Franklin Covey (NYSE: FC) reported Q3 EPS of ($0.18), $0.05 better than the analyst estimate of ($0.23). Revenue for the quarter came in at $50.5 million versus the consensus estimate of $49.7 million.

Financial Overview

The following is a summary of key financial results for the quarter ended May 31, 2018:

• Revenue: Consolidated revenue for the third quarter of fiscal 2018 increased 15% to $50.5 million, compared with $43.8 million in the third quarter of fiscal 2017. In addition to the recognition of previously deferred high-margin subscription revenues, the Company’s sales were also favorably impacted by increased international direct office sales, increased U.S. regional office sales, increased revenues from businesses acquired in the third and fourth quarters of fiscal 2017, and increased Education segment revenues. These increases were partially offset by decreased legacy facilitator and onsite revenues during the quarter.
• Deferred Subscription Revenue and Unbilled Deferred Revenue: During the quarter ended May 31, 2018, the Company’s subscription and subscription-related revenue grew 43%. At May 31, 2018, the Company had $34.5 million of deferred subscription revenueon its balance sheet, a 46%, or $10.9 million, increase over deferred subscription revenues on its balance sheet at May 31, 2017. At May 31, 2018, the Company had $15.1 million of unbilled deferred revenue compared with $2.5 million of unbilled deferred revenue at May 31, 2017. Unbilled deferred revenue represents business that is contracted but unbilled, and excluded from the Company’s balance sheet.
• Gross profit: Third quarter 2018 gross profit was $34.9 million, a 28%, or $7.6 million increase, compared with $27.3 million in the prior year. The Company’s gross margin for the quarter ended May 31, 2018 increased to 69.2% of sales compared with 62.5% in the third quarter of fiscal 2017. The increase in gross profit and improved gross margin was primarily due to a change in the mix of revenues, as subscription revenues, including the All Access Pass, continue to grow as a percentage of recognized sales. In addition, the Company exited the publishing business in Japan during the third quarter of fiscal 2017 and recorded a $1.8 million charge to write off the majority of its book inventory located in Japan.
• Operating Expenses: The Company’s operating expenses for the quarter ended May 31, 2018 increased by $3.7 million compared with the prior year, which was due to a $4.2 million increase in selling, general, and administrative (SG&A) expenses, a $0.5 million increase in amortization expense, and a $0.3 million increase in depreciation expense. These increases were partially offset by $1.3 million of restructuring costs in fiscal 2017 that did not repeat in the third quarter of fiscal 2018. Increased SG&A expenses were primarily related to increased associate costs resulting from investments in new sales and sales related personnel, new implementation specialists, and increased commission expense resulting from higher sales; increased computer hardware and software expenses related to the Company’s new AAP portal and new Enterprise Resource Planning (ERP) system; and increased consulting and development costs for various projects and growth initiatives. Increased amortization expense was due to business acquisitions which were completed in the third and fourth quarters of fiscal 2017.
• Operating Income (Loss): The Company’s loss from operations for the third quarter of fiscal 2018 improved to $(2.6) million compared with a loss from operations of $(6.5) million in the third quarter of fiscal 2017.
• Adjusted EBITDA: Adjusted EBITDA for the third quarter improved to $0.6 million, compared with a loss of approximately $(18,000) in the third quarter of fiscal 2017.
• Net Loss: The Company reported a net loss of $(2.5) million, or $(.18) per share, for the quarter ended May 31, 2018, compared with a net loss of $(4.5) million, or $(.33) per share, in the third quarter of fiscal 2017, reflecting the above-noted factors.
• Cash and Liquidity Remain Strong: The Company’s balance sheet and liquidity position remained healthy through the third quarter of fiscal 2018. The Company had $11.8 million of cash at May 31, 2018, compared with $8.9 million at August 31, 2017. At May 31, 2018, the Company had $14.1 million of available borrowing capacity on its revolving line of credit facility.
• Fiscal 2018 Outlook: Based on anticipated increases in its subscription business, the Company reaffirms its previously announced Adjusted EBITDA guidance for fiscal 2018, which is expected to be in the range of $10 million to $15 million.

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