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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 November 30, 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 Number: 001-11107

Picture 1

FRANKLIN COVEY CO.

(Exact name of registrant as specified in its charter)

Utah

 

87-0401551

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. employer identification no.)

 

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:

14,297,151 shares of Common Stock as of December 31, 2021


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per-share amounts)

November 30,

August 31,

2021

2021

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

51,250

$

47,417

Accounts receivable, less allowance for doubtful accounts of $4,701 and $4,643

51,692

70,680

Inventories

2,579

2,496

Prepaid expenses and other current assets

16,162

16,115

Total current assets

121,683

136,708

Property and equipment, net

10,585

11,525

Intangible assets, net

48,667

50,097

Goodwill

31,220

31,220

Deferred income tax assets

4,259

4,951

Other long-term assets

14,246

15,153

$

230,660

$

249,654

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of notes payable

$

5,835

$

5,835

Current portion of financing obligation

2,963

2,887

Accounts payable

5,485

6,948

Deferred subscription revenue

65,812

74,772

Other deferred revenue

11,958

11,117

Accrued liabilities

26,107

34,980

Total current liabilities

118,160

136,539

Notes payable, less current portion

11,759

12,975

Financing obligation, less current portion

10,387

11,161

Other liabilities

7,942

8,741

Deferred income tax liabilities

375

375

Total liabilities

148,623

169,791

Shareholders’ equity:

Common stock, $0.05 par value; 40,000 shares authorized, 27,056 shares issued

1,353

1,353 

Additional paid-in capital

213,504

214,888

Retained earnings

67,403

63,591

Accumulated other comprehensive income

565

709

Treasury stock at cost, 12,757 shares and 12,889 shares

(200,788)

(200,678)

Total shareholders’ equity

82,037

79,863

$

230,660

$

249,654

See notes to condensed consolidated financial statements


2


 

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND STATEMENTS

OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except per-share amounts)

Quarter Ended

November 30,

November 30,

2021

2020

(unaudited)

Net sales

$

61,259

$

48,324 

Cost of sales

13,661

11,938 

Gross profit

47,598

36,386 

Selling, general, and administrative

39,343

33,683 

Depreciation

1,279

1,741 

Amortization

1,431

1,131 

Income (loss) from operations

5,545

(169)

Interest income

15

24 

Interest expense

(446)

(568)

Income (loss) before income taxes

5,114

(713)

Income tax provision

(1,302)

(179)

Net income (loss)

$

3,812

$

(892)

Net income (loss) per share:

Basic and diluted

$

0.27

$

(0.06)

Weighted average number of common shares:

Basic

14,246

13,977 

Diluted

14,312

13,977 

COMPREHENSIVE INCOME (LOSS)

Net income (loss)

$

3,812

$

(892)

Foreign currency translation adjustments,

net of income taxes of

$0 and $0

(144)

307 

Comprehensive income (loss)

$

3,668

$

(585)

See notes to condensed consolidated financial statements

3


 

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Quarter Ended

November 30,

November 30,

2021

2020

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

$

3,812 

$

(892)

Adjustments to reconcile net income (loss) to net cash

provided by operating activities:

Depreciation and amortization

2,710 

2,872 

Amortization of capitalized curriculum costs

789 

889 

Stock-based compensation

1,649 

1,158 

Deferred income taxes

679 

(111)

Change in fair value of contingent consideration liabilities

28 

62 

Amortization of right-of-use operating lease assets

225 

259 

Changes in assets and liabilities, net of effect of acquired business:

Decrease in accounts receivable, net

18,829 

13,482 

Decrease (increase) in inventories

(92)

309 

Decrease (increase) in prepaid expenses and other assets

196 

(176)

Decrease in accounts payable and accrued liabilities

(9,825)

(2,721)

Decrease in deferred revenue

(8,219)

(3,625)

Decrease in income taxes payable/receivable

(47)

(111)

Decrease in other long-term liabilities

(570)

(519)

Net cash provided by operating activities

10,164 

10,876 

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(520)

(185)

Curriculum development costs

(243)

(263)

Net cash used for investing activities

(763)

(448)

CASH FLOWS FROM FINANCING ACTIVITIES

Principal payments on notes payable

(1,250)

(1,250)

Principal payments on financing obligation

(698)

(628)

Purchases of common stock for treasury

(3,488)

(1,530)

Payment of contingent consideration liabilities

(368)

(329)

Proceeds from sales of common stock held in treasury

344 

256 

Net cash used for financing activities

(5,460)

(3,481)

Effect of foreign currency exchange rates on cash and cash equivalents

(108)

176 

Net increase in cash and cash equivalents

3,833 

7,123 

Cash and cash equivalents at the beginning of the period

47,417 

27,137 

Cash and cash equivalents at the end of the period

$

51,250 

$

34,260 

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$

577 

$

403 

Cash paid for interest

410 

562 

Non-cash investing and financing activities:

Purchases of property and equipment financed by accounts payable

$

238 

$

20 

Acquisition of right-of-use operating lease assets for operating lease liabilities

142 

726 

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, 2021

27,056 

$

1,353 

$

214,888 

$

63,591 

$

709 

(12,889)

$

(200,678)

Issuance of common stock from

treasury

 

 

(3,033)

 

 

217 

3,378 

Purchases of common shares

for treasury

 

 

 

 

 

(85)

(3,488)

Stock-based compensation

 

 

1,649 

 

 

 

 

Cumulative translation

adjustments

 

 

 

 

(144)

 

 

Net income

 

 

 

3,812 

 

 

 

Balance at November 30, 2021

27,056 

$

1,353 

$

213,504 

$

67,403 

$

565 

(12,757)

$

(200,788)

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, 2020

27,056 

$

1,353 

$

211,920 

$

49,968 

$

641 

(13,175)

$

(204,429)

Issuance of common stock from

treasury

 

 

(3,411)

 

 

236 

3,668 

Purchases of common shares

for treasury

 

 

 

 

 

(89)

(1,530)

Stock-based compensation

 

 

1,158 

 

 

 

 

Cumulative translation

adjustments

 

 

 

 

307 

 

 

Net loss

 

 

 

(892)

 

 

 

Balance at November 30, 2020

27,056 

$

1,353 

$

209,667 

$

49,076 

$

948 

(13,028)

$

(202,291)

See notes to condensed consolidated financial statements

5


 

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. We have a wide range of content delivery options, including: the All Access Pass (AAP) subscription, the Leader in Me membership, and other intellectual property licenses; digital online learning; on-site training; training led through certified facilitators; blended learning; and organization-wide transformational processes, including consulting and coaching. We believe our investments in digital delivery modalities over the past few years have enabled us to deliver our content to clients in a high-quality learning environment whether those clients are working remotely or in a centralized location. 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.

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, The 4 Disciplines of Execution, and Multipliers, 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.

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, 2021.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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.

The results of operations for the quarter ended November 30, 2021 are not necessarily indicative of results expected for the entire fiscal year ending August 31, 2022, or for any future periods.

Note on the Continuing COVID-19 Pandemic

The COVID-19 pandemic continues to produce difficult economic and operating conditions for certain areas of our business, including our international direct offices and licensee partners as countries and local municipalities have maintained a variety of measures designed to contain the spread of the virus. These measures included the closure of offices, schools, and other meeting spaces. These efforts persist in the face of new variants, increasing cases, and ongoing uncertainty regarding the pandemic. While our content is able to be presented digitally and is translated into numerous languages, the technology base differs significantly among countries, which may impede the smooth delivery of content to remote work locations. We remain optimistic about the future as we continue to see signs of economic recovery in the United States and many of the other countries in which we operate as companies, schools, and individuals are adapting,

6


 

and the positive effect of vaccinations and therapeutics are enabling some economies to open and recover. However, emerging variants continue to create uncertainty and many countries, states, and local governments may continue to implement additional lockdowns or other containment measures in future periods. These measures change rapidly to new and perceived threats and may have an adverse impact on our results of operations in future periods. We will continue to monitor developments related to the COVID-19 pandemic, including supply chain issues, and their actual and potential impacts on our financial position, results of operations, and liquidity.

Accounting Pronouncements Issued and Adopted

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. 2019-12, Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The guidance in ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, although early adoption is permitted. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

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):

November 30,

August 31,

2021

2021

Finished goods

$

2,551

$

2,468

Raw materials

28

28

$

2,579

$