Franklin Covey Reports 2016 First Quarter Financial Results
Strong Revenue Performance from Education and International Licensee Divisions
Strong Booking Momentum in U.S. Direct Offices
Cash Increases to
First Quarter Adjusted EBITDA Exceeds Company’s Expectation
Company Reaffirms Annual Adjusted EBITDA Guidance for Fiscal 2016
Financial Overview
-
Revenue: Consolidated revenue for the
first quarter was
$45.2 million compared with$47.9 million in the first quarter of fiscal 2015. Compared with the first quarter of the prior year, a$1.1 million increase in revenue for the rest of the business during the quarter was more than offset by the combined impact of two factors: (1) the non-repeat during the quarter of$2.7 million in revenue from a federal government agency contract which, due to administrative changes at the agency, has not yet been open for renewal in fiscal 2016; and (2) a$1.0 million reduction in revenue due to the year-over-year impact of changes in foreign exchange rates compared to the first quarter of last year. Partially offsetting these decreases was Education practice growth of$2.1 million , or 35%; increased international licensee sales where, excluding the impact of foreign exchange rates, international licensee revenues grew by 11% compared with the first quarter of the prior year; and a$0.4 million , or 20%, increase in the balance of the Company’s other government business. -
Gross profit: First quarter gross profit
was
$30.1 million compared with$31.2 million in the first quarter of fiscal 2015. The decrease was primarily due to the impact of revenue factors previously described. The Company’s gross margin for the quarter endedNovember 28, 2015 increased to 66.5 percent of sales compared with 65.2 percent in the first quarter of the prior year, primarily due to an increase in the mix of facilitator sales, decreased costs and incentives associated with marketing events, and decreased costs associated with the delivery of online and digital content resulting from changes to online program operations during the first quarter of fiscal 2016. -
Adjusted EBITDA: Adjusted EBITDA for the
first quarter was
$4.5 million , somewhat above the Company’s expectation, but below the$5.9 million of Adjusted EBITDA achieved in last year’s first quarter. This was due primarily to the same two factors previously discussed – the non-repeat of the federal government agency contract, which had a$2.1 million impact on Adjusted EBITDA; and the adverse impact of changes in foreign exchange rates, which totaled$0.6 million during the first quarter of fiscal 2016. -
Net Income: First quarter 2016 net income
was
$0.8 million compared with$1.8 million in the first quarter of fiscal 2015, reflecting the above-noted factors. -
Diluted EPS: Diluted EPS for the quarter
ended
November 28, 2015 was$.05 per share compared with$.11 per share in the first quarter of the prior year. -
Cash and Liquidity Remain Strong: The
Company’s balance sheet and liquidity position remained healthy
through the first quarter of fiscal 2016. The Company had
$22.3 million of cash atNovember 28, 2015 , compared with$16.2 million atAugust 31, 2015 , and had no borrowings on its revolving credit facility. Net working capital atNovember 28, 2015 increased to$58.7 million compared with$55.8 million onAugust 31, 2015 . Cash provided by operating activities increased$9.0 million to $7.1 million compared with net cash used for operating activities of$1.9 million in the first quarter of the prior year. -
Expected Completion of Tender Offer: The
Company expects to complete its previously announced modified Dutch
auction tender offer to purchase up to
$35.0 million of its common stock onJanuary 12, 2016 . -
Adjusted EBITDA Outlook: The Company
affirms its previously-announced annual guidance range for Adjusted
EBITDA of
$34 million to $36 million , excluding the impact of changes in foreign exchange during the year.
Fiscal 2016 First Quarter Financial Results
Consolidated revenue for the first quarter of fiscal 2016 was
For the quarter ended
Selling, general, and administrative (SG&A) expenses for the quarter
ended
Income from operations for the quarter ended
Earnings Conference Call
On
Additional Information
This press release is not an offer to purchase or a solicitation of an
offer to sell the Company’s securities. The solicitation and the offer
to purchase the securities will only be made pursuant to the Offer to
Purchase and related materials. The Company filed a Tender Offer
Statement on Schedule TO with respect to the tender offer on
The Company’s shareholders are advised to read the Schedule TO
(including an offer to purchase, a related letter of transmittal and
other offer documents), as each may be amended or supplemented from time
to time, and any other relevant documents filed with the
Investors and shareholders may obtain free copies of the Schedule TO, as
amended or supplemented from time to time, and other documents filed by
the Company, at the SEC’s website at www.sec.gov,
by contacting the Company by mail at
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 2016; expected
completion of the tender offer to purchase up to
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 earnout 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) | |||||||||
Quarter Ended | |||||||||
November 28, | November 29, | ||||||||
2015 | 2014 | ||||||||
Net sales | $ | 45,218 | $ | 47,875 | |||||
Cost of sales | 15,147 | 16,671 | |||||||
Gross profit | 30,071 | 31,204 | |||||||
Selling, general, and administrative | 26,489 | 25,699 | |||||||
Depreciation | 912 | 964 | |||||||
Amortization | 910 | 953 | |||||||
Income from operations | 1,760 | 3,588 | |||||||
Interest expense, net | (464 | ) | (428 | ) | |||||
Discount on related party receivable | - | (130 | ) | ||||||
Income before income taxes | 1,296 | 3,030 | |||||||
Income tax provision | (506 | ) | (1,202 | ) | |||||
Net income | $ | 790 | $ | 1,828 | |||||
Net income per common share: | |||||||||
Basic | $ | 0.05 | $ | 0.11 | |||||
Diluted | 0.05 | 0.11 | |||||||
Weighted average common shares: | |||||||||
Basic | 16,218 | 16,870 | |||||||
Diluted | 16,352 | 17,092 | |||||||
Other data: | |||||||||
Adjusted EBITDA(1) | $ | 4,475 | $ | 5,879 | |||||
(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 | ||||||||||
November 28, | November 29, | |||||||||
2015 | 2014 | |||||||||
Reconciliation of net income to Adjusted EBITDA: | ||||||||||
Net Income | $ | 790 | $ | 1,828 | ||||||
Adjustments: | ||||||||||
Interest expense, net | 464 | 428 | ||||||||
Discount on related party receivable | - | 130 | ||||||||
Income tax provision | 506 | 1,202 | ||||||||
Amortization | 910 | 953 | ||||||||
Depreciation | 912 | 964 | ||||||||
Share-based compensation | 763 | 402 | ||||||||
Increase (reduction) to contingent earnout liability | 130 | (28 | ) | |||||||
Adjusted EBITDA | $ | 4,475 | $ | 5,879 | ||||||
Adjusted EBITDA margin | 9.9 | % | 12.3 | % | ||||||
FRANKLIN COVEY CO. |
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Additional Sales Information |
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(in thousands and unaudited) | ||||||||
Quarter Ended | ||||||||
November 28, | November 29, | |||||||
2015 | 2014 | |||||||
Sales by Division: | ||||||||
Direct offices | $ | 23,661 | $ | 25,476 | ||||
Strategic markets | 7,184 | 9,801 | ||||||
Education practice | 8,005 | 5,918 | ||||||
Licensees | 4,684 | 4,539 | ||||||
Corporate and other | 1,684 | 2,141 | ||||||
Total | $ | 45,218 | $ | 47,875 | ||||
Sales by Category: | ||||||||
Training and consulting services | $ | 43,194 | $ | 45,473 | ||||
Products | 912 | 1,314 | ||||||
Leasing | 1,112 | 1,088 | ||||||
45,218 | 47,875 | |||||||
Cost of Goods Sold by Category: | ||||||||
Training and consulting services | 14,058 | 15,421 | ||||||
Products | 522 | 637 | ||||||
Leasing | 567 | 613 | ||||||
15,147 | 16,671 | |||||||
Gross Profit | $ | 30,071 | $ | 31,204 | ||||
FRANKLIN COVEY CO. |
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Condensed Consolidated Balance Sheets |
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(in thousands and unaudited) | |||||||||
November 28, | August 31, | ||||||||
2015 | 2015 | ||||||||
Assets |
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Current assets: | |||||||||
Cash | $ | 22,324 | $ | 16,234 | |||||
Accounts receivable, less allowance for doubtful accounts of $1,404 and $1,333 |
49,688 | 65,182 | |||||||
Receivable from related party | 3,168 | 2,425 | |||||||
Inventories | 4,196 | 3,949 | |||||||
Income taxes receivable | 432 | - | |||||||
Deferred income taxes | 2,472 | 2,479 | |||||||
Prepaid expenses and other current assets | 5,560 | 5,156 | |||||||
Total current assets | 87,840 | 95,425 | |||||||
Property and equipment, net | 15,428 | 15,499 | |||||||
Intangible assets, net | 52,539 | 53,449 | |||||||
Goodwill | 19,903 | 19,903 | |||||||
Long-term receivable from related party | 1,622 | 1,562 | |||||||
Other assets | 14,177 | 14,807 | |||||||
$ | 191,509 | $ | 200,645 | ||||||
Liabilities and Shareholders' Equity |
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Current liabilities: | |||||||||
Current portion of financing obligation | $ | 1,519 | $ | 1,473 | |||||
Accounts payable | 6,201 | 8,306 | |||||||
Income taxes payable | - | 221 | |||||||
Accrued liabilities | 21,391 | 29,634 | |||||||
Total current liabilities | 29,111 | 39,634 | |||||||
Financing obligation, less current portion | 24,205 | 24,605 | |||||||
Other liabilities | 3,931 | 3,802 | |||||||
Deferred income tax liabilities | 7,178 | 7,098 | |||||||
Total liabilities | 64,425 | 75,139 | |||||||
Shareholders' equity: | |||||||||
Common stock | 1,353 | 1,353 | |||||||
Additional paid-in capital | 209,295 | 208,635 | |||||||
Retained earnings | 70,402 | 69,612 | |||||||
Accumulated other comprehensive income | 93 | 192 | |||||||
Treasury stock at cost, 10,893 and 10,909 shares | (154,059 | ) | (154,286 | ) | |||||
Total shareholders' equity | 127,084 | 125,506 | |||||||
$ | 191,509 | $ | 200,645 | ||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20160107006270/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