Consolidated Third Quarter Revenue Increases
to $73.4 Million compared with $71.4 Million in the Prior
Year
Third Quarter Net Income Increases 25% to
$5.7 Million, or $0.43 per diluted share, compared with $4.6
Million, or $0.32 per diluted share in Prior Year--Adjusted EBITDA
Increases 17% to $13.9 Million for the Third Quarter compared with
$11.9 Million in Fiscal 2023
Cash Flows From Operating Activities
Increase to $38.4 Million compared with $25.9 Million in the First
Three Quarters of Fiscal 2023 and Free Cash Flow Increases to $30.6
Million From $15.6 Million in the First Three Quarters of Fiscal
2023
Liquidity Remains Strong at nearly $100
Million, with $36.6 Million of Cash and No Drawdowns on the
Company’s $62.5 Million Credit Facility, even after Purchasing
$25.8 Million of its Common Stock through May 31, 2024
Company Reaffirms Guidance for Fiscal
2024
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 the third quarter of fiscal 2024, which ended
on May 31, 2024.
Third Quarter
Performance
The Company’s consolidated revenue for the quarter ended May 31,
2024 grew 3% to $73.4 million compared with $71.4 million in the
third quarter of fiscal 2023. Revenue for the three quarters ended
May 31, 2024 increased to $203.1 million compared with $202.6
million in the prior year. The Company’s financial performance for
the third quarter included the following:
- Enterprise Division revenues for the third quarter of fiscal
2024 totaled $52.0 million compared with $53.2 million in fiscal
2023. Increased All Access Pass (AAP) revenues in the third quarter
were offset by decreased legacy training program revenue and
reduced international direct office and licensee revenues. AAP
subscription revenue grew 4% compared with the third quarter of
fiscal 2023 and AAP subscription plus subscription services revenue
grew 3% compared with the prior year. During the first three
quarters of fiscal 2024, AAP subscription revenue retention levels
in the United States and Canada remained strong and were greater
than 90%.
- Education Division revenues grew 18% to $20.1 million in the
third quarter of fiscal 2024 primarily due to increased classroom
materials revenue, due in part to a new initiative with a state
that began in the third quarter, and increased membership
subscription revenues. Delivery of training and coaching days
remained strong during the third quarter of fiscal 2024, as the
Education Division delivered nearly 100 more training and coaching
days than the prior year.
- Total Company subscription and subscription services revenues
reached $60.8 million, a 6% increase over the third quarter of
fiscal 2023. For the rolling four quarters ended May 31, 2024,
subscription and subscription service revenue reached $230.6
million, an $8.4 million, or 4%, increase over the rolling four
quarters ended May 31, 2023.
- Operating income for the quarter ended May 31, 2024 increased
27%, or $1.8 million, to $8.3 million compared with $6.6 million in
fiscal 2023. Net income for the third quarter increased 25%, or
$1.2 million, to $5.7 million, or $0.43 per diluted share, compared
with $4.6 million, or $0.32 per diluted share, in the third quarter
of fiscal 2023.
- Adjusted EBITDA for the third quarter of fiscal 2024 was a
better-than-expected $13.9 million compared with $11.9 million in
fiscal 2023. Adjusted EBITDA for the three quarters ended May 31,
2024 increased to $32.3 million compared with $31.6 million in
fiscal 2023.
- Consolidated deferred subscription revenue at May 31, 2024
increased 15% to $83.8 million compared with $72.7 million at May
31, 2023. Unbilled deferred subscription revenue at May 31, 2024,
grew to $69.4 million compared with $68.2 million at May 31, 2023.
At May 31, 2024, 55% of the Company’s AAP contracts are for at
least two years, compared with 50% at May 31, 2023, and the
percentage of contracted amounts represented by multi-year
contracts increased to 60% from 57% at May 31, 2023.
- Cash flows from operating activities for the first three
quarters of fiscal 2024 increased 48% to $38.4 million compared
with $25.9 million in the first three quarters of fiscal 2023. Free
Cash Flow increased to $30.6 million in the first three quarters of
fiscal 2024 from $15.6 million in the same period of fiscal
2023.
- The Company purchased 188,373 shares of its common stock on the
open market for $7.4 million during the quarter ended May 31, 2024.
For the first three quarters of fiscal 2024, the Company has
purchased approximately 649,000 shares of its common stock for
$25.8 million.
Paul Walker, President and Chief Executive Officer, commented,
“We are pleased with our results in the third quarter, where
revenue, Adjusted EBITDA, and cash flows were all stronger than
expected. We were further encouraged by the strengthening of
several key indicators during the quarter and believe that these
trends will lead to improved results in future periods. Our
consolidated revenue for the quarter increased to $73.4 million,
and our Adjusted EBITDA increased 17% to $13.9 million. Cash flows
provided by operating activities and Free Cash Flow were strong
through the end of the third quarter and we were able to return
$7.4 million of this cash flow back to investors through purchases
of our stock. The strength of our third quarter operating results
was generally broad based across the Enterprise and Education
Divisions and we continue to be pleased with the growth in our
balances of billed and unbilled deferred subscription revenue.
Combined with an improved subscription services booking pace, we
believe the third quarter created a strong foundation for continued
growth in our fourth quarter as we expect to achieve all-time highs
in revenue, Adjusted EBITDA, and Free Cash Flow in fiscal
2024.”
Walker added, “We believe there are 4 key factors which continue
to drive the growth and value of our business that were again
evident in the third quarter. The first of these drivers is the
mission critical nature of the opportunities and challenges we help
organizations and schools address and the strength and efficacy of
our solutions in addressing these challenges. These factors are
reflected in the continued resiliency of our business, despite an
uncertain and difficult economic environment, as our clients
recognize the value of our content and offerings. Second is the
strength of our leading indicators of growth, which showed renewed
momentum in the third quarter. These leading indicators include
growth in deferred revenue, growth in unbilled deferred revenue,
and growth in the amount of add-on services booked in the quarter.
The third driver of growth and value is the strength of our
subscription business model. Our business model is designed to
achieve high levels of recurring revenue with strong gross margins
and scalable levels of operating expenses that require very little
working capital investment. The combination of these factors
results in a high flow through of incremental revenue to Adjusted
EBITDA and cash flows. The fourth value driver is the ability to
invest our Free Cash Flow and excess cash into the business at a
high rate of return, with the balance being returned to
shareholders in the form of significant stock purchases. We believe
these drivers will continue to create strength in our business and
create value for our stakeholders during the remainder of fiscal
2024 and in future periods.”
Fiscal 2024 Guidance
Based on the Company’s third quarter results, combined with
improved leading indicators and the Company’s current expectations
regarding the fourth quarter, the Company looks forward to a strong
finish to fiscal 2024. Despite the challenges the Company faced in
the first half of fiscal 2024, the Company continues to expect that
its Adjusted EBITDA for fiscal 2024, while showing a strong
increase in the third quarter, will be at the low end of its
previously announced guidance range of $54.5 million to $58.0
million in constant currency, which excludes the impact of
approximately $0.5 million of negative foreign exchange. This
represents 13% growth over the $48.1 million of Adjusted EBITDA
achieved in fiscal 2023. The Company expects to achieve this growth
despite an uncertain economic environment and while continuing to
make additional growth investments. The Company is also confident
in the strength of its subscription offerings, which have driven
Franklin Covey’s growth across recent years, and which are expected
to deliver in fiscal 2024 the highest levels of revenue, Adjusted
EBITDA, and Free Cash Flow since the sale of the Company’s consumer
products division.
New Share Purchase
Program
On April 18, 2024, the Company’s Board of Directors approved a
new plan to purchase up to $50.0 million of its outstanding common
stock. The previously existing common stock purchase plan was
canceled, and the new common share purchase plan does not have an
expiration date. The actual timing, number, and value of common
shares purchased under the new board-approved plan will be
determined at the Company’s discretion and will depend on a number
of factors, including, among others, general market and business
conditions, the trading price of common shares, and applicable
legal requirements. The Company has no obligation to purchase any
common shares under the authorization, and the purchase plan may be
suspended, discontinued, or modified at any time for any reason.
All shares purchased through May 31, 2024 were made under the
previously existing purchase plan.
Earnings Conference Call
On Wednesday, June 26, 2024, at 5:00 p.m. Eastern (3:00 p.m.
Mountain) Franklin Covey will host a conference call to review its
third quarter fiscal 2024 financial results. Interested persons may
access a live audio webcast at
https://edge.media-server.com/mmc/p/ydczbpt5 or may participate via
telephone by registering at
https://register.vevent.com/register/BI4d35b960438748338e1607462bed1119.
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.
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
macroeconomic conditions; renewals of subscription contracts;
growth in and client demand for add-on services; the impact of
deferred revenues on future financial results; impacts from
geopolitical conflicts; market acceptance of new products or
services, including new AAP portal upgrades and content launches;
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 EBITDA
and Free Cash Flow, 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
infrequently occurring items such as restructuring costs and
impaired assets. Free Cash Flow is defined as GAAP calculated cash
flows from operating activities less capitalized expenditures for
purchases of property and equipment and curriculum development. 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
tables for the reconciliation of the non-GAAP financial measure,
Adjusted EBITDA, to consolidated net income, a related GAAP
financial measure, and for the calculation of Free Cash Flow.
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 Three Quarters Ended May 31,
May 31, May 31, May 31,
2024
2023
2024
2023
Revenue
$
73,373
$
71,441
$
203,109
$
202,565
Cost of revenue
17,167
17,208
47,773
48,380
Gross profit
56,206
54,233
155,336
154,185
Selling, general, and administrative
45,110
45,641
130,088
131,991
Restructuring costs
701
-
3,008
-
Impaired asset
-
-
928
-
Depreciation
990
934
2,994
3,131
Amortization
1,062
1,086
3,204
3,270
Income from operations
8,343
6,572
15,114
15,793
Interest income (expense), net
21
8
(59
)
(369
)
Income before income taxes
8,364
6,580
15,055
15,424
Income tax provision
(2,643
)
(2,017
)
(3,609
)
(4,455
)
Net income
$
5,721
$
4,563
$
11,446
$
10,969
Net income per common share: Basic
$
0.43
$
0.33
$
0.87
$
0.79
Diluted
0.43
0.32
0.85
0.76
Weighted average common shares: Basic
13,160
13,621
13,222
13,799
Diluted
13,378
14,273
13,499
14,437
Other data: Adjusted EBITDA(1)
$
13,924
$
11,899
$
32,340
$
31,558
(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 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
Three Quarters Ended May 31, May 31, May 31, May 31,
2024
2023
2024
2023
Reconciliation of net income to Adjusted EBITDA: Net income
$
5,721
$
4,563
$
11,446
$
10,969
Adjustments: Interest expense (income), net
(21
)
(8
)
59
369
Income tax provision
2,643
2,017
3,609
4,455
Amortization
1,062
1,086
3,204
3,270
Depreciation
990
934
2,994
3,131
Stock-based compensation
2,828
3,307
7,092
9,357
Restructuring costs
701
-
3,008
-
Impaired asset
-
-
928
-
Increase in the fair value of contingent consideration liabilities
-
-
-
7
Adjusted EBITDA
$
13,924
$
11,899
$
32,340
$
31,558
Adjusted EBITDA margin
19.0
%
16.7
%
15.9
%
15.6
%
FRANKLIN COVEY CO.
Additional Financial
Information (in thousands and unaudited) Quarter
Ended Three Quarters Ended May 31, May 31, May 31, May 31,
2024
2023
2024
2023
Revenue by Division/Segment: Enterprise Division: Direct
offices
$
49,334
$
50,382
$
141,509
$
144,194
International licensees
2,701
2,835
8,826
9,048
52,035
53,217
150,335
153,242
Education Division
20,079
17,082
49,402
45,631
Corporate and other
1,259
1,142
3,372
3,692
Consolidated
$
73,373
$
71,441
$
203,109
$
202,565
Gross Profit by Division/Segment: Enterprise
Division: Direct offices
$
40,172
$
40,425
$
115,186
$
116,199
International licensees
2,435
2,549
7,861
8,184
42,607
42,974
123,047
124,383
Education Division
13,179
10,929
31,157
28,497
Corporate and other
420
330
1,132
1,305
Consolidated
$
56,206
$
54,233
$
155,336
$
154,185
Adjusted EBITDA by Division/Segment: Enterprise
Division: Direct offices
$
12,170
$
11,322
$
32,978
$
32,212
International licensees
1,334
1,415
4,571
4,787
13,504
12,737
37,549
36,999
Education Division
3,080
1,649
2,593
1,309
Corporate and other
(2,660
)
(2,487
)
(7,802
)
(6,750
)
Consolidated
$
13,924
$
11,899
$
32,340
$
31,558
FRANKLIN COVEY CO.
Condensed Consolidated Balance
Sheets (in thousands and unaudited) May 31,
August 31,
2024
2023
Assets Current assets: Cash and cash
equivalents
$
36,574
$
38,230
Accounts receivable, less allowance for doubtful accounts of $3,111
and $3,790
60,424
81,935
Inventories
4,644
4,213
Prepaid expenses and other current assets
18,389
20,639
Total current assets
120,031
145,017
Property and equipment, net
8,631
10,039
Intangible assets, net
38,808
40,511
Goodwill
31,220
31,220
Deferred income tax assets
1,636
1,661
Other long-term assets
20,645
17,471
$
220,971
$
245,919
Liabilities and Shareholders'
Equity Current liabilities: Current portion of notes payable
$
2,085
$
5,835
Current portion of financing obligation
3,810
3,538
Accounts payable
6,185
6,501
Deferred subscription revenue
80,092
95,386
Customer deposits
22,204
12,137
Accrued liabilities
22,215
28,252
Total current liabilities
136,591
151,649
Notes payable, less current portion
761
1,535
Financing obligation, less current portion
1,533
4,424
Other liabilities
8,076
7,617
Deferred income tax liabilities
1,847
2,040
Total liabilities
148,808
167,265
Shareholders' equity: Common stock
1,353
1,353
Additional paid-in capital
228,612
232,373
Retained earnings
111,248
99,802
Accumulated other comprehensive loss
(1,250
)
(987
)
Treasury stock at cost, 13,969 and 13,974 shares
(267,800
)
(253,887
)
Total shareholders' equity
72,163
78,654
$
220,971
$
245,919
FRANKLIN COVEY CO.
Condensed Consolidated Free Cash
Flow (in thousands and unaudited) Three Quarters
Ended May 31, May 31,
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES Net income $
11,446
$
10,969
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
6,198
6,401
Amortization of capitalized curriculum costs
2,340
2,385
Impairment of asset
928
-
Stock-based compensation
7,092
9,357
Deferred income taxes
(169
)
2,399
Change in fair value of contingent consideration liabilities
-
7
Amortization of right-of-use operating lease assets
596
633
Changes in working capital
9,954
(6,204
)
Net cash provided by operating activities
38,385
25,947
CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property
and equipment
(2,618
)
(3,545
)
Curriculum development costs
(5,195
)
(6,841
)
Net cash used for investing activities
(7,813
)
(10,386
)
Free Cash Flow $
30,572
$
15,561
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240626176012/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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