Franklin Covey Co. announced its results for its fiscal second quarter ended February 28, 2015 with consolidated revenue in the second-highest second fiscal quarter for the company's current business.
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Consolidated revenue was $46.3 million. These strong sales were achieved in spite of absorbing $1.2 million of adverse impact from foreign exchange rates as the U.S. dollar strengthened against various currencies during the quarter. Sales were essentially flat compared with $46.5 million in the prior year.
The second quarter of fiscal 2015 was also up against a tough comparison with last year due to the successful launch of the re-created The 7 Habits of Highly Effective People Signature Program, which had a significant impact on prior year sales in English speaking markets.
Despite these factors, many of the company's practices and delivery channels grew compared with the prior year, including 30 percent growth in the Sales Performance practice; 14 percent growth in the Education practice; 10 percent growth from international licensee partners (including $0.2 million of adverse foreign exchange impact); 10 percent growth (in functional currencies) at the company's offices in Japan and the United Kingdom; and 9 percent growth from the company's government services office.
Gross profit: Second quarter gross profit was $30.0 million, compared with $31.4 million in the second quarter of the prior year due to the effects of foreign exchange on translated sales and cost of sales, increased curriculum amortization expense, increased costs of certain offerings, and changes in the mix of services sold during the quarter. Consolidated gross margin was 64.8 percent of sales compared with 67.5 percent in the second quarter of fiscal 2014.
Operating Expenses: The company's operating expenses increased by $1.3 million compared with the second quarter of the prior year, which was primarily due to a $1.1 million increase in selling, general, and administrative expenses, reflecting increased investments in marketing and promotional events and the hiring of new sales personnel.
The company believes that these investments have already begun to drive growth in the second half of fiscal 2015 as potential business pipelines are significantly higher than at the same time in the prior year.
Second quarter Adjusted EBITDA was $3.8 million, compared with $6.6 million in the second quarter of the prior year. The company's second quarter Adjusted EBITDA was affected by $0.8 million of foreign exchange related costs, including $0.4 million of transaction losses; the costs associated with hiring new client partners and new Education practice coaches; and holding additional marketing events and selling initiatives during the quarter.
Net income for the quarter decreased to $0.4 million compared with $2.0 million in the second quarter of fiscal 2014, reflecting the factors noted above.
Diluted EPS for the quarter ended February 28, 2015 decreased to $0.02 per share compared with $0.12 per share in the second quarter of the prior year.
Cash increased to $18.6 million at the end of the second quarter, with no borrowings on its line of credit facility, compared with $7.6 million of cash at the end of the first quarter of fiscal 2015.
At current exchange rates, the company expects to absorb approximately $2.8 million of negative impact to its Adjusted EBITDA from foreign exchange in fiscal 2015. The company, however, is encouraged by the expected strength of its business for the second half of fiscal 2015 and is therefore only reducing its fiscal 2015 Adjusted EBITDA guidance range by $1.0 million to between $36 million and $39 million.
The company received authorization from its Board of Directors to expand the January 2015 share repurchase plan from $10.0 million to $40.0 million. The company also increased the borrowing capacity of its line of credit facility from $10.0 million to $30.0 million. ■