Consolidated Sales Increase 13% to $69.4
Million Compared with $61.3 Million in Fiscal 2022, Sales Grow 14%
for the Latest Four Quarters
All Access Pass Subscription and
Subscription Services Sales Grow 20% to $39.6 Million, Education
Division Revenues Grow 23% over Fiscal 2022
Sum of Billed and Unbilled Deferred
Subscription Revenue Increases 25% to $151.6 Million Compared with
November 30, 2021
Net Income and Adjusted EBITDA Exceed
Expectations, Net Income Increases 22% to $4.7 Million, Adjusted
EBITDA Increases 16% to $11.5 Million, Latest Four Quarters
Adjusted EBITDA Increases 28% to $43.7 Million
Liquidity and Financial Position Remain
Strong with Available Liquidity Exceeding $73 Million at November
30, 2022
Company Affirms Earnings Guidance for Fiscal
2023
Franklin Covey Co. (NYSE: FC), a leader in organizational
performance improvement 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 first quarter of fiscal 2023, which ended
on November 30, 2022.
Introduction
The Company’s strong start to fiscal 2023 was highlighted by the
following key metrics:
- The Company’s consolidated sales for the quarter ended November
30, 2022 increased 13% to $69.4 million compared with $61.3 million
in the first quarter of fiscal 2022. On a constant currency basis,
the Company’s sales increased 17% to $71.4 million. For the rolling
four quarters ended November 30, 2022, the Company’s consolidated
sales increased 14% to $271.0 million compared with $237.1 million
in the corresponding period ended November 30, 2021. The Company’s
sales for the first quarter increased primarily due to strong
subscription and subscription services sales, including the
following:
- All Access Pass subscription and subscription services sales
grew 20% to $39.6 million in the first quarter and grew 26% to
$151.0 million for the rolling four quarters ended November 30,
2022.
- Education Division revenues grew 23% on the strength of
increased consulting, coaching, and training days delivered during
the quarter as well as increased materials sales. The Education
Division continued its momentum generated in fiscal 2022, during
which it added a record 739 new Leader in Me schools.
- Total Company deferred revenue at November 30, 2022 was $90.8
million. The sum of billed subscription and unbilled deferred
subscription revenue at November 30, 2022 grew 25% to $151.6
million, compared with November 30, 2021. Approximately 48% of the
Company’s All Access Pass subscriptions are now multi-year
contracts, representing 62% of All Access Pass subscriptions
invoiced in North America as of November 30, 2022.
- On the strength of increased sales and continued strong gross
margins, gross profit for the first quarter of fiscal 2023
increased 11%, or $5.1 million, to $52.7 million compared with
$47.6 million in the prior year. Rolling four quarter gross profit
increased 12% to $207.1 million, compared with $184.1 million for
the four quarters ended November 30, 2021.
- Operating income for the first quarter of fiscal 2023 increased
15%, or $0.8 million, to $6.4 million compared with $5.5 million in
the first quarter of fiscal 2022. Rolling four quarter income from
operations increased 77%, or $10.7 million, to $24.5 million
compared with $13.8 million for the corresponding period of the
prior year.
- Adjusted EBITDA for the first quarter of fiscal 2023 increased
16% to $11.5 million compared with $9.9 million in fiscal 2022. On
a constant currency basis, the Company’s first quarter Adjusted
EBITDA increased 23% to $12.2 million. Rolling four-quarter
Adjusted EBITDA increased 28% to $43.7 million compared with $34.2
million for the four quarters ended November 30, 2021.
- With $58.2 million of cash and $15 million available on its
revolving line of credit, the Company’s liquidity totaled more than
$73 million at November 30, 2022.
Paul Walker, President and Chief Executive Officer, commented,
“We are very pleased with our strong start to fiscal 2023, which
was driven by continued strong revenue growth, gross margins, and
operational efficiency, which contributed to increased net income
and Adjusted EBITDA. Our first quarter results featured a 13%
increase in sales, a 76.0% gross margin, a 22% increase in net
income, and a 16% increase in Adjusted EBITDA to $11.5 million. We
achieved these outstanding results despite continued international
operating issues, including the impact of $2.0 million of
unfavorable foreign exchange on our first quarter sales and
continued operating challenges in China and Japan.”
Walker continued, “Three key factors are continuing to drive and
enable our strong business model. First, the
importance of the must-win opportunities that we help our clients
address. The must-win challenges and opportunities that we
help our clients address all require the collective action of large
numbers of people. These challenges and opportunities are very
durable in both good and more difficult times. Second, is the effectiveness of our solutions in helping
clients successfully address these challenges. Our offerings
include best-in-class content, effective technology which enables
us to deliver our content with impact and at scale, and metrics
that our clients can use to evaluate the impact of our solutions in
moving behavior. Third, the strength and
reach of our worldwide client-facing organization in acquiring,
serving, retaining, and expanding client relationships. We
believe these factors were key to our strong first quarter and
latest twelve months’ performance, and will continue to be
important to our growth during the remainder of fiscal 2023 and in
future periods.”
First Quarter Financial
Overview
The following is a summary of financial results for the first
quarter of fiscal 2023:
- Net Sales: Consolidated sales for
the quarter ended November 30, 2022 increased 13% to $69.4 million,
compared with $61.3 million in the first quarter of fiscal 2022.
Excluding the unfavorable impact of foreign exchange rates during
the quarter, the Company’s sales increased 17% to $71.4 million.
The Company continues to be pleased with the performance of the All
Access Pass and Leader in Me subscription-based services, which
drove strong growth during fiscal 2022 and provided significant
momentum to begin fiscal 2023. For the first quarter of fiscal
2023, Enterprise Division sales grew 11%, or $5.3 million, to $53.4
million compared with $48.1 million in the prior year, despite
unfavorable foreign exchange rates, a 10% decrease in sales through
the Company’s office in China, primarily from COVID-related
restrictions, and a 6% decrease in sales from Japan, which was
primarily due to post-pandemic economic recovery issues. AAP
subscription and subscription services sales increased 20% to $39.6
million, and annual revenue retention remained strong at well above
90%. International licensee revenues continue to improve and
increased 9% compared with the prior year, despite the impact of
foreign exchange rates, and the impact in certain countries in
Eastern Europe of the war in Ukraine. Education Division sales grew
23%, or $2.7 million, to $14.4 million compared with $11.7 million
in fiscal 2022. Education Division sales grew primarily due to
increased consulting, coaching, and training days delivered during
the quarter, increased Leader in Me subscription revenue, and
increased training material sales compared with the prior
year.
- Deferred Subscription Revenue and
Unbilled Deferred Revenue: At November 30, 2022, the Company
had $151.6 million of billed and unbilled deferred subscription
revenue, a 25%, or $30.5 million increase over the balance at
November 30, 2021. This total includes $76.7 million of deferred
subscription revenue on the balance sheet, a 13%, or $8.9 million
increase compared with deferred subscription revenue at November
30, 2021. At November 30, 2022, the Company had $74.9 million of
unbilled deferred subscription revenue, a 40%, or $21.6 million
increase compared with $53.4 million of unbilled deferred revenue
at November 30, 2021. 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 2023 increased 11% to $52.7 million,
compared with $47.6 million in fiscal 2022. The Company’s gross
margin for the quarter ended November 30, 2022 remained strong at
76.0% compared with 77.7% in the prior year, and reflected changes
in the overall mix of services and products sold during the
quarter.
- Operating Expenses: The Company’s
operating expenses for the quarter ended November 30, 2022
increased $4.3 million compared with the first quarter of fiscal
2022, which was primarily due to a $4.7 million increase in
selling, general, and administrative (SG&A) expenses. Despite
the increase in SG&A expenses, as a percent of sales, the
Company’s SG&A expenses in the first quarter of fiscal 2023
decreased to 63.4% compared with 64.2% in the prior year. The
Company’s SG&A expenses increased primarily due to increased
associate costs resulting from new personnel and increased
salaries; increased commissions on higher sales; and increased
travel expense.
- Operating Income: As a result of
increased sales and a strong gross margin, the Company’s income
from operations for the quarter ended November 30, 2022 improved
15% to $6.4 million, compared with $5.5 million in the first
quarter of fiscal 2022.
- Net Income: As a result of the
factors described above, the Company’s first quarter net income
increased 22%, or $0.9 million, to $4.7 million, or $0.32 per
diluted share, compared with $3.8 million, or $0.27 per diluted
share, in the first quarter of fiscal 2022.
- Adjusted EBITDA: Adjusted EBITDA
for the quarter ended November 30, 2022 improved 16% to $11.5
million compared with $9.9 million in the first quarter of fiscal
2022, reflecting increased sales and continued strong gross margins
as previously described.
- Liquidity and Financial Position:
The Company’s liquidity and financial position remained strong with
more than $73 million of liquidity at November 30, 2022, which was
comprised of $58.2 million of cash at November 30, 2022, and no
borrowings on its $15.0 million line of credit, compared with $60.5
million of cash with no borrowings on its line of credit at August
31, 2022.
Fiscal 2023 Guidance
Driven by the continued strength and strategic durability of its
All Access Pass and Leader in Me membership subscriptions, which
have driven accelerated growth over the past years, and continuing
strong performance through the first quarter of fiscal 2023, the
Company affirms its previous guidance that Adjusted EBITDA for
fiscal 2023 will increase to between $47 million and $49 million in
constant currency, compared with the $42.2 million in Adjusted
EBITDA achieved in fiscal 2022. The Company expects to achieve this
growth even after continuing to make: 1) increased investments to
add new client partners, other personnel, and investments in the
Company’s delivery portals and content; 2) absorbing potentially
challenging macroeconomic circumstances; and 3) the potential for
ongoing disruptions in China and Japan resulting from the COVID-19
pandemic and economic conditions in these countries. The Company’s
current outlook is that its Adjusted EBITDA will then increase to
approximately $57 million in fiscal 2024, and to approximately $67
million in fiscal 2025. The Company remains confident in the
strength of the All Access Pass and Leader in Me membership
subscriptions, which have driven Franklin Covey’s growth across
recent years and which are expected to drive continued growth in
fiscal 2023 and subsequent years.
Earnings Conference Call
On Thursday, January 5, 2023, 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 first quarter of fiscal 2023. Interested
persons may access a live audio webcast on the Company’s website at
https://ir.franklincovey.com, or may participate via telephone by
registering at
https://register.vevent.com/register/BI1670588cb173490e85da5a3871f3e033.
Once registered, participants will have the option of: 1) dialing
into the call from their phone (via a personalized PIN); or 2)
clicking the “Call Me” option to receive an automated call directly
to their phone. For either option, registration will be required to
access the call. A replay of the conference call webcast will be
archived on the Company’s website for at least 30 days.
Investor Event
Franklin Covey will be hosting an investor event on February
1-2, 2023. During this event, the Company will explore the client
impact journey offered through its two divisions, introduce the
FranklinCovey Impact Platform, and provide an opportunity to dive
into the fundamentals of the Company’s subscription business and
future strategy with its Executive Team. To register for the
investor event, or to receive further information, please contact
Boyd Roberts at 801-817-5127 or via email at
investor.relations@franklincovey.com.
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; expectations regarding the
economic recovery from the pandemic; renewals of subscription
contracts; the impact of deferred revenues on future financial
results; impacts from global economic and supply chain disruptions;
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 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 concepts of adjusted earnings
before interest, income taxes, depreciation, and amortization
(Adjusted EBITDA) and “constant currency,” which are non-GAAP
measures. 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 items such as adjustments to the fair value of
expected contingent consideration liabilities arising from business
acquisitions. Constant currency is a non-GAAP financial measure
that removes the impact of fluctuations in foreign currency
exchange rates and is calculated by translating the current
period’s financial results at the same average exchange rates in
effect during the prior year and then comparing this amount to the
prior year. The Company references these non-GAAP financial
measures in its decision making because they provide supplemental
information that facilitates consistent internal comparisons to the
historical operating performance of prior periods and the Company
believes they provide 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 Franklin Covey Co.
Franklin Covey Co. (NYSE: FC) is a global leadership company
with directly owned and licensee partner offices providing
professional services in over 160 countries and territories. The
Company transforms organizations by partnering with its clients to
build leaders, teams, and cultures that achieve breakthrough
results through collective action, which leads to a more engaging
work experience for their people. Available through the Franklin
Covey All Access Pass, the Company’s best-in-class content and
solutions, experts, technology, and metrics seamlessly integrate to
ensure lasting behavioral change at scale. Solutions are available
in multiple delivery modalities in more than 20 languages.
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.
FRANKLIN COVEY CO.
Condensed Consolidated Income
Statements (in thousands, except per-share amounts, and
unaudited) Quarter Ended
November 30,
November 30,
2022
2021
Net sales
$
69,369
$
61,259
Cost of sales
16,627
13,661
Gross profit
52,742
47,598
Selling, general, and administrative
44,012
39,343
Depreciation
1,246
1,279
Amortization
1,092
1,431
Income from operations
6,392
5,545
Interest expense, net
(329
)
(431
)
Income before income taxes
6,063
5,114
Income tax provision
(1,396
)
(1,302
)
Net income
$
4,667
$
3,812
Net income per share: Basic
$
0.34
$
0.27
Diluted
0.32
0.27
Weighted average common shares: Basic
13,877
14,246
Diluted
14,507
14,312
Other data: Adjusted EBITDA(1)
$
11,472
$
9,932
(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.
FRANKLIN COVEY CO.
Reconciliation of Net Income to Adjusted
EBITDA (in thousands and unaudited) Quarter Ended
November 30, November 30,
2022
2021
Reconciliation of net income to Adjusted EBITDA: Net income
$
4,667
$
3,812
Adjustments: Interest expense, net
329
431
Income tax provision
1,396
1,302
Amortization
1,092
1,431
Depreciation
1,246
1,279
Stock-based compensation
2,735
1,649
Increase in the fair value of contingent consideration liabilities
7
28
Adjusted EBITDA
$
11,472
$
9,932
Adjusted EBITDA margin
16.5
%
16.2
%
FRANKLIN COVEY
CO. Additional Financial
Information (in thousands and unaudited) Quarter
Ended
November 30,
November 30,
2022
2021
Sales by Division/Segment: Enterprise Division: Direct
offices
$
50,167
$
45,119
International licensees
3,278
2,997
53,445
48,116
Education Division
14,350
11,697
Corporate and other
1,574
1,446
Consolidated
$
69,369
$
61,259
Gross Profit by Division/Segment: Enterprise
Division: Direct offices
$
39,921
$
36,202
International licensees
2,977
2,701
42,898
38,903
Education Division
9,175
7,860
Corporate and other
669
835
Consolidated
$
52,742
$
47,598
Adjusted EBITDA by Division/Segment: Enterprise
Division: Direct offices
$
11,250
$
9,954
International licensees
1,831
1,671
13,081
11,625
Education Division
281
235
Corporate and other
(1,890
)
(1,928
)
Consolidated
$
11,472
$
9,932
FRANKLIN COVEY CO.
Condensed Consolidated Balance
Sheets (in thousands and unaudited)
November 30,
August 31,
2022
2022
Assets Current assets: Cash and cash
equivalents
$
58,152
$
60,517
Accounts receivable, less allowance for doubtful accounts of $4,427
and $4,492
57,352
72,561
Inventories
3,477
3,527
Prepaid expenses and other current assets
17,364
19,278
Total current assets
136,345
155,883
Property and equipment, net
9,465
9,798
Intangible assets, net
43,742
44,833
Goodwill
31,220
31,220
Deferred income tax assets
4,279
4,686
Other long-term assets
12,378
12,735
$
237,429
$
259,155
Liabilities and Shareholders'
Equity Current liabilities: Current portion of notes payable
$
5,835
$
5,835
Current portion of financing obligation
3,281
3,199
Accounts payable
6,878
10,864
Deferred subscription revenue
74,394
85,543
Other deferred revenue
13,906
14,150
Accrued liabilities
23,380
34,205
Total current liabilities
127,674
153,796
Notes payable, less current portion
6,045
7,268
Financing obligation, less current portion
7,105
7,962
Other liabilities
6,788
7,116
Deferred income tax liabilities
199
199
Total liabilities
147,811
176,341
Shareholders' equity: Common stock
1,353
1,353
Additional paid-in capital
222,413
220,246
Retained earnings
86,688
82,021
Accumulated other comprehensive loss
(672
)
(542
)
Treasury stock at cost, 13,165 and 13,203 shares
(220,164
)
(220,264
)
Total shareholders' equity
89,618
82,814
$
237,429
$
259,155
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230105005851/en/
Investor Contact: Franklin Covey Boyd Roberts 801-817-5127
investor.relations@franklincovey.com
Media Contact: Franklin Covey Debra Lund 801-817-6440
Debra.Lund@franklincovey.com
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