Franklin Covey Reports First Quarter Fiscal 2021 Results
Net Income and Adjusted EBITDA Exceed Expectations
Company’s Powerful Subscription Business Growth Engine, the All Access Pass and Leader in Me Membership, Show Continued Strong Growth, High Revenue Retention, and Durability with Clients
Improved Gross Margin and Decreased Operating Expenses Allow Income from Operations to Remain Effectively Even with the Prior Year’s Strong Performance Despite Pandemic
Cash Flows from Operating Activities Increases 59% to
Introduction
While the Company’s first quarter 2021 results were impacted by the ongoing COVID-19 pandemic, the Company was pleased that due to the continued strength of its subscription business and its quick pivot to delivering content live-online and through other digital modalities, its first quarter financial results were better-than-expected. The Company’s revenues were favorably impacted by the continued strength of its subscription business, driven by the All Access Pass (AAP) in the Enterprise Division and the Leader in Me membership in the Education Division. Throughout the pandemic, the Company’s AAP sales have been strong and resilient. During the first quarter of fiscal 2021, All Access Pass sales grew 16% compared with the prior year, and annual AAP revenue retention also remained strong at greater than 90%. Following the initial impact of the pandemic, the Company’s
The Company expects that sales and revenue retention for AAP subscription sales, and the booking pace for AAP related add-on services will continue to be strong in both the current and future periods. Sales at the Company’s operations in
Through continued subscription business strength, recovering add-on services revenue, improved margins, and successful efforts to lower SG&A expenses, the Company was able to exceed expectations for net income and adjusted earnings before interest, income taxes, depreciation, and amortization (Adjusted EBITDA). In addition, the Company’s cash flows from operating activities increased 59% over the first quarter of fiscal 2020 and its liquidity and financial position remained strong at
Whitman continued, “Cash flow for the quarter was strong and we ended the quarter with approximately
Financial Overview
The following is a summary of key financial results for the quarter ended
-
Net Sales : Consolidated sales for the first quarter of fiscal 2021 totaled$48.3 million , compared with$58.6 million in the first quarter of fiscal 2020. While consolidated sales were adversely impacted by the ongoing pandemic, the Company was pleased with the continued strength of the All Access Pass and Leader in Me subscription-based services. During the first quarter of fiscal 2021, AAP sales increased 16% compared with the first quarter of the prior year and annual revenue retention remained above 90%. The pivot to online delivery continued in the first quarter and invoiced AAP add-on services recovered to be nearly flat compared with the prior year. In the Education Division, Leader in Me membership revenues increased 14% over the first quarter of the prior year. These increases were insufficient to offset decreased foreign direct office sales and facilitator material sales, fewer coaching and consulting days delivered in the Education Division, and decreased licensee revenues. However, the Company is beginning to see recovery in many of these areas as previously postponed or canceled training or coaching days are being rescheduled, corporations and individuals are adapting, and the hope of vaccines is enabling certain economies to open and recover. For example, licensee revenues increased 95% on a sequential basis over the fourth quarter of fiscal 2020. The Company remains optimistic about the future and looks forward to continued recovery from the COVID-19 pandemic during 2021. -
Deferred Subscription Revenue and Unbilled Deferred Revenue: At
November 30, 2020 , the Company had$97.4 million of billed and unbilled deferred subscription revenue, an increase of$14.7 million , or 18%, compared with the prior year. This included$56.9 million of deferred subscription revenue which was on its balance sheet, a 17%, or$8.2 million , increase compared with deferred subscription revenue atNovember 30, 2019 . AtNovember 30, 2020 , the Company also had$40.5 million of unbilled deferred revenue, a 19%, or$6.5 million , increase compared with$34.0 million of unbilled deferred revenue atNovember 30, 2019 . Unbilled deferred revenue represents business (typically multiyear contracts) that is contracted but unbilled, and excluded from the Company’s balance sheet. -
Gross profit: First quarter 2021 gross profit totaled
$36.4 million compared with$42.0 million in the first quarter of the prior year and declined primarily due to decreased sales as explained above. The Company’s gross margin for the quarter endedNovember 30, 2020 improved 359 basis points to 75.3% of sales compared with 71.7% in the first quarter of the prior year, reflecting increased subscription revenues in the overall mix of sales. -
Operating Expenses: The Company’s operating expenses for the first quarter of fiscal 2021 decreased
$5.6 million compared with the first quarter of the prior year, which was primarily due to decreased selling, general, and administrative (SG&A) expenses. Decreased SG&A expense was primarily related to decreased travel, entertainment, and marketing; a$0.7 million decrease in non-cash stock-based compensation expense; decreased associate costs; and cost savings from the successful implementation of expense reduction initiatives in various areas of the Company’s operations. -
Operating Loss: As a result of improved gross margins and efforts to decrease SG&A expense, the Company’s loss from operations for the quarter ended
November 30, 2020 was$0.2 million , which was essentially even compared with the first quarter of the prior year. -
Income Taxes: The Company recorded
$0.2 million of income tax expense during the quarter endedNovember 30, 2020 , resulting in an effective tax expense rate of 25% compared with an effective benefit rate of 28% in the prior year. The Company’s effective tax rate during the first quarter of fiscal 2021 was adversely impacted by various non-deductible expenses. -
Net Loss: The Company reported a net loss of
$0.9 million , or$(0.06) per share, for the first quarter of fiscal 2021, compared with a loss of$0.5 million , or$(0.04) per share, in the first quarter of the prior year, reflecting the above-noted factors. -
Adjusted EBITDA: Adjusted EBITDA for the first quarter was
$3.7 million compared with$5.0 million in the first quarter of the prior year, reflecting the decrease in sales resulting from the COVID-19 pandemic. -
Cash Flows, Liquidity, and Financial Position Remain Strong: The Company’s balance sheet and liquidity position remained strong with
$34.3 million of cash atNovember 30, 2020 , and no borrowings on its$15.0 million line of credit, compared with$27.1 million of cash atAugust 31, 2020 . Cash flows from operating activities for the first quarter of fiscal 2021 increased 59%, to$10.9 million , despite the challenging economic environment in the first quarter of fiscal 2021.
Fiscal 2021 Outlook
Based on current expectations, including the duration and anticipated economic recovery from the COVID-19 pandemic, the Company affirms its previously announced guidance and continues to expect Adjusted EBITDA to total between
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 and other goals relating to the growth and operations 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 severity and duration of global business disruptions from the COVID-19 outbreak; the ability of the Company to operate effectively during and in the aftermath of the COVID-19 pandemic; renewals of subscription contracts; the impact of new sales personnel; the impact of deferred revenues on future financial results; market acceptance of new products or services, including new AAP portal upgrades; 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
This earnings release includes the concept of adjusted earnings before interest, income taxes, depreciation, and amortization (Adjusted EBITDA) which is a non-GAAP measure. The Company defines Adjusted EBITDA as net income or loss excluding the impact of interest expense, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items such as adjustments to the fair value of expected contingent consideration liabilities arising from business acquisitions. 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. Refer to the attached table for the reconciliation of a non-GAAP financial measure, “Adjusted EBITDA,” to consolidated net loss, a related GAAP financial measure.
The Company is 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 obtain and dependent on future events which may be uncertain, or out of the Company’s control, including the amount of AAP contracts invoiced, the number of AAP contracts that are renewed, necessary costs to deliver the Company’s offerings, such as unanticipated curriculum development costs, and other potential variables. Accordingly, a reconciliation is not available without unreasonable effort.
About
Condensed Consolidated Statements of Operations | ||||||||
(in thousands, except per-share amounts, and unaudited) | ||||||||
Quarter Ended | ||||||||
|
|
|
||||||
2020 |
|
2019 |
||||||
Net sales |
$ |
48,324 |
|
$ |
58,613 |
|
||
Cost of sales |
|
11,938 |
|
|
16,584 |
|
||
Gross profit |
|
36,386 |
|
|
42,029 |
|
||
Selling, general, and administrative |
|
33,683 |
|
|
39,399 |
|
||
Depreciation |
|
1,741 |
|
|
1,619 |
|
||
Amortization |
|
1,131 |
|
|
1,170 |
|
||
Loss from operations |
|
(169 |
) |
|
(159 |
) |
||
Interest expense, net |
|
(544 |
) |
|
(601 |
) |
||
Loss before income taxes |
|
(713 |
) |
|
(760 |
) |
||
Income tax benefit (provision) |
|
(179 |
) |
|
216 |
|
||
Net loss |
$ |
(892 |
) |
$ |
(544 |
) |
||
Net loss per common share: | ||||||||
Basic and diluted |
$ |
(0.06 |
) |
$ |
(0.04 |
) |
||
Weighted average common shares: | ||||||||
Basic and diluted |
|
13,977 |
|
|
13,982 |
|
||
Other data: | ||||||||
Adjusted EBITDA(1) |
$ |
3,716 |
|
$ |
4,961 |
|
(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 a comparable GAAP equivalent, refer to the Reconciliation of Net Loss to Adjusted EBITDA as shown below. |
|
||||||||
Reconciliation of Net Loss to Adjusted EBITDA | ||||||||
(in thousands and unaudited) | ||||||||
Quarter Ended |
||||||||
|
|
|
||||||
2020 |
|
2019 |
||||||
Reconciliation of net loss to Adjusted EBITDA: | ||||||||
Net loss |
$ |
(892 |
) |
$ |
(544 |
) |
||
Adjustments: | ||||||||
Interest expense, net |
|
544 |
|
|
601 |
|
||
Income tax provision (benefit) |
|
179 |
|
|
(216 |
) |
||
Amortization |
|
1,131 |
|
|
1,170 |
|
||
Depreciation |
|
1,741 |
|
|
1,619 |
|
||
Stock-based compensation |
|
1,158 |
|
|
1,851 |
|
||
Increase in contingent consideration liabilities |
|
62 |
|
|
91 |
|
||
Government COVID-19 assistance proceeds |
|
(207 |
) |
|
- |
|
||
|
- |
|
|
389 |
|
|||
Adjusted EBITDA |
$ |
3,716 |
|
$ |
4,961 |
|
||
Adjusted EBITDA margin |
|
7.7 |
% |
|
8.5 |
% |
Additional Financial Information | ||||||||
(in thousands and unaudited) | ||||||||
Quarter Ended |
||||||||
|
|
|
||||||
2020 |
|
2019 |
||||||
Sales by Division/Segment: | ||||||||
Enterprise Division: | ||||||||
Direct offices |
$ |
36,743 |
|
$ |
42,111 |
|
||
International licensees |
|
2,596 |
|
|
3,721 |
|
||
|
39,339 |
|
|
45,832 |
|
|||
Education Division |
|
7,498 |
|
|
11,082 |
|
||
Corporate and other |
|
1,487 |
|
|
1,699 |
|
||
Consolidated |
$ |
48,324 |
|
$ |
58,613 |
|
||
Gross Profit by Division/Segment: | ||||||||
Enterprise Division: | ||||||||
Direct offices |
$ |
29,439 |
|
$ |
31,411 |
|
||
International licensees |
|
2,285 |
|
|
3,120 |
|
||
|
31,724 |
|
|
34,531 |
|
|||
Education Division |
|
3,986 |
|
|
6,657 |
|
||
Corporate and other |
|
676 |
|
|
841 |
|
||
Consolidated |
$ |
36,386 |
|
$ |
42,029 |
|
||
Adjusted EBITDA by Division/Segment: | ||||||||
Enterprise Division: | ||||||||
Direct offices |
$ |
6,693 |
|
$ |
5,710 |
|
||
International licensees |
|
1,294 |
|
|
2,035 |
|
||
|
7,987 |
|
|
7,745 |
|
|||
Education Division |
|
(2,285 |
) |
|
(1,102 |
) |
||
Corporate and other |
|
(1,986 |
) |
|
(1,682 |
) |
||
Consolidated |
$ |
3,716 |
|
$ |
4,961 |
|
Condensed Consolidated Balance Sheets | ||||||||
(in thousands and unaudited) | ||||||||
|
|
|
||||||
2020 |
|
2020 |
||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents |
$ |
34,260 |
|
$ |
27,137 |
|
||
Accounts receivable, less allowance for doubtful accounts of |
|
43,066 |
|
|
56,407 |
|
||
Inventories |
|
2,675 |
|
|
2,974 |
|
||
Prepaid expenses and other current assets |
|
15,430 |
|
|
15,146 |
|
||
Total current assets |
|
95,431 |
|
|
101,664 |
|
||
Property and equipment, net |
|
14,169 |
|
|
15,723 |
|
||
Intangible assets, net |
|
45,996 |
|
|
47,125 |
|
||
|
24,220 |
|
|
24,220 |
|
|||
Deferred income tax assets |
|
1,028 |
|
|
1,094 |
|
||
Other long-term assets |
|
15,516 |
|
|
15,611 |
|
||
$ |
196,360 |
|
$ |
205,437 |
|
|||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities: | ||||||||
Current portion of term notes payable |
$ |
5,000 |
|
$ |
5,000 |
|
||
Current portion of financing obligation |
|
2,670 |
|
|
2,600 |
|
||
Accounts payable |
|
3,691 |
|
|
5,622 |
|
||
Deferred subscription revenue |
|
55,681 |
|
|
59,289 |
|
||
Other deferred revenue |
|
7,654 |
|
|
7,389 |
|
||
Accrued liabilities |
|
21,902 |
|
|
22,628 |
|
||
Total current liabilities |
|
96,598 |
|
|
102,528 |
|
||
Term notes payable, less current portion |
|
13,750 |
|
|
15,000 |
|
||
Financing obligation, less current portion |
|
13,350 |
|
|
14,048 |
|
||
Other liabilities |
|
8,820 |
|
|
9,110 |
|
||
Deferred income tax liabilities |
|
5,089 |
|
|
5,298 |
|
||
Total liabilities |
|
137,607 |
|
|
145,984 |
|
||
Shareholders' equity: | ||||||||
Common stock |
|
1,353 |
|
|
1,353 |
|
||
Additional paid-in capital |
|
209,667 |
|
|
211,920 |
|
||
Retained earnings |
|
49,076 |
|
|
49,968 |
|
||
Accumulated other comprehensive income |
|
948 |
|
|
641 |
|
||
|
(202,291 |
) |
|
(204,429 |
) |
|||
Total shareholders' equity |
|
58,753 |
|
|
59,453 |
|
||
$ |
196,360 |
|
$ |
205,437 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20210107005856/en/
Investor Contact:
801-817-1776
investor.relations@franklincovey.com
Media Contact:
801-817-6440
Debra.Lund@franklincovey.com
Source: