Franchise Group, Inc.

Thank you for standing by, and welcome to the conference call, the Franchise Group Third Quarter 2022 Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone, and you will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host, Andrew Kaminski, Executive Vice President and Chief Administrator of the Franchise Group.

Thank you, Denise. 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 Seaton, Franchise Group's CFO. Before getting started, I'd like to mention that certain matters discussed in 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 accept 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 more detailed discussion of these and other risks and uncertainties that could cause franchise groups' actual results to differ maturely from those indicated in the forward-looking statements, please see our Form 10-K for the fiscal year ended December 25, 2021, and other filings we make with the SEC. The financial measures discussed 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 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 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?

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'll then be happy to answer questions. In Franchise Group's fiscal third quarter, our execution at American Freight was poor, while our other five operating companies combined to produce financial results above our expectations. I think it's important to specifically separate our poor execution at American Freight from a difficult home furnishings environment that has also been impacting American Freight buddies and Badcock for some time. While we can't control the environment, we absolutely can control our execution. We expect execution to be a net positive for FRG in all environments. Execution is my responsibility, and I don't expect to make the same mistake twice. Specifically, we paid too much for the wrong mix of inventory, and that combination creates real consequences throughout the 8th rate system, including reduced profitability from heavily discounting or writing off slow-moving and damaged inventory. This impact of discounting is compounded since our associates are commission-driven salespeople. Landed inventory costs are currently coming down, and I expect them to continue to decrease. So we need to turn our existing higher-cost inventory as quickly as possible and replace it with the right mix with lower landed costs that are consistent with the devalue culture that our customers expect and our associates expect to sell. I estimate this process has cost us tens of millions of dollars of cash through the end of Q3 and could cost tens of millions more to get past it. In our financial statements, this manifests itself in lower revenue and lower gross margins due to higher write-offs and discounting. And the ultimate consequence is that instead of 390 million of adjusted EBITDA for 2022, we're likely to report around 350 million of EBITDA. This cash cost of getting through this process relative to our budget has been and will be paid for by excess realized cash proceeds from Badcox real estate sales. But as you know, the profits on our real estate sales are not included in adjusted EBITDA. While I'm frustrated with where we are and how we got here, we can't afford to rip the Band-Aid off quickly and get back to business. Despite these current operating issues, which has led us to report negative EBITDA for A-Freight itself in the most recent quarter, I continue to believe American Freight will ultimately be the most valuable business among the six brands that we own today, measured in terms of both annual free cash flow generation and terminal value to FRG. I believe the current asset base of 359 company-owned stores and six franchise stores has the earnings power in excess of $150 million of EBITDA as it is, and we have a tremendous amount of green space to open both company-owned and franchise stores. I can say with conviction that we will have the opportunity to accelerate new store openings over the next several years, and we've hired Peter Corsa to become the CEO of our newly created home furnishings division, in part to do just that. Peter will be responsible for driving operational excellence at American Freight, Buddies, and Badcox, But I know that Peter shares my views about the unique profitability profile at American Freight and the impact that American Freight growth can have on FRG. Many of you already know Peter from his nine years at At Home, where he was instrumental in growing revenue and EBITDA by over 500% for that value retailer of home decor products. His track record is public, and it speaks for itself, and I'm overjoyed to welcome Peter to the team. Moving on. Franchising activity continues to accelerate across FRG. For the first nine months of 2022, we sold 193 territories and opened 74 new locations, while closing 37 locations. We are starting to see cost of construction materials and labor improving, and we believe our franchisees will have an easier time opening stores over the next couple of years compared to the last couple of years. Regarding capital allocation in the quarter, we repurchased 2.2 million shares at an average cost of approximately $35 per share, and we paid a quarterly common dividend at an annual rate of $2.50 per share. We did not make any acquisitions during the quarter, but we did increase our revolver capacity to 400 million compared to 150 million at the start of the year. Eric, I'll turn the call over to you to provide financial details, and then we can take questions. Eric?