Franklin Covey Reports Strong Financial Results to Start Fiscal 2024
- None.
- None.
Insights
The reported increase in consolidated sales and subscription services sales indicates a robust and growing demand for Franklin Covey Co.'s offerings, which is a positive signal for investors. The company's ability to exceed sales expectations, especially in a subscription-based model, suggests a stable and predictable revenue stream. This is further underscored by the 12% year-over-year increase in deferred subscription revenue, which reflects a strong base for future sales growth. Additionally, the company's strong cash flow from operations, jumping from $3.0 million to $17.4 million, demonstrates improved operational efficiency and effective management of working capital.
Investors should note the share repurchase activity, which often signals management's confidence in the company's intrinsic value. Purchasing 408,596 shares for $16.3 million could be seen as a strategic move to enhance shareholder value. Furthermore, the affirmation of earnings guidance provides a positive outlook, contributing to potential investor confidence.
The growth in subscription and subscription services sales, particularly the All Access Pass (AAP), highlights a successful adoption and retention strategy for Franklin Covey Co.'s products. A 13% growth in AAP sales suggests that the company's content and services are resonating well with its target market. The Education Division's performance, with a 3% revenue growth, indicates expansion in international markets and increased engagement with new schools. This diversification of revenue streams can be seen as a risk mitigation factor, making the business less susceptible to market fluctuations in a single segment.
It is also noteworthy that the company is actively seeking new tenants for its corporate campus following a decrease in lease revenues. This proactive approach to asset management could help in optimizing the company's real estate investments, although it may take time to materialize into significant revenue contributions.
Franklin Covey Co.'s financial performance, particularly the increase in cash flows from operating activities and strong liquidity position, reflects a healthy financial state that can support ongoing investments and cushion against economic downturns. The company's no drawdowns on its credit facility and a strong cash position of $34.0 million provide financial flexibility and the ability to maneuver through market uncertainties. The 18% two-year rolling growth rate in sales suggests that the company is not only recovering from any past economic adversities but is also capitalizing on growth opportunities.
However, it is important to consider broader economic factors such as inflation, interest rates and consumer spending behaviors, which can influence the company's future performance. The current economic climate, with potential tightening of monetary policy, could impact businesses' investment in training and development programs, which is a core aspect of Franklin Covey Co.'s offerings.
Consolidated Sales Exceed Expectations and Total
Subscription and Subscription Services Sales Total a First Quarter Record
Sum of Billed and Unbilled Deferred Subscription Revenue Increases
First Quarter Cash Flows From Operating Activities Increase to
Company Purchases 408,596 Shares of its Common Stock for
Liquidity Remains Strong at over
Company Affirms Earnings Guidance for Fiscal 2024
Introduction
The Company’s consolidated sales for the quarter ended November 30, 2023 exceeded expectations and totaled
-
Subscription and subscription services sales reached
$54.8 million 4% increase over the first quarter of fiscal 2023, a quarter which had very strong subscription and subscription services revenue growth. For the rolling four quarters ended November 30, 2023, subscription and subscription service sales reached a record level of$224.7 million $13.6 million 6% , increase over the prior year, and rolling two-year growth was a strong$56.7 million 34% increase. -
All Access Pass (AAP) subscription sales grew
13% compared with the first quarter of fiscal 2023 and AAP subscription and subscription services sales grew5% on top of the20% growth achieved in last year’s record first quarter. For the rolling four quarters ended November 30, 2023, AAP subscription and subscription services sales increased6% to$160.0 million $151.0 million the United States andCanada remained strong and were greater than90% . -
Education Division revenues grew
3% to$14.7 million 6% compared with the prior year primarily due to increased annual membership sales recognized and delivery of contracted coaching and training days from new schools engaged in fiscal 2023. During the first quarter of fiscal 2024, the Education Division delivered nearly 200 more training and coaching days than the prior year, which are recognized as they are delivered. -
Total Company deferred revenue at November 30, 2023 increased to
$103.3 million $90.8 million 12% , or more than$18 million $169.7 million $151.6 million 54% of the Company’s All Access Pass contracts are for at least two years, compared with48% at November 30, 2022, and the percentage of contracted amounts represented by multi-year contracts increased to60% from55% in the first quarter of the prior year. -
Lease revenues on the Company’s corporate campus decreased by
$0.5 million -
Cash flows from operating activities increased to
$17.4 million $3.0 million
Paul Walker, President and Chief Executive Officer, commented, “Although our results were essentially even with last year’s first quarter, we are pleased that both revenue and Adjusted EBITDA came in stronger than forecasted. While we also expect second quarter revenue to be about even with the prior year, there are several key factors we expect will significantly strengthen in the back half of the year. These include a high flow-through of revenue, which will drive the growth in Adjusted EBITDA to our fiscal 2024 target of between
Walker stated, “The factors that we expect will drive strong growth in the second half of fiscal 2024 include the following: First, the sum of our billed and unbilled deferred subscription revenue on the balance sheet has increased significantly and continues to grow. At the end of our first quarter, the sum of our billed and unbilled subscription revenue was
Walker added, “We expect the improvement in services revenue to be driven by the combination of services delivered to new schools which were contracted late in the fourth quarter of fiscal 2023, by the launches of the refreshed ‘The 7 Habits of Highly Effective People’ and ‘Speed of Trust’ offerings, which are two of our historic blockbuster programs, strengthened further by the launch of our new solution on ‘Difficult Conversations.’ ”
Walker concluded, “Our first quarter results are reflective of the three key strengths we have been building for years. First, is the strength of our strategic position in the marketplace which we believe is unique. We focus on the most important, strategic, and durable position in our industry, specifically, that of helping organizations achieve results that require the collective action of their people, and we do it with a combination of best-in-class content, delivered through a broad range of delivery modalities, and world class coaching and facilitation that is very difficult to replicate. Our second key strength is the power of our revenue generating engine. Our subscription offerings and services continue to show their strength and durability in the marketplace and are key to helping our clients achieve meaningful change within their organizations. The third key strength is that of our powerful business model – a model where the combination of: increasing revenue per client; high revenue and client retention; high operating margins; upfront invoicing; low capital intensity and disciplined reinvestment for growth drives significant amounts of both Adjusted EBITDA and free cash flow. We believe these strengths position us well for a strong fiscal 2024 and for further growth into the future.”
First Quarter 2024 Financial Overview
The following is a summary of the Company’s financial results for the quarter ended November 30, 2023:
-
Net Sales: The Company’s consolidated sales for the first quarter of fiscal 2024 were essentially even at
$68.4 million $49.2 million $50.2 million 1% compared with the prior year as many of the Company’s independent licensee partners’ sales were impacted by macroeconomic conditions and related uncertainties in their countries during the quarter. Foreign exchange rates had an immaterial impact on the Company’s sales and operating results during the first quarter of fiscal 2024. Education Division revenues increased3% to$14.7 million $14.4 million 6% compared with the prior year primarily due to increased annual membership sales recognized and contracted coaching and training days delivered from new schools engaged in fiscal 2023. During the first quarter of fiscal 2024, the Education Division delivered nearly 200 more training and coaching days than the prior year, which are recognized as they are delivered. The Education Division added a record 791 new Leader in Me schools during fiscal 2023. Subleasing revenues from the Company’s corporate campus decreased$0.5 million -
Deferred Subscription Revenue and Unbilled Deferred Revenue: At November 30, 2023, the Company had
$169.7 million 12% , or over$18 million $87.2 million 14% , or$10.5 million -
Gross profit: Gross profit for the first quarter of fiscal 2024 was
$52.3 million $52.7 million 76.4% compared with76.0% in the first quarter of fiscal 2023. -
Operating Expenses: The Company’s operating expenses for the first quarter of fiscal 2024 increased
$0.6 million $0.8 million $0.6 million $0.2 million -
Operating Income: The Company’s income from operations for the first quarter of fiscal 2024 was
$5.3 million $6.4 million $5.3 million $6.1 million -
Income Taxes: The Company’s income tax expense for the quarter ended November 30, 2023, was
$0.4 million $5.3 million 8.1% , compared with an effective rate of23.0% in the first quarter of fiscal 2023. The Company’s effective tax rate for the first quarter of fiscal 2024 was lower than the effective rate in the prior year primarily due to a$3.2 million $2.1 million $1.1 million 21% in the first quarter of fiscal 2024.
-
Net Income: As a result of the factors noted above, the Company’s net income for the first quarter of fiscal 2024 was
$4.9 million $0.36 $4.7 million $0.32 -
Adjusted EBITDA: Adjusted EBITDA for the first quarter of fiscal 2024 was a higher-than-expected
$11.0 million $11.5 million $3.8 million 9% , to$47.6 million $13.4 million 39% . -
Purchases of Common Stock: During the first quarter of fiscal 2023, the Company purchased 408,596 shares of its common stock for
$16.3 million -
Liquidity and Financial Position: Even after the purchase of
$16.3 million $51.0 million $100 million $34.0 million $62.5 million
Fiscal 2024 Guidance and Outlook
Driven by the continued strength and strategic durability of its All Access Pass and Leader in Me membership subscriptions, first quarter results that were better-than-expectations, and the expectation of a strong second half of the year, the Company affirms its guidance for fiscal 2024 that Adjusted EBITDA will increase to between
Earnings Conference Call
On Thursday, January 4, 2024, at 5:00 p.m. Eastern (3:00 p.m. Mountain) Franklin Covey will host a conference call to review its fiscal 2024 first quarter financial results. Interested persons may access a live audio webcast at https://edge.media-server.com/mmc/p/r2a3rane or may participate via telephone by registering at https://register.vevent.com/register/BI4da7714a312d4847a54f00840f328fd4. 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 concept of Adjusted EBITDA, which is a non-GAAP measure. 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. 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 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, | ||||||||
|
2023 |
|
|
2022 |
|
||||
| Net sales | $ |
68,399 |
|
$ |
69,369 |
|
|||
| Cost of sales |
|
16,122 |
|
|
16,627 |
|
|||
| Gross profit |
|
52,277 |
|
|
52,742 |
|
|||
| Selling, general, and administrative |
|
44,786 |
|
|
44,012 |
|
|||
| Depreciation |
|
1,091 |
|
|
1,246 |
|
|||
| Amortization |
|
1,071 |
|
|
1,092 |
|
|||
| Income from operations |
|
5,329 |
|
|
6,392 |
|
|||
| Interest expense, net |
|
(53 |
) |
|
(329 |
) |
|||
| Income before income taxes |
|
5,276 |
|
|
6,063 |
|
|||
| Income tax provision |
|
(425 |
) |
|
(1,396 |
) |
|||
| Net income | $ |
4,851 |
|
$ |
4,667 |
|
|||
| Net income per share: | |||||||||
| Basic | $ |
0.37 |
|
$ |
0.34 |
|
|||
| Diluted |
|
0.36 |
|
|
0.32 |
|
|||
| Weighted average common shares: | |||||||||
| Basic |
|
13,244 |
|
|
13,877 |
|
|||
| Diluted |
|
13,636 |
|
|
14,507 |
|
|||
| Other data: | |||||||||
| Adjusted EBITDA(1) | $ |
10,969 |
|
$ |
11,472 |
|
|||
(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, | |||||||||
|
2023 |
|
|
2022 |
|
|||||
| Reconciliation of net income to Adjusted EBITDA: | ||||||||||
| Net income | $ |
4,851 |
|
$ |
4,667 |
|
||||
| Adjustments: | ||||||||||
| Interest expense, net |
|
53 |
|
|
329 |
|
||||
| Income tax provision |
|
425 |
|
|
1,396 |
|
||||
| Amortization |
|
1,071 |
|
|
1,092 |
|
||||
| Depreciation |
|
1,091 |
|
|
1,246 |
|
||||
| Stock-based compensation |
|
2,897 |
|
|
2,735 |
|
||||
| Restructuring costs |
|
581 |
|
|
- |
|
||||
| Increase in the fair value of contingent | ||||||||||
| consideration liabilities |
|
- |
|
|
7 |
|
||||
| Adjusted EBITDA | $ |
10,969 |
|
$ |
11,472 |
|
||||
| Adjusted EBITDA margin |
|
16.0 |
% |
|
16.5 |
% |
||||
| FRANKLIN COVEY CO. | ||||||||||
| Additional Financial Information | ||||||||||
| (in thousands and unaudited) | ||||||||||
| Quarter Ended | ||||||||||
| November 30, | November 30, | |||||||||
|
2023 |
|
|
2022 |
|
|||||
| Sales by Division/Segment: | ||||||||||
| Enterprise Division: | ||||||||||
| Direct offices | $ |
49,215 |
|
$ |
50,167 |
|
||||
| International licensees |
|
3,378 |
|
|
3,278 |
|
||||
|
52,593 |
|
|
53,445 |
|
|||||
| Education Division |
|
14,744 |
|
|
14,350 |
|
||||
| Corporate and other |
|
1,062 |
|
|
1,574 |
|
||||
| Consolidated | $ |
68,399 |
|
$ |
69,369 |
|
||||
| Gross Profit by Division/Segment: | ||||||||||
| Enterprise Division: | ||||||||||
| Direct offices | $ |
39,501 |
|
$ |
39,921 |
|
||||
| International licensees |
|
3,052 |
|
|
2,977 |
|
||||
|
42,553 |
|
|
42,898 |
|
|||||
| Education Division |
|
9,380 |
|
|
9,175 |
|
||||
| Corporate and other |
|
344 |
|
|
669 |
|
||||
| Consolidated | $ |
52,277 |
|
$ |
52,742 |
|
||||
| Adjusted EBITDA by Division/Segment: | ||||||||||
| Enterprise Division: | ||||||||||
| Direct offices | $ |
11,687 |
|
$ |
11,250 |
|
||||
| International licensees |
|
1,896 |
|
|
1,831 |
|
||||
|
13,583 |
|
|
13,081 |
|
|||||
| Education Division |
|
42 |
|
|
281 |
|
||||
| Corporate and other |
|
(2,656 |
) |
|
(1,890 |
) |
||||
| Consolidated | $ |
10,969 |
|
$ |
11,472 |
|
||||
| FRANKLIN COVEY CO. | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| (in thousands and unaudited) | ||||||||
| November 30, | August 31, | |||||||
|
2023 |
|
|
2023 |
|
|||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ |
33,959 |
|
$ |
38,230 |
|
||
| Accounts receivable, less allowance for | ||||||||
| doubtful accounts of |
|
59,860 |
|
|
81,935 |
|
||
| Inventories |
|
4,117 |
|
|
4,213 |
|
||
| Prepaid expenses and other current assets |
|
19,306 |
|
|
20,639 |
|
||
| Total current assets |
|
117,242 |
|
|
145,017 |
|
||
| Property and equipment, net |
|
9,517 |
|
|
10,039 |
|
||
| Intangible assets, net |
|
39,443 |
|
|
40,511 |
|
||
| Goodwill |
|
31,220 |
|
|
31,220 |
|
||
| Deferred income tax assets |
|
1,679 |
|
|
1,661 |
|
||
| Other long-term assets |
|
19,721 |
|
|
17,471 |
|
||
$ |
218,822 |
|
$ |
245,919 |
|
|||
| Liabilities and Shareholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of notes payable | $ |
4,585 |
|
$ |
5,835 |
|
||
| Current portion of financing obligation |
|
3,627 |
|
|
3,538 |
|
||
| Accounts payable |
|
5,667 |
|
|
6,501 |
|
||
| Deferred subscription revenue |
|
83,484 |
|
|
95,386 |
|
||
| Other deferred revenue |
|
16,023 |
|
|
12,137 |
|
||
| Accrued liabilities |
|
21,300 |
|
|
28,252 |
|
||
| Total current liabilities |
|
134,686 |
|
|
151,649 |
|
||
| Notes payable, less current portion |
|
1,556 |
|
|
1,535 |
|
||
| Financing obligation, less current portion |
|
3,478 |
|
|
4,424 |
|
||
| Other liabilities |
|
7,590 |
|
|
7,617 |
|
||
| Deferred income tax liabilities |
|
1,011 |
|
|
2,040 |
|
||
| Total liabilities |
|
148,321 |
|
|
167,265 |
|
||
| Shareholders' equity: | ||||||||
| Common stock |
|
1,353 |
|
|
1,353 |
|
||
| Additional paid-in capital |
|
224,701 |
|
|
232,373 |
|
||
| Retained earnings |
|
104,653 |
|
|
99,802 |
|
||
| Accumulated other comprehensive loss |
|
(936 |
) |
|
(987 |
) |
||
| Treasury stock at cost, 13,782 and 13,974 shares |
|
(259,270 |
) |
|
(253,887 |
) |
||
| Total shareholders' equity |
|
70,501 |
|
|
78,654 |
|
||
$ |
218,822 |
|
$ |
245,919 |
|
|||
View source version on businesswire.com: https://www.businesswire.com/news/home/20240104493693/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
Source: Franklin Covey Co.
FAQ
What were Franklin Covey Co.'s consolidated sales for the first quarter of fiscal 2024?
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What was the total amount of shares of its common stock that the company purchased during the first quarter of fiscal 2024?
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