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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, 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:

13,286,172 shares of Common Stock, $0.05 par value per share, as of December 31, 2023


 

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,

2023

2023

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

33,959

$

38,230

Accounts receivable, less allowance for doubtful accounts of $3,753 and $3,790

59,860

81,935

Inventories

4,117

4,213

Prepaid expenses and other current assets

19,306

20,639

Total current assets

117,242

145,017

Property and equipment, net

9,517

10,039

Intangible assets, net

39,443

40,511

Goodwill

31,220

31,220

Deferred income tax assets

1,679

1,661

Other long-term assets

19,721

17,471

$

218,822

$

245,919

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of notes payable

$

4,585

$

5,835

Current portion of financing obligation

3,627

3,538

Accounts payable

5,667

6,501

Deferred subscription revenue

83,484

95,386

Other deferred revenue

16,023

12,137

Accrued liabilities

21,300

28,252

Total current liabilities

134,686

151,649

Notes payable, less current portion

1,556

1,535

Financing obligation, less current portion

3,478

4,424

Other liabilities

7,590

7,617

Deferred income tax liabilities

1,011

2,040

Total liabilities

148,321

167,265

Shareholders’ equity:

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

1,353

1,353 

Additional paid-in capital

224,701

232,373

Retained earnings

104,653

99,802

Accumulated other comprehensive loss

(936)

(987)

Treasury stock at cost, 13,782 shares and 13,974 shares

(259,270)

(253,887)

Total shareholders’ equity

70,501

78,654

$

218,822

$

245,919

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

November 30,

November 30,

2023

2022

(unaudited)

Net sales

$

68,399

$

69,369 

Cost of sales

16,122

16,627 

Gross profit

52,277

52,742 

Selling, general, and administrative

44,786

44,012 

Depreciation

1,091

1,246 

Amortization

1,071

1,092 

Income from operations

5,329

6,392 

Interest income

288

81 

Interest expense

(341)

(410)

Income before income taxes

5,276

6,063 

Income tax provision

(425)

(1,396)

Net income

$

4,851

$

4,667 

Net income per share:

Basic

$

0.37

$

0.34

Diluted

0.36

0.32 

Weighted average number of common shares:

Basic

13,244

13,877 

Diluted

13,636

14,507 

COMPREHENSIVE INCOME

Net income

$

4,851

$

4,667 

Foreign currency translation adjustments,

net of income taxes of $0 and $0

51

(130)

Comprehensive income

$

4,902

$

4,537

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,

2023

2022

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

4,851

$

4,667 

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization

2,162

2,338 

Amortization of capitalized curriculum costs

691

843 

Stock-based compensation

2,897

2,735 

Deferred income taxes

(1,048)

393 

Change in fair value of contingent consideration liabilities

-

7 

Amortization of right-of-use operating lease assets

199

203 

Changes in assets and liabilities:

Decrease in accounts receivable, net

22,097

15,144 

Decrease in inventories

100

38 

Decrease in prepaid expenses and other assets

996

2,306 

Decrease in accounts payable and accrued liabilities

(7,984)

(14,098)

Decrease in deferred revenue

(7,981)

(11,501)

Increase in income taxes payable

557

31 

Decrease in other long-term liabilities

(99)

(89)

Net cash provided by operating activities

17,438

3,017 

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(1,072)

(1,240)

Curriculum development costs

(2,668)

(974)

Net cash used for investing activities

(3,740)

(2,214)

CASH FLOWS FROM FINANCING ACTIVITIES

Principal payments on notes payable

(1,250)

(1,250)

Principal payments on financing obligation

(855)

(774)

Purchases of common stock for treasury

(16,308)

(835)

Payment of contingent consideration liabilities

-

(429)

Proceeds from sales of common stock held in treasury

356

367 

Net cash used for financing activities

(18,057)

(2,921)

Effect of foreign currency exchange rates on cash and cash equivalents

88

(247)

Net decrease in cash and cash equivalents

(4,271)

(2,365)

Cash and cash equivalents at the beginning of the period

38,230 

60,517 

Cash and cash equivalents at the end of the period

$

33,959

$

58,152 

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$

822

$

836 

Cash paid for interest

337

372 

Non-cash investing and financing activities:

Purchases of property and equipment financed by accounts payable

$

45

$

213 

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

121

128 

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, 2023

27,056 

$

1,353 

$

232,373 

$

99,802 

$

(987)

(13,974)

$

(253,887)

Issuance of common stock from

treasury

(10,569)

601 

10,925 

Purchases of common shares

for treasury

(409)

(16,308)

Stock-based compensation

2,897 

Cumulative translation

adjustments

51 

Net income

4,851 

Balance at November 30, 2023

27,056 

$

1,353 

$

224,701 

$

104,653 

$

(936)

(13,782)

$

(259,270)

FRANKLIN COVEY CO.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY –

PRIOR YEAR

(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)

See notes to condensed consolidated financial statements

5


 

FRANKLIN COVEY CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – BASIS OF PRESENTATION

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; onsite 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 meeting 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 Leadership, Execution, Productivity, Educational Improvement, and Sales Performance. 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 (GAAP) 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, 2023.

The preparation of financial statements in conformity with GAAP 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, 2023 are not necessarily indicative of results expected for the entire fiscal year ending August 31, 2024, or for any future periods.

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,

2023

2023

Finished goods

$

4,109 

$

4,204 

Raw materials

8 

9 

$

4,117 

$

4,213