Franklin Covey Reports 2017 First Quarter Financial Results
All Access Pass Contracts Invoiced and Related Revenue Total
Strong Pipeline Growth as Company Expands Sales Force
Solid Revenue Performance from New China Offices and Education Division
Company Reaffirms Guidance for Fiscal 2017
Introduction
Since the Company traditionally recognizes the majority of its earnings
during the third and fourth quarters of each fiscal year, the first
quarter is an important quarter in which to make investments that
establish the foundation for growth later in the fiscal year and in
future periods. During the first quarter of fiscal 2017, the Company
opened three new direct sales offices in
The Company also continues to invest in its recently introduced All
Access Pass (AAP) offering. The Company launched the AAP on a very
limited basis in the first quarter of fiscal 2016 and fully launched
this offering in late
Financial Overview
The following is a summary of key financial results for the quarter
ended
-
Revenue: Consolidated revenue for the
first quarter of fiscal 2017 was
$39.8 million compared with$45.2 million in the first quarter of the prior year. The Company’s newly opened sales offices inChina reported$3.0 million in sales, which met expectations, and the Education practice grew by$0.6 million , or seven percent, compared with the first quarter of fiscal 2016. These increases were offset by 1)$2.2 million of increased AAP deferred revenues, which are recognized over the lives of the underlying contracts; 2) a$2.5 million decrease in domestic sales office revenues primarily resulting from the transition to the AAP-driven business model and lower on-site delivery revenue; 3) a$1.7 million decrease in Sales Performance practice revenues resulting primarily from a shift in the contracting period for several large potential contracts; 4) a$1.1 million decrease in sales from the Company’s sales office in theUnited Kingdom primarily resulting from the change in contract timing of a large contract in fiscal 2016; and 5) a$1.1 million decrease in international licensee royalty revenues as the Company’sChina licensee was converted to a direct office ($0.6 million ) and other licensee partners’ sales experienced a modest decline. -
All Access Pass Contracts: For the
quarter ended
November 26, 2016 , the Company invoiced$5.0 million of All Access Pass contracts and$1.3 million of related materials, compared with$0.4 million in the first quarter of fiscal 2016, when the AAP was introduced on a limited basis. -
Gross Profit: First quarter 2017 gross
profit was
$25.3 million compared with$30.1 million in the first quarter of fiscal 2016. The decrease was primarily due to the impact of decreased revenues related to the increase in deferred revenue and the other factors described above. The Company’s gross margin for the quarter endedNovember 26, 2016 was 63.6 percent of sales compared with 66.5 percent in the first quarter of fiscal 2016, and was affected by the increase in deferred revenue, the fixed costs of Education practice coaches, decreased licensee royalty revenues, the fixed amortization of curriculum and development costs, discounted onsite presentations available to AAP clients, and a change in the mix of offerings sold during the quarter. -
Operating Expenses: The Company’s
operating expenses in the first quarter of fiscal 2017 increased by
$2.4 million compared with the same quarter of fiscal 2016. The increase was due to a$2.6 million increase in selling, general, and administrative (SG&A) expenses, which were partially offset by$0.2 million of decreased depreciation and amortization costs. Increased SG&A expenses were primarily due to opening new sales offices inChina , increased bad debt costs, increased expenses related to the replacement of our existing enterprise resource planning system, and increased promotional and travel costs to open and promote the newChina offices and to market our AAP offerings. -
Operating Income (Loss): The Company’s
loss from operations for the first quarter of fiscal 2017 reflected
the factors noted above and was
$(5.4) million compared with income from operations of$1.3 million in the first quarter of the prior year. -
Adjusted EBITDA: Adjusted EBITDA for the
first quarter was a loss of
$(2.8) million , compared with$4.5 million of income in the first quarter of fiscal 2016. -
Net Income (Loss): First quarter 2017 net
loss was
$(4.0) million compared with net income of$0.8 million in the first quarter of fiscal 2016, reflecting the above-noted factors. -
Earnings (Loss) Per Share (EPS): Loss per
share for the quarter ended
November 26, 2016 was$(.29) compared with$.05 diluted EPS 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 2017. The Company had
$7.9 million of cash atNovember 26, 2016 , compared with$10.5 million atAugust 31, 2016 , and had no borrowings on its revolving credit facility. Net working capital atNovember 26, 2016 was$32.5 million compared with$35.7 million onAugust 31, 2016 . -
Adjusted EBITDA and Growth in Deferred Revenue
Outlook: The Company affirms its previously-announced fiscal
2017 guidance range for the sum of reported Adjusted EBITDA and growth
in deferred revenue (less certain costs) of
$35 million to $38 million .
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 sum of Adjusted EBITDA and growth in deferred
revenues in fiscal 2017; 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; renewal of AAP contracts; the performance of our offices 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 from operations excluding the impact of interest expense, income tax expense, amortization, depreciation, stock-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. We are unable to provide a reconciliation of the above forward-looking estimate of non-GAAP Adjusted EBITDA to GAAP measures because certain information needed to make a reasonable forward-looking estimate is difficult to estimate and dependent on future events which may be uncertain or out of our control, including the amount of AAP contracts invoiced, the number of AAP contracts that are renewed, necessary costs to deliver our offerings such as unanticipated curriculum development costs, and other potential variables. Accordingly, a reconciliation is not available without unreasonable effort.
About
FRANKLIN COVEY CO. |
||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
||||||||||
(in thousands, except per-share amounts, and unaudited) |
||||||||||
Quarter Ended | ||||||||||
November 26, | November 28, | |||||||||
2016 | 2015 | |||||||||
Net sales | $ | 39,787 | $ | 45,218 | ||||||
Cost of sales | 14,479 | 15,147 | ||||||||
Gross profit | 25,308 | 30,071 | ||||||||
Selling, general, and administrative | 29,095 | 26,489 | ||||||||
Depreciation | 866 | 912 | ||||||||
Amortization | 722 | 910 | ||||||||
Income (loss) from operations |
(5,375 | ) | 1,760 | |||||||
Interest expense, net | (504 | ) | (464 | ) | ||||||
Income (loss) before income taxes | (5,879 | ) | 1,296 | |||||||
Income tax benefit (provision) | 1,921 | (506 | ) | |||||||
Net income (loss) | $ | (3,958 | ) | $ | 790 | |||||
Net income (loss) per common share: | ||||||||||
Basic and diluted | $ | (0.29 | ) | $ | 0.05 | |||||
Weighted average common shares: | ||||||||||
Basic | 13,791 | 16,218 | ||||||||
Diluted | 13,791 | 16,352 | ||||||||
Other data: | ||||||||||
Adjusted EBITDA(1) | $ | (2,819 | ) | $ | 4,475 |
(1) |
The term Adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization, stock-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 (Loss) to Adjusted EBITDA as shown below. |
FRANKLIN COVEY CO. |
|||||||||||
Reconciliation of Net Income (Loss) to Adjusted EBITDA |
|||||||||||
(in thousands and unaudited) |
|||||||||||
Quarter Ended | |||||||||||
November 26, | November 28, | ||||||||||
2016 | 2015 | ||||||||||
Reconciliation of net income (loss) to Adjusted EBITDA: | |||||||||||
Net Income (loss) | $ | (3,958 | ) | $ | 790 | ||||||
Adjustments: | |||||||||||
Interest expense, net | 504 | 464 | |||||||||
Income tax provision (benefit) | (1,921 | ) | 506 | ||||||||
Amortization | 722 | 910 | |||||||||
Depreciation | 866 | 912 | |||||||||
Stock-based compensation | 1,214 | 763 | |||||||||
Increase (reduction) to contingent earnout liability | (1,013 | ) | 130 | ||||||||
China office start-up costs | 479 | - | |||||||||
Other expense | 288 | - | |||||||||
Adjusted EBITDA | $ | (2,819 | ) | $ | 4,475 | ||||||
Adjusted EBITDA margin | -7.1 | % | 9.9 | % | |||||||
FRANKLIN COVEY CO. |
|||||||||
Additional Sales Information |
|||||||||
(in thousands and unaudited) | |||||||||
Quarter Ended | |||||||||
November 26, | November 28, | ||||||||
2016 | 2015 | ||||||||
Sales by Division: | |||||||||
Direct offices | $ | 21,247 | $ | 23,651 | |||||
Strategic markets | 4,761 | 7,195 | |||||||
Education practice | 8,743 | 8,169 | |||||||
Licensees | 3,431 | 4,519 | |||||||
Corporate and other | 1,605 | 1,684 | |||||||
Total | $ | 39,787 | $ | 45,218 | |||||
Sales by Category: | |||||||||
Training and consulting services | $ | 38,073 | $ | 43,194 | |||||
Products | 828 | 912 | |||||||
Leasing | 886 | 1,112 | |||||||
39,787 | 45,218 | ||||||||
Cost of Goods Sold by Category: | |||||||||
Training and consulting services | 13,558 | 14,058 | |||||||
Products | 435 | 522 | |||||||
Leasing | 486 | 567 | |||||||
14,479 | 15,147 | ||||||||
Gross Profit | $ | 25,308 | $ | 30,071 | |||||
FRANKLIN COVEY CO. |
||||||||||
Condensed Consolidated Balance Sheets |
||||||||||
(in thousands and unaudited) | ||||||||||
November 26, | August 31, | |||||||||
2016 | 2016 | |||||||||
Assets |
||||||||||
Current assets: | ||||||||||
Cash | $ | 7,876 | $ | 10,456 | ||||||
Accounts receivable, less allowance for doubtful accounts of $2,231 and $1,579 |
54,717 | 65,960 | ||||||||
Receivable from related party | 2,117 | 1,933 | ||||||||
Inventories | 5,077 | 5,042 | ||||||||
Income taxes receivable | 2,633 | - | ||||||||
Prepaid expenses and other current assets | 8,053 | 6,350 | ||||||||
Total current assets | 80,473 | 89,741 | ||||||||
Property and equipment, net | 17,172 | 16,083 | ||||||||
Intangible assets, net | 49,471 | 50,196 | ||||||||
Goodwill | 19,903 | 19,903 | ||||||||
Long-term receivable from related party | 1,281 | 1,235 | ||||||||
Other assets | 12,989 | 13,713 | ||||||||
$ | 181,289 | $ | 190,871 | |||||||
Liabilities and Shareholders' Equity |
||||||||||
Current liabilities: | ||||||||||
Current portion of financing obligation | $ | 1,712 | $ | 1,662 | ||||||
Current portion of term notes payable | 5,000 | 3,750 | ||||||||
Accounts payable | 7,440 | 10,376 | ||||||||
Income taxes payable | - | 4 | ||||||||
Deferred revenue | 20,282 | 20,847 | ||||||||
Accrued liabilities | 13,516 | 17,418 | ||||||||
Total current liabilities | 47,950 | 54,057 | ||||||||
Financing obligation, less current portion | 22,493 | 22,943 | ||||||||
Term notes payable, less current portion | 12,813 | 10,313 | ||||||||
Other liabilities | 1,235 | 3,173 | ||||||||
Deferred income tax liabilities | 6,328 | 6,670 | ||||||||
Total liabilities | 90,819 | 97,156 | ||||||||
Shareholders' equity: | ||||||||||
Common stock | 1,353 | 1,353 | ||||||||
Additional paid-in capital | 212,368 | 211,203 | ||||||||
Retained earnings | 72,670 | 76,628 | ||||||||
Accumulated other comprehensive income | 587 | 1,222 | ||||||||
Treasury stock at cost, 13,320 and 13,332 shares | (196,508 | ) | (196,691 | ) | ||||||
Total shareholders' equity | 90,470 | 93,715 | ||||||||
$ | 181,289 | $ | 190,871 | |||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20170105006271/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