Franklin Covey Reports 2015 Fourth Quarter and Fiscal Year Financial Results
Fourth Quarter Adjusted EBITDA Increases 4% to Best Ever
Full Fiscal Year 2015 Revenues Up 2%, Despite
Cash Flows from Operating Activities
Increases to
Fiscal 2015 Fourth Quarter Financial Highlights
-
Sales: Consolidated sales for the fourth
quarter were
$67.4 million , in spite of absorbing$1.9 million of adverse foreign exchange activity in the quarter. Fourth quarter fiscal 2015 sales, even after the adverse impact of foreign exchange, were the second-best ever for the Company’s current business. Increased sales from the Company’s U.S/Canada direct offices (including the government services office) and theUnited Kingdom office were offset by decreased National Account practice sales, decreased sales inJapan andAustralia , and decreased licensee sales. Sales performance during the quarter was less than previously anticipated due to the effects of foreign exchange rates as the U.S. dollar continued to strengthen, and, in the Education practice, to significantly increased amounts of deferred revenue related to increased sales of subscription services, and to not closing certain large contracts in the Education practice that were expected to be completed in the quarter. -
Gross profit: Fourth quarter gross profit
was
$46.5 million , compared with$46.9 million in the fourth quarter of fiscal 2014. Consolidated gross margin increased slightly to 69.0% of sales compared with 68.9% in the fourth quarter of fiscal 2014. -
Operating Expenses: The Company’s
operating expenses increased by
$0.6 million compared with the fourth quarter of the prior year, which was primarily due to$0.6 million of restructuring costs related to the realignment of the U.S./Canada direct office sales regions and the closure of the Company’s northeastern regional office, and a$0.2 million increase in depreciation expense. -
Adjusted EBITDA: Fourth quarter Adjusted
EBITDA increased 4% to
$17.3 million , which is the best ever quarterly result for the Company’s current business. The Company’s fourth quarter Adjusted EBITDA was adversely affected by$1.1 million of foreign exchange related costs. Adjusted EBITDA margin increased to 25.6% compared with 24.4% in the fourth quarter of fiscal 2014. - Income Taxes: The Company’s effective income tax rate for the fourth quarter of fiscal 2015 was approximately 40% compared with 5% in the fourth quarter of fiscal 2014. The increase in the Company’s effective tax rate was primarily due to the recognition of tax benefits in fiscal 2014 from amending previously filed U.S. federal income tax returns to realize foreign tax credits that were previously treated as expired under the tax positions taken in the original returns. The foreign tax credits were fully utilized during fiscal 2015, and the Company’s effective income tax rate was expected to approximate statutory rates in the fourth quarter of fiscal 2015 and in future periods.
-
Net Income: Net income for the quarter
was
$7.7 million compared with$12.5 million in the fourth quarter of fiscal 2014, reflecting the increased effective tax rate, adverse foreign exchange impact and other factors noted above. -
Diluted EPS: Diluted EPS for the fourth
quarter of fiscal 2015 was
$.46 per share compared with$.73 per share in the fourth quarter of fiscal 2014. -
Balance Sheet and Cash Flows: The
Company’s cash totaled
$16.2 million atAugust 31, 2015 , with no borrowings on its$30.0 million line of credit facility, compared with$10.5 million of cash at the end of fiscal 2014. Cash flows from operating activities for fiscal 2015 increased to$26.2 million compared with$18.1 million in fiscal 2014. -
Common Shares Repurchased: During the
quarter ended
August 31, 2015 , the Company purchased approximately 359,000 shares of its common stock for$6.5 million under the terms of theJanuary 2015 share repurchase plan that was expanded to$40.0 million . SinceJanuary 2015 , the Company has purchased approximately 760,000 shares of its common stock for$14.1 million .
Full Year Fiscal 2015 Financial Highlights
-
Sales: Consolidated sales for the fiscal
year ended
August 31, 2015 was the highest ever for the Company’s current business, reaching$209.9 million . The Company’s sales grew 2% in spite of absorbing$5.2 million of negative impact from foreign exchange rates and a tough comparison against the successful fiscal 2014 launch of the re-created The 7 Habits of Highly Effective People Signature Edition, which is the Company’s best-selling program worldwide. Excluding the impact of foreign exchange rates, nearly all of the Company’s major practices and delivery channels grew compared with the prior year. -
Gross profit: Fiscal 2015 gross profit
was
$138.1 million compared with$138.3 million in fiscal 2014. Consolidated gross margin was 65.8% of sales compared with 67.4% in fiscal 2014. -
Operating Expenses: Operating expenses in
fiscal 2015 increased by
$5.1 million compared with fiscal 2014. The increase was primarily due to a$3.0 million increase in selling, general and administrative expenses;$0.9 million of increased impaired asset charges;$0.8 million of increased depreciation expense; and$0.6 million of restructuring costs. These increases were partially offset by decreased amortization expense. -
Adjusted EBITDA: Fiscal 2015 Adjusted
EBITDA was
$31.9 million compared with$34.4 million in fiscal 2014. The Company’s fiscal 2015 Adjusted EBITDA was adversely impacted by$3.2 million of foreign exchange related costs as the U.S. dollar strengthened significantly during the year. Adjusted EBITDA margin was 15.2% of sales compared with 16.8% in fiscal 2014. - Income Taxes: The Company’s effective income tax rate for fiscal 2015 was approximately 36% compared with 17% in fiscal 2014. The increase in the Company’s effective tax rate was primarily due to the recognition of foreign tax credit benefits in fiscal 2014.
-
Net Income: Net income for fiscal 2015
was
$11.1 million compared with$18.1 million in fiscal 2014, reflecting the increased effective tax rate, the adverse impact of foreign exchange rates, and increased operating costs as discussed above. -
Diluted EPS: Diluted EPS for fiscal 2015
was
$0.66 per share compared with$1.07 per share in the prior year.
Fourth Quarter 2015 Financial Results
The Company’s consolidated sales in the fourth quarter of fiscal 2015
were
National Account practice sales totaled
Gross profit for the quarter totaled
Selling, general and administrative (SG&A) expenses were flat compared with the fourth quarter of fiscal 2014. Increased expenses related to the addition of new sales and sales-support personnel, increases to the allowance for doubtful accounts and foreign exchange transaction losses were offset by decreased executive short-term incentive plan bonus expense, decreased marketing and promotion expense, and decreased travel expense.
During the fourth quarter of fiscal 2015, the Company decided to realign
its regional sales offices that serve
Due primarily to benefits from the utilization of foreign tax credits,
the Company’s effective income tax rate for the fourth quarter of fiscal
2014 was substantially less than statutory income tax rates. The Company
finalized its utilization of tax credits in fiscal 2015 and, as
expected, its effective tax rate for the quarter approximated statutory
rates. The change in effective rates increased the Company’s fourth
quarter tax provision by
Full Fiscal Year 2015 Financial Results
Consolidated sales for the fiscal year ended
Consolidated gross profit for the fiscal year ended
The Company’s SG&A expenses during fiscal 2015 increased
During fiscal 2015 the Company’s operating income was adversely impacted
by
Income before income taxes was
Fiscal 2016 Outlook
The Company expects Adjusted EBITDA for fiscal 2016 to increase to
between
Earnings Conference Call
As previously announced, 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, including the expectation that fiscal 2016 will be the
best year ever for both revenue and Adjusted EBITDA; expected Adjusted
EBITDA in fiscal 2016; anticipated future sales; expected cash payment
for income taxes; expected effective income tax rates; the expected
growth and performance of each of the Company’s operating divisions; 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 excluding the impact of interest expense, income tax expense, amortization, depreciation, share-based compensation expense, impaired asset charges, restructuring costs, adjustments to contingent earn out liabilities, and certain other items. 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 the inability to project certain of the costs included in the calculation of Adjusted EBITDA.
About
FRANKLIN COVEY CO. | |||||||||||||||||||||||||
Condensed Consolidated Income Statements | |||||||||||||||||||||||||
(in thousands, except per-share amounts, and unaudited) | |||||||||||||||||||||||||
Quarter Ended | Fiscal Year Ended | ||||||||||||||||||||||||
August 31, | August 31, | August 31, | August 31, | ||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||||
Net sales, including $1.9 million and $5.2 million of adverse foreign exchange impact (refer to note 2 below) | |||||||||||||||||||||||||
$ | 67,444 | $ | 68,109 | $ | 209,941 | $ | 205,165 | ||||||||||||||||||
Cost of sales | 20,897 | 21,169 | 71,852 | 66,899 | |||||||||||||||||||||
Gross profit | 46,547 | 46,940 | 138,089 | 138,266 | |||||||||||||||||||||
Selling, general, and administrative | 30,327 | 30,323 | 108,802 | 105,801 | |||||||||||||||||||||
Impairment of assets | 220 | 363 | 1,302 | 363 | |||||||||||||||||||||
Restructuring costs | 587 | - | 587 | - | |||||||||||||||||||||
Depreciation | 1,158 | 917 | 4,142 | 3,383 | |||||||||||||||||||||
Amortization | 909 | 993 | 3,727 | 3,954 | |||||||||||||||||||||
Income from operations(2) | 13,346 | 14,344 | 19,529 | 24,765 | |||||||||||||||||||||
Interest expense, net | (470 | ) | (460 | ) | (1,754 | ) | (1,810 | ) | |||||||||||||||||
Discount on related party receivable | - | (772 | ) | (363 | ) | (1,196 | ) | ||||||||||||||||||
Income before income taxes | 12,876 | 13,112 | 17,412 | 21,759 | |||||||||||||||||||||
Income tax provision (refer to note 3 below) | (5,207 | ) | (656 | ) | (6,296 | ) | (3,692 | ) | |||||||||||||||||
Net income | $ | 7,669 | $ | 12,456 | $ | 11,116 | $ | 18,067 | |||||||||||||||||
Net income per common share: | |||||||||||||||||||||||||
Basic | $ | 0.47 | $ | 0.74 | $ | 0.66 | $ | 1.08 | |||||||||||||||||
Diluted | 0.46 | 0.73 | 0.66 | 1.07 | |||||||||||||||||||||
Weighted average common shares: | |||||||||||||||||||||||||
Basic | 16,449 | 16,843 | 16,742 | 16,720 | |||||||||||||||||||||
Diluted | 16,614 | 17,069 | 16,923 | 16,947 | |||||||||||||||||||||
Other data: | |||||||||||||||||||||||||
Adjusted EBITDA(1), including $1.1 million and $3.2 million of adverse foreign exchange impact, (refer to note 2 below) |
|||||||||||||||||||||||||
$ | 17,268 | $ | 16,647 | $ | 31,858 | $ | 34,420 | ||||||||||||||||||
(1) |
The term Adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization, share-based compensation, impaired asset charges, restructuring costs, 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. |
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(2) |
Sales for the quarter and fiscal year ended August 31, 2015 include $1.9 million and $5.2 million, respectively, of adverse impact from foreign exchange rates as the U.S. dollar strengthened during fiscal 2015. The Company's Adjusted EBITDA for the quarter and fiscal year ended August 31, 2015 include $1.1 million and $3.2 million of negative impact from foreign exchange rates. These amounts approximate the impact from foreign exchange on the Company's income from operations for the periods indicated. |
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(3) |
The Company's income tax rate during fiscal 2014 was significantly impacted by the income tax benefits of claiming foreign tax credits. The Company anticipates its effective income tax rate will be approximately 40 percent in future periods, which approximates statutory income tax rates. |
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FRANKLIN COVEY CO. | ||||||||||||||||||||
Reconciliation of Net Income to Adjusted EBITDA | ||||||||||||||||||||
(in thousands and unaudited) | ||||||||||||||||||||
Quarter Ended | Fiscal Year Ended | |||||||||||||||||||
August 31, | August 31, | August 31, | August 31, | |||||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||||||
Reconciliation of net income to Adjusted EBITDA: | ||||||||||||||||||||
Net income | $ | 7,669 | $ | 12,456 | $ | 11,116 | $ | 18,067 | ||||||||||||
Adjustments: | ||||||||||||||||||||
Interest expense, net | 470 | 460 | 1,754 | 1,810 | ||||||||||||||||
Discount on related party receivable | - | 772 | 363 | 1,196 | ||||||||||||||||
Income tax provision |
5,207 | 656 | 6,296 | 3,692 | ||||||||||||||||
Amortization | 909 | 993 | 3,727 | 3,954 | ||||||||||||||||
Depreciation | 1,158 | 917 | 4,142 | 3,383 | ||||||||||||||||
Impaired assets | 220 | 363 | 1,302 | 363 | ||||||||||||||||
Restructuring costs | 587 | - | 587 | - | ||||||||||||||||
Share-based compensation | 934 | 674 | 2,536 | 3,534 | ||||||||||||||||
Increase to (reduction of) contingent earnout liability | 114 | (644 | ) | 35 | (1,579 | ) | ||||||||||||||
Other expense | - | - | - | - | ||||||||||||||||
Adjusted EBITDA | $ | 17,268 | $ | 16,647 | $ | 31,858 | $ | 34,420 | ||||||||||||
Adjusted EBITDA margin | 25.6 | % | 24.4 | % | 15.2 | % | 16.8 | % | ||||||||||||
FRANKLIN COVEY CO. | ||||||||||||||||||||
Additional Sales and Financial Information | ||||||||||||||||||||
(in thousands and unaudited) | ||||||||||||||||||||
Quarter Ended | Fiscal Year Ended | |||||||||||||||||||
August 31, | August 31, | August 31, | August 31, | |||||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||||||
Sales Detail by Region/Type: | ||||||||||||||||||||
U.S./Canada direct | $ | 30,973 | $ | 29,139 | $ | 101,959 | $ | 98,791 | ||||||||||||
International direct | 8,277 | 9,608 | 27,217 | 28,588 | ||||||||||||||||
Licensees | 4,256 | 4,614 | 17,100 | 17,065 | ||||||||||||||||
National account practices | 20,301 | 21,830 | 51,354 | 48,982 | ||||||||||||||||
Self-funded marketing | 1,701 | 1,693 | 5,547 | 5,938 | ||||||||||||||||
Other | 1,936 | 1,225 | 6,764 | 5,801 | ||||||||||||||||
Total | $ | 67,444 | $ | 68,109 | $ | 209,941 | $ | 205,165 | ||||||||||||
Sales Detail by Category: | ||||||||||||||||||||
Training and consulting services | $ | 64,303 | $ | 64,320 | $ | 198,695 | $ | 193,720 | ||||||||||||
Products | 2,039 | 2,751 | 6,885 | 7,518 | ||||||||||||||||
Leasing | 1,102 | 1,038 | 4,361 | 3,927 | ||||||||||||||||
67,444 | 68,109 | 209,941 | 205,165 | |||||||||||||||||
Cost of Goods Sold by Category: | ||||||||||||||||||||
Training and consulting services | 19,303 | 19,214 | 66,370 | 61,474 | ||||||||||||||||
Products | 995 | 1,437 | 3,306 | 3,502 | ||||||||||||||||
Leasing | 599 | 518 | 2,176 | 1,923 | ||||||||||||||||
20,897 | 21,169 | 71,852 | 66,899 | |||||||||||||||||
Gross Profit | $ | 46,547 | $ | 46,940 | $ | 138,089 | $ | 138,266 | ||||||||||||
FRANKLIN COVEY CO. | |||||||||||
Condensed Consolidated Balance Sheets | |||||||||||
(in thousands and unaudited) | |||||||||||
August 31, | August 31, | ||||||||||
2015 | 2014 | ||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash | $ | 16,234 | $ | 10,483 | |||||||
Accounts receivable, less allowance for |
65,182 | 61,490 | |||||||||
Receivable from related party | 2,425 | 1,851 | |||||||||
Inventories | 3,949 | 6,367 | |||||||||
Income taxes receivable | - | 2,432 | |||||||||
Deferred income taxes | 2,479 | 4,340 | |||||||||
Prepaid expenses and other current assets | 5,156 | 6,053 | |||||||||
Total current assets | 95,425 | 93,016 | |||||||||
Property and equipment, net | 15,499 | 17,271 | |||||||||
Intangible assets, net | 53,449 | 57,177 | |||||||||
Goodwill | 19,903 | 19,641 | |||||||||
Long-term receivable from related party | 1,562 | 3,296 | |||||||||
Other assets | 14,807 | 14,785 | |||||||||
$ | 200,645 | $ | 205,186 | ||||||||
Liabilities and Shareholders' Equity | |||||||||||
Current liabilities: | |||||||||||
Current portion of financing obligation | $ | 1,473 | $ | 1,298 | |||||||
Accounts payable | 8,306 | 12,001 | |||||||||
Income taxes payable | 221 | - | |||||||||
Accrued liabilities | 29,634 | 29,586 | |||||||||
Total current liabilities | 39,634 | 42,885 | |||||||||
Financing obligation, less current portion | 24,605 | 26,078 | |||||||||
Other liabilities | 3,802 | 3,934 | |||||||||
Deferred income tax liabilities | 7,098 | 5,575 | |||||||||
Total liabilities | 75,139 | 78,472 | |||||||||
Shareholders' equity: | |||||||||||
Common stock | 1,353 | 1,353 | |||||||||
Additional paid-in capital | 208,635 | 207,148 | |||||||||
Retained earnings | 69,612 | 58,496 | |||||||||
Accumulated other comprehensive income | 192 | 1,451 | |||||||||
Treasury stock at cost, 10,909 and 10,266 shares | (154,286 | ) | (141,734 | ) | |||||||
Total shareholders' equity | 125,506 | 126,714 | |||||||||
$ | 200,645 | $ | 205,186 |
View source version on businesswire.com: http://www.businesswire.com/news/home/20151104006851/en/
Source:
Franklin Covey Co.
Investor Contact:
Steve Young, 801-817-1776
investor.relations@franklincovey.com
or
Media
Contact:
Debra Lund, 801-817-6440
Debra.Lund@franklincovey.com