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Franklin Covey Reports Solid Growth for Its Fiscal 2013 Second Quarter



  Franklin Covey Reports Solid Growth for Its Fiscal 2013 Second Quarter

               Diluted EPS Grows 33% Over Prior Year’s Quarter

                        Operating Income Increases 17%

                  Sales and Adjusted EBITDA Each Increase 5%

Company Reaffirms Its Fiscal 2013 Adjusted EBITDA Guidance of $30-$32 Million

Business Wire

SALT LAKE CITY -- April 4, 2013

Franklin Covey Co. (NYSE: FC), a global performance improvement company that
creates and distributes world-class content, training, processes, and tools
that organizations and individuals use to transform their results, today
announced financial results for its fiscal second quarter ended March 2, 2013.

Net sales for the quarter ended March 2, 2013 increased 5% to $40.4 million,
compared with $38.6 million in the second quarter of the prior year. Sales in
the balance of the Company’s operations grew 16% in the quarter, but were
partially offset by declines in the Government Services office and the Sales
Performance Practice, and a primarily foreign exchange-related decline in
revenues at its direct office in Japan. Adjusted EBITDA for the quarter
increased to $5.6 million, a 5% increase, compared with $5.3 million in fiscal
2012 and was impacted by the same factors described above. The Company’s
Adjusted EBITDA margin (Adjusted EBITDA as a percent of sales) remained
strong, and was consistent with the prior fiscal year’s second quarter at
13.8% of sales. Income from operations increased by $0.5 million to $3.3
million, a 17% increase compared with $2.8 million in the second quarter of
the prior fiscal year. Net income improved by $0.4 million to $1.6 million, or
$0.08 per diluted share, compared with $1.2 million, or $.06 per diluted
share, in the second quarter of fiscal 2012.

Bob Whitman, Chairman and Chief Executive Officer, commented, “Franklin Covey
reported another quarter of solid growth in its financial and operating
performance. We continue to invest in our new, key strategic initiatives and
are expanding our marketing and sales teams on a global basis. Our momentum
remains strong and our prospective business pipeline continues to build. We
remain on track to report another year of solid growth in revenue,
profitability, and cash flows from operations.”

Fiscal 2013 Second Quarter Financial Results

The Company’s consolidated sales increased to $40.4 million compared with
$38.6 million in the second quarter of fiscal 2012. Sales increased at nearly
all of the Company’s major channels, including its U.S./Canada regional sales
offices, international licensee channel, national account practices, and from
increased leasing revenues. Revenue in the Company’s U.S./Canada regional
sales offices (excluding the government services office) increased 17%
compared with the second quarter of fiscal 2012. Sales growth was generally
broad-based across the Company’s key Practice areas and the Company benefited
from strong facilitator sales during the quarter. Sales through the Company’s
government services office decreased as some programs were postponed or
canceled during the quarter due to changes in U.S. federal government spending
required by sequestration. Sales in the Company’s international direct offices
decreased by 10% primarily due to the impact of translating sales in Japanese
Yen to U.S. dollars. When denominated in Japanese Yen, sales in Japan only
decreased 1% compared with the prior year. The decrease in Japan was partially
offset by increased sales in the United Kingdom and essentially flat sales in
Australia. Many of the Company’s international licensee partners also
recognized stronger sales during the quarter, resulting in a 9% overall
increase in royalty revenues. The Company’s national account practices
reported a 5% increase in revenues, driven by increased Education Practice
sales. Other revenues, which consist primarily of leasing and shipping and
handling revenues, increased by 46%, primarily as a result of new leasing
contracts at the Company’s corporate headquarters facility.

Gross profit increased to $27.3 million, an increase of 9% compared with $25.0
million in the second quarter of fiscal 2012. The increase in gross profit was
attributable to increased sales, as described above, and improved gross margin
performance. The Company’s gross margin for the quarter ended March 2, 2013
increased to 67.5 percent of sales compared with 64.7% in the prior year. The
improvement in gross margin was primarily due to increased facilitator sales
in the U.S./Canada direct offices during the quarter and increased
international licensee royalty revenues.

Selling, general and administrative expenses (SG&A) increased $2.0 million
compared with the second quarter of fiscal 2012, reflecting continued
investments in hiring new sales-related personnel and marketing. The increase
in SG&A expenses over the prior year was primarily due to 1) a $0.8 million
increase in advertising and promotional costs that were primarily related to
new strategic initiatives; 2) a $0.5 million increase in travel expenses
related primarily to marketing and promotional activities, and increased
training sales delivery during the quarter; 3) a $0.4 million increase in
associate costs primarily related to the addition of new sales-related
personnel and increased commissions on higher sales; and 4) a $0.4 million
increase in legal expenses resulting primarily from a fiscal 2012
reimbursement of previously expensed legal costs for litigation that was
settled in the prior year. These increases were partially offset by decreased
expenses in various other areas of our operations. Depreciation expense
declined compared with the prior year primarily due to the full depreciation
of certain assets, which contributed to improved income from operations during
the second quarter of fiscal 2013.

Income from operations increased $0.5 million to $3.3 million, a 17% increase
compared with $2.8 million in the second quarter of fiscal 2012. Net income
improved by $0.4 million, or 37%, to $1.6 million, or $0.08 per diluted share,
compared with $1.2 million, or $.06 per diluted share in fiscal 2012.

The Company’s balance sheet and liquidity position remained strong through the
second quarter as the Company had $15.5 million in cash and cash equivalents
at March 2, 2013 compared with $11.0 million at August 31, 2012. Net working
capital increased to $32.5 million at March 2, 2013 compared with $27.5
million on August 31, 2012. The Company had no borrowings on its line of
credit facility at March 2, 2013.

During the quarter ended March 2, 2013, the breakeven price for management
stock loans held in escrow was achieved. Accordingly, the Company transferred
3.3 million shares of common stock held by management loan participants in
escrow to the Company’s transfer agent as full payment on the loans. As of
April 4, 2013, the Company had 16.3 million shares of common stock
outstanding.

Fiscal 2013 Second Quarter Financial Highlights

  * Sales increased 5% to $40.4 million, compared with $38.6 million in the
    prior year.
  * Sales grew at most of the Company’s major channels, including all of its
    U.S./Canada regional sales offices, from its licensee partners, and
    through the national account practices channel.
  * Gross profit increased 9% to $27.3 million on increased sales and an
    improvement in the Company’s gross margin percentage to 67.5% from 64.5%
    of sales in fiscal 2012.
  * Adjusted EBITDA increased 5% to $5.6 million compared with $5.3 million in
    the prior year.
  * Net income increased 37% to $1.6 million compared with $1.2 million in the
    second quarter of fiscal 2012.
  * EPS growth of 33%, to $0.08 per diluted share, from $0.06 per diluted
    share in the second quarter of fiscal 2012.
  * Cash and cash equivalents increased to $15.5 million at March 2, 2013
    compared with $11.0 million at August 31, 2012.
  * The management common stock loans held in escrow were repaid with 3.3
    million shares of common stock returned to the Company as payment on the
    loans.

Fiscal 2013 Year-to-Date Financial Results

Consolidated sales for the two quarters ended March 2, 2013 increased $6.3
million, or 8%, to $84.5 million compared with $78.2 million in fiscal 2012.
For the two quarters ended March 2, 2013, sales increased at all of the
Company’s primary delivery channels compared to the prior year. Increased
sales and improved gross margin performance led to a 10% increase in gross
profit to $56.8 million compared with $51.5 million in fiscal 2012.
Consolidated gross margin increased to 67.3 percent of sales compared with
65.9% in fiscal 2012, primarily due to increased facilitator sales in the
United States and increased international licensee royalties. The Company’s
SG&A expenses increased $3.5 million primarily due to increased associate
costs and marketing expenses for strategic initiatives.

Adjusted EBITDA increased to $12.7 million, or 8%, compared with $11.7 million
in the first two quarters of fiscal 2012. Net income for the two quarters
ended March 2, 2013 increased 59% to $4.5 million, or $.23 per diluted share,
compared with $2.8 million, or $.16 per diluted share, on the strength of
improved pretax income and a lower effective income tax rate.

Cash flows from operating activities for the two quarters ended March 2, 2013
increased to $10.2 million compared with $9.2 million in the first two
quarters of fiscal 2012.

Fiscal 2013 Outlook

The Company reaffirms its previous guidance that Adjusted EBITDA for fiscal
2013 is expected to range from $30 million to $32 million.

Earnings Conference Call

On Thursday, April 4, 2013, at 5:00 p.m. Eastern time (3:00 p.m. Mountain
time) Franklin Covey will host a conference call to review its financial
results for the fiscal quarter ended March 2, 2013. Interested persons may
participate by dialing 800-303-0442 (International participants may dial
847-413-3733), access code: 34523738. Alternatively, a webcast will be
accessible at the following Web site:
http://edge.media-server.com/m/p/sr99ka37. A replay will be available from
April 4 (7:30 pm ET) through April 11, 2013 by dialing 888-843-7419
(International participants may dial 630-652-3042), access code: 34523738#.
The webcast will remain accessible through April 11, 2013 on the Investor
Relations area of the Company’s Web site at:
http://investor.franklincovey.com/phoenix.zhtml?c=102601&p=irol-IRHome.

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; expected
Adjusted EBITDA in fiscal 2013; anticipated future sales; and goals relating
to the growth 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 economic conditions; the
expected number of booked days to be delivered; market acceptance of new
products or services and marketing strategies; 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

Refer to the attached table for the reconciliation of a non-GAAP financial
measure, “Adjusted EBITDA,” to consolidated net income, the most comparable
GAAP financial measure. The Company defines Adjusted EBITDA as net income or
loss from operations excluding the impact of interest expense, income tax
expense, amortization, depreciation, share-based compensation expense, and
other non-recurring items. 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. We do not provide forward-looking GAAP measures or a reconciliation
of the forward-looking Adjusted EBITDA to GAAP measures because of our
inability to project certain of the costs included in the calculation of
Adjusted EBITDA.

About Franklin Covey Co.

Franklin Covey Co. (NYSE: FC) (www.franklincovey.com), is a global provider of
training and consulting services in the areas of leadership, productivity,
strategy execution, customer loyalty, trust, sales performance, government,
education and individual effectiveness. Over its history, Franklin Covey has
worked with 90 percent of the Fortune 100, more than 75 percent of the Fortune
500, and thousands of small and mid-sized businesses, as well as numerous
government entities and educational institutions. Franklin Covey has more than
40 direct and licensee offices providing professional services in over 140
countries.

 
FRANKLIN COVEY CO.
Condensed Consolidated Income Statements
(in thousands, except per share amounts, and unaudited)
                                                                 
                                                                   
                         Quarter Ended               Two Quarters Ended
                         March 2,     February 25,   March 2,     February 25,
                         2013         2012           2013         2012
                                                                   
Net sales                $ 40,430     $  38,627      $ 84,491     $  78,167
                                                                   
Cost of sales              13,146        13,646        27,648        26,644   
Gross profit               27,284        24,981        56,843        51,523
                                                                   
Selling, general, and      22,691        20,714        45,634        42,087
administrative
Depreciation               722           860           1,423         1,694
Amortization               619           626           1,241         1,256    
Income from operations     3,252         2,781         8,545         6,486
                                                                   
Interest expense, net      (448   )      (622    )     (900   )      (1,253  )
Discount on related        (135   )      -             (283   )      -        
party receivable
Income before income       2,669         2,159         7,362         5,233
taxes
                                                                   
Income tax provision       (1,077 )      (997    )     (2,873 )      (2,409  )
Net income               $ 1,592      $  1,162       $ 4,489      $  2,824    
                                                                   
Net income per common
share:
Basic                    $ 0.09       $  0.07        $ 0.24       $  0.16
Diluted                    0.08          0.06          0.23          0.16
                                                                   
Weighted average
common shares:
Basic                      18,550        17,764        18,356        17,748
Diluted                    19,709        18,287        19,493        18,142
                                                                   
Other data:
Adjusted EBITDA^(1)      $ 5,564      $  5,321       $ 12,654     $  11,681   

      The term Adjusted EBITDA (earnings before interest, income taxes,
      depreciation, amortization, share-based compensation, and certain other
(1)   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 the most comparable GAAP equivalent, 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              Two Quarters Ended
                          March 2,    February 25,   March 2,     February 25,
                          2013        2012           2013         2012
Reconciliation of net
income to Adjusted
EBITDA:
Net Income                $ 1,592     $  1,162       $ 4,489      $  2,824
Adjustments:
Interest expense, net       448          622           900           1,253
Discount on related         135          -             283           -
party receivable
Income tax provision        1,077        997           2,873         2,409
Amortization                619          626           1,241         1,256
Depreciation                722          860           1,423         1,694
Share-based                 971          1,054         1,445         2,245    
compensation
                                                                   
Adjusted EBITDA           $ 5,564     $  5,321       $ 12,654     $  11,681   
                                                                   
Adjusted EBITDA margin      13.8  %      13.8   %      15.0   %      14.9    %

                                                                 
FRANKLIN COVEY CO.
Additional Sales Information
(in thousands and unaudited)
                                                                   
                             Quarter Ended             Two Quarters Ended
                             March 2,   February 25,   March 2,   February 25,
                             2013       2012           2013       2012
Sales Detail by Category:
Training and consulting      $ 37,744   $   35,606     $ 78,807   $   71,988
services
Products                       1,624        2,303        3,567        4,766
Leasing                        1,062        718          2,117        1,413
                                                                   
Total                        $ 40,430   $   38,627     $ 84,491   $   78,167
                                                                   
Sales Detail by
Region/Type:
U.S./Canada direct           $ 20,952   $   19,107     $ 42,711   $   37,505
International direct           6,767        7,507        15,198       15,081
Licensees                      3,588        3,291        7,918        7,212
National account practices     6,108        5,801        12,280       11,280
Self-funded marketing          1,395        1,812        2,888        4,739
Other                          1,620        1,109        3,496        2,350
                                                                   
Total                        $ 40,430   $   38,627     $ 84,491   $   78,167

 
FRANKLIN COVEY CO.
Condensed Consolidated Balance Sheets
(in thousands and unaudited)
                                                                   
                                                        March 2,    August 31,
                                                        2013        2012
Assets
Current assets:
Cash                                                    $ 15,541    $ 11,011
Accounts receivable, less allowance for doubtful        31,712      38,087
accounts of $644 and $851
Receivable from related party                           608         3,588
Inventories                                             3,816       4,161
Deferred income taxes                                   3,522       3,634
Prepaid expenses and other current assets               4,674       3,714
Total current assets                                    59,873      64,195
                                                                     
Property and equipment, net                             17,925      18,496
Intangible assets, net                                  57,962      59,205
Goodwill                                                9,172       9,172
Long-term receivable from related party                 3,969       3,478
Other assets                                            9,401       9,534
                                                        $ 158,302   $ 164,080
                                                                     
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of financing obligation                 $ 1,064     $ 992
Current portion of bank note payable                    1,250       2,500
Accounts payable                                        6,399       7,758
Income taxes payable                                    704         869
Accrued liabilities                                     17,977      24,530
Total current liabilities                               27,394      36,649
                                                                     
Financing obligation, less current portion              27,962      28,515
Bank note payable, less current portion                 -           208
Other liabilities                                       1,601       1,152
Deferred income tax liabilities                         6,859       7,001
Total liabilities                                       63,816      73,525
                                                                     
Shareholders' equity:
Common stock                                            1,353       1,353
Additional paid-in capital                              207,924     182,534
Common stock warrants                                   111         5,260
Retained earnings                                       30,599      26,110
Accumulated other comprehensive income                  2,471       3,410
Treasury stock at cost, 10,816 and 9,365 shares         (147,972)   (128,112)
Total shareholders' equity                              94,486      90,555
                                                        $ 158,302   $ 164,080

Contact:

Franklin Covey
Investor Contact:
Steve Young, 801-817-1776
investor.relations@franklincovey.com
Media Contact:
Debra Lund, 801-817-6440
Debra.Lund@franklincovey.com
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