SALT LAKE CITY, Utah — March 29, 2023 — Franklin Covey Co. (NYSE: FC), a leader in organizational performance improvement that creates, and on a subscription basis, distributes world-class content, training, processes, and tools that organizations and individuals use to achieve systemic changes in human behavior to transform their results, today announced financial results for its second quarter of fiscal 2023, which ended on February 28, 2023.

Introduction

The Company’s second quarter fiscal 2023 financial performance was highlighted by the following key metrics:

• • The Company’s consolidated sales for the quarter ended February 28, 2023 increased 9% to $61.8 million compared with $56.6 million in the second quarter of fiscal 2022. On a constant currency basis, the Company’s sales increased 11% to $62.7 million. For the rolling four quarters ended February 28, 2023, the Company’s consolidated sales increased 12%, or $30.6 million, to $276.1 million compared with $245.5 million in the corresponding period ended February 28, 2022. The Company’s sales for the second quarter increased primarily due to strong subscription and subscription services sales, including the following:
    • All Access Pass subscription and subscription services sales grew 11% to $35.4 million in the second quarter and grew 22% to $154.4 million for the rolling four quarters ended February 28, 2023.
    • Education Division revenues grew 28% on the strength of increased consulting, coaching, and training days delivered during the quarter, increased Symposium conference events, and increased Leader in Me subscription revenues. The Education Division continued its momentum generated in fiscal 2022, during which it added a record 739 new Leader in Me schools.
    • Total Company deferred revenue at February 28, 2023 was $90.9 million. The sum of billed subscription and unbilled deferred subscription revenue at February 28, 2023 grew 22% to $145.8 million, compared with February 28, 2022.
  • On the strength of increased sales and continued strong gross margins, gross profit for the second quarter of fiscal 2023 increased 7%, or $3.1 million, to $47.2 million compared with $44.1 million in the prior year. Rolling four quarter gross profit increased 10% to $210.2 million, compared with $190.9 million for the four quarters ended February 28, 2022.
  • Operating income for the second quarter of fiscal 2023 was $2.8 million compared with $3.5 million in the second quarter of fiscal 2022, reflecting investments in client facing personnel and the expanded use of stock-based compensation awards to attract and retain key associates. Rolling four quarter income from operations increased 45%, or $7.3 million, to $23.8 million compared with $16.5 million for the four quarters ended February 28, 2022.
  • Adjusted EBITDA for the second quarter of fiscal 2023 increased 2% to $8.2 million compared with $8.0 million in fiscal 2022, and was $8.4 million in constant currency. Rolling four-quarter Adjusted EBITDA increased 18% to $43.9 million compared with $37.1 million in the corresponding period of the prior year.
  • With $55.1 million of cash and $15 million available on its revolving line of credit, the Company’s liquidity totaled more than $70 million at February 28, 2023, even after purchasing $3.8 million of its common stock on the open market during the second quarter. Subsequent to the end of the quarter, the Company expanded its revolving line of credit to $62.5 million.

Paul Walker, President and Chief Executive Officer, commented, “Despite the current challenging economic environment, we are pleased with the demonstrated durability of our business model and our second quarter results, which featured continued revenue growth, a strong gross margin, and growth in Adjusted EBITDA over the prior year. Our consolidated sales for the second quarter increased 9% over the prior year (11% in constant currency), our gross margin remained strong at 76.4%, and our Adjusted EBITDA increased to $8.2 million. Our liquidity remained strong with $55.1 million of cash and with our full revolving credit facility undrawn. We achieved these results despite the challenging economic conditions, a slower-than-expected rebound of post-COVID operations in China and Japan, and the impact of $1.0 million of unfavorable foreign exchange on our second quarter sales.”

Walker continued, “Four key elements of our strategy and business model were designed to establish durability across various economic cycles. First, the challenges and opportunities that we help our clients address are mission critical, especially in tough economic environments. These must-win challenges and opportunities require the collective action of large numbers of people, and our offerings are designed to address these challenges. Second, the effectiveness of our solutions in helping clients successfully address these challenges builds strong relationships. Our offerings include best-in-class content, powerful technology which enables us to deliver our content with impact and at scale, and metrics that our clients can use to evaluate the impact of our solutions in moving behavior. As our clients find success in addressing their challenges, we build strategic relationships that can allow us to become ‘partners for life.’ Third, the diversity of our client bases, geographic footprint, and international business model provide a strong foundation for future growth. We are not overly reliant on any one client or market segment and we serve clients in virtually all markets around the world. And lastly, is the strength of our subscription business model. We believe the subscription model provides a high lifetime customer value and recurring revenue stream that provides enduring growth potential. These factors were key to our strong second quarter and early fiscal 2023 performance, and will continue to be important to our growth in future periods.”

Second Quarter Financial Overview

The following is a summary of financial results for the second quarter of fiscal 2023:

1. 1. Net Sales: Consolidated sales for the quarter ended February 28, 2023 increased 9% to $61.8 million, compared with $56.6 million in the second quarter of fiscal 2022. Excluding the unfavorable impact of foreign exchange rates during the quarter, the Company’s sales increased 11%. The Company continues to be pleased with the performance of the All Access Pass and
   2. Leader in Me subscription-based services, which drove continued growth during the second quarter of fiscal 2023. For the second quarter of fiscal 2023, Enterprise Division sales grew 6%, or $2.5 million, to $46.6 million compared with $44.1 million in the prior year, despite unfavorable foreign exchange rates, a 30% decrease in sales through the Company’s office in China, and a 3% decrease in sales from Japan, which were primarily due to lingering pandemic-related issues. Excluding the impact of foreign exchange rates, Enterprise Division sales increased 8% compared with the prior year. AAP subscription and subscription services sales increased 11% to $35.4 million, and increased 22% for the latest 12 months. International licensee revenues continue to improve and increased 13% compared with the prior year, despite the impact of foreign exchange rates, and the ongoing impact of various geopolitical difficulties around the world.
   3. Education Division sales grew 28%, or $3.1 million, to $14.2 million compared with $11.1 million in fiscal 2022. Education Division sales grew primarily due to increased consulting, coaching, and training days delivered during the quarter, increased Symposium conference revenues, and increased Leader in Me subscription revenue compared with the prior year.
   4. Deferred Subscription Revenue and Unbilled Deferred Revenue: At February 28, 2023, the Company had $145.8 million of billed and unbilled deferred subscription revenue, a 22%, or $26.5 million increase over the balance at February 28, 2022. This total includes $76.1 million of deferred subscription revenue on the balance sheet, an 8%, or $5.8 million increase compared with deferred subscription revenue at February 28, 2022. At February 28, 2023, the Company had $69.7 million of unbilled deferred subscription revenue, a 42%, or $20.7 million increase over the $49.0 million of unbilled deferred revenue at February 28, 2022. Unbilled deferred subscription revenue represents business (typically multi-year contracts) that is contracted but unbilled, and excluded from the Company’s balance sheet.
   5. Gross profit: Gross profit for the second quarter of fiscal 2023 increased 7% to $47.2 million, compared with $44.1 million in fiscal 2022. The Company’s gross margin for the quarter ended February 28, 2023 remained strong at 76.4% compared with 77.9% in fiscal 2022, and was impacted by costs from Symposium conferences, which are essentially break-even events, and changes in the overall mix of services and products sold during the quarter.
   6. Operating Expenses: The Company’s operating expenses for the quarter ended February 28, 2023 increased $3.8 million compared with the second quarter of fiscal 2022, which was due to a $4.3 million increase in selling, general, and administrative (SG&A) expenses. The Company’s SG&A expenses increased primarily due to additional associate costs resulting from investments in new client-facing personnel and increased salaries; increased commissions on higher sales; increased stock-based compensation expense; and increased travel expense. Over the past 12 months the Company has invested in new associates for a variety of primarily client-facing roles, including sales and sales-related personnel, Leader in Me coaches, and implementation specialists. At February 28, 2023, the Company had 289 client partners compared with 265 client partners at February 28, 2022. The Company believes these investments will provide a strong return in future periods. The increase in stock-based compensation is due to the timing of the fiscal 2022 Long-Term Incentive Plan award, which occurred in February 2022 rather than in October 2021 (normal timing), and increased use of equity-based compensation awards to attract and retain key personnel.
   7. Operating Income: The Company’s income from operations for the quarter ended February 28, 2023 was $2.8 million, compared with $3.5 million in the second quarter of fiscal 2022, reflecting the factors noted above.
      Net Income: As a result of the factors noted above, the Company’s net income for the second quarter of fiscal 2023 was $1.7 million, or $0.12 per diluted share, compared with $1.9 million, or $0.13 per diluted share, in the second quarter of fiscal 2022.
   8. Adjusted EBITDA: Adjusted EBITDA for the quarter ended February 28, 2023 improved 2% to $8.2 million compared with $8.0 million in fiscal 2022, reflecting increased sales and continued strong gross margins. In constant currency, Adjusted EBITDA increased to $8.4 million in the second quarter of fiscal 2023.
   9. Liquidity and Financial Position: The Company’s liquidity and financial position remained strong with more than $70 million of liquidity at February 28, 2023, which was comprised of $55.1 million of cash at February 28, 2023, and no borrowings on its $15.0 million line of credit, compared with $60.5 million of cash with no borrowings on its line of credit at August 31, 2022.
      Fiscal 2023 Year-to-Date Financial Results

Consolidated revenue for the first two quarters of fiscal 2023 increased 11%, or $13.3 million, to $131.1 million compared with $117.9 million in the first half of fiscal 2022. Increased sales in the first half of fiscal 2023 were primarily due to continued strong sales of subscription and subscription-related services, including the All Access Pass in the Enterprise Division and the Leader in Me membership in the Education Division. Enterprise Division sales for the first two quarters of fiscal 2023 increased 8%, or $7.8 million, to $100.0 million compared with $92.2 million in the first two quarters of the prior year. In constant currency, Enterprise Division sales increased 12% compared with the first two quarters of fiscal 2022. AAP subscription and subscription services sales increased 15% to $75.0 million compared with $65.2 million in the prior year. For the two quarters ended February 28, 2023, sales increased in each of the Company’s foreign direct offices, except China and Japan, which decreased 18% and 4%, primarily due to lingering post-COVID issues. Excluding China and Japan, international direct office sales improved 10% over the first two quarters of fiscal 2022. International licensee revenues continue to improve and increased 11% compared with the prior year on the strength of increased royalty revenues. Education Division sales grew 25%, or $5.8 million, to $28.5 million compared with $22.8 million in the first half of fiscal 2022. Education Division sales grew primarily due to increased consulting, coaching, and training days delivered during the year, increased recognition of previously deferred revenue related to Leader in Me subscriptions, and increased Symposium conference revenues. Gross profit for the first two quarters of fiscal 2023 increased 9%, or $8.2 million, to $100.0 million compared with $91.7 million in the first half of fiscal 2022. Gross margin for the two quarters ended February 28, 2023 remained strong at 76.2% of sales compared with 77.8% in the first two quarters of fiscal 2022.

Operating expenses for the two quarters ended February 28, 2023 increased $8.1 million compared with the first two quarters of fiscal 2022, due to an $8.9 million increase in SG&A expenses. SG&A expenses increased primarily due to additional associate costs resulting from investments in new client-facing personnel and increased salaries; increased commissions on higher sales; and increased stock-based compensation expense. The Company’s income from operations through February 28, 2023 improved to $9.2 million compared with $9.1 million in fiscal 2022. Adjusted EBITDA for the first two quarters of fiscal 2022 increased 9%, or $1.7 million, to $19.7 million, compared with $18.0 million in the first half of fiscal 2022. In constant currency, Adjusted EBITDA for the first two quarters of fiscal 2023 increased 15% compared with fiscal 2022. The Company’s net income for the two quarters ended February 28, 2023 increased 13% to $6.4 million, or $0.44 per diluted share, compared with $5.7 million, or $0.40 per diluted share, for the two quarters ended February 28, 2022.

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.