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fc-20210531x10q

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, 2021

[ ]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		87-0401551
(State of incorporation)		(I.R.S. employer identification number)

2200 West Parkway Boulevard		84119-2099
Salt Lake City, Utah		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number,		(801) 817-1776
Including area code

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 T 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 T 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	T
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 T

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

14,156,827 shares of Common Stock as of June 30, 2021
‎

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,
		2021		2020
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	35,757	$	27,137
Accounts receivable, less allowance for doubtful accounts of $4,543 and $4,159		44,477		56,407
Inventories		2,652		2,974
Prepaid expenses and other current assets		15,343		15,146
Total current assets		98,229		101,664

Property and equipment, net		12,114		15,723
Intangible assets, net		51,603		47,125
Goodwill		31,220		24,220
Deferred income tax assets		5,316		1,094
Other long-term assets		14,167		15,611
	$	212,649	$	205,437

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of notes payable	$	5,835	$	5,000
Current portion of financing obligation		2,813		2,600
Accounts payable		4,655		5,622
Deferred subscription revenue		54,344		59,289
Other deferred revenue		8,984		7,389
Accrued liabilities		28,012		22,628
Total current liabilities		104,643		102,528

Notes payable, less current portion		14,191		15,000
Financing obligation, less current portion		11,913		14,048
Other liabilities		7,570		9,110
Deferred income tax liabilities		-		5,298
Total liabilities		138,317		145,984

Shareholders’ equity:
Common stock, $0.05 par value; 40,000 shares authorized, 27,056 shares issued		1,353		1,353
Additional paid-in capital		211,283		211,920
Retained earnings		61,784		49,968
Accumulated other comprehensive income		764		641
Treasury stock at cost, 12,901 shares and 13,175 shares		(200,852)		(204,429)
Total shareholders’ equity		74,332		59,453
	$	212,649	$	205,437

See notes to condensed consolidated financial statements

‎

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND STATEMENTS

OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except per-share amounts)



		Quarter Ended			Three Quarters Ended
		May 31,		May 31,		May 31,		May 31,
		2021		2020		2021		2020
		(unaudited)				(unaudited)

Net sales	$	58,736	$	37,105	$	155,223	$	149,463
Cost of sales		12,829		10,284		35,589		41,946
Gross profit		45,907		26,821		119,634		107,517

Selling, general, and administrative		37,762		29,254		102,312		101,231
Stock-based compensation		2,370		(5,104)		5,127		(1,460)
Depreciation		1,423		1,652		4,904		4,925
Amortization		1,238		1,164		3,503		3,504
Income (loss) from operations		3,114		(145)		3,788		(683)

Interest income		16		18		56		36
Interest expense		(525)		(621)		(1,633)		(1,783)
Income (loss) before income taxes		2,605		(748)		2,211		(2,430)
Income tax benefit (provision)		10,149		(10,220)		9,605		(7,985)
Net income (loss)	$	12,754	$	(10,968)	$	11,816	$	(10,415)

Net income (loss) per share:
Basic and diluted	$	0.90	$	(0.79)	$	0.84	$	(0.75)

Weighted average number of common shares:
Basic		14,145		13,869		14,068		13,897
Diluted		14,156		13,869		14,133		13,897


COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$	12,754	$	(10,968)	$	11,816	$	(10,415)
Foreign currency translation adjustments,
net of income taxes of
$0, $0, $0, and $0		(151)		(91)		123		(38)
Comprehensive income (loss)	$	12,603	$	(11,059)	$	11,939	$	(10,453)

See notes to condensed consolidated financial statements
‎

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	Three Quarters Ended
		May 31,		May 31,
		2021		2020
		(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	11,816	$	(10,415)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization		8,407		8,429
Amortization of capitalized curriculum costs		2,583		3,042
Stock-based compensation		5,127		(1,460)
Deferred income taxes		(10,521)		7,678
Change in fair value of contingent consideration liabilities		164		(367)
Amortization of right-of-use operating lease assets		758		-
Loss on disposal of assets		-		39
Changes in assets and liabilities, net of effect of acquired business:
Decrease in accounts receivable, net		12,391		34,692
Decrease in inventories		322		377
Decrease in prepaid expenses and other assets		1,393		1,784
Increase (decrease) in accounts payable and accrued liabilities		4,629		(11,057)
Decrease in deferred revenue		(4,172)		(12,612)
Decrease in income taxes payable/receivable		(653)		(1,415)
Decrease in other long-term liabilities		(1,392)		(6)
Net cash provided by operating activities		30,852		18,709

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(1,185)		(3,336)
Curriculum development costs		(1,827)		(3,436)
Acquisition of business, net of cash acquired		(10,554)		-
Purchase of note receivable from bank		-		(2,600)
Net cash used for investing activities		(13,566)		(9,372)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit borrowings		-		14,870
Proceeds from term notes payable		-		5,000
Principal payments on notes payable		(3,750)		(3,750)
Principal payments on financing obligation		(1,922)		(1,725)
Purchases of common stock for treasury		(2,971)		(13,833)
Payment of contingent consideration liabilities		(899)		(1,167)
Proceeds from sales of common stock held in treasury		783		780
Net cash provided by (used for) financing activities		(8,759)		175
Effect of foreign currency exchange rates on cash and cash equivalents		93		(205)
Net increase in cash and cash equivalents		8,620		9,307
Cash and cash equivalents at the beginning of the period		27,137		27,699
Cash and cash equivalents at the end of the period	$	35,757	$	37,006

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	1,454	$	1,713
Cash paid for interest		1,634		1,751

Non-cash investing and financing activities:
Purchases of property and equipment financed by accounts payable	$	105	$	352
Acquisition of right-of-use operating lease assets for operating lease liabilities		885		-
Use of notes payable to acquire business		3,766		-
Use of notes receivable to modify revenue contract		-		3,246

See notes to condensed consolidated financial statements
‎

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands and unaudited)

Accumulated

Common

Additional

Other

Treasury

Stock

Paid-In

Retained

Comprehensive

Stock