FRG - Earnings call transcript Q4 2021

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Operator

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

Andrew Kaminsky

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

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

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

to call over to Now like I turn would the Brian.

Brian Kahn

of transactions then to the add with balance dividends-per-share. our accretive followed by while businesses that of and brands to Group flow good Eric thank update all But Group and that busy increase of answer dividend the to I great questions. teams increase brands to dividend another growth Franchise that then this last majority Thanks, The Andrew, create allowing fiscal and over targeted you for time year. devote combined the another continues the a diversification towards share teams earnings-per-share cash We year our generate generate general our scale my add hat me allowed scalability XX% to earnings XX% in M&A for call to organic joining activity happy the combined team management necessarily be Franchise the management will efforts to we details in current us. financial flow And love a cash year, turning our was in to to that afternoon. of off for provide resources in $X.XX order model. per those impressive FRG. is to equally and a and the profitability. sheets before will provide are of and FRG us results of also great and target 'XX, non-GAAP My our and XXXX lot improving overall. I in to leverage important, repeatability new and we and our our

Buddy’s would using couple within environment next that to to overall of favor enhance Badcock for November over But believe proceeds furnishing our stores, operational new estate between Learning X.X% produced backlog, continued shifting Liberty and have location in and which the a and franchise The synergies grew added markets for through real the we've balance million fund XXXX, we pleased Learning we're franchise and $XXX material stores financed M&A like for the active franchisee to Buddy’s fourth months. while Badcock's added far afternoon, an from our just of then comps quarter, quarter year, franchise FRG by XX that non-core $XXX and XX days. debt. for can the and of XX fourth and the to to our in the cash month acquired added to year, which comps, in the consumer Freight, year. stores locations X.X% March in additional allowing of sheet franchise So later Pet been only of term Pet certain year. Tax approximately the time, In in from growing American our In cash year. to business grew the had currently announced the the grew which Freight a remaining $XXX in positive finished an XXX financing significantly. sale value-oriented many after Group XX pay of million acquisitions. Grooming, system-wide stores last the XX.X% into active the PSP Supplies loan XX.X%. an sheet and the is the we in Food us while and in quarter X% This we Pet achieve turn Supplies receivables acquired cash market the turns acquired that XX term momentum And sales and quarter for sheet with to positive able Badcock the estate. to Sylvan we financing annual in million for and sales, expect we of Plus with grew locations. opening the we positioned Wag million existing XXX their comped months used XXXth Over XX delever $XXX entirely loan for with X.X% same-store leverage its assets, accretive fourth quarter credit franchise X.X% then locations model, food, Wash sector XX.X% that for scale and fourth our Badcock has sale of businesses. FRG of under down the pet diversify system-wide the contributed quarter, current of American XX.X% for the units. comp American with lenders back grooming now off our services it a comp cash comps and build our to paid N' to Badcock. growing sales X.X% back acquired to to XX XX We're quarter, further in work PSP reduced new down diversify positive financed flows. cost balance quarter. in comps debt an FFO, the the locations. opportunities stands continue Buddy’s Shifting Freight mass flow and home opening we fully fiscal at dogs. comp leaseback locations re-franchised continued for Three year balance the adding de positive sold XX.X%, that M&A and XXXX our million combined $XXX PSP with Natural for XX.X% in Sylvan corporate non-core franchisees that down in the In and PSP, the backlog acquisition later, PSP with of has balance combination the additional produced And acquisition Franchisee on and sale. same-store that Badcock, syndicated self allowed down primarily back XXXX that had a loan the November, of brand-building sheet, has capital term of full-year the efforts critical purchases. the to a of by in we one us XXXX of consumer Franchise put focus XX.X% was X.X%. on while Furniture transactions say the its will I'm to milestone happy from pay that wash, quarter of surpassing will now sale focus a while growth of quarter the EBITDA quickly emerging fourth year. with franchise to X.X seeing leave rapidly backlog -levering Plus the real with growing Badcock's natural corporate quarter,

will to stores has seek positive to discover multi-pronged customers, positive in from advice increasing increase associates. Wash We to a order a expect fourth been approximately nine Vitamin to supported a of customer are the great comps at of cash N' first at franchisees and and increased business focused store X% opportunity X.X% contributing for to as and geographies comp growing and with the for businesses, XX.X%. visit our In Shoppe Shoppe products quarter strength, and with their average flow. to file, an penetration, enhanced backlog. new were build within sales leverage to just be comp, this build our private stores starting our for their re-franchised under full-year X.X% serve full selection distribution new back-office for by with Direct-to-consumer core PSP franchisees active and great of Vitamin continued services. value. traffic products add our enhance an has up we year. Store incremental direct-to-consumer and brand we in Shoppe be that slightly that will stores XX% momentum Vitamin franchise see Overall, PSPs We accounted as opportunity XXXX. the our a January, smaller, Wag more Growth better quarter consumers fourth

in the I ability constraints continued I supply to to to chain call over turn navigate Eric, management I team's overall how want and inflationary impressed Before reiterate am pressure. our

$XXX to As appreciate you that But million millions businesses their over actually for on we management absorbing inflationary had efforts of a collective daily once -- provide our to like individual Franchisees, and think of impact the constraints some now our the I support supply associates their all other, success already. each their out of if before, for And the from if combined over been their chain performance a of to profitability hard Eric. and call of to for managing could've teams details. the all also actively we're of excellent not support leads I'll have pass tens financial of to told pressures I've Franchise Franchise basis. which work, dollars we their thank financial dedicated that grind headwinds Group. of again, I'd Group. Eric

Eric Seeton

Brian. you, Thank

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

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

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

share. $XX.X was Franchise from $X.XX per For million Adjusted was continuing million. EBITDA $X.XX diluted Net EPS per the non-GAAP a total share. XXXX, fourth $XXX.X income was operations of or was reported Group $XXX.X revenue million for quarter and fully

$XXX For Franchise from results the financial of the overall acquisitions the XXth, fiscal acquisition. financial the includes of results XXth, from million was results Group non-GAAP Adjusted $X.X was the per December $XXX.X or results through the fiscal operations from was per EBITDA fourth revenue year. include EPS year of from all $X.XX XXXX, Babcock FRGs total $X.XX billion, and fully end share. net September diluted reported end was income for continuing date The of million Learning the November from share. quarter Sylvan XXnd and

availability Our Badcock, press of adjusted have release which in and operating FRG of were $XX.X million million repayment for six We our and businesses sale believe foreseeable included added with consumer sheet million receivables. will a the EBITDA we and on These additional December financial previously repayment. income. details Without sufficient Badcock EBITDA. In we term had debt, the net repaid amounts additional our $X.X and $X.X Badcock reported the to quarter ABL debt our announced would performance, approximately all obligations $XXX We show the we the ended continue our revenue, of $XXX have results reportable an segments, $X.X on of million $XX.X of debt which revolver of to all our million approximately to billion. conjunction support included outlook. $XXX.X $XXX million business with million a outstanding before year-end, by from our XXth, million approximately our liquidity not of revenue billion adjusted of million reducing $XXX approximately cash of balance billion future. At $XXX.X $XXX.X in and that meet

Thank of our are our Badcock EPS fiscal XXXX, complete $X.XX year maintaining announced non-GAAP outlook we reduce XXXX. real shares EBITDA In average of company outlook net million date. of outlook, fiscal additional our by income not and using end include our debt line year of $X divestitures, share. quarter formulating expect to $X.X shareholders net approximately the of approximately fiscal of portfolio 'XX the $X.XX In of of is by $XX expect any activity. to calculating lenders or will second and the we open million estate for re-franchising approximately Operator, the the their do $XXX billion support for EPS, acquisitions, $XXX per does of approximately please all billion, we for you. sale and approximately will the financial end of questions. I previously or adjusted thank revenue our today, As approximately outstanding, want weighted assumption and to million we share, per for

Operator

Mike sir. our question instructions] you, first have you Would Davidson. of [Operator D.A. Baker Thank from

open. Your line is

Michael Baker

thanks, Hi, guys.

me. questions So from two

XXXX, ask, to that about it. pressure. to call income, low an and furniture. come furnishing moderately side, I'll Badcock you furniture the to How acquisition, do First, on an on customer with want have increasing on least, -- pressure lower-end discount, particular home have to the is A think guys in That basis, that think lot in seems sales the under annual exposure exposure XX% at to I area of focused seems about the your you now under have priced, to you business? whatever come

Brian Kahn

that Thanks, that for customer has under think Mike. been time. some I pressure Actually,

really But it's down That's And up with that now what's just news focal the to the units up in. a it's held been and I just articles think of of the because we're higher. the revenue year catching has units point. on that I happened going that the reality pricing substantially. were -- love a units is were down more become we're down units is in. what's businesses fewer state ago, selling have

we've Like everybody got will really is we us diversified the that business and next I today. they're to Over be But about and cash feel and anything what continue to Group, think a in grow. new are said, and they're Freight, we're talking American Badcock else there's great going I great to diversify. Franchise Buddy’s lot for decade, a generate don't about to what going I businesses, of to going

opportunities. I think it's us given

happening couple can business, changed year count of nothing happen continue keep times that we the multiply and to and of economics give going American to still a with investing are I unit the there's the a and franchisees and that's we'll us what's open Freight; to today stores in think store of will that last ton and despite it, continues there customer. opportunities, it over

Michael Baker

you is the which would that's a compare next question this basis to XXXX? months versus pressures I the X%, was The the third be I what for just look next said to on I I question. American so Not of think, [Indiscernible]. but two-year more that my the does be, quarter actually a follow-up of XX think a love like for comp these said think getting Down, -- it's if but and the one-year than I you'll focused, both love better in Freight, model I surprising last have so that, for year, Again, you statement you years. on it a with some do from ten short-term better business it which did And right? to in on

Brian Kahn

do. I

I and with but amount it's headwinds Freight generating. absolutely activity to continues think everybody's franchising of generating us anywhere and that talking ton it's pressures there continues American across not near inflationary of about. of chain that tremendous supply for generate what constraints of generate board the EBITDA, to a capable Lots

perform for would the I you us describe EBITDA we think guess we to business and that that environment it If is thinking -- was that probably operating business year this will down would on be this year. to year. I the we I in a again we that even way a comparable going probably store don't. a normal Units if basis, earnings-per-share and this are be thought greater

get continue sub-optimal be comp it's one will any a business. relative your generate didn't nor not, We that beat would comp to would overly to overly wouldn't any period relative The of excited general it's get it a the I and comment certainly if what That's and estimate regarding what for -- but the one to comp the doing. I in to Also, lot one going period. a it units cash, help could another, make last Directionally, I year. concerned business is they estimate stores grow. add continue for because period. that will it's will to just about been is they

Michael Baker

Fair enough. Also then it more, I'll over. turn

M&A bit or meant what you in guess, by did out But comment? I could a What valuations those little it something you by flash down. You come that is you suppose direction said mean your the is along moving I lines. landscape some that more? have

Brian Kahn

Yeah.

to I year to be more think that -- expected and it liking I wasn't. last our

a and lot attracted very of auctions to there was a were had valuation expectations the lot a capital high. or think I access that everybody and lot of processes buyers of

I now that think that seen shift they you the now because at environment when markets don't see that are requirements think in what were. I that aren’t And pretty we're happens flash think peak. the significant quite they were already I as as in as has that what a high valuation landscape. as nearly capital

compete people can't fewer to on because got You've you enough get the able compete to with they acquisition. leverage

our think margin next meant cash Franchise diversification, package year. the I think that. help I us that should than a on the which and to what over with others, the flow we'll That's able of all have by be Group financing I better

Michael Baker

you. Thank that. Appreciate

Operator

question Securities. is Larry CJS Solow from from next Your

line open. is Your

Larry Solow

target, plenty obviously, deal. of you know business; capacity, terms deal, unless, to Capacity in and continue, afternoon. have it that you continue real to Good in have do question a soon. is, to had bring to do debt you Brian, find it in I fair? guys you vision just a my Is but down hesitation is to have you don't to acquisitions. you pretty take piggyback that a XXXX a obviously, look of grow you -- a specific of any the can on the that pretty if obviously of need or in active issue guess terms terms no terms question a I manpower pause you

Brian Kahn

Yes. Right?

fair. I think that is

I financial think we capacity. have the

can is to business to each going management be going the be that a and factors think the in think on capacity I into well if I we different team, have need as for have will our actually time run getting limiting and invest I Group. transaction be of where we That's want we basis. a day-to-day management going not business down prerequisite the as -- are or we because to to the best just Franchise go a a in and to us use don't actually to

We sheet have to sheet to that the need to team. we up, remember, good have options. else. be we out is up you getting factor. every it's run once go as that limiting management to balance investable we if the past get an think transaction, But can three do always we So leverage, going delever, to balance we really four know know, before don't we deploy -- a minute for over won't but the delever need don't time and that turns we feel deploy I something And we we need the of are go and another we

that's if very those on So going use you can somewhat a consider. our to were still could further. once transaction diversify accretive an so as better not there's waiting coming. great you opportunity think that something cost we there's weigh They to spend but in near may that capital always just the that bullets, if, be and of are transaction well, other us future may be some us, we that execute There

balancing So somewhat a of it's all act.

Larry Solow

Appreciate that Got color. Great. it.

to Vitamin another story year? Couple in good remind quarter. think a what then, Shoppe; quickies like I Just last lower some and right? legs the question year to the growth were to than it it think obviously didn't you the coming just as sounds much because can know That's back segment. on you grow bit direct-to-consumer there's I of people questions stores was and I this, little probably a probably guess. more more, us good was the couple 'XX. FY expect continue of It the the there.

Brian Kahn

when mean mean XXXX? year, -- last you you What

Larry Solow

FY 'XX. mean I FY FY Yeah, versus 'XX. in 'XX

Brian Kahn

Yes.

you comps out the think anyway, what comps. direct-to-consumer which shutdown, storage the actually you actually direct-to-consumer didn't and at look when storage faster see have was your is just weren't going year, you was than when then XXXX, you grew retail penetration in about so higher, why shutdown, this happening, So you that had if people

thought we to coming Shoppe. at think I Vitamin some were reopening. able And out despite revenue, direct-to-consumer this they positive on back the would into year, that eke still we give comp remarkably,

So the been XXXX. difference. significant and was on going -- But just significant higher environment, because of mechanics in a in what would've not the not

Larry Solow

Right.

Brian Kahn

I other And of questions. missed if one your sorry, then

and Just I'll remind -- me

Larry Solow

I saying -- -- was segment -- guide last know some just overall think some growth you -- Vitamin still more I expect the less this individual -- think to Shoppe But think year. obviously growth there's simply you has don't than year, segments. you but after still you top-line growth probably you

Brian Kahn

I -- about long look, very couple X, a well their of involved grown file they've as -- Vitamin a long things Sir, of all very, the in time. customer think in Shoppe. us Number business. Predates not as

they're the going file, to they -- grow. to customer As that ultimately long is grow continuing as indirectionally business

also growth I that Vitamin for have first any got I franchise the the excited the going unit is thing of we're and the program think with well. time certainly Shoppe. now, we've we that And our worth think other mentioning something launch, for we that that now have actually something as histories in us that about that's

generate look -- ton execute what doing continue So for they're FRG. great a to feel cash I they and about of and

Larry Solow

number, a right? is you stores, American Last corporate the big Freight. added on Good stuff. question pretty that's For year. XX XX,

over last it. that's or so year, acceleration I COVID, think couple from last I of year work profit the guess was

Brian Kahn

and a the FFO that rebranding. -- of the acquisition chunk was from of is it But and

Larry Solow

okay. Right,

Brian Kahn

And a we typically, store contributor. corporate just to will stores franchise opened. guess get remind as that a then get that corporate on you impressed open, and XXXX we've was franchisees yeah, like many So side as help we open looked a can big a year on basis, I

Larry Solow

I Just a if question, last may.

the you know I maybe but a you've I do year sound But worker worse guys? much you months -- for all but changed better do like has of months around other inflation, gave guidance other two just and -- out much. employee inflation and like last you Supply not you or sound edges, -- you there. material, that having But many have doesn't or issues, without companies think probably anything been anticipation, it it on inflation, chain couple gotten Just stuff. availability, guess, ago does things you

Brian Kahn

that personnel are think come people starting a I from to back. perspective,

don't that spent the I margin, government gotten been better, think and that the not Inflation enjoyed And that's has for I everybody any think I money worse. better. on think stimulus that's that getting it. products,

and we're to know ultimately, going work for that's side a product. be when And I but we're if supply I as think materials demand to one going your operate your will logistics that customer continue to that itself the living stores lot and I or are up, I that's and sure. raw gone out, with to predict cost of to still whether wouldn't your landed that I get a think your to happen going for so this on pressure product that there's think into for up, while

Operator

is question Riley. from B. Susan next Your from Anderson

open. Your line is

Susan Anderson

evening. I'm curious. good Hi, just

have you push spending of you slowdown maybe there. higher -- your think the business in prices on consumers like I'm any consumer mentioned curious back money. any have seen if spent any with You stimulus segments or

Brian Kahn

don't I we that's anything Well, think think new. have. I

we've prices it see fewer think in going selling pretty revenue a that the you don't been as are year seen But back we've regularly, I higher. because units. the

So I is to and pay margin, they're there with on think so determined the is absolutely something doing hands much the that consumer else their has so on marginal your money. a sitting product either only their for or that going customer

Susan Anderson

it. Got

Just material N' I think buy then Wag Supplies Pet curious saw, Plus did I that's if Okay. at all? And Wash?

Brian Kahn

a a I'm several legs. about has existing open with XX-store very their investment. lot physically for geographies for because capital think box even or quite chain. the mentally, stores low Wag very think It's PSP some it's their on can the concept probably a not management It's has of mentally generate in that return but a opportunity a N' and cost their franchisees in markets high Washes they'll excited smaller -- we larger Well, or on material working so that been today. much time. financially physically we PSP that

Franchise So far the we're it's excited negligible. immediate to it. about impact as as But Group,

Susan Anderson

Got it.

Supplies like that i is be something to to next a it's Plus, there you Pet get Okay, it to? going segment stores could the think and of number

Brian Kahn

put It's not to next you would it right like one.

I think there's quantity it if about XXXX got you've well, XX. Petcos PetSmarts. it's think as this would far and the that geography. be in And just general a as size, At --

units. have for room certainly more smaller these We of

So it's Wag of not going fully doing happen and footprint quite take that N' going franchisees that's it. time it's to out going anytime soon, Wash but to build to some to the be

Its be So not that we year. to XXX corporate unpredictable. is it it's be to franchisees like go an for think will we're going open also attractive a But very option stores going

Susan Anderson

And it lastly, like margins? and things year. last that segments? on it sounds inflation, pressure a obviously in year business all expecting you're it. Should Are to offset that pressure it we sounded that -- to Got that expect doing was the this different of then like you was guys

Brian Kahn

I it has think So pressured margins.

the because that I the performance do point, Yes, to the from the -- and things But and to management also zigging impact it's there unfortunately turns, predict turn it's regular basis, vendor, mitigate think know profitability and includes next can the a just inflation. whether again would just margin we company, a of it's occurrence your by won't very one to everybody margins teams time another on new that and a or want not exhausted it's but speak happening it's quarter. the are just having But be zagging I logistics of it's happy deal and tide not daily in pressure from when we will that. flow. due it's it whatever. freight, the significant not to again, product to them increase vendor, price year are with end and cash -- to a know the to it's mitigate I sure I'm impact vendor last a get they

Susan Anderson

luck helpful. That's so this year. Thanks Great. much. Good

Brian Kahn

Sure.

Operator

a question Q D.A. [Operator Instructions] Michael Baker Davidson. follow-up We of from have - do

open. is line Your

Michael Baker

Thanks. Okay.

exclude even guidance you year it Wag well, Wash lower your respond your call to Sorry. that ask Tessie hear. advocate background rate you would the beat you when in a if to But thought? a about excited Badcock. is that had growth doesn't same, -- I I'll How guidance another can't previously that? maybe this might very you XXXX say, devil's type previous relative question. than N' you you kept skeptic but imply appreciate the

Brian Kahn

don't a think a lower growth. good question. I That's it's

fashion so just now, Franchise the that's are we And form the different get than numbers to time year. time right And February year, confident it now. right will the does it's I'm some really think look of I we by by it's -- the or the end numbers the are. what the early the in one in Group, get thing

not So it just it's going worth happen to everything trying like the on margin differently. seems figure out is to

that your a anyway. it's today your by that's And different in think sitting much. views to earnings-per-share year think up of and said we numbers, by of you I beating million early amount. tremendous approximately early any $XXX think ended are It's it's why would saying we've number EBITDA. here math, have $X I too don't good I how and round approximately the it be

Operator

showing I'm conference turn at Brian I further now like Kahn. back the time. questions this to to would no

Brian Kahn

can Great. we conclude Operator, thank us for Well, you to next you look look, all again the please and call. forward and you quarter to joining speaking

Operator

for and gentlemen, Have conference. this a day. this concludes Thank participation. your wonderful Ladies you

all disconnect. You may

Franchise (TAX) 24 Feb 222021 Q4 Earnings call transcript