Franklin Covey Reports Strong 2014 Fourth Quarter and Fiscal Year Financial Results
Strongest Quarter and Fiscal Year Ever for the Company’s Current
Business
Fourth Quarter Revenues Up 11%, Adjusted EBITDA Up
33% to
Full Fiscal Year 2014 Revenues Up 7%,
Adjusted EBITDA Up 10% to
Fiscal 2014 Fourth Quarter Financial Highlights
-
Sales increased
$6.5 million , or 11%, to$68.1 million , compared with$61.6 million in fiscal 2013. -
Sales grew in nearly all major channels, including national account
practices, international licensee partners, international direct
offices, and from the U.S./
Canada direct offices. -
Gross profit increased 10% to
$46.9 million on increased sales and a stable gross margin. -
Adjusted EBITDA increased
$4.2 million , or 33%, to$16.6 million for the fourth quarter of fiscal 2014 without the benefit of a large government contract renewal. The large government contract was renewed during the first week of September. - Adjusted EBITDA margin for the quarter improved to 24.4% of sales in the fourth quarter compared with 20.3% in the fourth quarter of fiscal 2013.
- Flow-through of increased revenue to increased Adjusted EBITDA was 64%.
-
On the strength of increased pre-tax income and a lower effective tax
rate, net income increased
$4.7 million , or 61%, to$12.5 million for the fourth quarter of fiscal 2014. -
EPS grew 55%, to
$0.73 per diluted share, from$0.47 per diluted share in the prior year. -
The Company’s cash balance remained strong and totaled
$10.5 million atAugust 31, 2014 compared with$12.3 million atAugust 31, 2013 with no borrowings on its credit facility.
Full Year Fiscal 2014 Financial Highlights
-
Consolidated sales grew
$14.2 million , or 7%, to$205.2 million , compared with$190.9 million for fiscal 2013, the best fiscal year ever for the Company’s current business. - Sales grew in nearly all of the Company’s major sales channels during the fiscal year.
-
Gross profit increased
$9.3 million , or 7%, to$138.3 million , compared with$129.0 million in fiscal 2013 on increased sales. The Company’s gross margin remained consistent with the prior year at 67.4% in fiscal 2014 compared with 67.6% in fiscal 2013. -
Adjusted EBITDA increased 10% to
$34.4 million , compared with$31.4 million in fiscal 2013, without the benefit of a large government contract renewal. As noted above, the large government contract was renewed during the first week of September. - Adjusted EBITDA margin increased to 16.8% from 16.4% in the prior year.
-
Net income increased by
$3.7 million , or 26%, to$18.1 million for fiscal 2014. -
EPS grew 34% to
$1.07 per diluted share, from$0.80 per diluted share for fiscal 2013.
Fourth Quarter Financial Results
The Company’s consolidated sales in the fourth quarter increased to
As a result of increased sales, as described above, gross profit for the
quarter increased 10% to
Selling, general, and administrative expenses (SG&A) decreased
Adjusted EBITDA increased 33% to
Due primarily to benefits from the utilization of foreign tax credits,
the Company’s effective income tax rate for the fourth quarter of fiscal
2014 decreased compared with the prior year, and was substantially less
than statutory income tax rates. Net income for the quarter ended
Full Fiscal Year 2014 Financial Results
Consolidated sales for the full fiscal year ended
The Company’s SG&A expenses for the fiscal year ended
Adjusted EBITDA increased by
Subsequent to fiscal 2014, the Company will no longer have the ability to claim foreign tax credits on prior year U.S. federal income tax returns and expects its effective income tax rate in fiscal 2015 and future periods to return to rates that approximate statutory income tax rates. However, the utilization of other deferred income tax assets is expected to reduce the amount of cash the Company pays for taxes through fiscal 2016. The expected increase in the effective income tax rate during fiscal 2015 will result in increased tax expense when compared with fiscal 2014 and 2013 results.
The Company’s financial position remained strong at
Fiscal 2015 Outlook
Based on its strong fiscal 2014 financial performance, the strength of
its booking pace and awarded revenue in the fourth quarter of fiscal
2014, and the renewal of a large government contract early in
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 those statements related to the Company’s future results and
profitability; expected Adjusted EBITDA in fiscal 2015; anticipated
future sales; expected cash payment for income taxes; 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 excluding the impact of interest expense, income tax expense, amortization, depreciation, share-based compensation expense, 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, | |||||||||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||||||||||
Net sales | $ | 68,109 | $ | 61,574 | $ | 205,165 | $ | 190,924 | ||||||||||||||||||||||||||
Cost of sales | 21,169 | 18,862 | 66,899 | 61,935 | ||||||||||||||||||||||||||||||
Gross profit | 46,940 | 42,712 | 138,266 | 128,989 | ||||||||||||||||||||||||||||||
Selling, general, and administrative | 30,686 | 31,880 | 106,164 | 101,176 | ||||||||||||||||||||||||||||||
Depreciation | 917 | 833 | 3,383 | 3,008 | ||||||||||||||||||||||||||||||
Amortization | 993 | 990 | 3,954 | 3,191 | ||||||||||||||||||||||||||||||
Income from operations | 14,344 | 9,009 | 24,765 | 21,614 | ||||||||||||||||||||||||||||||
Interest expense, net | (460 | ) | (399 | ) | (1,810 | ) | (1,718 | ) | ||||||||||||||||||||||||||
Discount on related party receivable | (772 | ) | (102 | ) | (1,196 | ) | (519 | ) | ||||||||||||||||||||||||||
Other income, net | - | 1 | - | 21 | ||||||||||||||||||||||||||||||
Income before income taxes | 13,112 | 8,509 | 21,759 | 19,398 | ||||||||||||||||||||||||||||||
Income tax provision | (656 | ) | (790 | ) | (3,692 | ) | (5,079 | ) | ||||||||||||||||||||||||||
Net income | $ | 12,456 | $ | 7,719 | $ | 18,067 | $ | 14,319 | ||||||||||||||||||||||||||
Net income per common share: | ||||||||||||||||||||||||||||||||||
Basic | $ | 0.74 | $ | 0.47 | $ | 1.08 | $ | 0.83 | ||||||||||||||||||||||||||
Diluted | 0.73 | 0.47 | 1.07 | 0.80 | ||||||||||||||||||||||||||||||
Weighted average common shares: | ||||||||||||||||||||||||||||||||||
Basic | 16,843 | 16,352 | 16,720 | 17,348 | ||||||||||||||||||||||||||||||
Diluted | 17,069 | 16,479 | 16,947 | 17,971 | ||||||||||||||||||||||||||||||
Other data: | ||||||||||||||||||||||||||||||||||
Adjusted EBITDA(1) | $ | 16,647 | $ | 12,488 | $ | 34,420 | $ | 31,402 | ||||||||||||||||||||||||||
(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. |
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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, | |||||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Reconciliation of net income to Adjusted EBITDA: | ||||||||||||||||||||||
Net income | $ | 12,456 | $ | 7,719 | $ | 18,067 | $ | 14,319 | ||||||||||||||
Adjustments: | ||||||||||||||||||||||
Other income, net | - | (1 | ) | - | (21 | ) | ||||||||||||||||
Interest expense, net | 460 | 399 | 1,810 | 1,718 | ||||||||||||||||||
Discount on related party receivable | 772 | 102 | 1,196 | 519 | ||||||||||||||||||
Income tax provision | 656 | 790 | 3,692 | 5,079 | ||||||||||||||||||
Amortization | 993 | 990 | 3,954 | 3,191 | ||||||||||||||||||
Depreciation | 917 | 833 | 3,383 | 3,008 | ||||||||||||||||||
Share-based compensation | 674 | 1,656 | 3,534 | 3,589 | ||||||||||||||||||
Reduction of contingent earnout liability | (644 | ) | - | (1,579 | ) | - | ||||||||||||||||
Impairment of related-party receivable | 363 | - | 363 | - | ||||||||||||||||||
Adjusted EBITDA | $ | 16,647 | $ | 12,488 | $ | 34,420 | $ | 31,402 | ||||||||||||||
Adjusted EBITDA margin | 24.4 | % | 20.3 | % | 16.8 | % | 16.4 | % | ||||||||||||||
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, | |||||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Sales Detail by Region/Type: | ||||||||||||||||||||||
U.S./Canada direct | $ | 29,262 | $ | 29,049 | $ | 99,128 | $ | 96,899 | ||||||||||||||
International direct | 9,608 | 9,217 | 28,588 | 29,558 | ||||||||||||||||||
Licensees | 4,614 | 3,785 | 17,065 | 15,452 | ||||||||||||||||||
National account practices | 21,707 | 16,686 | 48,645 | 37,042 | ||||||||||||||||||
Self-funded marketing | 1,693 | 1,661 | 5,938 | 5,866 | ||||||||||||||||||
Other | 1,225 | 1,176 | 5,801 | 6,107 | ||||||||||||||||||
Total | $ | 68,109 | $ | 61,574 | $ | 205,165 | $ | 190,924 | ||||||||||||||
Sales Detail by Category: | ||||||||||||||||||||||
Training and consulting services | $ | 64,320 | $ | 57,472 | $ | 193,720 | $ | 178,656 | ||||||||||||||
Products | 2,751 | 3,119 | 7,518 | 8,114 | ||||||||||||||||||
Leasing | 1,038 | 983 | 3,927 | 4,154 | ||||||||||||||||||
68,109 | 61,574 | 205,165 | 190,924 | |||||||||||||||||||
Cost of Goods Sold by Category: | ||||||||||||||||||||||
Training and consulting services | 19,214 | 17,055 | 61,474 | 56,864 | ||||||||||||||||||
Products | 1,437 | 1,286 | 3,502 | 3,122 | ||||||||||||||||||
Leasing | 518 | 521 | 1,923 | 1,949 | ||||||||||||||||||
21,169 | 18,862 | 66,899 | 61,935 | |||||||||||||||||||
Gross Profit | $ | 46,940 | $ | 42,712 | $ | 138,266 | $ | 128,989 | ||||||||||||||
FRANKLIN COVEY CO. |
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Condensed Consolidated Balance Sheets |
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(in thousands and unaudited) | ||||||||||||
August 31, | August 31, | |||||||||||
2014 | 2013 | |||||||||||
Assets |
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Current assets: | ||||||||||||
Cash | $ | 10,483 | $ | 12,291 | ||||||||
Accounts receivable, less allowance for doubtful accounts of $918 and $982 |
61,490 | 52,684 | ||||||||||
Receivable from related party | 1,851 | 3,305 | ||||||||||
Inventories | 6,367 | 4,321 | ||||||||||
Income taxes receivable | 2,432 | - | ||||||||||
Deferred income taxes | 4,340 | 4,685 | ||||||||||
Prepaid expenses and other current assets | 6,053 | 3,822 | ||||||||||
Total current assets | 93,016 | 81,108 | ||||||||||
Property and equipment, net | 17,271 | 17,180 | ||||||||||
Intangible assets, net | 57,177 | 60,654 | ||||||||||
Goodwill | 19,641 | 16,135 | ||||||||||
Long-term receivable from related party | 3,296 | 4,453 | ||||||||||
Other assets | 14,785 | 9,875 | ||||||||||
$ | 205,186 | $ | 189,405 | |||||||||
Liabilities and Shareholders' Equity |
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Current liabilities: | ||||||||||||
Current portion of financing obligation | $ | 1,298 | $ | 1,139 | ||||||||
Accounts payable | 12,001 | 9,294 | ||||||||||
Income taxes payable | - | 1,365 | ||||||||||
Accrued liabilities | 29,586 | 31,140 | ||||||||||
Total current liabilities | 42,885 | 42,938 | ||||||||||
Financing obligation, less current portion | 26,078 | 27,376 | ||||||||||
Other liabilities | 3,934 | 6,106 | ||||||||||
Deferred income tax liabilities | 5,575 | 6,479 | ||||||||||
Total liabilities | 78,472 | 82,899 | ||||||||||
Shareholders' equity: | ||||||||||||
Common stock | 1,353 | 1,353 | ||||||||||
Additional paid-in capital | 207,148 | 210,227 | ||||||||||
Retained earnings | 58,496 | 40,429 | ||||||||||
Accumulated other comprehensive income | 1,451 | 1,686 | ||||||||||
Treasury stock at cost, 10,266 and 10,759 shares | (141,734 | ) | (147,189 | ) | ||||||||
Total shareholders' equity | 126,714 | 106,506 | ||||||||||
$ | 205,186 | $ | 189,405 |
Source:
Franklin Covey
Investor Contact:
Steve Young, 801-817-1776
investor.relations@franklincovey.com
Media
Contact:
Debra Lund, 801-817-6440
Debra.Lund@franklincovey.com