FranklinCovey Posts Fiscal 2009 3Q Results

Jul 13, 2009 (Close-Up Media via COMTEX) -- FC | Quote | Chart | News | PowerRating -- Franklin Covey Co., a global provider of training and consulting services, announced financial results for its fiscal third quarter ended May 30.

In a release on July 9, the company noted that net sales for the quarter totaled $30.6 million, compared to $59.1 million in the third quarter of fiscal 2008. The vast majority of this decline was attributable to the sale of the Company's Consumer Solutions Business Unit (CSBU) operations and the resulting reduction in product sales. The net loss totaled $5.1 million, or $(0.38) per share, compared to a net loss of $1.5 million, or ($0.09) per diluted share, in the third quarter of fiscal 2008.

The Company's financial results are difficult to compare to the corresponding quarter of the prior year due to the sale of its CSBU. Effective July 6, 2008, the CSBU was sold to a new private equity-funded entity known as Franklin Covey Products. The CSBU was primarily responsible for sales of the Company's consumer products, including the Franklin Planner, binders, and related accessories, to consumers and small businesses through retail, wholesale, Internet, and call center channels. Due to the Company's 19.5 percent voting interest and continuing involvement with Franklin Covey Products, the Company is not presenting the financial results of the CSBU in a discontinued operations format.

"We continued to make improvements in our business this quarter as our revenue booking momentum was solid and above that achieved during last year's third quarter and we won business with new and existing customers that is expected to contribute to our sales in future quarters. We also executed on cost savings initiatives and saw good traction in several of our new strategic initiatives including our customer loyalty, execution, and speed of trust practices," said Bob Whitman, Chairman and Chief Executive Officer of Franklin Covey. "We were disappointed to recognize a loss for the third quarter, although a considerable portion of the net loss was due to a larger than anticipated income tax provision, as our EBITDA improved significantly on a sequential basis. Our third quarter revenue was lower than we anticipated due to the deferral of some training and consulting deliveries, however we are delivering these programs and expect to recognize the majority of these sales in the fourth quarter. Overall, we are encouraged by the underlying trend in our business during these difficult economic times and expect to report continued progress in both revenue and cost reduction initiatives in the fourth quarter and beyond."

Sales from the Company's Organizational Solutions Business Unit, which primarily consist of training and consulting sales, decreased $7.0 million compared to the prior year. Domestic sales declined by $4.7 million. Approximately $1.8 million of the decline was due to planned decreases in public programs, with the majority of the balance due to deferrals of training and consulting engagements by clients whose operations are being adversely affected by weak economic conditions. These deferrals were partially offset by an increase in revenues from licensed facilitators within client organizations. While domestic sales were affected by planned decreases in the number of public programs offered during the quarter, due to the essentially break-even nature of these programs, the reduction in the number of programs did not have a material impact on profitability. International sales declined by $2.3 million. Approximately $0.7 million of the decline was attributable to the unfavorable impact of translating foreign sales to United States dollars during the quarter and another $0.7 million was attributable to decreased product sales as a portion of these sales were transitioned in connection with the sale of CSBU. The remaining decrease was primarily due to lower sales from the Company's directly owned offices and licensee royalty revenues, which were impacted by continued weakness in worldwide economic conditions. Despite the decline in sales, gross margin increased approximately 90 basis points to 61.8 percent based on an improved mix of higher-margin training and consulting sales.

Selling, general and administrative (SG&A) expenses declined $16.0 million, primarily due to the sale of the CSBU. The year-over-year improvement in SG&A costs was partially offset by $0.9 million in severance costs related to cost savings initiatives designed to reduce operating costs and improve profitability in future periods.

As of May 30, the Company had $1.2 million in cash and cash equivalents and $16.1 million outstanding on its line of credit. Subsequent to quarter-end, the Company entered into a second modification of its line of credit facility, effectively retaining $20.0 million of borrowing capacity through June 30, and reducing overall borrowing capacity to $18.0 million at August 31, and to $13.5 million at November 30.

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