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 February 28, 2022

[ ]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

Logo

Description automatically generated

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:

14,342,897 shares of Common Stock as of March 31, 2022
‎

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per-share amounts)



		February 28,		August 31,
		2022		2021
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	61,062	$	47,417
Accounts receivable, less allowance for doubtful accounts of $4,504 and $4,643		47,726		70,680
Inventories		2,472		2,496
Prepaid expenses and other current assets		16,105		16,115
Total current assets		127,365		136,708

Property and equipment, net		10,032		11,525
Intangible assets, net		47,325		50,097
Goodwill		31,220		31,220
Deferred income tax assets		3,658		4,951
Other long-term assets		13,864		15,153
	$	233,464	$	249,654

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of notes payable	$	5,835	$	5,835
Current portion of financing obligation		3,040		2,887
Accounts payable		6,644		6,948
Deferred subscription revenue		68,583		74,772
Other deferred revenue		12,349		11,117
Accrued liabilities		23,302		34,980
Total current liabilities		119,753		136,539

Notes payable, less current portion		10,543		12,975
Financing obligation, less current portion		9,598		11,161
Other liabilities		7,067		8,741
Deferred income tax liabilities		375		375
Total liabilities		147,336		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		215,348		214,888
Retained earnings		69,281		63,591
Accumulated other comprehensive income		533		709
Treasury stock at cost, 12,730 shares and 12,889 shares		(200,387)		(200,678)
Total shareholders’ equity		86,128		79,863
	$	233,464	$	249,654

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			Two Quarters Ended
		February 28,		February 28,		February 28,		February 28,
		2022		2021		2022		2021
		(unaudited)				(unaudited)

Net sales	$	56,599	$	48,162	$	117,859	$	96,486
Cost of sales		12,485		10,822		26,146		22,760
Gross profit		44,114		37,340		91,713		73,726

Selling, general, and administrative		38,061		33,623		77,405		67,306
Depreciation		1,190		1,740		2,470		3,481
Amortization		1,346		1,133		2,776		2,265
Income from operations		3,517		844		9,062		674

Interest income		12		16		27		40
Interest expense		(423)		(540)		(869)		(1,108)
Income (loss) before income taxes		3,106		320		8,220		(394)
Income tax provision		(1,228)		(366)		(2,530)		(544)
Net income (loss)	$	1,878	$	(46)	$	5,690	$	(938)

Net income (loss) per share:
Basic and diluted	$	0.13	$	(0.00)	$	0.40	$	(0.07)

Weighted average number of common shares:
Basic		14,312		14,082		14,279		14,029
Diluted		14,333		14,082		14,323		14,029


COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$	1,878	$	(46)	$	5,690	$	(938)
Foreign currency translation adjustments,
net of income taxes of
$0, $0, $0, and $0		(32)		(33)		(176)		274
Comprehensive income (loss)	$	1,846	$	(79)	$	5,514	$	(664)

See notes to condensed consolidated financial statements
‎

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	Two Quarters Ended
		February 28,		February 28,
		2022		2021
		(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	5,690	$	(938)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization		5,246		5,746
Amortization of capitalized curriculum costs		1,620		1,750
Stock-based compensation		3,618		2,757
Deferred income taxes		1,277		(198)
Change in fair value of contingent consideration liabilities		48		46
Amortization of right-of-use operating lease assets		475		509
Changes in assets and liabilities:
Decrease in accounts receivable, net		22,925		14,978
Decrease in inventories		25		346
Decrease (increase) in prepaid expenses and other assets		353		(344)
Decrease in accounts payable and accrued liabilities		(11,165)		(244)
Decrease in deferred revenue		(5,518)		(1,497)
Decrease in income taxes payable/receivable		(238)		(87)
Decrease in other long-term liabilities		(1,118)		(912)
Net cash provided by operating activities		23,238		21,912

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(1,264)		(877)
Curriculum development costs		(774)		(1,292)
Net cash used for investing activities		(2,038)		(2,169)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable		(2,500)		(2,500)
Principal payments on financing obligation		(1,409)		(1,269)
Purchases of common stock for treasury		(3,535)		(2,971)
Payment of contingent consideration liabilities		(671)		(540)
Proceeds from sales of common stock held in treasury		668		464
Net cash used for financing activities		(7,447)		(6,816)
Effect of foreign currency exchange rates on cash and cash equivalents		(108)		279
Net increase in cash and cash equivalents		13,645		13,206
Cash and cash equivalents at the beginning of the period		47,417		27,137
Cash and cash equivalents at the end of the period	$	61,062	$	40,343

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	1,302	$	788
Cash paid for interest		782		1,085

Non-cash investing and financing activities:
Purchases of property and equipment financed by accounts payable	$	160	$	48
Acquisition of right-of-use operating lease assets for operating lease liabilities		338		885

See notes to condensed consolidated financial statements
‎

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