[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Utah
(State of incorporation)
|
87-0401551
(I.R.S. employer identification number)
|
|
2200 West Parkway Boulevard
Salt Lake City, Utah
(Address of principal executive offices)
|
84119-2099
(Zip Code)
|
|
Registrant’s telephone number,
Including area code
|
(801) 817-1776
|
Title of Each Class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
Common Stock, $.05 Par Value
|
FC
|
New York Stock Exchange
|
Large Accelerated Filer
|
☐ | |
Accelerated Filer
|
☒ |
Non-accelerated Filer
|
☐ |
Smaller Reporting Company
|
☒ | |
Emerging Growth Company
|
☐ |
February 29,
|
August 31,
|
|||||||
2020
|
2019
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
24,810
|
$
|
27,699
|
||||
Accounts receivable, less allowance for doubtful accounts of $4,076 and $4,242
|
48,722
|
73,227
|
||||||
Inventories
|
2,795
|
3,481
|
||||||
Prepaid expenses and other current assets
|
15,531
|
14,933
|
||||||
Total current assets
|
91,858
|
119,340
|
||||||
Property and equipment, net
|
18,368
|
18,579
|
||||||
Intangible assets, net
|
45,350
|
47,690
|
||||||
Goodwill
|
24,220
|
24,220
|
||||||
Deferred income tax assets
|
7,066
|
5,045
|
||||||
Other long-term assets
|
14,923
|
10,039
|
||||||
$
|
201,785
|
$
|
224,913
|
|||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Current portion of term notes payable
|
$
|
5,000
|
$
|
5,000
|
||||
Current portion of financing obligation
|
2,465
|
2,335
|
||||||
Accounts payable
|
8,735
|
9,668
|
||||||
Deferred subscription revenue
|
46,746
|
56,250
|
||||||
Other deferred revenue
|
7,561
|
5,972
|
||||||
Accrued liabilities
|
18,717
|
24,319
|
||||||
Total current liabilities
|
89,224
|
103,544
|
||||||
Term notes payable, less current portion
|
17,500
|
15,000
|
||||||
Financing obligation, less current portion
|
15,379
|
16,648
|
||||||
Other liabilities
|
6,587
|
7,527
|
||||||
Deferred income tax liabilities
|
180
|
180
|
||||||
Total liabilities
|
128,870
|
142,899
|
||||||
Shareholders’ equity:
|
||||||||
Common stock, $.05 par value; 40,000 shares authorized, 27,056 shares issued
|
1,353
|
1,353
|
||||||
Additional paid-in capital
|
216,045
|
215,964
|
||||||
Retained earnings
|
59,956
|
59,403
|
||||||
Accumulated other comprehensive income
|
322
|
269
|
||||||
Treasury stock at cost, 13,209 shares and 13,087 shares
|
(204,761
|
)
|
(194,975
|
)
|
||||
Total shareholders’ equity
|
72,915
|
82,014
|
||||||
$
|
201,785
|
$
|
224,913
|
Quarter Ended
|
Two Quarters Ended
|
|||||||||||||||
February 29,
|
February 28,
|
February 29,
|
February 28,
|
|||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
Net sales
|
$
|
53,745
|
$
|
50,356
|
$
|
112,357
|
$
|
104,185
|
||||||||
Cost of sales
|
15,079
|
14,990
|
31,662
|
32,037
|
||||||||||||
Gross profit
|
38,666
|
35,366
|
80,695
|
72,148
|
||||||||||||
Selling, general, and administrative
|
36,221
|
35,925
|
75,620
|
70,568
|
||||||||||||
Depreciation
|
1,653
|
1,697
|
3,273
|
3,251
|
||||||||||||
Amortization
|
1,170
|
1,300
|
2,340
|
2,538
|
||||||||||||
Loss from operations
|
(378
|
)
|
(3,556
|
)
|
(538
|
)
|
(4,209
|
)
|
||||||||
Interest income
|
13
|
9
|
18
|
22
|
||||||||||||
Interest expense
|
(557
|
)
|
(623
|
)
|
(1,162
|
)
|
(1,255
|
)
|
||||||||
Discount accretion on related party receivable
|
-
|
243
|
-
|
258
|
||||||||||||
Loss before income taxes
|
(922
|
)
|
(3,927
|
)
|
(1,682
|
)
|
(5,184
|
)
|
||||||||
Income tax benefit
|
2,019
|
410
|
2,235
|
310
|
||||||||||||
Net income (loss)
|
$
|
1,097
|
$
|
(3,517
|
)
|
$
|
553
|
$
|
(4,874
|
)
|
||||||
Net income (loss) per share:
|
||||||||||||||||
Basic and diluted
|
$
|
0.08
|
$
|
(0.25
|
)
|
$
|
0.04
|
$
|
(0.35
|
)
|
||||||
Weighted average number of common shares:
|
||||||||||||||||
Basic
|
13,841
|
13,937
|
13,911
|
13,927
|
||||||||||||
Diluted
|
13,990
|
13,937
|
14,118
|
13,927
|
||||||||||||
COMPREHENSIVE INCOME (LOSS)
|
||||||||||||||||
Net income (loss)
|
$
|
1,097
|
$
|
(3,517
|
)
|
$
|
553
|
$
|
(4,874
|
)
|
||||||
Foreign currency translation adjustments,
|
||||||||||||||||
net of income tax provision
|
||||||||||||||||
of $0, $(11), $0, and $0
|
90
|
438
|
53
|
129
|
||||||||||||
Comprehensive income (loss)
|
$
|
1,187
|
$
|
(3,079
|
)
|
$
|
606
|
$
|
(4,745
|
)
|
Two Quarters Ended
|
||||||||
February 29,
|
February 28,
|
|||||||
2020
|
2019
|
|||||||
(unaudited)
|
||||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net income (loss)
|
$
|
553
|
$
|
(4,874
|
)
|
|||
Adjustments to reconcile net income (loss) to net cash
|
||||||||
provided by operating activities:
|
||||||||
Depreciation and amortization
|
5,613
|
5,789
|
||||||
Amortization of capitalized curriculum costs
|
2,029
|
2,856
|
||||||
Stock-based compensation expense
|
3,644
|
1,989
|
||||||
Deferred income taxes
|
(2,012
|
)
|
(1,402
|
)
|
||||
Change in fair value of contingent consideration liabilities
|
(91
|
)
|
76
|
|||||
Loss on disposal of assets
|
38
|
-
|
||||||
Changes in assets and liabilities, net of effect of acquired business:
|
||||||||
Decrease in accounts receivable, net
|
24,556
|
21,197
|
||||||
Decrease in inventories
|
681
|
402
|
||||||
Decrease (increase) in prepaid expenses and other assets
|
(180
|
)
|
2,425
|
|||||
Decrease in accounts payable and accrued liabilities
|
(6,959
|
)
|
(6,298
|
)
|
||||
Decrease in deferred revenue
|
(8,888
|
)
|
(8,842
|
)
|
||||
Increase (decrease) in income taxes payable/receivable
|
(1,605
|
)
|
214
|
|||||
Decrease in other long-term liabilities
|
(6
|
)
|
(182
|
)
|
||||
Net cash provided by operating activities
|
17,373
|
13,350
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchases of property and equipment
|
(2,516
|
)
|
(2,195
|
)
|
||||
Curriculum development costs
|
(2,232
|
)
|
(1,256
|
)
|
||||
Purchase of note receivable from bank (Note 12)
|
(2,600
|
)
|
-
|
|||||
Acquisition of business, net of cash acquired
|
-
|
(32
|
)
|
|||||
Net cash used for investing activities
|
(7,348
|
)
|
(3,483
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds from line of credit borrowings
|
-
|
46,032
|
||||||
Payments on line of credit borrowings
|
-
|
(48,993
|
)
|
|||||
Proceeds from term notes payable financing
|
5,000
|
-
|
||||||
Principal payments on term notes payable
|
(2,500
|
)
|
(3,125
|
)
|
||||
Principal payments on financing obligation
|
(1,139
|
)
|
(1,020
|
)
|
||||
Purchases of common stock for treasury
|
(13,833
|
)
|
(12
|
)
|
||||
Payment of contingent consideration liabilities
|
(911
|
)
|
(301
|
)
|
||||
Proceeds from sales of common stock held in treasury
|
484
|
444
|
||||||
Net cash used for financing activities
|
(12,899
|
)
|
(6,975
|
)
|
||||
Effect of foreign currency exchange rates on cash and cash equivalents
|
(15
|
)
|
63
|
|||||
Net increase (decrease) in cash and cash equivalents
|
(2,889
|
)
|
2,955
|
|||||
Cash and cash equivalents at the beginning of the period
|
27,699
|
10,153
|
||||||
Cash and cash equivalents at the end of the period
|
$
|
24,810
|
$
|
13,108
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid for income taxes
|
$
|
1,381
|
$
|
831
|
||||
Cash paid for interest
|
1,144
|
1,276
|
||||||
Non-cash investing and financing activities:
|
||||||||
Purchases of property and equipment financed by accounts payable
|
$
|
985
|
$
|
369
|
||||
Use of notes receivable to modify revenue contract (Note 12)
|
3,246
|
-
|
Accumulated | ||||||||||||||||||||||||||||
Common
|
Common
|
Additional
|
Other
|
Treasury
|
Treasury
|
|||||||||||||||||||||||
Stock
|
Stock
|
Paid-In
|
Retained
|
Comprehensive
|
Stock
|
Stock
|
||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Income
|
Shares
|
Amount
|
||||||||||||||||||||||
Balance at August 31, 2019
|
27,056
|
$
|
1,353
|
$
|
215,964
|
$
|
59,403
|
$
|
269
|
(13,087
|
)
|
$
|
(194,975
|
)
|
||||||||||||||
Issuance of common stock from
|
||||||||||||||||||||||||||||
treasury
|
131
|
9
|
123
|
|||||||||||||||||||||||||
Purchase of treasury shares
|
(3
|
)
|
||||||||||||||||||||||||||
Stock-based compensation
|
1,851
|
|||||||||||||||||||||||||||
Cumulative translation
|
||||||||||||||||||||||||||||
adjustments
|
(37
|
)
|
||||||||||||||||||||||||||
Net loss
|
(544
|
)
|
||||||||||||||||||||||||||
Balance at November 30, 2019
|
27,056
|
1,353
|
217,946
|
58,859
|
232
|
(13,078
|
)
|
(194,855
|
)
|
|||||||||||||||||||
Issuance of common stock from
|
||||||||||||||||||||||||||||
treasury
|
(3,361
|
)
|
241
|
3,591
|
||||||||||||||||||||||||
Purchase of treasury shares
|
(393
|
)
|
(13,830
|
)
|
||||||||||||||||||||||||
Stock-based compensation
|
1,793
|
|||||||||||||||||||||||||||
Restricted stock award
|
(333
|
)
|
21
|
333
|
||||||||||||||||||||||||
Cumulative translation
|
||||||||||||||||||||||||||||
adjustments
|
90
|
|||||||||||||||||||||||||||
Net income
|
1,097
|
|||||||||||||||||||||||||||
Balance at February 29, 2020
|
27,056
|
$
|
1,353
|
$
|
216,045
|
$
|
59,956
|
$
|
322
|
(13,209
|
)
|
$
|
(204,761
|
)
|
Accumulated | ||||||||||||||||||||||||||||
Common
|
Common
|
Additional
|
Other
|
Treasury
|
Treasury
|
|||||||||||||||||||||||
Stock
|
Stock
|
Paid-In
|
Retained
|
Comprehensive
|
Stock
|
Stock
|
||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Income
|
Shares
|
Amount
|
||||||||||||||||||||||
Balance at August 31, 2018
|
27,056
|
$
|
1,353
|
$
|
211,280
|
$
|
63,569
|
$
|
341
|
(13,159
|
)
|
$
|
(196,043
|
)
|
||||||||||||||
Issuance of common stock from
|
||||||||||||||||||||||||||||
treasury
|
64
|
11
|
166
|
|||||||||||||||||||||||||
Purchases of common shares
|
||||||||||||||||||||||||||||
for treasury
|
(7
|
)
|
||||||||||||||||||||||||||
Stock-based compensation
|
946
|
|||||||||||||||||||||||||||
Cumulative translation
|
||||||||||||||||||||||||||||
adjustments
|
(309
|
)
|
||||||||||||||||||||||||||
Cumulative effect of
|
||||||||||||||||||||||||||||
accounting change
|
(3,143
|
)
|
||||||||||||||||||||||||||
Net loss
|
(1,357
|
)
|
||||||||||||||||||||||||||
Balance at November 30, 2018
|
27,056
|
1,353
|
212,290
|
59,069
|
32
|
(13,148
|
)
|
(195,884
|
)
|
|||||||||||||||||||
Issuance of common stock from
|
||||||||||||||||||||||||||||
treasury
|
53
|
11
|
162
|
|||||||||||||||||||||||||
Purchases of common shares
|
||||||||||||||||||||||||||||
for treasury
|
(5
|
)
|
||||||||||||||||||||||||||
Stock-based compensation
|
1,043
|
|||||||||||||||||||||||||||
Restricted stock award
|
(426
|
)
|
28
|
426
|
||||||||||||||||||||||||
Cumulative translation
|
||||||||||||||||||||||||||||
adjustments
|
438
|
|||||||||||||||||||||||||||
Net loss
|
(3,517
|
)
|
||||||||||||||||||||||||||
Balance at February 28, 2019
|
27,056
|
$
|
1,353
|
$
|
212,960
|
$
|
55,552
|
$
|
470
|
(13,109
|
)
|
$
|
(195,301
|
)
|
•
|
World Class Content – Our content is principle-centered and based on natural laws of human behavior and effectiveness. When our content is applied consistently in an
organization, we believe the culture of that organization will change to enable the organization to achieve their own great purposes. Our content is designed to build new skillsets, establish new mindsets, and provide enabling toolsets to
our clients.
|
•
|
Breadth and Scalability of Delivery Options – We have a wide range of content delivery options, including: subscription offerings, which includes the All Access Pass (available
in multiple languages), the Leader in Me membership, and other subscription offerings; intellectual property licenses; on-site training; training led through certified facilitators; on-line
learning; and organization-wide transformational processes, including consulting and coaching services.
|
•
|
Global Capability – We have sales professionals in the United States and Canada who serve clients in the private sector and in governmental organizations; wholly-owned
subsidiaries in Australia, China, Japan, the United Kingdom, Germany, Switzerland, and Austria; and we contract with licensee partners who deliver our content and provide related services in over 140 other countries and territories around
the world.
|
February 29,
|
August 31,
|
|||||||
2020
|
2019
|
|||||||
Finished goods
|
$
|
2,775
|
$
|
3,434
|
||||
Raw materials
|
20
|
47
|
||||||
$
|
2,795
|
$
|
3,481
|
YEAR ENDING AUGUST 31,
|
Amount
|
|||
2020
|
$
|
2,500
|
||
2021
|
5,000
|
|||
2022
|
5,000
|
|||
2023
|
5,000
|
|||
2024
|
5,000
|
|||
$
|
22,500
|
Jhana
|
RGP
|
Total
|
||||||||||
Balance at August 31, 2019
|
$
|
3,468
|
$
|
1,761
|
$
|
5,229
|
||||||
Change in fair value
|
98
|
(7
|
)
|
91
|
||||||||
Payments
|
(282
|
)
|
(500
|
)
|
(782
|
)
|
||||||
Balance at November 30, 2019
|
3,284
|
1,254
|
4,538
|
|||||||||
Change in fair value
|
153
|
(335
|
)
|
(182
|
)
|
|||||||
Payments
|
(129
|
)
|
-
|
(129
|
)
|
|||||||
Balance at February 29, 2020
|
$
|
3,308
|
$
|
919
|
$
|
4,227
|
Balance Sheet |
February 29, |
||||
Caption | 2020 | ||||
Assets:
|
|||||
Operating lease right of use assets
|
Other long-term assets
|
$
|
1,662
|
||
Liabilities:
|
|||||
Current:
|
|||||
Operating lease liabilities
|
Accrued liabilities
|
921
|
|||
Long-Term:
|
|||||
Operating lease liabilities
|
Other long-term liabilities
|
741
|
|||
$
|
1,662
|
||||
Weighted Average Remaining Lease Term:
|
|||||
Operating leases (years)
|
2.7
|
||||
Weighted Average Discount Rate:
|
|||||
Operating leases
|
4.2
|
%
|
YEAR ENDING AUGUST 31,
|
Amount
|
|||
Remainder of 2020
|
$
|
541
|
||
2021
|
727
|
|||
2022
|
202
|
|||
2023
|
116
|
|||
2024
|
93
|
|||
Thereafter
|
98
|
|||
Total operating lease payments
|
1,777
|
|||
Less imputed interest
|
(115
|
)
|
||
Present value of operating lease liabilities
|
$
|
1,662
|
YEAR ENDING AUGUST 31,
|
Amount
|
|||
Remainder of 2020
|
$
|
1,955
|
||
2021
|
2,341
|
|||
2022
|
1,514
|
|||
2023
|
1,514
|
|||
2024
|
1,527
|
|||
Thereafter
|
1,275
|
|||
$
|
10,126
|
Quarter Ended
|
Two Quarters Ended
|
|||||||||||||||
February 29,
|
February 28,
|
February 29,
|
February 28,
|
|||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Long-term incentive awards
|
$
|
1,566
|
$
|
824
|
$
|
3,201
|
$
|
1,557
|
||||||||
Restricted stock awards
|
175
|
175
|
350
|
350
|
||||||||||||
Employee stock purchase plan
|
52
|
44
|
93
|
82
|
||||||||||||
$
|
1,793
|
$
|
1,043
|
$
|
3,644
|
$
|
1,989
|
Weighted
|
||||||||
Avg. Exercise
|
||||||||
Number of
|
Price Per
|
|||||||
Stock Options
|
Share
|
|||||||
Outstanding at August 31, 2019
|
568,750
|
$
|
11.67
|
|||||
Granted
|
-
|
-
|
||||||
Exercised
|
(350,000
|
)
|
(11.73
|
)
|
||||
Forfeited
|
-
|
-
|
||||||
Outstanding at February 29, 2020
|
218,750
|
$
|
11.57
|
|||||
Options vested and exercisable at
|
||||||||
February 29, 2020
|
218,750
|
$
|
11.57
|
Weighted-Average
|
||||||||
Grant Date
|
||||||||
Number of
|
Fair Value
|
|||||||
Shares
|
Per Share
|
|||||||
Restricted stock awards at
|
||||||||
August 31, 2019
|
28,525
|
$
|
24.54
|
|||||
Granted
|
21,420
|
32.68
|
||||||
Forfeited
|
-
|
-
|
||||||
Vested
|
(28,525
|
)
|
24.54
|
|||||
Restricted stock awards at
|
||||||||
February 29, 2020
|
21,420
|
$
|
32.68
|
•
|
Time-Based Award Shares – Twenty-five percent of the 2020 LTIP award shares vest to participants after three years of service. The total number of shares that may be earned by participants after
three years of service is 25,101 shares. The number of shares awarded in this tranche is not variable and will not fluctuate based on financial measures.
|
•
|
Performance-Based Award Shares – The remaining two tranches of the 2020 LTIP award are based on fiscal 2022 qualified adjusted earnings before interest, taxes, depreciation, and amortization
(Adjusted EBITDA) and fiscal 2022 subscription service sales, respectively. The number of shares that will vest to participants for these two tranches is variable and may be 50 percent of the award (minimum award threshold) or up to 200
percent of the participant’s award (maximum threshold) depending on the levels of qualified Adjusted EBITDA and subscription service sales achieved. The number of shares that may be earned for achieving 100 percent of the performance-based
objectives totals 75,315 shares. The maximum number of shares that may be awarded in connection with the performance-based tranches of the 2020 LTIP totals 150,630 shares.
|
Quarter Ended
|
Two Quarters Ended
|
|||||||||||||||
February 29,
|
February 28,
|
February 29,
|
February 28,
|
|||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Numerator for basic and
|
||||||||||||||||
diluted loss per share:
|
||||||||||||||||
Net income (loss)
|
$
|
1,097
|
$
|
(3,517
|
)
|
$
|
553
|
$
|
(4,874
|
)
|
||||||
Denominator for basic and
|
||||||||||||||||
diluted loss per share:
|
||||||||||||||||
Basic weighted average shares
|
||||||||||||||||
outstanding
|
13,841
|
13,937
|
13,911
|
13,927
|
||||||||||||
Effect of dilutive securities:
|
||||||||||||||||
Stock options and other
|
||||||||||||||||
stock-based awards
|
149
|
-
|
207
|
-
|
||||||||||||
Diluted weighted average
|
||||||||||||||||
shares outstanding
|
13,990
|
13,937
|
14,118
|
13,927
|
||||||||||||
EPS Calculations:
|
||||||||||||||||
Net income (loss) per share:
|
||||||||||||||||
Basic and diluted
|
$
|
0.08
|
$
|
(0.25
|
)
|
$
|
0.04
|
$
|
(0.35
|
)
|
•
|
Direct Offices – Our Direct Office segment has a depth of expertise in helping organizations solve problems that require changes in human behavior, including leadership,
productivity, execution, trust, and sales performance. We have a variety of principle-based offerings that help build winning and profitable cultures. This segment includes our sales personnel that serve the United States and Canada; our
international sales offices located in Japan, China, the United Kingdom, Australia, Germany, Switzerland, and Austria; our government services sales channel; and our public programs operations.
|
•
|
International Licensees – Our independently owned international licensees provide our offerings and services in countries where we do not have a directly-owned office. These
licensee partners allow us to expand the reach of our services to large multinational organizations as well as smaller organizations in their countries. This segment’s results are primarily comprised of royalty revenues received from these
licensees.
|
•
|
Education Practice – Centered around the principles found in The Leader in Me, the Education practice is dedicated to helping
educational institutions build a culture that will produce great results. We believe these results are manifested by increases in student performance, improved school culture, decreased disciplinary issues, and increased teacher engagement
and parental involvement. This segment includes our domestic and international Education practice operations, which are focused on sales to educational institutions such as elementary schools, high schools, and colleges and universities.
|
•
|
Corporate and Other – Our corporate and other information includes leasing operations, shipping and handling revenues, royalty revenues from Franklin Planner Corp. (Note 12),
and certain corporate administrative functions.
|
Sales to
|
||||||||||||
Quarter Ended
|
External
|
Adjusted
|
||||||||||
February 29, 2020
|
Customers
|
Gross Profit
|
EBITDA
|
|||||||||
Enterprise Division:
|
||||||||||||
Direct offices
|
$
|
37,973
|
$
|
28,702
|
$
|
4,734
|
||||||
International licensees
|
2,691
|
2,237
|
1,384
|
|||||||||
40,664
|
30,939
|
6,118
|
||||||||||
Education practice
|
10,893
|
6,460
|
(1,068
|
)
|
||||||||
Corporate and eliminations
|
2,188
|
1,267
|
(994
|
)
|
||||||||
Consolidated
|
$
|
53,745
|
$
|
38,666
|
$
|
4,056
|
||||||
Quarter Ended
|
||||||||||||
February 28, 2019
|
||||||||||||
Enterprise Division:
|
||||||||||||
Direct offices
|
$
|
36,414
|
$
|
27,294
|
$
|
2,543
|
||||||
International licensees
|
2,906
|
2,221
|
1,218
|
|||||||||
39,320
|
29,515
|
3,761
|
||||||||||
Education practice
|
9,698
|
5,429
|
(909
|
)
|
||||||||
Corporate and eliminations
|
1,338
|
422
|
(1,888
|
)
|
||||||||
Consolidated
|
$
|
50,356
|
$
|
35,366
|
$
|
964
|
||||||
Two Quarters Ended
|
||||||||||||
February 29, 2020
|
||||||||||||
Enterprise Division:
|
||||||||||||
Direct offices
|
$
|
80,085
|
$
|
60,113
|
$
|
10,444
|
||||||
International licensees
|
6,411
|
5,357
|
3,419
|
|||||||||
86,496
|
65,470
|
13,863
|
||||||||||
Education practice
|
21,974
|
13,117
|
(2,171
|
)
|
||||||||
Corporate and eliminations
|
3,887
|
2,108
|
(2,675
|
)
|
||||||||
Consolidated
|
$
|
112,357
|
$
|
80,695
|
$
|
9,017
|
||||||
Two Quarters Ended
|
||||||||||||
February 28, 2019
|
||||||||||||
Enterprise Division:
|
||||||||||||
Direct offices
|
$
|
74,885
|
$
|
54,364
|
$
|
6,183
|
||||||
International licensees
|
6,583
|
5,084
|
2,846
|
|||||||||
81,468
|
59,448
|
9,029
|
||||||||||
Education practice
|
20,044
|
11,822
|
(1,174
|
)
|
||||||||
Corporate and eliminations
|
2,673
|
878
|
(3,722
|
)
|
||||||||
Consolidated
|
$
|
104,185
|
$
|
72,148
|
$
|
4,133
|
Quarter Ended
|
Two Quarters Ended
|
|||||||||||||||
February 29,
|
February 28,
|
February 29,
|
February 28,
|
|||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Segment Adjusted EBITDA
|
$
|
5,050
|
$
|
2,852
|
$
|
11,692
|
$
|
7,855
|
||||||||
Corporate expenses
|
(994
|
)
|
(1,888
|
)
|
(2,675
|
)
|
(3,722
|
)
|
||||||||
Consolidated Adjusted EBITDA
|
4,056
|
964
|
9,017
|
4,133
|
||||||||||||
Stock-based compensation expense
|
(1,793
|
)
|
(1,043
|
)
|
(3,644
|
)
|
(1,989
|
)
|
||||||||
Decrease (increase) in the fair value of
|
||||||||||||||||
contingent consideration liabilities
|
182
|
(52
|
)
|
91
|
(76
|
)
|
||||||||||
Knowledge Capital wind-down costs
|
-
|
-
|
(389
|
)
|
-
|
|||||||||||
Licensee transition costs
|
-
|
(428
|
)
|
-
|
(488
|
)
|
||||||||||
Depreciation
|
(1,653
|
)
|
(1,697
|
)
|
(3,273
|
)
|
(3,251
|
)
|
||||||||
Amortization
|
(1,170
|
)
|
(1,300
|
)
|
(2,340
|
)
|
(2,538
|
)
|
||||||||
Loss from operations
|
(378
|
)
|
(3,556
|
)
|
(538
|
)
|
(4,209
|
)
|
||||||||
Interest income
|
13
|
9
|
18
|
22
|
||||||||||||
Interest expense
|
(557
|
)
|
(623
|
)
|
(1,162
|
)
|
(1,255
|
)
|
||||||||
Discount accretion on related
|
||||||||||||||||
party receivable
|
-
|
243
|
-
|
258
|
||||||||||||
Loss before income taxes
|
(922
|
)
|
(3,927
|
)
|
(1,682
|
)
|
(5,184
|
)
|
||||||||
Income tax benefit
|
2,019
|
410
|
2,235
|
310
|
||||||||||||
Net income (loss)
|
$
|
1,097
|
$
|
(3,517
|
)
|
$
|
553
|
$
|
(4,874
|
)
|
Quarter Ended
|
Two Quarters Ended
|
|||||||||||||||
February 29,
|
February 28,
|
February 29,
|
February 28,
|
|||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Americas
|
$
|
42,721
|
$
|
39,839
|
$
|
86,756
|
$
|
80,757
|
||||||||
Asia Pacific
|
7,089
|
7,398
|
17,228
|
16,678
|
||||||||||||
Europe/Middle East/Africa
|
3,935
|
3,119
|
8,373
|
6,750
|
||||||||||||
$
|
53,745
|
$
|
50,356
|
$
|
112,357
|
$
|
104,185
|
Quarter Ended
|
Services and
|
Leases and
|
||||||||||||||||||
February 29, 2020
|
Products
|
Subscriptions
|
Royalties
|
Other
|
Consolidated
|
|||||||||||||||
Enterprise Division:
|
||||||||||||||||||||
Direct offices
|
$
|
21,644
|
$
|
15,172
|
$
|
1,157
|
$
|
-
|
$
|
37,973
|
||||||||||
International licensees
|
410
|
-
|
2,281
|
-
|
2,691
|
|||||||||||||||
22,054
|
15,172
|
3,438
|
-
|
40,664
|
||||||||||||||||
Education practice
|
2,950
|
6,192
|
1,751
|
-
|
10,893
|
|||||||||||||||
Corporate and eliminations
|
-
|
-
|
935
|
1,253
|
2,188
|
|||||||||||||||
Consolidated
|
$
|
25,004
|
$
|
21,364
|
$
|
6,124
|
$
|
1,253
|
$
|
53,745
|
||||||||||
Quarter Ended
|
||||||||||||||||||||
February 28, 2019
|
||||||||||||||||||||
Enterprise Division:
|
||||||||||||||||||||
Direct offices
|
$
|
23,102
|
$
|
12,416
|
$
|
896
|
$
|
-
|
$
|
36,414
|
||||||||||
International licensees
|
517
|
-
|
2,389
|
-
|
2,906
|
|||||||||||||||
23,619
|
12,416
|
3,285
|
-
|
39,320
|
||||||||||||||||
Education practice
|
2,583
|
5,368
|
1,747
|
-
|
9,698
|
|||||||||||||||
Corporate and eliminations
|
-
|
-
|
-
|
1,338
|
1,338
|
|||||||||||||||
Consolidated
|
$
|
26,202
|
$
|
17,784
|
$
|
5,032
|
$
|
1,338
|
$
|
50,356
|
||||||||||
Two Quarters Ended
|
||||||||||||||||||||
February 29, 2020
|
||||||||||||||||||||
Enterprise Division:
|
||||||||||||||||||||
Direct offices
|
$
|
48,895
|
$
|
29,461
|
$
|
1,729
|
$
|
-
|
$
|
80,085
|
||||||||||
International licensees
|
1,000
|
-
|
5,411
|
-
|
6,411
|
|||||||||||||||
49,895
|
29,461
|
7,140
|
-
|
86,496
|
||||||||||||||||
Education practice
|
6,535
|
13,010
|
2,429
|
-
|
21,974
|
|||||||||||||||
Corporate and eliminations
|
-
|
-
|
1,314
|
2,573
|
3,887
|
|||||||||||||||
Consolidated
|
$
|
56,430
|
$
|
42,471
|
$
|
10,883
|
$
|
2,573
|
$
|
112,357
|
||||||||||
Two Quarters Ended
|
||||||||||||||||||||
February 28, 2019
|
||||||||||||||||||||
Enterprise Division:
|
||||||||||||||||||||
Direct offices
|
$
|
48,111
|
$
|
25,091
|
$
|
1,683
|
$
|
-
|
$
|
74,885
|
||||||||||
International licensees
|
1,389
|
-
|
5,194
|
-
|
6,583
|
|||||||||||||||
49,500
|
25,091
|
6,877
|
-
|
81,468
|
||||||||||||||||
Education practice
|
6,501
|
11,080
|
2,463
|
-
|
20,044
|
|||||||||||||||
Corporate and eliminations
|
-
|
-
|
-
|
2,673
|
2,673
|
|||||||||||||||
Consolidated
|
$
|
56,001
|
$
|
36,171
|
$
|
9,340
|
$
|
2,673
|
$
|
104,185
|
•
|
Sales – Our consolidated sales for the second quarter of fiscal 2020 increased 7% to $53.7 million, compared with sales of $50.4 million
in the second quarter of fiscal 2019. Sales growth during the quarter was broad-based across our Divisions. Enterprise Division sales during the second quarter of fiscal 2020 increased 3% to $40.7 million, compared with $39.3 million in
fiscal 2019, despite significant decreases in the Company’s China and Japan direct offices, and certain international licensees related to business disruption from the COVID-19 outbreak. Education Division revenues increased 12% to $10.9
million, compared with $9.7 million in the second quarter of fiscal 2019. Our sales growth was primarily driven by increased sales of subscription services in both the Enterprise and Education Divisions.
|
•
|
Cost of Sales/Gross Profit – Our cost of sales totaled $15.1 million for the quarter ended February 29, 2020, compared with $15.0 million in the prior year. Second quarter 2020
gross profit increased 9%, or $3.3 million, to $38.7 million compared with $35.4 million in fiscal 2019. Our gross margin for the quarter ended February 29, 2020 improved 171 basis points to 71.9% of sales compared with 70.2% in the second
quarter of the prior year, reflecting increased subscription revenues in the mix of services sold when compared with the prior year.
|
•
|
Operating Expenses – Our operating expenses for the quarter ended February 29, 2020 increased $0.1 million compared with the prior year, which was due to increased selling,
general, and administrative (SG&A) expenses. As a percent of sales, SG&A expenses decreased to 67.4 percent compared with 71.3 percent in the second quarter of fiscal 2019. Increased SG&A expense was primarily related to
increased commissions and bonuses on higher sales, increased investments in new sales and sales-related personnel, and a $0.8 million increase in non-cash stock-based compensation. These increases in operating expenses were partially
offset by $0.4 million of decreased licensee transition costs related to the fiscal 2019 acquisition of the Company’s licensee in Germany, Switzerland, and Austria (GSA); a $0.4 million decrease in our China office expenses resulting from
suspended business operations due to the COVID-19 outbreak; and cost savings from various other areas of the Company’s operations. At February 29, 2020, we had 255 client partners compared with 230 client partners at February 28, 2019.
|
•
|
Operating Loss and Net Income – Our loss from operations for the quarter ended February 29, 2020 improved to $(0.4) million compared with a loss of $(3.6) million in the second
quarter of the prior year. Our effective income tax benefit rate for the quarter ended February 29, 2020 was approximately 219 percent compared with an effective benefit rate of approximately 10 percent in the second quarter of fiscal
2019. The higher tax benefit rate in fiscal 2020 was primarily due to the exercise of stock options, which produced a $1.8 million tax benefit in the quarter. During the second quarter of fiscal 2020, we recognized net income of $1.1
million, or $.08 per diluted share, compared with a net loss of $(3.5) million, or $(.25) per share, in the prior year.
|
Quarter Ended
|
Quarter Ended
|
|||||||||||||||||||
February 29,
|
% of
|
February 28,
|
% of
|
|||||||||||||||||
2020
|
Sales
|
2019
|
Sales
|
Change
|
||||||||||||||||
Sales
|
$
|
37,973
|
100.0
|
$
|
36,414
|
100.0
|
$
|
1,559
|
||||||||||||
Cost of sales
|
9,271
|
24.4
|
9,120
|
25.0
|
151
|
|||||||||||||||
Gross profit
|
28,702
|
75.6
|
27,294
|
75.0
|
1,408
|
|||||||||||||||
SG&A expenses
|
23,968
|
63.1
|
24,751
|
68.0
|
(783
|
)
|
||||||||||||||
Adjusted EBITDA
|
$
|
4,734
|
12.5
|
$
|
2,543
|
7.0
|
$
|
2,191
|
Quarter Ended
|
Quarter Ended
|
|||||||||||||||||||
February 29,
|
% of
|
February 28,
|
% of
|
|||||||||||||||||
2020
|
Sales
|
2019
|
Sales
|
Change
|
||||||||||||||||
Sales
|
$
|
2,691
|
100.0
|
$
|
2,906
|
100.0
|
$
|
(215
|
)
|
|||||||||||
Cost of sales
|
454
|
16.9
|
685
|
23.6
|
(231
|
)
|
||||||||||||||
Gross profit
|
2,237
|
83.1
|
2,221
|
76.4
|
16
|
|||||||||||||||
SG&A expenses
|
853
|
31.7
|
1,003
|
34.5
|
(150
|
)
|
||||||||||||||
Adjusted EBITDA
|
$
|
1,384
|
51.4
|
$
|
1,218
|
41.9
|
$
|
166
|
Quarter Ended
|
Quarter Ended
|
|||||||||||||||||||
February 29,
|
% of
|
February 28,
|
% of
|
|||||||||||||||||
2020
|
Sales
|
2019
|
Sales
|
Change
|
||||||||||||||||
Sales
|
$
|
10,893
|
100.0
|
$
|
9,698
|
100.0
|
$
|
1,195
|
||||||||||||
Cost of sales
|
4,433
|
40.7
|
4,269
|
44.0
|
164
|
|||||||||||||||
Gross profit
|
6,460
|
59.3
|
5,429
|
56.0
|
1,031
|
|||||||||||||||
SG&A expenses
|
7,528
|
69.1
|
6,338
|
65.4
|
1,190
|
|||||||||||||||
Adjusted EBITDA
|
$
|
(1,068
|
)
|
(9.8
|
)
|
$
|
(909
|
)
|
(9.4
|
)
|
$
|
(159
|
)
|
Two Quarters
|
Two Quarters
|
|||||||||||||||||||
Ended
|
Ended
|
|||||||||||||||||||
February 29,
|
% of
|
February 28,
|
% of
|
|||||||||||||||||
2020
|
Sales
|
2019
|
Sales
|
Change
|
||||||||||||||||
Sales
|
$
|
80,085
|
100.0
|
$
|
74,885
|
100.0
|
$
|
5,200
|
||||||||||||
Cost of sales
|
19,972
|
24.9
|
20,521
|
27.4
|
(549
|
)
|
||||||||||||||
Gross profit
|
60,113
|
75.1
|
54,364
|
72.6
|
5,749
|
|||||||||||||||
SG&A expenses
|
49,669
|
62.0
|
48,181
|
64.3
|
1,488
|
|||||||||||||||
Adjusted EBITDA
|
$
|
10,444
|
13.0
|
$
|
6,183
|
8.3
|
$
|
4,261
|
Two Quarters
|
Two Quarters
|
|||||||||||||||||||
Ended
|
Ended
|
|||||||||||||||||||
February 29,
|
% of
|
February 28,
|
% of
|
|||||||||||||||||
2020
|
Sales
|
2019
|
Sales
|
Change
|
||||||||||||||||
Sales
|
$
|
6,411
|
100.0
|
$
|
6,583
|
100.0
|
$
|
(172
|
)
|
|||||||||||
Cost of sales
|
1,054
|
16.4
|
1,499
|
22.8
|
(445
|
)
|
||||||||||||||
Gross profit
|
5,357
|
83.6
|
5,084
|
77.2
|
273
|
|||||||||||||||
SG&A expenses
|
1,938
|
30.2
|
2,238
|
34.0
|
(300
|
)
|
||||||||||||||
Adjusted EBITDA
|
$
|
3,419
|
53.3
|
$
|
2,846
|
43.2
|
$
|
573
|
Two Quarters
|
Two Quarters
|
|||||||||||||||||||
Ended
|
Ended
|
|||||||||||||||||||
February 29,
|
% of
|
February 28,
|
% of
|
|||||||||||||||||
2020
|
Sales
|
2019
|
Sales
|
Change
|
||||||||||||||||
Sales
|
$
|
21,974
|
100.0
|
$
|
20,044
|
100.0
|
$
|
1,930
|
||||||||||||
Cost of sales
|
8,857
|
40.3
|
8,222
|
41.0
|
635
|
|||||||||||||||
Gross profit
|
13,117
|
59.7
|
11,822
|
59.0
|
1,295
|
|||||||||||||||
SG&A expenses
|
15,288
|
69.6
|
12,996
|
64.8
|
2,292
|
|||||||||||||||
Adjusted EBITDA
|
$
|
(2,171
|
)
|
(9.9
|
)
|
$
|
(1,174
|
)
|
(5.9
|
)
|
$
|
(997
|
)
|
Period
|
Total Number of Shares Purchased
|
Average Price Paid Per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(1)
(in thousands)
|
||||||||||||
December 1, 2019 to December 31, 2019
|
289,608
|
$
|
35.14
|
5,000
|
$
|
39,824
|
||||||||||
January 1, 2020 to January 31, 2020
|
-
|
-
|
-
|
39,824
|
||||||||||||
February 1, 2020 to February 29, 2020
|
-
|
-
|
-
|
39,824
|
||||||||||||
Total Common Shares
|
289,608
|
$
|
35.14
|
5,000
|
(1)
|
On November 15, 2019, our Board of Directors approved a new plan to repurchase up to $40.0 million of our outstanding common stock. The previously existing common stock repurchase plan was canceled and the new common share repurchase
plan does not have an expiration date. Under the terms of this new purchase plan, we purchased 5,000 shares of our common stock for $0.2 million during the quarter ended February 29, 2020.
|
(A)
|
Exhibits:
|
|
31.1
|
Rule 13a-14(a) Certifications of the Chief Executive Officer.**
|
|
31.2
|
Rule 13a-14(a) Certifications of the Chief Financial Officer.**
|
|
32
|
Section 1350 Certifications.**
|
|
101.INS
|
XBRL Instance Document.
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document.
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.DEF
|
XBRL Taxonomy Definition Linkbase Document.
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
**Filed herewith.
|
FRANKLIN COVEY CO.
|
||||
Date:
|
April 9, 2020
|
By:
|
/s/ Robert A. Whitman
|
|
Robert A. Whitman
|
||||
Chief Executive Officer
|
||||
(Duly Authorized Officer)
|
||||
Date:
|
April 9, 2020
|
By:
|
/s/ Stephen D. Young
|
|
Stephen D. Young
|
||||
Chief Financial Officer
|
||||
(Principal Financial and Accounting Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Franklin Covey Co.;
|
||
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
||
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
||
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
||
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
||
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
||
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
||
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
||
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
||
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
||
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
|
|
|
|
|
|
|
Date: April 9, 2020
|
/s/ Robert A. Whitman
|
|
|
Robert A. Whitman
Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Franklin Covey Co.;
|
||
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
||
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
||
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
||
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
||
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
||
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
||
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
||
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
||
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
||
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
|
|
|
|
|
|
|
Date: April 9, 2020
|
/s/ Stephen D. Young
|
|
|
Stephen D. Young
Chief Financial Officer
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at
the dates and for the periods indicated.
|
|
|
|
|
|
|||
/s/ Robert A. Whitman
|
|
/s/ Stephen D. Young
|
|
Robert A. Whitman
Chief Executive Officer |
|
|
Stephen D. Young
Chief Financial Officer |
Date: April 9, 2020
|
Date: April 9, 2020
|