Franklin Covey Announces Strong Start to Fiscal 2019
Net Sales in the First Fiscal Quarter Increase 12%, or
Gross Profit Increases 12%, or
Results of Operations Improve by
Cash Flows from Operating Activities Increase 248%, or
Introduction
The Company’s transition to a subscription-based model in the Enterprise
Division (comprised of the Direct Office and International Licensee
segments) continued the strong momentum generated in fiscal 2018 in the
first quarter of fiscal 2019. Following the launch of the All Access
Pass (AAP) in fiscal 2016, the Company began a major transition in its
business model and its interaction with clients. Previously,
Whitman continued, “Our first quarter fiscal 2019 performance in the
Enterprise Division, which makes up nearly 80% of our total revenues,
was very encouraging with sales growing 12% to
Financial Overview
The following is a summary of key financial results for the quarter
ended
-
Net Sales: Consolidated revenue for the
first quarter of fiscal 2019 increased 12% to
$53.8 million , an increase of$5.9 million , compared with net sales of$47.9 million in the first quarter of fiscal 2018. Enterprise Division sales increased 12% to$42.1 million , a$4.6 million increase compared with$37.5 million in last year’s first quarter. Education Division revenues increased 13% to$10.3 million , an increase of$1.2 million , compared with$9.2 million in the first quarter of fiscal 2018. The Company’s sales were favorably impacted by increased direct office revenues, at both domestic and international locations, increased government service sales, increased international licensee revenues, and increased Education practice revenues. In addition, the adoption of Accounting Standards Codification (ASC) 606 had a$1.1 million favorable impact on the Company’s revenues in the Education Division during the quarter as described below. For the last 12 months, net sales grew 12% to$215.7 million , an increase of$22.3 million , compared with$193.4 million for the 12 months endedNovember 30, 2017 . -
Adoption of ASC 606: On
September 1, 2018 , the Company adopted the new revenue recognition rules found in ASC 606. The adoption of this standard increased reported sales by$1.1 million , primarily in the Education Division, and decreased the loss from operations by$1.0 million during the quarter endedNovember 30, 2018 . The financial statement results referenced in this press release include the impact of the adoption of ASC 606. -
Deferred Subscription Revenue and Unbilled
Deferred Revenue: During the first quarter of fiscal 2019, the
Company’s subscription and subscription-related revenue grew 36% to
$27.8 million , an increase of$7.4 million compared with the prior year. AtNovember 30, 2018 , the Company had$65.8 million of billed and unbilled deferred subscription revenue, an increase of$18.1 million , or 38%, compared with$47.7 million at the end of last year’s first quarter. The Company’s balance of billed deferred subscription revenue grew 32% in the first quarter to$41.4 million , an increase of$9.9 million compared with$31.4 million at the end of last year’s first quarter. The Company’s balance of unbilled deferred subscription revenue increased 50% in the first quarter of fiscal 2019 to$24.4 million , an increase of$8.2 million , compared with$16.3 million at the end of last year’s first quarter. Unbilled deferred revenue represents business that is contracted but unbilled and excluded from the Company’s balance sheet. -
Gross profit: First quarter 2019 gross
profit increased 12%, or
$3.9 million , to$36.8 million compared with$32.9 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 endedNovember 30, 2018 remained strong at 68.3 percent of sales compared with 68.6 percent in the first quarter of fiscal 2018. -
Operating Expenses: The Company’s
operating expenses in the first quarter of fiscal 2019 increased by
$1.3 million compared with the prior year, which was primarily due to a$0.8 million increase in selling, general, and administrative (SG&A) expenses, and a$0.7 million increase in depreciation expense. However, the Company’s SG&A expenses as a percent of net sales, decreased to 64.4% in the first quarter of fiscal 2019, compared with 70.6% in the first quarter of the prior year. Increased SG&A expenses were primarily related to increased associate costs resulting from increased commissions on higher sales and continued investments in new sales and sales related personnel. Increased depreciation expense was primarily due to addition of capital assets in fiscal 2018, including a new ERP system and a significantly enhanced AAP portal. -
Operating Income (Loss): The Company
reported a loss from operations for the first quarter, but its loss
improved by
$2.6 million to $(0.7) million compared with$(3.3) million in the first quarter of the prior year. -
Adjusted EBITDA: Adjusted EBITDA for the
first quarter increased 426%, or
$2.6 million , to$3.2 million , compared with$0.6 million in the first quarter of fiscal 2018. For the last 12 months, Adjusted EBITDA increased 30% to$14.4 million , compared with$11.1 million for the corresponding trailing 12 months of the prior year. - Income Taxes: The lower tax benefit rate in the first quarter of fiscal 2019 was primarily due to a reduced U.S. statutory rate of 21 percent compared with a statutory rate of 35 percent in the first quarter of fiscal 2018, 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
first quarter 2019 net loss of
$(1.4) million compared with a net loss of$(2.4) million in the first quarter of fiscal 2018, reflecting the above-noted factors. -
Cash Flows from Operating Activities: The
Company’s cash flows from operating activities increased 248%, or
$5.8 million , to$8.1 million for the first quarter of fiscal 2019, compared with$2.3 million through the first quarter of fiscal 2018. -
Cash and Liquidity Remain Strong: The
Company’s balance sheet and liquidity position remained strong with
$11.1 million of cash atNovember 30, 2018 , compared with$10.2 million atAugust 31, 2018 . AtNovember 30, 2018 , the Company had$21.5 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
$18 million to $22 million , excluding the impact of foreign exchange, compared with$11.9 million in fiscal 2018.
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 tax expense, amortization, depreciation, stock-based compensation expense, and certain other items such as adjustments to the fair value of expected contingent consideration 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. 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 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 30, | November 30, | |||||||
| 2018 | 2017 | |||||||
| Net sales | $ | 53,829 | $ | 47,932 | ||||
| Cost of sales | 17,046 | 15,064 | ||||||
| Gross profit | 36,783 | 32,868 | ||||||
| Selling, general, and administrative | 34,644 | 33,824 | ||||||
| Depreciation | 1,554 | 901 | ||||||
| Amortization | 1,238 | 1,395 | ||||||
| Loss from operations | (653 | ) | (3,252 | ) | ||||
| Interest expense, net | (604 | ) | (488 | ) | ||||
| Loss before income taxes | (1,257 | ) | (3,740 | ) | ||||
| Income tax benefit (provision) | (100 | ) | 1,348 | |||||
| Net loss | $ | (1,357 | ) | $ | (2,392 | ) | ||
| Net loss per common share: | ||||||||
| Basic and diluted | $ | (0.10 | ) | $ | (0.17 | ) | ||
| Weighted average common shares: | ||||||||
| Basic and diluted | 13,917 | 13,725 | ||||||
| Other data: | ||||||||
| Adjusted EBITDA(1) | $ | 3,169 | $ | 602 | ||||
| (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 | ||||||||
| November 30, | November 30, | |||||||
| 2018 | 2017 | |||||||
| Reconciliation of net loss to Adjusted EBITDA: | ||||||||
| Net loss | $ | (1,357 | ) | $ | (2,392 | ) | ||
| Adjustments: | ||||||||
| Interest expense, net | 604 | 488 | ||||||
| Income tax provision (benefit) | 100 | (1,348 | ) | |||||
| Amortization | 1,238 | 1,395 | ||||||
| Depreciation | 1,554 | 901 | ||||||
| Stock-based compensation | 946 | 956 | ||||||
| Increase in contingent consideration liabilities | 24 | 176 | ||||||
| Licensee transition costs | 60 | - | ||||||
| ERP implementation costs | - | 426 | ||||||
| Adjusted EBITDA | $ | 3,169 | $ | 602 | ||||
| Adjusted EBITDA margin | 5.9 | % | 1.3 | % | ||||
|
FRANKLIN COVEY CO. |
||||||||
|
Additional Financial Information |
||||||||
| (in thousands and unaudited) | ||||||||
| Quarter Ended | ||||||||
| November 30, | November 30, | |||||||
| 2018 | 2017 | |||||||
| Sales by Division/Segment: | ||||||||
| Enterprise Division: | ||||||||
| Direct offices | $ | 38,471 | $ | 34,197 | ||||
| International licensees | 3,677 | 3,320 | ||||||
| 42,148 | 37,517 | |||||||
| Education Division | 10,347 | 9,176 | ||||||
| Corporate and other | 1,334 | 1,239 | ||||||
| Consolidated | $ | 53,829 | $ | 47,932 | ||||
| Gross Profit by Division/Segment: | ||||||||
| Enterprise Division: | ||||||||
| Direct offices | $ | 27,082 | $ | 24,561 | ||||
| International licensees | 2,854 | 2,503 | ||||||
| 29,936 | 27,064 | |||||||
| Education Division | 6,389 | 5,430 | ||||||
| Corporate and other | 458 | 374 | ||||||
| Consolidated | $ | 36,783 | $ | 32,868 | ||||
| Adjusted EBITDA by Division/Segment: | ||||||||
| Enterprise Division: | ||||||||
| Direct offices | $ | 4,111 | $ | 3,078 | ||||
| International licensees | 1,683 | 1,412 | ||||||
| 5,794 | 4,490 | |||||||
| Education Division | (18 | ) | (670 | ) | ||||
| Corporate and other | (2,607 | ) | (3,218 | ) | ||||
| Consolidated | $ | 3,169 | $ | 602 | ||||
|
FRANKLIN COVEY CO. |
||||||||
|
Condensed Consolidated Balance Sheets |
||||||||
| (in thousands and unaudited) | ||||||||
| November 30, | August 31, | |||||||
| 2018 | 2018 | |||||||
|
Assets |
||||||||
| Current assets: | ||||||||
| Cash | $ | 11,085 | $ | 10,153 | ||||
|
Accounts receivable, less allowance for doubtful accounts of $3,929 and $3,555 |
55,646 | 71,914 | ||||||
| Inventories | 2,920 | 3,160 | ||||||
| Income taxes receivable | - | 179 | ||||||
| Prepaid expenses and other current assets | 13,841 | 14,757 | ||||||
| Total current assets | 83,492 | 100,163 | ||||||
| Property and equipment, net | 20,691 | 21,401 | ||||||
| Intangible assets, net | 50,701 | 51,934 | ||||||
| Goodwill | 24,220 | 24,220 | ||||||
| Deferred income tax assets | 4,877 | 3,222 | ||||||
| Other long-term assets | 12,343 | 12,935 | ||||||
| $ | 196,324 | $ | 213,875 | |||||
|
Liabilities and Shareholders' Equity |
||||||||
| Current liabilities: | ||||||||
| Current portion of term notes payable | $ | 9,063 | $ | 10,313 | ||||
| Current portion of financing obligation | 2,151 | 2,092 | ||||||
| Accounts payable | 7,685 | 9,790 | ||||||
| Income taxes payable | 325 | - | ||||||
| Deferred revenue | 46,221 | 51,888 | ||||||
| Accrued liabilities | 16,948 | 20,761 | ||||||
| Total current liabilities | 82,393 | 94,844 | ||||||
| Line of credit | 8,508 | 11,337 | ||||||
| Term notes payable, less current portion | 2,187 | 2,500 | ||||||
| Financing obligation, less current portion | 18,419 | 18,983 | ||||||
| Other liabilities | 7,747 | 5,501 | ||||||
| Deferred income tax liabilities | 210 | 210 | ||||||
| Total liabilities | 119,464 | 133,375 | ||||||
| Shareholders' equity: | ||||||||
| Common stock | 1,353 | 1,353 | ||||||
| Additional paid-in capital | 212,290 | 211,280 | ||||||
| Retained earnings | 59,069 | 63,569 | ||||||
| Accumulated other comprehensive income | 32 | 341 | ||||||
| Treasury stock at cost, 13,148 and 13,159 shares | (195,884 | ) | (196,043 | ) | ||||
| Total shareholders' equity | 76,860 | 80,500 | ||||||
| $ | 196,324 | $ | 213,875 | |||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20190109005819/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