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
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:
- The Company’s consolidated sales for the quarter ended August
31, 2021 achieved record fourth-quarter levels. Consolidated sales
for the fourth quarter increased 41% to $68.9 million compared with
$49.0 million in fiscal 2020, and $65.2 million in the pre-pandemic
fourth quarter of fiscal 2019. Full-year fiscal 2021 sales
increased 13% to $224.2 million. The Company’s sales increased
during fiscal 2021 primarily due to strong subscription and
subscription services sales, including the following:
- All Access Pass subscription and subscription services sales
grew 41% to $32.0 million in the fourth quarter, and grew 24% to
$112.5 million for the full fiscal year.
- Leader in Me subscription sales increased 52% to $8.8 million
in the fourth quarter and increased 7% to $25.5 million for the
full fiscal year.
- The sum of billed and unbilled deferred revenue at August 31,
2021 grew 27% to $127.4 million, compared with August 31,
2020.
- On the strength of increased sales and a strong gross margin
percentage associated with increased subscription sales, gross
profit for the fourth quarter increased 41% to $53.3 million in
2021 compared with $37.9 million in 2020, and $47.5 million in
fiscal 2019. Full-year gross profit increased 19%, or $27.5
million, to $172.9 million.
- Adjusted EBITDA increased 18% to $10.6 million in the fourth
quarter of fiscal 2021 compared with $8.9 million in fiscal 2020,
and increased 96% to $28.0 million for full year fiscal 2021.
- These strong operating results increased the Company’s pre-tax
income to $3.9 million in fiscal 2021 compared with $3.2 million in
2020.
- Cash flows from operating activities for the fiscal year ended
August 31, 2021 increased 68% to $46.2 million compared with $27.6
million in the prior year.
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:
- Net Sales: Consolidated sales for
the quarter ending August 31, 2021 increased 41% to $68.9 million,
compared with $49.0 million in the fourth quarter of fiscal 2020.
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 fourth quarter of fiscal 2021,
Enterprise Division sales grew 34%, or $11.8 million, to $46.0
million compared with $34.3 million in the prior year. AAP sales
increased 27%, AAP subscription and subscription services sales
increased 41%, and annual revenue retention remained strong at
greater than 90%. Education Division sales grew 59%, or $7.8
million, to $21.0 million compared with $13.2 million in the fourth
quarter of the prior year. Education Division sales grew on the
strength of increased coaching days delivered, increased material
sales, and increased membership revenues. During the fourth quarter
of fiscal 2021 the Company was encouraged by continuing signs of
economic recovery in the United States and many of the other
countries in which it operates as companies, schools, and
individuals are adapting, and the positive effect of vaccinations
is enabling certain economies to open and recover. As a result of
improving conditions, sales improved in each of the Company’s
operating segments compared with the fourth quarter of fiscal 2020.
The Company remains optimistic about the future and looks forward
to continued recovery from the pandemic in fiscal 2022.
- Deferred Subscription Revenue and
Unbilled Deferred Revenue: At August 31, 2021, the Company
had $127.4 million of billed and unbilled deferred subscription
revenue, a 27%, or $27.2 million increase over August 31, 2020.
This total includes $77.0 million of deferred subscription revenue
which was on its balance sheet, a 27%, or $16.5 million increase
compared with deferred subscription revenue at August 31, 2020. At
August 31, 2021, the Company had $50.4 million of unbilled deferred
revenue, a 27%, or $10.8 million increase compared with $39.6
million of unbilled deferred revenue at August 31, 2020. Included
in these numbers is an increasing number of multi-year AAP
contracts. Through August 31, 2021, more than 40% of North American
AAP contracts are multi-year contracts, representing more than 50%
of North American AAP subscription revenue. 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 for the
fourth quarter of fiscal 2021 was $53.3 million compared with $37.9
million in the prior year. The Company’s gross margin for the
quarter ended August 31, 2021 remained strong and was consistent
with the prior year at 77.3%, reflecting continued strong
subscription sales in the mix of overall revenues. Gross profit
increased due to improved sales as described above.
- Operating Expenses: The Company’s
operating expenses for the fourth quarter of fiscal 2021 increased
$14.8 million compared with the fourth quarter of fiscal 2020,
which was primarily due to a $13.9 million increase in selling,
general, and administrative (SG&A) expenses and a $2.6 million
increase in stock-based compensation expense. The Company’s
SG&A expenses increased 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.
Due to uncertainties related to the COVID-19 pandemic and recovery
from the pandemic, in May 2020 the Company determined that its
stock-based compensation awards related to Adjusted EBITDA would
not vest before they expired and previously recognized compensation
expense from these awards was reversed. These Adjusted EBITDA based
awards were modified in the first quarter of fiscal 2021 and the
Company has recognized stock-based compensation expense on these
awards following the modification date.
- Operating Income: As a result of
increased sales and improved gross margin, the Company’s income
from operations for the quarter ended August 31, 2021 improved 15%
to $4.3 million compared with $3.7 million in the fourth quarter of
fiscal 2020.
- Income Taxes: The Company’s income
tax provision for the quarter ended August 31, 2021 was $2.1
million compared with $2.2 million in the prior year. The Company’s
effective income tax rate decreased to 53.2% compared with 69.6% in
the fourth quarter of fiscal 2020 primarily due to increased
pre-tax income compared with fiscal 2020, as less pre-tax income
amplifies the impact of permanent differences on the Company’s
effective tax rate.
- Net Income: As a result of the
factors described above, the Company’s fourth quarter net income
improved 84% to $1.8 million, or $0.13 per diluted share, compared
with $1.0 million, or $0.07 per diluted share, in the fourth
quarter of the prior year.
- Adjusted EBITDA: Adjusted EBITDA
for the fourth quarter of fiscal 2021 improved 18%, or $1.6
million, to $10.6 million compared with $8.9 million in the fourth
quarter of the prior year, reflecting increased sales and improved
margins.
- Cash Flows, Liquidity, and Financial
Position Remain Strong: The Company’s balance sheet and
liquidity position remained strong with $47.4 million of cash at
August 31, 2021, and no borrowings on its $15.0 million line of
credit, compared with $27.1 million of cash with no borrowings on
its line of credit at August 31, 2020. Cash flows from operating
activities for fiscal 2021 increased 68% to $46.2 million, despite
the challenging global economic environment during fiscal
2021.
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 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 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.
FRANKLIN COVEY CO.
Condensed Consolidated Statements of
Operations (in thousands, except per-share amounts, and
unaudited) Quarter Ended Fiscal Year Ended August 31, August
31, August 31, August 31,
2021
2020
2021
2020
Net sales
$
68,945
$
48,994
$
224,168
$
198,456
Cost of sales
15,677
11,140
51,266
53,086
Gross profit
53,268
37,854
172,902
145,370
Selling, general, and administrative
42,676
28,749
144,988
129,979
Stock-based compensation
3,490
887
8,617
(573
)
Restructuring costs
-
1,636
-
1,636
Depreciation
1,286
1,739
6,190
6,664
Amortization
1,503
1,102
5,006
4,606
Income from operations
4,313
3,741
8,101
3,058
Interest expense, net
(449
)
(515
)
(2,026
)
(2,262
)
Income before income taxes
3,864
3,226
6,075
796
Income tax benefit (provision)
(2,057
)
(2,246
)
7,548
(10,231
)
Net income (loss)
$
1,807
$
980
$
13,623
$
(9,435
)
Net income (loss) per common share: Basic
$
0.13
$
0.07
$
0.97
$
(0.68
)
Diluted
0.13
0.07
0.96
(0.68
)
Weighted average common shares: Basic
14,156
13,876
14,090
13,892
Diluted
14,175
13,941
14,143
13,892
Other data: Adjusted EBITDA(1)
$
10,556
$
8,909
$
27,958
$
14,284
(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.
FRANKLIN COVEY CO.
Reconciliation of Net Income (Loss) to
Adjusted EBITDA (in thousands and unaudited)
Quarter Ended Fiscal Year Ended August 31, August 31, August 31,
August 31,
2021
2020
2021
2020
Reconciliation of net income (loss) to Adjusted EBITDA: Net income
(loss)
$
1,807
$
980
$
13,623
$
(9,435
)
Adjustments: Interest expense, net
449
515
2,026
2,262
Income tax provision (benefit)
2,057
2,246
(7,548
)
10,231
Amortization
1,503
1,102
5,006
4,606
Depreciation
1,286
1,739
6,190
6,664
Stock-based compensation
3,490
887
8,617
(573
)
Business acquisition costs
-
-
300
-
Increase (decrease) in the fair value of contingent consideration
liabilities
28
318
193
(49
)
Restructuring costs
-
1,636
-
1,636
Government COVID assistance
(64
)
(514
)
(299
)
(514
)
Gain from insurance settlement
-
-
(150
)
(933
)
Knowledge Capital wind-down costs
-
-
-
389
Adjusted EBITDA
$
10,556
$
8,909
$
27,958
$
14,284
Adjusted EBITDA margin
15.3
%
18.2
%
12.5
%
7.2
%
FRANKLIN COVEY CO.
Additional Financial
Information (in thousands and unaudited) Quarter
Ended Fiscal Year Ended August 31, August 31, August 31, August 31,
2021
2020
2021
2020
Sales by Division/Segment: Enterprise Division: Direct
offices
$
44,422
$
32,936
$
159,608
$
139,780
International licensees
1,616
1,332
9,036
8,451
46,038
34,268
168,644
148,231
Education Division
21,028
13,215
48,902
43,405
Corporate and other
1,879
1,511
6,622
6,820
Consolidated
$
68,945
$
48,994
$
224,168
$
198,456
Gross Profit by Division/Segment: Enterprise
Division: Direct offices
$
36,215
$
26,924
$
129,416
$
108,144
International licensees
1,273
983
7,727
6,679
37,488
27,907
137,143
114,823
Education Division
15,262
9,271
32,771
27,099
Corporate and other
518
676
2,988
3,448
Consolidated
$
53,268
$
37,854
$
172,902
$
145,370
Adjusted EBITDA by Division/Segment: Enterprise
Division: Direct offices
$
6,211
$
6,899
$
27,948
$
17,694
International licensees
(11
)
(290
)
3,586
2,406
6,200
6,609
31,534
20,100
Education Division
6,823
3,617
4,818
(90
)
Corporate and other
(2,467
)
(1,317
)
(8,394
)
(5,726
)
Consolidated
$
10,556
$
8,909
$
27,958
$
14,284
FRANKLIN COVEY CO.
Condensed Consolidated Balance
Sheets (in thousands and unaudited) August 31,
August 31,
2021
2020
Assets Current assets: Cash and cash
equivalents
$
47,417
$
27,137
Accounts receivable, less allowance for doubtful accounts of $4,643
and $4,159
70,680
56,407
Inventories
2,496
2,974
Prepaid expenses and other current assets
16,115
15,146
Total current assets
136,708
101,664
Property and equipment, net
11,525
15,723
Intangible assets, net
50,097
47,125
Goodwill
31,220
24,220
Deferred income tax assets
4,951
1,094
Other long-term assets
15,153
15,611
$
249,654
$
205,437
Liabilities and Shareholders'
Equity Current liabilities: Current portion of notes payable
$
5,835
$
5,000
Current portion of financing obligation
2,887
2,600
Accounts payable
6,948
5,622
Deferred subscription revenue
74,772
59,289
Other deferred revenue
11,117
7,389
Accrued liabilities
34,980
22,628
Total current liabilities
136,539
102,528
Notes payable, less current portion
12,975
15,000
Financing obligation, less current portion
11,161
14,048
Other liabilities
8,741
9,110
Deferred income tax liabilities
375
5,298
Total liabilities
169,791
145,984
Shareholders' equity: Common stock
1,353
1,353
Additional paid-in capital
214,888
211,920
Retained earnings
63,591
49,968
Accumulated other comprehensive income
709
641
Treasury stock at cost, 12,889 and 13,175 shares
(200,678
)
(204,429
)
Total shareholders' equity
79,863
59,453
$
249,654
$
205,437
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211109006446/en/
Investor Contact: Franklin Covey Steve Young 801-817-1776
investor.relations@franklincovey.com
Media Contact: Franklin Covey Debra Lund 801-817-6440
Debra.Lund@franklincovey.com
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