Franklin Covey Reports Strong Financial Results to Start Fiscal 2024
Consolidated Sales Exceed Expectations and Total
Subscription and Subscription Services Sales Total a First Quarter Record
Sum of Billed and Unbilled Deferred Subscription Revenue Increases 12% to
First Quarter Cash Flows From Operating Activities Increase to
Company Purchases 408,596 Shares of its Common Stock for $16.3
Liquidity Remains Strong at over
Company Affirms Earnings Guidance for Fiscal 2024
Introduction
The Company’s consolidated sales for the quarter ended
-
Subscription and subscription services sales reached
$54.8 million , a 4% increase over the first quarter of fiscal 2023, a quarter which had very strong subscription and subscription services revenue growth. For the rolling four quarters endedNovember 30, 2023 , subscription and subscription service sales reached a record level of$224.7 million , a$13.6 million , or 6%, increase over the prior year, and rolling two-year growth was a strong$56.7 million , or a 34% increase. -
All Access Pass (AAP) subscription sales grew 13% compared with the first quarter of fiscal 2023 and AAP subscription and subscription services sales grew 5% on top of the 20% growth achieved in last year’s record first quarter. For the rolling four quarters ended
November 30, 2023 , AAP subscription and subscription services sales increased 6% to$160.0 million compared with$151.0 million for the rolling four quarters endedNovember 30, 2022 . During the first quarter of fiscal 2024, AAP subscription revenue retention levels inthe United States andCanada remained strong and were greater than 90%. -
Education Division revenues grew 3% to
$14.7 million in the first quarter of fiscal 2024 primarily due to increased international education royalties and increased membership subscription revenues in the quarter. Education membership subscription revenue increased 6% compared with the prior year primarily due to increased annual membership sales recognized and delivery of contracted coaching and training days from new schools engaged in fiscal 2023. During the first quarter of fiscal 2024, the Education Division delivered nearly 200 more training and coaching days than the prior year, which are recognized as they are delivered. -
Total Company deferred revenue atNovember 30, 2023 increased to$103.3 million compared with$90.8 million atNovember 30, 2022 . The sum of billed and unbilled deferred subscription revenue atNovember 30, 2023 grew 12%, or more than$18 million , to$169.7 million , compared with$151.6 million atNovember 30, 2022 . The Company continues to be pleased with the growth of its multi-year contracts and the overall increase in deferred subscription revenue, which provide a strong base for future sales growth. AtNovember 30, 2023 , 54% of the Company’s All Access Pass contracts are for at least two years, compared with 48% atNovember 30, 2022 , and the percentage of contracted amounts represented by multi-year contracts increased to 60% from 55% in the first quarter of the prior year. -
Lease revenues on the Company’s corporate campus decreased by
$0.5 million as certain tenants’ leases expired in mid-fiscal 2023. The Company is actively seeking new tenants for available space at its corporate campus. -
Cash flows from operating activities increased to
$17.4 million compared with$3.0 million in the first quarter of fiscal 2023. The increase was primarily due to favorable changes in working capital and featured strong collections of accounts receivable.
Walker stated, “The factors that we expect will drive strong growth in the second half of fiscal 2024 include the following: First, the sum of our billed and unbilled deferred subscription revenue on the balance sheet has increased significantly and continues to grow. At the end of our first quarter, the sum of our billed and unbilled subscription revenue was
Walker added, “We expect the improvement in services revenue to be driven by the combination of services delivered to new schools which were contracted late in the fourth quarter of fiscal 2023, by the launches of the refreshed ‘The 7 Habits of Highly Effective People’ and ‘Speed of Trust’ offerings, which are two of our historic blockbuster programs, strengthened further by the launch of our new solution on ‘Difficult Conversations.’ ”
Walker concluded, “Our first quarter results are reflective of the three key strengths we have been building for years. First, is the strength of our strategic position in the marketplace which we believe is unique. We focus on the most important, strategic, and durable position in our industry, specifically, that of helping organizations achieve results that require the collective action of their people, and we do it with a combination of best-in-class content, delivered through a broad range of delivery modalities, and world class coaching and facilitation that is very difficult to replicate. Our second key strength is the power of our revenue generating engine. Our subscription offerings and services continue to show their strength and durability in the marketplace and are key to helping our clients achieve meaningful change within their organizations. The third key strength is that of our powerful business model – a model where the combination of: increasing revenue per client; high revenue and client retention; high operating margins; upfront invoicing; low capital intensity and disciplined reinvestment for growth drives significant amounts of both Adjusted EBITDA and free cash flow. We believe these strengths position us well for a strong fiscal 2024 and for further growth into the future.”
First Quarter 2024 Financial Overview
The following is a summary of the Company’s financial results for the quarter ended
-
Net Sales : The Company’s consolidated sales for the first quarter of fiscal 2024 were essentially even at$68.4 million compared with the first quarter of fiscal 2023. Increased AAP subscription revenue in the first quarter through the Company’s Direct Office segment were offset by decreased add-on services revenue compared with the prior year’s record-breaking add-on services revenue and delivered days. Direct Office sales for the first quarter of fiscal 2024 were$49.2 million compared with$50.2 million in the prior year. International licensee revenues increased 1% compared with the prior year as many of the Company’s independent licensee partners’ sales were impacted by macroeconomic conditions and related uncertainties in their countries during the quarter. Foreign exchange rates had an immaterial impact on the Company’s sales and operating results during the first quarter of fiscal 2024. Education Division revenues increased 3% to$14.7 million compared with$14.4 million in fiscal 2023. This growth was primarily due to increased international royalties and increased membership subscription revenues in the quarter and was partially offset by decreased sales of certain materials which are now included in the Leader in Me membership. The Company has initiated a corresponding price increase which is expected to more than offset the inclusion of materials in the membership. Education membership subscription revenue increased 6% compared with the prior year primarily due to increased annual membership sales recognized and contracted coaching and training days delivered from new schools engaged in fiscal 2023. During the first quarter of fiscal 2024, the Education Division delivered nearly 200 more training and coaching days than the prior year, which are recognized as they are delivered. The Education Division added a record 791 new Leader in Me schools during fiscal 2023. Subleasing revenues from the Company’s corporate campus decreased$0.5 million due to the expiration of some third-party leases during the second half of fiscal 2023. -
Deferred Subscription Revenue and Unbilled Deferred Revenue: At
November 30, 2023 , the Company had$169.7 million of billed and unbilled deferred subscription revenue, a 12%, or over$18 million , increase compared withNovember 30, 2022 . This total includes$87.2 million of deferred subscription revenue on the balance sheet, a 14%, or$10.5 million increase compared with deferred subscription revenue atNovember 30, 2022 . 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 2024 was
$52.3 million , compared with$52.7 million in the first quarter of fiscal 2023. The Company’s gross margin for the quarter endedNovember 30, 2023 , remained strong and increased to 76.4% compared with 76.0% in the first quarter of fiscal 2023. -
Operating Expenses: The Company’s operating expenses for the first quarter of fiscal 2024 increased
$0.6 million compared with the prior year, which was due to a$0.8 million increase in selling, general, and administrative (SG&A) expenses. Increased SG&A expense was partially offset by decreased depreciation and amortization expense compared with the prior year. The Company’s SG&A expenses increased primarily due to$0.6 million of severance costs related to restructuring activity and$0.2 million of increased non-cash stock-based compensation expense. The increase in stock-based compensation is primarily due to increased use of equity-based compensation to attract and retain key personnel. -
Operating Income: The Company’s income from operations for the first quarter of fiscal 2024 was
$5.3 million , compared with$6.4 million in fiscal 2023. The Company’s pre-tax income for the quarter endedNovember 30, 2023 was$5.3 million , compared with$6.1 million in the prior year. -
Income Taxes: The Company’s income tax expense for the quarter ended
November 30, 2023 , was$0.4 million on pre-tax income of$5.3 million , which resulted in an effective tax rate of 8.1%, compared with an effective rate of 23.0% in the first quarter of fiscal 2023. The Company’s effective tax rate for the first quarter of fiscal 2024 was lower than the effective rate in the prior year primarily due to a$3.2 million tax benefit for stock-based compensation deductions that exceeded the corresponding expense for book purposes, which was partially offset by$2.1 million of tax expense for the non-deductible portion of stock-based compensation paid to executives. These factors produced a net benefit of$1.1 million or 21% in the first quarter of fiscal 2024.
-
Net Income: As a result of the factors noted above, the Company’s net income for the first quarter of fiscal 2024 was
$4.9 million , or$0.36 per diluted share, compared with$4.7 million , or$0.32 per diluted share, in fiscal 2023. -
Adjusted EBITDA: Adjusted EBITDA for the first quarter of fiscal 2024 was a higher-than-expected
$11.0 million compared with$11.5 million in the previous year, reflecting the items discussed above. Adjusted EBITDA for the rolling four quarters endedNovember 30, 2023 grew$3.8 million , or 9%, to$47.6 million and rolling two-year Adjusted EBITDA growth was$13.4 million , or 39%. -
Purchases of Common Stock: During the first quarter of fiscal 2023, the Company purchased 408,596 shares of its common stock for
$16.3 million , including 251,686 shares withheld for income taxes on stock-based compensation awards and 156,910 shares purchased on the open market under the terms of a Board of Directors approved purchase plan. -
Liquidity and Financial Position: Even after the purchase of
$16.3 million of common stock during the first quarter of 2024, and$51.0 million over the rolling four quarters endedNovember 30, 2023 , the Company’s liquidity and financial position remain strong. AtNovember 30, 2023 , the Company had nearly$100 million of available liquidity which consisted of$34.0 million of cash and an undrawn$62.5 million line of credit.
Fiscal 2024 Guidance and Outlook
Driven by the continued strength and strategic durability of its All Access Pass and Leader in Me membership subscriptions, first quarter results that were better-than-expectations, and the expectation of a strong second half of the year, the Company affirms its guidance for fiscal 2024 that Adjusted EBITDA will increase to 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 macroeconomic conditions; renewals of subscription contracts; growth in and client demand for add-on services; the impact of deferred revenues on future financial results; impacts from geopolitical conflicts; market acceptance of new products or services, including new AAP portal upgrades and content launches; 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 concept of Adjusted EBITDA, which is a non-GAAP measure. 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 infrequently occurring items such as restructuring costs. 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 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 | |||||||||
|
|
2023 |
|
|
2022 |
|
||||
| Net sales |
$ |
68,399 |
|
$ |
69,369 |
|
|||
| Cost of sales |
|
16,122 |
|
|
16,627 |
|
|||
| Gross profit |
|
52,277 |
|
|
52,742 |
|
|||
| Selling, general, and administrative |
|
44,786 |
|
|
44,012 |
|
|||
| Depreciation |
|
1,091 |
|
|
1,246 |
|
|||
| Amortization |
|
1,071 |
|
|
1,092 |
|
|||
| Income from operations |
|
5,329 |
|
|
6,392 |
|
|||
| Interest expense, net |
|
(53 |
) |
|
(329 |
) |
|||
| Income before income taxes |
|
5,276 |
|
|
6,063 |
|
|||
| Income tax provision |
|
(425 |
) |
|
(1,396 |
) |
|||
| Net income |
$ |
4,851 |
|
$ |
4,667 |
|
|||
| Net income per share: | |||||||||
| Basic |
$ |
0.37 |
|
$ |
0.34 |
|
|||
| Diluted |
|
0.36 |
|
|
0.32 |
|
|||
| Weighted average common shares: | |||||||||
| Basic |
|
13,244 |
|
|
13,877 |
|
|||
| Diluted |
|
13,636 |
|
|
14,507 |
|
|||
| Other data: | |||||||||
| Adjusted EBITDA(1) |
$ |
10,969 |
|
$ |
11,472 |
|
|||
|
(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 | ||||||||||
|
|
2023 |
|
|
2022 |
|
|||||
| Reconciliation of net income to Adjusted EBITDA: | ||||||||||
| Net income |
$ |
4,851 |
|
$ |
4,667 |
|
||||
| Adjustments: | ||||||||||
| Interest expense, net |
|
53 |
|
|
329 |
|
||||
| Income tax provision |
|
425 |
|
|
1,396 |
|
||||
| Amortization |
|
1,071 |
|
|
1,092 |
|
||||
| Depreciation |
|
1,091 |
|
|
1,246 |
|
||||
| Stock-based compensation |
|
2,897 |
|
|
2,735 |
|
||||
| Restructuring costs |
|
581 |
|
|
- |
|
||||
| Increase in the fair value of contingent | ||||||||||
| consideration liabilities |
|
- |
|
|
7 |
|
||||
| Adjusted EBITDA |
$ |
10,969 |
|
$ |
11,472 |
|
||||
| Adjusted EBITDA margin |
|
16.0 |
% |
|
16.5 |
% |
||||
| Additional Financial Information | ||||||||||
| (in thousands and unaudited) | ||||||||||
| Quarter Ended | ||||||||||
|
|
2023 |
|
|
2022 |
|
|||||
| Sales by Division/Segment: | ||||||||||
| Enterprise Division: | ||||||||||
| Direct offices |
$ |
49,215 |
|
$ |
50,167 |
|
||||
| International licensees |
|
3,378 |
|
|
3,278 |
|
||||
|
|
52,593 |
|
|
53,445 |
|
|||||
| Education Division |
|
14,744 |
|
|
14,350 |
|
||||
| Corporate and other |
|
1,062 |
|
|
1,574 |
|
||||
| Consolidated |
$ |
68,399 |
|
$ |
69,369 |
|
||||
| Gross Profit by Division/Segment: | ||||||||||
| Enterprise Division: | ||||||||||
| Direct offices |
$ |
39,501 |
|
$ |
39,921 |
|
||||
| International licensees |
|
3,052 |
|
|
2,977 |
|
||||
|
|
42,553 |
|
|
42,898 |
|
|||||
| Education Division |
|
9,380 |
|
|
9,175 |
|
||||
| Corporate and other |
|
344 |
|
|
669 |
|
||||
| Consolidated |
$ |
52,277 |
|
$ |
52,742 |
|
||||
| Adjusted EBITDA by Division/Segment: | ||||||||||
| Enterprise Division: | ||||||||||
| Direct offices |
$ |
11,687 |
|
$ |
11,250 |
|
||||
| International licensees |
|
1,896 |
|
|
1,831 |
|
||||
|
|
13,583 |
|
|
13,081 |
|
|||||
| Education Division |
|
42 |
|
|
281 |
|
||||
| Corporate and other |
|
(2,656 |
) |
|
(1,890 |
) |
||||
| Consolidated |
$ |
10,969 |
|
$ |
11,472 |
|
||||
| Condensed Consolidated Balance Sheets | ||||||||
| (in thousands and unaudited) | ||||||||
|
|
2023 |
|
|
2023 |
|
|||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents |
$ |
33,959 |
|
$ |
38,230 |
|
||
| Accounts receivable, less allowance for | ||||||||
| doubtful accounts of |
|
59,860 |
|
|
81,935 |
|
||
| Inventories |
|
4,117 |
|
|
4,213 |
|
||
| Prepaid expenses and other current assets |
|
19,306 |
|
|
20,639 |
|
||
| Total current assets |
|
117,242 |
|
|
145,017 |
|
||
| Property and equipment, net |
|
9,517 |
|
|
10,039 |
|
||
| Intangible assets, net |
|
39,443 |
|
|
40,511 |
|
||
|
|
31,220 |
|
|
31,220 |
|
|||
| Deferred income tax assets |
|
1,679 |
|
|
1,661 |
|
||
| Other long-term assets |
|
19,721 |
|
|
17,471 |
|
||
|
$ |
218,822 |
|
$ |
245,919 |
|
|||
| Liabilities and Shareholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of notes payable |
$ |
4,585 |
|
$ |
5,835 |
|
||
| Current portion of financing obligation |
|
3,627 |
|
|
3,538 |
|
||
| Accounts payable |
|
5,667 |
|
|
6,501 |
|
||
| Deferred subscription revenue |
|
83,484 |
|
|
95,386 |
|
||
| Other deferred revenue |
|
16,023 |
|
|
12,137 |
|
||
| Accrued liabilities |
|
21,300 |
|
|
28,252 |
|
||
| Total current liabilities |
|
134,686 |
|
|
151,649 |
|
||
| Notes payable, less current portion |
|
1,556 |
|
|
1,535 |
|
||
| Financing obligation, less current portion |
|
3,478 |
|
|
4,424 |
|
||
| Other liabilities |
|
7,590 |
|
|
7,617 |
|
||
| Deferred income tax liabilities |
|
1,011 |
|
|
2,040 |
|
||
| Total liabilities |
|
148,321 |
|
|
167,265 |
|
||
| Shareholders' equity: | ||||||||
| Common stock |
|
1,353 |
|
|
1,353 |
|
||
| Additional paid-in capital |
|
224,701 |
|
|
232,373 |
|
||
| Retained earnings |
|
104,653 |
|
|
99,802 |
|
||
| Accumulated other comprehensive loss |
|
(936 |
) |
|
(987 |
) |
||
|
|
(259,270 |
) |
|
(253,887 |
) |
|||
| Total shareholders' equity |
|
70,501 |
|
|
78,654 |
|
||
|
$ |
218,822 |
|
$ |
245,919 |
|
|||
View source version on businesswire.com: https://www.businesswire.com/news/home/20240104493693/en/
Investor Contact:
801-817-5127
investor.relations@franklincovey.com
Media Contact:
801-817-6440
Debra.Lund@franklincovey.com
Source: