Franklin Covey(US:FC)2022-04-05 16:00Financial Performance - Consolidated sales for Q2 fiscal 2022 increased 18% to $56.6 million, up from $48.2 million in Q2 fiscal 2021[66] - All Access Pass and related sales grew 29% to $32.0 million in Q2 fiscal 2022[66] - International licensee revenues increased 7% year-over-year, reflecting improved economic conditions[67] - Education Division revenues rose 31% due to increased consulting, coaching, and training days[68] - Deferred subscription revenue increased 20% to $70.4 million compared to the previous year[73] - Gross profit for Q2 fiscal 2022 increased 18% to $44.1 million, with a gross margin of 77.9%[74] - Operating income improved 317% to $3.5 million, while net income reached $1.9 million compared to a net loss in the prior year[76] - Cash flows from operating activities increased to $23.2 million for the first two quarters of fiscal 2022[77] Segment Performance - Direct Office segment revenue increased 16% to $41.5 million, driven by strong performance in the U.S. and Canada[79] - International licensee sales for the quarter ended February 28, 2022, increased to $2,588,000, a 6.6% increase from $2,429,000 in the prior year[85] - Gross profit for international licensees rose to $2,304,000, representing a gross margin of 89.0%, up from 86.5% in the previous year[85][86] - Education Division sales for the quarter ended February 28, 2022, grew to $11,066,000, a 30.5% increase from $8,478,000 in the prior year[88] - Direct Offices segment sales for the first two quarters of fiscal 2022 reached $86,621,000, a 19.5% increase from $72,481,000 in the same period last year[95] - International licensee revenues for the first half of fiscal 2022 increased to $5,586,000, a 11.1% increase from $5,026,000 in the prior year[100] - Education Division gross profit for the two quarters ended February 28, 2022, was $14,959,000, with a gross margin of 65.7%, up from 58.4% in the prior year[103] - Adjusted EBITDA for the Education Division improved to $(324,000), a significant improvement from $(858,000) in the prior year[88] - Adjusted EBITDA for the Direct Offices segment increased to $18,686,000, up from $12,827,000 in the prior year, reflecting a strong performance[95] Expenses and Taxation - SG&A expenses for the Direct Offices segment increased to $51,464,000, reflecting higher associate costs and increased commissions due to higher sales[98] - The effective income tax rate for the quarter ended February 28, 2022, was approximately 40%, a significant decrease from 114% in the prior year[93] - SG&A expenses increased due to higher associate costs, including additional commission expenses and increased salaries compared to the prior year[106] - Income tax provision for the two quarters ended February 28, 2022, was $2.5 million on pre-tax income of $8.2 million, resulting in an effective tax rate of 31%[109] Cash Flow and Capital Expenditures - Cash and cash equivalents totaled $61.1 million as of February 28, 2022, with no borrowings on the $15.0 million revolving credit facility[111] - Cash provided by operating activities increased to $23.2 million in the first half of fiscal 2022, compared to $21.9 million in the same period of fiscal 2021[115] - Cash used for investing activities totaled $2.0 million in the first half of fiscal 2022, primarily for purchases of property and equipment[116] - Capital spending for curriculum development is expected to total $5.0 million during fiscal 2022[118] - Net cash used for financing activities totaled $7.4 million, including $3.9 million for principal payments on term loans[119] Interest Rates and Financial Obligations - The effective interest rate on term loans payable and the line of credit facility was 2.4% as of February 28, 2022[134] - A 1% increase in the effective interest rate on term loans would result in an additional $0.1 million of interest expense over the next 12 months[134] - The financing obligation has a fixed interest rate of 7.7%[134] - Interest rate sensitivity is primarily influenced by amounts borrowed on term loans and the revolving line of credit facility[134] - The company has long-term obligations primarily consisting of term loans, a long-term lease agreement, and contingent consideration from acquisitions[134] Market Conditions and Future Outlook - The company anticipates ongoing governmental mandates will adversely impact operations in China and Japan in the upcoming quarters[71] - The market price of the common stock has been volatile and may continue to be affected by factors unrelated to performance[132] - The company has low market capitalization, which may impact stock price due to a lack of analyst coverage and fewer potential investors[132] - Forward-looking statements are based on management's expectations and may differ materially from actual future performance[133] - There have been no material changes from the information previously reported in the Annual Report for the fiscal year ended August 31, 2021[135]