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Bob Whitman, Chairman and Chief Executive Officer, commented, “In these challenging times, we have been doing a lot to help our clients, and even non-clients, respond to the new challenges they face.  We created a special set of digital materials for our All Access Pass holder organizations entitled, Leading Through Uncertainty that provided them with a guide for utilizing various All Access Pass resources to help them lead through change, build the skills of proactivity and resiliency throughout their workforce, and lead in a remote environment, etc.  These resources are providing clients with the ability to engage their work forces, and provide team-building and development opportunities for their remote workers, utilizing digital assets and training, as well as experiencing even higher engagement by having Franklin Covey consultants facilitate these sessions live on-line.  Similarly, in the Education Division, we curated a special collection of family educational resources and provided them to all of our Education clients.  In addition, given that so many families are now in a home-schooling situation, we are providing these resources free of charge to the general public on our website, LeaderInMe.org.  These robust educational resources include hundreds of videos, articles, and tools for families to be used with their children at home, including such things as animated videos that teach life skills, coloring pages, in-home activities for families, award winning videos made by students, and our Leader in Me Weekly newsletter, which features relevant tools and articles for these challenging times.  Our employees, many of whom have always worked remotely, are now all working remotely.  We are pleased to report that, with only a few exceptions, they and their families are safe and healthy.  We appreciate the extraordinary lengths to which our employees are going to serve our clients now, more than ever.”

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Whitman continued, “Following a strong start to fiscal 2020 in our first quarter, we were very pleased with our second quarter results, which reflected continued growth in our subscription-based business model and high levels of flow-through from incremental sales to Adjusted EBITDA.  In the second quarter of fiscal 2020, we generated strong growth in sales and gross profit, improved operating results, and achieved a 321% increase in Adjusted EBITDA over the second quarter of the prior year.  Our revenue increased 7%, or $3.4 million, to $53.7 million, with growth occurring in both our Enterprise and Education Divisions, and our Adjusted EBITDA improved $3.1 million over last year’s second quarter to $4.1 million.”

Whitman added, “Our second quarter results were driven by continued strong growth in our subscription-based offerings.  Sales of Franklin Covey’s All Access Pass (AAP) and related services grew 28% over the prior year and the Education Division’s 12% sales growth in the quarter was primarily driven by increased Leader in Me subscription revenues.  Our second quarter results reflect a significant number of big client wins and many contract expansions.  Domestic direct office revenues grew by 9% over the prior year and our direct office segment managed to grow 4% despite significant business disruptions from the COVID-19 outbreak in Asia that significantly impacted our direct office operations in China and Japan.  Tragically, the COVID-19 pandemic will impact many lives, and unfortunately will also adversely impact world economies and our business operations during the second half of fiscal 2020.”

Whitman concluded, “In our experience, during times of uncertainty and fear, it is natural for there to be a period of time when people and organizations are busy adapting to change.  During such times, normal business and decision-making processes are often interrupted.  The past weeks have been just such a time.  However, once organizations gain their bearings they confront the new reality, and seek to sharpen the focus and execution of their organization, build trust with all stakeholders in a time of uncertainty, and transform fear and uncertainty into high levels of engagement.  Helping organizations achieve results that require behavioral change, at scale, is what Franklin Covey does best, and we are honored at the trust which is being extended to us by hundreds of organizations during these times to help them accomplish these, and similar objectives.  While the coming months will be full of uncertainty and challenges, we are grateful that we entered this period strong operationally, strategically, and financially:  1) Operationally Strong – with continued broad-based momentum from the second quarter and for fiscal 2020, especially in our subscription business; 2) Strategically Strong – our subscription model provides clients with the ability to access our best-in-class content and solutions across a wide variety of delivery modalities, including digital, live on-line, and in weekly micro-learning bursts.  Our investments in technology are allowing us to work with clients who have the need to convert previously-booked onsite services to live-on-line or digital to accommodate employees working remotely; and 3) Financially Strong – we entered this period with significant cash balances and a strong balance sheet.  We know the days ahead will be very challenging; however, we expect to exit this period having significantly increased our strategic strength by helping our clients achieve their most important organizational results during these challenging times.”

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Net Sales:  Consolidated revenue for the second quarter of fiscal 2020 increased 7% to $53.7 million, an increase of $3.4 million, compared with net sales of $50.4 million in the second quarter of fiscal 2019.  Sales growth during the quarter was broad-based across the Company’s 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 pandemic.  Education Division revenues increased 12% to $10.9 million, compared with $9.7 million in the second quarter of fiscal 2019.  The Company’s sales growth during the quarter was primarily driven by increased sales of subscription services in both the Enterprise and Education Divisions, and sales of All Access Pass and related services in the Enterprise Division increased 28% in the quarter.  For the last 12 months, net sales grew 6% to $233.5 million, an increase of $14.1 million, compared with $219.5 million for the 12 months ended February 28, 2019.

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Deferred Subscription Revenue and Unbilled Deferred Revenue:  For the quarter ended February 29, 2020, the Company’s reported subscription and subscription-related revenue grew 24% compared with the second quarter of fiscal 2019.  At February 29, 2020, the Company had $48.0 million of deferred subscription revenue on its balance sheet, a 21%, or $8.4 million, increase compared with deferred subscription revenue on the balance sheet at February 28, 2019.  At February 29, 2020, the Company also had $34.8 million of unbilled deferred revenue, a 39%, or $9.8 million, increase compared with $25.0 million of unbilled deferred revenue at February 28, 2019.  Unbilled deferred revenue represents business that is contracted but unbilled, and excluded from the Company’s balance sheet.

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Gross profit:  Second quarter 2020 gross profit increased 9%, or $3.3 million, to $38.7 million compared with $35.4 million in fiscal 2019.  The Company’s 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.

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Operating Expenses:  The Company’s 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.  However, SG&A expenses as a percent of sales decreased to 67.4% compared with 71.3% in the second quarter of the prior year.  Increases in SG&A expense were 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 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 China office expenses resulting from suspended business operations due to the COVID-19 outbreak; and cost savings in various other areas of the Company’s operations.  At February 29, 2020, the Company had 255 client partners compared with 230 client partners at February 28, 2019.

◾	Operating Loss:  The Company reported a loss from operations for the second quarter of fiscal 2020, but its loss improved to $(0.4) million compared with $(3.6) million in the same quarter of fiscal 2019.

◾	Adjusted EBITDA:  Adjusted EBITDA for the second quarter increased 321%, or $3.1 million, to $4.1 million, compared with $1.0 million in the second quarter of the prior year.

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Income Taxes:  The Company’s effective income tax benefit rate for the quarter ended February 29, 2020 was approximately 219% of the loss before income taxes compared with an effective benefit rate of approximately 10% of the loss before income taxes 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.  The tax benefit rate in the second quarter of fiscal 2019 was decreased significantly by Global Intangible Low-Taxed Income (GILTI), nondeductible expenses, and effective foreign tax rates which were considerably higher than the U.S. federal statutory rate.

◾	Net Income:  The Company reported net income of $1.1 million, or $0.08 per diluted share, for the second quarter 2020, compared with a net loss of $(3.5) million, or ($0.25) per share, in the second quarter of fiscal 2019, reflecting the above-noted factors.

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Cash and Liquidity Remain Strong:  The Company’s balance sheet and liquidity position remained strong with $24.8 million of cash at February 29, 2020, compared with $27.7 million at August 31, 2019.  Subsequent to February 29, 2020, the Company drew down the $14.9 million of available borrowing on its revolving line of credit facility to maximize its flexibility during this period of uncertainty.  Cash flows from operating activities for the first two quarters of fiscal 2020 increased 30% to $17.4 million, compared with $13.4 million in the first half of fiscal 2019.

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