Franklin Covey Reports Strong Second Quarter 2022 Financial Results
Sales Increase 18% to
All Access Pass Subscription and Subscription Services Sales Grow 29% to
Sum of Billed and Unbilled Deferred Subscription Revenue Increases 24% to
Operating Income and Adjusted EBITDA Exceed Expectations, Operating Income Increases to
Liquidity and Financial Position Remain Strong, Cash Flows Increase to
Company Increases Earnings Guidance for Fiscal 2022
Introduction
The Company’s strong second quarter performance was highlighted by the following key metrics:
-
The Company’s consolidated sales for the quarter ended
February 28, 2022 achieved significant growth over the prior year. Consolidated sales for the second quarter increased 18% to$56.6 million compared with$48.2 million in fiscal 2021, and$53.7 million in the pre-pandemic second quarter of fiscal 2020. Rolling four quarter sales throughFebruary 28, 2022 increased 34% to$245.5 million . The Company’s sales increased during the second quarter of fiscal 2022 primarily due to strong subscription and subscription services sales, including the following:-
All Access Pass subscription and subscription services sales grew 29% to
$32.0 million in the second quarter compared with the prior year. - Education Division revenues grew 31% on the strength of increased consulting, coaching, and training days delivered during the quarter, increased recognition of previously deferred revenue related to Leader in Me subscriptions, and increased training and classroom material sales.
-
The sum of billed and unbilled deferred revenue at
February 28, 2022 grew 24% to$119.3 million , compared withFebruary 28, 2021 .
-
All Access Pass subscription and subscription services sales grew 29% to
-
On the strength of increased sales and continued strong gross margins, gross profit for the second quarter of fiscal 2022 increased 18% to
$44.1 million compared with$37.3 million in 2021, and$38.7 million in the pre-pandemic second quarter of fiscal 2020. -
Operating income increased
$2.7 million to$3.5 million in the second quarter compared with$0.8 million in fiscal 2021 and a$(0.4) million loss in the second quarter of fiscal 2020. -
Adjusted EBITDA increased 57% to
$8.0 million in the second quarter of fiscal 2022 compared with$5.1 million in fiscal 2021, and$4.1 million in fiscal 2020. Rolling four-quarter Adjusted EBITDA increased 163% to$37.1 million compared with$14.1 million for the corresponding period in fiscal 2021. -
Cash flows from operating activities for the two quarters ended
February 28, 2022 remained strong and increased to$23.2 million compared with$21.9 million in the prior year. -
With
$61.1 million of cash and$15 million available on its revolving line of credit, the Company’s liquidity totaled more than$76 million atFebruary 28, 2022 .
Walker continued, “By combining our subscription-based approach with our historical strengths of having best-in-class content, deliverable across a wide range of delivery modalities, with best-in-class services, and the ability to deliver on key performance-improvement metrics, we believe that we can become a unique competitor within our industry. We believe our approach develops unusually high levels of client loyalty and commitment as we work with our clients to solve their most important issues; and as a result, create a powerful flywheel of factors that generates extremely strong and accelerating financial results. We expect this flywheel to include: 1) strong growth in subscription and subscription services, which also increases company-wide sales; 2) large amounts of recurring revenue, which establishes high levels of revenue predictability and visibility; and 3) a compelling business model that generates significant revenue and flow through to Adjusted EBITDA. We expect these factors will drive continued growth in revenues, Adjusted EBITDA, and cash flows through the remainder of fiscal 2022 and in future periods.”
Financial Overview
The following is a summary of financial results for the second quarter of fiscal 2022:
-
Net Sales : Consolidated sales for the quarter endingFebruary 28, 2022 increased 18% to$56.6 million , compared with$48.2 million in the second quarter of fiscal 2021. The Company was pleased with the continued strength of the All Access Pass and Leader in Me subscription-based services and believes its electronic delivery capabilities (including the delivery of subscription services live-online) of these offerings have allowed its business performance to remain strong even during the ongoing pandemic. For the second quarter of fiscal 2021, Enterprise Division sales grew 16%, or$5.9 million , to$44.1 million compared with$38.2 million in the prior year. AAP subscription and subscription services sales increased 29% to$32.0 million , and annual revenue retention remained strong at greater than 90%. TheU.S. /Canada direct offices invoiced the highest amount of sales during the second quarter of fiscal 2022 in its history. These sales, most of which are initially deferred and recorded on the Company’s balance sheet, provide a solid base for growth in future periods. Sales increased in each of the Company’s foreign direct offices, exceptChina , and improved 11% for the combined offices compared with the second quarter of fiscal 2021. International licensee revenues continue to improve and increased 7% compared with the prior year, despite the resurgence of COVID-19 and new lockdowns, especially inAsia . Education Division sales grew 31%, or$2.6 million , to$11.1 million compared with$8.5 million in the second quarter of fiscal 2021. Education Division sales grew on the strength of increased consulting, coaching, and training days delivered during the quarter, increased recognition of previously deferred revenue related to Leader in Me subscriptions, and increased training and classroom material sales. During the second quarter of fiscal 2022, sales increased in each of the Company’s operating segments compared with the second quarter of fiscal 2021. -
Deferred Subscription Revenue and Unbilled Deferred Revenue: At
February 28, 2022 , the Company had$119.3 million of billed and unbilled deferred subscription revenue, a 24%, or$23.4 million increase over the balance atFebruary 28, 2021 . This total includes$70.4 million of deferred subscription revenue which was on its balance sheet, a 20%, or$11.8 million increase compared with deferred subscription revenue atFebruary 28, 2021 . AtFebruary 28, 2022 , the Company had$49.0 million of unbilled deferred revenue, a 31%, or$11.5 million increase compared with$37.4 million of unbilled deferred revenue atFebruary 28, 2021 . Unbilled deferred revenue represents business (typically multi-year contracts) that is contracted but unbilled, and excluded from the Company’s balance sheet. -
Gross profit: Gross profit increased to
$44.1 million in the second quarter compared with$37.3 million in the prior year. The Company’s gross margin for the quarter endedFebruary 28, 2022 remained strong and increased to 77.9 percent of sales compared with 77.5 percent in the prior year, reflecting the continued increase in subscription revenues in the mix of overall sales and the impact of increased sales on fixed cost of sale elements such as salaried Education Division coaches and capitalized curriculum amortization expense. Gross profit increased due to improved sales as described above. -
Operating Expenses: The Company’s operating expenses for the quarter ended
February 28, 2022 increased$4.1 million compared with the second quarter of fiscal 2021, which was primarily due to a$4.4 million increase in selling, general, and administrative (SG&A) expenses. Despite the increase in SG&A expenses, as a percent of sales, SG&A expenses decreased to 67.2 percent in fiscal 2022 compared with 69.8 percent in the prior year. The Company’s SG&A expenses increased primarily due to increased associate costs resulting from new sales and sales related headcount, the acquisition of Strive in the third quarter of fiscal 2021, and increased salaries; increased commissions on higher sales; increased content development expense; and increased stock-based compensation expense. -
Operating Income: As a result of increased sales and continued strong gross margin, the Company’s income from operations for the second quarter improved 317%, or
$2.7 million , to$3.5 million compared with$0.8 million in the second quarter of fiscal 2021.
-
Income Taxes: The Company’s income tax provision for the second quarter of fiscal 2022 was
$1.2 million , for an effective income tax rate of approximately 40%, compared with an effective income tax expense rate of approximately 114% in the second quarter of the prior year. The unusual income tax expense rate for the second quarter of fiscal 2021 was primarily attributable to an increase in the valuation allowance against certain deferred income tax assets, which was partially offset by the benefit resulting from the exercise of executive stock options. The effective rate for the second quarter of the prior year was also amplified by the tax on all permanent book/tax differences divided by the small amount of pre-tax income for the quarter. -
Net Income: As a result of the factors described above, the Company’s second quarter net income improved to
$1.9 million , or$0.13 per diluted share, compared with a loss of$(46,000) , or$(0.00) per share, in the prior year. -
Adjusted EBITDA: Adjusted EBITDA for the second quarter of fiscal 2022 improved 57%, or
$2.9 million , to$8.0 million compared with$5.1 million in the second quarter of the prior year, reflecting increased sales and strong gross margin. -
Cash Flows, Liquidity, and Financial Position Remain Strong: The Company’s balance sheet and liquidity position remained strong with
$61.1 million of cash atFebruary 28, 2022 , and no borrowings on its$15.0 million line of credit, compared with$47.4 million of cash with no borrowings on its line of credit atAugust 31, 2021 . Cash flows from operating activities for the first two quarters of fiscal 2022 remained strong and increased to$23.2 million , compared with$21.9 million in the first half of fiscal 2021.
Fiscal 2022 Year-to-Date Financial Results
Consolidated revenue for the first half of fiscal 2022 increased 22%, or
Operating expenses during the first two quarters of fiscal 2022 increased
Fiscal 2022 Outlook
Based on the Company’s strong performance in the first and second quarters of fiscal 2022, and anticipated results for the remainder of the current fiscal year, the Company is pleased to increase its guidance for fiscal 2022 and now expects Adjusted EBITDA to total between
The first and second quarters of fiscal 2021 included the early stages of the COVID-19 pandemic in
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 economic conditions; the severity and duration of global business disruptions from the COVID-19 outbreak; the ability of the Company to operate effectively during and in the aftermath of the COVID-19 pandemic; impacts from global economic and supply chain disruptions resulting from international conflicts; expectations regarding the economic recovery from the pandemic; renewals of subscription contracts; the impact of deferred revenues on future financial results; 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 concept of adjusted earnings before interest, income taxes, depreciation, and amortization (Adjusted EBITDA) which is a non-GAAP measure. The Company defines Adjusted EBITDA as net income or loss excluding the impact of interest expense, 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. 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 a non-GAAP financial measure, Adjusted EBITDA, to consolidated net income (loss), 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
| Condensed Consolidated Statements of Operations | |||||||||||||||||
| (in thousands, except per-share amounts, and unaudited) | |||||||||||||||||
| Quarter Ended | Two Quarters Ended | ||||||||||||||||
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|||
| Net sales |
$ |
56,599 |
|
$ |
48,162 |
|
$ |
117,859 |
|
$ |
96,486 |
|
|||||
| Cost of sales |
|
12,485 |
|
|
10,822 |
|
|
26,146 |
|
|
22,760 |
|
|||||
| Gross profit |
|
44,114 |
|
|
37,340 |
|
|
91,713 |
|
|
73,726 |
|
|||||
| Selling, general, and administrative |
|
38,061 |
|
|
33,623 |
|
|
77,405 |
|
|
67,306 |
|
|||||
| Depreciation |
|
1,190 |
|
|
1,740 |
|
|
2,470 |
|
|
3,481 |
|
|||||
| Amortization |
|
1,346 |
|
|
1,133 |
|
|
2,776 |
|
|
2,265 |
|
|||||
| Income from operations |
|
3,517 |
|
|
844 |
|
|
9,062 |
|
|
674 |
|
|||||
| Interest expense, net |
|
(411 |
) |
|
(524 |
) |
|
(842 |
) |
|
(1,068 |
) |
|||||
| Income (loss) before income taxes |
|
3,106 |
|
|
320 |
|
|
8,220 |
|
|
(394 |
) |
|||||
| Income tax provision |
|
(1,228 |
) |
|
(366 |
) |
|
(2,530 |
) |
|
(544 |
) |
|||||
| Net income (loss) |
$ |
1,878 |
|
$ |
(46 |
) |
$ |
5,690 |
|
$ |
(938 |
) |
|||||
| Net income (loss) per common share: | |||||||||||||||||
| Basic and diluted |
$ |
0.13 |
|
$ |
(0.00 |
) |
$ |
0.40 |
|
$ |
(0.07 |
) |
|||||
| Weighted average common shares: | |||||||||||||||||
| Basic |
|
14,312 |
|
|
14,082 |
|
|
14,279 |
|
|
14,029 |
|
|||||
| Diluted |
|
14,333 |
|
|
14,082 |
|
|
14,323 |
|
|
14,029 |
|
|||||
| Other data: | |||||||||||||||||
| Adjusted EBITDA(1) |
$ |
8,042 |
|
$ |
5,123 |
|
$ |
17,974 |
|
$ |
8,839 |
|
|||||
|
(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 a GAAP measure, refer to the Reconciliation of Net Income (Loss) to Adjusted EBITDA as shown below. |
|||||||||||||||||
| Reconciliation of Net Income (Loss) to Adjusted EBITDA | ||||||||||||||||||
| (in thousands and unaudited) | ||||||||||||||||||
| Quarter Ended | Two Quarters Ended | |||||||||||||||||
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
||||
| Reconciliation of net income (loss) to Adjusted EBITDA: | ||||||||||||||||||
| Net income (loss) |
$ |
1,878 |
|
$ |
(46 |
) |
$ |
5,690 |
|
$ |
(938 |
) |
||||||
| Adjustments: | ||||||||||||||||||
| Interest expense, net |
|
411 |
|
|
524 |
|
|
842 |
|
|
1,068 |
|
||||||
| Income tax provision |
|
1,228 |
|
|
366 |
|
|
2,530 |
|
|
544 |
|
||||||
| Amortization |
|
1,346 |
|
|
1,133 |
|
|
2,776 |
|
|
2,265 |
|
||||||
| Depreciation |
|
1,190 |
|
|
1,740 |
|
|
2,470 |
|
|
3,481 |
|
||||||
| Stock-based compensation |
|
1,969 |
|
|
1,599 |
|
|
3,618 |
|
|
2,757 |
|
||||||
| Increase (decrease) in the fair value of contingent | ||||||||||||||||||
| consideration liabilities |
|
20 |
|
|
(16 |
) |
|
48 |
|
|
46 |
|
||||||
| Government COVID assistance |
|
- |
|
|
(27 |
) |
|
- |
|
|
(234 |
) |
||||||
| Gain from insurance settlement |
|
- |
|
|
(150 |
) |
|
- |
|
|
(150 |
) |
||||||
| Adjusted EBITDA |
$ |
8,042 |
|
$ |
5,123 |
|
$ |
17,974 |
|
$ |
8,839 |
|
||||||
| Adjusted EBITDA margin |
|
14.2 |
% |
|
10.6 |
% |
|
15.3 |
% |
|
9.2 |
% |
||||||
| Additional Financial Information | ||||||||||||||||||
| (in thousands and unaudited) | ||||||||||||||||||
| Quarter Ended | Two Quarters Ended | |||||||||||||||||
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
||||
| Sales by Division/Segment: | ||||||||||||||||||
| Enterprise Division: | ||||||||||||||||||
| Direct offices |
$ |
41,502 |
|
$ |
35,738 |
|
$ |
86,621 |
|
$ |
72,481 |
|
||||||
| International licensees |
|
2,588 |
|
|
2,429 |
|
|
5,586 |
|
|
5,026 |
|
||||||
|
|
44,090 |
|
|
38,167 |
|
|
92,207 |
|
|
77,507 |
|
|||||||
| Education Division |
|
11,066 |
|
|
8,478 |
|
|
22,763 |
|
|
15,975 |
|
||||||
| Corporate and other |
|
1,443 |
|
|
1,517 |
|
|
2,889 |
|
|
3,004 |
|
||||||
| Consolidated |
$ |
56,599 |
|
$ |
48,162 |
|
$ |
117,859 |
|
$ |
96,486 |
|
||||||
| Gross Profit by Division/Segment: | ||||||||||||||||||
| Enterprise Division: | ||||||||||||||||||
| Direct offices |
$ |
33,948 |
|
$ |
29,084 |
|
$ |
70,150 |
|
$ |
58,523 |
|
||||||
| International licensees |
|
2,304 |
|
|
2,100 |
|
|
5,005 |
|
|
4,385 |
|
||||||
|
|
36,252 |
|
|
31,184 |
|
|
75,155 |
|
|
62,908 |
|
|||||||
| Education Division |
|
7,098 |
|
|
5,344 |
|
|
14,959 |
|
|
9,331 |
|
||||||
| Corporate and other |
|
764 |
|
|
812 |
|
|
1,599 |
|
|
1,487 |
|
||||||
| Consolidated |
$ |
44,114 |
|
$ |
37,340 |
|
$ |
91,713 |
|
$ |
73,726 |
|
||||||
| Adjusted EBITDA by Division/Segment: | ||||||||||||||||||
| Enterprise Division: | ||||||||||||||||||
| Direct offices |
$ |
8,732 |
|
$ |
6,131 |
|
$ |
18,686 |
|
$ |
12,827 |
|
||||||
| International licensees |
|
1,444 |
|
|
1,505 |
|
|
3,115 |
|
|
2,795 |
|
||||||
|
|
10,176 |
|
|
7,636 |
|
|
21,801 |
|
|
15,622 |
|
|||||||
| Education Division |
|
(324 |
) |
|
(858 |
) |
|
(89 |
) |
|
(3,142 |
) |
||||||
| Corporate and other |
|
(1,810 |
) |
|
(1,655 |
) |
|
(3,738 |
) |
|
(3,641 |
) |
||||||
| Consolidated |
$ |
8,042 |
|
$ |
5,123 |
|
$ |
17,974 |
|
$ |
8,839 |
|
||||||
| Condensed Consolidated Balance Sheets | ||||||||
| (in thousands and unaudited) | ||||||||
|
|
2022 |
|
|
|
2021 |
|
||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents |
$ |
61,062 |
|
$ |
47,417 |
|
||
| Accounts receivable, less allowance for | ||||||||
| doubtful accounts of |
|
47,726 |
|
|
70,680 |
|
||
| Inventories |
|
2,472 |
|
|
2,496 |
|
||
| Prepaid expenses and other current assets |
|
16,105 |
|
|
16,115 |
|
||
| Total current assets |
|
127,365 |
|
|
136,708 |
|
||
| Property and equipment, net |
|
10,032 |
|
|
11,525 |
|
||
| Intangible assets, net |
|
47,325 |
|
|
50,097 |
|
||
|
|
31,220 |
|
|
31,220 |
|
|||
| Deferred income tax assets |
|
3,658 |
|
|
4,951 |
|
||
| Other long-term assets |
|
13,864 |
|
|
15,153 |
|
||
|
$ |
233,464 |
|
$ |
249,654 |
|
|||
| Liabilities and Shareholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of notes payable |
$ |
5,835 |
|
$ |
5,835 |
|
||
| Current portion of financing obligation |
|
3,040 |
|
|
2,887 |
|
||
| Accounts payable |
|
6,644 |
|
|
6,948 |
|
||
| Deferred subscription revenue |
|
68,583 |
|
|
74,772 |
|
||
| Other deferred revenue |
|
12,349 |
|
|
11,117 |
|
||
| Accrued liabilities |
|
23,302 |
|
|
34,980 |
|
||
| Total current liabilities |
|
119,753 |
|
|
136,539 |
|
||
| Notes payable, less current portion |
|
10,543 |
|
|
12,975 |
|
||
| Financing obligation, less current portion |
|
9,598 |
|
|
11,161 |
|
||
| Other liabilities |
|
7,067 |
|
|
8,741 |
|
||
| Deferred income tax liabilities |
|
375 |
|
|
375 |
|
||
| Total liabilities |
|
147,336 |
|
|
169,791 |
|
||
| Shareholders' equity: | ||||||||
| Common stock |
|
1,353 |
|
|
1,353 |
|
||
| Additional paid-in capital |
|
215,348 |
|
|
214,888 |
|
||
| Retained earnings |
|
69,281 |
|
|
63,591 |
|
||
| Accumulated other comprehensive income |
|
533 |
|
|
709 |
|
||
|
|
(200,387 |
) |
|
(200,678 |
) |
|||
| Total shareholders' equity |
|
86,128 |
|
|
79,863 |
|
||
|
$ |
233,464 |
|
$ |
249,654 |
|
|||
View source version on businesswire.com: https://www.businesswire.com/news/home/20220330005749/en/
Investor Contact:
801-817-1776
investor.relations@franklincovey.com
Media Contact:
801-817-6440
Debra.Lund@franklincovey.com
Source: