Franklin Covey Reports Strong Fiscal 2019 Third Quarter Financial Results
Sales of
Subscription and Related Sales Increased 27% Year-Over-Year
Results of Operations Improved by
Adjusted EBITDA of
Operating Cash Flows Increased 117% to
Whitman concluded, “We are pleased with the strong performance in our Enterprise Division. With the aggressive expansion of our sales force, and the anticipated strength in Education Division operations, especially in the fourth quarter of fiscal 2019, we believe
Financial Overview
- Net Sales: Consolidated revenue for the third quarter of fiscal 2019 increased 11%, or
$5.5 million , to$56.0 million compared with net sales of$50.5 million in the third quarter of fiscal 2018. Excluding the impact of foreign exchange, the Company’s consolidated sales grew 12% compared with the prior year. Sales increases were generally broad-based across the Company’s operations. Enterprise Division sales increased 9% to$43.4 million compared with$39.9 million in last year’s third quarter. Excluding the impact of foreign exchange, Enterprise Division sales grew 10% compared with the prior year. Enterprise Division sales increased through broad-based growth in both domestic and international sales offices from subscription services and from increased onsite presentations. The previous acquisition of the licensee that servedGermany ,Switzerland , andAustria (GSA) added$0.6 million of new international direct offices revenue during the quarter and is expected to provide significant future growth opportunities. Education Division revenues increased 20% to$11.1 million compared with$9.2 million in the third quarter of fiscal 2018, primarily due to increased subscription service revenues and increased symposium events. - Adoption of ASC 606: On
September 1, 2018 , the Company adopted the new revenue recognition rules found in Accounting Standards Codification (ASC) Topic 606. The adoption of this standard decreased reported sales by$0.2 million , primarily in the Education Division, and increased the loss from operations by$0.2 million during the quarter endedMay 31, 2019 . The financial statement results referenced in this press release include the impact of the adoption of ASC Topic 606. - Deferred Subscription Revenue and Unbilled Deferred Revenue: At
May 31, 2019 , the Company had$63.7 million of billed and unbilled deferred subscription revenue, a$14.1 million , or 28% increase, overMay 31, 2018 . The Company’s balance of deferred subscription revenue (billed) grew 16% in the third quarter to$39.9 million compared with the end of last year’s third quarter. The Company’s balance of unbilled deferred subscription revenue increased to$23.7 million atMay 31, 2019 , which represents a 58% increase over unbilled deferred revenue atMay 31, 2018 . Unbilled deferred revenue represents business that is contracted but unbilled and excluded from the Company’s balance sheet. - Gross profit: Third quarter 2019 gross profit increased 14% to
$39.7 million compared with$34.9 million in the prior year. The increase in gross profit was primarily due to increased sales as described above. The Company’s gross margin for the quarter endedMay 31, 2019 increased to 70.8% compared with 69.2% in the third quarter of fiscal 2018. - Operating Expenses: The Company’s selling, general, and administrative (SG&A) expenses for the quarter increased by
$3.8 million compared with the prior year but remained flat as a percent of sales. Increased SG&A expense was primarily related to increased associate costs resulting from increased commissions and increased bonuses on higher sales, a$0.9 million increase in the contingent consideration liability from a previous business acquisition, increased non-cash stock-based compensation expense, and the addition of GSA personnel, who were formerly employed by an unrelated licensee. - Operating Income (Loss): The Company reported a loss from operations for the third quarter, but its loss improved by
$0.7 million to $(1.9) million compared with$(2.6) million in the third quarter of the prior year. Excluding the impact of foreign exchange, the Company’s operating loss improved by$1.0 million compared with the third quarter of the prior year. - Adjusted EBITDA: Adjusted EBITDA for the third quarter improved
$2.5 million to $3.1 million , compared with$0.6 million in the third quarter of fiscal 2018. In constant currency, Adjusted EBITDA in the third quarter improved$2.8 million compared with the third quarter of fiscal 2018. - Income Taxes: The lower tax benefit rate in the third quarter of fiscal 2019 was primarily due to changes resulting from the 2017 Tax Act, and included a reduced U.S. statutory rate, tax expense from Global Intangible Low-taxed Income, nondeductible expenses, and effective foreign tax rates which were significantly higher than the U.S. federal statutory rate.
- Net Income (Loss): The Company reported a third quarter 2019 net loss of
$(2.0) million compared with a net loss of$(2.5) million in the third quarter of fiscal 2018, reflecting the sharply reduced income tax benefit described above. - Cash Flows from Operating Activities: The Company’s cash flows from operating activities increased 117% to
$18.6 million through the first three quarters of fiscal 2019, compared with$8.6 million through the first three quarters of fiscal 2018. - Cash and Liquidity Remain Strong: The Company’s balance sheet and liquidity position remained strong with
$10.9 million of cash atMay 31, 2019 , compared with$10.2 million atAugust 31, 2018 . AtMay 31, 2019 , the Company had$25.9 million of available borrowing on its revolving line of credit facility.
Fiscal 2019 Outlook
The Company reaffirms its previously announced Adjusted EBITDA guidance for fiscal 2019, which is expected to be in the range of
Fiscal 2019 Year-to-Date Financial Results
Consolidated revenue for the first three quarters of fiscal 2019 increased 11%, or
Selling, general, and administrative expenses for the first three quarters of fiscal 2019 increased
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 and growth in deferred revenues in fiscal 2019; expected growth and profitability of the subscription-based business model; expected growth and profitability of the Education Division; and other 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; 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
Refer to the attached table for the reconciliation of a non-GAAP financial measure, “Adjusted EBITDA,” to consolidated net loss, the most comparable GAAP financial measure. The Company defines Adjusted EBITDA as net income or loss excluding the impact of interest expense, income taxes, 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. 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 estimate 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 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 |
Three Quarters Ended |
|||||||||||||||
May 31, |
May 31, |
May 31, |
May 31, |
|||||||||||||
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||||||
Net sales |
$ |
56,006 |
|
$ |
50,461 |
|
$ |
160,191 |
|
$ |
144,939 |
|
||||
Cost of sales |
|
16,342 |
|
|
15,545 |
|
|
48,379 |
|
|
44,411 |
|
||||
Gross profit |
|
39,664 |
|
|
34,916 |
|
|
111,812 |
|
|
100,528 |
|
||||
Selling, general, and administrative |
|
38,713 |
|
|
34,910 |
|
|
109,282 |
|
|
103,830 |
|
||||
Depreciation |
|
1,556 |
|
|
1,267 |
|
|
4,806 |
|
|
3,547 |
|
||||
Amortization |
|
1,259 |
|
|
1,326 |
|
|
3,797 |
|
|
4,117 |
|
||||
Loss from operations |
|
(1,864 |
) |
|
(2,587 |
) |
|
(6,073 |
) |
|
(10,966 |
) |
||||
Interest expense, net |
|
(554 |
) |
|
(501 |
) |
|
(1,529 |
) |
|
(1,627 |
) |
||||
Loss before income taxes |
|
(2,418 |
) |
|
(3,088 |
) |
|
(7,602 |
) |
|
(12,593 |
) |
||||
Income tax benefit |
|
394 |
|
|
554 |
|
|
704 |
|
|
4,927 |
|
||||
Net loss |
$ |
(2,024 |
) |
$ |
(2,534 |
) |
$ |
(6,898 |
) |
$ |
(7,666 |
) |
||||
Net loss per common share: | ||||||||||||||||
Basic and diluted |
$ |
(0.14 |
) |
$ |
(0.18 |
) |
$ |
(0.49 |
) |
$ |
(0.55 |
) |
||||
Weighted average common shares: | ||||||||||||||||
Basic and diluted |
|
13,963 |
|
|
13,896 |
|
|
13,939 |
|
|
13,829 |
|
||||
Other data: | ||||||||||||||||
Adjusted EBITDA(1) |
$ |
3,071 |
|
$ |
588 |
|
$ |
7,203 |
|
$ |
524 |
|
(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 Loss to Adjusted EBITDA as shown below. |
FRANKLIN COVEY CO. |
|||||||||||||||||||
Reconciliation of Net Loss to Adjusted EBITDA | |||||||||||||||||||
(in thousands and unaudited) | |||||||||||||||||||
Quarter Ended | Three Quarters Ended | ||||||||||||||||||
May 31, | May 31, | May 31, | May 31, | ||||||||||||||||
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||||||
Reconciliation of net loss to Adjusted EBITDA: | |||||||||||||||||||
Net loss |
$ |
(2,024 |
) |
$ |
(2,534 |
) |
$ |
(6,898 |
) |
$ |
(7,666 |
) |
|||||||
Adjustments: | |||||||||||||||||||
Interest expense, net |
|
554 |
|
|
501 |
|
|
1,529 |
|
|
1,627 |
|
|||||||
Income tax benefit |
|
(394 |
) |
|
(554 |
) |
|
(704 |
) |
|
(4,927 |
) |
|||||||
Amortization |
|
1,259 |
|
|
1,326 |
|
|
3,797 |
|
|
4,117 |
|
|||||||
Depreciation |
|
1,556 |
|
|
1,267 |
|
|
4,806 |
|
|
3,547 |
|
|||||||
Stock-based compensation |
|
1,051 |
|
|
446 |
|
|
3,040 |
|
|
2,182 |
|
|||||||
Increase in contingent consideration liabilities |
|
1,069 |
|
|
136 |
|
|
1,145 |
|
|
789 |
|
|||||||
Licensee transition costs |
|
- |
|
|
- |
|
|
488 |
|
|
- |
|
|||||||
ERP implementation costs |
|
- |
|
|
- |
|
|
- |
|
|
855 |
|
|||||||
Adjusted EBITDA |
$ |
3,071 |
|
$ |
588 |
|
$ |
7,203 |
|
$ |
524 |
|
|||||||
Adjusted EBITDA margin |
5.5 |
% |
|
1.2 |
% |
|
4.5 |
% |
|
0.4 |
% |
||||||||
FRANKLIN COVEY CO. | |||||||||||||||||||
Additional Financial Information | |||||||||||||||||||
(in thousands and unaudited) | |||||||||||||||||||
Quarter Ended | Three Quarters Ended | ||||||||||||||||||
May 31, | May 31, | May 31, | May 31, | ||||||||||||||||
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||||||
Sales by Division/Segment: | |||||||||||||||||||
Enterprise Division: | |||||||||||||||||||
Direct offices |
$ |
40,387 |
|
$ |
36,331 |
|
$ |
115,271 |
|
$ |
103,802 |
|
|||||||
International licensees |
|
3,014 |
|
|
3,543 |
|
|
9,598 |
|
|
9,909 |
|
|||||||
|
43,401 |
|
|
39,874 |
|
|
124,869 |
|
|
113,711 |
|
||||||||
Education Division |
|
11,088 |
|
|
9,235 |
|
|
31,132 |
|
|
27,418 |
|
|||||||
Corporate and other |
|
1,517 |
|
|
1,352 |
|
|
4,190 |
|
|
3,810 |
|
|||||||
Consolidated |
$ |
56,006 |
|
$ |
50,461 |
|
$ |
160,191 |
|
$ |
144,939 |
|
|||||||
Gross Profit by Division/Segment: | |||||||||||||||||||
Enterprise Division: | |||||||||||||||||||
Direct offices |
$ |
29,836 |
|
$ |
26,444 |
|
$ |
84,200 |
|
$ |
75,886 |
|
|||||||
International licensees |
|
2,432 |
|
|
2,735 |
|
|
7,515 |
|
|
7,601 |
|
|||||||
|
32,268 |
|
|
29,179 |
|
|
91,715 |
|
|
83,487 |
|
||||||||
Education Division |
|
6,846 |
|
|
5,501 |
|
|
18,668 |
|
|
16,094 |
|
|||||||
Corporate and other |
|
550 |
|
|
236 |
|
|
1,429 |
|
|
947 |
|
|||||||
Consolidated |
$ |
39,664 |
|
$ |
34,916 |
|
$ |
111,812 |
|
$ |
100,528 |
|
|||||||
Adjusted EBITDA by Division/Segment: | |||||||||||||||||||
Enterprise Division: | |||||||||||||||||||
Direct offices |
$ |
4,520 |
|
$ |
2,190 |
|
$ |
10,703 |
|
$ |
5,913 |
|
|||||||
International licensees |
|
1,281 |
|
|
1,651 |
|
|
4,127 |
|
|
4,222 |
|
|||||||
|
5,801 |
|
|
3,841 |
|
|
14,830 |
|
|
10,135 |
|
||||||||
Education Division |
|
(181 |
) |
|
(901 |
) |
|
(1,355 |
) |
|
(2,894 |
) |
|||||||
Corporate and other |
|
(2,549 |
) |
|
(2,352 |
) |
|
(6,272 |
) |
|
(6,717 |
) |
|||||||
Consolidated |
$ |
3,071 |
|
$ |
588 |
|
$ |
7,203 |
|
$ |
524 |
|
|||||||
FRANKLIN COVEY CO. | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(in thousands and unaudited) | ||||||||
May 31, | August 31, | |||||||
2019 |
2018 |
|||||||
Assets | ||||||||
Current assets: | ||||||||
Cash |
$ |
10,858 |
|
$ |
10,153 |
|
||
Accounts receivable, less allowance for | ||||||||
doubtful accounts of $4,170 and $3,555 |
|
52,113 |
|
|
71,914 |
|
||
Inventories |
|
3,072 |
|
|
3,160 |
|
||
Income taxes receivable |
|
- |
|
|
179 |
|
||
Prepaid expenses and other current assets |
|
13,016 |
|
|
14,757 |
|
||
Total current assets |
|
79,059 |
|
|
100,163 |
|
||
Property and equipment, net |
|
19,171 |
|
|
21,401 |
|
||
Intangible assets, net |
|
48,873 |
|
|
51,934 |
|
||
Goodwill |
|
24,220 |
|
|
24,220 |
|
||
Deferred income tax assets |
|
6,455 |
|
|
3,222 |
|
||
Other long-term assets |
|
10,086 |
|
|
12,935 |
|
||
$ |
187,864 |
|
$ |
213,875 |
|
|||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities: | ||||||||
Current portion of term notes payable |
$ |
6,563 |
|
$ |
10,313 |
|
||
Current portion of financing obligation |
|
2,273 |
|
|
2,092 |
|
||
Accounts payable |
|
7,428 |
|
|
9,790 |
|
||
Income taxes payable |
|
415 |
|
|
- |
|
||
Deferred revenue |
|
45,168 |
|
|
51,888 |
|
||
Accrued liabilities |
|
20,505 |
|
|
20,761 |
|
||
Total current liabilities |
|
82,352 |
|
|
94,844 |
|
||
Line of credit |
|
4,123 |
|
|
11,337 |
|
||
Term notes payable, less current portion |
|
1,562 |
|
|
2,500 |
|
||
Financing obligation, less current portion |
|
17,258 |
|
|
18,983 |
|
||
Other liabilities |
|
8,193 |
|
|
5,501 |
|
||
Deferred income tax liabilities |
|
210 |
|
|
210 |
|
||
Total liabilities |
|
113,698 |
|
|
133,375 |
|
||
Shareholders' equity: | ||||||||
Common stock |
|
1,353 |
|
|
1,353 |
|
||
Additional paid-in capital |
|
214,092 |
|
|
211,280 |
|
||
Retained earnings |
|
53,528 |
|
|
63,569 |
|
||
Accumulated other comprehensive income |
|
326 |
|
|
341 |
|
||
Treasury stock at cost, 13,097 and 13,159 shares |
|
(195,133 |
) |
|
(196,043 |
) |
||
Total shareholders' equity |
|
74,166 |
|
|
80,500 |
|
||
$ |
187,864 |
|
$ |
213,875 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20190627005853/en/
Source:
Investor Contact:
Franklin Covey
Steve Young
801-817-1776
investor.relations@franklincovey.com
Media Contact:
Franklin Covey
Debra Lund
801-817-6440
Debra.Lund@franklincovey.com