Franklin Covey Reports Strong Second Quarter Fiscal 2021 Results
Operating Income and Adjusted EBITDA Exceed Expectations for the Second Quarter as Adjusted EBITDA Increases 26% to
Company’s Powerful Subscription Business Growth Engine, the All Access Pass and Leader in Me Membership, Show Continued Strong Growth, High Revenue Retention, and Durability with Clients
Higher Gross Margin and Decreased Operating Expenses Allow Income from Operations to Show Significant Improvement Year-Over-Year
Cash Flows from Operating Activities Increases 26% to
Introduction
The Company was very pleased with its second quarter and fiscal 2021 year-to-date results. The Company’s strong, and stronger-than-expected performance reflects the continuation and acceleration of four key trends that have been repeated throughout the pandemic. These trends include:
-
First, the strong growth of All Access Pass sales. All Access pass sales increased 13% in the second quarter of fiscal 2021, 14% year-to-date, and 15% for the twelve-month pandemic period ended
February 28, 2021 . - Second, the growth of All Access Pass related services. Sales of All Access Pass related services in the second quarter were even higher than add-on sales in last year’s pre-pandemic second quarter, reflecting the strong bookings of services in prior quarters, and the Company’s capabilities to deliver services live-online and digitally.
- Third, sales in its international direct offices and international licensee partners continued to strengthen.
- Fourth, despite the challenging environment for education, booking trends in the Education Division strengthened in the quarter, even compared to last year’s second quarter.
Whitman added, “Cash flow during the first half of fiscal 2021 was strong, and we ended the quarter with approximately
Financial Overview
The following is a summary of key financial results for the quarter ended
-
Net Sales : Consolidated sales for the second quarter of fiscal 2021 totaled$48.2 million , compared with$53.7 million in the pre-pandemic quarter endedFebruary 29, 2020 . While consolidated sales were adversely impacted in certain areas by the ongoing COVID-19 pandemic, the Company was pleased with the continued strength of its All Access Pass and Leader in Me subscription-based services. During the second quarter of fiscal 2021, AAP sales increased 13 percent compared with the second quarter of the prior year and annual revenue retention remained strong at greater than 90 percent. The pivot to online delivery continued in the second quarter and the Company’s booking pace in theU.S /Canada recovered to be higher than the prior year. However, increased All Access Pass and related sales did not fully offset fewer coaching and consulting days delivered in the Education Division, cancelation of the Education Division Symposium events in fiscal 2021, decreased materials sales, and decreased licensee revenues. However, the Company is seeing continued strengthening in many of these areas as companies and individuals are adapting, and the positive effect of vaccinations is enabling certain economies to open and recover. Importantly, even with some of these areas still in the process of rebounding, the strength of the Company’s subscription offerings resulted in the Company generating higher levels of profitability and cash flow than in last year’s pre-pandemic second quarter. The Company expects its results to continue to be strong throughout the remainder of the fiscal year, and to generate significant growth in Adjusted EBITDA and cash flow during the second half of fiscal 2021, and in future years. -
Deferred Subscription Revenue and Unbilled Deferred Revenue: At
February 28, 2021 , the Company had$95.9 million of billed and unbilled deferred subscription revenue, an increase of$13.2 million , or 16%, compared withFebruary 29, 2020 . This total included$58.5 million of deferred subscription revenue which was on its balance sheet, a$10.6 million , or 22%, increase compared with deferred subscription revenue atFebruary 29, 2020 . AtFebruary 28, 2021 , the Company had$37.4 million of unbilled deferred revenue, a$2.6 million , or 8%, increase compared with$34.8 million of unbilled deferred revenue atFebruary 29, 2020 . Unbilled deferred revenue represents business (typically multiyear contracts) that is contracted but unbilled, and excluded from the Company’s balance sheet. -
Gross profit: Second quarter fiscal 2021 gross profit was
$37.3 million compared with$38.7 million in fiscal 2020, and the Company’s gross margin for the quarter endedFebruary 28, 2021 improved 559 basis points to 77.5% of sales compared with 71.9% in the second quarter of the prior year, reflecting the continued increase in subscription revenues in the mix of overall sales when compared with the prior year. The decline in total gross margin dollars primarily reflected decreased sales as described above. -
Operating Expenses: The Company’s operating expenses for the second quarter of fiscal 2021 decreased
$2.5 million compared with the second quarter of the prior year, which was primarily due to decreased selling, general, and administrative (SG&A) expenses. Decreased SG&A expense was primarily related to decreased travel, entertainment, and marketing; decreased associate costs; and cost savings from the successful implementation of expense reduction initiatives in various areas of the Company’s operations. -
Operating Income: As a result of improved gross margins and continued efforts to decrease SG&A expense, the Company’s income from operations for the quarter ended
February 28, 2021 improved to$0.8 million compared with a loss of$(0.4) million in the second quarter of fiscal 2020. -
Income Taxes: The Company recorded
$0.4 million of income tax expense on$0.3 million of pre-tax income during the quarter endedFebruary 28, 2021 , resulting in an effective tax expense rate of 114% compared with an effective benefit rate of 219% in the prior year. The Company’s effective tax rate during the second quarter of fiscal 2021 was adversely impacted by an increase in the valuation allowance against its deferred income tax assets and various non-deductible expenses, which was partially offset by the exercise of stock options during the quarter. The income tax benefit recognized in the second quarter of the prior year was primarily the result of stock options exercised during the second quarter of fiscal 2020. -
Net Income (Loss): The Company reported a net loss of
$(46,000) , or$(0.00) per share, for the second quarter of fiscal 2021, compared with net income of$1.1 million , or$0.08 per diluted share, in the second quarter of the prior year, reflecting the above-noted factors. -
Adjusted EBITDA: Adjusted EBITDA for the second quarter improved 26% to
$5.1 million compared with$4.1 million in the second quarter of the prior year reflecting improved gross margins and reduced operating expenses. -
Cash Flows, Liquidity, and Financial Position Remain Strong: The Company’s balance sheet and liquidity position remained strong with
$40.3 million of cash atFebruary 28, 2021 , and no borrowings on its$15.0 million line of credit, compared with$27.1 million of cash atAugust 31, 2020 . Cash flows from operating activities for the first two quarters of fiscal 2021 increased 26%, to$21.9 million , despite the challenging economic environment during this period.
Fiscal 2021 Year-to-Date Financial Results
Consolidated revenue for the first half of fiscal 2021 was
Operating expenses during the first two quarters of fiscal 2021 decreased
Fiscal 2021 Outlook
Based on current expectations, including the duration and anticipated economic recovery from the COVID-19 pandemic, the Company affirms its previously announced guidance and continues to expect Adjusted EBITDA to total 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 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; 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; 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 | |||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||
Net sales |
|
|
|
|
|
|
|
|
||||
Cost of sales |
10,822 |
|
15,079 |
|
22,760 |
|
31,662 |
|
||||
Gross profit |
37,340 |
|
38,666 |
|
73,726 |
|
80,695 |
|
||||
Selling, general, and administrative |
33,623 |
|
36,221 |
|
67,306 |
|
75,620 |
|
||||
Depreciation |
1,740 |
|
1,653 |
|
3,481 |
|
3,273 |
|
||||
Amortization |
1,133 |
|
1,170 |
|
2,265 |
|
2,340 |
|
||||
Income (loss) from operations |
844 |
|
(378 |
) |
674 |
|
(538 |
) |
||||
Interest expense, net |
(524 |
) |
(544 |
) |
(1,068 |
) |
(1,144 |
) |
||||
Income (loss) before income taxes |
320 |
|
(922 |
) |
(394 |
) |
(1,682 |
) |
||||
Income tax benefit (provision) |
(366 |
) |
2,019 |
|
(544 |
) |
2,235 |
|
||||
Net income (loss) |
$ (46 |
) |
|
|
$ (938 |
) |
|
|
||||
Net income (loss) per common share: | ||||||||||||
Basic and diluted |
$ (0.00 |
) |
|
|
$ (0.07 |
) |
|
|
||||
Weighted average common shares: | ||||||||||||
Basic |
14,082 |
|
13,841 |
|
14,029 |
|
13,911 |
|
||||
Diluted |
14,082 |
|
13,990 |
|
14,029 |
|
14,118 |
|
||||
Other data: | ||||||||||||
Adjusted EBITDA(1) |
|
|
|
|
|
|
|
|
(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 comparable GAAP | |||||||
equivalent, 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 | |||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||
Reconciliation of net income (loss) to Adjusted EBITDA: | ||||||||||||||
Net income (loss) |
$ (46 |
) |
|
|
$ (938 |
) |
|
|
||||||
Adjustments: | ||||||||||||||
Interest expense, net |
524 |
|
544 |
|
1,068 |
|
1,144 |
|
||||||
Income tax provision (benefit) |
366 |
|
(2,019 |
) |
544 |
|
(2,235 |
) |
||||||
Amortization |
1,133 |
|
1,170 |
|
2,265 |
|
2,340 |
|
||||||
Depreciation |
1,740 |
|
1,653 |
|
3,481 |
|
3,273 |
|
||||||
Stock-based compensation |
1,599 |
|
1,793 |
|
2,757 |
|
3,644 |
|
||||||
Increase (decrease) in the fair value of contingent | ||||||||||||||
consideration liabilities |
(16 |
) |
(182 |
) |
46 |
|
(91 |
) |
||||||
Government COVID assistance |
(27 |
) |
- |
|
(234 |
) |
- |
|
||||||
Gain from insurance settlement |
(150 |
) |
- |
|
(150 |
) |
- |
|
||||||
- |
|
- |
|
- |
|
389 |
|
|||||||
Adjusted EBITDA |
|
|
|
|
|
|
|
|
||||||
Adjusted EBITDA margin |
10.6 |
% |
7.5 |
% |
9.2 |
% |
8.0 |
% |
||||||
Additional Financial Information | ||||||||||||||
(in thousands and unaudited) | ||||||||||||||
Quarter Ended | Two Quarters Ended | |||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||
Sales by Division/Segment: | ||||||||||||||
Enterprise Division: | ||||||||||||||
Direct offices |
|
|
|
|
|
|
|
|
||||||
International licensees |
2,429 |
|
2,691 |
|
5,026 |
|
6,411 |
|
||||||
38,167 |
|
40,664 |
|
77,507 |
|
86,496 |
|
|||||||
Education Division |
8,478 |
|
10,893 |
|
15,975 |
|
21,974 |
|
||||||
Corporate and other |
1,517 |
|
2,188 |
|
3,004 |
|
3,887 |
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
||||||
Gross Profit by Division/Segment: | ||||||||||||||
Enterprise Division: | ||||||||||||||
Direct offices |
|
|
|
|
|
|
|
|
||||||
International licensees |
2,100 |
|
2,237 |
|
4,385 |
|
5,357 |
|
||||||
31,184 |
|
30,939 |
|
62,908 |
|
65,470 |
|
|||||||
Education Division |
5,344 |
|
6,460 |
|
9,331 |
|
13,117 |
|
||||||
Corporate and other |
812 |
|
1,267 |
|
1,487 |
|
2,108 |
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
||||||
Adjusted EBITDA by Division/Segment: | ||||||||||||||
Enterprise Division: | ||||||||||||||
Direct offices |
|
|
|
|
|
|
|
|
||||||
International licensees |
1,505 |
|
1,384 |
|
2,795 |
|
3,419 |
|
||||||
7,636 |
|
6,118 |
|
15,622 |
|
13,863 |
|
|||||||
Education Division |
(858 |
) |
(1,068 |
) |
(3,142 |
) |
(2,171 |
) |
||||||
Corporate and other |
(1,655 |
) |
(994 |
) |
(3,641 |
) |
(2,675 |
) |
||||||
Consolidated |
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets | ||||
(in thousands and unaudited) | ||||
|
|
|||
2021 |
2020 |
|||
Assets | ||||
Current assets: | ||||
Cash and cash equivalents |
|
|
||
Accounts receivable, less allowance for | ||||
doubtful accounts of |
41,482 |
56,407 |
||
Inventories |
2,641 |
2,974 |
||
Prepaid expenses and other current assets |
15,799 |
15,146 |
||
Total current assets |
100,265 |
101,664 |
||
Property and equipment, net |
13,159 |
15,723 |
||
Intangible assets, net |
44,864 |
47,125 |
||
24,220 |
24,220 |
|||
Deferred income tax assets |
843 |
1,094 |
||
Other long-term assets |
15,378 |
15,611 |
||
|
|
|||
Liabilities and Shareholders' Equity | ||||
Current liabilities: | ||||
Current portion of term notes payable |
|
|
||
Current portion of financing obligation |
2,741 |
2,600 |
||
Accounts payable |
5,060 |
5,622 |
||
Deferred subscription revenue |
57,344 |
59,289 |
||
Other deferred revenue |
8,126 |
7,389 |
||
Accrued liabilities |
22,837 |
22,628 |
||
Total current liabilities |
101,108 |
102,528 |
||
Term notes payable, less current portion |
12,500 |
15,000 |
||
Financing obligation, less current portion |
12,638 |
14,048 |
||
Other liabilities |
8,631 |
9,110 |
||
Deferred income tax liabilities |
4,812 |
5,298 |
||
Total liabilities |
139,689 |
145,984 |
||
Shareholders' equity: | ||||
Common stock |
1,353 |
1,353 |
||
Additional paid-in capital |
208,816 |
211,920 |
||
Retained earnings |
49,030 |
49,968 |
||
Accumulated other comprehensive income |
915 |
641 |
||
(201,074) |
(204,429) |
|||
Total shareholders' equity |
59,040 |
59,453 |
||
|
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20210401005812/en/
Investor Contact:
801-817-1776
investor.relations@franklincovey.com
Media Contact:
801-817-6440
Debra.Lund@franklincovey.com
Source: