Company Quick10K Filing
Franklin Covey
Price26.17 EPS-0
Shares14 P/E-71
MCap365 P/FCF14
Net Debt-11 EBIT-1
TEV355 TEV/EBIT-368
TTM 2019-05-31, in MM, except price, ratios
10-Q 2020-05-31 Filed 2020-07-10
10-Q 2020-02-29 Filed 2020-04-09
10-Q 2019-11-30 Filed 2020-01-09
10-K 2019-08-31 Filed 2019-11-14
10-Q 2019-05-31 Filed 2019-07-09
10-Q 2019-02-28 Filed 2019-04-09
10-Q 2018-11-30 Filed 2019-01-09
10-K 2018-08-31 Filed 2018-11-14
10-Q 2018-05-31 Filed 2018-07-10
10-Q 2018-02-28 Filed 2018-04-09
10-Q 2018-01-09 Filed 2018-01-09
10-K 2017-08-31 Filed 2017-11-14
10-Q 2017-05-31 Filed 2017-07-10
10-Q 2017-02-28 Filed 2017-04-07
10-Q 2016-11-26 Filed 2017-01-05
10-K 2016-08-31 Filed 2016-11-14
10-Q 2016-05-28 Filed 2016-07-07
10-Q 2016-02-27 Filed 2016-04-07
10-Q 2015-11-28 Filed 2016-01-07
10-K 2015-08-31 Filed 2015-11-13
10-Q 2015-05-30 Filed 2015-07-09
10-Q 2015-02-28 Filed 2015-04-09
10-Q 2014-11-29 Filed 2015-01-08
10-K 2014-08-31 Filed 2014-11-14
10-Q 2014-07-09 Filed 2014-07-10
10-Q 2014-04-10 Filed 2014-04-10
10-Q 2013-11-30 Filed 2014-01-09
10-K 2013-08-31 Filed 2013-11-14
10-Q 2013-06-01 Filed 2013-07-11
10-Q 2013-03-02 Filed 2013-04-11
10-Q 2012-12-01 Filed 2013-01-10
10-K 2012-08-31 Filed 2012-11-14
10-Q 2012-05-26 Filed 2012-07-03
10-Q 2012-02-25 Filed 2012-04-04
10-Q 2011-11-26 Filed 2012-01-05
10-K 2011-08-31 Filed 2011-11-14
10-Q 2011-05-28 Filed 2011-07-07
10-Q 2011-02-26 Filed 2011-04-07
10-Q 2010-11-27 Filed 2011-01-06
10-K 2010-08-31 Filed 2010-11-12
10-Q 2010-05-29 Filed 2010-07-08
10-Q 2010-02-27 Filed 2010-04-08
10-Q 2009-11-28 Filed 2010-01-07
8-K 2020-07-09 Earnings, Regulation FD, Exhibits
8-K 2020-07-08 Enter Agreement, Exhibits
8-K 2020-06-25
8-K 2020-05-19
8-K 2020-04-02
8-K 2020-03-19
8-K 2020-01-23
8-K 2020-01-09
8-K 2019-11-07
8-K 2019-11-07
8-K 2019-10-24
8-K 2019-09-09
8-K 2019-08-07
8-K 2019-06-27
8-K 2019-06-13
8-K 2019-04-04
8-K 2019-03-21
8-K 2019-01-25
8-K 2019-01-09
8-K 2018-12-20
8-K 2018-11-08
8-K 2018-10-25
8-K 2018-08-17
8-K 2018-06-27
8-K 2018-06-14
8-K 2018-04-04
8-K 2018-03-22
8-K 2018-01-26
8-K 2018-01-04

FC 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Inventories
Note 3 - Term Notes Payable and Line of Credit
Note 4 - Fair Value of Financial Instruments
Note 5 - Leases
Note 6 - Shareholders' Equity
Note 7 - Revenue Recognition
Note 8 - Stock - Based Compensation
Note 9 - Income Taxes
Note 10 - Loss per Share
Note 11 - Segment Information
Note 12 - Investment in Fc Organizational Products
Note 13 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 exhibit31_1.htm
EX-31.2 exhibit31_2.htm
EX-32 exhibit32.htm

Franklin Covey Earnings 2020-05-31

Balance SheetIncome StatementCash Flow
215172129864302012201420172020
Assets, Equity
7055402510-42012201420172020
Rev, G Profit, Net Income
151050-5-102012201420172020
Ops, Inv, Fin

10-Q 1 form10q_071020.htm Q3FY20 FORM 10Q 7-10-20




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2020


[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file no. 1-11107
FRANKLIN COVEY CO.
(Exact name of registrant as specified in its charter)


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
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.05 Par Value
FC
New York Stock Exchange

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒   No ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer
 ☐  
Accelerated Filer
 ☒
Non-accelerated Filer
 ☐  
Smaller Reporting Company
 ☒
Emerging Growth Company
 ☐      

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐   No ☒ 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date:

13,877,984 shares of Common Stock as of June 30, 2020




PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per-share amounts)

   
May 31,
   
August 31,
 
   
2020
   
2019
 
   
(unaudited)
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
37,006
   
$
27,699
 
Accounts receivable, less allowance for doubtful accounts of $3,873 and $4,242
   
38,612
     
73,227
 
Inventories
   
3,106
     
3,481
 
Prepaid expenses and other current assets
   
13,295
     
14,933
 
Total current assets
   
92,019
     
119,340
 
                 
Property and equipment, net
   
16,894
     
18,579
 
Intangible assets, net
   
44,189
     
47,690
 
Goodwill
   
24,220
     
24,220
 
Deferred income tax assets
   
1,388
     
5,045
 
Other long-term assets
   
14,894
     
10,039
 
   
$
193,604
   
$
224,913
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Current portion of term notes payable
 
$
5,000
   
$
5,000
 
Current portion of financing obligation
   
2,532
     
2,335
 
Accounts payable
   
3,922
     
9,668
 
Deferred subscription revenue
   
42,794
     
56,250
 
Other deferred revenue
   
7,915
     
5,972
 
Accrued liabilities
   
18,212
     
24,319
 
Total current liabilities
   
80,375
     
103,544
 
                 
Line of credit
   
14,870
     
-
 
Term notes payable, less current portion
   
16,250
     
15,000
 
Financing obligation, less current portion
   
14,726
     
16,648
 
Other liabilities
   
6,061
     
7,527
 
Deferred income tax liabilities
   
4,274
     
180
 
Total liabilities
   
136,556
     
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
   
211,067
     
215,964
 
Retained earnings
   
48,988
     
59,403
 
Accumulated other comprehensive income
   
231
     
269
 
Treasury stock at cost, 13,198 shares and 13,087 shares
   
(204,591
)
   
(194,975
)
Total shareholders’ equity
   
57,048
     
82,014
 
   
$
193,604
   
$
224,913
 




See notes to condensed consolidated financial statements

2


FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND STATEMENTS OF COMPREHENSIVE LOSS
(in thousands, except per-share amounts)

   
Quarter Ended
   
Three Quarters Ended
 
   
May 31,
   
May 31,
   
May 31,
   
May 31,
 
   
2020
   
2019
   
2020
   
2019
 
   
(unaudited)
   
(unaudited)
 
                         
Net sales
 
$
37,105
   
$
56,006
   
$
149,463
   
$
160,191
 
Cost of sales
   
10,284
     
16,342
     
41,946
     
48,379
 
Gross profit
   
26,821
     
39,664
     
107,517
     
111,812
 
                                 
Selling, general, and administrative
   
29,254
     
37,662
     
101,231
     
106,242
 
Stock-based compensation
   
(5,104
)
   
1,051
     
(1,460
)
   
3,040
 
Depreciation
   
1,652
     
1,556
     
4,925
     
4,806
 
Amortization
   
1,164
     
1,259
     
3,504
     
3,797
 
Loss from operations
   
(145
)
   
(1,864
)
   
(683
)
   
(6,073
)
                                 
Interest income
   
18
     
8
     
36
     
30
 
Interest expense
   
(621
)
   
(562
)
   
(1,783
)
   
(1,817
)
Discount accretion on related party receivable
   
-
     
-
     
-
     
258
 
Loss before income taxes
   
(748
)
   
(2,418
)
   
(2,430
)
   
(7,602
)
Income tax benefit (provision)
   
(10,220
)
   
394
     
(7,985
)
   
704
 
Net loss
 
$
(10,968
)
 
$
(2,024
)
 
$
(10,415
)
 
$
(6,898
)
                                 
Net loss per share:
                               
Basic and diluted
 
$
(0.79
)
 
$
(0.14
)
 
$
(0.75
)
 
$
(0.49
)
                                 
Weighted average number of common shares:
                               
Basic and diluted
   
13,869
     
13,963
     
13,897
     
13,939
 
                                 
                                 
COMPREHENSIVE LOSS
                               
Net loss
 
$
(10,968
)
 
$
(2,024
)
 
$
(10,415
)
 
$
(6,898
)
Foreign currency translation adjustments,
                               
net of income tax benefit
                               
of $0, $8, $0, and $8
   
(91
)
   
(144
)
   
(38
)
   
(15
)
Comprehensive loss
 
$
(11,059
)
 
$
(2,168
)
 
$
(10,453
)
 
$
(6,913
)














See notes to condensed consolidated financial statements

3


FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

   
Three Quarters Ended
 
   
May 31,
   
May 31,
 
   
2020
   
2019
 
   
(unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
 
$
(10,415
)
 
$
(6,898
)
Adjustments to reconcile net loss to net cash
               
provided by operating activities:
               
Depreciation and amortization
   
8,429
     
8,619
 
Amortization of capitalized curriculum costs
   
3,042
     
3,951
 
Stock-based compensation
   
(1,460
)
   
3,040
 
Deferred income taxes
   
7,678
     
(2,207
)
Change in fair value of contingent consideration liabilities
   
(367
)
   
1,145
 
Loss on disposal of assets
   
39
     
-
 
Changes in assets and liabilities, net of effect of acquired business:
               
Decrease in accounts receivable, net
   
34,692
     
19,461
 
Decrease in inventories
   
377
     
158
 
Decrease in prepaid expenses and other assets
   
1,784
     
2,585
 
Decrease in accounts payable and accrued liabilities
   
(11,057
)
   
(2,792
)
Decrease in deferred revenue
   
(12,612
)
   
(8,384
)
Increase (decrease) in income taxes payable/receivable
   
(1,415
)
   
358
 
Decrease in other long-term liabilities
   
(6
)
   
(412
)
Net cash provided by operating activities
   
18,709
     
18,624
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchases of property and equipment
   
(3,336
)
   
(2,996
)
Curriculum development costs
   
(3,436
)
   
(1,821
)
Purchase of note receivable from bank (Note 12)
   
(2,600
)
   
-
 
Acquisition of business, net of cash acquired
   
-
     
(32
)
Net cash used for investing activities
   
(9,372
)
   
(4,849
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from line of credit borrowings
   
14,870
     
66,451
 
Payments on line of credit borrowings
   
-
     
(73,665
)
Proceeds from term notes payable
   
5,000
     
-
 
Principal payments on term notes payable
   
(3,750
)
   
(4,688
)
Principal payments on financing obligation
   
(1,725
)
   
(1,544
)
Purchases of common stock for treasury
   
(13,833
)
   
(12
)
Payment of contingent consideration liabilities
   
(1,167
)
   
(483
)
Proceeds from sales of common stock held in treasury
   
780
     
694
 
Net cash provided by (used for) financing activities
   
175
     
(13,247
)
Effect of foreign currency exchange rates on cash and cash equivalents
   
(205
)
   
177
 
Net increase in cash and cash equivalents
   
9,307
     
705
 
Cash and cash equivalents at the beginning of the period
   
27,699
     
10,153
 
Cash and cash equivalents at the end of the period
 
$
37,006
   
$
10,858
 
                 
Supplemental disclosure of cash flow information:
               
Cash paid for income taxes
 
$
1,713
   
$
1,247
 
Cash paid for interest
   
1,751
     
1,855
 
                 
Non-cash investing and financing activities:
               
Purchases of property and equipment financed by accounts payable
 
$
352
   
$
597
 
Use of notes receivable to modify revenue contract (Note 12)
   
3,246
     
-
 
Consideration for business acquisition from liabilities of acquiree
   
-
     
798
 

See notes to condensed consolidated financial statements

4


FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands and unaudited)



                           
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
)
                                                         
Issuance of common stock from
                                                       
treasury
                   
126
                     
11
     
170
 
Stock-based compensation
                   
(5,104
)
                               
Cumulative translation
                                                       
adjustments
                                   
(91
)
               
Net loss
                           
(10,968
)
                       
Balance at May 31, 2020
   
27,056
   
$
1,353
   
$
211,067
   
$
48,988
   
$
231
     
(13,198
)
 
$
(204,591
)

















See notes to condensed consolidated financial statements

5


FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY – PRIOR FISCAL YEAR
(in thousands and unaudited)


                           
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
)
                                                         
Issuance of common stock from
                                                       
treasury
                   
81
                     
12
     
168
 
Stock-based compensation
                   
1,051
                                 
Cumulative translation
                                                       
adjustments
                                   
(144
)
               
Net loss
                           
(2,024
)
                       
Balance at May 31, 2019
   
27,056
   
$
1,353
   
$
214,092
   
$
53,528
   
$
326
     
(13,097
)
 
$
(195,133
)










See notes to condensed consolidated financial statements

6


FRANKLIN COVEY CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


NOTE 1 – BASIS OF PRESENTATION

General

Franklin Covey Co. (hereafter referred to as us, we, our, or the Company) is a global company focused on organizational performance improvement.  Our mission is to “enable greatness in people and organizations everywhere,” and our global structure is designed to help individuals and organizations achieve sustained superior performance through changes in human behavior.  We are fundamentally a content and solutions company, and we believe that our offerings and services create the connection between capabilities and results.  Our expertise extends to seven crucial areas: Leadership, Execution, Productivity, Trust, Educational Improvement, Sales Performance, and Customer Loyalty.  We believe that our clients are able to utilize our content to create cultures whose hallmarks are high-performing, collaborative individuals, led by effective, trust-building leaders who execute with excellence and deliver measurably improved results for all of their key stakeholders.

In the training and consulting marketplace, we believe there are three important characteristics that distinguish us from our competitors.

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-line learning; on-site training; training led through certified facilitators; and organization-wide transformational processes, including consulting and coaching services.  Over the past few years we have significantly increased our ability to deliver content electronically to workers who may be engaged in remote locations.

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.

We are committed to, and measure ourselves by, our clients’ achievement of transformational results.

We have some of the best-known offerings in the training industry, including a suite of individual-effectiveness and leadership-development training content based on the best-selling books, The 7 Habits of Highly Effective People, The Speed of Trust, The Leader in Me, and The 4 Disciplines of Execution, and proprietary content in the areas of Execution, Sales Performance, Productivity, Educational Improvement, and Customer Loyalty.  Our offerings are described in further detail at www.franklincovey.com.  The information posted on our website is not incorporated into this report.

7


The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position and results of operations of the Company as of the dates and for the periods indicated.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to Securities and Exchange Commission (SEC) rules and regulations.  The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our annual report on Form 10-K for the fiscal year ended August 31, 2019.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Our fiscal year ends on August 31 of each year and our fiscal quarters end on the last day of November, February, and May of each year.

The results of operations for the quarter ended May 31, 2020 are not necessarily indicative of results expected for the entire fiscal year ending August 31, 2020, or for any future periods.

Reclassifications

Certain reclassifications have been made to our prior period financial statements to conform with the current period presentation.  On our fiscal 2020 condensed consolidated statements of operations, we have presented stock-based compensation separately to show the magnitude of the reversal of stock-based compensation during the third quarter of fiscal 2020 due to the impact of the COVID-19 pandemic and have reclassified the prior period amounts for comparability.  Stock-based compensation was previously included as a component of selling, general, and administrative expense.

Note on the COVID-19 Pandemic

With the rapid spread of COVID-19 around the world and the continuously evolving responses to the pandemic, we have witnessed the significant and growing negative impact of COVID-19 on the global economic and operating environment.  These negative impacts significantly reduced our consolidated sales during the quarter ended May 31, 2020 as workplaces and schools were closed in response to the pandemic.  In light of these events, we have taken measures to reduce our costs and to maintain adequate liquidity.  However, due to the rapidly changing business and education environment, unprecedented market volatility, and other circumstances resulting from the COVID-19 pandemic, we are currently unable to fully determine the extent of COVID-19’s impact on our business in future periods.  Our business in future periods will be heavily influenced by the timing, length, and intensity of the economic recoveries in the United States and in other countries around the world.  We continue to monitor evolving economic and general business conditions and the actual and potential impacts on our financial position, results of operations, and cash flows.

Various accounting guidance requires us to evaluate the recoverability of our long-lived assets, including goodwill and indefinite-lived intangible assets, whenever events or changes in circumstances may indicate that the carrying value of the assets are not recoverable or are less than their fair values.  Due to the impact of the COVID-19 pandemic on our third quarter operating results and uncertainties associated with the recovery from the pandemic in future periods, we determined that it was appropriate to test our long-lived assets, including goodwill and indefinite-lived intangible assets, for impairment during the third quarter of fiscal 2020.  No impairment charges were recorded during the third quarter of fiscal 2020 as a result of these tests.

8


Accounting Pronouncements Issued and Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which supersedes FASB Accounting Standards Codification (ASC) Topic 840, Leases.  The new guidance requires lessees to recognize a lease liability and corresponding right-of-use asset for all leases greater than 12 months.  Recognition, measurement, and presentation of expenses depends upon whether the lease is classified as a finance or operating lease.  We adopted the new lease guidance prospectively on September 1, 2019.  As part of the adoption of ASU 2016-02, we elected to apply the package of practical expedients, which allows us to not reassess prior conclusions related to lease classification, not to recognize short-term leases on our balance sheet, and not to separate lease and non-lease components for our leases.  On September 1, 2019, the adoption of ASU 2016-02 resulted in the recognition of $1.5 million of lease liabilities and right-of-use assets on our condensed consolidated balance sheets for operating leases.  For lessors, accounting for leases is substantially the same as in prior periods and there was no impact from the adoption of ASU 2016-02 for those leases where we are the lessor.  Refer to Note 5, Leases for further information regarding our leasing activity.

The lease for our corporate campus has historically been accounted for as a financing obligation and related building asset on our consolidated balance sheets, as the contract did not meet the criteria for application of sale-leaseback accounting under previous leasing guidance.  In transition to Topic 842, we reassessed whether the contract met the sale criteria under the new leasing standard.  Based on this assessment, we determined that the sale criteria under the new leasing standard was not met and we will continue to account for the corporate campus lease as a finance obligation on our consolidated balance sheet in future periods.

Accounting Pronouncements Issued Not Yet Adopted

Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  This accounting standard changes the methodology for measuring credit losses on financial instruments, including trade accounts receivable, and the timing of when such losses are recorded.  ASU No. 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.  Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018.  We expect to adopt the provisions of ASU No. 2016-13 on September 1, 2020 and are currently evaluating the impact of this guidance on our financial position, results of operations, and disclosures.

Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15).  This guidance clarifies the accounting for implementation costs in a cloud computing arrangement that is a service contract and aligns the requirements for capitalizing those costs with the capitalization requirements for costs incurred to develop or obtain internal-use software.  The new standard is effective for interim and annual periods beginning after December 15, 2019, and early adoption is permitted.  We are currently evaluating the effects, if any, the adoption of ASU 2018-15 may have on our financial position, results of operations, cash flows, or disclosures.

9


NOTE 2 – INVENTORIES

Inventories are stated at the lower of cost or net realizable value, cost being determined using the first-in, first-out method, and were comprised of the following (in thousands):
             
   
May 31,
   
August 31,
 
   
2020
   
2019
 
Finished goods
 
$
3,086
   
$
3,434
 
Raw materials
   
20
     
47
 
   
$
3,106
   
$
3,481
 



NOTE 3 – TERM NOTES PAYABLE AND LINE OF CREDIT

Pursuant to the credit agreement we obtained in August 2019 (the 2019 Credit Agreement), we have the ability to borrow up to $25.0 million in term loans.  At August 31, 2019, we had borrowed $20.0 million of the available term loan amount.  During November 2019, we borrowed the remaining $5.0 million term loan available.  The additional $5.0 million term loan has the same terms and conditions as the previous term loan and does not change the amount of our quarterly principal payments.  However, the maturity date of the term loans is extended for one year to August 2024 as a result of the additional payments.  At May 31, 2020, our future principal payments on the term loans are as follows (in thousands):

YEAR ENDING AUGUST 31,
 
Amount
 
2020
 
$
1,250
 
2021
   
5,000
 
2022
   
5,000
 
2023
   
5,000
 
2024
   
5,000
 
   
$
21,250
 

During the quarter ended May 31, 2020, we withdrew $14.9 million (the available credit) on our revolving credit facility primarily to maximize our flexibility during this period of economic uncertainty.  The line of credit is due and payable in August 2024.



NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS

At May 31, 2020, the carrying value of our financial instruments approximated their fair values.  The fair values of our contingent consideration liabilities from previous business acquisitions are considered “Level 3” measurements because we use various estimates in the valuation models to project the timing and amount of future contingent payments.  The fair value of the contingent consideration liabilities from the acquisitions of Jhana Education (Jhana) and Robert Gregory Partners (RGP) changed as follows during the quarter and three quarters ended May 31, 2020 (in thousands):

10


   
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
 
Change in fair value
   
(102
)
   
(174
)
   
(276
)
Payments
   
(256
)
   
-
     
(256
)
Balance at May 31, 2020
 
$
2,950
   
$
745
   
$
3,695
 

At each quarterly reporting date, we estimate the fair value of the contingent liabilities from both the Jhana and RGP acquisitions through the use of Monte Carlo simulations.  Based on the timing of expected payments, $0.8 million of the Jhana and $0.5 million of the RGP contingent consideration liabilities were recorded as components of accrued liabilities on our condensed consolidated balance sheet at May 31, 2020.  The remainder of our contingent consideration liabilities are classified as other long-term liabilities.  Adjustments to the fair value of our contingent consideration liabilities are included in selling, general, and administrative expense in the accompanying condensed consolidated statements of operations.


NOTE 5 – LEASES

Lessee Obligations

In the normal course of business, we rent office space, primarily for international sales administration offices, in commercial office complexes that are conducive to sales and administrative operations.  We also rent warehousing and distribution facilities that are designed to provide secure storage and efficient distribution of our training products, books, and accessories.  All of these leases are classified as operating leases.  Operating lease assets and liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term.  Since most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.  Leases with an initial term of 12 months or less are not recorded on the balance sheet.  For operating leases, expense is recognized on a straight-line basis over the lease term.  We do not have significant amounts of variable lease payments.

Some of our operating leases contain renewal options that may be exercised at our discretion after the completion of the base rental term.  At May 31, 2020, we had operating leases with remaining terms ranging from less than one year to approximately five years.  The amounts of assets and liabilities (in thousands) and other information related to our operating leases follows:

11



Balance Sheet
 
May 31,
 

    Caption  
2020
 
Assets:
       
Operating lease right of use assets
Other long-term assets
 
$
1,383
 
           
Liabilities:
         
  Current:
         
    Operating lease liabilities
Accrued liabilities
   
843
 
  Long-Term:
         
    Operating lease liabilities
Other long-term liabilities
   
540
 
      
$
1,383
 
           
Weighted Average Remaining Lease Term:
         
    Operating leases (years)
     
2.6
 
           
Weighted Average Discount Rate:
         
    Operating leases
     
4.2
%

During the quarter and three quarters ended May 31, 2020, lease expense totaled $0.4 million and $1.2 million, respectively.  For the quarter and three quarters ended May 31, 2019, lease expense also totaled $0.4 million and $1.2 million.  Operating lease expense is reported in selling, general, and administrative expense in our condensed consolidated statements of operations.

The approximate future minimum lease payments under our operating leases at May 31, 2020, are as follows (in thousands):

YEAR ENDING AUGUST 31,
 
Amount
 
Remainder of 2020
 
$
271
 
2021
   
724
 
2022
   
197
 
2023
   
112
 
2024
   
90
 
Thereafter
   
94
 
  Total operating lease payments
   
1,488
 
Less imputed interest
   
(105
)
  Present value of operating lease liabilities
 
$
1,383
 

Lessor Accounting

We have subleased the majority of our corporate headquarters campus located in Salt Lake City, Utah to multiple tenants.  These sublease agreements are accounted for as operating leases.  We recognize sublease income on a straight-line basis over the life of the sublease agreement.  The cost basis of our corporate campus was $36.0 million, which had a carrying value of $6.2 million at May 31, 2020.  The following future minimum lease payments due to us from our sublease agreements at May 31, 2020, are as follows (in thousands):

12


YEAR ENDING AUGUST 31,
 
Amount
 
Remainder of 2020
 
$
979
 
2021
   
3,944
 
2022
   
3,699
 
2023
   
2,065
 
2024
   
1,527
 
Thereafter
   
1,275
 
   
$
13,489
 

For the quarter and three quarters ended May 31, 2020, sublease revenue totaled $1.0 million and $2.9 million, respectively.  During the quarter and three quarters ended May 31, 2019, sublease revenue also totaled $1.0 million and $2.9 million.  Sublease revenues are included in net sales in the accompanying condensed consolidated statements of operations.


NOTE 6 – SHAREHOLDERS’ EQUITY

In December 2019, Knowledge Capital Investment Group (Knowledge Capital), an investor which held 2.8 million shares of our common stock stemming from its initial investment in Franklin Covey over 20 years ago, wound up its operations and distributed its assets to investors.  On December 9, 2019, prior to the distribution of its assets to investors, we purchased 284,608 shares of our common stock from Knowledge Capital at $35.1361 per share, for an aggregate purchase price of $10.1 million, including legal costs.  Our CEO and a member of our Board of Directors each owned a partnership interest in Knowledge Capital.  As of the date hereof, Knowledge Capital does not own any shares of our common stock.


NOTE 7 – REVENUE RECOGNITION

Contract Balances

Our deferred revenue totaled $53.1 million at May 31, 2020 and $65.8 million at August 31, 2019, of which $2.4 million and $3.6 million were classified as components of other long-term liabilities at May 31, 2020, and August 31, 2019, respectively.  The amount of deferred revenue that was generated from subscription offerings totaled $43.9 million at May 31, 2020 and $58.2 million at August 31, 2019.  During the quarter and three quarters ended May 31, 2020, we recognized $22.2 million and $64.7 million of previously deferred subscription revenue.

Remaining Performance Obligations

When possible, we enter into multi-year non-cancellable contracts which are invoiced either upon execution of the contract or at the beginning of each annual contract period.  ASC Topic 606 introduced the concept of remaining transaction price which represents contracted revenue that has not yet been recognized, including unearned revenue and unbilled amounts that will be recognized as revenue in future periods.  Transaction price is influenced by factors such as seasonality, the average length of the contract term, and the ability of the Company to continue to enter multi-year non-cancellable contracts.  At May 31, 2020, we had $77.3 million of remaining performance obligations, including the amount of deferred revenue related to our subscription offerings.  The remaining performance obligation does not include other deferred revenue, as amounts included in other deferred revenue include items such as deposits that are generally refundable at the client’s request prior to the satisfaction of the obligation.

13


Disaggregated Revenue Information

Refer to Note 11, Segment Information, to these condensed consolidated financial statements for our disaggregated revenue information.


NOTE 8 – STOCK-BASED COMPENSATION

Our stock-based compensation was comprised of the following for the periods presented (in thousands):
                         
   
Quarter Ended
   
Three Quarters Ended
 
   
May 31,
   
May 31,
   
May 31,
   
May 31,
 
   
2020
   
2019
   
2020
   
2019
 
Long-term incentive awards
 
$
(5,326
)
 
$
826
   
$
(2,124
)
 
$
2,384
 
Restricted stock awards
   
175
     
175
     
525
     
525
 
Employee stock purchase plan
   
47
     
50
     
139
     
131
 
   
$
(5,104
)
 
$
1,051
   
$
(1,460
)
 
$
3,040
 

At each reporting date, we evaluate number and probability of shares expected to vest in each of our performance-based long-term incentive plan (LTIP) awards and adjust our stock-based compensation expense to correspond with the number of shares expected to vest over the anticipated service period.  Due to the significant impact of the COVID-19 pandemic on our results of operations in the third quarter of fiscal 2020 and the uncertainties surrounding the recovery of the world’s economies, at May 31, 2020, we determined that the LTIP award tranches which are based on qualified adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) for our fiscal 2015, 2016, 2017, 2019, and 2020 LTIP awards would not vest before the end of the respective service periods.  We therefore reversed the previously recognized stock-based compensation expense associated with these awards at May 31, 2020, which resulted in a significant net credit to stock-based compensation for the quarter and three quarters ended May 31, 2020.  The subscription sales based tranches of the 2018, 2019, and 2020 LTIP awards are still expected to vest to participants, but at reduced achievement levels.

During the three quarters ended May 31, 2020, we issued 281,479 shares of our common stock under various stock-based compensation arrangements.  Our stock-based compensation plans also allow shares to be withheld to cover statutory income taxes if so elected by the award recipient.  During the first three quarters of fiscal 2020, we withheld 103,117 shares of our common stock for taxes on stock-based compensation arrangements, which had a fair value of $3.6 million.  The following is a description of the other developments in our stock-based compensation plans during the quarter and three quarters ended May 31, 2020.

Stock Options

During December 2019, our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) exercised stock options.  Nearly all of the stock options exercised would have expired in January 2020.  The following information applies to our stock option activity during the three quarters ended May 31, 2020.

14


         
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 May 31, 2020
   
218,750
   
$
11.57
 
                 
Options vested and exercisable at
               
May 31, 2020
   
218,750
   
$
11.57
 

The stock options were exercised on a net basis (no cash was paid to exercise the options) and we withheld 102,656 shares of our common stock with a fair value of $3.6 million for income taxes.  The intrinsic value of the exercised options totaled $8.0 million and we recognized an income tax benefit of $1.8 million (Note 9) during the second quarter of fiscal 2020.  Our remaining stock options outstanding at May 31, 2020 expire in January 2021.

Fiscal 2020 Restricted Stock Award

Our annual restricted stock award granted to non-employee members of the Board of Directors is administered under the terms of the 2019 Franklin Covey Co. Omnibus Incentive Plan, and is designed to provide our non-employee directors, who are not eligible to participate in our employee stock purchase plan, an opportunity to obtain an interest in the Company through the acquisition of shares of our common stock.  The annual award is granted in January (following the annual shareholders’ meeting) of each year.  For the fiscal 2020 award, each eligible director received a whole-share grant equal to $100,000 with a one-year vesting period.  Our restricted stock award activity during the three quarters ended May 31, 2020 consisted of the following:

         
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
               
May 31, 2020
   
21,420
   
$
32.68
 

At May 31, 2020, there was $0.4 million of unrecognized compensation expense remaining on the fiscal 2020 Board of Director restricted share award.

15


Fiscal 2020 Long-Term Incentive Plan Award

On October 18, 2019, the Organization and Compensation Committee of the Board of Directors granted a new LTIP award to our executive officers and members of senior management.  The fiscal 2020 LTIP award is similar to the fiscal 2019 LTIP award and has three tranches, one of which has a time-based vesting condition and two of which have performance-based vesting conditions as described below:

Time-Based Award Shares – Twenty-five percent of the 2020 LTIP award shares vest to participants after three years of service.  The number of shares that may be earned by participants at the end of the service period totals 25,101 shares.  The number of shares awarded in this tranche is not variable and does not fluctuate based on the achievement of financial measures.

Performance-Based Award Shares – The remaining two tranches of the 2020 LTIP award are based on the highest rolling four-quarter levels of qualified Adjusted EBITDA and subscription service sales in the three-year period ended August 31, 2022.  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.  At May 31, 2020, we determined that the Adjusted EBITDA tranche of the 2020 LTIP was improbable of vesting prior to August 31, 2022 and we reversed previously recognized stock-based compensation expense for this award tranche.

The fiscal 2020 LTIP expires on August 31, 2022.

Employee Stock Purchase Plan

We have an employee stock purchase plan (ESPP) that offers qualified employees the opportunity to purchase shares of our common stock at a price equal to 85 percent of the average fair market value of our common stock on the last trading day of each fiscal quarter.  During the quarter and three quarters ended May 31, 2020, we issued 10,948 shares and 26,375 shares of our common stock to participants in the ESPP.


NOTE 9 – INCOME TAXES

For the three quarters ended May 31, 2020, we recorded income tax expense of $8.0 million on a pre-tax loss of $2.4 million, which resulted in an effective tax expense rate of approximately 329 percent for the first three quarters of fiscal 2020.  We computed income taxes by applying an estimated annual effective income tax rate to the consolidated pre-tax loss for the period, adjusting for discrete items arising during the period, including a $10.2 million increase in the valuation allowance against our deferred income tax assets during the third quarter of fiscal 2020 and the exercise of stock options (Note 8), which produced an income benefit of $1.8 million in the second quarter of fiscal 2020.

The increase in our deferred tax asset valuation allowance resulted in additional income tax expense of $10.2 million in fiscal 2020.  In consideration of the relevant accounting guidance, we considered both positive and negative evidence in determining whether it is more likely than not that some portion or all of our deferred tax assets will be realized.  Because of the cumulative pre-tax losses over the past three fiscal years, combined with the expected continued disruptions and negative impact to our business resulting from uncertainties related to the recovery from the pandemic, we determined that it is more-likely-than-not that insufficient taxable income will be available to realize all of our deferred tax assets before they expire, primarily foreign tax credit carryforwards and a portion of our net operating loss carryforwards.  Accordingly, we increased the valuation allowance against our deferred tax assets.

16


NOTE 10 – LOSS PER SHARE

The following schedule shows the calculation of loss per share for the periods presented (in thousands, except per-share amounts).

   
Quarter Ended
   
Three Quarters Ended
 
   
May 31,
   
May 31,
   
May 31,
   
May 31,
 
   
2020
   
2019
   
2020
   
2019
 
Numerator for basic and
                       
diluted loss per share:
                       
Net loss
 
$
(10,968
)
 
$
(2,024
)
 
$
(10,415
)
 
$
(6,898
)
                                 
Denominator for basic and
                               
diluted loss per share:
                               
Basic weighted average shares
                               
outstanding
   
13,869
     
13,963
     
13,897
     
13,939
 
Effect of dilutive securities:
                               
Stock options and other
                               
stock-based awards
   
-
     
-
     
-
     
-
 
Diluted weighted average
                               
shares outstanding
   
13,869
     
13,963
     
13,897
     
13,939
 
                                 
EPS Calculations:
                               
Net loss per share:
                               
Basic and diluted
 
$
(0.79
)
 
$
(0.14
)
 
$
(0.75
)
 
$
(0.49
)

Since we incurred a net loss for the quarter and three quarters ended May 31, 2020, no potentially dilutive securities are included in the calculation of diluted loss per share for those periods because such effect would be anti-dilutive.  The number of dilutive stock options and other stock-based awards as of May 31, 2020 would have been approximately 56,000 shares.


NOTE 11 – SEGMENT INFORMATION

Segment Information

Our sales are primarily comprised of training and consulting services.  Our internal reporting and operating structure is currently organized around two divisions.  The Enterprise Division, which consists of our Direct Office and International Licensee segments and the Education Division, which is comprised of our Education practice.  Based on the applicable guidance, our operations are comprised of three reportable segments and a corporate services group.  The following is a brief description of our reportable segments:

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.

17


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.

We have determined that the Company’s chief operating decision maker is the CEO, and the primary measurement tool used in business unit performance analysis is Adjusted EBITDA, which may not be calculated as similarly titled amounts disclosed by other companies.  Adjusted EBITDA is a non-GAAP financial measure.  For reporting purposes, our consolidated Adjusted EBITDA may be calculated as net loss excluding interest expense, income taxes, depreciation expense, amortization expense, stock-based compensation, and certain other charges such as adjustments for changes in the fair value of contingent liabilities arising from business acquisitions.  We reference this non-GAAP financial measure in our decision making because it provides supplemental information that facilitates consistent internal comparisons to the historical operating performance of prior periods and we believe it provides investors with greater transparency to evaluate operational activities and financial results.

Our operations are not capital intensive and we do not own any manufacturing facilities or equipment.  Accordingly, we do not allocate assets to the reportable segments for analysis purposes.  Interest expense and interest income are primarily generated at the corporate level and are not allocated.  Income taxes are likewise calculated and paid on a corporate level (except for entities that operate in foreign jurisdictions) and are not allocated for analysis purposes.  We periodically make minor changes to our reporting structure in the normal course of operations.  The segment information presented below reflects certain revisions to our reporting structure which occurred during the second quarter of fiscal 2019.  Prior period segment information has been revised to conform with our current segment reporting.

We account for the following segment information on the same basis as the accompanying condensed consolidated financial statements (in thousands).

18


   
Sales to
             
Quarter Ended
 
External
         
Adjusted
 
May 31, 2020
 
Customers
   
Gross Profit
   
EBITDA
 
                   
Enterprise Division:
                 
Direct offices
 
$
26,760
   
$
21,108
   
$
352
 
International licensees
   
708
     
339
     
(724
)
     
27,468
     
21,447
     
(372
)
Education practice
   
8,216
     
4,711
     
(1,536
)
Corporate and eliminations
   
1,421
     
663
     
(1,734
)
Consolidated
 
$
37,105
   
$
26,821
   
$
(3,642
)
                         
Quarter Ended
                       
May 31, 2019
                       
                         
Enterprise Division:
                       
Direct offices
 
$
40,387
   
$
29,836
   
$
4,520
 
International licensees
   
3,014
     
2,432
     
1,281
 
     
43,401
     
32,268
     
5,801
 
Education practice
   
11,088
     
6,846
     
(181
)
Corporate and eliminations
   
1,517
     
550
     
(2,549
)
Consolidated
 
$
56,006
   
$
39,664
   
$
3,071
 
                         
Three Quarters Ended
                       
May 31, 2020
                       
                         
Enterprise Division:
                       
Direct offices
 
$
106,844
   
$
81,221
   
$
10,796
 
International licensees
   
7,120
     
5,696
     
2,696
 
     
113,964
     
86,917
     
13,492
 
Education practice
   
30,190
     
17,828
     
(3,707
)
Corporate and eliminations
   
5,309
     
2,772
     
(4,410
)
Consolidated
 
$
149,463
   
$
107,517
   
$
5,375
 
                         
Three Quarters Ended
                       
May 31, 2019
                       
                         
Enterprise Division:
                       
Direct offices
 
$
115,271
   
$
84,200
   
$
10,703
 
International licensees
   
9,598
     
7,515
     
4,127
 
     
124,869
     
91,715
     
14,830
 
Education practice
   
31,132
     
18,668
     
(1,355
)
Corporate and eliminations
   
4,190
     
1,429
     
(6,272
)
Consolidated
 
$
160,191
   
$
111,812
   
$
7,203
 


19


A reconciliation of our consolidated Adjusted EBITDA to consolidated net loss is provided below (in thousands).

   
Quarter Ended
   
Three Quarters Ended
 
   
May 31,
   
May 31,
   
May 31,
   
May 31,
 
   
2020
   
2019
   
2020
   
2019
 
Segment Adjusted EBITDA
 
$
(1,908
)
 
$
5,620
   
$
9,785
   
$
13,475
 
Corporate expenses
   
(1,734
)
   
(2,549
)
   
(4,410
)
   
(6,272
)
Consolidated Adjusted EBITDA
   
(3,642
)
   
3,071
     
5,375
     
7,203
 
Stock-based compensation
   
5,104
     
(1,051
)
   
1,460
     
(3,040
)
Decrease (increase) in the fair value of
                               
   contingent consideration liabilities
   
276
     
(1,069
)
   
367
     
(1,145
)
Gain from insurance proceeds
   
933
     
-
     
933
     
-
 
Knowledge Capital wind-down costs
   
-
     
-
     
(389
)
   
-
 
Licensee transition costs
   
-
     
-
     
-
     
(488
)
Depreciation
   
(1,652
)
   
(1,556
)
   
(4,925
)
   
(4,806
)
Amortization
   
(1,164
)
   
(1,259
)
   
(3,504
)
   
(3,797
)
Loss from operations
   
(145
)
   
(1,864
)
   
(683
)
   
(6,073
)
Interest income
   
18
     
8
     
36
     
30
 
Interest expense
   
(621
)
   
(562
)
   
(1,783
)
   
(1,817
)
Discount accretion on related
                               
   party receivable
   
-
     
-
     
-
     
258
 
Loss before income taxes
   
(748
)
   
(2,418
)
   
(2,430
)
   
(7,602
)
Income tax benefit (provision)
   
(10,220
)
   
394
     
(7,985
)
   
704
 
Net loss
 
$
(10,968
)
 
$
(2,024
)
 
$
(10,415
)
 
$
(6,898
)

Revenue by Category

The following table presents our revenue disaggregated by geographic region (in thousands).

   
Quarter Ended
   
Three Quarters Ended
 
   
May 31,
   
May 31,
   
May 31,
   
May 31,
 
   
2020
   
2019
   
2020
   
2019
 
                         
Americas
 
$
32,788
   
$
44,919
   
$
119,545
   
$
125,676
 
Asia Pacific
   
2,759
     
7,914
     
19,987
     
24,592
 
Europe/Middle East/Africa
   
1,558
     
3,173
     
9,931
     
9,923
 
   
$
37,105