Franklin Covey Reports Strong Third Quarter Fiscal 2024 Financial Results
Franklin Covey (NYSE: FC) reported strong financial results for the third quarter of fiscal 2024, ending May 31, 2024. The company's revenue increased by 3% to $73.4 million, with net income up 25% to $5.7 million, or $0.43 per diluted share. Adjusted EBITDA rose by 17% to $13.9 million. The firm’s cash flows from operating activities increased to $38.4 million, and free cash flow grew to $30.6 million. The company's liquidity remains robust at nearly $100 million, bolstered by $36.6 million in cash and no drawdowns on a $62.5 million credit facility. The Education Division saw an 18% revenue increase, while the Enterprise Division experienced a slight decline due to decreased legacy training program revenue. The company reaffirmed its fiscal 2024 guidance, expecting Adjusted EBITDA to be at the lower end of the previously announced range of $54.5 million to $58 million.
The company also announced a new $50 million share repurchase program, replacing the previous one, with no expiration date. The strength of their subscription business model, which generates high levels of recurring revenue, was highlighted as a key factor in their solid performance.
- Revenue increased 3% to $73.4 million.
- Net income rose 25% to $5.7 million, or $0.43 per diluted share.
- Adjusted EBITDA increased by 17% to $13.9 million.
- Cash flows from operating activities grew to $38.4 million.
- Free cash flow increased to $30.6 million.
- Liquidity remains strong at nearly $100 million.
- Education Division revenues grew by 18%.
- Company reaffirmed fiscal 2024 guidance with expectations of Adjusted EBITDA at the lower end of $54.5 million to $58 million.
- Enterprise Division revenues decreased to $52 million from $53.2 million.
- Legacy training program revenue and international direct office and licensee revenues declined.
Insights
Franklin Covey's third-quarter results demonstrate a positive financial trajectory, driven by consistent revenue growth and strong cash flows. The revenue increase to $73.4 million marks a 3% rise compared to the previous year, while net income surged by 25% to
The cash flow from operating activities almost doubled, showing
The reaffirmation of fiscal 2024 guidance, despite economic challenges, underscores stability and strategic foresight. Investors should note the company's focus on subscription revenue, a resilient and recurring revenue stream, which grew by 6% in the third quarter. These factors suggest a stable outlook, enhancing investor confidence in consistent performance.
Franklin Covey's performance in the Education Division is noteworthy, with a significant revenue growth of 18%, reaching
The company's subscription model is a strong suit, evidenced by an increase in deferred subscription revenue by 15%, reaching
The market's response to Franklin Covey’s offerings, especially in an uncertain economic climate, showcases its adaptability and the critical nature of its services. This adaptability and critical nature of its services can provide investors with confidence in the company's ability to sustain growth and navigate market challenges.
Consolidated Third Quarter Revenue Increases to
Third Quarter Net Income Increases
Cash Flows From Operating Activities Increase to
Liquidity Remains Strong at nearly
Company Reaffirms Guidance for Fiscal 2024
Third Quarter Performance
The Company’s consolidated revenue for the quarter ended May 31, 2024 grew
-
Enterprise Division revenues for the third quarter of fiscal 2024 totaled
$52.0 million $53.2 million 4% compared with the third quarter of fiscal 2023 and AAP subscription plus subscription services revenue grew3% compared with the prior year. During the first three quarters of fiscal 2024, AAP subscription revenue retention levels inthe United States andCanada remained strong and were greater than90% . -
Education Division revenues grew
18% to$20.1 million -
Total Company subscription and subscription services revenues reached
$60.8 million 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 $8.4 million 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 $8.3 million $6.6 million 25% , or$1.2 million $5.7 million $0.43 $4.6 million $0.32 -
Adjusted EBITDA for the third quarter of fiscal 2024 was a better-than-expected
$13.9 million $11.9 million $32.3 million $31.6 million -
Consolidated deferred subscription revenue at May 31, 2024 increased
15% to$83.8 million $72.7 million $69.4 million $68.2 million 55% of the Company’s AAP contracts are for at least two years, compared with50% at May 31, 2023, and the percentage of contracted amounts represented by multi-year contracts increased to60% from57% at May 31, 2023. -
Cash flows from operating activities for the first three quarters of fiscal 2024 increased
48% to$38.4 million $25.9 million $30.6 million $15.6 million -
The Company purchased 188,373 shares of its common stock on the open market for
$7.4 million $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
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
New Share Purchase Program
On April 18, 2024, the Company’s Board of Directors approved a new plan to purchase up to
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 |
|
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
Source: Franklin Covey Co.
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