lower than the carrying value resulting in a $70.0 million non-cash pre-tax goodwill impairment charge, which was recorded in "Goodwill impairment" in the accompanying consolidated statements of operations. No other reporting units had accumulated goodwill impairment losses recorded.

The estimated fair value of each of our reporting units was calculated using a weighted-average of values determined from an income approach and a market approach. The income approach involves estimating the fair value of each reporting unit by discounting its estimated future cash flows using a discount rate that would be consistent with a market participant’s

assumption. The market approach bases the fair value measurement on information obtained from observed stock prices of public companies and recent merger and acquisition transaction data of comparable entities. In order to estimate the fair value of goodwill, management must make certain estimates and assumptions that affect the total fair value of the reporting unit including, among other things, an assessment of market conditions, projected cash flows, discount rates and growth rates. Management’s estimates of projected cash flows related to the reporting unit include, but are not limited to, future earnings of the reporting unit, assumptions about the use or disposition of assets included in the reporting unit, estimated remaining lives of those assets, and future expenditures necessary to maintain the assets’ existing service potential. The assumptions in the fair value measurement reflect the current market environment, industry-specific factors and company-specific factors.

Changes in the carrying amount of goodwill for the nine months ended September ~~25, 2021~~24, 2022 are as follows:
Vitamin Shoppe American Freight Pet Supplies Plus Buddy's Total
Balance as of December 26, 2020 1,277 367,882 — 79,099 448,258
Acquisitions — 3,493 335,690 — 339,183
Balance as of September 25, 2021 $ 1,277 $ 371,375 $ 335,690 $ 79,099 $ 787,441


	Vitamin Shoppe		Pet Supplies Plus		American Freight		Buddy's		Sylvan		Total
Balance as of December 25, 2021	$	1,277	$	335,875	$	370,829	$	79,099	$	19,456	$	806,536
Acquisitions	—		1,717		—		—		—		1,717
Goodwill impairment	—		—		(70,000)		—		—		(70,000)
Disposals and purchase accounting adjustments	—		(120)		—		—		(50)		(170)
Balance as of September 24, 2022	$	1,277	$	337,472	$	300,829	$	79,099	$	19,406	$	738,083

Components of intangible assets as of September ~~25, 2021~~24, 2022 and December ~~26, 2020~~25, 2021 were as follows:


	September 24, 2022
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	$	222,703	$	—	$	222,703

Intangible assets
Franchise and dealer agreements	$	96,005	$	(12,499)	$	83,506
Customer contracts	42,414		(7,955)		34,459
Other intangible assets	2,090		(678)		1,412
Total intangible assets	$	140,509	$	(21,132)	$	119,377


		September 25, 2021							December 25, 2021
(In thousands)	(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount		(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	Indefinite lived tradenames	197,700		—		197,700		Indefinite lived tradenames	$	222,687	$	—	$	222,687
Franchise agreements		77,600		(4,791)		72,809

Intangible assets								Intangible assets
Franchise and dealer agreements								Franchise and dealer agreements	$	95,865	$	(6,571)	$	89,294
Customer contracts	Customer contracts	42,414		(4,302)		38,112		Customer contracts	42,414		(5,215)		37,199
Reacquired rights		566		(282)		284
Other intangible assets								Other intangible assets	1,836		(378)		1,458
Total intangible assets	Total intangible assets	$	318,280	$	(9,375)	$	308,905	Total intangible assets	$	140,115	$	(12,164)	$	127,951

December 26, 2020
(In thousands) Gross carrying amount Accumulated amortization Net carrying amount
Indefinite lived tradenames $ 93,300 $ — $ 93,300
Customer contracts 8,781 (2,159) 6,622
Franchise agreements 10,500 (1,546) 8,954
Reacquired rights 1,478 (462) 1,016
Total intangible assets $ 114,059 $ (4,167) $ 109,892

~~(5)~~(6) Revenue

For details regarding the principal activities from which the Company generates its revenue, ~~see~~refer to "Note 1. Description of Business and Summary of Significant ~~Account~~Accounting Policies Presentation" in the ~~Company's~~ Form 10-K. For more detailed information regarding reportable segments, ~~see~~refer to "Note 13. Segments" in this ~~quarterly report.~~Quarterly Report. The following represents the disaggregated revenue by reportable segments for the three ~~and~~months ended September 24, 2022:


	Three Months Ended
	September 24, 2022
(In thousands)	Vitamin Shoppe		Pet Supplies Plus		Badcock		American Freight		Buddy's		Sylvan		Consolidated
Retail sales	$	295,527	$	163,957	$	147,020	$	170,861	$	450	$	15	$	777,830
Wholesale sales	280		141,730		—		3,047		—		—		145,057
Total product revenue	295,807		305,687		147,020		173,908		450		15		922,887
Royalties and other franchise based fees	170		9,833		—		505		4,344		8,967		23,819
Financing revenue	—		—		394		9,060		—		—		9,454
Interest income	—		80		40,329		187		—		—		40,596
Warranty revenue	—		—		12,596		9,254		1,438		—		23,288
Other revenues	175		7,426		9,939		6,402		77		562		24,581
Total service revenue	345		17,339		63,258		25,408		5,859		9,529		121,738
Rental revenue, net	—		—		—		—		6,851		—		6,851
Total rental revenue	—		—		—		—		6,851		—		6,851
Total revenue	$	296,152	$	323,026	$	210,278	$	199,316	$	13,160	$	9,544	$	1,051,476

The following represents the disaggregated revenue by reportable segments for the nine months ended September 24, 2022:


	Nine Months Ended
	September 24, 2022
(In thousands)	Vitamin Shoppe		Pet Supplies Plus		Badcock		American Freight		Buddy's		Sylvan		Consolidated
Retail sales	$	912,141	$	477,927	$	474,857	$	577,162	$	2,181	$	38	$	2,444,306
Wholesale sales	768		399,158		—		9,828		—		—		409,754
Total product revenue	912,909		877,085		474,857		586,990		2,181		38		2,854,060
Royalties and other franchise based fees	511		28,290		—		1,567		13,773		29,144		73,285
Financing revenue	—		—		394		28,094		—		—		28,488
Interest income	—		220		154,485		574		—		—		155,279
Warranty revenue	—		—		39,187		31,410		4,522		—		75,119
Other revenues	583		21,378		30,912		18,522		182		1,918		73,495
Total service revenue	1,094		49,888		224,978		80,167		18,477		31,062		405,666
Rental revenue, net	—		—		—		—		22,217		—		22,217
Total rental revenue	—		—		—		—		22,217		—		22,217
Total revenue	$	914,003	$	926,973	$	699,835	$	667,157	$	42,875	$	31,100	$	3,281,943

The following represents the disaggregated revenue by reportable segments for the three months ended September 25, 2021:


	Three Months Ended
	September 25, 2021
(In thousands)	Vitamin Shoppe		Pet Supplies Plus		American Freight		Buddy's		Consolidated
Retail sales	$	300,721	$	162,931	$	207,660	$	784	$	672,096
Wholesale sales	—		109,895		617		—		110,512
Total product revenue	300,721		272,826		208,277		784		782,608
Royalties and other franchise based fees	92		7,565		955		5,700		14,312
Financing revenue	—		—		10,808		—		10,808
Interest income	—		71		287		—		358
Warranty revenue	—		—		416		1,618		2,034
Other revenues	—		6,181		2,848		1,350		10,379
Total service revenue	92		13,817		15,314		8,668		37,891
Rental revenue, net	—		—		—		8,327		8,327
Total rental revenue	—		—		—		8,327		8,327
Total revenue	$	300,813	$	286,643	$	223,591	$	17,779	$	828,826

The following represents the disaggregated revenue by reportable segments for the nine months ended September 25, 2021:


		September 25, 2021																	Nine Months Ended
		Vitamin Shoppe				American Freight				Pet Supplies Plus				Buddy's					September 25, 2021
(In thousands)	(In thousands)	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended †		Three Months Ended		Nine Months Ended		(In thousands)	Vitamin Shoppe		Pet Supplies Plus †		American Freight		Buddy's		Consolidated
Retail sales	Retail sales	$	300,721	$	897,934	$	207,660	$	686,194	$	162,931	$	351,147	$	784	$	3,221	Retail sales	$	897,934	$	351,147	$	686,194	$	3,221	$	1,938,496
Wholesale sales	Wholesale sales	—		—		617		617		109,895		233,080		—		—		Wholesale sales	—		233,080		617		—		233,697
Total product revenue	Total product revenue	300,721		897,934		208,277		686,811		272,826		584,227		784		3,221		Total product revenue	897,934		584,227		686,811		3,221		2,172,193
Franchise fees		—		—		—		—		269		511		19		40
Royalties and advertising fees		92		174		427		838		5,937		12,664		3,591		10,772
Financial products		—		—		10,808		31,338		—		—		—		—
Royalties and other franchise based fees																		Royalties and other franchise based fees	174		16,038		1,926		14,934		33,072
Financing revenue																		Financing revenue	—		—		31,338		—		31,338
Interest income	Interest income	—		—		287		872		71		156		—		—		Interest income	—		156		872		—		1,028
Agreement, club and damage waiver fees		—		—		—		—		—		—		1,618		5,140
Warranty revenue		—		—		416		19,914		—		—		—		—
Warranty and damage revenue																		Warranty and damage revenue	—		—		19,914		5,140		25,054
Other revenues	Other revenues	—		—		3,376		11,141		7,540		16,154		3,440		4,945		Other revenues	—		13,291		10,053		823		24,167
Total service revenue	Total service revenue	92		174		15,314		64,103		13,817		29,485		8,668		20,897		Total service revenue	174		29,485		64,103		20,897		114,659
Rental revenue, net	Rental revenue, net	—		—		—		—		—		—		8,327		26,077		Rental revenue, net	—		—		—		26,077		26,077
Total rental revenue	Total rental revenue	—		—		—		—		—		—		8,327		26,077		Total rental revenue	—		—		—		26,077		26,077
Total revenue	Total revenue	$	300,813	$	898,108	$	223,591	$	750,914	$	286,643	$	613,712	$	17,779	$	50,195	Total revenue	$	898,108	$	613,712	$	750,914	$	50,195	$	2,312,929

† Reflects the results from the March 10, 2021 acquisition date.

1516

~~The following represents the disaggregated revenue by reportable segments for the three and nine months ended September 26, 2020:~~

September 26, 2020
Vitamin Shoppe American Freight Pet Supplies Plus Buddy's
(In thousands) Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
Retail sales $ 266,965 $ 780,588 $ 231,959 $ 655,311 $ — $ — $ 1,538 $ 4,778
Total product revenue 266,965 780,588 231,959 655,311 — — 1,538 4,778
Franchise fees — — — — — — 8 20
Royalties and advertising fees — — — — — — 2,517 7,346
Financial products — — 6,775 8,066 — — — —
Interest income — — 315 987 — — — —
Agreement, club and damage waiver fees — — — — — — 3,436 10,124
Warranty revenue — — 4,775 13,754 — — — —
Other revenues — — 1,388 4,268 — — 612 1,951
Total service revenue — — 13,253 27,075 — — 6,573 19,441
Rental revenue, net — — — — — — 17,404 51,000
Total rental revenue — — — — — — 17,404 51,000
Total revenue $ 266,965 $ 780,588 $ 245,212 $ 682,386 $ — $ — $ 25,515 $ 75,219

Contract Balances

The following table provides information about receivables and contract liabilities (deferred revenue) from contracts with customers as of September ~~25, 2021~~24, 2022 and December ~~26, 2020:~~25, 2021:


(In thousands)	(In thousands)	September 25, 2021		December 26, 2020		(In thousands)	September 24, 2022		December 25, 2021
Accounts Receivable		$	68,837	$	38,444
Accounts receivable						Accounts receivable	$	101,485	$	86,087
Notes receivable	Notes receivable	$	13,600	$	28,240	Notes receivable	11,360		13,864
Deferred revenue		$	35,472	$	24,097

Customer deposits						Customer deposits	$	20,318	$	37,626
Gift cards and loyalty programs						Gift cards and loyalty programs	8,084		7,604
Deferred franchise fee revenue	Deferred franchise fee revenue	$	12,682	$	1,519	Deferred franchise fee revenue	24,337		16,984
Other deferred revenue						Other deferred revenue	7,092		8,400
Total deferred revenue						Total deferred revenue	$	59,831	$	70,614

Deferred revenue consists of (1) amounts received for merchandise of which customers have not yet taken possession, ~~of the merchandise,~~ (2) gift card or store credits outstanding, and (3) loyalty reward program credits which are ~~generally~~primarily recognized within one year following the revenue deferral. Deferred franchise fee revenue is recognized over the term of the agreement, which is ~~generally~~ between five and ~~ten~~twenty years.

The amount of revenue recognized in the period that was included in the contract liability balance at the beginning of the period is immaterial to the condensed consolidated financial statements.

~~(6)~~(7) Long-Term Obligations

For details regarding the Company's long-term debt obligations, refer to “Note 9. - Long-Term Obligations” in the Form 10-K.

Long-term obligations at September ~~25, 2021~~24, 2022 and December ~~26, 2020~~25, 2021 were as follows:


(In thousands)	(In thousands)	September 25, 2021		December 26, 2020		(In thousands)	September 24, 2022		December 25, 2021
Term loans, net of debt issuance costs						Term loans, net of debt issuance costs
First lien term loan, due March 10, 2026						First lien term loan, due March 10, 2026	$	778,232	$	790,057
Second lien term loan, due September 10, 2026						Second lien term loan, due September 10, 2026	288,839		287,188
Badcock first lien term loan, due November 22, 2023						Badcock first lien term loan, due November 22, 2023	—		201,530
Badcock second lien term loan, due November 22, 2023						Badcock second lien term loan, due November 22, 2023	—		146,616
Total term loans, net of debt issuance costs						Total term loans, net of debt issuance costs	1,067,071		1,425,391
Revolving credit facilities	Revolving credit facilities	$	—	$	78,310	Revolving credit facilities	126,000		20,000
Term loan, net of debt issuance costs		1,070,167		491,836
Debt securitized by accounts receivable, net of discount						Debt securitized by accounts receivable, net of discount	471,458		407,502
Other long-term obligations						Other long-term obligations	7,428		10,537
Finance lease liabilities	Finance lease liabilities	4,162		851		Finance lease liabilities	7,166		6,465
Total long-term obligations	Total long-term obligations	1,074,329		570,997		Total long-term obligations	1,679,123		1,869,895
Less current installments	Less current installments	1,420		104,053		Less current installments	392,772		486,170
Total long-term obligations, excluding current installments, net		$	1,072,909	$	466,944
Total long-term obligations, net						Total long-term obligations, net	$	1,286,351	$	1,383,725

The Badcock First and Second Lien Term Loans were fully repaid in the nine months ended September 24, 2022.

~~First Lien Credit~~

Third Amended and Restated Loan and Security Agreement ~~and Term Loan~~(ABL)

On ~~March 10, 2021 (the “Closing Date”),~~June 3, 2022, the Company entered into ~~a First Lien Credit~~the Second Amendment (the “Second ABL Amendment”) to the Third Amended and Restated Loan and Security Agreement (as amended, the “FRG ABL Revolver Agreement”). The Second ABL Amendment amended the FRG ABL Revolver Agreement to, among other things, increase the commitments under the revolving credit facility (the ~~“First Lien Credit Agreement”~~"ABL Revolver") ~~with various lenders that provides~~to $250.0 million, change the reference rate from LIBOR to SOFR, amend certain negative covenants regarding investments for a ~~$1,000.0~~time period specified in the Second ABL Agreement, and limits the maximum principal amount of loans outstanding under the FRG ABL Revolver Agreement to $200.0 million ~~senior secured term loan (the “First Lien Term Loan”).~~for a time period specified in the Second ABL Agreement.

On August 22, 2022, the Company entered into the Third Amendment (the “Third ABL Amendment”) to the Third Amended and Restated Loan and Security Agreement (as amended, the “FRG ABL Revolver Agreement”). The ~~Company’s obligations~~Third ABL Amendment amends the FRG ABL Revolver Agreement to, among other things, increase the commitments under the ~~First Lien Credit Agreement are guaranteed by~~ABL Revolver to $400.0 million, amend the ~~Company and each~~terms of the ~~Company’s~~borrowing base and provide for the inclusion of certain types of inventory to the borrowing base, and make certain other ~~direct~~changes to reflect the increase in the revolving credit facility commitments and ~~indirect subsidiaries (other than certain excluded subsidiaries) pursuant~~the addition of Badcock as a borrower to ~~a First Lien Guarantee Agreement (the “First Lien Guarantee Agreement”) and are required to be guaranteed by each of~~ the ~~Company’s direct and indirect subsidiaries (other than certain excluded subsidiaries) that may be formed or acquired after the Closing Date. The obligations of the Company~~parties under the First Lien Credit Agreement are secured on a first priority basis by substantially all of the assets and are secured on a second priority basis by credit card receivables, accounts receivable, deposit accounts, securities accounts, commodity accounts, inventory and goods (other than equipment) of the Company, and in each case are required to be secured by such assets of the Company (other than certain excluded subsidiaries) that may be formed or acquired after the Closing Date.ABL Loan Revolver.

~~The proceeds~~As of ~~the First Lien Term Loan, together with the proceeds of the Second Lien Term Loan (as defined below) and certain cash~~September 24, 2022, there was $126.0 million drawn on ~~hand of the Company, were used to consummate the Pet Supplies Plus Acquisition and to pay fees and expenses for certain related transactions, including the entry into~~ the ABL ~~Agreement (as defined below). A portion of the First Lien Term Loan and Second Lien Term Loan were also used to repay existing lenders.~~

Revolver. The ~~First Lien Term Loan will mature~~ABL Revolver matures on March 10, ~~2026~~2025, and borrowings under the ABL Revolver will bear interest at a variable rate with a 0.5% to 2.0% floor of 5.50%. Interest is payable on either the last day of the interest period or the last business day of the calendar quarter. The Company is required to repay the First Lien Term Loan in equal quarterly installments of $2.5 milliondepending on the last day of each calendar quarter, commencing on June 30, 2021 subject to certain early payment requirements based on certain events. On July 2, 2021, the Company repaid $182.1 million of principal of the First Lien Term Loan using cash proceeds from the sale of the Liberty Tax business. The payment also satisfied the requirements for the quarterly principal payments so no additional principal payments are due until the First Term Loan maturity date. The remaining $1.4 million of current installments of long-term obligations are related to finance leases.

The First Lien Credit Agreement, the First Lien Collateral Agreement and the First Lien Guarantee Agreement collectively include customary affirmative, negative, and financial covenants binding on the Company, including delivery of financial statements and other reports. The negative covenants limit the ability of the Company to, among other things, incur debt, incur liens, make investments, sell assets, pay dividends and enter into transactions with affiliates. The financial covenants set forth in the First Lien Credit Agreement include a maximum total leverage ratio (net of certain cash) and a minimum fixed charge coverage ratio to be tested at the end of each fiscal quarter commencing with the first full fiscal quarter ending after the Closing Date. In addition, the First Lien Credit Agreement includes customary events of default, the occurrence of which may require the Company to pay an additional 2.00% interest on the First Lien Term Loan and/or may result in, among other consequences, acceleration of the payment obligations with respect to the First Lien Term Loan, calling on the guarantees, or exercise of remedies with respect to the collateral.

~~Second Lien Credit Agreement and Second Lien Term Loan~~

On the Closing Date, the Company entered into a Second Lien Credit Agreement (the “Second Lien Credit Agreement”) with various lenders (the "Second Lien Lenders", and together with the First Lien Lenders, the "Term Loan Lenders") which provides for a $300.0 million senior secured term loan (the “Second Lien Term Loan”, and together with the First Lien Term Loan, the “Term Loans”), made by the Second Lien Lenders to the Company.

The Company's obligations under the Second Lien Credit Agreement are guaranteed by the Loan Parties pursuant to a Second Lien Guarantee Agreement (the “Second Lien Guarantee Agreement”) and are required to be guaranteed by each of the Company’s direct and indirect subsidiaries (other than certain excluded subsidiaries) that may be formed or acquired after the Closing Date. The obligations of the Company under the Second Lien Credit Agreement are secured on a second priority basis by the Term Priority Collateral and are secured on a third priority basis by the ABL Priority Collateral pursuant to a Second Lien Collateral Agreement (the “Second Lien Collateral Agreement”) and are required to be secured by such assets of each of the Company’s direct and indirect subsidiaries (other than certain excluded subsidiaries) that may be formed or acquired after the Closing Date.

~~The Second Lien Term Loan will mature on September 10, 2026 and bears interest at a variable rate with an 8.50% floor.~~Revolver's average excess availability. Interest is payable on either the last day of the interest period or the last business day of the calendar quarter.

The Second Lien Term Loan is not subject to scheduled amortization. Solely to the extent the First Lien Term Loan and related obligations have been repaid in full, the Company is required to prepay the Second Lien Term Loan with 50% of consolidated excess cash flow on an annual basis, subject to certain exceptions and to leverage-based step-downs to 25% and 0%, and with 100% of the net cash proceeds of certain other customary events, including certain asset sales (but excluding sales of ABL Priority Collateral), including customary reinvestment rights and leverage-based step-downs to 25% and 0%, in each case, subject to certain exceptions.

~~Third Amended and Restated Loan and Security Agreement (ABL)~~

On the Closing Date, the Company entered into a Third Amended and Restated Loan and Security Agreement (the “ABL Agreement”) with various lenders. The ABL Agreement provides for a senior secured revolving loan facility (the “ABL Revolver”) with aggregate commitments available to Company of the lesser of (i) $150.0 million and (ii) a specified borrowing base based on a percentage of the Company's eligible credit card receivables, accounts (subject to certain limitations) and inventory (subject to certain limitations), less certain reserves (the “Aggregate Borrowing Cap”). Furthermore, the ABL Agreement includes separate borrowing caps equal to (A) the lesser of (1) $100.0 million and (2) a specified borrowing base based on a percentage of certain of the Company's subsidiaries eligible credit card receivables, accounts (subject to certain limitations) and inventory (subject to certain limitations), less certain reserves.

As of September 25, 2021, the ABL Revolver was undrawn. The ABL Agreement amended and restated the existing Second Amended and Restated Loan and Security Agreement, dated as of December 16, 2019. The Company's obligations under the ABL Agreement are guaranteed pursuant to a Second Amended and Restated Guaranty Agreement, dated as of the Closing Date. The obligations of the Company under the ABL Agreement are secured by substantially all of the assets of the Company pursuant to the ABL Agreement and a Third Amended and Restated Pledge Agreement (the “ABL Pledge”).

The ABL Revolver will mature on March 10, 2025, and borrowings under the ABL Revolver will bear interest at a variable rate with a 1.75% floor. Interest is payable on either the last day of the interest period or the last business day of the calendar quarter.

~~Subject~~Pursuant to an intercreditor agreement, the Company is required to repay the excess amount of borrowings under the ABL Revolver if: (i) the aggregate outstanding principal amount of all borrowings by the Company under the ABL Revolver at any time exceeds the Aggregate Borrowing Cap specified therein, or (ii) the aggregate outstanding principal amount of all borrowings of certain of the Company's subsidiaries exceeds their respective borrowing caps.

The FRG ABL Revolver Agreement and ~~ABL~~Third Amended and Restated Pledge Agreement include customary affirmative and negative covenants that are binding on the Company, including the delivery of financial statements, borrowing base certificates and other reports. ~~The~~Certain of the negative covenants included therein limit the ability of the Company, among other things, to incur debt ~~incur~~and liens, make investments, sell assets, pay dividends and enter into transactions with affiliates. In addition, the FRG ABL Revolver Agreement includes customary events of default, the occurrence of which may require the Company to pay an additional 2.0% interest on the borrowings under the ABL Revolver.

~~The following debt agreements have been repaid since reported in the Form 10-K. Refer~~Debt Related to the ~~Form 10-K for further information regarding these debt agreements.~~Securitization of Accounts Receivable

~~Franchise Group New Holdco Credit Agreement~~In December 2021 and ~~Term Loan~~

~~On March 10, 2021,~~during 2022, the ~~outstanding amount~~Company's Badcock segment sold beneficial interests in the revolving lines of ~~$527.4 million, including accrued interest, under the Franchise Group New Holdco Credit Agreement and Term Loan was paid in full in connection with the issuance~~credit that it originated. The sales of the ~~First Lien Term Loan~~beneficial interests in the revolving lines of credit are accounted for as secured borrowings on our Condensed Consolidated Balance Sheets with both assets and non-recourse liabilities because the ~~Second Lien Term Loan.~~sales do not qualify as a sale under ASC 860 - "Transfers and Servicing," even though the underlying receivables are deemed to be legally sold. The ~~early repayment resulted in~~Company's Badcock segment may periodically sell additional ~~interest expense~~beneficial interests and repay portions of ~~$20.1 million for~~ the ~~write-off~~securitized debt early. The income earned on the securitized revolving lines of ~~deferred financing costs and $36.7 million for a prepayment penalty. The prepayment penalty~~credit is recorded as interest income in service and other revenues with a corresponding amount recorded in Interest expense, net on the ~~Other expense line~~Condensed Consolidated Statements of ~~the Consolidated Statement of Operations for the nine months ended September 25, 2021.~~Operations.

~~Franchise Group New Holdco New ABL Credit Agreement~~Proceeds from secured borrowings issued in the securitization are accounted for as non-recourse notes payable. Proceeds from the Company's customers are responsible for servicing the debt from a secured borrowing, and ~~New ABL Term Loan~~the Company is not liable for the repayment of non-recourse loans unless representations or warranties in the loan agreements are breached. The lender assumes the credit risk and their only recourse, upon default by the customer, is against the customer.

~~On March 10, 2021, the Franchise Group New Holdco New ABL Credit Agreement~~Debt securitized by accounts receivable, net of $471.5 million includes $395.6 million of securitized debt and ~~Term Loan was replaced~~an accreted discount of $75.9 million. Current installments of debt securitized by ~~the ABL Agreement~~accounts receivable, net of $386.1 million includes $324.0 million of securitized debt and ~~the outstanding amount~~an accreted discount of $37.0 million, including accrued interest, under the Franchise Group New Holdco New ABL Credit Agreement and Term Loan was paid in full by the Company in connection with the issuance of the First Lien Term Loan and the Second Lien Term Loan. The early repayment resulted in additional interest expense of $8.1 million for the write-off of deferred financing costs.

$62.1 million.

~~Vitamin Shoppe ABL Revolver~~

On March 10, 2021, the outstanding amount of $43.0 million, including accrued interest, under the Vitamin Shoppe ABL Revolver was paid in full with the proceeds from the First Lien Term Loan and the Second Lien Term Loan which resulted in a write-off of $1.2 million of deferred financing costs.

Compliance with Debt Covenants

The Company's revolving credit and long-term debt agreements impose restrictive covenants on it, including requirements to meet certain ratios. As of September ~~25, 2021,~~24, 2022, the Company was in compliance with all covenants under these agreements and, based on a continuation of current operating results, the Company expects to be in compliance for the next twelve months.

~~(7)~~(8) Income Taxes

Overview

For the three months ended September ~~25, 2021~~24, 2022 and September ~~26, 2020,~~25, 2021, the Company had an effective tax rate from continuing operations of ~~(75.8)~~(35.9)% and ~~(66.7)~~(75.8)%, respectively. For the nine months ended September 24, 2022 and September 25, 2021, the Company had an effective tax rate from continuing operations of (264.9)% and (63.5)%, respectively. The ~~change~~changes in the effective tax rate compared to the prior year isare due to the reversal of a valuation allowance related to net operating loss carryforwards in the ~~current year. The impact of the CARES Act was included in the~~ prior year ~~effective~~as well as a current year non-cash goodwill impairment charge that is nondeductible for tax rate. For the nine months ended September 25, 2021 and September 26, 2020, the Company had an effective tax rate from continuing operations of (63.5)% and 106.1%, respectively. The impact of the enactment of the CARES Act was included nine months ended September 26, 2020 which is the primary driver of the difference in the effective tax rate. The Company is also expecting to utilize its net operating loss carryforwards and is expecting to realize its deferred tax assets which previously had a full valuation allowance.purposes.

~~CARES Act~~

The Coronavirus, Aid, Relief, and Economic Security, or CARES Act (the “Act”) was enacted on March 27, 2020. The Act retroactively changed the eligibility of certain assets for expense treatment in the year placed in service, back to 2018, and permitted any net operating loss for the tax years 2018, 2019, and 2020 to be carried back for 5 years. The Company recorded a total income tax benefit of $52.3 million during 2020 associated with the income tax components contained in the Act.

~~Tax Receivable Agreement~~

On July 10, 2019, the Company entered into a tax receivable agreement with the then-existing non-controlling interest holders (the "Tax Receivable Agreement") that provides for the payment by the Company to the non-controlling interest holders of 40% of the cash savings, if any, in federal, state and local taxes that the Company realizes or is deemed to realize as a result of any increases in tax basis of the assets of New Holdco resulting from future redemptions or exchanges of New Holdco units.

Payments will be made when such TRA related deductions actually reduce the Company’s income tax liability. No payments were made to members of New Holdco pursuant to the TRA during the quarter ended September 25, 2021. Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company has obtained an increase in its share of the tax basis in the net assets of New Holdco when the New Holdco units were redeemed or exchanged by the non-controlling interest holders and other qualifying transactions. The Company has treated the redemptions and exchanges of New Holdco units by the non-controlling interest holders as direct purchases of New Holdco units for U.S. federal income tax purposes. This increase in tax basis will reduce the amounts that it would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

~~(8) Stockholders’ Equity~~

~~Stockholders' Equity Activity~~

On January 11, 2021, the Company entered into an Underwriting Agreement with B. Riley Securities, Inc., as representative of the several underwriters named therein (the “Underwriters”), to issue and sell an aggregate of 2,976,191 shares (the “Firm Shares”) of the Company’s 7.50% Series A Cumulative Perpetual Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share (the “Series A Preferred Stock”), in a public offering at a price to the public of $25.20 per share. The Company also granted the Underwriters an option (the “Option”) to purchase up to 446,428 additional

shares of Series A Preferred Stock during the 30 days following the date of the Underwriting Agreement. On January 14, 2021, the Underwriters partially exercised the Option for 314,934 shares (together with the Firm Shares, the “Shares”). The offering closed on January 14, 2021, and the net proceeds to the Company were approximately $79.5 million, after deducting underwriting discounts, an advisory fee and offering expenses totaling approximately $3.2 million.

~~Accumulated Other Comprehensive Loss~~

~~The components of accumulated other comprehensive loss, which were from the Company's Liberty Tax business, as of September 25, 2021 and December 26, 2020 were as follows:~~

~~(In thousands)~~

~~September 25, 2021~~

~~December 26, 2020~~

~~Foreign currency adjustment~~

—

~~(1,254)~~

~~Interest rate swap agreements, net of tax~~

—

~~(145)~~

~~Total accumulated other comprehensive loss~~

—

~~(1,399)~~

~~Non-controlling interest~~

The Company is the sole managing member of New Holdco and, as a result, consolidates the financial results of New Holdco. Prior to April 1, 2020, the Company reported a non-controlling interest representing the economic interest in New Holdco held by the former equity holders of Buddy's (the "Buddy’s Members"). Changes in the Company's ownership interest in New Holdco while it retained a controlling interest in New Holdco were accounted for as equity transactions. On March 26, 2020, the Company redeemed 3,937,726 New Holdco units and 787,545 shares of preferred stock for common stock. On April 1, 2020, the Company redeemed the remaining 5,495,606 New Holdco units and 1,099,121 shares of preferred stock for common stock and the Company is the sole owner of New Holdco.

The exchange of New Holdco units for common stock resulted in an increase in the tax basis of the net assets of New Holdco and a liability to be recognized pursuant to the TRA. The difference of $10.0 million in the adjustment of the deferred tax balances and the tax receivable agreement liability was recorded as an adjustment to additional paid-in-capital. Refer to "Note 7. Income Taxes" for further discussion of the TRA.

~~Net Income (Loss) per Share~~

Diluted net income (loss) per share is computed using the weighted-average number of common stock and, if dilutive, the potential common stock outstanding during the period. Potential common stock consists of the incremental common stock issuable upon the exercise of stock options and vesting of restricted stock units. The dilutive effect of outstanding stock options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. Additionally, the computation of the diluted net income (loss) per share of common stock assumed the conversion of Preferred Stock, if dilutive.

~~The following table sets forth the calculations of basic and diluted net income (loss) per share:~~

Three Months Ended Nine Months Ended
(In thousands, except for share and per share amounts) September 25, 2021

September 26, 2020 September 25, 2021

September 26, 2020
Net income (loss) from continuing operations attributable to Franchise Group $ 35,998 $ (4,726) $ 40,185 $ (11,005)
Less: Preferred dividend declared (2,128) (169) (6,384) (169)
Adjusted net income (loss) from continuing operations available to Common Stockholders 33,870 (4,895) 33,801 (11,174)
Net income from discontinued operations attributable to Franchise Group 128,072 (3,871) 176,434 40,274
Adjusted net income (loss) available to Common Stockholders $ 161,942 $ (8,766) $ 210,235 $ 29,100
Weighted-average common stock outstanding 40,229,232 39,692,384 40,171,458 32,679,576
Net dilutive effect of stock options and restricted stock 744,504 — 759,965 —
Weighted-average diluted shares outstanding 40,973,736 39,692,384 40,931,423 32,679,576
Basic net income (loss) per share:
Continuing operations $ 0.84 $ (0.12) $ 0.84 $ (0.34)
Discontinued operations 3.18 (0.10) 4.39 1.23
Basic net income per share $ 4.02 $ (0.22) $ 5.23 $ 0.89
Diluted net income (loss) per share:
Continuing operations $ 0.83 $ (0.12) $ 0.83 $ (0.34)
Discontinued operations 3.13 (0.10) 4.31 1.23
Diluted net income per share $ 3.96 $ (0.22) $ 5.14 $ 0.89

~~(9) Stock-Based Compensation Plans~~

~~For a discussion of our stock-based compensation plans, refer to “Note 11. - Stock-Based Compensation Plans” of the Form 10-K for the year ended December 26, 2020.~~

~~Stock Options~~

~~Stock option activity during the nine months ended September 25, 2021 was as follows:~~

Number of
options Weighted
average
exercise price
Outstanding as of December 26, 2020 391,409 $ 10.19
Exercised (36,188) 10.66
Expired or forfeited — —
Outstanding as of September 25, 2021 355,221 $ 10.15

Intrinsic value is defined as the fair value of the stock less the cost to exercise. The total intrinsic value of stock options outstanding at September 25, 2021 was $9.0 million. Stock options vest from the date of grant to ~~three~~ ~~years after the date of grant and expire from~~ ~~four~~ to ~~five~~ ~~years after the vesting date.~~

~~Nonvested stock options activity during the nine months ended September 25, 2021 was as follows:~~

Nonvested
options Weighted
average
exercise price
Outstanding as of December 26, 2020 63,334 $ 8.83
Vested (63,334) 8.83
Expired or forfeited — —
Outstanding as of September 25, 2021 — $ —

~~At September 25, 2021, there were no unrecognized compensation costs related to nonvested stock options.~~

~~The following table summarizes information about stock options outstanding and exercisable at September 25, 2021:~~

Options Outstanding Options Exercisable
Range of exercise prices Number Weighted average exercise price Weighted average remaining contractual life (in years) Number Weighted average exercise price
$0.00 - $10.89 204,500 $ 8.80 3.8 204,500 $ 8.80
$10.90 - $12.01 150,721 11.98 2.5 150,721 11.98
355,221 $ 10.15 355,221 $ 10.15

~~Restricted Stock Units~~

The Company has awarded service-based restricted stock units ("RSUs") and performance restricted stock units ("PRSUs") to its non-employee directors, officers and certain employees. The Company recognizes expense based on the estimated fair value of the RSUs or PRSUs granted over the vesting period on a straight-line basis. The fair value of RSUs and PRSUs is determined using the Company's closing stock price on the date of the grant. At September 25, 2021, unrecognized compensation costs related to RSUs and PRSUs were $5.8 million and $24.9 million, respectively. These costs are expected to be recognized through fiscal 2024.

~~The following table summarizes the status of RSUs as of and changes during the nine months ended September 25, 2021:~~

Number of restricted stock units Weighted average fair value at grant date
Balance as of December 26, 2020 296,147 $ 20.51
Granted 120,952 35.72
Vested (101,503) 22.56
Canceled (2,342) 12.22
Balance as of September 25, 2021 313,254 $ 25.78

~~The following table summarizes the status of PRSUs as of and changes during the nine months ended September 25, 2021:~~

Number of restricted stock units Weighted average fair value at grant date
Balance as of December 26, 2020 618,737 $ 17.00
Granted 913,875 21.72
Vested (19,500) 14.40
Canceled — —
Balance as of September 25, 2021 1,513,112 $ 19.81

~~Stock Compensation Expense~~

~~The Company recorded $9.6 million and $6.3 million during the nine months ended September 25, 2021 and September 26, 2020, respectively.~~

~~(10) Fair Value of Financial Instruments~~

As required, financial assets and liabilities are classified in the fair value hierarchy in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

~~Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis~~

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). The Company recorded impairment charges of $1.1 million and $0 during the nine months ended September 25, 2021 and September 26, 2020.

~~Fair Value of Financial Instruments~~

The carrying value of Cash and cash equivalents, restricted cash, accounts receivable and accounts payable as reported in the accompanying unaudited condensed consolidated balance sheets approximate fair value due to their short-term maturities. The carrying amount of Long-term debt approximates fair value because the interest rate paid has a variable component. The fair value for equity securities for which the Company does not have the ability to exercise significant influence is based on quoted prices in active markets, which was $40.9 million as of September 25, 2021.

~~(11) Related Party Transactions~~

~~The Company considers directors and their affiliated companies, as well as executive officers and members of their immediate families, to be related parties.~~

~~Messrs. Kahn and Laurence~~

Vintage Capital Management, LLC and its affiliates ("Vintage") held approximately 31% of the aggregate voting power of the Company through their ownership of common stock as of September 25, 2021. Brian Kahn and Andrew Laurence are principals of Vintage. Mr. Kahn is a member of the Board of Directors, President and Chief Executive Officer of the Company. Mr. Laurence is an Executive Vice President of the Company, served as a member of the Company's Board of Directors until the Company's annual meeting of stockholders in May 2021 and served as the Company's Chairman of the Board until March 31, 2020.

~~Buddy's Franchises.~~ Mr. Kahn's brother-in-law owns seven Buddy's franchises. All transactions between the Company's Buddy's segment and Mr. Kahn's brother-in-law are conducted on a basis consistent with other franchisees.

~~Bryant Riley (former director)~~

Bryant Riley, through controlled entities or affiliates held approximately 4% of the aggregate ownership of the Company's common stock as of September 25, 2021. Prior to the quarter ended September 25, 2021, Mr. Riley held greater than 5% of the aggregate ownership of the Company's common stock. Mr. Riley was also a member of the Company's Board of Directors from September 2018 through March 2020.

~~January 2021 Underwritten Offering of Preferred Stock~~. On January 11, 2021, the Company reopened its original issuance of its Series A Preferred Stock, which closed on September 18, 2020 as noted above. The Company completed the reopened underwritten offering on January 15, 2021 in which B. Riley Securities, an affiliate of Mr. Riley, acted as representative of the underwriters. In connection with the offering B. Riley Securities and the other underwriters in the offering were entitled to an underwriting discount and reimbursement of certain out-of-pocket expenses incurred of approximately $3.0 million and B. Riley Securities was entitled to a structuring fee of $0.3 million.

~~Debt Commitment Letter and Fee Letter~~. On January 23, 2021, in connection with the Pet Supplies Plus Acquisition and the refinancing of the Company's existing indebtedness, the Company entered into a debt commitment letter with, among others, BRF Finance Co., LLC (“BRF”), an affiliate of Mr. Riley, pursuant to which BRF committed to provide (i) $100.0 million of a then-contemplated first lien term loan credit facility and (ii) $300.0 million of a then-contemplated senior unsecured term loan credit facility (the “Senior Unsecured Facility”). On January 23, 2021, the Company entered into a fee letter with BRF pursuant to which (a) BRF committed to provide $100.0 million of an alternative then-contemplated first lien term loan credit facility (the “Alternative First Lien Facility”) and (b) BRF (or its affiliates) received, on March 10, 2021, (i) a $9.0 million arrangement fee as consideration for BRF’s commitments and agreements with respect to the Senior Unsecured Facility and (ii) a $1.0 million take-out fee as consideration for BRF’s commitments and agreements with respect to the Alternative First Lien Facility.

~~M. Brent Turner~~

Mr. Turner was the President and Chief Executive Officer of the Company’s Liberty Tax business which was sold to NextPoint on July 2, 2021 in connection with the Transaction. The Company previously entered into certain agreements with Revolution Financial, Inc., an entity partially owned by Mr. Turner, which were terminated upon completion of the sale of the Liberty Tax business. During the nine months ended September 25, 2021, the Company earned less than $0.2 million in royalties related to such agreements which was recorded in "Income (loss) from discontinued operations, net of tax" in the accompanying Condensed Consolidated Statements of Operations.

Tax Receivable Agreement

~~In connection~~On July 10, 2019, the Company entered into a tax receivable agreement with the then-existing non-controlling interest holders (the "Tax Receivable Agreement") that provides for the payment by the Company to the non-controlling interest holders of 40% of the cash savings, if any, in federal, state and local taxes that the Company realizes or is deemed to realize as a result of any increases in tax basis of the assets of Franchise Group New Holdco, LLC ("New Holdco") resulting from future redemptions or exchanges of New Holdco units.

Payments will be made when such Tax Receivable Agreement related deductions actually reduce the Company’s income tax liability. No payments were made to members of New Holdco pursuant to the Tax Receivable Agreement during the nine months ended September 24, 2022. Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company has obtained an increase in its share of the tax basis in the net assets of New Holdco when the New Holdco units were redeemed or exchanged by the non-controlling interest holders and other qualifying transactions. The Company has treated the redemptions and exchanges of New Holdco units by the non-controlling interest holders as direct purchases of New Holdco units for U.S. federal income tax purposes. This increase in tax basis will reduce the amounts that it would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

(9) Net Income (Loss) Per Share

The following table sets forth the calculations of basic and diluted net income (loss) per share:


	Three Months Ended				Nine Months Ended
(In thousands, except for share and per share amounts)	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Net income (loss) from continuing operations attributable to Franchise Group	$	(121,163)	$	35,998	$	(67,862)	$	40,185
Less: Preferred dividend declared	(2,129)		(2,128)		(6,386)		(6,384)
Adjusted net income (loss) from continuing operations available to Common Stockholders	(123,292)		33,870		(74,248)		33,801
Net income from discontinued operations attributable to Franchise Group	—		128,072		—		176,434
Adjusted net income (loss) available to Common Stockholders	$	(123,292)	$	161,942	$	(74,248)	$	210,235

Weighted-average common stock outstanding	39,941,287		40,229,232		40,201,666		40,171,458
Net dilutive effect of stock options and restricted stock	—		744,504		—		759,965
Weighted-average diluted shares outstanding	39,941,287		40,973,736		40,201,666		40,931,423

Basic net income (loss) per share:
Continuing operations	$	(3.09)	$	0.84	$	(1.85)	$	0.84
Discontinued operations	—		3.18		—		4.39
Basic net income per share	$	(3.09)	$	4.02	$	(1.85)	$	5.23

Diluted net income (loss) per share:
Continuing operations	$	(3.09)	$	0.83	$	(1.85)	$	0.83
Discontinued operations	—		3.13		—		4.31
Diluted net income per share	$	(3.09)	$	3.96	$	(1.85)	$	5.14

(10) Equity & Stock Compensation Plans

For a discussion of our stock-based compensation plans, refer to “Note 11. - Stock Compensation Plans” of the most recently filed Form 10-K.

Restricted Stock Units

The Company has awarded service-based restricted stock units (the "RSUs") to its non-employee directors, officers and certain employees. The Company recognizes expense based on the estimated fair value of the RSUs granted over the vesting period on a straight-line basis. The fair value of RSUs is determined using the Company's closing stock price on the date of the grant. At September 24, 2022, unrecognized compensation costs related to the RSUs were $6.2 million. These costs are expected to be recognized through fiscal year 2024.

The following table summarizes the status of the RSUs as of and changes during the nine months ended September 24, 2022:


	Number of RSUs	Weighted average fair value at grant date
Balance as of December 25, 2021	269,708	$	27.92
Granted	118,359	42.15
Vested	(67,819)	39.26
Canceled	—	—
Balance as of September 24, 2022	320,248	$	33.23

Performance Restricted Stock Units

The Company has awarded performance restricted stock units (the "PRSUs") to its officers and certain employees. The Company recognizes expense based on the estimated fair value of the PRSUs granted over the vesting period on a straight-line basis. The fair value of PRSUs is determined using the Company's closing stock price on the date of the grant. At September 24, 2022, unrecognized compensation costs related to the PRSUs were $5.4 million. These costs are expected to be recognized through fiscal year 2024.

The following table summarizes the status of the PRSUs as of and changes during the nine months ended September 24, 2022:


	Number of PRSUs	Weighted average fair value at grant date
Balance as of December 25, 2021	706,260	$	19.90
Granted	102,930	42.25
Vested	—	—
Canceled	—	—
Balance as of September 24, 2022	809,190	$	22.74

Market-Based Performance Restricted Stock Units

The Company has awarded market-based performance restricted stock units (the "MPRSUs") to its officers and certain employees. The Company recognizes expense based on the estimated fair value of the MPRSUs granted over the vesting period on a straight-line basis. The fair value of MPRSUs is determined using a Monte Carlo simulation valuation model to calculate grant date fair value. Compensation expense is recognized over the requisite service period using the proportionate amount of the award's fair value that has been earned through service to date. Under GAAP, compensation expense is not reversed if the award target is not achieved. At September 24, 2022, unrecognized compensation costs related to the MPRSUs were $11.7 million. These costs are expected to be recognized through fiscal year 2024.

The following table summarizes the status of the MPRSUs as of and changes during the nine months ended September 24, 2022:


	Number of MPRSUs	Weighted average fair value at grant date
Balance as of December 25, 2021	826,926	$	20.13
Granted	70,000	54.00
Vested	—	—
Canceled	(28,000)	20.54
Balance as of September 24, 2022	868,926	$	21.71

Stock Options

The Company has awarded stock options to its non-employee directors and officers. As of September 24, 2022 and September 25, 2021, there were 259,064 and 355,221 stock options outstanding, respectively. During the nine months ended September 24, 2022, there were no stock options granted, 72,969 stock options exercised, and no stock options forfeited. The weighted-average exercise price of stock options outstanding was $9.46 per share as of September 24, 2022. All outstanding stock options will expire in fiscal years 2023 and 2024.

At September 24, 2022 and September 25, 2021, there were zero non-vested stock options outstanding. At September 24, 2022, there was no remaining unrecognized compensation cost related to vested or non-vested stock options.

The following table summarizes information about stock options outstanding and exercisable at September 24, 2022:


	Options Outstanding and Exercisable
Range of exercise prices	Number	Weighted average exercise price		Weighted average remaining contractual life (in years)

$0.00 - $10.89	204,500	$	8.80	0.8
$10.90 - $12.01	54,564	11.97		1.2
	259,064	$	9.46

Stock Compensation Expense

The Company recorded $3.3 million and $4.1 million in stock-based compensation expense during the three months ended September 24, 2022 and September 25, 2021, respectively and $14.1 million and $9.6 million in stock-based compensation expense during the nine months ended September 24, 2022 and September 25, 2021, respectively.

Long-Term Incentive Plans

The Company has long-term incentive plans at various operating companies which are recorded as liabilities. Upon vesting, the awards granted under these plans may be settled in cash or shares of the Company's stock at the Company's discretion. The total aggregate liability for these plans as of September 24, 2022 is $7.1 million, recorded in "Accounts payable and accrued expenses" on the Condensed Consolidated Balance Sheets. During the nine months ended September 24, 2022, total expense recognized related to these plans was $5.4 million.

Stock Repurchases

On May 18, 2022, the Company's Board of Directors approved a stock repurchase program under which the Company may repurchase up to $500.0 million of its outstanding shares of common stock over the next three years. The repurchase program authorizes shares to be repurchased from time to time in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The actual timing, number and value of shares, if any, repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including, among others, the availability of stock, general market and business conditions, the trading price of the Company’s common stock and applicable legal requirements. This plan supersedes the Company's previous stock repurchase programs. During the nine months ended September 24, 2022, the Company repurchased 2,227,200 shares of its common stock through open market transactions totaling an aggregate of $77.9 million. No stock repurchases were made during the nine months ended September 25, 2021.

(11) Related Party Transactions

The Company considers any of its directors, executive officers or beneficial owners of more than 5% of its common stock, or any member of the immediate family of the foregoing persons, to be related parties.

Messrs. Kahn and Laurence

Brian Kahn and Vintage Capital Management, LLC and its affiliates ("Vintage"), in aggregate, held approximately 23% of the aggregate voting power of the Company through their ownership of common stock as of September 24, 2022. Brian Kahn and Andrew Laurence are principals of Vintage. Mr. Kahn is a member of the Board of Directors, President and Chief Executive Officer of the Company. Mr. Laurence is an Executive Vice President of the Company and served as a member of the Company's Board of Directors until the Company's annual meeting of stockholders in May 2021.

Buddy's Franchises. Mr. Kahn's brother-in-law owns eight Buddy's franchises. All transactions between the Company's Buddy's segment and Mr. Kahn's brother-in-law are conducted on a basis consistent with other franchisees.

Tax Receivable Agreement

The Company previously had a non-controlling interest in New Holdco as a result of its acquisition of Buddy's on July 10, 2019. On April 1, 2020, the Company redeemed all of the non-controlling interest units. On July 10, 2019, the Company entered into the Tax Receivable Agreement with the then-existing non-controlling interest holders, which comprised the former equity holders of Buddy's ~~Members~~(the "Buddy's Members") that provides for the payment by the Company to the ~~Buddy's Members~~non-controlling interest holders of 40% of the amount of any tax benefits that the Company actually realizes as a result of increases in the tax basis of the net assets of New Holdco resulting from any redemptions or exchanges of New Holdco units. Amounts due under the Tax Receivable Agreement to the Buddy's Members as of September 24, 2022 and December 25, 2021 were ~~$16.8~~$17.3 million, which isare recorded in "Other non-current liabilities" in the accompanying ~~condensed consolidated balance sheets.~~Condensed Consolidated Balance Sheets. No payments were made to Buddy's Members pursuant to the Tax Receivable Agreement during the nine months ended September ~~25, 2021.~~

24, 2022.

(12) Commitments and Contingencies

In the ordinary course of operations, the Company may become a party to legal proceedings. Based upon information currently available, management believes that such legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company's business, financial condition, cash flows, or results of operations.

The Company is party to claims and lawsuits that are considered to be ordinary, routine litigation incidental to the business, including claims and lawsuits concerning the fees charged to customers for various products and services, relationships with franchisees, intellectual property disputes, employment matters, and contract disputes. Although the Company cannot provide assurance that it will ultimately prevail in each instance, it believes the amount, if any, it will be required to pay in the discharge of liabilities or settlements in these claims will not have a material adverse impact on its consolidated results of operations, financial position, or cash flows.

Guarantees

The Company remains secondarily liable under various real estate leases that were assigned to franchisees who acquired Pet Supplies Plus stores from the Company. In the event of the failure of an acquirer to pay lease payments, the Company could be obligated to pay the remaining lease payments which extend through 2033 and ~~aggregated $8.7~~in aggregate are $22.0 million and $22.9 million as of September 24, 2022 and December 25, ~~2021.~~ 2021, respectively.

The Company also remains secondarily liable under loan agreements entered into by certain franchisees who acquired Vitamin Shoppe, American Freight, or Buddy's stores from the Company. In the event of the failure of these franchisees to make the loan payments, the Company could be obligated to pay the default amounts. No amounts were outstanding under these agreements, and, therefore, the Company has no potential guarantee liability as of September 24, 2022.

If the Company is required to make payments under any of these guarantees, the Company could seek to recover those amounts from the franchisees or in some cases their affiliates. The Company believes that payment under any of these guarantees is remote as of September ~~25, 2021.~~

24, 2022.

(13) Segments

The Company's operations are conducted in ~~four~~six reportable business segments: Vitamin Shoppe, ~~American Freight,~~ Pet Supplies Plus, Badcock, American Freight, Buddy's, and ~~Buddy's.~~Sylvan. The Company defines its segments as those operations which results its chief operating decision maker ("CODM") regularly reviews to analyze performance and allocate resources. The results of operations of ~~American Freight are included in the Company's results of operations beginning on February 14, 2020 and the results of operations of~~ Pet

Supplies Plus are included in the Company's results of operations beginning on March 11, ~~2021. As a result~~2021, the results of operations of Sylvan are included in the Company's ~~sale~~results of ~~its Liberty Tax business, as discussed~~operations beginning on September 27, 2021, and the results of operations of Badcock are included in ~~"Note 3. Divestitures,"~~ the Company's ~~Liberty Tax business is not reported in segment information since this business is reported as a discontinued operation. Current and prior year amounts have been revised to reflect this change.~~results of operations beginning on November 22, 2021.

The Vitamin Shoppe segment is an ~~omni-channel~~omnichannel specialty retailer and wellness lifestyle company with the mission of providing customers with the most trusted products, guidance, and services to help them become their best selves, however they define it. The Vitamin Shoppe segment offers one of the largest varieties of products among vitamin, mineral and supplement retailers. The broad product offering enables the company to provide customers with a ~~comprehensive assortment~~depth of ~~nutritional solutions, including vitamins, minerals,~~selection of products that may not be readily available at other specialty ~~supplements, herbs, sports nutrition, homeopathic remedies, green living products,~~retailers or mass merchants, such as discount stores, supermarkets, drug stores and ~~natural beauty aids.~~wholesale clubs. The Vitamin Shoppe ~~segment consists~~continues to focus on improving the customer experience through the roll-out of ~~our operations under~~initiatives including increasing customer engagement and personalization, redesigning the ~~"Vitamin Shoppe" brand~~omnichannel experience (including

in stores as well as through the internet and mobile devices), growing private brands and improving the effectiveness of pricing and promotions. Vitamin Shoppe is headquartered in Secaucus, New Jersey.

The American Freight segment provides in-store and online access to purchase new, one-of-a-kind, out-of-box, discontinued, obsolete, reconditioned, overstocked, scratched and dented household appliances and unbranded furniture and mattresses at value prices. The American Freight segment consists of our operations under the "American Freight" banner and is headquartered in Delaware, Ohio.

~~The~~ Pet Supplies Plus segment is a leading omnichannel retail chain and franchisor of pet supplies and ~~retailer in the pet industry.~~services. Pet Supplies Plus has a diversified revenue model comprised of ~~corporate~~Company-owned store revenue, franchise royalties and revenue generated by the wholesale distribution of products to its franchisees. Pet Supplies Plus offers a curated selection of premium brands, proprietary private labels and specialty products with retail price parity with online players. Additionally, Pet Supplies Plus offers grooming, pet wash and other services in most of its locations. The Pet Supplies Plus segment ~~consists of the Company's operations~~operates under the "Pet Supplies Plus" brand and is headquartered in Livonia, Michigan.

The Badcock segment is a retailer of furniture, appliances, bedding, electronics, home office equipment, accessories and seasonal items in a showroom format. Additionally, Badcock offers multiple and flexible payment solutions and credit options through its consumer financing services. The Badcock segment operates under the “Badcock Home Furniture & More" brand and is headquartered in Mulberry, Florida.

The American Freight segment is a retail chain offering in-store and online access to furniture, mattresses, new and out-of-box home appliances and home accessories at discount prices. American Freight buys direct from manufacturers and sells direct in warehouse-style stores. By cutting out the middleman and keeping its overhead costs low, American Freight can offer quality products at low prices. American Freight provides customers with multiple payment options providing access to high-quality products and brand name appliances that may otherwise remain aspirational to some of its customers.

American Freight also serves as a liquidation channel for major appliance vendors. American Freight operates specialty distribution centers that test every out-of-box appliance before it is offered for sale to customers. Customers typically are covered by the original manufacturer's warranty and are offered the opportunity to purchase a full suite of extended-service plans and services. The American Freight segment operates under the "American Freight" brand and is headquartered in Delaware, Ohio.

The Buddy's segment ~~leases and sells electronics,~~is a specialty retailer of high quality, name brand consumer electronic, residential furniture, appliances and household ~~accessories.~~accessories through rent-to-own agreements. The rental transaction allows customers the opportunity to benefit from the use of high-quality products under flexible rental purchase agreements without long-term obligations. The Buddy's segment ~~consists of the Company's operations~~operates under the "Buddy's" brand and is headquartered in Orlando, Florida.

~~Total revenues by~~The Sylvan segment ~~were as follows:~~

Three Months Ended Nine Months Ended
(In thousands) September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020
Total revenue:
   Vitamin Shoppe $ 300,813 $ 266,965 $ 898,108 $ 780,588
   American Freight 223,591 245,212 750,914 682,386
   Pet Supplies Plus 286,643 — 613,712 —
   Buddy's 17,779 25,515 50,195 75,219
Consolidated total revenue $ 828,826 $ 537,692 $ 2,312,929 $ 1,538,193
is an established and growing franchisor of supplemental education for Pre-K-12 students and families. Sylvan addresses the full range of student needs with a broad variety of academic curriculums delivered in an omnichannel format. The Sylvan platform provides franchisees with the ability to provide a range of services, including on premises, virtually, at a satellite location, and in the home. Sylvan is headquartered in Hunt Valley, Maryland.

Refer to "Note 6. Revenue" for total revenues by segment. Operating income (loss) by segment were as follows:

Three Months Ended Nine Months Ended
(In thousands) September 25, 2021 September 26, 2020 September 25, 2021

September 26, 2020
Income (loss) from operations:
   Vitamin Shoppe $ 27,792 $ 2,849 $ 90,830 $ (3,214)
   American Freight 9,574 19,940 56,659 33,949
   Pet Supplies Plus 18,647 — 25,056 —
   Buddy's 5,991 5,302 13,630 13,985
Total Segments 62,004 28,091 186,175 44,720
   Corporate (7,241) (3,411) (20,280) (8,108)
Consolidated income (loss) from operations $ 54,763 $ 24,680 $ 165,895 $ 36,612


	Three Months Ended				Nine Months Ended
(In thousands)	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Income (loss) from operations:
Vitamin Shoppe	$	25,465	$	27,792	$	91,836	$	90,830
Pet Supplies Plus	19,466		18,647		55,142		25,056
Badcock	11,445		—		112,578		—
American Freight	(77,903)		9,574		(61,661)		56,659
Buddy's	1,796		5,991		9,423		13,630
Sylvan	894		—		3,475		—
Total Segments	(18,837)		62,004		210,793		186,175
Corporate	(7,170)		(7,241)		(29,329)		(20,280)
Consolidated income (loss) from operations	$	(26,007)	$	54,763	$	181,464	$	165,895

2524

Total assets by segment were as follows:

(In thousands) September 25, 2021 December 26, 2020
Total assets:
   Vitamin Shoppe $ 604,501 $ 607,148
   American Freight 888,410 801,731
   Pet Supplies Plus 942,019 —
   Buddy's 148,533 137,698
Total Segments 2,583,463 1,546,577
   Corporate 248,121 203,196
Consolidated total assets $ 2,831,584 $ 1,749,773

~~(14) Subsequent Events~~

On September 27, 2021, the Company completed the acquisition of Sylvan Learning ("Sylvan"), a leading tutoring franchisor for Pre-K-12 students and families in the U.S., valued at approximately $81 million pursuant to a Stock Purchase Agreement, dated as of September 27, 2021, by and among wholly-owned subsidiaries of the Company and Educate Investments, LLC (the "Sylvan Transaction"). The Sylvan Transaction was financed with cash on hand. The Company is in the process of completing the fair value determinations and resulting purchase price allocations.


(In thousands)	September 24, 2022		December 25, 2021
Total assets:
Vitamin Shoppe	$	614,332	$	596,964
Pet Supplies Plus	979,316		957,849
Badcock	846,755		1,062,310
American Freight	924,790		959,282
Buddy's	138,364		146,033
Sylvan	100,172		103,850
Total Segments	3,603,729		3,826,288
Corporate	62,557		86,883
Consolidated total assets	$	3,666,286	$	3,913,171

2625

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

This ~~quarterly report~~Quarterly Report contains forward-looking statements concerning our business, operations, and financial performance and condition as well as our plans, objectives, and expectations for our business operations and financial performance and condition. Any statements contained herein that are not of historical facts may be deemed to be forward-looking statements. You can identify these statements by words such as "aim," "anticipate," "assume," "believe," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "predict," "potential," "positioned," "should," "target," "will," "would," and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts, and projections about our business and the industry in which we operate and our management's beliefs and assumptions. They are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Additionally, other factors may cause actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements. Factors that may cause such differences include, but are not limited to, the risks described under "Item 1A-Risk Factors," including:

•the uncertainty of the future impact of the COVID-19 pandemic and public health measures on our business and results of operations, including uncertainties surrounding the physical and financial health of our customers, the ability of government assistance programs available to individuals, households and businesses to support consumer spending, levels of foot traffic in our stores, changes in customer demand for our products and services, possible disruptions in our supply chain or sources of supply, potential future temporary store closures due to government mandates and whether we will have the governmental approvals, personnel and sources of supply to be able to keep our stores open;

•our plans and expectations in response to the COVID-19 pandemic, including increased expenses for potential higher wages and bonuses paid to associates and the cost of personal protective equipment and additional cleaning supplies and protocols for the safety of our associates, and expected delays in new store openings and cost reduction initiatives (including our ability to effectively obtain lease concessions with landlords);operations;

•the effect of steps we take in response to the COVID-19 pandemic, the severity and duration of the pandemic, new variants of COVID-19 that have emerged, and the speed and efficacy of vaccine and treatment developments, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein and in our other filings with the SEC;

•potential regulatory actions relating to the COVID-19 ~~pandemic;~~

•~~the impact of the COVID-19~~ pandemic and the related government mitigation efforts on our business and our financial results;

•the risk that natural disasters, public health crises, political uprisings, uncertainty or unrest, or other catastrophic events could adversely affect our operations and financial results, including the impact of the COVID-19 pandemic on manufacturing operations and our supply chain, customer traffic and our operations in general;

•the possibility that any of the anticipated benefits of our acquisitions or dispositions will not be realized or will not be realized within the expected time period, ~~the~~our businesses ~~of the Company~~ and our acquisitions may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, or revenues following our acquisitions may be lower than ~~expected;~~expected or we are unable to sell non-core assets;

•our ability to identify and consummate attractive acquisitions on favorable terms;

•our inability to grow on a sustainable basis;

•changes in operating costs, including employee compensation and ~~benefits;~~benefitsand increased transportation costs and delays attributed to global supply chain challenges;

•higher inflation rates, which may result in reduced customer traffic or impact discretionary consumer spending;

•the seasonality of the products and services we provide in certain of our business segments;

•departures of key executives, senior management members or directors;

•our ability to attract additional talent to our ~~senior management team;~~teams;

•our ability to maintain an active trading market for our common stock on The Nasdaq Global Market (“Nasdaq”);

•the effect of regulation of the products and services that we offer, including changes in laws and regulations and the costs and administrative burdens associated with complying with such laws and regulations;

•our ability to develop and maintain relationships with our third-party product and service providers;

•our ability to offer merchandise and services that our customers demand;

•our ability to successfully manage our inventory levels and implement initiatives to improve inventory management and other capabilities;

•competitive conditions in the retail industry and consumer services markets;

•the performance of our products within the prevailing ~~retail~~ industry;

•worldwide economic conditions and business uncertainty, the availability of consumer and commercial credit, higher debt capital costs, change in consumer confidence, tastes, preferences and spending, and changes in vendor relationships;

•disruption of manufacturing, warehouse or distribution facilities or information systems;

•the continued reduction of our competitors promotional pricing on new-in-box appliances, potentially adversely impacting our sales of out-of-box appliances and associated margin;

•any potential non-compliance, fraud or other misconduct by our franchisees, dealers, or employees;

•our ability and the ability of our franchisees and dealers to comply with legal and regulatory requirements;

•failures by our franchisees, the franchisees' employees, and ~~their employees~~our dealers to comply with their contractual obligations to us and with laws and regulations, to the extent these failures affect our reputation or subject us to legal risk;

•the ability of our franchisees and dealers to open new territories and operate them successfully;

•the availability of suitable store locations at appropriate lease terms;

•the ability of our franchisees and dealers to generate sufficient revenue to repay their indebtedness to us;

•our ability to manage Company-owned stores;

•our exposure to litigation and any governmental investigations;

•our ability and our franchisees' and dealers' ability to protect customers' personal information, including from a cyber-security incident;

•the impact of identity-theft concerns on customer attitudes toward our services;

•our ability to access the credit markets and satisfy our covenants to lenders;

•our operating subsidiary's potential repurchase of certain finance receivables if certain representations and warranties about the quality and nature of such receivables are breached, which may negatively impact our results of operations, financial condition, and liquidity;

•a decline in the credit quality of our customers, a decrease in our credit sales, or other factors outside of our control, which could lead to a decrease in our product sales and profitability;

•our reliance on technology systems and electronic communications;

•~~the impact of any acquisitions or dispositions, including our ability to integrate acquisitions and capitalize on their anticipated synergies;~~ and

•other factors, including the risk factors discussed in this ~~quarterly report.~~Quarterly Report.

Potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the forward-looking statements. These forward-looking statements

speak only as of the date of this quarterly report. Unless required by law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. A potential investor or other vendor

should, however, review the factors and risks we describe in the reports we will file from time to time with the U.S. Securities and Exchange Commission ("SEC") after the date of this ~~quarterly report.~~Quarterly Report.

Overview

We are an owner and operator of franchised and franchisable businesses that continually looks to grow our portfolio of brands while utilizing our operating and capital allocation philosophies to generate strong cash ~~flows for our stockholders.~~flows. We have a diversified and growing portfolio of highly recognized ~~brands that compete in the U.S..~~brands. Our asset-light business model is designed to generate consistent, recurring revenue and strong operating margins and requires limited maintenance capital expenditures. As a multi-brand operator, we continually look to diversify and grow our portfolio of brands either through acquisition or organic brand development. Our acquisition strategy typically targets businesses that are highly cash flow generative with compelling unit economics that can be scaled by adding franchise and company owned units, or that can be restructured to enhance performance and value to Franchise Group. We strive to create value for our stockholders by generating free cash flow and capital-efficient growth across economic cycles.

Our business lines include ~~American Freight,~~ The Vitamin Shoppe ("Vitamin Shoppe"), Pet Supplies Plus, ~~and~~Badcock Home Furniture & More ("Badcock"), American Freight, Buddy’s Home Furnishings ("Buddy's")~~. See "Note 1. Organization~~, and ~~Significant Accounting Policies" in the notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020.~~

~~On March 10, 2021, we completed the acquisition (the "Pet Supplies Plus Acquisition") of PSP Midco, LLC~~Sylvan Learning ("~~Pet Supplies Plus"~~Sylvan"). Our Pet Supplies Plus segment is a franchisor and operator of pet specialty stores. Pet Supplies Plus has a diversified revenue model comprised of Company-owned stores, franchise royalties and wholesale distributionRefer to ~~franchisees. Pet Supplies Plus provides a broad selection of products and services to customers.~~"Note 13. Segments" in this Quarterly Report for additional information.

Our revenue is primarily derived from merchandise sales, lease revenue, financing revenues, royalties and other required fees from our franchisees.

In evaluating our performance, management focuses on Adjusted EBITDA as a measure of the cash flow from recurring operations from the businesses. Adjusted EBITDA represents net income (loss), before income taxes, interest expense, depreciation and amortization, and certain other items.

~~Acquisition~~

On March 10, 2021, we completed the Pet Supplies Plus Acquisition. Additionally, we entered into a new $1.3 billion credit facility which funded the Pet Supplies Plus Acquisition and refinanced certain outstanding indebtedness.

~~Divestiture~~

On February 21, 2021, we entered into a purchase agreement (the "Purchase Agreement") with NextPoint Acquisition Corp ("NextPoint") to sell our Liberty Tax business (the "Transaction"). On July 2, 2021 the Transaction was completed and we received total consideration of approximately $241.0 million consisting of approximately $181.2 million in cash and $59.7 million of proportional voting shares of NextPoint. In connection with the Purchase Agreement, the parties also entered into a transition services agreement pursuant to which both parties will provide certain transition services to each other for a period not to exceed twelve months.

For purposes of this section and throughout this quarterly report, all references to “fiscal 2020” refer to the year ended December 26, 2020 and corresponding references to fiscal quarters are references to quarters within that fiscal year.

Impact of COVID-19

The COVID-19 pandemic has affected, and likely will continue to affect, our financial condition and results of operations for the foreseeable future. In most states, during 2020, our businesses were deemed essential and, therefore, the majority of our stores remained open during the pandemic. The highest number of temporary store closures we experienced due to the COVID-19 pandemic was approximately 240 stores during the second quarter of 2020. As of ~~September 25, 2021 and October 31, 2021, none~~the date of ~~our stores were closed due to the COVID-19 pandemic; however, we cannot predict whether our stores will remain open if the COVID-19 pandemic worsens and states and localities issue new restrictions.~~

We have seen disruptions in our supply chain due to the COVID-19 pandemic, primarily in our American Freight and Buddy's segments. Despite furniture and mattress supply constraints, we have been able to source enough product to open new stores and replenish existing stores. The supply chain disruption has also reduced the supply of new appliances, which in turn

~~directly impacts the availability of "as-is" merchandise. We expect the availability of furniture and mattresses to improve during~~ this ~~fiscal year and the recovery of as-is appliance availability to extend into next year.~~

~~While~~Quarterly Report, we have not experienced a significant negative impact on our sales and profitability due to the COVID-19 pandemic. However, the COVID-19 pandemic ~~if the pandemic worsens we~~ could ~~see negative impacts to~~negatively impact our business and financial ~~results. We could experience~~results by weakening demand for our products and services, ~~difficulty operating~~interfering with our ability and our franchisees' ability to operate store locations, ~~and continued disruptions in~~disrupting our supply ~~chain.~~chain or affecting our ability to raise capital from financial institutions. As events are ~~continuously~~rapidly changing, we are unable to accurately predict the impact that the COVID-19 pandemic will have on our results of ~~operations;~~operations due to uncertainties including, but not limited to, the curtailing of government stimulus programs, the duration of shutdowns, quarantines and travel restrictions, the severity of the disease, the impact of new subvariants, the duration of the outbreak and the public's response to the outbreak; however, we are actively managing our business to respond to the impact.

Results of Operations

The table below shows results of operations for the three and nine months ended September ~~25, 2021~~24, 2022 and September ~~26, 2020.~~25, 2021.


		Three Months Ended								Nine Months Ended									Three Months Ended								Nine Months Ended
						Change								Change									Change								Change
(In thousands)	(In thousands)	September 25, 2021		September 26, 2020		$		%		September 25, 2021		September 26, 2020		$		%		(In thousands)	September 24, 2022		September 25, 2021		$		%		September 24, 2022		September 25, 2021		$		%
Total revenues	Total revenues	$	828,826	$	537,692	$	291,134	54.1	%	$	2,312,929	$	1,538,193	$	774,736	50.4	%	Total revenues	$	1,051,476	$	828,826	$	222,650	26.9	%	$	3,281,943	$	2,312,929	$	969,014	41.9	%
Income from operations	Income from operations	54,763		24,680		30,083		121.9	%	165,895		36,612		129,283		353.1	%	Income from operations	(26,007)		54,763		(80,770)		(147.5)	%	181,464		165,895		15,569		9.4	%
Net income	Net income	$	35,998	$	(4,726)	$	40,724	861.7	%	$	40,185	$	2,876	$	37,309	1,297.3	%	Net income	$	(121,163)	$	35,998	$	(157,161)	(436.6)	%	$	(67,862)	$	40,185	$	(108,047)	(268.9)	%

Revenues. The table below sets forth the components and changes in our revenues for the three and nine months ended September ~~25, 2021~~24, 2022 and September ~~26, 2020.~~25, 2021.

Three Months Ended Nine Months Ended
Change Change
(In thousands) September 25, 2021 September 26, 2020 $ % September 25, 2021 September 26, 2020 $ %
Product $ 782,608 $ 500,462 $ 282,146 56.4 % $ 2,172,193 $ 1,440,677 $ 731,516 50.8 %
Service and other 37,891 19,826 18,065 91.1 % 114,659 46,516 68,143 146.5 %
Rental 8,327 17,404 (9,077) (52.2) % 26,077 51,000 (24,923) (48.9) %
Total revenue $ 828,826 $ 537,692 $ 291,134 54.1 % $ 2,312,929 $ 1,538,193 $ 774,736 50.4 %


	Three Months Ended								Nine Months Ended
					Change								Change
(In thousands)	September 24, 2022		September 25, 2021		$		%		September 24, 2022		September 25, 2021		$		%
Product	$	922,887	$	782,608	$	140,279	17.9	%	$	2,854,060	$	2,172,193	$	681,867	31.4	%
Service and other	121,738		37,891		83,847		221.3	%	405,666		114,659		291,007		253.8	%
Rental	6,851		8,327		(1,476)		(17.7)	%	22,217		26,077		(3,860)		(14.8)	%
Total revenue	$	1,051,476	$	828,826	$	222,650	26.9	%	$	3,281,943	$	2,312,929	$	969,014	41.9	%

For the three months ended September ~~25, 2021,~~24, 2022, total revenues increased ~~$291.1~~$222.7 million, or ~~54%~~27%, to ~~$828.8~~$1,051.5 million compared to ~~$537.7~~$828.8 million in the same period last year. This increase was primarily due to the ~~Pet Supplies Plus~~Badcock Acquisition, which increased revenue by ~~$286.6~~$210.3 million, ~~and~~ a ~~$33.8~~$36.4 million increase in revenue atin our ~~Vitamin Shoppe segment.~~Pet Supplies Plus segment and the Sylvan Acquisition, which increased revenue $9.5 million. These increases were offset by a ~~$21.6~~$24.3 million decrease in revenue atin our American Freight ~~segment and a $7.7 million decrease in revenue at our Buddy's~~ segment.

For the nine months ended September ~~25, 2021,~~24, 2022, total revenues increased ~~$774.7~~$969.0 million, or ~~50.4%~~42%, ~~of $2.3 billion~~to $3,281.9 million compared to ~~$1.5 billion~~$2,312.9 million in the same period last year. This increase was primarily due to the ~~Pet Supplies Plus~~Badcock Acquisition, which increased revenue by ~~$613.7~~$699.8 million and the Sylvan Acquisition, which increased revenue by $31.1 million. The increase was also due to improved comparable store sales and inclusion of full period results from Pet Supplies Plus in the current period, which increased revenue by $313.3 million, and a ~~$68.5~~$15.9 million increase in revenue ~~at our American Freight segment including a $55.8 million increase due to the annualization of the segment, and a $117.5 million increase~~ in ~~revenue at~~ our Vitamin Shoppe segment. These increases were offset by a ~~$25.0~~$83.8 million decrease in revenue atin our ~~Buddy's~~American Freight segment.

Operating expenses. The following table details the amounts and changes in our operating expenses for the three and nine months ended September ~~25, 2021~~24, 2022 and September ~~26, 2020.~~25, 2021.

Three Months Ended Nine Months Ended
Change Change
(In thousands) September 25, 2021 September 26, 2020 $ % September 25, 2021 September 26, 2020 $ %
Cost of revenue:
  Product $ 485,682 296,920 $ 188,762 63.6 % $ 1,347,673 $ 862,320 $ 485,353 56.3 %
  Service and other 8,737 678 8,059 1,188.6 % 10,076 2,135 7,941 371.9 %
  Rental 2,930 5,877 (2,947) (50.1) % 8,869 17,327 (8,458) (48.8) %
     Total cost of revenue 497,349 303,475 193,874 63.9 % 1,366,618 881,782 484,836 55.0 %
Selling, general, and administrative expenses 276,714 209,537 67,177 32.1 % 780,416 619,799 160,617 25.9 %
   Total operating expenses $ 774,063 $ 513,012 $ 261,051 50.9 % $ 2,147,034 $ 1,501,581 $ 645,453 43.0 %


	Three Months Ended								Nine Months Ended
					Change								Change
(In thousands)	September 24, 2022		September 25, 2021		$		%		September 24, 2022		September 25, 2021		$		%
Cost of revenue:
Product	$	604,969	$	485,682	$	119,287	24.6	%	$	1,822,334	$	1,347,673	$	474,661	35.2	%
Service and other	8,878		8,737		141		1.6	%	26,273		10,076		16,197		160.7	%
Rental	2,637		2,930		(293)		(10.0)	%	8,239		8,869		(630)		(7.1)	%
Total cost of revenue	616,484		497,349		119,135		24.0	%	1,856,846		1,366,618		490,228		35.9	%
Selling, general, and administrative expenses	390,999		276,714		114,285		41.3	%	1,173,633		780,416		393,217		50.4	%
Goodwill impairment	70,000		—		70,000		—	%	70,000		—		70,000		—	%
Total operating expenses	$	1,077,483	$	774,063	$	303,420	39.2	%	$	3,100,479	$	2,147,034	$	953,445	44.4	%

For the three months ended September ~~25, 2021,~~24, 2022, total operating expenses were ~~$774.1~~$1,077.5 million compared to ~~$513.0~~$774.1 million in the same period last year, representing an increase of ~~$261.1~~$303.4 million, or ~~50.9%~~39.2%. This increase was primarily due to the ~~Pet Supplies Plus~~Badcock Acquisition, which increased operating expenses by ~~$268.0~~$198.8 million, ~~an $8.9~~a $70.0 million increase ~~at our Vitamin Shoppe segment, and~~from a ~~$3.8 million increase in corporate expenses primarily due to fees~~non-cash goodwill impairment charge related to ~~the sale of our Liberty Tax business and higher payroll and stock compensation expense. These increases were partially offset by a $11.3 million decrease at~~ our American Freight segment, as further discussed in "Note 5 - Goodwill and Intangible Assets" in the Notes to the Consolidated Financial Statements in this Quarterly Report, and an ~~$8.4~~$35.6 million increase in operating expenses in our Pet Supplies Plus segment and the Sylvan Acquisition, which increased operating expenses by $8.7 million. These increases were offset by a $63.2 million decrease atin operating expenses in our ~~Buddy's~~American Freight segment.

For the nine months ended September ~~25, 2021,~~24, 2022, total operating expenses were ~~$2.1 billion~~$3,100.5 million compared to ~~$1.5 billion~~$2,147.0 million in the same period last year, representing an increase of ~~$645.5~~$953.4 million, or ~~43.0%~~44.4%. This increase was primarily due to the ~~Pet Supplies Plus~~Badcock Acquisition, which increased operating expenses by ~~$588.7~~$587.3 million, to the corresponding increased sales and inclusion of full period results from Pet Supplies Plus in the current period, which increased operating expenses by $283.2 million, a ~~$45.8~~$34.6 million increase atin operating expenses in our American Freight segment due to a ~~$23.5~~$70.0 million non-cash

goodwill impairment charge partially offset by a $35.4 million decrease in selling, general and administrative expenses, a $27.6 million increase due to the Sylvan Acquisition and a $14.9 million increase in operating expenses at our Vitamin Shoppe segment, and a $12.2 million increase in corporate expenses primarily due to fees related to the sale of our Liberty Tax business and higher payroll and stock compensation expense. These increases were partially offset by a $24.7 million decrease at our Buddy's segment.

~~Other.~~ ~~Other expense~~Non-operating income (expense) increased ~~$11.8~~$28.9 million for the three months ended September ~~25, 2021 compared to the same period last year primarily due to a $13.1 million loss related to our investment in NextPoint. Other expenses~~24, 2022 and increased ~~$44.5~~$58.8 million for the nine months ended September ~~25, 2021~~24, 2022 due to the following:

Bargain purchase gain. Bargain purchase gain increased $3.5 million for the nine months ended September 24, 2022 compared to the same ~~period~~periods last year due to adjustments made to the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed in the Badcock Acquisition.

Gain on sale-leaseback transactions. In the three and nine months ended September 24, 2022, the Company's Badcock segment entered into sale-leaseback transactions for a number of its retail locations, distribution centers and headquarters, resulting in a net gains of $9.4 million and $59.2 million, respectively.

Other. Other expense decreased $1.8 million and $29.4 million, respectively, for the three and nine months ended September 24, 2022 compared to the same periods last year. The decrease for the three months ended September 24, 2022 was due to a $1.8 million decrease in the loss related to our investment in NextPoint compared to the prior period. The decrease for the nine months ended September 24, 2022 was primarily due to a prepayment penalty in the prior period of $36.7 million from the repayment of the Franchise Group New Holdco Term Loan and ABL Term Loan partially offset by a $9.0 million increase in the ~~nine months ended September 25, 2021 and a $13.1 million~~ loss related to our investment in ~~NextPoint.~~NextPoint compared to the prior period.

Interest expense, net. Interest expense, net ~~decreased $5.1~~increased $40.0 million and $150.9 million, respectively, for the three and nine months ended September ~~25, 2021 primarily~~24, 2022, due to ~~a $5.6~~$163.6 million ~~decrease~~of interest expense related to the Badcock securitized receivables and $3.6 million in ~~deferred financing cost amortization and lower~~additional interest ~~rates~~expense on the First and Second Lien Badcock Term ~~loans compared to the Franchise New Holdco Term Loan. Interest expense, net increased $12.8 million for the nine months ended September 25, 2021 primarily due to~~Loans, offset by the write-off of ~~$29.3~~$2.1 million of deferred financing costs ~~due to~~from the $31.0 million and $175.0 million principal payments and termination of the ~~Franchise Group New Holdco~~First Lien Badcock Term Loan, and ~~ABL Term Loan partially offset by~~ the ~~reduced amortization~~write-off of $3.5 million of deferred financing ~~costs.~~costs from the $150.0 million principal payment and termination of the Second Lien Badcock Term Loan.

Income tax benefit. Our effective tax rate from continuing operations, including discrete income tax items, was ~~(75.8)~~(35.9)% and ~~(66.7)~~(75.8)% for the three months ended September 24, 2022 and September 25, 2021, respectively. The effective tax rate was (264.9)% and (63.5)% for the nine months ended September 24, 2022 and September ~~26, 2020,~~25, 2021, respectively. The change in the effective tax rate for the three and nine months ended September 24, 2022 compared to the prior year is due to the reversal of a valuation allowance related to net operating loss carryforwards in the ~~current year. The impact of the CARES Act was included in the~~ prior year ~~effective~~as well as a current year non-cash goodwill impairment charge that is nondeductible for tax rate. For the nine months ended September 25, 2021 and September 26, 2020, we had an effective tax rate from continuing operations of (63.5)% and 106.1%, respectively. The impact of the enactment of the CARES Act was included in the three and nine months ended September 26, 2020 which is the primary driver of the difference in the effective tax rate. We also expect to utilize a portion of our deferred tax assets, including net operating loss carryforwards, which previously had a full valuation allowance.purposes.

Segment Information

We, through our franchisees and Company-owned stores, operate a system of ~~rent-to-own and~~ point of sale retail and rent-to-own locations. Our operations are conducted in ~~four~~six reporting business segments: Vitamin Shoppe, ~~American Freight, Pet Supplies~~

~~Plus and Buddy's. We define our segments as those operations whose results our Chief Operating Decision Maker ("CODM") regularly reviews to analyze performance and allocate resources.~~

We measure the results of our segments using, among other measures, each segment's net sales, operating expenses, which includes cost of revenue, and operating income (loss). We may revise the measurement of each segment's operating income, including the allocation of overhead costs, as determined by the information regularly reviewed by the CODM. When the measurement of a segment changes, previous period amounts and balances are reclassified to be comparable to the current period's presentation. Because theBadcock, Pet Supplies Plus, ~~Acquisition~~American Freight, Buddy's, and Sylvan. Refer to "Note 13. Segments" in this Quarterly Report for additional information. Because the Sylvan and Badcock Acquisitions occurred ~~during the nine months ended~~on September ~~25, 2021;~~27, 2021 and November 22, 2021, respectively; no comparable information is ~~available, therefore, Pet Supplies Plus segment~~available. Therefore, Sylvan and Badcock information is not provided in this discussion.

Vitamin Shoppe

The following table summarizes the operating results of our Vitamin Shoppe segment:


		Three Months Ended								Nine Months Ended									Three Months Ended								Nine Months Ended
						Change								Change									Change								Change
(In thousands)	(In thousands)	September 25, 2021		September 26, 2020		$		%		September 25, 2021		September 26, 2020		$		%		(In thousands)	September 24, 2022		September 25, 2021		$		%		September 24, 2022		September 25, 2021		$		%
Total revenues	Total revenues	$	300,813	$	266,965	$	33,848	12.7	%	$	898,108	$	780,588	$	117,520	15.1	%	Total revenues	$	296,152	$	300,813	$	(4,661)	(1.5)	%	$	914,003	$	898,108	$	15,895	1.8	%
Operating expenses	Operating expenses	273,021		264,116		8,905		3.4	%	807,278		783,802		23,476		3.0	%	Operating expenses	270,687		273,021		(2,334)		(0.9)	%	822,167		807,278		14,889		1.8	%
Segment income	Segment income	$	27,792	$	2,849	$	24,943	875.5	%	$	90,830	$	(3,214)	$	94,044	2,926.1	%	Segment income	$	25,465	$	27,792	$	(2,327)	(8.4)	%	$	91,836	$	90,830	$	1,006	1.1	%

Total revenue for the three months ended September ~~25, 2021~~24, 2022 for our Vitamin Shoppe segment decreased $4.7 million, or 1.5% compared to the same periods in the prior year primarily due to lower customer traffic.

Total revenue for the nine months ended September 24, 2022 for our Vitamin Shoppe segment increased ~~$33.8~~$15.9 million, or ~~12.7%~~1.8%, compared to the same periods in the prior year primarily driven by higher average transaction value.

Operating expenses for our Vitamin Shoppe segment decreased $2.3 million, or 0.9%, for the three months ended September 24, 2022 as compared to the same period in the prior year, primarily due to a corresponding decrease in revenue.

Operating expenses for our Vitamin Shoppe segment increased $14.9 million, or 1.8%, for the nine months ended September 24, 2022 as compared to the same period in the prior year. The increase in ~~revenue~~operating expense was ~~primarily due to a 13.5% increase in comparable store sales~~ driven ~~primarily~~ by ~~strong customer traffic in retail brick and mortar stores due to less COVID-19 restrictions in the current year, new product introductions and continued demand for health and wellness products.~~

Total revenue for the nine months ended September 25, 2021 for our Vitamin Shoppe segment increased $117.5 million or 15.1% compared to the same periods in the prior year, respectively. The increase in revenue was primarily due to a 16.3% increase in comparable store sales driven primarily by strong customer traffic in retail brick and mortar stores due to less COVID-19 restrictions in the current year coupled with temporary store closures during the height of restrictions last year. New product introductions and continued demand for health and wellness products also contributed to the increased customer traffic and resulting revenue this year.

Operating expenses for our Vitamin Shoppe segment increased $8.9 million or 3.4% for the three months ended September 25, 2021 as compared to the same period in the prior year. The increases in operating expenses were primarily due to an ~~$11.9 million~~ increase in cost of revenue correlated to the revenue growth noted above, partially offset by $6.6 million of inventory step-up amortization in the prior year period and an increase in payroll expenses due to reduced operating hours in the prior year period due to COVID-19 restrictions and higher commissions from the increase in revenue. These increases were partially offset by a decrease in occupancy costs due to a ~~$2.0 million right-of-use asset impairment~~corresponding increase in ~~the prior year period~~revenue and ~~eight fewer leases compared to the prior year and a decrease in depreciation expense.~~higher transportation costs.

Operating expenses for our Vitamin Shoppe segment increased $23.5 million or 3.0% for the nine months ended September 25, 2021 as compared to the same period last year. The increases in operating expenses were primarily due to a $43.7 million increase cost of goods sold correlated to the revenue growth noted above, partially offset by a $20.6 million inventory step-up amortization in the prior year period. Occupancy costs also decreased due to twelve fewer stores compared to the prior year, a $2.0 million right-of-use asset impairment in the prior year period, $2.1 million of acquisitions fees in the prior year period and reduced depreciation expense.

American Freight

The following table summarizes the operating results of ~~the~~our American Freight segment:


		Three Months Ended								Nine Months Ended									Three Months Ended								Nine Months Ended
						Change								Change									Change								Change
(In thousands)	(In thousands)	September 25, 2021		September 26, 2020		$		%		September 25, 2021		September 26, 2020		$		%		(In thousands)	September 24, 2022		September 25, 2021		$		%		September 24, 2022		September 25, 2021		$		%
Total revenues	Total revenues	$	223,591	$	245,212	$	(21,621)	(8.8)	%	$	750,914	$	682,386	$	68,528	10.0	%	Total revenues	$	199,316	$	223,591	$	(24,275)	(10.9)	%	$	667,157	$	750,914	$	(83,757)	(11.2)	%
Operating expenses	Operating expenses	214,017		225,272		(11,255)		(5.0)	%	694,255		648,437		45,818		7.1	%	Operating expenses	277,219		214,017		63,202		29.5	%	728,818		694,255		34,563		5.0	%
Segment income	Segment income	$	9,574	$	19,940	$	(10,366)	(52.0)	%	$	56,659	$	33,949	$	22,710	66.9	%	Segment income	(77,903)		9,574		(87,477)		(913.7)	%	(61,661)		56,659		(118,320)		(208.8)	%

Total revenue for our American Freight segment decreased ~~$21.6~~$24.3 million, or ~~(8.8)%~~10.9%, for the three months ended September ~~25, 2021~~24, 2022 as compared to the same period last year. The decrease was attributable to ~~a 13.4% decrease in comparable store sales~~lower demand for furniture, mattresses, and appliances driven by ~~stores reopening~~the inflationary environment which resulted in ~~the prior year quarter from COVID-19 restrictions partially offset the opening of new stores and the acquisition of FFO Home.~~reduced customer traffic.

Total revenue for our American Freight segment ~~increased $68.5~~decreased $83.8 million, or ~~10.0%~~11.2%, for the nine months ended September 25, 2021 as compared to the same period last year. The increase in revenue due to the inclusion of the full first quarter results in the current year (American Freight was acquired on February 14, 2020), increased revenue from new store openings, our acquisition of FFO Home, and temporary store closures during the same period last year due to the COVID-19 pandemic.

~~Operating expenses for our American Freight segment decreased $11.3 million or (5.0)% for the three months ended September 25, 2021~~24, 2022 as compared to the same period last year. The decrease was attributable to lower demand for furniture, mattresses, and appliances assisted by government stimulus programs in ~~operating expenses was primarily due to~~ the ~~decrease~~prior year period and the inflationary environment which resulted in ~~cost of revenue correlated to the revenue decline noted above and decreases in compensation due to the decrease in revenue.~~reduced customer traffic.

Operating expenses for our American Freight segment increased ~~$45.8~~$63.2 million, or ~~7.1%~~29.5%, for the three months ended September 24, 2022 as compared to the same period in the prior year. The increase in operating expense was primarily due a $70.0 million non-cash goodwill impairment partially offset by decreases in compensation correlated to the revenue decline and reduced advertising expenses.

Operating expenses for our American Freight segment increased $34.6 million, or 5.0%, for the nine months ended September ~~25, 2021~~24, 2022 as compared to the same period ~~last~~in the prior year. The increase in operating ~~expenses~~expense was primarily due to ~~the inclusion~~a $70.0 million non-cash goodwill impairment partially offset by lower cost of ~~the full first quarter in the current year (American Freight was acquired on February 14, 2020), higher occupancy costs from new~~revenue and ~~acquired stores and higher advertising costs due to a reduction in advertising spending in the prior year due~~compensation correlated to the ~~COVID-19 pandemic.~~revenue decline and reduced advertising expenditures.

Buddy's

The following table summarizes the operating results of ~~the~~our Buddy's segment:


		Three Months Ended								Nine Months Ended									Three Months Ended								Nine Months Ended
						Change								Change									Change								Change
(In thousands)	(In thousands)	September 25, 2021		September 26, 2020		$		%		September 25, 2021		September 26, 2020		$		%		(In thousands)	September 24, 2022		September 25, 2021		$		%		September 24, 2022		September 25, 2021		$		%
Total revenues	Total revenues	$	17,779	$	25,515	$	(7,736)	(30.3)	%	$	50,195	$	75,219	$	(25,024)	(33.3)	%	Total revenues	$	13,160	$	17,779	$	(4,619)	(26.0)	%	$	42,875	$	50,195	$	(7,320)	(14.6)	%
Operating expenses	Operating expenses	11,788		20,213		(8,425)		(41.7)	%	36,565		61,234		(24,669)		(40.3)	%	Operating expenses	11,364		11,788		(424)		(3.6)	%	33,452		36,565		(3,113)		(8.5)	%
Segment income	Segment income	$	5,991	$	5,302	$	689	13.0	%	$	13,630	$	13,985	$	(355)	(2.5)	%	Segment income	1,796		5,991		(4,195)		(70.0)	%	9,423		13,630		(4,207)		(30.9)	%

Total revenue for our Buddy's segment decreased ~~$7.7~~$4.6 million, or ~~(30.3)~~(26.0)%, and ~~$25.0~~$7.3 million, or ~~(33.3)~~(14.6)%, for the three and nine months ended September ~~25, 2021,~~24, 2022, respectively as compared to the same periods last year. The ~~decrease~~decreases in revenue ~~was~~were primarily attributable ~~to rental revenue due~~ to the refranchising of 47eight Company-owned stores on ~~November 10, 2020. Rental revenue for comparable stores for the three months ended September~~August 25, ~~2021 increased from $7.4 million to $7.6 million compared to the same period last year.~~2021.

Operating expenses for our Buddy's segment decreased ~~$8.4~~$0.4 million, or ~~(41.7)~~(3.6)%, and ~~$24.7~~$3.1 million, or ~~(40.3)~~(8.5)%, for the three and nine months ended September 24, 2022, respectively as compared to the same periods last year primarily due to the refranchising of eight Company-owned stores on August 25, ~~2021, respectively,~~2021.

Pet Supplies Plus

The following table summarizes the operating results of our Pet Supplies Plus segment:


	Three Months Ended								Nine Months Ended
					Change								Change
(In thousands)	September 24, 2022		September 25, 2021		$		%		September 24, 2022		September 25, 2021		$		%
Total revenues	$	323,026	$	286,643	$	36,383	12.7	%	$	926,973	$	613,712	$	313,261	51.0	%
Operating expenses	303,560		267,996		35,564		13.3	%	871,831		588,656		283,175		48.1	%
Segment income	19,466		18,647		819		4.4	%	55,142		25,056		30,086		120.1	%

Total revenue for our Pet Supplies Plus segment increased $36.4 million, or 12.7%, for the three months ended September 24, 2022 as compared to the same period last year. The ~~decrease in operating expenses~~increase was attributable to higher prices due to inflation and new store openings.

Total revenue for our Pet Supplies Plus segment increased $313.3 million, or 51.0%, for the nine months ended September 24, 2022 as compared to the same period last year primarily due to the ~~refranchising~~Pet Supplies Plus Acquisition occurring on March 10, 2021, resulting in the prior period not including a full nine months' results.

Operating expenses for our Pet Supplies Plus segment increased $35.6 million, or 13.3%, for the three months ended September 24, 2022 as compared to the same period last year primarily as cost of ~~47 Company-owned stores~~revenue increased at a rate comparable to revenue and higher merchandise costs.

Operating expenses for our Pet Supplies Plus segment increased $283.2 million, or 48.1%, for the nine months ended September 24, 2022 as compared to the same period last year, primarily, because the Pet Supplies Plus Acquisition occurred on ~~November~~March 10, ~~2020.~~2021, resulting in the prior period not including a full nine months' results.

Adjusted EBITDA

To provide additional information regarding our financial results, we have disclosed Adjusted EBITDA in the ~~Adjusted EBITDA~~ table below and within this ~~quarterly report.~~Quarterly Report. Adjusted EBITDA represents net income (loss), before income taxes, interest expense, depreciation and amortization, and certain other items specified below. Additionally, acquisition costs include adjusting for costs of potential acquisitions and final costs of completed acquisitions. We have provided a reconciliation below of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA in this ~~quarterly report~~Quarterly Report because we seek to manage our business to achieve higher levels of Adjusted EBITDA and to improve the level of Adjusted EBITDA as a percentage of revenue. In addition, it is a key basis upon which we assess the performance of our operations and management. We also use Adjusted EBITDA for business planning and the evaluation of acquisition opportunities. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons. We believe the presentation of this measure is useful to investors as a supplemental measure in evaluating the aggregate performance of our operating businesses and in comparing our results from period to period because it excludes items that we do not believe are reflective of our core or ongoing operating results. In the Adjusted EBITDA ~~enhances an overall understanding~~table below, we have removed all revenues and expenses related to our Badcock segment’s in-house financing operations. This includes all amounts related to accounts receivables and securitized receivables. We believe this provides investors a more accurate representation of ongoing operations as we intend to cease in-house financing operations within a year. This measure is used by our management to evaluate performance and make resource allocation decisions each period. Adjusted EBITDA is also the ~~financial performance~~primary operating metric used in the determination of ~~and prospects for~~executive management’s compensation. In addition, a measure similar to Adjusted EBITDA is used in our ~~business.~~credit facilities. Adjusted EBITDA is not a recognized financial measure under GAAP and may not be comparable to ~~similarly titled~~similarly-titled measures used by other companies in

our industry. Adjusted EBITDA should not be considered in isolation from or as an alternative to net income (loss), operating income (loss), or any other performance measures derived in accordance with GAAP.

The following table presents a reconciliation of Adjusted EBITDA for each of the periods indicated.


		Reconciliation of Net Income to Adjusted EBITDA									Reconciliation of Net Income to Adjusted EBITDA
		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
(In thousands)	(In thousands)	September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020		(In thousands)	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Net income from continuing operations	Net income from continuing operations	$	35,998	$	(4,726)	$	40,185	$	2,876	Net income from continuing operations	$	(121,163)	$	35,998	$	(67,862)	$	40,185
Add back:	Add back:									Add back:
Interest expense	Interest expense	21,194		26,269		91,494		78,658		Interest expense	61,236		21,194		242,402		91,494
Income tax benefit		(15,519)		1,891		(15,600)		(50,217)
Depreciation and amortization		17,834		14,686		46,407		44,035
Income tax expense (benefit)										Income tax expense (benefit)	32,013		(15,519)		49,263		(15,600)
Depreciation and amortization charges										Depreciation and amortization charges	19,877		17,834		61,465		46,407
Total Adjustments	Total Adjustments	23,509		42,846		122,301		72,476		Total Adjustments	113,126		23,509		353,130		122,301
EBITDA	EBITDA	59,507		38,120		162,486		75,352		EBITDA	(8,037)		59,507		285,268		162,486
Adjustments to EBITDA	Adjustments to EBITDA									Adjustments to EBITDA
Executive severance and related costs	Executive severance and related costs	10		62		19		5,382		Executive severance and related costs	597		10		853		19
Stock based compensation		4,084		1,824		9,344		5,865
Long-term executive compensation expense		494		—		1,319		—
Gain on sale of Company-owned stores		(2,481)		—		(2,481)		—
Stock-based and long term executive compensation										Stock-based and long term executive compensation	4,847		4,578		19,515		10,663
Litigation costs and settlements										Litigation costs and settlements	(35)		—		(75)		—
Corporate compliance costs	Corporate compliance costs	6		940		785		(449)		Corporate compliance costs	528		6		579		785
Early debt repayment costs		—		1,246		36,726		5,295
Store closures / impairment		2,991		230		3,213		686
Acquisition costs (inclusive of inventory step up amortization)		2,196		7,175		15,845		51,468
Store closures										Store closures	153		2,991		1,239		3,213
W.S. Badcock financing operations										W.S. Badcock financing operations	1,358		—		(56,441)		—
Prepayment penalty on early debt repayment										Prepayment penalty on early debt repayment	—		—		—		36,726
Right-of-use and long-term asset impairment										Right-of-use and long-term asset impairment	90		—		738		—
Goodwill impairment										Goodwill impairment	70,000		—		70,000		—
Integration costs										Integration costs	244		726		772		8,542
Gain on sale-leaseback and owned properties, net										Gain on sale-leaseback and owned properties, net	(9,371)		(2,481)		(61,548)		(2,481)
Divestiture costs										Divestiture costs	585		135		3,014		2,794
Acquisition costs										Acquisition costs	835		2,196		6,237		15,845
Loss on investment in equity securities	Loss on investment in equity securities	13,175		—		13,175		—		Loss on investment in equity securities	11,282		13,175		22,146		13,175
Divestiture costs		135		—		2,794		—

Integration costs		726		1,832		8,542		6,113
Acquisition bargain purchase gain										Acquisition bargain purchase gain	—		—		(3,514)		—
Total Adjustments to EBITDA	Total Adjustments to EBITDA	21,336		13,309		89,281		74,360		Total Adjustments to EBITDA	81,113		21,336		3,515		89,281
Adjusted EBITDA	Adjusted EBITDA	$	80,843	$	51,429	$	251,767	$	149,712	Adjusted EBITDA	$	73,076	$	80,843	$	288,783	$	251,767

Liquidity and Capital Resources

We believe that we have sufficient liquidity to support our ongoing operations and maintain a sufficient liquidity position to meet our obligations and ~~commitments.~~commitments for the next twelve months. Our liquidity plans are established as part of our financial and strategic planning processes and consider the liquidity necessary to fund our operating, capital expenditure and debt service needs.

We primarily fund our operations and acquisitions through operating cash flows and, as needed, a combination of borrowings under various credit agreements, availability under our revolving credit facilities and the issuance of equity securities. Cash generation can be subject to variability based on many factors, including seasonality and the effects of changes in end markets.

As of September ~~25, 2021,~~24, 2022, we have current installments of long-term obligations of ~~$1.4~~$392.8 million, ~~from~~of which $386.1 million is debt related to the securitization of accounts receivable and $6.7 million is finance ~~leases.~~leases and other long-term obligations. We expect these obligations can be serviced from our cash and cash equivalents, which were ~~$160.0~~$72.9 million as of September ~~25, 2021.~~24, 2022 and the collection of our Badcock segment's receivables subject to securitization.

During the nine months ended September ~~25, 2021,~~24, 2022, we executed three substantial transactions that will affect our liquidity and capital resources in future periods. For more details, ~~please see~~refer to "Note 6.7. Long-Term Obligations" ~~and "Note 8. Stockholders' Equity":~~

•~~On January 14, 2021, we completed an offering~~ in which we sold 3.3 million shares of our Series A Preferred Stock and received net proceeds of approximately $79.7 million, after deducting underwriting discounts and estimated offering expenses totaling $3.2 million.this Quarterly Report:

•On ~~March 10, 2021, we entered into a $1.3 billion credit facility, which was used to fund the Pet Supplies Plus Acquisition and repay the existing term loans and revolving credit balances.~~

•~~On July 2,~~December 27, 2021, we repaid ~~$182.1~~$31.0 million and $150.0 million of principal on our First Lien Badcock Term Loan ~~from the~~and Second Lien Badcock Term Loan, respectively, using cash proceeds from the sale of our ~~Liberty Tax business.~~Badcock segments

existing consumer credit receivables portfolio. On June 22, 2022, we repaid the full outstanding balance of principal in the amount of $175.0 million under our First Lien Badcock Term Loan using cash proceeds from the sale of certain parcels of land on which the Badcock segment operates its distribution centers and its headquarters, which resulted in additional interest expense of $2.1 million for the write-off of deferred financing costs. Additionally, we repaid the full outstanding balance of principal under our Second Lien Badcock Term Loan, which resulted in additional interest expense of $3.5 million for the write-off of deferred financing costs.

•On June 3, 2022, we entered into the Second ABL Amendment. The ~~repayment satisfied~~Second ABL Amendment amended the ~~requirements~~FRG ABL Revolver Agreement to, among other things, increase the commitments under the ABL Revolver to $250.0 million, change the reference rate from LIBOR to SOFR, amend certain negative covenants regarding investments for ~~quarterly~~a time period specified in the Second ABL Amendment, and limit the maximum principal ~~payments so no additional principal payments are due until~~amount of loans outstanding under the ~~maturity~~FRG ABL Revolver Agreement to $200.0 million for a time period specified in the Second ABL Amendment. On August 22, 2022, we entered into the Third ABL Amendment. The Third ABL Amendment amends the FRG ABL Revolver Agreement to, among other things, increase the commitments under the ABL Revolver to $400.0 million, amend the terms of the ~~First Lien Term Loan.~~borrowing base and provide for the inclusion of certain types of inventory to the borrowing base, and make certain other changes to reflect the increase in the revolving credit facility commitments and the addition of Badcock as a borrower to the parties under the ABL Loan Revolver.

•In the nine months ended September 24, 2022, we drew $106.0 million on the senior secured revolving loan facility. The obligations of the Company under the Third Amended and Restated Loan and Security Agreement are secured by substantially all of the assets of the Company pursuant to the ABL Agreement and a Third Amended and Restated Pledge Agreement.

Sources and uses of cash

Operating activities. In the nine months ended September ~~25, 2021,~~24, 2022, net cash from operating activities decreased ~~$114.3~~$162.6 million compared to the same period in the prior year primarily due to an $57.7 million decrease in receivables, a ~~$188.9 million change in working capital to fund purchases of inventory and a $16.9~~$104.0 million decrease in accounts payable and accrued expenses, ~~due to the timing of payments. These were~~a $21.8 million decrease in deferred revenue and a $9.9 million increase in cash used for inventory. This was partially offset by a ~~$10.2 million change increase in income taxes receivable, a $22.1 million increase in other assets and a $46.0~~$57.3 million increase in cash income from operations. Cash net income represents net income adjusted for non-cash or non-operating activities such as gain on bargain purchases, gains on the sale of Company assets, depreciation and amortization, deferred financing cost amortization and the change in fair value of investment.

Investing activities. In the nine months ended September ~~25, 2021,~~24, 2022, cash used in investing activities ~~increased $50.1~~decreased $537.9 million compared to the same period in the prior year. This ~~increase~~decrease was primarily due to ~~an increase~~a reduction of ~~$179.4 million in cash received from divestitures and an $12.6 million decrease in the issuance of operating loans to franchisees partially offset by of $109.4~~$459.1 million in cash used for acquisitions and a ~~$26.9~~$264.9 million increase of proceeds received from the sale of property, plant, and equipment. These were partially offset by a $179.5 million decrease in cash ~~received~~ from ~~operating loans to franchisees.~~the divestiture of the Liberty Tax business in the prior year.

Financing activities. In the nine months ended September ~~25, 2021,~~24, 2022, cash provided by financing activities decreased ~~$66.9~~$603.9 million compared to the same period in the prior year. This decrease was due to a ~~$501.6~~$738.4 million increase in repayments of long-term obligations, a $198.0 million reduction in proceeds from the issuance of common stock, a $167.9 million reduction in borrowing under revolving credit facilities, a $36.7 million increase in cash paid for penalties for early debt repayment, a $34.6 million increase in payments for debt issuance costs and a $30.8 million increase in dividends paid. These decreases were partially offset by a $714.0 million increasedecrease in proceeds from the issuance of debt, a ~~$133.4~~$79.5 million decrease ~~in repayments of revolving credit facilities and a $51.2 million increase~~ in proceeds from the issuance of preferred ~~stock.~~stock, a $77.9 million increase in payments for share repurchases and an increase of $32.0 million for dividends paid. The decrease of cash provided by financing activities was partially offset by a $240.0 million decrease in repayments of long-term obligations and an $86.7 million decrease in payments for debt issuance costs and prepayment penalties on extinguishment.

Long-term debt borrowings

For a description of our long-term debt borrowing refer to "Note 6.7. Long-Term Obligations”~~, to the Consolidated Financial Statements~~ in ~~Item 1. As of September 25, 2021, we have $1.4 million of current debt outstanding related to finance leases.~~this Quarterly Report.

Other factors affecting our liquidity

Tax Receivable Agreement. We may be required to make payments under the Tax Receivable Agreement ("TRA Payments") to the former equity holders of Buddy's (the "Buddy’s Members"). Under the terms of the Tax Receivable Agreement, we agreed to pay the Buddy's Members 40% of the cash savings, if any, in federal, state and local taxes that we realize or are deemed to realize as a result of any increases in tax basis of the assets of New Holdco resulting from future redemptions or exchanges of New Holdco units held by the Buddy's Members. Any future obligations and the timing of such payments under the Tax Receivable Agreement, however, are subject to several factors, including (i) the timing of subsequent exchanges of New Holdco units by the Buddy’s Members, (ii) the price of our common stock at the time of exchange, (iii) the

extent to which such exchanges are taxable, (iv) the ability to generate sufficient future taxable income over the term of the Tax Receivable Agreement to realize the tax benefits and (v) any future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments. Although the amount of the TRA Payments would reduce the total cash flow to us and New Holdco, we expect the cash tax savings we will realize from the utilization of the related tax benefits would be sufficient to fund the required payments. As of September ~~25, 2021,~~24, 2022, we have TRA Payments due to the Buddy's Members of ~~$16.8~~$17.3 million.

Dividends. On August 3, 2021, our Board of Directors declared a quarterly dividend to common stockholders of $0.375 per share and preferred stockholders of $0.46875 per share. The cash dividends were paid on or about October 15, 2021 to holders of record of our common stock and preferred stock on the close of business on October 1, 2021. The payment of dividends is at the discretion of our Board of Directors and depends, among other things, on our earnings, capital requirements,

and financial condition. Our ability to pay dividends is also subject to compliance with financial covenants that are contained in our credit facility and may be restricted by any future indebtedness that we incur or issuances of our preferred stock. In addition, applicable law requires our Board of Directors to determine that we have adequate surplus prior to the declaration of dividends. We cannot provide an assurance that we will pay dividends at any specific level or at all.

Future cash needs and capital requirements

Operating and financing cash flow needs. ~~Following transactions completed subsequent to September 25, 2021, our~~Our primary cash needs are expected to include the payment of scheduled debt and interest payments, capital expenditures and normal operating activities. We believe that the revolving credit facilities along with cash from operating activities, will be sufficient to support our cash flow needs for at least the next twelve months.

Several factors could affect our cash flow in future periods, including the following:

•The extent to which we extend additional operating financing to our franchisees beyond the levels of prior periods;

•The extent and timing of capital expenditures;

•The extent and timing of future acquisitions;

•Our ability to integrate our acquisitions and implement business and cost savings initiatives to improve profitability; and

•The extent, if any, to which our Board of Directors elects to continue to declare dividends on our common stock.

Compliance with debt covenants. Our revolving credit and long-term debt agreements impose restrictive covenants on us, including requirements to meet certain ratios. As of September ~~25, 2021,~~24, 2022, we were in compliance with all covenants under these agreements and, based on a continuation of current operating results, we expect to be in compliance for the remainder of fiscal ~~2021.~~2022.

Off Balance Sheet Arrangements

~~From time~~For off balance sheet arrangements and guarantees to ~~time, we have been party~~which the Company remains secondarily liable, refer to ~~interest rate swap agreements. As of September 25, 2021, we have no interest rate swap agreements outstanding.~~

"Note 12. Commitments and Contingencies” in this Quarterly Report.

3635

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various types of market risk in the normal course of our business, including the impact of interest rate changes. We may enter into interest rate swaps to manage exposure to interest rate changes. We do not enter into derivative instruments for any purpose other than cash flow hedging and we do not hold derivative instruments for trading purposes.

Our exposure to interest rate risk relates to our long-term debt obligations, as they bear interest at LIBOR and SOFR, reset periodically and have an interest rate margin. Assuming our revolving credit facility was fully drawn, a ten basis point change in the interest rates would change our annual interest expense by ~~$1.3~~$170.4 million.

ITEM 4

CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September ~~25, 2021.~~24, 2022. Based on that evaluation, ~~the~~our Chief Executive Officer and Chief Financial Officer concluded that ~~as of September 25, 2021, the Company’s~~our disclosure controls and procedures were ~~designed~~not effective as of September 24, 2022 because of the material weakness in our internal control over financial reporting described below.

During the fiscal quarter ended September 24, 2022, the Company identified a material weakness in its controls over financial reporting involving the preparation of its Statement of Cash Flows. As a result of this deficiency, there was a misclassification of cash flows associated with interest payments on the Company’s secured borrowing resulting in an overstatement of cash flows provided by operating activities of $100.9 million and ~~functional effectively~~an overstatement of cash flows used in financing activities of $100.9 million in the Company's 10-Q for the period endedJune 25, 2022 and an overstatement of cash flows provided by operating activities of $53.0 million and an overstatement of cash used in financing activities of $53.0 million for the period ended March 26, 2022.Management, with oversight from the Audit Committee, is actively working on the remediation plan and is committed to ~~provide reasonable assurance that information required~~the remediation of the material weakness as expeditiously as possible. Once placed in operation for a sufficient period, we will subject the remediated control to ~~be disclosed~~appropriate tests in ~~reports~~order to determine whether they are operating effectively.

Notwithstanding the identified material weakness, management believes that the ~~Company files or submits under~~Condensed Consolidated Financial Statements and related financial information included in this 10-Q fairly present, in all material respects, our balance sheets, statements of operations, comprehensive income and cash flows as of and for the ~~Exchange act is (i) recorded, processed, summarized and reported within the time~~ periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.presented.

On ~~March 10,~~September 27, 2021 and November 22, 2021, the Company acquired ~~Pet Supplies Plus.~~Sylvan and Badcock, respectively. The Company is in the process of implementing its internal control structure over each of the acquired business's operations and expects that process to be completed in the ~~first~~fourth quarter of fiscal year 2022.

There have been no changes in our internal control over financial reporting during the fiscal quarter ended September 25, 2021 that have materially affected, or our reasonably like to affect, our internal control over financial reporting.

3736

PART II. OTHER INFORMATION

ITEM 1

LEGAL PROCEEDINGS

For information regarding legal proceedings, ~~please see~~refer to "Note ~~13.~~12. Commitments and Contingencies" in the Notes to the Consolidated Financial Statements in this Quarterly Report, which information is incorporated herein by reference.

ITEM 1A

RISK FACTORS

There are no additional risk factors that should be considered in addition to the risk factors described in Part I, Item 1A, in the Form 10-K and Part ~~II.~~II, Item IA in ~~our~~this Quarterly ~~Report on Form 10-Q for the quarter ended March 27, 2021.~~Report.

ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of our equity securities ~~which were not previously reported in a Current Report on Form 8-K~~ for the period covered by this ~~quarterly report.~~Quarterly Report.

SHARE REPURCHASES

~~Our~~On May 18, 2022, our Board of Directors ~~has authorized~~approved a stock repurchase program under which we may repurchase up to ~~$10.0~~$500.0 million ~~for share repurchases. This authorization has no specific expiration date~~of our outstanding shares of common stock over the next three years. The repurchase program authorizes shares to be repurchased from time to time in open market or private transactions, through block trades, and ~~cash proceeds from stock option exercises and other expenditures can increase or decrease the amount~~pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the ~~authorization. During~~Securities Exchange Act of 1934, as amended. The actual timing, number and value of shares, if any, repurchased under the ~~nine~~program will be determined by management in its discretion and will depend on a number of factors, including, among others, the availability of stock, general market and business conditions, the trading price of our common stock and applicable legal requirements. This plan supersedes our previous stock repurchase programs. The following table represents our share repurchase activity during the three months ended September ~~25, 2021,~~24, 2022:


Fiscal Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of the stock repurchase program	Approximate dollar value of shares that may yet be purchased under the program (in millions)
June 26, 2022 - July 23, 2022	—	$	—	—	$	500.0
July 24, 2022 - August 20, 2022	831,488	34.03		831,488	471.7
August 21, 2022 - September 24, 2022	1,395,712	35.53		1,395,712	422.1
Total	2,227,200	$	34.97	2,227,200	$	422.1

As of September 24, 2022, we ~~did not~~had approximately $422.1 million remaining under the stock repurchase ~~any shares~~program approved by our Board of ~~our common stock.~~Directors.

ITEM 3

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4

MINE SAFETY DISCLOSURES

None.

ITEM 5

OTHER INFORMATION

None.

3837

ITEM 6

EXHIBITS

We have filed the following exhibits as part of this ~~quarterly report:~~Quarterly Report:

Exhibit
Number

Exhibit Description

Filed

Herewith

Incorporated by

Reference

2.1

Agreement of Merger and Business Combination Agreement dated as of July 10, 2019, among Liberty Tax, Inc., Buddy’s Newco, LLC, Franchise Group New Holdco, LLC, Franchise Group B Merger Sub, LLC, and Vintage RTO, L.P. (Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on July 11, 2019).

~~2.2~~

Agreement and Plan of Merger, dated as of August 7, 2019, by and among Liberty Tax, Inc., Vitamin Shoppe, Inc. and Valor Acquisition, LLC (Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on August 8, 2019).

~~2.2.1~~

First Amendment to Agreement and Plan of Merger, dated as of November 11, 2019, by and among Franchise Group, Inc., Vitamin Shoppe, Inc. and Valor Acquisition, LLC. (Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on November 12, 2019).

~~2.3~~

Equity and Asset Purchase Agreement, dated as of August 27, 2019, by and between Sears Hometown Outlet Stores, Inc., Franchise Group Newco S, LLC and solely for purposes of Section 10.17 thereto, Liberty Tax, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed August 28, 2019).*

2 .4

Agreement and Plan of Merger, dated as of December 28, 2019, by and among Franchise Group Newco Intermediate AF, LLC, American Freight Group, Inc., Franchise Group Merger Sub AF, Inc., and The Jordan Company, L.P., solely in its capacity as representative (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on December 30, 2019).

2.4 .1

Amendment to Agreement and Plan of Merger, dated as of February 14, 2020, by and among American Freight Group, Inc., Franchise Group Newco Intermediate AF, LLC and The Jordan Company, L.P., solely in its capacity as representative for the Fully-Diluted Stockholders (as defined in the Merger Agreement) (incorporated by reference to Exhibit 2.1, File No. 001-35588 filed on February 18, 2020).

2 .52.2

Membership Interest Purchase Agreement, by and between NextPoint Acquisition Corp. and Franchise Group Intermediate L, LLC, dated as of February 21, 2021 (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed February 22, 2021).*

2.5 .12.2.1

Amendment No. 1, dated as of April 13, 2021 to Membership Interest Purchase Agreement, by and between NextPoint Acquisition Corp. and Franchise Group Intermediate L, LLC, ~~dates~~dated as of February 21, 2021.

2.2.2

Amendment No. 2, dated as of June 30, 2021 to Membership Interest Purchase Agreement, by and between NextPoint Acquisition Corp. and Franchise Group Intermediate L, LLC. dated as of February 21, 2021.

2.3

Stock Purchase Agreement, dated as of November 22, 2021, by and among Franchise Group Newco BHF, LLC, W.S. Badcock Corporation, the shareholders set forth on Annex I thereto, and William K. Pou, Jr. (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-25588 filed November 24, 2021).*

2.4

Master Receivables Purchase Agreement, dated as of December 20, 2021, between W.S. Badcock Corporation and B. Riley Receivables, LLC (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed December 21, 2021).*

2.5

Purchase and Sale Agreement, dated as of March 31, 2022, between W.S. Badcock Corporation and National Retail Properties, LP (incorporated by reference to Exhibit 2.9 to Form 10-Q, File No. 001-35588 filed May 5, 2022).*

2.6

Purchase and Sale Agreement, dated as of April 15, 2022, between W.S. Badcock Corporation and Mesirow Realty Sale-Leaseback, Inc. (incorporated by reference to Exhibit 2.10 to Form 10-Q, File No. 001-35588 filed May 5, 2022). *

2.7

Purchase and Sale Agreement, dated as of April 26, 2022, between W.S. Badcock Corporation and CAI Investments Sub Series 100, LLC (incorporated by reference to Exhibit 2.11 to Form 10-Q, File No. 001-35588 filed May 5, 2022).*

3938

2 .5 .22.8

~~Amendment No. 2,~~Purchase and Sale Agreement, dated as of ~~June 30, 2021~~May 25, 2022, between W.S. Badcock Corporation and Oak Street Real Estate Capital Net Lease Property Fund (Collector), LP.(incorporated by reference to ~~Membership Interest Purchase Agreement, by and between NextPoint Acquisition Corp. and Franchise Group Intermediate L, LLC. dates as of February 21, 2021.~~Exhibit 2.8 to Form 10-Q, File No. 001-35588 filed August 4, 2022 )*

2 .62.8.1

Amended and Restated ~~Equity~~ Purchase and Sale Agreement, dated as of ~~March 3, 2021,~~May 25, 2022, by and ~~among Franchise Group Newco PSP, LLC, PSP Holdings, LLC, Sentinel~~between W.S. Badcock Corporation and Oak Street Real Estate Capital ~~Partners VI-A, L.P.~~Net Lease Property Fund (Collector), Sentinel PSP Blocker, Inc., PSP Midco, LLC, PSP Intermediate, LLC, Sentinel Capital Partners, L.L.C., solely for purposes of agreeing to the covenants set forth in Section 6.8 and Section 6.9 thereof, effective as of immediately prior to the Closing (as defined therein), a newly formed Delaware limited liability company to be named PSP Midco Holdings, LLC, and Franchise Group, Inc., solely for purposes of agreeing to the covenants set forth in Section 10.19 thereof (incorporatedLP (incorporated by reference to Exhibit ~~2.1~~2.8.1 to Form ~~8-K,~~10-Q, File No. 001-35588 filed ~~March 8, 2021)~~August 4, 2022).*

2.9

Purchase and Sale Agreement, dated as of May 25, 2022, by and between W.S. Badcock Corporation and Oak Street Real Estate Capital Net Lease Property Fund (Collector), LP (incorporated by reference to Exhibit 2.9 to Form 10-Q, File No. 001-35588 filed August 4, 2022).*

2.9.1

First Amendment, dated as of June 24, 2022, to Purchase and Sale Agreement by and between W.S. Badcock Corporation and Oak Street Real Estate Capital Net Lease Property Fund (Collector), LP (incorporated by reference to Exhibit 2.9.1 to Form 10-Q, File No. 001-35588 filed August 4, 2022).*

2.9.2

Second Amendment, dated as of June 30, 2022, to Purchase and Sale Agreement by and between W.S. Badcock Corporation and Oak Street Real Estate Capital Net Lease Property Fund (Collector), LP (incorporated by reference to Exhibit 2.9.2 to Form 10-Q, File No. 001-35588 filed August 4, 2022).*

2.9.3

Third Amendment, dated as of July 6, 2022, to Purchase and Sale Agreement by and between W.S. Badcock Corporation and Oak Street Real Estate Capital Net Lease Property Fund (Collector), LP (incorporated by reference to Exhibit 2.9.3 to Form 10-Q, File No. 001-35588 filed August 4, 2022).*

2.9.4

Fourth Amendment, dated as of July 13, 2022, to Purchase and Sale Agreement by and between W.S. Badcock Corporation and Oak Street Real Estate Capital Net Lease Property Fund (Collector), LP (incorporated by reference to Exhibit 2.9.4 to Form 10-Q, File No. 001-35588 filed August 4, 2022).*

2.9.5

Amended and Restated Purchase and Sale Agreement, dated as of May 25, 2022, by and between W.S. Badcock Corporation and BCHQ Owner LLC (incorporated by reference to Exhibit 2.9.5 to Form 10-Q, File No. 001-35588 filed August 4, 2022).*

3.1

Second Amended and Restated Certificate of Incorporation of Liberty Tax, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed on December 19, 2018).

3.1.1

Certificate of Designation of the Voting Non-Economic Preferred Stock of Liberty Tax, Inc. filed with the Secretary of State of the State of Delaware July 10, 2019 (incorporated by reference to Exhibit 3.1, File No. 001-35588 filed on July 11, 2019).

3.1.2

Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of Liberty Tax, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed September 19, 2019).

3.1.3

Certificate of Increase of the Number of Shares of Voting Non-Economic Preferred Stock of Franchise Group, Inc., filed with the Secretary of State of the State of Delaware on September 30, 2019 (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed October 1, 2019).

3.1.4

Certificate of Designation designating the 7.50% Series A Cumulative Perpetual Preferred Stock of Franchise Group, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed September 18, 2020).

3.1.5

Certificate of Increase of the Number of Shares of 7.50% Series A Cumulative Perpetual Preferred Stock of Franchise Group, Inc., filed with the Secretary of State of the State of Delaware on January 15, 2021 (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed January 15, 2021).

3.2

Second Amended and Restated Bylaws of Liberty Tax, Inc. (incorporated by reference to Exhibit 3.2 to Form 8-K, File No. 001-35588 filed on July 15, 2014).

10.1

Third Amendment to the Third Amended and Restated Loan and Security Agreement by and among the ABL Loan Parties, the lenders and issuing bank from time to time party thereto, and JPMorgan Chase Bank, N.A., as agent (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-355 8 8 filed on August 23, 2022)

31.1

Certification of Chief Executive Officer

31.2

Certification of Chief Financial Officer

32.1

Section 1350 Certification (Chief Executive Officer)

32.2

Section 1350 Certification (Chief Financial Officer)

101

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September ~~25, 2021,~~24, 2022, formatted in Inline XBRL, filed herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited), (iv) the Condensed Consolidated Statements of Stockholders’ Equity (unaudited), (v) the Condensed Consolidated Statements of Cash Flows (unaudited) and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September ~~25, 2021,~~24, 2022, formatted in Inline XBRL (included with Exhibit 101)

*All schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish the omitted disclosure schedules to the SEC upon request by the SEC; provided, however, that the Company reserves the right to request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		FRANCHISE GROUP, INC. (Registrant)


November ~~2, 2021~~3, 2022	By:		/s/ Brian R. Kahn
			Brian R. Kahn Chief Executive Officer and Director (Principal Executive Officer)

November ~~2, 2021~~3, 2022	By:		/s/ Eric F. Seeton
			Eric F. Seeton Chief Financial Officer (Principal Financial and Accounting Officer)


	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


	Number of options	Weighted average exercise price
Outstanding as of December 26, 2020	391,409	$	10.19
Exercised	(36,188)	10.66
Expired or forfeited	—	—
Outstanding as of September 25, 2021	355,221	$	10.15


	Nonvested options	Weighted average exercise price
Outstanding as of December 26, 2020	63,334	$	8.83
Vested	(63,334)	8.83
Expired or forfeited	—	—
Outstanding as of September 25, 2021	—	$	—


	Options Outstanding				Options Exercisable
Range of exercise prices	Number	Weighted average exercise price		Weighted average remaining contractual life (in years)	Number	Weighted average exercise price

$0.00 - $10.89	204,500	$	8.80	3.8	204,500	$	8.80
$10.90 - $12.01	150,721	11.98		2.5	150,721	11.98
	355,221	$	10.15		355,221	$	10.15


	Number of restricted stock units	Weighted average fair value at grant date
Balance as of December 26, 2020	296,147	$	20.51
Granted	120,952	35.72
Vested	(101,503)	22.56
Canceled	(2,342)	12.22
Balance as of September 25, 2021	313,254	$	25.78