Franklin Covey (FC) Misses Q4 EPS by 4c; Guides FY17

Franklin Covey (NYSE: FC) reported Q4 EPS of $0.55, $0.04 worse than the analyst estimate of $0.59. Revenue for the quarter came in at $64.3 million versus the consensus estimate of $68.57 million.

Fiscal 2017 Outlook

Based upon the success of All Access Pass during fiscal 2016, the Company has decided to modify its business practices to make the AAP experience even better for its customers. The Company expects that future changes may include adding content from thought leaders outside the Company, localizing content, including additional assessments and related tools, and developing supplementary webcasts for pass holders. These future business practices may require a significantly larger portion of invoiced amounts to be deferred over the term of the underlying contracts and agreements. Accordingly, the Company’s deferred revenue on its consolidated balance sheet is expected to grow significantly in fiscal 2017. Once the Company is past the transition period, the Company believes there will be some advantages to this method of accounting for AAP arrangements, including better predictability of future results and less seasonality in the Company’s quarterly earnings.

To provide guidance for fiscal 2017, the Company considered both the expected amount of reported Adjusted EBITDA and the expected change in deferred revenue (less applicable costs) as recorded on the balance sheet. For example, in fiscal 2016, the Company reported $26.9 million of Adjusted EBITDA and an increase in deferred revenue, less applicable costs of $7.5 million. The sum of these two items is $34.4 million. The Company cannot currently accurately predict the mix of recorded sales versus deferred sales in fiscal 2017, but the Company expects that the sum of reported Adjusted EBITDA and the increase in deferred revenue in fiscal 2017 will grow from $34.4 million to between $35 million and $38 million, excluding the impact of foreign exchange rates. The Company expects that the amount of reported Adjusted EBITDA in fiscal 2017 to decrease significantly, and the amount of deferred revenue on the balance sheet to increase significantly. For instance, in fiscal 2016, the Company deferred $8.6 million of its invoiced amounts. In fiscal 2017, on the same invoiced amounts, the Company may have to defer $21 million. Additionally, the change in business practices could require the Company to defer all or a part of its facilitator sales.

For earnings history and earnings-related data on Franklin Covey (FC) click here.

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