FRG - Earnings call transcript Q1 2022

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, thank you for standing by. And welcome to Franchise Group’s Fiscal 2022 First Quarter Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. [Operator Instructions] 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

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

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

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

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

Brian Kahn

you Thanks, Andrew, and the before and happy turning general to joining we I be then over questions. Eric good and a to afternoon, will for thank provide to us. all financial answer call details will provide update

all, performance of Franchise quarter. First I’m in overall proud extremely the Group’s first of

persevered rates persisted by as non-discretionary supply and consumer other performance driven like as services chain wages and now. for in serve the discretionary diversification despite well. time some products and across financial have spikes various on FRG’s interest cost and headwinds continued Our costs, general well and to constraints products pressures obstacles energy as

diversification rapidly teams Our control with to at most we environments trenches within flows our in that produce FRG. how other to decisions is to management cash most see the changing compete management live FRG who allocation seem who and A+ each can heroes the a the But over are capital real matter of can’t important reliable enough are I adapt most us. nimble order the who in be stress and teams can to for time.

price all over we FRG, that’s opportunities. prices of sales a to XX% customers. fairly variability consistent been has been as over and allowing have brands momentum business seen Furnishings partners Home Within to it’s and with and of have have our higher driven stakeholders our continue lower, us financial Unit We to performance and diversify cost investment there FRG through the running the gain our the freight collective due health than ultimately partly of external other some our for Within wider pressures best as businesses, and price far tune to products and year COVID higher of educational world, now, strategic our that’s seen their scale partly wellness, in during these internal success pet each happened out state. have running the FRG, increases for pricing that costs and the than the demand more we also services the will due the least to in step Franchise That high pressure of and variability. Demand least to cost less way. estimate have to are marginal discretionary variability. businesses customer said, $XXX amount be million of excess in the steady and of and Group, all across logistics they our and

subside, As that significant access we believe recent gratification, beneficiaries. likely don’t are return and And expect headwinds thought equilibrium a we than while be our last dealers immediate franchisees and we catalyze do consumer FRG is sooner cost these to our stand conference quicker call. to on any

Buddy’s results, start X.X% first with XX agreements in Home operating first Moving franchisee quarter increasing the in system-wide the Buddy’s area quarter, banner. quarter of under backlog with its a new Furnishings with corporate negative had opened down X.X% for the first XXX growing locations. I’ll new quarter. X.X%, XXX negative comp same-store comps comp Buddy’s X.X%. to development negative ending stores first the franchise Badcock XX to the stores, franchise also awarded the of quarter, quick stores businesses. In declining and recap our Buddy’s

credit in in partners. from Badcock of third-party of trusted enhanced from program transitioning options new the our in-house We’re away adding and process payment favor several

the excluded from credit business have results. profitability the traditional non-GAAP We our of

the the $XXX of with majority Real proceeds. to definitive in and agreements for entered other quarters $XX we transactions with of we’ve of centers, proceeds and million quarter the estate signed During additional cash receivables The sold Badcock. $XXX real generating close distribution for corporate more Badcock one estate December. transactions the real heads sale Badcock expected a of series and closed current Estate combined are and of combined We’ve than quarter consumer cash purchase million into million in gross

Badcock assets Freight these the for the the All million $XXX store the Freight bringing American $XXX new for count units. on XXX proceeds two closed of company-owned quarter in transactions total net to gross opened Badcock of we from million quarter. since our bring of purchase A comped of X.X% November. stores will down over sale last at non-core

We A prospects the Freight franchising. continue be growth about to for very optimistic

franchisee We to will three franchises. demand ecosystem of XX%. three the and with expect increase and opened FRG, well locations delivered performed Sylvan when first the sold quarter new new continue its over full A In positive comps Freight Sylvan normalizes.

continue Franchising communities, with three can among years We its its concluded you in accelerating convention acquisition can Sylvan franchise provide on starting in Baltimore, Wag successful quarter, also to backlog process. in-person over build combination franchise total and and Wash and profit to off in X.X% It’s and chance growing customers their franchisee excitement to the that quarter, Sylvan offer and are in team the Sylvan of service day the of within team smaller privilege. Yesterday a products the work growth management traction to a a Direct-to-consumer geographies the feel continued bringing see accounted for wonderful the increases and and to momentum a comps to their and the Wash in comps locations. for second over stores XXX system-wide for more interest in operates new franchisees quarter the XX% new the first in well focused to of PSP franchisees franchisees. services. both. agreements openings N’ provide today accelerate we this generating continues when for were in comps XXX while its it’s is to Wag customer as interest through traffic due opportunity first Supplies stores footprints XX% to with grew XX evidenced PSP complement health received and opportunities with franchisees Plus start N’ revenue franchisees. and Vitamin the for candidates, We corporate from franchise new over who of that building growth and quarter, of the centers attractive physical continues quarter. business store and add for X.X% Vitamin to will total and first for Shoppe development concept positive been as market well in XXX in believe by wellness expect PSPs the XX store its backlog sale will grow positive stores be time. grew same-store to PSP XX Shoppe generated attendees. see brand growing Sylvan quarter. area a now the count an X.X%. locations that while first discovery sales over we you substantially Pet existing in Franchisee

dedicated Franchise behind the scale and for their I’d and business. and Eric? and other, our and opportunities of turn like success am by their collectively are just once, of to continue franchisees each externally I the they’re I and how to Eric, And Franchise impressed stewards we want I thank dealers our our again, to They associates management diversify capital of for support of Group. invest our to to team. driving of as ultimately their our the support reiterate forces great over tenacity Before internally call Group’s all

Eric Seeton

Brian. you, Thank

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

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

Adjusted and continuing $XX.X For results quarter total revenue press per results EBITDA per share. six the $X.X share. In was from fully results the financial were diluted operations reported acquisition. first was FRG’s included our the of fully in Franchise was all non-GAAP $X.XX are from detailed or release EPS billion $X.XX first our segments financial quarter and in $XXX.X include million business date was Group and of overall acquisitions of for and XXXX, the filing. all million income

customer sheet. from adjusted As and Badcock of business Badcock Brian EPS. FRG, acquisition business of Real million excluded $XXX outstanding XX, balance is well the At the being believe end foreseeable ABL from business and not $XX the which We Since approximately million proceeds to pending for on repayments we does continue sheet cash the transitioned Badcock at EBITDA stages million. quarter repay and all our results $XX we mentioned, in to from closed of of add partners. In this future. million performance, We had non-GAAP by to the liquidity net our of closed we availability our the portfolio non-core support the the in-house allow of balance term final of million our are term have we Real of of revolver XXXX. financing, will for and Corporation $XX in obligations two we transitioning meet our approximately Estate and to us approximately balance The at the approximately ended $X.X the to on sale include with conjunction with anticipate and quarter sufficient quarter, end sales balance the third-party of the second cash businesses is Estate as the financing finance Badcock of the $XXX.X debt debt. billion least as March of outstanding

of non-GAAP of As approximately XXXX, Due our Real previously approximately of weighted XXXX. Estate, million reaffirming The financial of announced for company $X.X outlook average end fiscal Badcock year we EBITDA and the believe the net approximately sale per billion, of $X.XX is outstanding. below we fiscal revenue of are approximately will debt $XXX using $X XX of by million share. be year shares success to our the billion adjusted EPS today,

of Our Thank acquisitions, to for their activity. divestitures any lenders Operator, for not refranchising open want outlook all include and our shareholders I assumption you. the support for to-date. line does or additional thank questions. please

Operator

Please Thank Mr. Baker Davidson. question you. Mike on [Operator Instructions] And go first line from from ahead. D.A. comes our

Mike Baker

context a come much is a today guidance to One, Your how A you couple reiterated of just And does you months consensus. related of But environment full own your to wondering it since the the that, how the pretty it as But first you put compare quarter guys. you think questions. how different than expectations? sort Thanks, to quarterly numbers guidance, was lot of were give ahead first have quarter compared can that the year, expected then three ago. to a your in? tee. about to

guidance, that, are in the a again different change. -- that less has you So lot are of confident, more confident, drivers there no change within

thinking the you’re how business ago? about So today months just Thanks. wondering versus three

Brian Kahn

Mike. Sure. Yeah. Thanks,

businesses, marginally and where say, But, we I’d three business, of we be obviously than thought to very are So we ago, businesses be we’re months might several would where the have all all, marginally within we some weaker. stronger were we some are. in have happy the are

As what’s over the far last changed as of months. couple

attention that I pocket that think the really everything but of issues three I to traditionally no where it going pricing we’ve challenged. issues that of would can and to things spike, consumers they snap spend see discretionary them generally now it the what months would. one I’d to we demand ultimately, we’re extent prices feel supply Traffic prices, that, But, tunnel, And all, for back stores. have and solves, see some to would the continued gas seen better the that I that’s income more the energy takes that of in our -- it didn’t I we’re that light choice thought paying that I be actually at use be think out we would be definitely versus cash in that many end on. solves today we’ve into been say is chain what consumer seeing. our lower, because the away about the main to that differences think fine. for equilibrium it’s all that’s been ago, it catalyst the is is of were

over to in through although already last that’s we’ve the couple the than XX% a very I down costs flow peak and P&L, time container seeing seen takes that places that trend different years. think over We’re some the from of

doing think, just a normal. to, of doing, we be to we would back great. what So fort something continue beneficiary as going exactly think I I long we’re can as side, hold to feel on we’re the the And down huge it going other

Mike Baker

below I perspective. installments, net right now. within net end. balance includes does, sheet Interesting and could debt million think that And in Yeah. to Thanks. is to $XXX is current calculation one the the year debt about more, debt around $X.X your assuming just by getting I assume ask If as relates today billion $X.X that it I which billion.

Brian Kahn

Yeah.

Mike Baker

to pay and $XXX got another million. selling you things So down million. get The you’ll $XXX you’re

guess I other the So whereas roughly $XXX…

Brian Kahn

Yeah.

Mike Baker

… is million from, what… come that

Brian Kahn

the something B. say what not don’t We’ve it’s installment. over an in it’s accounting is issue. It’s but he not top but -- -- Riley, all like, the those qualify is securitization I I -- accounting debt, money. that not debt. We sale. come to weren’t -- from able Eric to receivables, an we actually of if let doesn’t that say for hate current I’ll still it this sold got there we actual to owe actual But it’s

sense. But sure anybody. has stopped doing balance we pretty things to makes up operationally actual until that our appear that that we well. and So sheet I’m certain on owe that’s Does that muck I debt not

Mike Baker

Okay.

So…

Brian Kahn

Yeah.

Mike Baker

up that. follow to with Well,

included the so pull be, but I that not guess when to I if does balance my that show might just you all, would at a don’t But if come screen could? question I calculation. because that guess, as, Okay, going we that’s off assume I -- show it up it that, know, Bloomberg, up in sheet, that’s do or so

Brian Kahn

Yeah.

not doing when about certain really So things those don’t It’s It’s to variable. what the get operations that? It’s actually operating disappear it’s to run just going and I an driven. just Badcock business. things not it’s we it’s stop by financially are, How and actually into we driven because how and financial. want

Mike Baker

is going got be something to you you When or future that, Fair enough. do is But the say like just in coming off something… there? that foreseeable it to that is

Brian Kahn

It No. will..

Mike Baker

…you currently to planning do are that?

Brian Kahn

away relatively It’ll go quickly. Yeah.

Mike Baker

Thank Appreciate you. that. Thank you.

Brian Kahn

be problem. question. first it’s Frankly, would in place. a didn’t No But good we No. it the think there

So it’s a very question. good

Operator

And thank you.

question next online Please Susan from from comes Anderson go Our Riley. B. ahead.

Susan Anderson

on at you I could if the there wondering bit not that you could that’s be of was out my Good asset be Thanks Hi. or for could would been interested that in? all, questions. you Maybe maybe a that’s little comment purchaser taking that a talk an you speculation whether Kohl’s. evening. potentially about

Brian Kahn

Sure. Thanks, Yeah. Susan.

to what we -- companies from time-to-time. we’re look comes going to talk And include on tell can’t do things I’m and in particular comment but tell you But philosophy that so, you and can and happy to to lot I’m I the not about FRG that any a I Kohl’s. think, going about I would future, M&A our tell it you, to at when you

now. lot so operate So, first, our conviction the in brands -- of we got a with that we’ve

and these give can additional support that M&A over enough and any internally will And that interest healthy time and cash so this also organic also flow reinvest significant very free and we strongly in believe growth transaction at that externally operate both don’t for dividend, putting growing and any brands we we we that cash free us generate have flow period. risk in at to

Susan Anderson

Yeah.

Brian Kahn

mortgage, we We available. any the at not when that’s at, go everything farm to transaction. look do into Look, will one we look

time-to-time. things my tie many these also capital is share. calls think be And we have make earnings do grow that always would size, share may management transactions and lenders analyze to capacity are, up do, regarding as look, able make accretive to flow think we transactions I Any key. we as to and significantly some on wonderful of FRG, we over balance opportunity cash constraints things not undertake a our per would Money don’t that you the And top just some need costs sense. transaction think, to to trees. about us from sheet can our sense, of I on tie the large do be And of certainly positive we’ve for imagine, because personal have the things out, be doesn’t for And opinion up. per times certainly I in us talked FRG

heard ago think I have. you of me management little talk bit a the businesses about we

investable whether transactions, very large Franchise we’re to what looking to very we for. management key have a management or And We Group. teams always do to transactions small really going is be

background I think health… So on I financial some just that’s more think

Susan Anderson

Great.

Brian Kahn

… hopefully look question answer maybe we for your in what and FRG without that’s helpful. directly and

Susan Anderson

then Kohl’s, maybe Perfect. difficult it ever be finance it’d a large guess sense and equity just And increased helpful. talk purchase? with would potentially, that feel that, where term you opportunities now ever up like with to most I in too? of really there, purchase, loan if the you’re on also, you Yeah. acquisitions if look about, for seeing make could just make that maybe just That’s paid down to you follow you if any necessarily new not and position Thanks. though, other to other out issue but you if are would

Brian Kahn

Yeah.

that good markets believe do a capital we absolutely, time to the be could are order, this for assuming reverse in cooperative us, So transacting. really be

reduced have our leverage. We

We’re definitely the given management wonderful love going it to some would are to by with there out there wonderful assets opportunity. further partner that we teams And managed reduce shortly.

would to far -- current As highly FRG anywhere it near M&A makes purposes. just, as that for issuing equity I equity, that we think, generally, something the be sense. that very we’re I difficult issue find unlikely it’s valuation would

to large I but ways are if there not do. is think that us a something would appetite that to that have to that not an transaction was there require transactions do structure hopefully other we

Susan Anderson

I… then if Okay. Great. And

Brian Kahn

Did them Go Yeah. I ahead. all? get

Susan Anderson

Yeah.

talked just I the and kind question categories, I because doesn’t more slowing, it’s you I like helpful. like one over pulling your many the given kind then trends like, like really products seeing, just any which if there’s then add Supplies wanted of and it could more are just the think Thanks. maybe seeing you’re there maybe because Shoppe, did. trends partly back. changed Plus from that little Is feel consumer if or you but ask like but sounds but stable for you in unique sound other quarter? call inflation about of then on American bit, different similar Yeah. is just, pull-forward, Vitamin a And trends That’s consumers that consumer out you’re the that last of just Freight, case so partly seeing, you could like and see some that you have guess product just Pet to it view

Brian Kahn

quarter what that about going -- down segments. in on call, the well Sure. for I on said probably And the look, units I And a Furnishing we conference half. I then talked now, last a think, was it’s Home think over and year seen significantly year last we’ve

And quite and that higher one, then three, the cost, we higher a for is we’ve are see higher but time. units two, what that decrease pricing, pricing, in moving seen but so, actual large some

as there’s you see. So but seems the normally much would revenue relatively stable, as not activity

So say the view, that’s ago actually the as, on where today on not last we as call changed would business versus not in it’s months this just that, hasn’t itself far gotten were that, worse, getting I three any better. my call, it

roll through You going higher rolling through They do pressures just really costs will, have some to But extent, as the That’s take now worse. roll as are to that just cost well. subside, the not months think I P&L do getting several they it’s to P&L. in. the do that

been what there’s gotten not, it’s -- it’s just change. with It’s worse. we’ve real not no again, living it’s So and

wellness, against side, management to some their inflationary basis think do businesses that side, spook people. dealing health on the out But broke some even when pressures. any not just -- greater view, been the On a war businesses or they’re of though for that from in it’s inflationary education although do feel Ukraine spooked the over time. time that all and all much think Russia, fighting have I other as with teams business that relative we pressures, don’t period pressures far I seeing pet inflationary daily my But quite the of like

worked it think I customer have that marginal for But may out us. nothing. okay done all-in-all, just

Operator

you. Thank

Zaffino ahead. next from question comes online Ian Oppenheimer. Please go from Our

Isaac Sauhauzen

this a This Isaac Ian Sauhauzen two to I Congrats so guess year on my questions. is start on the guys. strong afternoon, for far. evening. Good Hey.

year, The and first I with Shoppe. and strong previously I guess. to comps the that was one Supplies curious think as the segments. But the don’t likes those in for you you Pet first Vitamin up you of the comps just guess look year, last I relates on Plus way specific if strong seen look out obviously can through asked it’s just consumers, know the quarters, what guess. few health for give you throughout been guidance showing as It’s at the I hold quarter

Brian Kahn

Yeah.

So we don’t not forecast that, our I say robust comps those by can I does the certainly comps would brand, question but plan obviously anyway. -- appreciate include I think -- does businesses. in

safe we of same Board across So comp direct activity level question. would maybe expect a not the the of that’s and answering the way

Isaac Sauhauzen

Yeah.

Okay. Yeah. I Appreciate it. Got it. And guess…

Brian Kahn

Sure.

Isaac Sauhauzen

of I guys wrong, said, guess of sort of believe sort a those some could kinds Badcock. past, around synergies to … you know I’m between there. I frame and the in me if the be provide of general I guess, you outline would correct can Freight timeline you achieve if helpful Buddy’s you’ve but synergies American and that

this or little term? you longer expect more to be a that If year

Brian Kahn

I Yeah. that we’ll you’re we larger a achieve the be Sure. having do able Home segment. of Furnishing that to -- benefits do No scale in think expect right, and problem. And

our during year thinking. factored in any this to have synergies not We

and on we’re just not has or at or Buddy’s add look pricing, as able segment American to micro the Badcock, And better in think the profitability. to rather very small successfully profitability are our pricing become I Group I more think think vendor level And vendors to to there’s vendors a Freight, just on they large we it think I more and a Franchise significant time to macro whether that a impact level, the lot we’re anything at benefit get drive else add that the us a with and term. than very has and of able to system. relationship meaningful over as whether to a Furnishing Home a to not overall that’s I that and may we looking relationships do longer

out it’s candidate. that’s and driven. for that about and corporate that, not Freight to about cost headcount largest expect American not operationally office more be it’s running, example, say I’d We So certainly the savings, Buddy’s, one Badcock don’t or far of it’s

Isaac Sauhauzen

Okay.

Brian Kahn

across be, similar advantages well to would example the customers, system. we payment the vendors Another have having additional it to providing that way provide can options volume as

corporate So, and really just again, all structural. not operational

Isaac Sauhauzen

obviously, just to Okay. Makes sort down to throughout sense. more given you’d the comments quickly it. business maybe are obviously end I And come the the back around M&A that of I leverage certain there guess, discussion will areas Got with and to then before, circling growth that? the that your of of that year, EBITDA year. mean, general be that M&A open doing and the just

Brian Kahn

Sure.

wonderful. Very investing that provides Badcock they’re that the So, also interested N’ we is Franchise look, if long-term. Furnishing And the I think fit it’s in have, a currently and added Wash are sense a lines that’s business then Group adding to that a think and over make have small we in, a they goal Wag example. we aren’t segment and concept diversify, we us. which for would PSP yes, good whole second for we transaction the to in businesses that Home a scale and acquisition. great to But wonderful mean,

most not at can exposure new we around that over we’re But look, long-term build as our avenues, verticals, comfortable well. new of feel with time to adding that we spent is the against overall. businesses So, looking

can takes for own we businesses counterparty a for to that, going can valuation it always we that is the we’re of said not that we’ve -- every hopefully. going and that doesn’t like interested mean in lot it’s -- to them that be that’s own, to, we’ve we price for Group, loved we but find So makes Franchise the but selling anywhere, would think sense businesses that

make certainly, let’s we’d minds think partner there’s change a transaction who are viable you’re and people I gradually we’ve and that you’ve to what figure people a saying, we’ve out sometimes seen their it’s here. and sustain. like And if And from momentum heck way moved that’s the to a Okay, to? done and work the you

Isaac Sauhauzen

Okay. much. Well, thanks Awesome. very

Brian Kahn

Of course.

Operator

a We Instructions] Please have Baker. up [Operator you. from follow Thank Mr. ahead. actually go

Mike Baker

be so in economy. care much Oh! months, focused, like, to Just into second quarter In going the quarter. March going what Real the might any I of quick, Yeah. In trends be versus was February? indication beginning other on April to is throughout on but and it you comment hate short-term again, seems an last the the January and the economy? of words, Thanks. the then on how and in as few

Brian Kahn

Yeah.

combine that the -- you all we realistically business things don’t right It’s not holistically expected, I what where on the those be. which it think blend that -- it I of have have again, to, you’re when on variations. that seeing you it the we’re variations, are what understand as would we depends together, monthly would way all that, is comment we’re So would I good things you are as when what thought better, the we comparing

Operator

you. thank And

our closing We over this remarks. for no have like further to questions turn it to time. I’d at presenters

Brian Kahn

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

Operator

participating. Thank you, gentlemen. This and ladies you Thank concludes conference. for today’s

debrief. your may Speakers, standby for now You disconnect. please

Franchise (TAX) 5 May 222022 Q1 Earnings call transcript