Franklin Covey Reports 2016 Fourth Quarter and Fiscal Year Financial Results
Invoiced “All Access Pass” (AAP) Intellectual Property Licenses and
Related Products Increase to
Considering Strong Fourth Quarter Results, Cumulative Adjusted
EBITDA, the Increase in Deferred Revenue, and Adjusting for Foreign
Exchange, the Company’s Adjusted EBITDA for Fiscal 2016 Fell Within the
Cash Flows from Operating Activities Increase 25% to a Record
Company Purchases Over 2.5 Million Shares in Fiscal 2016—Returning
Over
The Number of Client Partners Increases to 204 at
Fiscal 2016 Fourth Quarter Financial Results
-
All Access Pass: In late
January 2016 , the Company introduced the All Access Pass intellectual property license. The AAP allows the Company’s clients to obtain a license to access and use a broad range of the Company’s intellectual property in their training and personnel development programs for a specified period—typically one year. The Company invoices AAP clients at the inception of the contract and collects these receivables within normal terms. During the fourth quarter of fiscal 2016, the Company invoiced$13.7 million of new AAP contracts and related products compared with$6.0 million in the third quarter of fiscal 2016. Based on applicable accounting standards, the Company deferred$4.2 million of AAP amounts invoiced during the fourth quarter, which will be recognized over the remaining contractual periods of the arrangements. Including the recognition of previously deferred AAP revenues, the Company recognized$9.5 million of AAP sales during the fourth quarter of fiscal 2016. While the Company is currently optimistic about the future of the AAP and believes that it will provide additional revenues in future periods from new contracts and from recognition of amounts previously deferred, the transition to this business model has significantly impacted fiscal 2016 as the Company defers a portion of revenues that under previous contracts (such as for facilitator sales), were fully recognized as the transaction was completed. Accordingly, sales performance during this transition period has been impacted by the deferral of a portion of AAP invoiced amounts. The Company had$20.8 million of deferred revenue on its consolidated balance sheet atAugust 31, 2016 compared with$12.8 million atAugust 31, 2015 . -
Revenue: Consolidated revenue for the
fourth quarter was
$64.8 million compared with$67.4 million in the fourth quarter of fiscal 2015. However, the Company invoiced$73.1 million during the fourth quarter of fiscal 2016 compared with$70.7 million during the fourth quarter of fiscal 2015. Education practice sales increased 15% over the fourth quarter of fiscal 2015 and international licensee revenues increased 7% compared with the prior year. These increases were insufficient to offset the impact of AAP deferrals (as described above), and decreased sales from the Company’sUnited Kingdom office, Customer Loyalty practice, and government services office. -
Gross profit: Fourth quarter gross profit
was
$45.7 million , compared with$46.5 million in the fourth quarter of fiscal 2015, even excluding the$8.3 million increase in high gross margin deferred revenue during the fourth quarter. Consolidated gross margin increased to 70.4% of sales compared with 69.0% in the fourth quarter of fiscal 2015, primarily due to a change in the mix of sales that featured more sales of intellectual property licenses, including the AAP, and less onsite presentations. -
Operating Income: The Company’s operating
income increased to
$13.6 million compared with$13.3 million in the fourth quarter of the prior year. The improvement was due to a$0.3 million reduction in selling, general, and administrative expenses, decreased restructuring and impairment charges, a$0.3 million decrease in depreciation expense, and a$0.2 million decrease in amortization expense. -
Net Income: Net income for the quarter
was consistent with the prior year at
$7.7 million , reflecting the factors noted above. -
Diluted EPS: Diluted EPS for the fourth
quarter of fiscal 2016 was
$.55 per share compared with$.46 per share in the fourth quarter of fiscal 2015. The improvement was due to the decreased number of shares outstanding during the fourth quarter of fiscal 2016 compared with the fourth quarter of fiscal 2015. -
Adjusted EBITDA: Fourth quarter Adjusted
EBITDA was
$16.2 million , compared with$17.3 million in the fourth quarter of fiscal 2015, excluding the$8.3 million increase in high gross margin deferred revenue during the fourth quarter. Adjusted EBITDA margin was 25.0% compared with 25.6% in the fourth quarter of the prior year. -
Balance Sheet and Cash Flows: The
Company’s cash totaled
$10.5 million atAugust 31, 2016 , with no borrowings on its$40.0 million line of credit facility, compared with$16.2 million of cash at the end of fiscal 2015. Cash flows from operating activities for fiscal 2016 increased to$32.7 million compared with$26.2 million in fiscal 2015. -
Common Shares Repurchased: During the
quarter ended
August 31, 2016 , the Company purchased 395,709 shares of its common stock for$6.1 million under the terms of theJanuary 2015 share repurchase plan that was expanded to$40.0 million . SinceJanuary 2015 , the Company has purchased 1,291,347 shares of its common stock for$22.3 million under the terms of this purchase plan. The Company also completed a tender offer in the second quarter of fiscal 2016, which purchased 1,971,832 shares of common stock for$35.2 million .
Full Fiscal Year 2016 Financial Results
Consolidated revenue during fiscal 2016 was
Gross profit for fiscal 2016 was
The Company’s operating expenses increased
Consolidated income from operations for fiscal 2016 reflected the
factors noted above and was
Adjusted EBITDA for fiscal 2016 was
China Sales Office Opening
On
Fiscal 2017 Outlook
Based upon the success of All Access Pass during fiscal 2016, the Company has decided to modify its business practices to make the AAP experience even better for its customers. The Company expects that future changes may include adding content from thought leaders outside the Company, localizing content, including additional assessments and related tools, and developing supplementary webcasts for pass holders. These future business practices may require a significantly larger portion of invoiced amounts to be deferred over the term of the underlying contracts and agreements. Accordingly, the Company’s deferred revenue on its consolidated balance sheet is expected to grow significantly in fiscal 2017. Once the Company is past the transition period, the Company believes there will be some advantages to this method of accounting for AAP arrangements, including better predictability of future results and less seasonality in the Company’s quarterly earnings.
To provide guidance for fiscal 2017, the Company considered both the
expected amount of reported Adjusted EBITDA and the expected change in
deferred revenue (less applicable costs) as recorded on the balance
sheet. For example, in fiscal 2016, the Company reported
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, among others, those statements related to the Company’s
future results and profitability; expected Adjusted EBITDA in fiscal
2017; amounts of deferred revenue in fiscal 2017; expected sales of All
Access Pass services; expected growth and sales opportunities in
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. |
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Condensed Consolidated Income Statements |
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(in thousands, except per-share amounts, and unaudited) | ||||||||||||||||||||
Quarter Ended | Fiscal Year Ended | |||||||||||||||||||
August 31, | August 31, | August 31, | August 31, | |||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Net sales | $ | 64,831 | $ | 67,444 | $ | 200,055 | $ | 209,941 | ||||||||||||
Cost of sales | 19,164 | 20,897 | 64,901 | 71,852 | ||||||||||||||||
Gross profit | 45,667 | 46,547 | 135,154 | 138,089 | ||||||||||||||||
Selling, general, and administrative | 30,069 | 30,327 | 113,589 | 108,802 | ||||||||||||||||
Restructuring costs | 400 | 587 | 776 | 587 | ||||||||||||||||
Impairment of assets | - | 220 | - | 1,302 | ||||||||||||||||
Depreciation | 868 | 1,158 | 3,677 | 4,142 | ||||||||||||||||
Amortization | 721 | 909 | 3,263 | 3,727 | ||||||||||||||||
Income from operations | 13,609 | 13,346 | 13,849 | 19,529 | ||||||||||||||||
Interest expense, net | (523 | ) | (470 | ) | (1,938 | ) | (1,754 | ) | ||||||||||||
Discount on related party receivable | - | - | - | (363 | ) | |||||||||||||||
Income before income taxes | 13,086 | 12,876 | 11,911 | 17,412 | ||||||||||||||||
Income tax provision | (5,360 | ) | (5,207 | ) | (4,895 | ) | (6,296 | ) | ||||||||||||
Net income | $ | 7,726 | $ | 7,669 | $ | 7,016 | $ | 11,116 | ||||||||||||
Net income per common share: | ||||||||||||||||||||
Basic | $ | 0.55 | $ | 0.47 | $ | 0.47 | $ | 0.66 | ||||||||||||
Diluted | 0.55 | 0.46 | 0.47 | 0.66 | ||||||||||||||||
Weighted average common shares: | ||||||||||||||||||||
Basic | 13,998 | 16,449 | 14,944 | 16,742 | ||||||||||||||||
Diluted | 14,118 | 16,614 | 15,076 | 16,923 | ||||||||||||||||
Other data: | ||||||||||||||||||||
Adjusted EBITDA(1) | $ | 16,219 | $ | 17,268 | $ | 26,894 | $ | 31,858 | ||||||||||||
(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 | Fiscal Year Ended | ||||||||||||||||||||
August 31, | August 31, | August 31, | August 31, | ||||||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||||||
Reconciliation of net income to Adjusted EBITDA: | |||||||||||||||||||||
Net income | $ | 7,726 | $ | 7,669 | $ | 7,016 | $ | 11,116 | |||||||||||||
Adjustments: | |||||||||||||||||||||
Interest expense, net | 523 | 470 | 1,938 | 1,754 | |||||||||||||||||
Discount on related party receivable | - | - | - | 363 | |||||||||||||||||
Income tax provision | 5,360 | 5,207 | 4,895 | 6,296 | |||||||||||||||||
Amortization | 721 | 909 | 3,263 | 3,727 | |||||||||||||||||
Depreciation | 868 | 1,158 | 3,677 | 4,142 | |||||||||||||||||
Share-based compensation | 199 | 934 | 3,121 | 2,536 | |||||||||||||||||
Restructuring costs | 400 | 587 | 776 | 587 | |||||||||||||||||
Impairment of assets | - | 220 | - | 1,302 | |||||||||||||||||
Increase to contingent earnout liability | 82 | 114 | 1,538 | 35 | |||||||||||||||||
Other expense | 340 | - | 670 | - | |||||||||||||||||
Adjusted EBITDA | $ | 16,219 | $ | 17,268 | $ | 26,894 | $ | 31,858 | |||||||||||||
Adjusted EBITDA margin | 25.0 | % | 25.6 | % | 13.4 | % | 15.2 | % | |||||||||||||
FRANKLIN COVEY CO. |
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Additional Sales and Financial Information |
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(in thousands and unaudited) | |||||||||||||||||
Quarter Ended | Fiscal Year Ended | ||||||||||||||||
August 31, | August 31, | August 31, | August 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||
Sales Detail by Division: | |||||||||||||||||
Direct offices | $ | 31,494 | $ | 35,701 | $ | 103,613 | $ | 113,087 | |||||||||
Strategic markets | 8,142 | 8,886 | 29,778 | 37,039 | |||||||||||||
Education practice | 18,210 | 15,879 | 40,361 | 33,128 | |||||||||||||
International licensees | 4,535 | 4,256 | 17,629 | 17,100 | |||||||||||||
Corporate and other | 2,450 | 2,722 | 8,674 | 9,587 | |||||||||||||
Total | $ | 64,831 | $ | 67,444 | $ | 200,055 | $ | 209,941 | |||||||||
Sales Detail by Category: | |||||||||||||||||
Training and consulting services | $ | 61,915 | $ | 64,303 | $ | 189,661 | $ | 198,695 | |||||||||
Products | 1,884 | 2,039 | 6,009 | 6,885 | |||||||||||||
Leasing | 1,032 | 1,102 | 4,385 | 4,361 | |||||||||||||
64,831 | 67,444 | 200,055 | 209,941 | ||||||||||||||
Cost of Goods Sold by Category: | |||||||||||||||||
Training and consulting services | 17,375 | 19,303 | 59,158 | 66,370 | |||||||||||||
Products | 1,125 | 995 | 3,206 | 3,306 | |||||||||||||
Leasing | 664 | 599 | 2,537 | 2,176 | |||||||||||||
19,164 | 20,897 | 64,901 | 71,852 | ||||||||||||||
Gross Profit | $ | 45,667 | $ | 46,547 | $ | 135,154 | $ | 138,089 | |||||||||
FRANKLIN COVEY CO. |
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Condensed Consolidated Balance Sheets |
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(in thousands and unaudited) | ||||||||||
August 31, | August 31, | |||||||||
2016 | 2015 | |||||||||
Assets |
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Current assets: | ||||||||||
Cash | $ | 10,456 | $ | 16,234 | ||||||
Accounts receivable, less allowance for doubtful accounts of $1,579 and $1,333 |
65,960 | 65,182 | ||||||||
Receivable from related party | 1,933 | 2,425 | ||||||||
Inventories | 5,042 | 3,949 | ||||||||
Deferred income taxes | - | 2,479 | ||||||||
Prepaid expenses and other current assets | 6,350 | 5,156 | ||||||||
Total current assets | 89,741 | 95,425 | ||||||||
Property and equipment, net | 16,083 | 15,499 | ||||||||
Intangible assets, net | 50,196 | 53,449 | ||||||||
Goodwill | 19,903 | 19,903 | ||||||||
Long-term receivable from related party | 1,235 | 1,562 | ||||||||
Other assets | 13,713 | 14,807 | ||||||||
$ | 190,871 | $ | 200,645 | |||||||
Liabilities and Shareholders' Equity |
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Current liabilities: | ||||||||||
Current portion of financing obligation | $ | 1,662 | $ | 1,473 | ||||||
Current portion of term note payable | 3,750 | - | ||||||||
Accounts payable | 10,376 | 8,306 | ||||||||
Income taxes payable | 4 | 221 | ||||||||
Deferred revenue | 20,847 | 12,752 | ||||||||
Accrued liabilities | 17,418 | 16,882 | ||||||||
Total current liabilities | 54,057 | 39,634 | ||||||||
Term note payable, less current portion | 10,313 | - | ||||||||
Financing obligation, less current portion | 22,943 | 24,605 | ||||||||
Other liabilities | 3,173 | 3,802 | ||||||||
Deferred income tax liabilities | 6,670 | 7,098 | ||||||||
Total liabilities | 97,156 | 75,139 | ||||||||
Shareholders' equity: | ||||||||||
Common stock | 1,353 | 1,353 | ||||||||
Additional paid-in capital | 211,203 | 208,635 | ||||||||
Retained earnings | 76,628 | 69,612 | ||||||||
Accumulated other comprehensive income | 1,222 | 192 | ||||||||
Treasury stock at cost, 13,332 and 10,909 shares | (196,691 | ) | (154,286 | ) | ||||||
Total shareholders' equity | 93,715 | 125,506 | ||||||||
$ | 190,871 | $ | 200,645 | |||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20161109006304/en/
Source:
Franklin Covey
Investor Contact:
Steve Young, 801-817-1776
investor.relations@franklincovey.com
or
Media
Contact:
Debra Lund, 801-817-6440
Debra.Lund@franklincovey.com