Franklin Covey Reports Strong First Quarter Results to Start Fiscal 2023
Consolidated Sales Increase 13% to
All Access Pass Subscription and Subscription Services Sales Grow 20% to
Sum of Billed and Unbilled Deferred Subscription Revenue Increases 25% to
Net Income and Adjusted EBITDA Exceed Expectations, Net Income Increases 22% to
Liquidity and Financial Position Remain Strong with Available Liquidity Exceeding
Company Affirms Earnings Guidance for Fiscal 2023
Introduction
The Company’s strong start to fiscal 2023 was highlighted by the following key metrics:
-
The Company’s consolidated sales for the quarter ended
November 30, 2022 increased 13% to$69.4 million compared with$61.3 million in the first quarter of fiscal 2022. On a constant currency basis, the Company’s sales increased 17% to$71.4 million . For the rolling four quarters endedNovember 30, 2022 , the Company’s consolidated sales increased 14% to$271.0 million compared with$237.1 million in the corresponding period endedNovember 30, 2021 . The Company’s sales for the first quarter increased primarily due to strong subscription and subscription services sales, including the following:-
All Access Pass subscription and subscription services sales grew 20% to
$39.6 million in the first quarter and grew 26% to$151.0 million for the rolling four quarters endedNovember 30, 2022 . - Education Division revenues grew 23% on the strength of increased consulting, coaching, and training days delivered during the quarter as well as increased materials sales. The Education Division continued its momentum generated in fiscal 2022, during which it added a record 739 new Leader in Me schools.
-
Total Company deferred revenue atNovember 30, 2022 was$90.8 million . The sum of billed subscription and unbilled deferred subscription revenue atNovember 30, 2022 grew 25% to$151.6 million , compared withNovember 30, 2021 . Approximately 48% of the Company’s All Access Pass subscriptions are now multi-year contracts, representing 62% of All Access Pass subscriptions invoiced inNorth America as ofNovember 30, 2022 .
-
All Access Pass subscription and subscription services sales grew 20% to
-
On the strength of increased sales and continued strong gross margins, gross profit for the first quarter of fiscal 2023 increased 11%, or
$5.1 million , to$52.7 million compared with$47.6 million in the prior year. Rolling four quarter gross profit increased 12% to$207.1 million , compared with$184.1 million for the four quarters endedNovember 30, 2021 . -
Operating income for the first quarter of fiscal 2023 increased 15%, or
$0.8 million , to$6.4 million compared with$5.5 million in the first quarter of fiscal 2022. Rolling four quarter income from operations increased 77%, or$10.7 million , to$24.5 million compared with$13.8 million for the corresponding period of the prior year. -
Adjusted EBITDA for the first quarter of fiscal 2023 increased 16% to
$11.5 million compared with$9.9 million in fiscal 2022. On a constant currency basis, the Company’s first quarter Adjusted EBITDA increased 23% to$12.2 million . Rolling four-quarter Adjusted EBITDA increased 28% to$43.7 million compared with$34.2 million for the four quarters endedNovember 30, 2021 . -
With
$58.2 million of cash and$15 million available on its revolving line of credit, the Company’s liquidity totaled more than$73 million atNovember 30, 2022 .
Walker continued, “Three key factors are continuing to drive and enable our strong business model. First, the importance of the must-win opportunities that we help our clients address. The must-win challenges and opportunities that we help our clients address all require the collective action of large numbers of people. These challenges and opportunities are very durable in both good and more difficult times. Second, is the effectiveness of our solutions in helping clients successfully address these challenges. Our offerings include best-in-class content, effective technology which enables us to deliver our content with impact and at scale, and metrics that our clients can use to evaluate the impact of our solutions in moving behavior. Third, the strength and reach of our worldwide client-facing organization in acquiring, serving, retaining, and expanding client relationships. We believe these factors were key to our strong first quarter and latest twelve months’ performance, and will continue to be important to our growth during the remainder of fiscal 2023 and in future periods.”
First Quarter Financial Overview
The following is a summary of financial results for the first quarter of fiscal 2023:
-
Net Sales : Consolidated sales for the quarter endedNovember 30, 2022 increased 13% to$69.4 million , compared with$61.3 million in the first quarter of fiscal 2022. Excluding the unfavorable impact of foreign exchange rates during the quarter, the Company’s sales increased 17% to$71.4 million . The Company continues to be pleased with the performance of the All Access Pass and Leader in Me subscription-based services, which drove strong growth during fiscal 2022 and provided significant momentum to begin fiscal 2023. For the first quarter of fiscal 2023, Enterprise Division sales grew 11%, or$5.3 million , to$53.4 million compared with$48.1 million in the prior year, despite unfavorable foreign exchange rates, a 10% decrease in sales through the Company’s office inChina , primarily from COVID-related restrictions, and a 6% decrease in sales fromJapan , which was primarily due to post-pandemic economic recovery issues. AAP subscription and subscription services sales increased 20% to$39.6 million , and annual revenue retention remained strong at well above 90%. International licensee revenues continue to improve and increased 9% compared with the prior year, despite the impact of foreign exchange rates, and the impact in certain countries inEastern Europe of the war inUkraine . Education Division sales grew 23%, or$2.7 million , to$14.4 million compared with$11.7 million in fiscal 2022. Education Division sales grew primarily due to increased consulting, coaching, and training days delivered during the quarter, increased Leader in Me subscription revenue, and increased training material sales compared with the prior year. -
Deferred Subscription Revenue and Unbilled Deferred Revenue: At
November 30, 2022 , the Company had$151.6 million of billed and unbilled deferred subscription revenue, a 25%, or$30.5 million increase over the balance atNovember 30, 2021 . This total includes$76.7 million of deferred subscription revenue on the balance sheet, a 13%, or$8.9 million increase compared with deferred subscription revenue atNovember 30, 2021 . AtNovember 30, 2022 , the Company had$74.9 million of unbilled deferred subscription revenue, a 40%, or$21.6 million increase compared with$53.4 million of unbilled deferred revenue atNovember 30, 2021 . Unbilled deferred subscription revenue represents business (typically multi-year contracts) that is contracted but unbilled, and excluded from the Company’s balance sheet. -
Gross profit: Gross profit for the first quarter of fiscal 2023 increased 11% to
$52.7 million , compared with$47.6 million in fiscal 2022. The Company’s gross margin for the quarter endedNovember 30, 2022 remained strong at 76.0% compared with 77.7% in the prior year, and reflected changes in the overall mix of services and products sold during the quarter. -
Operating Expenses: The Company’s operating expenses for the quarter ended
November 30, 2022 increased$4.3 million compared with the first quarter of fiscal 2022, which was primarily due to a$4.7 million increase in selling, general, and administrative (SG&A) expenses. Despite the increase in SG&A expenses, as a percent of sales, the Company’s SG&A expenses in the first quarter of fiscal 2023 decreased to 63.4% compared with 64.2% in the prior year. The Company’s SG&A expenses increased primarily due to increased associate costs resulting from new personnel and increased salaries; increased commissions on higher sales; and increased travel expense. -
Operating Income: As a result of increased sales and a strong gross margin, the Company’s income from operations for the quarter ended
November 30, 2022 improved 15% to$6.4 million , compared with$5.5 million in the first quarter of fiscal 2022.
-
Net Income: As a result of the factors described above, the Company’s first quarter net income increased 22%, or
$0.9 million , to$4.7 million , or$0.32 per diluted share, compared with$3.8 million , or$0.27 per diluted share, in the first quarter of fiscal 2022. -
Adjusted EBITDA: Adjusted EBITDA for the quarter ended
November 30, 2022 improved 16% to$11.5 million compared with$9.9 million in the first quarter of fiscal 2022, reflecting increased sales and continued strong gross margins as previously described. -
Liquidity and Financial Position: The Company’s liquidity and financial position remained strong with more than
$73 million of liquidity atNovember 30, 2022 , which was comprised of$58.2 million of cash atNovember 30, 2022 , and no borrowings on its$15.0 million line of credit, compared with$60.5 million of cash with no borrowings on its line of credit atAugust 31, 2022 .
Fiscal 2023 Guidance
Driven by the continued strength and strategic durability of its All Access Pass and Leader in Me membership subscriptions, which have driven accelerated growth over the past years, and continuing strong performance through the first quarter of fiscal 2023, the Company affirms its previous guidance that Adjusted EBITDA for fiscal 2023 will increase to between
Earnings Conference Call
On
Investor Event
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; expectations regarding the economic recovery from the pandemic; renewals of subscription contracts; the impact of deferred revenues on future financial results; impacts from global economic and supply chain disruptions; market acceptance of new products or services, including new AAP portal upgrades; inflation; 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 concepts of adjusted earnings before interest, income taxes, depreciation, and amortization (Adjusted EBITDA) and “constant currency,” which are non-GAAP measures. The Company defines Adjusted EBITDA as net income excluding the impact of interest, 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. Constant currency is a non-GAAP financial measure that removes the impact of fluctuations in foreign currency exchange rates and is calculated by translating the current period’s financial results at the same average exchange rates in effect during the prior year and then comparing this amount to the prior year. The Company references these non-GAAP financial measures in its decision making because they provide supplemental information that facilitates consistent internal comparisons to the historical operating performance of prior periods and the Company believes they provide investors with greater transparency to evaluate operational activities and financial results. Refer to the attached table for the reconciliation of the non-GAAP financial measure, Adjusted EBITDA, to consolidated net income, 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
This approach to leadership and organizational change has been tested and refined by working with tens of thousands of teams and organizations over the past 30 years. Clients have included organizations in the Fortune 100, Fortune 500, and thousands of small- and mid-sized businesses, numerous governmental entities, and educational institutions. To learn more, visit www.franklincovey.com, and enjoy exclusive content from Franklin Covey’s social media channels at: LinkedIn, Facebook, Twitter, Instagram, and YouTube.
Condensed Consolidated Income Statements | |||||||
(in thousands, except per-share amounts, and unaudited) | |||||||
Quarter Ended | |||||||
|
|
|
|||||
|
2022 |
|
|
|
2021 |
|
|
Net sales |
$ |
69,369 |
|
$ |
61,259 |
|
|
Cost of sales |
|
16,627 |
|
|
13,661 |
|
|
Gross profit |
|
52,742 |
|
|
47,598 |
|
|
Selling, general, and administrative |
|
44,012 |
|
|
39,343 |
|
|
Depreciation |
|
1,246 |
|
|
1,279 |
|
|
Amortization |
|
1,092 |
|
|
1,431 |
|
|
Income from operations |
|
6,392 |
|
|
5,545 |
|
|
Interest expense, net |
|
(329 |
) |
|
(431 |
) |
|
Income before income taxes |
|
6,063 |
|
|
5,114 |
|
|
Income tax provision |
|
(1,396 |
) |
|
(1,302 |
) |
|
Net income |
$ |
4,667 |
|
$ |
3,812 |
|
|
Net income per share: | |||||||
Basic |
$ |
0.34 |
|
$ |
0.27 |
|
|
Diluted |
|
0.32 |
|
|
0.27 |
|
|
Weighted average common shares: | |||||||
Basic |
|
13,877 |
|
|
14,246 |
|
|
Diluted |
|
14,507 |
|
|
14,312 |
|
|
Other data: | |||||||
Adjusted EBITDA(1) |
$ |
11,472 |
|
$ |
9,932 |
|
(1) |
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 measure, refer to the Reconciliation of Net Income to Adjusted EBITDA as shown below. |
|
Reconciliation of Net Income to Adjusted EBITDA | |||||||
(in thousands and unaudited) | |||||||
Quarter Ended | |||||||
|
2022 |
|
|
2021 |
|
||
Reconciliation of net income to Adjusted EBITDA: | |||||||
Net income |
$ |
4,667 |
|
$ |
3,812 |
|
|
Adjustments: | |||||||
Interest expense, net |
|
329 |
|
|
431 |
|
|
Income tax provision |
|
1,396 |
|
|
1,302 |
|
|
Amortization |
|
1,092 |
|
|
1,431 |
|
|
Depreciation |
|
1,246 |
|
|
1,279 |
|
|
Stock-based compensation |
|
2,735 |
|
|
1,649 |
|
|
Increase in the fair value of contingent consideration liabilities |
|
7 |
|
|
28 |
|
|
Adjusted EBITDA |
$ |
11,472 |
|
$ |
9,932 |
|
|
Adjusted EBITDA margin |
|
16.5 |
% |
|
16.2 |
% |
|
Additional Financial Information | |||||||
(in thousands and unaudited) | |||||||
Quarter Ended | |||||||
|
|
|
|||||
|
2022 |
|
|
|
2021 |
|
|
Sales by Division/Segment: | |||||||
Enterprise Division: | |||||||
Direct offices |
$ |
50,167 |
|
$ |
45,119 |
|
|
International licensees |
|
3,278 |
|
|
2,997 |
|
|
|
53,445 |
|
|
48,116 |
|
||
Education Division |
|
14,350 |
|
|
11,697 |
|
|
Corporate and other |
|
1,574 |
|
|
1,446 |
|
|
Consolidated |
$ |
69,369 |
|
$ |
61,259 |
|
|
Gross Profit by Division/Segment: | |||||||
Enterprise Division: | |||||||
Direct offices |
$ |
39,921 |
|
$ |
36,202 |
|
|
International licensees |
|
2,977 |
|
|
2,701 |
|
|
|
42,898 |
|
|
38,903 |
|
||
Education Division |
|
9,175 |
|
|
7,860 |
|
|
Corporate and other |
|
669 |
|
|
835 |
|
|
Consolidated |
$ |
52,742 |
|
$ |
47,598 |
|
|
Adjusted EBITDA by Division/Segment: | |||||||
Enterprise Division: | |||||||
Direct offices |
$ |
11,250 |
|
$ |
9,954 |
|
|
International licensees |
|
1,831 |
|
|
1,671 |
|
|
|
13,081 |
|
|
11,625 |
|
||
Education Division |
|
281 |
|
|
235 |
|
|
Corporate and other |
|
(1,890 |
) |
|
(1,928 |
) |
|
Consolidated |
$ |
11,472 |
|
$ |
9,932 |
|
|
Condensed Consolidated Balance Sheets | |||||||
(in thousands and unaudited) | |||||||
|
|
|
|||||
|
2022 |
|
|
|
2022 |
|
|
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents |
$ |
58,152 |
|
$ |
60,517 |
|
|
Accounts receivable, less allowance for doubtful accounts of |
|
57,352 |
|
|
72,561 |
|
|
Inventories |
|
3,477 |
|
|
3,527 |
|
|
Prepaid expenses and other current assets |
|
17,364 |
|
|
19,278 |
|
|
Total current assets |
|
136,345 |
|
|
155,883 |
|
|
Property and equipment, net |
|
9,465 |
|
|
9,798 |
|
|
Intangible assets, net |
|
43,742 |
|
|
44,833 |
|
|
|
31,220 |
|
|
31,220 |
|
||
Deferred income tax assets |
|
4,279 |
|
|
4,686 |
|
|
Other long-term assets |
|
12,378 |
|
|
12,735 |
|
|
$ |
237,429 |
|
$ |
259,155 |
|
||
Liabilities and Shareholders' Equity | |||||||
Current liabilities: | |||||||
Current portion of notes payable |
$ |
5,835 |
|
$ |
5,835 |
|
|
Current portion of financing obligation |
|
3,281 |
|
|
3,199 |
|
|
Accounts payable |
|
6,878 |
|
|
10,864 |
|
|
Deferred subscription revenue |
|
74,394 |
|
|
85,543 |
|
|
Other deferred revenue |
|
13,906 |
|
|
14,150 |
|
|
Accrued liabilities |
|
23,380 |
|
|
34,205 |
|
|
Total current liabilities |
|
127,674 |
|
|
153,796 |
|
|
Notes payable, less current portion |
|
6,045 |
|
|
7,268 |
|
|
Financing obligation, less current portion |
|
7,105 |
|
|
7,962 |
|
|
Other liabilities |
|
6,788 |
|
|
7,116 |
|
|
Deferred income tax liabilities |
|
199 |
|
|
199 |
|
|
Total liabilities |
|
147,811 |
|
|
176,341 |
|
|
Shareholders' equity: | |||||||
Common stock |
|
1,353 |
|
|
1,353 |
|
|
Additional paid-in capital |
|
222,413 |
|
|
220,246 |
|
|
Retained earnings |
|
86,688 |
|
|
82,021 |
|
|
Accumulated other comprehensive loss |
|
(672 |
) |
|
(542 |
) |
|
|
(220,164 |
) |
|
(220,264 |
) |
||
Total shareholders' equity |
|
89,618 |
|
|
82,814 |
|
|
$ |
237,429 |
|
$ |
259,155 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20230105005851/en/
Investor Contact:
801-817-5127
investor.relations@franklincovey.com
Media Contact:
801-817-6440
Debra.Lund@franklincovey.com
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