Franklin Covey Reports 2016 Second Quarter Financial Results
Second Quarter Adjusted EBITDA Increases 29% Over Prior Year Excluding Foreign Exchange
Company Introduces “All Access Pass” Intellectual Property Licenses
Company Reaffirms Annual Adjusted EBITDA Guidance for Fiscal 2016
Ms. Anne H. Chow Appointed to Board of Directors
Fiscal 2016 Second Quarter Financial Results
-
Revenue: Consolidated revenue for the
second quarter was
$45.3 million compared with$46.3 million in the second quarter of fiscal 2015. The decrease from the prior year was primarily due to the combined impact of two factors: (1) the non-repeat during the quarter of$1.7 million in revenue ($0.8 million of Adjusted EBITDA) 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$0.5 million reduction in revenue due to the year-over-year impact of changes in foreign exchange rates compared with the second quarter of last year. Partially offsetting these decreases were a 29% increase in Education practice sales and a 14% increase in Sales Performance practice revenues. In addition,$1.1 million of the$2.9 million of All Access Pass sales were deferred and will be recognized in future quarters. -
Launch of the All Access Pass: During
late
January 2016 the Company introduced the All Access Pass (AAP) 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. Clients may use complete training curriculums or individual concepts from the Company’s available content to create custom training solutions to fit their needs. After testing the concept on a very limited basis in the first quarter and early second quarter, the Company introduced the AAP program in all of its U.S./Canada sales offices in late January. During the second quarter the Company sold$2.9 million of All Access Passes, which exceeded internal expectations. However, based on applicable accounting standards,$1.1 million of these sales were deferred and will be recognized over the remaining contractual periods. The Company is very encouraged by the acceptance of the AAP among existing and new clients and its potential for accelerating sales growth in future periods. -
Gross profit: Second quarter gross profit
was
$29.9 million compared with$30.0 million in the second quarter of fiscal 2015. The Company’s gross margin for the quarter endedFebruary 27, 2016 improved to 65.9% of sales compared with 64.8% in the second quarter of the prior year. The improvement in gross margin was primarily due to a change in the mix of sales which resulted in increased intellectual property sales, including the launch of the All Access Pass, and increased facilitator sales. -
Adjusted EBITDA: Adjusted EBITDA for the
second quarter increased 15% to
$4.4 million compared with$3.8 million in the second quarter of fiscal 2015. Excluding$0.6 million of adverse impact from foreign exchange rates during the quarter, Adjusted EBITDA increased 29% compared with the second quarter of the prior year. -
Operating Income (Loss): The Company
reported a loss from operations of
$0.3 million compared with$1.2 million of income in the second quarter of fiscal 2015. Operating income was reduced by a$1.2 million charge in the second quarter of fiscal 2016 to increase the estimated earn out liability from the acquisition of NinetyFive 5, LLC as Sales Performance practice EBITDA continues to improve and increases the probability of a second earn out payment, and a$0.4 million charge to restructure the Company’s Australian operations. Excluding these accounting charges and$0.6 million of adverse foreign exchange impact, the Company’s income from operations improved 63% over the prior year. -
Net Income (Loss): The Company reported a
second quarter fiscal 2016 net loss of
$0.4 million compared with net income totaling$0.4 million in the second quarter of fiscal 2015, reflecting the above-noted factors. Excluding the accounting charges described above and the adverse impact of foreign exchange, the Company’s net income improved significantly compared with the prior year. -
Earnings Per Share: The Company reported
a loss per share for the quarter ended
February 27, 2016 of$(.03) compared with diluted EPS of$.02 per share in the second quarter of fiscal 2015. -
Cash Flow and Balance Sheet Highlights:
The Company’s cash flows, liquidity, and balance sheet continue to
remain strong. Cash provided by operating activities through
February 27, 2016 increased$4.6 million , or 38%, to$16.8 million compared with$12.2 million in the first half of the prior year. After completion of its previously announced tender offer, in which the Company acquired 1,971,832 shares of its common stock for$35.3 million , the Company had$5.3 million of cash and$10.1 million outstanding on its long-term revolving credit facility. As a result of strong ongoing cash flows, the Company was able to complete the tender offer utilizing less of its credit facility than previously anticipated. -
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.
Whitman added, “We introduced the All Access Pass in late
Mr. Whitman concluded, “Our strong pipeline growth during the second quarter further establishes a strong foundation for the balance of the year and increases our confidence that we will meet the Adjusted EBITDA guidance range we have previously provided for the year.”
Fiscal 2016 Year-To-Date Financial Results
Consolidated revenue for the first two quarters of fiscal 2016 was
Adjusted EBITDA for the two quarters ended
Ms. Anne H. Chow Appointed to the Board of Directors
The Company is pleased to announce the appointment of Ms.
A long standing, active member of the community, Anne has previously
served on the boards of the
Ms. Chow holds a Master’s Degree in Business Administration with
Distinction from
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 2016; expected sales
of All Access Pass services; other 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. | ||||||||||||||||||
Condensed Consolidated Income Statements | ||||||||||||||||||
(in thousands, except per-share amounts, and unaudited) | ||||||||||||||||||
Quarter Ended | Two Quarters Ended | |||||||||||||||||
February 27, | February 28, | February 27, | February 28, | |||||||||||||||
2016 | 2015 | 2016 |
|
2015 | ||||||||||||||
Net sales | $ | 45,269 | $ | 46,316 | $ | 90,486 | $ | 94,190 | ||||||||||
Cost of sales | 15,415 | 16,301 | 30,561 | 32,971 | ||||||||||||||
Gross profit | 29,854 | 30,015 | 59,925 | 61,219 | ||||||||||||||
Selling, general, and administrative | 27,936 | 26,841 | 54,426 | 52,540 | ||||||||||||||
Restructuring costs | 376 | - | 376 | - | ||||||||||||||
Depreciation | 894 | 1,040 | 1,806 | 2,004 | ||||||||||||||
Amortization | 909 | 953 | 1,819 | 1,906 | ||||||||||||||
Income (loss) from operations | (261 | ) | 1,181 | 1,498 | 4,769 | |||||||||||||
Interest expense, net | (469 | ) | (428 | ) | (932 | ) | (856 | ) | ||||||||||
Discount on related party receivable | - | - | - | (131 | ) | |||||||||||||
Income (loss) before income taxes | (730 | ) | 753 | 566 | 3,782 | |||||||||||||
Income tax benefit (provision) | 282 | (326 | ) | (224 | ) | (1,527 | ) | |||||||||||
Net income (loss) | $ | (448 | ) | $ | 427 | $ | 342 | $ | 2,255 | |||||||||
Net income (loss) per common share: | ||||||||||||||||||
Basic | $ | (0.03 | ) | $ | 0.03 | $ | 0.02 | $ | 0.13 | |||||||||
Diluted | (0.03 | ) | 0.02 | 0.02 | 0.13 | |||||||||||||
Weighted average common shares: | ||||||||||||||||||
Basic | 15,299 | 16,908 | 15,758 | 16,889 | ||||||||||||||
Diluted | 15,299 | 17,086 | 15,903 | 17,089 | ||||||||||||||
Other data: | ||||||||||||||||||
Adjusted EBITDA(1) | $ | 4,406 | $ | 3,847 | $ | 8,880 | $ | 9,726 | ||||||||||
(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. | ||||||||||||||||||||
Reconciliation of Net Income to Adjusted EBITDA | ||||||||||||||||||||
(in thousands and unaudited) | ||||||||||||||||||||
Quarter Ended | Two Quarters Ended | |||||||||||||||||||
February 27, | February 28, | February 27, | February 28, | |||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Reconciliation of net income to Adjusted EBITDA: | ||||||||||||||||||||
Net income (loss) | $ | (448 | ) | $ | 427 | $ | 342 | $ | 2,255 | |||||||||||
Adjustments: | ||||||||||||||||||||
Interest expense, net | 469 | 428 | 932 | 856 | ||||||||||||||||
Discount on related party receivable | - | - | - | 131 | ||||||||||||||||
Income tax provision (benefit) | (282 | ) | 326 | 224 | 1,527 | |||||||||||||||
Amortization | 909 | 953 | 1,819 | 1,906 | ||||||||||||||||
Depreciation | 894 | 1,040 | 1,806 | 2,004 | ||||||||||||||||
Share-based compensation | 1,111 | 608 | 1,874 | 1,010 | ||||||||||||||||
Restructuring costs | 376 | 376 | ||||||||||||||||||
Increase (reduction) to contingent earnout liability | 1,238 | - | 1,368 | (28 | ) | |||||||||||||||
Other expense | 139 | 65 | 139 | 65 | ||||||||||||||||
Adjusted EBITDA | $ | 4,406 | $ | 3,847 | $ | 8,880 | $ | 9,726 | ||||||||||||
Adjusted EBITDA margin | 9.7 | % | 8.3 | % | 9.8 | % | 10.3 | % | ||||||||||||
FRANKLIN COVEY CO. | ||||||||||||||||
Additional Sales and Financial Information | ||||||||||||||||
(in thousands and unaudited) | ||||||||||||||||
Quarter Ended | Two Quarters Ended | |||||||||||||||
February 27, | February 28, | February 27, | February 28, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Sales Detail by Region/Type: | ||||||||||||||||
Direct offices | $ | 24,567 | $ | 25,604 | $ | 48,228 | $ | 51,079 | ||||||||
Strategic markets | 7,545 | 9,015 | 14,730 | 18,817 | ||||||||||||
Education practice | 6,750 | 5,241 | 14,754 | 11,159 | ||||||||||||
International licensees | 3,938 | 4,279 | 8,622 | 8,818 | ||||||||||||
Corporate and other | 2,469 | 2,177 | 4,152 | 4,317 | ||||||||||||
Total | $ | 45,269 | $ | 46,316 | $ | 90,486 | $ | 94,190 | ||||||||
Sales Detail by Category: | ||||||||||||||||
Training and consulting services | $ | 42,277 | $ | 43,545 | $ | 85,471 | $ | 89,018 | ||||||||
Products | 1,873 | 1,822 | 2,785 | 3,136 | ||||||||||||
Leasing | 1,119 | 949 | 2,230 | 2,036 | ||||||||||||
45,269 | 46,316 | 90,486 | 94,190 | |||||||||||||
Cost of Goods Sold by Category: | ||||||||||||||||
Training and consulting services | 13,797 | 14,934 | 27,855 | 30,355 | ||||||||||||
Products | 938 | 896 | 1,460 | 1,533 | ||||||||||||
Leasing | 680 | 471 | 1,246 | 1,083 | ||||||||||||
15,415 | 16,301 | 30,561 | 32,971 | |||||||||||||
Gross Profit | $ | 29,854 | $ | 30,015 | $ | 59,925 | $ | 61,219 | ||||||||
FRANKLIN COVEY CO. | ||||||||||||
Condensed Consolidated Balance Sheets | ||||||||||||
(in thousands and unaudited) | ||||||||||||
February 27, | August 31, | |||||||||||
2016 | 2015 | |||||||||||
Assets |
||||||||||||
Current assets: | ||||||||||||
Cash | $ | 5,262 | $ | 16,234 | ||||||||
Accounts receivable, less allowance for | ||||||||||||
doubtful accounts of $1,534 and $1,333 | 48,547 | 65,182 | ||||||||||
Receivable from related party | 1,533 | 2,425 | ||||||||||
Inventories | 4,033 | 3,949 | ||||||||||
Income taxes receivable | 1,204 | - | ||||||||||
Deferred income taxes | 2,518 | 2,479 | ||||||||||
Prepaid expenses and other current assets | 6,449 | 5,156 | ||||||||||
Total current assets | 69,546 | 95,425 | ||||||||||
Property and equipment, net | 15,502 | 15,499 | ||||||||||
Intangible assets, net | 51,634 | 53,449 | ||||||||||
Goodwill | 19,903 | 19,903 | ||||||||||
Long-term receivable from related party | 1,146 | 1,562 | ||||||||||
Other assets | 13,220 | 14,807 | ||||||||||
$ | 170,951 | $ | 200,645 | |||||||||
Liabilities and Shareholders' Equity |
||||||||||||
Current liabilities: | ||||||||||||
Current portion of financing obligation | $ | 1,565 | $ | 1,473 | ||||||||
Accounts payable | 7,953 | 8,306 | ||||||||||
Income taxes payable | - | 221 | ||||||||||
Accrued liabilities | 22,294 | 29,634 | ||||||||||
Total current liabilities | 31,812 | 39,634 | ||||||||||
Line of credit | 10,071 | - | ||||||||||
Financing obligation, less current portion | 23,796 | 24,605 | ||||||||||
Other liabilities | 5,214 | 3,802 | ||||||||||
Deferred income tax liabilities | 7,226 | 7,098 | ||||||||||
Total liabilities | 78,119 | 75,139 | ||||||||||
Shareholders' equity: | ||||||||||||
Common stock | 1,353 | 1,353 | ||||||||||
Additional paid-in capital | 210,034 | 208,635 | ||||||||||
Retained earnings | 69,954 | 69,612 | ||||||||||
Accumulated other comprehensive income | 318 | 192 | ||||||||||
Treasury stock at cost, 12,828 and 10,909 shares | (188,827 | ) | (154,286 | ) | ||||||||
Total shareholders' equity | 92,832 | 125,506 | ||||||||||
$ | 170,951 | $ | 200,645 | |||||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20160331006390/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