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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, 2023

[   ]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, $0.05 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:

13,204,328 shares of Common Stock, $0.05 par value per share, as of June 30, 2023


 

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,

2023

2022

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

39,329

$

60,517

Accounts receivable, less allowance for doubtful accounts of $3,867 and $4,492

55,476

72,561

Inventories

4,573

3,527

Prepaid expenses and other current assets

17,352

19,278

Total current assets

116,730

155,883

Property and equipment, net

9,699

9,798

Intangible assets, net

41,582

44,833

Goodwill

31,220

31,220

Deferred income tax assets

2,270

4,686

Other long-term assets

16,223

12,735

$

217,724

$

259,155

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of notes payable

$

5,835

$

5,835

Current portion of financing obligation

3,450

3,199

Accounts payable

7,102

10,864

Deferred subscription revenue

70,419

85,543

Other deferred revenue

17,660

14,150

Accrued liabilities

23,940

34,205

Total current liabilities

128,406

153,796

Notes payable, less current portion

2,764

7,268

Financing obligation, less current portion

5,344

7,962

Other liabilities

6,504

7,116

Deferred income tax liabilities

199

199

Total liabilities

143,217

176,341

Shareholders’ equity:

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

1,353

1,353 

Additional paid-in capital

229,134

220,246

Retained earnings

92,990

82,021

Accumulated other comprehensive loss

(665)

(542)

Treasury stock at cost, 13,866 shares and 13,203 shares

(248,305)

(220,264)

Total shareholders’ equity

74,507

82,814

$

217,724

$

259,155

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,

2023

2022

2023

2022

(unaudited)

(unaudited)

Net sales

$

71,441

$

66,176

$

202,565

$

184,035

Cost of sales

17,208

15,044

48,380

41,190

Gross profit

54,233

51,132

154,185

142,845

Selling, general, and administrative

45,641

42,637

131,991

120,042

Depreciation

934

1,217

3,131

3,686

Amortization

1,086

1,329

3,270

4,106

Income from operations

6,572

5,949

15,793

15,011

Interest income

362

21

804

48

Interest expense

(354)

(405)

(1,173)

(1,274)

Income before income taxes

6,580

5,565

15,424

13,785

Income tax benefit (provision)

(2,017)

1,597

(4,455)

(933)

Net income

$

4,563

$

7,162

$

10,969

$

12,852

Net income per share:

Basic

$

0.33

$

0.51

$

0.79

$

0.90

Diluted

0.32

0.51

0.76

0.90

Weighted average number of common shares:

Basic

13,621

14,173

13,799

14,244

Diluted

14,273

14,175

14,437

14,273

COMPREHENSIVE INCOME

Net income

$

4,563

$

7,162

$

10,969

$

12,852

Foreign currency translation adjustments,

net of income taxes of $0, $0, $0, and $0

(139)

(736)

(123)

(912)

Comprehensive income

$

4,424

$

6,426

$

10,846

$

11,940

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,

2023

2022

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

10,969 

$

12,852 

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization

6,401 

7,792 

Amortization of capitalized curriculum costs

2,385 

2,374 

Stock-based compensation

9,357 

5,987 

Deferred income taxes

2,399 

(1,409)

Change in fair value of contingent consideration liabilities

7 

60 

Amortization of right-of-use operating lease assets

633 

695 

Changes in assets and liabilities:

Decrease in accounts receivable, net

17,071 

19,794 

Increase in inventories

(1,050)

(888)

Decrease in prepaid expenses and other assets

3,415 

321 

Decrease in accounts payable and accrued liabilities

(12,615)

(4,294)

Decrease in deferred revenue

(11,901)

(2,760)

Increase (decrease) in income taxes payable/receivable

(621)

355 

Decrease in other long-term liabilities

(503)

(1,343)

Net cash provided by operating activities

25,947 

39,536 

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(3,545)

(2,080)

Curriculum development costs

(6,841)

(1,379)

Net cash used for investing activities

(10,386)

(3,459)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from term notes payable

7,500 

-

Principal payments on notes payable

(12,085)

(4,585)

Principal payments on financing obligation

(2,366)

(2,135)

Purchases of common stock for treasury

(29,672)

(23,850)

Payment of contingent consideration liabilities

(736)

(1,099)

Cash paid to obtain new credit agreement

(393)

-

Proceeds from sales of common stock held in treasury

1,162 

1,006 

Net cash used for financing activities

(36,590)

(30,663)

Effect of foreign currency exchange rates on cash and cash equivalents

(159)

(763)

Net increase (decrease) in cash and cash equivalents

(21,188)

4,651 

Cash and cash equivalents at the beginning of the period

60,517 

47,417 

Cash and cash equivalents at the end of the period

$

39,329 

$

52,068 

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$

2,452 

$

1,744 

Cash paid for interest

1,158 

1,295 

Non-cash investing and financing activities:

Purchases of property and equipment financed by accounts payable

$

21 

$

165 

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

504 

344 

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

Loss

Shares

Amount

Balance at August 31, 2022

27,056 

$

1,353 

$

220,246 

$

82,021 

$

(542)

(13,203)

$

(220,264)

Issuance of common stock from

treasury

(568)

56 

935 

Purchases of common shares

for treasury

(18)

(835)

Stock-based compensation

2,735 

Cumulative translation

adjustments

(130)

Net income

4,667 

Balance at November 30, 2022

27,056 

1,353 

222,413 

86,688 

(672)

(13,165)

(220,164)

Issuance of common stock from