Franklin Covey Reports Strong Third Quarter Fiscal 2013 Financial Results

  Franklin Covey Reports Strong Third Quarter Fiscal 2013 Financial Results

               Diluted EPS Grows 44% Over Prior Year’s Quarter

                        Operating Income Increases 20%

                  Sales and Adjusted EBITDA Each Increase 9%

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

Business Wire

SALT LAKE CITY -- July 9, 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 third quarter ended June 1, 2013.

Fiscal 2013 Third Quarter Financial Highlights

  *Sales increased 9% to $44.9 million, compared with $41.3 million in the
    prior year.
  *Sales grew at nearly all of the Company’s major channels, including its
    U.S./Canada regional sales offices, government services office,
    international direct offices, from licensee partners, and through the
    national account practices channel.
  *Gross profit increased 13% to $29.4 million on increased sales and an
    improvement in the Company’s gross margin to 65.6% of sales compared with
    63.3% of sales in fiscal 2012.
  *Adjusted EBITDA increased 9% to $6.3 million compared with $5.8 million in
    the prior year.
  *Net income increased 31% to $2.1 million compared with $1.6 million in the
    third quarter of fiscal 2012.
  *EPS grew 44%, to $0.13 per diluted share, from $0.09 per diluted share in
    the prior year.
  *Cash and cash equivalents remained strong and totaled $8.9 million at June
    1, 2013 compared with $11.0 million at August 31, 2012.
  *The Company completed the acquisition of NinetyFive 5, an entity that
    provides sales success training services that complement existing Sales
    Performance Practice curriculum. This acquisition is expected to
    strengthen the Company’s Sales Performance Practice offerings and improve
    practice performance in future periods.

Net sales for the quarter ended June 1, 2013 increased $3.6 million, or 9%, to
$44.9 million, compared with $41.3 million in the prior year. Sales increased
at the Company’s U.S./Canada direct offices, including its government services
office; at its international direct offices; from international licensees;
from its national account practices; and from increased leasing revenues.
Adjusted EBITDA for the quarter increased to $6.3 million, or 9%, compared
with $5.8 million in fiscal 2012. The Company’s Adjusted EBITDA margin
(Adjusted EBITDA as a percent of sales) remained strong, and increased to
14.0% compared with 13.9% in the third quarter of fiscal 2012. Income from
operations increased by $0.7 million, or 20%, to $4.1 million compared with
$3.4 million the third quarter of the prior year. Improved operating results
flowed through to net income, which increased by 31% to $2.1 million, or $0.13
per diluted share, compared with $1.6 million, or $.09 per diluted share, in
the third quarter of fiscal 2012.

Bob Whitman, Chairman and Chief Executive Officer, commented, “Our key
financial metrics were again strong across the board in the quarter and
reflect the sustained growth and consistency the Company has been able to
achieve in these key metrics over the last several fiscal years. We believe
these key metrics point to continued growth for our business in future
periods. Franklin Covey’s momentum and trajectory in its global business
remains strong and despite ongoing softness in our government business, we are
confident that we can achieve strong fourth quarter results to finish our
fiscal year.”

Fiscal 2013 Third Quarter Financial Results

The Company’s consolidated sales increased to $44.9 million compared with
$41.3 million in the third quarter of fiscal 2012. Sales increased at nearly
all of the Company’s major channels, including its U.S./Canada regional sales
offices, government services office, international direct offices,
international licensee channel, national account practices, and from increased
leasing revenues. Revenue in the Company’s U.S./Canada regional sales offices,
including the government services office, increased 11% compared with the
third 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 and intellectual property license revenues during the
quarter. Sales increased at each of the Company’s international direct offices
compared with the prior year. However, the impact of a weakening Yen against
the United States Dollar resulted in a $0.5 million decrease in translated
sales from the Company’s Japan office when compared with the prior year. Many
of the Company’s international licensee partners also recognized stronger
sales during the quarter, resulting in a 5% overall increase in royalty
revenues. The Company’s national account practices reported a 37% increase in
revenues, driven by increased Education and Sales Performance Practice sales.
The Education Practice, which delivers content based on The Leader In Me to
elementary schools in the United States and internationally, increased sales
by 60% compared with the prior year. Sales Performance Practice sales were
favorably impacted by the acquisition of NinetyFive 5 LLC (NinetyFive 5),
which was completed during the third quarter of fiscal 2013. NinetyFive 5
provides sales success training services that complement the Company’s
existing sales performance curriculum. The Company is pleased to add the
synergistic capabilities of NinetyFive 5 to its Sales Performance Practice and
anticipates continued favorable results from this acquisition in future
periods. Other revenues, which consist primarily of leasing and shipping and
handling revenues, increased by 11%, primarily as a result of new leasing
contracts at the Company’s corporate headquarters facility.

Gross profit increased 13% to $29.4 million compared with $26.1 million in the
third quarter of the prior year. The increase in gross profit was attributable
to increased sales, as described above, and improved gross margin. The
Company’s gross margin for the quarter ended June 1, 2013 increased to 65.6%
of sales compared with 63.3% in the third quarter of fiscal 2012. The
improvement in gross margin was primarily due to increased facilitator sales
in the U.S./Canada direct offices during the quarter and increased
intellectual property license revenues, which have higher margins than the
majority of the Company’s other services and products.

Selling, general and administrative expenses (SG&A) increased $2.2 million
compared with the third quarter of fiscal 2012, reflecting ongoing investments
in hiring new sales-related personnel and marketing initiatives. The increase
in SG&A expenses over the prior year was primarily due to 1) a $2.1 million
increase in associate costs; 2) a $0.4 million increase in advertising and
promotional costs that were primarily related to strategic initiatives which
we believe had a favorable impact on the current quarter’s sales and which are
also expected to increase sales in future quarters; and 3) a $0.2 million
increase in travel expenses related primarily to marketing activities and
increased sales activity during the quarter. These SG&A expense increases were
partially offset by a $0.6 million decrease in non-cash share-based
compensation expense compared with the prior year. Depreciation expense
increased by $0.1 million compared with the prior year primarily due to the
addition of fixed assets during fiscal 2013. Consolidated amortization expense
increased by $0.3 million compared with the prior year due to the acquisition
of NinetyFive 5 during the quarter ended June 1, 2013.

Income from operations increased $0.7 million, or 20%, to $4.1 million
compared with $3.4 million in the third quarter of fiscal 2012. Net income
improved 31%, to $2.1 million, or $0.13 per diluted share, compared with $1.6
million, or $.09 per diluted share in the third quarter of the prior year.

The Company’s balance sheet and liquidity position remained strong through the
end of the third quarter as the Company had $8.9 million in cash and cash
equivalents at June 1, 2013 compared with $11.0 million at August 31, 2012.
During the quarter ended June 1, 2013, the Company paid $2.2 million in cash
to the former owners of CoveyLink Worldwide, LLC for the fourth of five
potential contingent earnout payments and paid $1.1 million of the initial
purchase price to acquire NinetyFive 5. Net working capital totaled $28.8
million at June 1, 2013 compared with $27.5 million on August 31, 2012. The
Company had no borrowings on its line of credit facility at June 1, 2013.

Fiscal 2013 Year-to-Date Financial Results

Consolidated sales for the three quarters ended June 1, 2013 increased $9.9
million to $129.4 million, an 8% increase compared with the same period in
fiscal 2012. For the three quarters ended June 1, 2013, sales increased at
nearly all of the Company’s primary delivery channels compared to the prior
year. Increased sales and an improved gross margin led to an 11% increase in
gross profit to $86.3 million compared with $77.7 million in fiscal 2012.
Consolidated gross margin increased to 66.7% of sales compared with 65.0% in
fiscal 2012, primarily due to increased facilitator sales in the United
States, increased international licensee royalties, and increased intellectual
property license revenues. The Company’s SG&A expenses increased $5.8 million
primarily due to increased associate costs, marketing expenses for strategic
initiatives, and increased travel costs to support higher sales. These
increases were partially offset by a $1.4 million decrease in non-cash
share-based compensation expense.

Adjusted EBITDA increased to $18.9 million, or 9%, compared with $17.4 million
in the first three quarters of fiscal 2012 and Adjusted EBITDA margin remained
consistent with the prior year at 14.6%. Net income for the three quarters
ended June 1, 2013 increased 49% to $6.6 million, or $.36 per diluted share,
compared with $4.4 million, or $.24 per diluted share, on the strength of
increased pretax income and a lower effective income tax rate.

Cash flows from operating activities for the three quarters ended June 1, 2013
increased to $8.9 million compared with $8.7 million in the first three
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

As previously announced, on Tuesday, July 9, 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 June 1, 2013. Interested
persons may participate by dialing 800-447-0521 (International participants
may dial 847-413-3238), access code: 35125489. Alternatively, a webcast will
be accessible at the following Web site:
http://edge.media-server.com/m/p/fr9q3be8. A replay will be available from
July 9 (7:30 pm ET) through July 15, 2013 by dialing 888-843-7419
(International participants may dial 630-652-3042), access code: 35125489#.
The webcast will remain accessible through July 15, 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; expected impact of
the NinetyFive 5 acquisition; 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, except as required by law.

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 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             Three Quarters Ended
                           June 1,      May 26,      June 1,       May 26,
                           2013         2012         2013          2012
                                                                   
Net sales                  $ 44,859     $ 41,274     $ 129,350     $ 119,441
                                                                   
Cost of sales               15,424     15,130     43,073      41,774  
Gross profit                 29,435       26,144       86,277        77,667
                                                                   
Selling, general, and        23,661       21,448       69,295        63,535
administrative
Depreciation                 752          680          2,175         2,374
Amortization                960        622        2,201       1,879   
Income from operations       4,062        3,394        12,606        9,879
                                                                   
Interest expense, net        (420   )     (611   )     (1,320  )     (1,863  )
Discount on related          (135   )     -            (418    )     -
party receivable
Other income, net           20         -          20          -       
Income before income         3,527        2,783        10,888        8,016
taxes
                                                                   
Income tax provision        (1,416 )    (1,166 )    (4,289  )    (3,575  )
Net income                 $ 2,111     $ 1,617     $ 6,599      $ 4,441   
                                                                   
Net income per common
share:
Basic                      $ 0.13       $ 0.09       $ 0.37        $ 0.25
Diluted                      0.13         0.09         0.36          0.24
                                                                   
Weighted average common
shares:
Basic                        16,330       17,797       17,680        17,765
Diluted                      16,421       18,316       18,469        18,200
                                                                   
Other data:
Adjusted EBITDA^(1)        $ 6,262     $ 5,752     $ 18,915     $ 17,433  

      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             Three Quarters Ended
                           June 1,      May 26,      June 1,       May 26,
                           2013         2012         2013          2012
Reconciliation of net
income to Adjusted
EBITDA:
Net Income                 $ 2,111      $ 1,617      $ 6,599       $ 4,441
Adjustments:
Other income, net            (20    )     -            (20     )     -
Interest expense, net        420          611          1,320         1,863
Discount on related          135          -            418           -
party receivable
Income tax provision         1,416        1,166        4,289         3,575
Amortization                 960          622          2,201         1,879
Depreciation                 752          680          2,175         2,374
Share-based compensation    488        1,056      1,933       3,301   
                                                                   
Adjusted EBITDA            $ 6,262     $ 5,752     $ 18,915     $ 17,433  
                                                                   
Adjusted EBITDA margin       14.0   %     13.9   %     14.6    %     14.6    %
                                                                   
                                                                   
                                                                   
FRANKLIN COVEY CO.
Additional Sales Information
(in thousands and unaudited)
                                                                   
                           Quarter Ended             Three Quarters Ended
                           June 1,      May 26,      June 1,       May 26,
                           2013         2012         2013          2012
Sales Detail by
Category:
Training and consulting    $ 42,378     $ 38,213     $ 121,185     $ 110,201
services
Products                     1,428        2,291        4,995         7,057
Leasing                     1,053      770        3,170       2,183   
                                                                   
Total                      $ 44,859    $ 41,274    $ 129,350    $ 119,441 
                                                                   
Sales Detail by
Region/Type:
U.S./Canada direct         $ 25,139     $ 22,736     $ 67,850      $ 60,241
International direct         5,143        5,612        20,341        20,693
International licensees      3,749        3,581        11,667        10,793
National account             8,077        5,917        20,356        17,197
practices
Self-funded marketing        1,317        2,132        4,205         6,871
Other                       1,434      1,296      4,931       3,646   
                                                                   
Total                      $ 44,859    $ 41,274    $ 129,350    $ 119,441 
                                                                             
                                                                             


FRANKLIN COVEY CO.
Condensed Consolidated Balance Sheets
(in thousands and unaudited)
                                                              
                                                   June 1,        August 31,
                                                   2013           2012
Assets
Current assets:
Cash                                               $ 8,903        $ 11,011
Accounts receivable, less allowance for doubtful     37,117         38,087
accounts of $677 and $851
Receivable from related party                        2,844          3,588
Inventories                                          4,091          4,161
Deferred income taxes                                3,481          3,634
Prepaid expenses and other current assets           4,643        3,714    
Total current assets                                 61,079         64,195
                                                                  
Property and equipment, net                          17,672         18,496
Intangible assets, net                               61,027         59,205
Goodwill                                             16,124         9,172
Long-term receivable from related party              4,224          3,478
Other assets                                        9,310        9,534    
                                                   $ 169,436     $ 164,080  
                                                                  
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of financing obligation            $ 1,101        $ 992
Current portion of bank note payable                 833            2,500
Accounts payable                                     6,868          7,758
Income taxes payable                                 667            869
Accrued liabilities                                 22,801       24,530   
Total current liabilities                            32,270         36,649
                                                                  
Financing obligation, less current portion           27,677         28,515
Bank note payable, less current portion              -              208
Other liabilities                                    5,668          1,152
Deferred income tax liabilities                     7,195        7,001    
Total liabilities                                   72,810       73,525   
                                                                  
Shareholders' equity:
Common stock                                         1,353          1,353
Additional paid-in capital                           207,747        182,534
Common stock warrants                                -              5,260
Retained earnings                                    32,709         26,110
Accumulated other comprehensive income               2,113          3,410
Treasury stock at cost, 10,767 and 9,365 shares     (147,296 )    (128,112 )
Total shareholders' equity                          96,626       90,555   
                                                   $ 169,436     $ 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