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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 May 31, 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:

13,858,140 shares of Common Stock as of June 30, 2022


 

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,

2022

2021

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

52,068

$

47,417

Accounts receivable, less allowance for doubtful accounts of $4,345 and $4,643

50,430

70,680

Inventories

3,356

2,496

Prepaid expenses and other current assets

16,233

16,115

Total current assets

122,087

136,708

Property and equipment, net

9,591

11,525

Intangible assets, net

45,993

50,097

Goodwill

31,220

31,220

Deferred income tax assets

6,269

4,951

Other long-term assets

13,236

15,153

$

228,396

$

249,654

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of notes payable

$

5,835

$

5,835

Current portion of financing obligation

3,119

2,887

Accounts payable

8,067

6,948

Deferred subscription revenue

66,646

74,772

Other deferred revenue

16,646

11,117

Accrued liabilities

28,570

34,980

Total current liabilities

128,883

136,539

Notes payable, less current portion

8,490

12,975

Financing obligation, less current portion

8,794

11,161

Other liabilities

6,908

8,741

Deferred income tax liabilities

375

375

Total liabilities

153,450

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

217,862

214,888

Retained earnings

76,443

63,591

Accumulated other comprehensive income (loss)

(203)

709

Treasury stock at cost, 13,218 shares and 12,889 shares

(220,509)

(200,678)

Total shareholders’ equity

74,946

79,863

$

228,396

$

249,654

See notes to condensed consolidated financial statements


2


 

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED INCOME STATEMENTS AND STATEMENTS

OF COMPREHENSIVE INCOME

(in thousands, except per-share amounts)

Quarter Ended

Three Quarters Ended

May 31,

May 31,

May 31,

May 31,

2022

2021

2022

2021

(unaudited)

(unaudited)

Net sales

$

66,176 

$

58,736 

$

184,035 

$

155,223 

Cost of sales

15,044 

12,829 

41,190 

35,589 

Gross profit

51,132 

45,907 

142,845 

119,634 

Selling, general, and administrative

42,637 

40,132 

120,042 

107,439 

Depreciation

1,217 

1,423 

3,686 

4,904 

Amortization

1,329 

1,238 

4,106 

3,503 

Income from operations

5,949 

3,114 

15,011 

3,788 

Interest income

21 

16 

48 

56 

Interest expense

(405)

(525)

(1,274)

(1,633)

Income before income taxes

5,565 

2,605 

13,785 

2,211 

Income tax benefit (provision)

1,597

10,149 

(933)

9,605 

Net income

$

7,162

$

12,754 

$

12,852

$

11,816 

Net income per share:

Basic

$

0.51

$

0.90 

$

0.90

$

0.84 

Diluted

0.51

0.90 

0.90

0.84 

Weighted average number of common shares:

Basic

14,173 

14,145 

14,244 

14,068 

Diluted

14,175 

14,156 

14,273 

14,133 

COMPREHENSIVE INCOME

Net income

$

7,162

$

12,754 

$

12,852

$

11,816 

Foreign currency translation adjustments,

net of income taxes of

$0, $0, $0, and $0

(736)

(151)

(912)

123 

Comprehensive income

$

6,426

$

12,603 

$

11,940

$

11,939 

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,

2022

2021

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

12,852

$

11,816 

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization

7,792

8,407 

Amortization of capitalized curriculum costs

2,374

2,583 

Stock-based compensation

5,987

5,127 

Deferred income taxes

(1,409)

(10,521)

Change in fair value of contingent consideration liabilities

60

164 

Amortization of right-of-use operating lease assets

695

758 

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

Decrease in accounts receivable, net

19,794

12,391 

Decrease (increase) in inventories

(888)

322 

Decrease in prepaid expenses and other assets

321

1,393 

Increase (decrease) in accounts payable and accrued liabilities

(4,294)

4,629 

Decrease in deferred revenue

(2,760)

(4,172)

Increase (decrease) in income taxes payable/receivable

355

(653)

Decrease in other long-term liabilities

(1,343)

(1,392)

Net cash provided by operating activities

39,536

30,852 

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(2,080)

(1,185)

Curriculum development costs

(1,379)

(1,827)

Acquisition of business, net of cash acquired

-

(10,554)

Net cash used for investing activities

(3,459)

(13,566)

CASH FLOWS FROM FINANCING ACTIVITIES

Principal payments on notes payable

(4,585)

(3,750)

Principal payments on financing obligation

(2,135)

(1,922)

Purchases of common stock for treasury

(23,850)

(2,971)

Payment of contingent consideration liabilities

(1,099)

(899)

Proceeds from sales of common stock held in treasury

1,006

783 

Net cash used for financing activities

(30,663)

(8,759)

Effect of foreign currency exchange rates on cash and cash equivalents

(763)

93 

Net increase in cash and cash equivalents

4,651

8,620 

Cash and cash equivalents at the beginning of the period

47,417 

27,137 

Cash and cash equivalents at the end of the period

$

52,068

$

35,757 

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$

1,744

$

1,454 

Cash paid for interest

1,295

1,634 

Non-cash investing and financing activities:

Purchases of property and equipment financed by accounts payable

$

165

$

105 

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

344

885 

Use of notes payable to acquire business

-

3,766 

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 (Loss)

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