Franklin Covey Reports Second Quarter Financial Results
Second Best Second Fiscal Quarter Sales for Company’s Current
Business Despite
Announces Expanded Share Repurchase Authorization to
Fiscal 2015 Second Quarter Financial Highlights
-
Revenue: Consolidated revenue for the
quarter ended
February 28, 2015 was the second-highest second fiscal quarter for the Company’s current business, reaching$46.3 million . These strong sales were achieved in spite of absorbing$1.2 million of adverse impact from foreign exchange rates as the U.S. dollar strengthened against various currencies during the quarter. Sales were essentially flat compared with$46.5 million in the prior year. The second quarter of fiscal 2015 was also up against a tough comparison with last year due to the successful launch of the re-created The 7 Habits of Highly Effective People Signature Program, which had a significant impact on prior year sales in English speaking markets. Despite these factors, many of the Company’s practices and delivery channels grew compared with the prior year, including 30 percent growth in the Sales Performance practice; 14 percent growth in the Education practice; 10 percent growth from international licensee partners (including$0.2 million of adverse foreign exchange impact); 10 percent growth (in functional currencies) at the Company’s offices inJapan and theUnited Kingdom ; and 9 percent growth from the Company’s government services office. -
Gross profit: Second quarter gross profit
was
$30.0 million , compared with$31.4 million in the second quarter of the prior year due to the effects of foreign exchange on translated sales and cost of sales, increased curriculum amortization expense, increased costs of certain offerings, and changes in the mix of services sold during the quarter. Consolidated gross margin was 64.8 percent of sales compared with 67.5 percent in the second quarter of fiscal 2014. -
Operating Expenses: The Company’s
operating expenses increased by
$1.3 million compared with the second quarter of the prior year, which was primarily due to a$1.1 million increase in selling, general, and administrative expenses, reflecting increased investments in marketing and promotional events and the hiring of new sales personnel. The Company believes that these investments have already begun to drive growth in the second half of fiscal 2015 as potential business pipelines are significantly higher than at the same time in the prior year. -
Adjusted EBITDA: Second quarter Adjusted
EBITDA was
$3.8 million , compared with$6.6 million in the second quarter of the prior year. The Company’s second quarter Adjusted EBITDA was affected by$0.8 million of foreign exchange related costs, including$0.4 million of transaction losses; the costs associated with hiring new client partners and new Education practice coaches; and holding additional marketing events and selling initiatives during the quarter. -
Net Income: Net income for the quarter
decreased to
$0.4 million compared with$2.0 million in the second quarter of fiscal 2014, reflecting the factors noted above. -
Diluted EPS: Diluted EPS for the quarter
ended
February 28, 2015 decreased to$0.02 per share compared with$0.12 per share in the second quarter of the prior year. -
Balance Sheet: Cash increased to
$18.6 million at the end of the second quarter, with no borrowings on its line of credit facility, compared with$7.6 million of cash at the end of the first quarter of fiscal 2015. -
Adjusted EBITDA Outlook: At current
exchange rates, the Company expects to absorb approximately
$2.8 million of negative impact to its Adjusted EBITDA from foreign exchange in fiscal 2015. The Company, however, is encouraged by the expected strength of its business for the second half of fiscal 2015 and is therefore only reducing its fiscal 2015 Adjusted EBITDA guidance range by$1.0 million to between$36 million and $39 million . -
Expanded Share Repurchase Plan: The
Company received authorization from its Board of Directors to expand
the
January 2015 share repurchase plan from$10.0 million to $40.0 million . The Company also increased the borrowing capacity of its line of credit facility from$10.0 million to $30.0 million .
Whitman continued, “We expect a strong second half of the year, with higher revenues leading to increases in both profitability and cash flow. We also continue to be confident about our ability to execute on the strategic goals of our multi-year plan. Accordingly, our Board of Directors has recently authorized an expanded share repurchase program to take advantage of our strong balance sheet and increased line of credit facility to support shareholder value creation.”
Fiscal 2015 Second Quarter Financial Results
Consolidated sales were essentially flat at
Gross profit decreased to
Selling, general, and administrative (SG&A) expenses for the quarter
ended
The Company’s depreciation expense increased by
Income from operations for the quarter ended
Fiscal 2015 Year-to-Date Financial Results
Consolidated sales for the two quarters ended
Consolidated gross profit was essentially flat at
The Company’s SG&A expenses for the two quarters ended
Adjusted EBITDA was
Net working capital totaled
Expanded Common Stock Buyback Authorization
On
On
Increased Capacity on Line of Credit Facility
On
Earnings Conference Call
On
Forward-Looking Statements
This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995
including those statements related to the Company’s future results and
profitability; expected Adjusted EBITDA in fiscal 2015; anticipated
future sales; and goals relating to the growth of the Company.
Forward-looking statements are based upon management’s current
expectations and are subject to various risks and uncertainties
including, but not limited to: general economic conditions; the expected
number of booked days to be delivered; market acceptance of new products
or services and marketing strategies; the ability to achieve sustainable
growth in future periods; and other factors identified and discussed in
the Company’s most recent Annual Report on Form 10-K and other periodic
reports filed with the
Non-GAAP Financial Information
Refer to the attached table for the reconciliation of a non-GAAP financial measure, “Adjusted EBITDA,” to consolidated net income, the most comparable GAAP financial measure. The Company defines Adjusted EBITDA as net income or loss from operations excluding the impact of interest expense, income tax expense, amortization, depreciation, share-based compensation expense, and certain other items such as adjustments to the fair value of expected earn out liabilities resulting from the acquisition of businesses. The Company references this non-GAAP financial measure in its decision making because it provides supplemental information that facilitates consistent internal comparisons to the historical operating performance of prior periods and the Company believes it provides investors with greater transparency to evaluate operational activities and financial results. The Company does not provide forward-looking GAAP measures or a reconciliation of the forward-looking Adjusted EBITDA to GAAP measures because of its inability to project certain of the costs included in the calculation of Adjusted EBITDA.
About
FRANKLIN COVEY CO. |
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Condensed Consolidated Income Statements |
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(in thousands, except per-share amounts, and unaudited) | |||||||||||||||||
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Quarter Ended | Two Quarters Ended | ||||||||||||||||
February 28, | March 1, | February 28, | March 1, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||||
Net sales | $ | 46,316 | $ | 46,506 | $ | 94,190 | $ | 89,924 | |||||||||
Cost of sales | 16,301 | 15,095 | 32,971 | 28,483 | |||||||||||||
Gross profit | 30,015 | 31,411 | 61,219 | 61,441 | |||||||||||||
Selling, general, and administrative | 26,841 | 25,707 | 52,540 | 50,458 | |||||||||||||
Depreciation | 1,040 | 816 | 2,004 | 1,601 | |||||||||||||
Amortization | 953 | 989 | 1,906 | 1,978 | |||||||||||||
Income from operations | 1,181 | 3,899 | 4,769 | 7,404 | |||||||||||||
Interest expense, net | (428 | ) | (450 | ) | (856 | ) | (867 | ) | |||||||||
Discount on related party receivable | - | (142 | ) | (131 | ) | (283 | ) | ||||||||||
Income before income taxes | 753 | 3,307 | 3,782 | 6,254 | |||||||||||||
Income tax provision | (326 | ) | (1,336 | ) | (1,527 | ) | (2,564 | ) | |||||||||
Net income | $ | 427 | $ | 1,971 | $ | 2,255 | $ | 3,690 | |||||||||
Net income per common share: | |||||||||||||||||
Basic | $ | 0.03 | $ | 0.12 | $ | 0.13 | $ | 0.22 | |||||||||
Diluted | 0.02 | 0.12 | 0.13 | 0.22 | |||||||||||||
Weighted average common shares: | |||||||||||||||||
Basic | 16,908 | 16,717 | 16,889 | 16,640 | |||||||||||||
Diluted | 17,086 | 16,926 | 17,089 | 16,892 | |||||||||||||
Other data: | |||||||||||||||||
Adjusted EBITDA(1) | $ | 3,847 | $ | 6,620 | $ | 9,726 | $ | 12,640 | |||||||||
(1) |
The term Adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization, share-based compensation, and certain other items) is a non-GAAP financial measure that the Company believes is useful to investors in evaluating its results. For a reconciliation of this non-GAAP measure to the most comparable GAAP equivalent, refer to the Reconciliation of Net Income to Adjusted EBITDA as shown below. |
FRANKLIN COVEY CO. |
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Reconciliation of Net Income to Adjusted EBITDA |
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(in thousands and unaudited) | ||||||||||||||||||
Quarter Ended | Two Quarters Ended | |||||||||||||||||
February 28, | March 1, | February 28, | March 1, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||||
Reconciliation of net income to Adjusted EBITDA: | ||||||||||||||||||
Net income | $ | 427 | $ | 1,971 | $ | 2,255 | $ | 3,690 | ||||||||||
Adjustments: | ||||||||||||||||||
Interest expense, net | 428 | 450 | 856 | 867 | ||||||||||||||
Discount on related party receivable | - | 142 | 131 | 283 | ||||||||||||||
Income tax provision | 326 | 1,336 | 1,527 | 2,564 | ||||||||||||||
Amortization | 953 | 989 | 1,906 | 1,978 | ||||||||||||||
Depreciation | 1,040 | 816 | 2,004 | 1,601 | ||||||||||||||
Share-based compensation | 608 | 983 | 1,010 | 2,244 | ||||||||||||||
Reduction of contingent earnout liability | - | (67 | ) | (28 | ) | (587 | ) | |||||||||||
Other expense | 65 | - | 65 | - | ||||||||||||||
Adjusted EBITDA | $ | 3,847 | $ | 6,620 | $ | 9,726 | $ | 12,640 | ||||||||||
Adjusted EBITDA margin | 8.3 | % | 14.2 | % | 10.3 | % | 14.1 | % | ||||||||||
FRANKLIN COVEY CO. |
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Additional Sales and Financial Information |
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(in thousands and unaudited) |
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Quarter Ended | Two Quarters Ended | |||||||||||||
February 28, | March 1, | February 28, | March 1, | |||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||
Sales Detail by Region/Type: | ||||||||||||||
U.S./Canada direct | $ | 22,678 | $ | 24,158 | $ | 45,831 | $ | 45,066 | ||||||
International direct | 6,588 | 6,973 | 13,504 | 13,198 | ||||||||||
Licensees | 4,279 | 3,899 | 8,818 | 8,273 | ||||||||||
National account practices | 10,269 | 8,394 | 20,210 | 17,248 | ||||||||||
Self-funded marketing | 1,186 | 1,317 | 2,765 | 2,795 | ||||||||||
Other | 1,316 | 1,765 | 3,062 | 3,344 | ||||||||||
Total | $ | 46,316 | $ | 46,506 | $ | 94,190 | $ | 89,924 | ||||||
Sales Detail by Category: | ||||||||||||||
Training and consulting services | $ | 43,545 | $ | 43,683 | $ | 89,018 | $ | 85,018 | ||||||
Products | 1,822 | 1,747 | 3,136 | 3,073 | ||||||||||
Leasing | 949 | 1,076 | 2,036 | 1,833 | ||||||||||
46,316 | 46,506 | 94,190 | 89,924 | |||||||||||
Cost of Goods Sold by Category: | ||||||||||||||
Training and consulting services | 14,934 | 14,035 | 30,355 | 26,449 | ||||||||||
Products | 896 | 576 | 1,533 | 1,083 | ||||||||||
Leasing | 471 | 484 | 1,083 | 951 | ||||||||||
16,301 | 15,095 | 32,971 | 28,483 | |||||||||||
Gross Profit | $ | 30,015 | $ | 31,411 | $ | 61,219 | $ | 61,441 | ||||||
FRANKLIN COVEY CO. |
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Condensed Consolidated Balance Sheets |
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(in thousands and unaudited) | |||||||||
February 28, | August 31, | ||||||||
2015 | 2014 | ||||||||
Assets |
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Current assets: | |||||||||
Cash | $ | 18,599 | $ | 10,483 | |||||
Accounts receivable, less allowance for doubtful accounts of $1,010 and $918 |
47,987 | 61,490 | |||||||
Receivable from related party | 1,151 | 1,851 | |||||||
Inventories | 5,610 | 6,367 | |||||||
Income taxes receivable | 783 | 2,432 | |||||||
Deferred income taxes | 4,249 | 4,340 | |||||||
Prepaid expenses and other current assets | 5,759 | 6,053 | |||||||
Total current assets | 84,138 | 93,016 | |||||||
Property and equipment, net | 16,198 | 17,271 | |||||||
Intangible assets, net | 55,265 | 57,177 | |||||||
Goodwill | 19,903 | 19,641 | |||||||
Long-term receivable from related party | 2,747 | 3,296 | |||||||
Other assets | 13,204 | 14,785 | |||||||
$ | 191,455 | $ | 205,186 | ||||||
Liabilities and Shareholders' Equity |
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Current liabilities: | |||||||||
Current portion of financing obligation | $ | 1,384 | $ | 1,298 | |||||
Accounts payable | 7,573 | 12,001 | |||||||
Accrued liabilities | 19,525 | 29,586 | |||||||
Total current liabilities | 28,482 | 42,885 | |||||||
Financing obligation, less current portion | 25,361 | 26,078 | |||||||
Other liabilities | 3,965 | 3,934 | |||||||
Deferred income tax liabilities | 5,984 | 5,575 | |||||||
Total liabilities | 63,792 | 78,472 | |||||||
Shareholders' equity: | |||||||||
Common stock | 1,353 | 1,353 | |||||||
Additional paid-in capital | 207,050 | 207,148 | |||||||
Retained earnings | 60,751 | 58,496 | |||||||
Accumulated other comprehensive income | 711 | 1,451 | |||||||
Treasury stock at cost, 10,267 and 10,266 shares | (142,202 | ) | (141,734 | ) | |||||
Total shareholders' equity | 127,663 | 126,714 | |||||||
$ | 191,455 | $ | 205,186 | ||||||
Source:
Franklin Covey
Investor Contact:
Steve Young, 801-817-1776
investor.relations@franklincovey.com
Media
Contact:
Debra Lund, 801-817-6440
Debra.Lund@franklincovey.com