FORM 8-K





FRANKLIN COVEY REPORTS EXCEPTIONALLY STRONG FOURTH QUARTER RESULTS, CAPPING AN OUTSTANDING 2021 FISCAL YEAR



Fourth Quarter Sales Increase to a Record $68.9 Million, Full-Year Sales Increase 13% to $224.2 Million



All Access Pass Subscription and Subscription Services Sales Grow 41% to $32.0 Million in the Fourth Quarter, Education Division Subscription Revenues Grow 52%



Billed and Unbilled Deferred Subscription Revenue Increases 27% Over the Prior Fiscal Year to $127.4 Million



Operating Income and Adjusted EBITDA Exceed Expectations as Fourth Quarter Adjusted EBITDA Increases 18% to $10.6 Million, Full-Year Adjusted EBITDA Increases 96% to $28.0 Million



Cash Flows from Operating Activities Increases 68% to $46.2 Million for Fiscal Year—Liquidity and Financial Position Remain Strong



Company Provides Guidance for Fiscal 2022



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 fourth quarter and fiscal 2021, ended August 31, 2021.



Introduction



The Company’s strong fourth quarter and full-year performance was highlighted by the following key metrics:



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Paul Walker, President and Chief Executive Officer, commented, “Our fourth quarter and full fiscal year results were strong, and even stronger than expected, reflecting the strength, quality, and durability of Franklin Covey’s value proposition and subscription business.  This impressive performance was driven by the continued success of our subscription model as we achieved double-digit sales growth in the fourth quarter and for fiscal 2021.”



Walker continued, “The ongoing strength of our subscription business was reflected in every income category, including sales, deferred sales (billed and unbilled), gross profit, Adjusted EBITDA, and net income.  Our cash flows from operating activities for the fiscal year increased 68% to $46.2 million compared with $27.6 million in fiscal 2020.  At August 31, 2021, we had $47.4 million of cash and over $62 million in liquidity. We believe the outstanding finish to fiscal 2021 provides considerable momentum as we enter fiscal 2022 and we look forward to increasing sales, profitability, and cash flows.”



Bob Whitman, Executive Chairman and Chairman of the Board added, “We expect three factors will continue to drive significant growth in our subscription and subscription service business.  First: driven by growth in All Access Pass and Leader in Me subscription and subscription services, we expect substantially all of the Company’s sales to be subscription based 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 invest in and integrate new capabilities and content, and continue to aggressively grow our sales force.  As the conversion to a subscription and subscription services model progresses, we expect nearly all areas of the Company to be able to generate the same kinds of growth in revenue, gross profit, revenue retention, and customer impact we have achieved in our North American subscription business over the past five years.  We believe the continued expansion of our subscription business will provide significant and long-lasting organizational benefits for our clients and create additional value for our shareholders.”



Financial Overview



The following is a summary of financial results for the fourth quarter ended August 31, 2021:



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Fiscal 2021 Financial Results



Consolidated revenue for the year ended August 31, 2021 was $224.2 million compared with $198.5 million in fiscal 2020.  The Company’s fiscal 2021 revenues increased primarily due to strong sales of its subscription and subscription services.  Despite the challenging economic and operating environment in fiscal 2021, the Company’s All Access Pass and Education Division subscription revenues increased substantially compared with the prior year.  Enterprise Division sales for the year increased 14%, or $20.4 million, to $168.6 million compared with $148.2 million in the prior year, and were primarily driven by increased AAP revenues and recovering international direct office and licensee sales.  All Access Pass subscription revenues grew 18% compared with the prior year and subscription and subscription service

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revenues increased 24% over fiscal 2020.  While many countries continue to be in various stages of lockdown, the Company has seen international sales performance increase steadily during fiscal 2021, and the Company remains optimistic about the continued recovery of its international operations during fiscal 2022.  Education Division revenues increased 13%, or $5.5 million, to $48.9 million compared with $43.4 million in fiscal 2020.  During fiscal 2021, the Education Division added 574 new Leader in Me schools, a 79% increase over fiscal 2020, and retained over 92% of its existing Leader in Me schools.  Education Division subscription revenue increased 7% compared with fiscal 2020 and material and non-contractual coaching days delivered, increased compared with fiscal 2020.  Consolidated gross profit for fiscal 2021 increased 19% to $172.9 million compared with $145.4 million in fiscal 2020.  Gross margin in fiscal 2021 improved 388 basis points to 77.1% of sales compared with 73.3% in fiscal 2020, reflecting increased subscription and subscription service revenues in the overall mix of sales.



Operating expenses in fiscal 2021 increased $22.5 million compared with fiscal 2020, primarily due to a $15.0 million increase in SG&A expenses and a $9.2 million increase stock-based compensation expense (primarily from modified stock awards as described above).  Increased SG&A expense was primarily due to increased variable compensation, including commissions, bonuses, and incentives resulting from increased sales and improved operating results; increased associate costs from additional sales and sales support personnel; and increased content and product development expense.  The Company’s income from operations for fiscal 2021 improved 165%, or $5.0 million, to $8.1 million compared with $3.1 million in the prior year.  The Company’s income tax expense in fiscal 2020 was primarily the result of increasing the valuation allowance against deferred income tax assets due to three-year cumulative pre-tax losses combined with expected disruptions and negative impacts to the business resulting from the COVID-19 pandemic and uncertainties related to recovery from the pandemic.  However, during fiscal 2021 the Company’s performance exceeded expectations, which returned it to three-year cumulative pre-tax income.  After consideration of these circumstances and the relevant accounting literature, the Company reduced the valuation allowance against its deferred tax assets, which primarily accounts for the income tax benefit recorded in fiscal 2021.  Including the impact of this income tax benefit in fiscal 2021, the Company reported net income of $13.6 million, or $0.96 per diluted share, for fiscal 2021, compared with a net loss of $(9.4) million, or $(0.68) per share, in fiscal 2020.  Adjusted EBITDA for the fiscal year ended August 31, 2021 increased 96%, or $13.7 million, to $28.0 million compared with $14.3 million in fiscal 2020.



Fiscal 2022 Outlook



Based on the Company’s strong performance and momentum generated in fiscal 2021, the Company expects fiscal 2022 Adjusted EBITDA to total between $34.0 million and $36.0 million.  The middle of this range reflects 25% growth in Adjusted EBITDA compared with the $28.0 million achieved in fiscal 2021.  The Company remains confident the strength of the All Access Pass and Leader in Me membership subscriptions, which have driven Franklin Covey’s growth trajectory across recent years, and which have remained strong during the pandemic, will drive continued growth in fiscal 2022 and subsequent years.



Earnings Conference Call



On Tuesday, November 9, 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 fourth quarter and fiscal 2021, which ended on August 31, 2021.  Interested persons may participate by dialing 800-708-4539 (International participants may dial 847-619-6396), access code: 50245591.  Alternatively, a webcast will be accessible at the following Web site: https://edge.media-server.com/mmc/p/bkx8v6kx.  A replay of the webcast will remain accessible through November 23, 2021 on the Investor Relations area of the Company’s Web site.



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

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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 Securities and Exchange Commission.  Many of these conditions are beyond the Company’s control or influence, any one of which may cause future results to differ materially from the Company’s current expectations, and there can be no assurance that the Company’s actual future performance will meet management’s expectations.  These forward-looking statements are based on management’s current expectations and the Company undertakes no obligation to update or revise these forward-looking statements to reflect events or circumstances subsequent to this press release.



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 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.





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