Franchise Group, Inc. (NASDAQ:FRG) Q4 2022 Earnings Call Transcript

Franchise Group, Inc. (NASDAQ:FRG) Q4 2022 Earnings Call Transcript February 28, 2023

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Franchise Group’s Fiscal 2022 Fourth Quarter and Year-End Conference Call. All participants will be in a listen-only mode. After the speaker presentation there will be question and answer session. Please note, this conference is being recorded. I would now like to hand the call over to your host, Andrew Kaminsky, Executive Vice President and Chief Administrative Officer of Franchise Group. Please go ahead.

Andrew Kaminsky: Thank you, Gary. Good afternoon, and thank you for joining our conference call. I’m on the call with Brian Kahn, Franchise Group’s President and CEO; and Eric Seeton, Franchise Group’s CFO. Before getting started, I’d like to mention that certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of the federal securities laws. These forward-looking statements are based on management’s current expectations and are not guarantees of future performance. Actual results could differ materially from those expressed in or implied by the forward-looking statements. The forward-looking statements are made as of the date of this call and except as required by law, Franchise Group assumes no obligation to update or revise them.

Investors are cautioned not to place undue reliance on these forward-looking statements. For a more detailed discussion of these and other risks and uncertainties that could cause Franchise Group’s actual results to differ materially from those indicated in the forward-looking statements. Please see our Form 10-K for the fiscal year ended December 31, 2022, and other filings we make with the SEC. The financial measures today include non-GAAP measures that we believe investors focus on in comparing our results between periods and among our peer companies. Please see our earnings release in the News and Events section of our website at franchisegrp.com for a reconciliation of non-GAAP financial measures to GAAP measures. Non-GAAP financial information should not be considered in isolation from, as a substitute for or superior to GAAP financial information, but we include it because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes.

The non-GAAP financial measures the company uses have limitations and may differ from those used by other companies. Now I’d like to turn the call over to Brian. Brian?

Brian Kahn: Thank you, Andrew, and good afternoon to our listeners, and thank you for joining us. I’ll provide a general update before turning the call over to Eric to provide financial details. We will then be happy to answer questions. Our financial performance in the fourth quarter was in line with the outlook we provided in November. We told you that we were going to move inventory at American Freight offering value that our customers expect, and we did just that. comparable transactions in the fourth quarter were down approximately 3% of American Freight, a dramatic improvement from the negative 27% levels experienced earlier in the year. Although we’ve made progress in working through our high-cost inventory, we still have more to go.

There’s a renewed optimism at American Freight as the culture of selling value is back in the business, and we are all optimistic that 2023 will be a better year for their financial performance. At Badcock, we continued to test third-party waterfall solutions that we believe will provide a better experience for our customers and dealers. We’ve been adjusting tests in our 68 corporate stores for most of the last 12 months before rolling out system-wide to our dealers. Importantly, later this week, we are introducing a new waterfall test to 7 stores owned and operated by one of our trusted dealers. This will be the first time we’ve moved the test into dealer locations, and we intend to transition away from providing in-house credit at Badcock by the end of the second quarter of this year.

Our franchising activity continued to accelerate across FRG in 2022. We finished the year with 259 new territories sold and backlog across all brands of 482 locations. We have a substantial organic growth opportunity from converting our large backlog into new unit openings. And this is a priority for our store teams in 2023. It’s controllable by us internally, and we have much the gain as new units open and mature over time. As cost of construction materials and labor improve, we believe our franchisees will have an easier time opening stores over the next couple of years. compared to the last couple of years. Turning to capital allocation. We did not make any material acquisitions in 2022. Instead we increased our investment in the brands that we own by opportunistically repurchasing approximately 5.9 million shares at an average cost of about $29.13 in the back half of the year.

The repurchases reduced our outstanding shares by approximately 15%. The significant and rapid increase in interest rates has further reduced our discretionary cash flow and increased the bar for capital deployment into outside acquisitions. As a recap for the full year of 2022, when we spoke to you about a year ago, we shared that we expected to produce approximately $450 million of adjusted EBITDA and $5 in non-GAAP earnings per share. Our actual performance fell short of our original expectations as we delivered $354 million of adjusted EBITDA and $3.63 of non-GAAP earnings per share. I see three key deviations from our original plan, shortfall in operational performance, primarily at American Freight cost us about $1.5 of non-GAAP earnings per share.

The increase in interest rates cost us about $0.47 and then the unplanned repurchase of shares added approximately $0.15 to non-GAAP earnings per share last year. Looking ahead to 2023, we believe adjusted EBITDA will be at least $355 million, up slightly from the $354 million we reported last year, which included a 53rd week that contributed approximately $11.3 million of our $354 million of adjusted EBITDA last year. We expect American Freight to rebound, albeit not immediately to its full potential. Pet Supplies Plus, Sylvan and Buddy’s are likely to grow in 2023 and offsetting EBITDA growth at Freight, PSP, Sylvan and Buddy’s will likely be a slight decline in Vitamin Shoppe EBITDA, driven by continued mix shift in favor of lower-margin sports nutrition products as well as a larger decline in Badcock’s EBITDA as we expect the home furnishings industry as a whole to continue to struggle somewhat until fully landed inventory costs are closer to pre-COVID levels.

Overall, we expect to generate approximately $4.4 billion in revenue, $355 million of adjusted EBITDA and $2.09 of non-GAAP earnings per share. Higher interest rates are expected to cost was about $1.23 per share compared to 2022 and the lower share count is expected to benefit of the franchise grew by about $0.32 as compared to 2022. From a balance sheet perspective, earlier this month, we closed on a $300 million add-on to our first lien term loan. After witnessing a year like last year, when credit markets were substantially inaccessible I believe the potentially fleeting opportunity to create additional liquidity in a difficult economic environment, outweighed the cost of servicing the incremental term loan. We used all of the net proceeds from the incremental term loan to pay down our ABL and we’re extremely grateful for the continued trust and support of our lenders.

We intend to reduce our outstanding debt in 2023 through cash flow from operations which this year will include additional cash generated from an unwind of our excess working capital, which was a large unanticipated use of cash last year. While significant acquisitions are not a priority until we’ve delevered in this difficult environment, there may be one-off opportunities for small tuck-in acquisitions or franchise conversion that can create step function growth in our franchise unit count and royalty contribution. Case in point, today, PSP acquired 20 new locations from a competitor in bankruptcy, and they expect to sell those stores to existing franchisees in the coming months. All of these locations will be rebranded under the PSP or wagon wash banner.

Eric, I’ll turn the call over to you to provide financial details, and then we can wrap it up with Q&A. Thanks.

Eric Seeton: Great. Thank you, Brian. Before I address the results of operations, I would like to remind you that we will be making many references to pro forma items throughout this call. Our press releases and filings may refer to historical financial results for the acquired businesses prior to their acquisition by Franchise Group. These items have been adjusted to align with our fiscal calendar and accounting policies to the extent reasonable. Comparison to pro forma results will allow us to discuss and evaluate performance of the acquired companies when a comparable period is not available due to the timing of the acquisition. For the fourth quarter of 2022, system-wide, Buddy’s had a positive same-store sales comp of 3.3% with franchisee comps growing 4.2% and corporate stores declining 2.5%.

For 2022 Buddy’s opened 25 new franchise stores and awarded 39 new locations growing its backlog to 111 locations. Badcock comped down 14.8% for the fourth quarter. During the quarter, we sold $51.6 million of Badcock consumer accounts receivable for $43.9 million and sold another $62.6 million in January for $53.2 million. The net proceeds were used to pay down our ABL. American Freight comp down 12.5% for the quarter in 2022. We sold 23 new franchises, bringing total franchise backlog to 36 locations. Sylvan completed another consistent year and delivered comps of 1% in the fourth quarter. Sylvan sold 22 new franchises in 2022 and has a backlog of 16 units. We believe there’s a lot of opportunity in the education market and have recently enhanced the franchise sales team at Sylvan to accelerate growth.

PSP continues to execute well in all facets of its business as demonstrated by its continued growth and financial performance. Pet Supplies Plus generated system-wide same-store sales comps of 5.2% in the fourth quarter, Franchise comps grew 6.5% in the quarter, while corporate stores grew 3.5%. PSP continued to accelerate its growth in 2022 with the sale of 90 new franchise locations bringing total backlog at PSP to 230 locations. We have sold 37 wagon wash locations and currently have a backlog of 34 stores. Vitamin Shoppe comps positive quarter, direct-to-consumer accounted for approximately 24.8% of the business. In our first year of franchising, we sold 48 stores, which built our backlog to 55 stores. On a consolidated basis, for the fourth quarter of 2022, total reported revenue for Franchise Group was $1.1 billion.

Net loss from continued operations was $0.7 million or $0.08 per fully diluted share. Adjusted EBITDA was $65.3 million, and non-GAAP EPS was $0.47. For the fiscal year ended December 31, 2022, total reported revenue for Franchise Group was $4.4 billion. Net loss from continuing operations was $68.6 million or $1.96 per fully diluted share. Adjusted EBITDA was $354 million, and non-GAAP EPS was $3.63 per share. I want to reiterate that we are still in the process of transitioning consumer financing at Badcock from in-house to third-party partners and have excluded the noncore results of the finance business from adjusted EBITDA and non-GAAP EPS. While we can pro forma the income statement for consumer lending, the balance sheet continues to reflect securitization debt and accounts receivable despite most of the receivables having been sold to third parties.

Once we discontinue originating customer loans, we believe the securitized receivables will be accounted for as a sale and the related assets and liabilities will no longer be reported on our balance sheet. We ended the quarter with approximately $1.1 billion in outstanding term debt and cash of approximately $80.8 million. At the end of the year, we had approximately $92.2 million of availability remaining on our ABL revolver. In conjunction with our balance sheet and business performance, we believe we have sufficient liquidity to continue to meet all of our obligations and support all of our businesses for the foreseeable future. I do want to thank all of our shareholders and lenders for their continued support to date. Gary, please open the line for questions.

Thank you.

Q&A Session

Operator: Our first question is from Larry Solow with CJS Securities. Please go ahead.

Larry Solow : I know one quarter doesn’t make a trend, but some really accelerating growth through the year. Strong EBITDA margin was 10% for the quarter. That — I know organic growth same-store growth was mid-single digit. It sounds like this is maybe just driven more by that and just a swell of franchisee openings and wagon wash may be mixed in there. Can you maybe just discuss that dynamic and sort of that growth driver going forward?

Brian Kahn: Sure. Thanks, Larry. PSPs benefited from both consistent comp store growth and the additional units I think as we look at this year, we’re forecasting low single-digit comp gains and the continued opening of new stores, but also the real impact comes from the maturation of doors that opened last year and the year before as they ramp up. You don’t get a ton of contribution in the initial year of the openings. But we’re very pleased with their performance. They continue to operate and continue to grow their revenue and EBITDA and free cash flow for us.

Larry Solow : Okay. And then just switching on to American freight. I know you’ve drawn out that $150 million sort of earnings but EBITDA potential. Clearly, it’s not going to happen overnight. Could you maybe just sort of outline the things or the few initiatives you need to get done besides just the improvement on inventory and then purchasing to get the business in the right direction. And how fast could that — could we get back to $50 million to $100 million? I mean, this year, you were basically breakeven so in ’22. So I know you said you expect growth in ’23. I think we would all hope for that. So when you get meaningful EBITDA contributions in ’23? Or is it going to take a couple of years and maybe a better — a little better economy?

Brian Kahn: Sure. So it was about breakeven last year, but if you actually look at the quarterly cadence, you’ll see it was negative EBITDA in the back half of the year. So if you think about how things have progressed, we’re — we’ve gone from operating negative and we need to get from negative back to breakeven and then from breakeven continue that momentum and positive EBITDA and cash flow contribution. American Freight consumed a tremendous amount of cash last year from operations, including working capital usage. We certainly think that those days are behind us. I don’t think that it’s — I don’t think that the turnaround in American Freight’s financial performance is dependent on the economy. I think it’s really within our control.

But one of those things that we need to control is how quickly we can turn the high-cost inventory that we discussed back in November and have continued to have coming in as we’ve been moving the inventory out, but we still have old orders that are coming in, we need to get through that cycle. I think we did a really good job, a tremendous amount of focus and the team really focused on moving inventory, and that required us to take prices down closer to the value levels that the customers have grown to respect from — and expect from American Freight. But I think that as you go through this year, we should be through the cleaning out of the inventory for the most part by midyear. I do expect a very significant increase in their profitability this year.

I don’t think it’s going to get back to normalized levels, but I do expect that we will see a material increase. You asked about what are the 1 or 2 things that we need to do or that need to happen to get back to, call it, normalized profitability level. It really has to do with being able to have fully landed cost at a level that we can price the product to make the margin that we expect to make but at the same time, have the customer find the attractive value that they’re expecting from us. And it’s getting better, but we’re not there. If unit costs and you’ve heard me talk about that quite a bit over the last couple of years. If unit cost were up 50% from pre-COVID times and you had freight cost of 500% unit costs now have been coming down.

Freight costs have been coming down significantly. So if it was 50% now maybe we’re up 30%. So we’re still not back to par but it’s going in the right direction. I think that if we had less inventory right now, and we were able to convert the inventory we had to cash and flush it through we could replace the inventory at significantly lower cost than we’re even seeing now. But we’re not — we’ve been stuffed for a while, and we’re not going to buy a great deal just for the sake of buying great deals, but just — we need to turn our inventory and be able to operate efficiently. That’s what franchisees are going to expect and that this is a business that we’re going to aggressively on open company-owned stores. We need to have the infrastructure and the systems in place to be able to handle that growth.

So I think we’ll be very careful.

Operator: The next question is from Mike Baker with D.A. Davidson. Please go ahead.

Mike Baker: I got you. All right. So one quick follow-up on that American Freight line of questioning. How far are you through this process? Are you 50% through moving the inventory 80%, 75%, et cetera? And maybe 1 way to think about that is when you report your first quarter numbers is EBITDA going to be negative still? Or I get that it’s going to improve throughout the year, but can it — is it still a drag right now to EBITDA?

Brian Kahn: Well, it has been. I think that the calendar is probably likely to help in Q1 I can tell you we were at 4, 4, 5 quarterly cadence because the retail calendar, the calendar because of the tax money breaking is going to be helpful. But in January, the business operated at negative EBITDA. The business generated negative EBITDA, but it generated positive free cash flow. So I think that just is a good example of how the accounting really impacts what you’re seeing when — what I’m really interested in is how much free cash flow is the business is generating. As far as what inning are we in or how far through the inventory cleansing and perfecting process, hard to say because we still — I think we’ve done a great job moving out inventory we have, but we still have dribs and drabs coming in at higher cost.

If I was to pick a number, I’d say 50% through, but that wouldn’t be scientific and I wouldn’t take it to the bank. I certainly don’t think that we’ll be dealing with this issue at the same time next year, but probably going to take to midyear to really get through the majority of it.

Mike Baker: You talked about — you commented on free cash flow, so that will segue into my next question. What is your free cash flow outlook in total for 2023. If you can sort of maybe bridge the gap between your EBITDA guidance of $355 million and what you expect to free cash flow? And as part of that, and really, the important point is give us the confidence that you’ll have enough free cash flow to pay your dividend.

Brian Kahn: Sure. So you’ll have to draw your own conclusions on the dividend or not, but I can certainly help you with how we look at free cash flow generation. The good news is it’s going to be better this year than it was last year, but that’s pretty easy to beat last year. If you’ve got $355 million of EBITDA, we will have interest expense, which is probably around $145 million, we’ll have a cash tax expense perhaps of $20 million to $30 million and we’ll have CapEx, both maintenance and growth CapEx. And I think about — a total of about $50 million and $10 million of that is, give or take, is the complete the new distribution center for PSP, which certainly is funding significant growth for them and for FRG as a whole.

This year, though, we’re going to have the benefit if we operate well, we’ll have the benefit of working capital being converted into cash. And you’ve heard me say before, we’ve got about $100 million of cash tied up in excess working capital. I don’t think that we’ll get all of that back this year. It would be great if we do, but we should get the majority of that back. So when you add all those numbers together, I think you’ll see a healthy amount of free cash flow. But it’s not — it’s still not to the levels that we were used to a year ago.

Mike Baker: But yes, okay. So as I go through that quickly, I get about $200 million maybe in cash, which gives you more than enough to pay the dividend. I have another — well, I’ll — that was 2, so I’ll go back in the queue and turn it over to someone else.

Operator: The next question is from Ian Zaffino with Oppenheimer.

Ian Zaffino: Just wanted to follow up on the comments on Babcock and inventory there. I guess this is sort of I guess real to American Freight was the inventory problem, but now it seems like Badcock is as well? Or can you maybe help us out understand like what the severity of it might be, are we following the same playbook that we did at American Freight and maybe what kind of drove that excess inventory situation?

Larry Solow : Yes. So Ian, I’m not I don’t think I referenced anything about Badcock inventory situation. I’m happy so to tell you that American Freight having excess inventory was not unique in the system. I think that American Freight, Badcock, Vitamin Shoppe and PSP all have inventory that are not necessarily at optimal levels. And we do expect inventory on an apples-to-apples basis to be reduced at all four of those businesses this year. But I don’t think — I’m not sure if you’re referring to my comment about Badcock EBITDA being down this year? Or if you’re specifically thinking about an inventory comment that — but I’ll just throw that back over to you to clarify, and I’m happy to help either way.

Ian Zaffino: I guess I might have misunderstood it, but you mentioned that inventory was sort of elevated at that Badcock so regardless

Brian Kahn: That — if I said it, it’s true because it’s elevated everywhere, but it’s not nearly the same situation. So yes, hope that clarifies.

Ian Zaffino: Okay. So one of the mill elevated as opposed to meaningfully.

Brian Kahn: Correct.

Ian Zaffino: And then I don’t know if this has been asked, but on the dividend, how are we thinking about the dividend just given where guidance is. Are we comfortable here, how are you thinking about it right now as far as investors and what we should expect maybe going forward?

Brian Kahn: Yes. So each quarter, the Board is going to analyze the information we give them and the recommendations that I make and determine the outcome. We don’t set an annual dividend. We do determine it on a quarterly basis. So — and we had a Board meeting last week, and I recommended dividend at the same rate that we’ve been paying over the last, I think, four quarters or so, and maybe even five quarters and the Board approved that, and we’ve declared it and issued that today. As far as what happens down the road, I don’t know. I think that I certainly understand, and I think that the Board also understands that the dividend is highly valued by our shareholders. And so that’s — it’s important to us, it’s important to you. But I certainly wouldn’t want to forecast what’s going to happen with the dividend at any point in time.

Operator: The next question is from Vincent Caintic with Stephens.

Vincent Caintic: First one, just kind of going back to that. So if you could talk about your kind of leverage and liquidity targets when you’re going — kind of going into 2013, you kind of laid out already a bit of the cash generation, maybe what are the — some of the uses of cash as well. But you did have a share buyback this past quarter that would stand pretty positive. And we’re also kind of talking about the dividend now. But maybe if you could talk about liquidity targets and kind of given the actions you’ve taken so far the uses for potential capital return?

Brian Kahn: Sure. So look, the financial policy remains the same, our sweet spot. The leverage is under three turns of EBITDA, two to three turns is, I think, where we are comfortable, I think, that the higher interest rates and we’ve experienced the cost of capital that has gone up. The costs that we’re paying to service our debt really shows why we belong ultimately two to three turns being very comfortable. We did take advantage of the credit markets opening in January to launch that upsizing. So we did increase our liquidity. I’m glad to have it because you never know what’s going to happen. And the last thing you want is to actually need capital and have that cost of capital be too high. But I think we’re in a good spot.

The businesses have continued to perform the way that we have expected. I think that our ability to generate cash this year is really augmented by our ability to convert working capital into cash. And that’s a big deal because that’s going to be a large chunk of our free cash flow overall, really offsetting the additional cash interest expense that we now have to pay on the entirety of our debt because not just the new $300 million that we have to pay interest on. We’ve got to pay a higher rate on the $1.1 billion that we had before. So look, I think that if we operate, we’ll generate enough cash to cover all of our responsibilities. If we fail to operate then anything could happen at that point?

Vincent Caintic: I appreciate that and second question, kind of another financial one. So the difference between GAAP and adjusted EPS, I’ve been getting some investor questions about and it seems to be the Badcock adjustments here. If you could delve into that in more detail. Should we be expecting more of those, I guess, losses being — and then being adjusted out? Just kind of wondering how long that lasts.

Brian Kahn: Yes. Eric, I will let you handle that because you understand it much better than I do.

Eric Seeton: Yes. Thanks, Brian. Yes. So what we essentially do with that delta between GAAP and adjusted EBITDA is to strip out all of the components related to Badcock financing. And so that’s what you’ll see on — we’ve broken out into 3 lines this time instead of lumping it all into one to better describe where it comes within the where it shows up within the P&L. And then as Brian mentioned earlier, we expect to exit the financing business in the middle of the year by the end of Q2, and therefore, we — those add-backs would essentially go away at that point in time. So — but the effect of the add-back was just in line base operations.

Vincent Caintic: So I guess it’s — right now, it’s on the balance sheet or the lines — or is if it’s on the balance sheet, second quarter once you sell the business off the balance sheet, we don’t see it anymore. And that’s sort of already planned if I understand correctly?

Eric Seeton: Yes. Yes, that’s in process yes.

Operator: The next question is a follow-up from Mike Baker with D.A. Davidson.

Mike Baker: As promised. So let me — and just a follow-up on that Badcock line of questioning. So the receivables on the balance sheet and the debt related to that, if you’re out of this by the end of the second quarter, does that go away as well? Or will that linger into subsequent quarters? I guess the question is, what quarter do those go away? A second part of that question, I presume when you talk about your leverage less than — sweet spot, less than 3 times, et cetera, you’re excluding the debt related to the receivables. Is that correct? And then last part of that is how confident are you that you get rid of it by the end of the second quarter? I know that you had done some tests that weren’t — you’re having some trouble finding ways to offload those — the receivables.

It sounds like you have some tests that are maybe heading in the right direction now. But here I say it hasn’t been as easy as you originally thought. So how much confidence do you have that this is gone by the second quarter?

Brian Kahn: So I’ll try to take the last two. And then Eric, if you can handle the first part and you may need to repeat some of that. So one was — the last one was the confidence level. The second to last question was about the recourse of the debt, is that

Mike Baker: More about what you include when you yes, when you talk about leverage in your calculation.

Brian Kahn: So I don’t include the securitization because it is nonrecourse. It’s a balance sheet item. It’s not anything that we own money on. I include in my calculations for leverage, debt that we actually have incurred and that we have to pay back. That’s what I count. So — and I think you’ve said pretty eloquently if we are out you did. If we’re out of the in-house financing altogether, the securitized debt just leaves our balance sheet like magic. So I think that’s really the illustration that you’ve got. So when I’m talking about two to three turns of leverage being where we want to be as a target that does not include anything having to do with Badcock receivables. As far as confidence level and how we’ve gotten here with the transition to third-party waterfall from the in-house offering.

I didn’t expect that as we sit here today at the end of February 2023, that we would be continuing to test that we would be continuing to write in-house Badcock credit, but we are. So that was a bad bet by me. We’re just not there. I think there comes a time that you have to just figure it out and make decisions. And I think that’s where we are. I think that by the end of June, we should know what we need to know, I think, that this test moving into the dealer stores right now with 1 dealer in particular, 7 stores, who has been around Badcock for 25 years and is a good operator, and we’ll really be able to tell us if it’s what’s working and what’s not. I think that, that is a really big step for us. Would I prefer that we were there several months ago, Absolutely.

Do I think that the end of June is realistic? Absolutely. Would I bet my life on it, absolutely not. So I think that’s probably the best qualitative summary I could give you to my personal views of where we are, where we need to be.

Mike Baker: Well, I don’t want you to give away yes, sorry, go on.

Eric Seeton: No. Mike, sorry, I was going to just ask — answer your first question around the accounting. So essentially, because this is one of those nuances where it’s a sale from a legal perspective, it’s a true sale but from an accounting perspective, it doesn’t get counted as a sale until we stop originating customer paper. And once we do, we unwind all of the accounting related to that on the balance sheet, we stopped the add-backs as well. So at that point in time when we stopped the origination of accounts, you’ll see it online from the balance sheet.

Mike Baker: Right. So presumably, that would be at some point in the second quarter, but it will still be on the 2Q balance sheet if it’s not done by the — because you’ll have some of that within the quarter. But by the third quarter, if you’re right, we’re not going to bet Brian’s life, but if you’re right, and you’re done with it by the — by June, then it won’t be on the third quarter balance sheet.

Eric Seeton: Correct.

Mike Baker: Okay. One more thing on that, though. I don’t want you to give away your negotiations here. But when you say at some point, you just got to make a decision. I mean, is the implication that you’re just going to have to make a deal to — with a third priority that’s just not as good for you as you would have wanted? And where would — how would that — where would that show up?

Brian Kahn: Yes. That’s a fair question, and I’m not really sure how to answer it. Other than to say that I’m absolutely certain that whatever deal we do strike will lead me wanting more. But that’s where we are right now. And so look, I don’t know how to really answer other than to say that we have multiple options remaining to consider. We continue to test. We’re expanding the test, and we’re hopeful, but Yes. We’ve still got four months to get it sorted out. To meet our self-imposed deadline.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brian Kahn for any closing remarks.

Brian Kahn: Great. Well, thank you all for joining us, and thank you for your interest in Franchise Group. Operator, you can conclude the call.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.