SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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On April 1, 2021, Franklin Covey Co. (the Company) announced its financial results for the second quarter of fiscal 2021, which ended on February 28, 2021. A copy of the earnings release is being furnished as exhibit 99.1 to this current report on Form 8-K.
Certain information in this Report (including the exhibit) is furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing made by the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.
On March 18, 2021, the Company announced that it would host a discussion for shareholders and the financial community to review its financial results for the second quarter of fiscal 2021, which ended on February 28, 2021. The discussion is scheduled to be held on Thursday, April 1, 2021, at 5:00 p.m. Eastern Time (3:00 p.m. Mountain Time).
Interested persons may participate by dialing 800-708-4540 (International participants may dial 847-619-6397), access code: 50128873. Alternatively, a webcast will be accessible at the following Web site: https://edge.media-server.com/mmc/p/k99v65z2. A replay of the webcast will remain accessible through April 22, 2021 on the Investor Relations area of the Company’s Web site at www.franklincovey.com.
Item 9.01 Financial Statements and Exhibits
104Cover Page Interactive Data File--the cover page XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
FRANKLIN COVEY CO.
Date: April 1, 2021
/s/ Stephen D. Young
Stephen D. Young
Chief Financial Officer
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
Operating Income and Adjusted EBITDA Exceed Expectations for the Second Quarter as Adjusted EBITDA Increases 26% to $5.1 Million Compared with $4.1 Million in the Pre-Pandemic Second Quarter of Fiscal 2020
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 $21.9 Million in the First Two Quarters of Fiscal 2021—Liquidity and Financial Position Remain Strong
Salt Lake City, Utah – Franklin Covey Co. (NYSE: FC), a global performance improvement company that creates, and on a subscription basis, distributes world-class content, training, processes, and tools that organizations and individuals use to achieve systemic changes in human behavior to transform their results, today announced financial results for its second quarter of fiscal 2021, which ended on February 28, 2021.
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:
Bob Whitman, Chairman and Chief Executive Officer, commented, “We are really pleased that our second quarter and year-to-date results were strong, and even stronger than expected. This performance was driven by
the continued success of our All Access Pass subscription model where we achieved double-digit sales growth in the second quarter, year-to-date, and latest twelve month periods, and by the strength of our subscription business overall. In the coming quarters and years we expect three factors to continue to drive significant growth in subscription and related sales and profitability. First: driven by growth in All Access Pass, we expect substantially all the Company’s sales to be subscription and subscription-related within 3-4 years; second: we expect the already significant lifetime customer value of our All Access Passholders to continue to increase; and third: we expect the volume of new All Access Pass logos to grow significantly as we continue to aggressively grow our sales force and licensee network. As the almost complete conversion to subscription and related revenue occurs, we expect virtually the entire Company to be able to generate the same kinds of growth in revenue, gross margins, revenue retention, and customer impact we have seen in our subscription business over the past five years.”
Whitman added, “Cash flow during the first half of fiscal 2021 was strong, and we ended the quarter with approximately $55 million in liquidity, a level higher than the $39 million of we had when the pandemic started, and up from $42 million at the end of fiscal 2020 in August. The Company had $40.3 million of cash, with no borrowings on its $15.0 million revolving line of credit, at February 28, 2021.”
The following is a summary of key financial results for the quarter ended February 28, 2021:
Consolidated revenue for the first half of fiscal 2021 was $96.5 million compared with $112.4 million for the two quarters ended February 29, 2020. The Company’s fiscal 2021 sales declined primarily as a result of the impact of the continuing COVID-19 pandemic. Despite the challenging economic environment, the Company’s All Access Pass subscription revenues remained strong during the first half of fiscal 2021 and increased 14% compared with the first half of fiscal 2019. Enterprise Division sales were $77.5 million, compared with $86.5 million in the first two quarters of the prior year, and were primarily impacted by reduced international direct office sales, decreased materials sales, and decreased international licensee sales. While many countries continue to be in various stages of lockdown, the Company has seen international sales performance increase during last year’s fourth quarter, and during both the first and second quarters of fiscal 2021, and the Company remains optimistic about the recovery of its international operations during the second half of fiscal 2021. Education Division revenues were $16.0 million compared with $22.0 million in the first half of fiscal 2020. Ongoing disruptions to school operating environments reduced the delivery of coaching, consulting, and training days and related material sales to educational institutions as educators have dealt with changing and uncertain schedules. However, the majority of the coaching, consulting, and training days not able to be delivered during first half of fiscal 2021 are contractual, and will be recognized in the second half of the fiscal year. Consolidated gross profit for the first two quarters of fiscal 2021 was $73.7 million compared with $80.7 million in the first two quarters of fiscal 2020. Gross margin for the first half of fiscal 2021 improved 459 basis points to 76.4% of sales compared with 71.8% in the first half of fiscal 2020, reflecting increased subscription services revenues in the overall mix of sales.
Operating expenses during the first two quarters of fiscal 2021 decreased $8.2 million compared with the first half of fiscal 2020 primarily due to decreased SG&A expenses. Decreased SG&A expense was primarily due 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. The Company’s income from operations through February 28, 2021 improved significantly to $0.7 million compared with a loss of $(0.5) million in the first two quarters of fiscal 2020. Adjusted EBITDA for the two quarters ended February 28, 2021 remained strong at $8.8 million, compared with $9.0 million in the first two quarters of fiscal 2020. Including the impact of significantly increased tax expense resulting primarily from an increase in the valuation allowance against its deferred tax assets and various other non-deductible expenses, the Company reported a net
loss of $(0.9) million, or $(0.07) per share, for the first two quarters of fiscal 2021, compared with $0.6 million of net income, or $0.04 per diluted share, in the first half of fiscal 2020.
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 $20 million to $22 million in fiscal 2021. The Company remains confident that the strength of the All Access Pass and Leader in Me membership, which have driven Franklin Covey’s growth trajectory across recent years, and which have remained strong during the pandemic, will drive accelerated growth during fiscal 2021 and in the future.
Earnings Conference Call
On Thursday, April 1, 2021, at 5:00 p.m. Eastern (3:00 p.m. Mountain) Franklin Covey will host a conference call to review its financial results for the second quarter of fiscal 2021, which ended on February 28, 2021. Interested persons may participate by dialing 800-708-4540 (International participants may dial 847-619-6397), access code: 50128873. Alternatively, a webcast will be accessible at the following Web site: https://edge.media-server.com/mmc/p/k99v65z2. A replay of the webcast will remain accessible through April 22, 2021 on the Investor Relations area of the Company’s Web site.
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.
About Franklin Covey Co.
Franklin Covey Co. (NYSE: FC) is a global public company, specializing in organizational performance improvement. We help organizations achieve results that require lasting changes in human behavior. Our world-class solutions enable greatness in individuals, teams, and organizations and are accessible through the FranklinCovey All Access Pass®. These solutions are available across multiple delivery modalities, including online presentations, in 21 languages. Clients have included organizations in the Fortune 100, Fortune 500, thousands of small and mid-sized businesses, numerous government entities, and educational institutions. FranklinCovey has directly owned and licensee partner offices providing professional services in more than 160 countries and territories.