Franklin Covey Co. (NYSE:FC) Q3 2024 Earnings Conference Call June 26, 2024 5:00 PM ET Company Participants Derek Hatch - Corporate Controller Paul Walker - President and Chief Executive Officer Steve Young - Chief Financial Officer Sean Covey - President, Education Division Jennifer Colosimo - President, Enterprise Division Conference Call Participants Alex Paris - Barrington Research Nehal Chokshi - Northland Capital Dave Storms - Stonegate Jeff Martin - ROTH Capital Partners Operator Good day and thank y ...

Over the last four quarters, the company has surpassed consensus EPS estimates three times. Franklin Covey (FC) came out with quarterly earnings of $0.43 per share, beating the Zacks Consensus Estimate of $0.39 per share. This compares to earnings of $0.32 per share a year ago. These figures are adjusted for non-recurring items. Franklin Covey, which belongs to the Zacks Consulting Services industry, posted revenues of $73.37 million for the quarter ended May 2024, surpassing the Zacks Consensus Estimate by ...

[Press Release Overview](index=1&type=section&id=Press%20Release%20Overview) [Third Quarter Performance Highlights](index=1&type=section&id=Third%20Quarter%20Performance%20Highlights) Franklin Covey reported strong Q3 FY2024 results with consolidated revenue increasing 3% to $73.4 million, net income rising 25% to $5.7 million, and Adjusted EBITDA increasing 17% to $13.9 million, alongside significant increases in cash flows and strong liquidity Third Quarter Performance Highlights | Metric | Q3 FY24 (in thousands) | Q3 FY23 (in thousands) | Change (%) | | :----------------------------------- | :--------------------- | :--------------------- | :--------- | | Revenue | $73,400 | $71,400 | +3% | | Net Income | $5,700 | $4,600 | +25% | | Diluted EPS | $0.43 | $0.32 | - | | Adjusted EBITDA | $13,900 | $11,900 | +17% | Metric (First Three Quarters) | Metric (First Three Quarters) | FY24 (in thousands) | FY23 (in thousands) | | :------------------------------ | :------------------ | :------------------ | | Cash Flows From Operating Activities | $38,400 | $25,900 | | Free Cash Flow | $30,600 | $15,600 | - Liquidity remains strong at nearly **$100 million**, with **$36.6 million** of cash and no drawdowns on the company's **$62.5 million** credit facility[3](index=3&type=chunk) - The company purchased **$25.8 million** of its common stock through May 31, 2024[3](index=3&type=chunk) [CEO Commentary and Strategic Drivers](index=3&type=section&id=CEO%20Commentary) CEO Paul Walker expressed satisfaction with Q3 results, highlighting stronger-than-expected revenue, Adjusted EBITDA, and cash flows, noting strengthening key indicators and broad-based growth across Enterprise and Education Divisions, expecting record highs for fiscal 2024, driven by mission-critical solutions, strong leading indicators, a robust subscription model, and effective Free Cash Flow investment - CEO Paul Walker is pleased with Q3 results, which exceeded expectations for revenue, Adjusted EBITDA, and cash flows[6](index=6&type=chunk) - The company expects to achieve all-time highs in revenue, Adjusted EBITDA, and Free Cash Flow in fiscal 2024[6](index=6&type=chunk) - Four key growth drivers include: mission-critical solutions, strong leading indicators (deferred and unbilled deferred revenue, add-on services), a robust subscription business model, and the ability to invest Free Cash Flow and excess cash at a high rate of return[6](index=6&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk) [Detailed Financial Performance](index=1&type=section&id=Detailed%20Financial%20Performance) [Consolidated Financial Results](index=1&type=section&id=Consolidated%20Financial%20Results) For Q3 FY2024, consolidated revenue increased 3% to $73.4 million, net income grew 25% to $5.7 million, and diluted EPS increased to $0.43, with Adjusted EBITDA improving by 17% to $13.9 million; for the first three quarters, revenue was $203.1 million, net income was $11.4 million, and Adjusted EBITDA was $32.3 million Consolidated Income Statement Highlights | Metric | Quarter May 31, 2024 (in thousands) | Quarter May 31, 2023 (in thousands) | Three Quarters May 31, 2024 (in thousands) | Three Quarters May 31, 2023 (in thousands) | | :--------------------------------- | :------------------- | :------------------- | :-------------------------- | :-------------------------- | | Revenue | $73,373 | $71,441 | $203,109 | $202,565 | | Gross profit | $56,206 | $54,233 | $155,336 | $154,185 | | Income from operations | $8,343 | $6,572 | $15,114 | $15,793 | | Net income | $5,721 | $4,563 | $11,446 | $10,969 | | Diluted EPS | $0.43 | $0.32 | $0.85 | $0.76 | | Adjusted EBITDA | $13,924 | $11,899 | $32,340 | $31,558 | [Segment Performance](index=1&type=section&id=Segment%20Performance) The company's performance is driven by its Enterprise and Education divisions, with Enterprise Division revenues slightly decreasing due to lower legacy training and international direct office/licensee revenues, largely offset by growth in All Access Pass (AAP) revenues, while the Education Division showed strong growth, primarily from increased classroom materials revenue - Overall segment performance showed mixed results, with Enterprise Division revenues slightly down but offset by AAP growth, and strong growth in the Education Division[13](index=13&type=chunk)[5](index=5&type=chunk) [Enterprise Division Performance](index=1&type=section&id=Enterprise%20Division%20Performance) Enterprise Division revenues for Q3 FY2024 totaled $52.0 million, a slight decrease from $53.2 million in FY2023, attributed to decreased legacy training and international direct office/licensee revenues, partially offset by 4% growth in AAP subscription revenue and 3% growth in AAP subscription plus services revenue, with strong AAP retention levels exceeding 90% in the US and Canada Enterprise Division Revenue | Metric | Quarter May 31, 2024 (in thousands) | Quarter May 31, 2023 (in thousands) | Three Quarters May 31, 2024 (in thousands) | Three Quarters May 31, 2023 (in thousands) | | :-------------------------- | :------------------- | :------------------- | :-------------------------- | :-------------------------- | | Direct offices | $49,334 | $50,382 | $141,509 | $144,194 | | International licensees | $2,701 | $2,835 | $8,826 | $9,048 | | **Total Enterprise** | **$52,035** | **$53,217** | **$150,335** | **$153,242** | - AAP subscription revenue grew **4%** compared with Q3 FY23, and AAP subscription plus subscription services revenue grew **3%**[13](index=13&type=chunk) - AAP subscription revenue retention levels in the United States and Canada remained strong, **greater than 90%** during the first three quarters of fiscal 2024[13](index=13&type=chunk) [Education Division Performance](index=1&type=section&id=Education%20Division%20Performance) The Education Division experienced significant growth, with revenues increasing 18% to $20.1 million in Q3 FY2024, primarily driven by increased classroom materials revenue, partly due to a new state initiative, and delivered nearly 100 more training and coaching days than the prior year Education Division Revenue | Metric | Quarter May 31, 2024 (in thousands) | Quarter May 31, 2023 (in thousands) | Three Quarters May 31, 2024 (in thousands) | Three Quarters May 31, 2023 (in thousands) | | :----------------- | :------------------- | :------------------- | :-------------------------- | :-------------------------- | | Education Division | $20,079 | $17,082 | $49,402 | $45,631 | - Education Division revenues grew **18%** in Q3 FY24, primarily due to increased classroom materials revenue, partly from a new state initiative[13](index=13&type=chunk)[14](index=14&type=chunk) - The Education Division delivered nearly **100 more training and coaching days** in Q3 FY24 than the prior year[5](index=5&type=chunk) [Subscription and Deferred Revenue](index=3&type=section&id=Subscription%20and%20Deferred%20Revenue) Total company subscription and subscription services revenues increased 6% to $60.8 million in Q3 FY2024, with consolidated deferred subscription revenue growing 15% to $83.8 million and unbilled deferred subscription revenue increasing to $69.4 million, while multi-year AAP contracts now represent 55% of contracts and 60% of contracted amounts - Total Company subscription and subscription services revenues reached **$60.8 million** in Q3 FY24, a **6% increase** over Q3 FY23[5](index=5&type=chunk) - Consolidated deferred subscription revenue at May 31, 2024, increased **15% to $83.8 million** compared with $72.7 million at May 31, 2023[5](index=5&type=chunk) - Unbilled deferred subscription revenue at May 31, 2024, grew to **$69.4 million** compared with $68.2 million at May 31, 2023[5](index=5&type=chunk) - **55%** of the Company's AAP contracts are for at least two years (up from **50%** in FY23), and the percentage of contracted amounts represented by multi-year contracts increased to **60%** (up from **57%** in FY23)[5](index=5&type=chunk) [Cash Flow and Liquidity](index=1&type=section&id=Cash%20Flow%20and%20Liquidity) Cash flows from operating activities for the first three quarters of fiscal 2024 increased 48% to $38.4 million, and Free Cash Flow increased to $30.6 million, with the company maintaining strong liquidity at nearly $100 million, including $36.6 million in cash and no drawdowns on its $62.5 million credit facility Cash Flow Highlights (First Three Quarters) | Metric | 3 Quarters FY24 (in thousands) | 3 Quarters FY23 (in thousands) | | :------------------------------ | :---------------------------- | :---------------------------- | | Cash flows from operating activities | $38,400 | $25,900 | | Free Cash Flow | $30,600 | $15,600 | - Liquidity remains strong at nearly **$100 million**, with **$36.6 million** of cash and no drawdowns on the company's **$62.5 million** credit facility[3](index=3&type=chunk) [Share Repurchase Program](index=3&type=section&id=Share%20Repurchase%20Program) The company purchased 188,373 shares for $7.4 million during Q3 FY2024, bringing the total for the first three quarters to approximately 649,000 shares for $25.8 million, and approved a new plan to purchase up to $50.0 million of common stock on April 18, 2024 - The company purchased **188,373 shares** of its common stock for **$7.4 million** during Q3 FY24[5](index=5&type=chunk) - For the first three quarters of fiscal 2024, the company purchased approximately **649,000 shares** for **$25.8 million**[5](index=5&type=chunk) - A new plan to purchase up to **$50.0 million** of outstanding common stock was approved on April 18, 2024, replacing the previously existing plan[16](index=16&type=chunk) [Outlook and Corporate Information](index=5&type=section&id=Outlook%20and%20Corporate%20Information) [Fiscal 2024 Guidance](index=5&type=section&id=Fiscal%202024%20Guidance) Despite challenges in the first half, Franklin Covey reaffirms its fiscal 2024 Adjusted EBITDA guidance at the low end of $54.5 million to $58.0 million (constant currency), representing 13% growth over FY2023, and expects to achieve record highs in revenue, Adjusted EBITDA, and Free Cash Flow for fiscal 2024, driven by its subscription offerings - The company expects its Adjusted EBITDA for fiscal 2024 to be at the low end of its previously announced guidance range of **$54.5 million to $58.0 million** in constant currency, excluding approximately **$0.5 million** of negative foreign exchange impact[7](index=7&type=chunk) - This guidance represents **13% growth** over the **$48.1 million** of Adjusted EBITDA achieved in fiscal 2023[7](index=7&type=chunk) - The company expects to deliver the highest levels of revenue, Adjusted EBITDA, and Free Cash Flow in fiscal 2024 since the sale of its consumer products division, driven by its subscription offerings[7](index=7&type=chunk) [Non-GAAP Financial Measures](index=7&type=section&id=Non-GAAP%20Financial%20Information) The company uses non-GAAP measures, Adjusted EBITDA and Free Cash Flow, to provide supplemental information for internal comparisons and investor transparency, with Adjusted EBITDA defined as net income excluding specific non-cash and infrequent items, and Free Cash Flow as operating cash flow less capital expenditures, while a forward-looking reconciliation for Adjusted EBITDA is not provided due to inherent uncertainties - Adjusted EBITDA is defined as net income excluding interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other infrequently occurring items such as restructuring costs and impaired assets[18](index=18&type=chunk) - Free Cash Flow is defined as GAAP calculated cash flows from operating activities less capitalized expenditures for purchases of property and equipment and curriculum development[18](index=18&type=chunk) - A reconciliation of forward-looking Adjusted EBITDA to GAAP measures is not provided due to the difficulty in obtaining certain information dependent on future events[19](index=19&type=chunk) [About Franklin Covey Co.](index=7&type=section&id=About%20Franklin%20Covey%20Co.) Franklin Covey Co. is a global leadership company offering organizational performance improvement through world-class content, training, processes, and tools, operating in over 160 countries, partnering with clients to build leaders, teams, and cultures, delivering solutions via its All Access Pass in multiple languages and modalities, aiming for lasting behavioral change - Franklin Covey Co. is a global leadership company providing professional services in over **160 countries and territories**[20](index=20&type=chunk) - The company transforms organizations by partnering with clients to build leaders, teams, and cultures that achieve breakthrough results through collective action[20](index=20&type=chunk) - Its best-in-class content and solutions are available through the Franklin Covey All Access Pass, integrating experts, technology, and metrics to ensure lasting behavioral change at scale[20](index=20&type=chunk) [Forward-Looking Statements & Contacts](index=5&type=section&id=Forward-Looking%20Statements) The press release contains forward-looking statements subject to various risks and uncertainties, including macroeconomic conditions, subscription renewals, market acceptance of new products, and inflation, with the company disclaiming any obligation to update these statements, and contact information for investor relations and media provided - This press release contains forward-looking statements subject to various risks and uncertainties, including general macroeconomic conditions, renewals of subscription contracts, growth in client demand for add-on services, and market acceptance of new products[17](index=17&type=chunk)[30](index=30&type=chunk) - The company undertakes no obligation to update or revise these forward-looking statements to reflect events or circumstances subsequent to this press release[30](index=30&type=chunk) - Investor and Media contact information is provided for inquiries[31](index=31&type=chunk) [Financial Statements and Reconciliations](index=9&type=section&id=Financial%20Statements) [Condensed Consolidated Income Statements](index=9&type=section&id=Condensed%20Consolidated%20Income%20Statements) The condensed consolidated income statements show Q3 FY2024 revenue of $73.4 million, gross profit of $56.2 million, and net income of $5.7 million, with revenue for the first three quarters at $203.1 million and net income at $11.4 million Condensed Consolidated Income Statements (Q3 and 3 Quarters Ended May 31, 2024 vs 2023) | Metric | Quarter May 31, 2024 (in thousands) | Quarter May 31, 2023 (in thousands) | Three Quarters May 31, 2024 (in thousands) | Three Quarters May 31, 2023 (in thousands) | | :--------------------------------- | :------------------- | :------------------- | :-------------------------- | :-------------------------- | | Revenue | $73,373 | $71,441 | $203,109 | $202,565 | | Cost of revenue | $17,167 | $17,208 | $47,773 | $48,380 | | Gross profit | $56,206 | $54,233 | $155,336 | $154,185 | | Selling, general, and administrative | $45,110 | $45,641 | $130,088 | $131,991 | | Restructuring costs | $701 | - | $3,008 | - | | Impaired asset | - | - | $928 | - | | Depreciation | $990 | $934 | $2,994 | $3,131 | | Amortization | $1,062 | $1,086 | $3,204 | $3,270 | | Income from operations | $8,343 | $6,572 | $15,114 | $15,793 | | Interest income (expense), net | $21 | $8 | $(59) | $(369) | | Income before income taxes | $8,364 | $6,580 | $15,055 | $15,424 | | Income tax provision | $(2,643) | $(2,017) | $(3,609) | $(4,455) | | Net income | $5,721 | $4,563 | $11,446 | $10,969 | | Net income per common share: Basic | $0.43 | $0.33 | $0.87 | $0.79 | | Diluted | $0.43 | $0.32 | $0.85 | $0.76 | | Weighted average common shares: Basic | $13,160 | $13,621 | $13,222 | $13,799 | | Diluted | $13,378 | $14,273 | $13,499 | $14,437 | | Other data: (1) Adjusted EBITDA | $13,924 | $11,899 | $32,340 | $31,558 | [Reconciliation of Net Income to Adjusted EBITDA](index=10&type=section&id=Reconciliation%20of%20Net%20Income%20to%20Adjusted%20EBITDA) The reconciliation details the adjustments made to net income to arrive at Adjusted EBITDA, which was $13.9 million for Q3 FY2024 with a 19.0% margin, and $32.3 million for the first three quarters with a 15.9% margin Reconciliation of Net Income to Adjusted EBITDA (Q3 and 3 Quarters Ended May 31, 2024 vs 2023) | Metric | Quarter May 31, 2024 (in thousands) | Quarter May 31, 2023 (in thousands) | Three Quarters May 31, 2024 (in thousands) | Three Quarters May 31, 2023 (in thousands) | | :------------------------------------------------------------- | :------------------- | :------------------- | :-------------------------- | :-------------------------- | | Net income | $5,721 | $4,563 | $11,446 | $10,969 | | Adjustments: | | | | | | Interest expense (income), net | $(21) | $(8) | $59 | $369 | | Income tax provision | $2,643 | $2,017 | $3,609 | $4,455 | | Amortization | $1,062 | $1,086 | $3,204 | $3,270 | | Depreciation | $990 | $934 | $2,994 | $3,131 | | Stock-based compensation | $2,828 | $3,307 | $7,092 | $9,357 | | Restructuring costs | $701 | - | $3,008 | - | | Impaired asset | - | - | $928 | - | | Increase in the fair value of contingent consideration liabilities | - | - | - | $7 | | **Adjusted EBITDA** | **$13,924** | **$11,899** | **$32,340** | **$31,558** | | Adjusted EBITDA margin | 19.0% | 16.7% | 15.9% | 15.6% | [Additional Financial Information by Segment](index=11&type=section&id=Additional%20Financial%20Information) This section provides a breakdown of revenue, gross profit, and Adjusted EBITDA by the Enterprise and Education divisions, showing that the Enterprise Division (Direct offices and International licensees) generated the majority of revenue and gross profit, while the Education Division demonstrated strong growth in revenue and Adjusted EBITDA Revenue by Division/Segment (Q3 and 3 Quarters Ended May 31, 2024 vs 2023) | Metric | Quarter May 31, 2024 (in thousands) | Quarter May 31, 2023 (in thousands) | Three Quarters May 31, 2024 (in thousands) | Three Quarters May 31, 2023 (in thousands) | | :-------------------------- | :------------------- | :------------------- | :-------------------------- | :-------------------------- | | Enterprise Division: Direct offices | $49,334 | $50,382 | $141,509 | $144,194 | | Enterprise Division: International licensees | $2,701 | $2,835 | $8,826 | $9,048 | | Education Division | $20,079 | $17,082 | $49,402 | $45,631 | | Corporate and other | $1,259 | $1,142 | $3,372 | $3,692 | | **Consolidated Revenue** | **$73,373** | **$71,441** | **$203,109** | **$202,565** | Gross Profit by Division/Segment (Q3 and 3 Quarters Ended May 31, 2024 vs 2023) | Metric | Quarter May 31, 2024 (in thousands) | Quarter May 31, 2023 (in thousands) | Three Quarters May 31, 2024 (in thousands) | Three Quarters May 31, 2023 (in thousands) | | :-------------------------- | :------------------- | :------------------- | :-------------------------- | :-------------------------- | | Enterprise Division: Direct offices | $40,172 | $40,425 | $115,186 | $116,199 | | Enterprise Division: International licensees | $2,435 | $2,549 | $7,861 | $8,184 | | Education Division | $13,179 | $10,929 | $31,157 | $28,497 | | Corporate and other | $420 | $330 | $1,132 | $1,305 | | **Consolidated Gross Profit** | **$56,206** | **$54,233** | **$155,336** | **$154,185** | Adjusted EBITDA by Division/Segment (Q3 and 3 Quarters Ended May 31, 2024 vs 2023) | Metric | Quarter May 31, 2024 (in thousands) | Quarter May 31, 2023 (in thousands) | Three Quarters May 31, 2024 (in thousands) | Three Quarters May 31, 2023 (in thousands) | | :-------------------------- | :------------------- | :------------------- | :-------------------------- | :-------------------------- | | Enterprise Division: Direct offices | $12,170 | $11,322 | $32,978 | $32,212 | | Enterprise Division: International licensees | $1,334 | $1,415 | $4,571 | $4,787 | | Education Division | $3,080 | $1,649 | $2,593 | $1,309 | | Corporate and other | $(2,660) | $(2,487) | $(7,802) | $(6,750) | | **Consolidated Adjusted EBITDA** | **$13,924** | **$11,899** | **$32,340** | **$31,558** | [Condensed Consolidated Balance Sheets](index=13&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of May 31, 2024, total assets were $221.0 million, a decrease from $245.9 million at August 31, 2023, with total liabilities decreasing to $148.8 million from $167.3 million, while total shareholders' equity was $72.2 million and cash and cash equivalents stood at $36.6 million Condensed Consolidated Balance Sheets (May 31, 2024 vs August 31, 2023) | Metric | May 31, 2024 (in thousands) | August 31, 2023 (in thousands) | | :---------------------------------------------------------------- | :-------------------------- | :----------------------------- | | **Assets** | | | | Cash and cash equivalents | $36,574 | $38,230 | | Accounts receivable, net | $60,424 | $81,935 | | Inventories | $4,644 | $4,213 | | Prepaid expenses and other current assets | $18,389 | $20,639 | | Total current assets | $120,031 | $145,017 | | Property and equipment, net | $8,631 | $10,039 | | Intangible assets, net | $38,808 | $40,511 | | Goodwill | $31,220 | $31,220 | | Deferred income tax assets | $1,636 | $1,661 | | Other long-term assets | $20,645 | $17,471 | | **Total Assets** | **$220,971** | **$245,919** | | **Liabilities and Shareholders' Equity** | | | | Current portion of notes payable | $2,085 | $5,835 | | Current portion of financing obligation | $3,810 | $3,538 | | Accounts payable | $6,185 | $6,501 | | Deferred subscription revenue | $80,092 | $95,386 | | Customer deposits | $22,204 | $12,137 | | Accrued liabilities | $22,215 | $28,252 | | Total current liabilities | $136,591 | $151,649 | | Notes payable, less current portion | $761 | $1,535 | | Financing obligation, less current portion | $1,533 | $4,424 | | Other liabilities | $8,076 | $7,617 | | Deferred income tax liabilities | $1,847 | $2,040 | | **Total Liabilities** | **$148,808** | **$167,265** | | **Shareholders' equity** | | | | Common stock | $1,353 | $1,353 | | Additional paid-in capital | $228,612 | $232,373 | | Retained earnings | $111,248 | $99,802 | | Accumulated other comprehensive loss | $(1,250) | $(987) | | Treasury stock at cost | $(267,800) | $(253,887) | | **Total Shareholders' equity** | **$72,163** | **$78,654** | | **Total Liabilities and Shareholders' Equity** | **$220,971** | **$245,919** | [Condensed Consolidated Free Cash Flow](index=15&type=section&id=Condensed%20Consolidated%20Free%20Cash%20Flow) For the first three quarters of fiscal 2024, net cash provided by operating activities was $38.4 million, a significant increase from $25.9 million in the prior year, with Free Cash Flow also substantially increasing to $30.6 million from $15.6 million in the same period Condensed Consolidated Free Cash Flow (3 Quarters Ended May 31, 2024 vs 2023) | Metric | Three Quarters May 31, 2024 (in thousands) | Three Quarters May 31, 2023 (in thousands) | | :------------------------------------------------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Net income | $11,446 | $10,969 | | Depreciation and amortization | $6,198 | $6,401 | | Amortization of capitalized curriculum costs | $2,340 | $2,385 | | Impairment of asset | $928 | - | | Stock-based compensation | $7,092 | $9,357 | | Deferred income taxes | $(169) | $2,399 | | Change in fair value of contingent consideration liabilities | - | $7 | | Amortization of right-of-use operating lease assets | $596 | $633 | | Changes in working capital | $9,954 | $(6,204) | | **Net cash provided by operating activities** | **$38,385** | **$25,947** | | Purchases of property and equipment | $(2,618) | $(3,545) | | Curriculum development costs | $(5,195) | $(6,841) | | **Net cash used for investing activities** | **$(7,813)** | **$(10,386)** | | **Free Cash Flow** | **$30,572** | **$15,561** |

Core Points - Firm Capital Mortgage Investment Corporation held its annual and special meeting where all director nominees were elected as directors [1] - The voting results showed high approval rates for the nominees, with percentages ranging from 95.62% to 98.57% for votes "For" [1][3] - The Corporation aims to preserve shareholders' equity while providing a stable stream of monthly dividends through investments in niche markets [5] Voting Results - Geoffrey Bledin received 8,150,536 votes "For," representing 98.48% approval [3] - Eli Dadouch received 8,158,145 votes "For," representing 98.57% approval [3] - Morris Fischtein received 8,109,522 votes "For," representing 97.98% approval [3] - Stanley Goldfarb received 7,914,433 votes "For," representing 95.62% approval [3] - Victoria Granovski received 8,136,355 votes "For," representing 98.31% approval [3] - Anthony Heller received 8,099,125 votes "For," representing 97.86% approval [3] - Jonathan Mair received 7,953,362 votes "For," representing 96.09% approval [3] - Hon. Francis Newbould received 8,119,044 votes "For," representing 98.10% approval [3] - Hon. Joe Oliver, P.C. received 8,119,392 votes "For," representing 98.10% approval [3] - Keith Ray received 8,118,916 votes "For," representing 98.09% approval [3] - Lawrence Shulman received 8,113,281 votes "For," representing 98.03% approval [3] - Michael Warner received 8,113,310 votes "For," representing 98.03% approval [3] Company Overview - Firm Capital Mortgage Investment Corporation operates as a non-bank lender providing residential and commercial short-term bridge and conventional real estate financing [5] - The Corporation is classified as a Mortgage Investment Corporation (MIC) under the Income Tax Act (Canada), allowing it to avoid taxation on income if distributed as dividends [5] - The Corporation's financial results and management discussions are available on the SEDAR+ website [5]

Luis Alvarez/DigitalVision via Getty ImagesIntroduction Despite continually posting strong numbers, Franklin Covey (NYSE:FC) doesn’t ever seem to get the love it deserves. Per my anecdotal conversations, most of the reasons stem from a mental model tied more to their legacy business model (what’s happened historically) rather than their current business model (what should happen going forward). Until investors come around, this reality will continue to be the case. Said differently, Franklin Covey trade ...

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition [ITEM 1. FINANCIAL STATEMENTS](index=2&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents Franklin Covey Co.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and equity changes, with explanatory notes [Condensed Consolidated Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheets (in thousands $) | Item | Feb 29, 2024 (in thousands $) | Aug 31, 2023 (in thousands $) | | :-------------------------------- | :--------------------------- | :--------------------------- | | **ASSETS** | | | | Cash and cash equivalents | $40,904 | $38,230 | | Accounts receivable, net | $57,153 | $81,935 | | Total current assets | $122,435 | $145,017 | | Total assets | $221,933 | $245,919 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Deferred subscription revenue | $82,365 | $95,386 | | Total current liabilities | $138,465 | $151,649 | | Total liabilities | $151,106 | $167,265 | | Total shareholders' equity | $70,827 | $78,654 | | Total liabilities and shareholders' equity | $221,933 | $245,919 | [Condensed Consolidated Income Statements and Statements of Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Income%20Statements%20and%20Statements%20of%20Comprehensive%20Income) This statement outlines the company's financial performance, detailing net sales, gross profit, operating income, net income, and EPS Condensed Consolidated Income Statements (in thousands $, except per-share amounts) | Item | Q2 2024 (in thousands $) | Q2 2023 (in thousands $) | YTD 2024 (in thousands $) | YTD 2023 (in thousands $) | | :-------------------------------- | :----------------------- | :----------------------- | :------------------------ | :------------------------ | | Net sales | $61,336 | $61,756 | $129,736 | $131,125 | | Gross profit | $46,851 | $47,210 | $99,129 | $99,952 | | Income from operations | $1,442 | $2,828 | $6,771 | $9,221 | | Net income | $874 | $1,739 | $5,725 | $6,406 | | Basic net income per share | $0.07 | $0.13 | $0.43 | $0.46 | | Diluted net income per share | $0.06 | $0.12 | $0.42 | $0.44 | [Condensed Consolidated Statements of Cash Flows](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement details cash inflows and outflows from operating, investing, and financing activities for the reported periods Condensed Consolidated Statements of Cash Flows (in thousands $) | Item | YTD Feb 29, 2024 (in thousands $) | YTD Feb 28, 2023 (in thousands $) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $30,212 | $11,208 | | Net cash used for investing activities | $(5,486) | $(7,921) | | Net cash used for financing activities | $(21,957) | $(8,724) | | Net increase (decrease) in cash and cash equivalents | $2,674 | $(5,396) | | Cash and cash equivalents at end of period | $40,904 | $55,121 | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) These statements present changes in shareholders' equity components, including common stock, paid-in capital, retained earnings, and treasury stock Changes in Shareholders' Equity (in thousands $) | Item | Balance at Aug 31, 2023 (in thousands $) | Balance at Feb 29, 2024 (in thousands $) | | :-------------------------------- | :------------------------------- | :------------------------------- | | Common Stock Amount | $1,353 | $1,353 | | Additional Paid-In Capital | $232,373 | $225,776 | | Retained Earnings | $99,802 | $105,527 | | Accumulated Other Comprehensive Loss | $(987) | $(1,075) | | Treasury Stock Amount | $(253,887) | $(260,754) | | Total Shareholders' Equity | $78,654 | $70,827 | - The company purchased **461 thousand shares** of common stock for treasury at a cost of **$18.4 million** during the first two quarters of fiscal 2024, including shares withheld for taxes on stock-based compensation awards and open market purchases[30](index=30&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide additional information on accounting policies, estimates, and specific financial statement line items, including segment data [NOTE 1 – BASIS OF PRESENTATION](index=7&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) This note describes the company's business, mission, offerings, and the basis of presentation for its unaudited GAAP financial statements - Franklin Covey Co. is a global company focused on organizational performance improvement, offering content and solutions through various delivery options like AAP subscription, Leader in Me membership, digital learning, and onsite training[21](index=21&type=chunk) - The company is evaluating new FASB ASUs 2023-07 (Segment Reporting) and 2023-09 (Income Tax Disclosures), effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively, and does not anticipate significant challenges in adoption[26](index=26&type=chunk)[28](index=28&type=chunk) [NOTE 2 – INVENTORIES](index=8&type=section&id=NOTE%202%20%E2%80%93%20INVENTORIES) This note details inventory composition, valued at the lower of cost or net realizable value using the FIFO method Inventories (in thousands $) | Item | Feb 29, 2024 (in thousands $) | Aug 31, 2023 (in thousands $) | | :---------------- | :--------------------------- | :--------------------------- | | Finished goods | $4,196 | $4,204 | | Raw materials | $- | $9 | | Total | $4,196 | $4,213 | [NOTE 3 – PURCHASES OF COMMON STOCK FOR TREASURY](index=8&type=section&id=NOTE%203%20%E2%80%93%20PURCHASES%20OF%20COMMON%20STOCK%20FOR%20TREASURY) This note details common stock repurchases, including shares withheld for taxes and open market purchases, and the repurchase plan Common Stock Purchases (in thousands $) | Item | Shares (in thousands) | Cost (in thousands $) | | :-------------------------------- | :-------------------- | :-------------------- | | Shares withheld for taxes on stock-based compensation awards | 252 | $10,333 | | Open market purchases | 209 | $8,080 | | Total | 461 | $18,413 | - The Board of Directors approved a new plan on February 14, 2023, to purchase up to **$50.0 million** of outstanding common stock, with **$7.7 million** remaining on the authorization as of February 29, 2024[30](index=30&type=chunk) [NOTE 4 – REVENUE RECOGNITION](index=9&type=section&id=NOTE%204%20%E2%80%93%20REVENUE%20RECOGNITION) This note explains revenue recognition policies, focusing on contract balances, deferred revenue, and remaining performance obligations Contract Balances (in thousands $) | Item | Feb 29, 2024 (in thousands $) | Aug 31, 2023 (in thousands $) | | :-------------------------------- | :--------------------------- | :--------------------------- | | Total deferred subscription revenue and other deferred revenue | $108,100 | $111,200 | | Deferred subscription revenue | $86,100 | $99,000 | | Previously deferred subscription revenue recognized (Q2) | $35,600 | N/A | | Previously deferred subscription revenue recognized (YTD) | $72,200 | N/A | - As of February 29, 2024, the company had **$158.8 million** in remaining performance obligations, including deferred subscription revenue, indicating future contracted revenue yet to be recognized[33](index=33&type=chunk) [NOTE 5 – STOCK-BASED COMPENSATION](index=9&type=section&id=NOTE%205%20%E2%80%93%20STOCK-BASED%20COMPENSATION) This note details stock-based compensation expense components, including long-term incentive awards, acquisition compensation, and ESPP Stock-Based Compensation (in thousands $) | Item | Q2 2024 (in thousands $) | Q2 2023 (in thousands $) | YTD 2024 (in thousands $) | YTD 2023 (in thousands $) | | :-------------------------------- | :----------------------- | :----------------------- | :------------------------ | :------------------------ | | Long-term incentive awards | $889 | $2,866 | $3,353 | $5,204 | | Strive acquisition compensation | $190 | $200 | $385 | $366 | | Unvested stock awards | $220 | $175 | $400 | $340 | | Employee stock purchase plan | $69 | $74 | $127 | $140 | | Total | $1,368 | $3,315 | $4,265 | $6,050 | - A **$1.6 million** cumulative reduction to stock-based compensation expense for long-term incentive awards resulted from a reassessment of shares expected to vest under the fiscal 2024 and 2023 LTIP awards[37](index=37&type=chunk) - The fiscal 2024 LTIP award includes both time-based (25% vesting on Aug 31, 2026) and performance-based tranches (variable vesting from 50% to 200% based on Adjusted EBITDA by Aug 31, 2026)[40](index=40&type=chunk) [NOTE 6 – RESTRUCTURING](index=11&type=section&id=NOTE%206%20%E2%80%93%20RESTRUCTURING) This note describes the Q2 fiscal 2024 restructuring plan, involving workforce reduction and severance charges for growth initiatives - The company commenced a restructuring plan in Q2 fiscal 2024, reducing its workforce by approximately **50 associates** and incurring **$1.7 million** in severance charges, primarily in the Direct Office segment (**$1.2 million**)[42](index=42&type=chunk) - An additional **$0.6 million** charge was incurred in Q1 fiscal 2024 for restructuring operations in the Direct Offices segment, with all accrued costs paid in Q2 fiscal 2024[43](index=43&type=chunk) [NOTE 7 – IMPAIRED ASSET](index=11&type=section&id=NOTE%207%20%E2%80%93%20IMPAIRED%20ASSET) This note explains the impairment of a student leadership assessment asset due to societal changes and potential legal challenges - The company impaired an asset related to a student leadership assessment, suspending its development due to societal changes in perception regarding student information collection and potential legal challenges, resulting in a **$0.9 million** impairment charge[44](index=44&type=chunk) [NOTE 8 – EARNINGS PER SHARE](index=11&type=section&id=NOTE%208%20%E2%80%93%20EARNINGS%20PER%20SHARE) This note provides the calculation of basic and diluted net income per share, including weighted average common shares outstanding Earnings Per Share Calculation (in thousands, except per-share amounts) | Item | Q2 2024 (in thousands) | Q2 2023 (in thousands) | YTD 2024 (in thousands) | YTD 2023 (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | :---------------------- | :---------------------- | | Net income | $874 | $1,739 | $5,725 | $6,406 | | Basic weighted average shares outstanding | 13,263 | 13,900 | 13,253 | 13,888 | | Diluted weighted average shares outstanding | 13,484 | 14,533 | 13,560 | 14,520 | | Basic EPS | $0.07 | $0.13 | $0.43 | $0.46 | | Diluted EPS | $0.06 | $0.12 | $0.42 | $0.44 | [NOTE 9 – SEGMENT INFORMATION](index=12&type=section&id=NOTE%209%20%E2%80%93%20SEGMENT%20INFORMATION) This note disaggregates financial information by Direct Offices, International Licensees, and Education segments, including Adjusted EBITDA reconciliation and revenue by type - The company's operations are structured into two divisions (Enterprise and Education) and three reportable segments: Direct Offices, International Licensees, and Education Practice, with Adjusted EBITDA as the primary performance measurement tool[47](index=47&type=chunk)[48](index=48&type=chunk)[50](index=50&type=chunk) Consolidated Sales and Adjusted EBITDA (in thousands $) | Item | Q2 2024 Sales (in thousands $) | Q2 2023 Sales (in thousands $) | YTD 2024 Sales (in thousands $) | YTD 2023 Sales (in thousands $) | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------------ | :------------------------------ | | Consolidated Sales | $61,336 | $61,756 | $129,736 | $131,125 | | Consolidated Adjusted EBITDA | $7,448 | $8,187 | $18,418 | $19,659 | Segment Sales (in thousands $) | Segment | Q2 2024 Sales (in thousands $) | Q2 2023 Sales (in thousands $) | YTD 2024 Sales (in thousands $) | YTD 2023 Sales (in thousands $) | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------------ | :------------------------------ | | Direct Offices | $42,960 | $43,646 | $92,175 | $93,812 | | International Licensees | $2,748 | $2,935 | $6,126 | $6,213 | | Education Practice | $14,579 | $14,198 | $29,323 | $28,549 | Revenue by Type of Service (in thousands $) - YTD | Item | Services and Products (in thousands $) | Subscriptions (in thousands $) | Royalties (in thousands $) | Leases and Other (in thousands $) | Consolidated (in thousands $) | | :-------------------------------- | :----------------------------- | :--------------------------- | :----------------------- | :-------------------------- | :---------------------------- | | YTD Feb 29, 2024 | $46,696 | $72,353 | $9,201 | $1,486 | $129,736 | | YTD Feb 28, 2023 | $54,099 | $65,940 | $9,159 | $1,927 | $131,125 | [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=16&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on financial condition, operations, liquidity, capital resources, and critical accounting estimates [Non-GAAP Measures](index=16&type=section&id=Non-GAAP%20Measures) This subsection defines Adjusted EBITDA as a non-GAAP measure used for internal comparisons and investor transparency into operational results - Adjusted EBITDA is defined as net income excluding interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items like restructuring and impaired asset costs[60](index=60&type=chunk) [RESULTS OF OPERATIONS](index=16&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, comparing current quarter and year-to-date results by business divisions and key metrics [Overview](index=16&type=section&id=Overview) This overview summarizes the company's mission, business structure, and key consolidated financial highlights for Q2 fiscal 2024 - Consolidated sales for Q2 fiscal 2024 were **$61.3 million**, slightly down from **$61.8 million** in Q2 fiscal 2023, but in line with expectations[62](index=62&type=chunk) - Subscription and subscription services sales increased **5%** to **$50.3 million** in Q2 fiscal 2024, reaching a record **$227.3 million** for the rolling four quarters[66](index=66&type=chunk) - Deferred subscription revenue on the balance sheet increased **13%** to **$86.1 million** at February 29, 2024, compared to February 28, 2023, and the sum of billed and unbilled deferred subscription revenue grew **9%** to **$158.8 million**[64](index=64&type=chunk)[66](index=66&type=chunk) [Quarter Ended February 29, 2024 Compared with the Quarter Ended February 28, 2023](index=19&type=section&id=Quarter%20Ended%20February%2029,%202024%20Compared%20with%20the%20Quarter%20Ended%20February%2028,%202023) This section provides a detailed comparative analysis of Q2 fiscal 2024 financial results by segment and expense categories [Enterprise Division - Direct Offices Segment](index=19&type=section&id=Enterprise%20Division%20-%20Direct%20Offices%20Segment) Direct Offices segment saw slight revenue decrease, strong AAP growth offset by legacy declines, with improved gross margin from service mix Direct Offices Segment Performance (in thousands $) | Item | Q2 2024 (in thousands $) | Q2 2023 (in thousands $) | Change (in thousands $) | | :---------------- | :----------------------- | :----------------------- | :---------------------- | | Sales | $42,960 | $43,646 | $(686) | | Gross profit | $35,514 | $35,854 | $(340) | | Adjusted EBITDA | $9,122 | $9,641 | $(519) | - Direct Office AAP subscription sales grew **9%** in Q2 fiscal 2024, and AAP subscription and subscription services grew **6%** to **$37.5 million**, with retention levels greater than **90%**[68](index=68&type=chunk) - Gross margin for Direct Offices improved to **82.7%** of sales in Q2 fiscal 2024, up from **82.1%** in the prior year, primarily due to the mix of services and products sold[69](index=69&type=chunk) [Enterprise Division - International Licensees Segment](index=19&type=section&id=Enterprise%20Division%20-%20International%20Licensees%20Segment) International Licensees segment revenue decreased due to lower royalties and reduced AAP share, impacted by economic challenges International Licensees Segment Performance (in thousands $) | Item | Q2 2024 (in thousands $) | Q2 2023 (in thousands $) | Change (in thousands $) | | :---------------- | :----------------------- | :----------------------- | :---------------------- | | Sales | $2,748 | $2,935 | $(187) | | Gross profit | $2,374 | $2,659 | $(285) | | Adjusted EBITDA | $1,342 | $1,541 | $(199) | - International licensee revenue decreased **6%** in Q2 fiscal 2024, driven by an **8%** decrease in royalty revenues and a **7%** decrease in AAP revenue share, partially offset by increased licensee support revenues[71](index=71&type=chunk) [Education Division](index=20&type=section&id=Education%20Division) Education Division achieved sales growth from increased membership subscriptions and classroom materials, with strong training delivery Education Division Performance (in thousands $) | Item | Q2 2024 (in thousands $) | Q2 2023 (in thousands $) | Change (in thousands $) | | :---------------- | :----------------------- | :----------------------- | :---------------------- | | Sales | $14,579 | $14,198 | $381 | | Gross profit | $8,597 | $8,392 | $205 | | Adjusted EBITDA | $(529) | $(622) | $93 | - Education Division sales increased **3%** in Q2 fiscal 2024, driven by increased membership subscription revenues and sales of classroom and training materials, with a **4%** increase in subscription and subscription services revenue[73](index=73&type=chunk) - The Education Division delivered nearly **100 more training and coaching days** in Q2 fiscal 2024 than the prior year, contributing to sales recognition[73](index=73&type=chunk) [Other Operating Expense Items](index=20&type=section&id=Other%20Operating%20Expense%20Items) This section details Q2 changes in depreciation, amortization, and interest expense, noting decreases from asset depreciation and reduced debt - Depreciation expense decreased to **$0.9 million** in Q2 fiscal 2024 from **$1.0 million** in Q2 fiscal 2023, primarily due to the full depreciation of certain assets[75](index=75&type=chunk) - Interest expense decreased by **$0.1 million** in Q2 fiscal 2024 compared to the prior year, mainly due to decreased term loan and financing obligation liabilities[77](index=77&type=chunk) [Operating Income, Net Income, and Adjusted EBITDA](index=18&type=section&id=Operating%20Income,%20Net%20Income,%20and%20Adjusted%20EBITDA) Consolidated operating income, net income, and Adjusted EBITDA decreased in Q2 fiscal 2024, impacted by restructuring and asset impairment Consolidated Financial Performance (in thousands $, except per-share amounts) | Item | Q2 2024 (in thousands $) | Q2 2023 (in thousands $) | | :-------------------------------- | :----------------------- | :----------------------- | | Income from operations | $1,442 | $2,828 | | Net income | $874 | $1,739 | | Diluted net income per share | $0.06 | $0.12 | | Adjusted EBITDA | $7,448 | $8,187 | - Operating expenses increased by **$1.0 million** in Q2 fiscal 2024, primarily due to **$1.7 million** in restructuring expenses and a **$0.9 million** impaired asset charge, partially offset by a **$1.6 million** decrease in stock-based compensation[67](index=67&type=chunk) [Cash Flows](index=18&type=section&id=Cash%20Flows) Operating cash flows significantly increased in the first two quarters of fiscal 2024, driven by favorable working capital changes - Cash flows from operating activities increased to **$30.2 million** in the first two quarters of fiscal 2024, up from **$11.2 million** in the prior year, primarily due to strong collections of accounts receivable and reduced payments for accounts payable and accrued liabilities[67](index=67&type=chunk) [Purchases of Common Stock](index=18&type=section&id=Purchases%20of%20Common%20Stock) The company purchased significant common stock for treasury in the first two quarters of fiscal 2024, including tax-withheld shares - The company purchased **460,609 shares** of common stock for **$18.4 million** during the first two quarters of fiscal 2024, including shares withheld for income taxes on stock-based compensation awards and open market purchases[67](index=67&type=chunk) [Liquidity and Financial Position](index=18&type=section&id=Liquidity%20and%20Financial%20Position) Despite common stock purchases, the company maintained a strong liquidity position with substantial cash and available credit - At February 29, 2024, the company had over **$103 million** of available liquidity, consisting of **$40.9 million** in cash and an undrawn **$62.5 million** line of credit[67](index=67&type=chunk) [Two Quarters Ended February 29, 2024 Compared with the Two Quarters Ended February 28, 2023](index=21&type=section&id=Two%20Quarters%20Ended%20February%2029,%202024%20Compared%20with%20the%20Two%20Quarters%20Ended%20February%2028,%202023) This section provides a detailed comparative analysis of year-to-date fiscal 2024 financial results by segment and expense categories [Enterprise Division - Direct Offices Segment](index=21&type=section&id=Enterprise%20Division%20-%20Direct%20Offices%20Segment) Direct Offices segment saw slight year-to-date revenue decline, with strong AAP growth offset by decreased legacy services Direct Offices Segment Performance (in thousands $) | Item | YTD Feb 29, 2024 (in thousands $) | YTD Feb 28, 2023 (in thousands $) | Change (in thousands $) | | :---------------- | :-------------------------------- | :-------------------------------- | :---------------------- | | Sales | $92,175 | $93,812 | $(1,637) | | Gross profit | $75,015 | $75,775 | $(760) | | Adjusted EBITDA | $20,809 | $20,890 | $(81) | - Direct Office AAP subscription sales grew **11%** to **$53.1 million** in the first two quarters of fiscal 2024, and AAP subscription and subscription services grew **5%** compared to the prior year, with retention levels greater than **90%**[79](index=79&type=chunk) [Enterprise Division - International Licensees Segment](index=22&type=section&id=Enterprise%20Division%20-%20International%20Licensees%20Segment) International Licensees segment experienced minor year-to-date revenue decrease, mainly from lower royalties, partially offset by support revenue International Licensees Segment Performance (in thousands $) | Item | YTD Feb 29, 2024 (in thousands $) | YTD Feb 28, 2023 (in thousands $) | Change (in thousands $) | | :---------------- | :-------------------------------- | :-------------------------------- | :---------------------- | | Sales | $6,126 | $6,213 | $(87) | | Gross profit | $5,426 | $5,635 | $(209) | | Adjusted EBITDA | $3,238 | $3,372 | $(134) | - International licensee revenue decreased **1%** in the first two quarters of fiscal 2024, primarily due to a **3%** decrease in royalty revenues, partially offset by increased licensee support revenues[82](index=82&type=chunk) [Education Division](index=22&type=section&id=Education%20Division) Education Division achieved year-to-date sales growth from increased membership subscriptions and international royalties Education Division Performance (in thousands $) | Item | YTD Feb 29, 2024 (in thousands $) | YTD Feb 28, 2023 (in thousands $) | Change (in thousands $) | | :---------------- | :-------------------------------- | :-------------------------------- | :---------------------- | | Sales | $29,323 | $28,549 | $774 | | Gross profit | $17,977 | $17,568 | $409 | | Adjusted EBITDA | $(487) | $(341) | $(146) | - Education Division sales increased **3%** in the first two quarters of fiscal 2024, primarily due to increased membership subscription revenues and higher international royalties, with a **2%** increase in subscription and subscription services revenue[85](index=85&type=chunk) - The Education Division delivered nearly **300 more training and coaching days** in the first two quarters of fiscal 2024 than the prior year[85](index=85&type=chunk) [Other Operating Expense Items](index=23&type=section&id=Other%20Operating%20Expense%20Items) This section details year-to-date changes in depreciation, amortization, interest income, and interest expense, noting expense decreases - Depreciation expense decreased to **$2.0 million** in the first two quarters of fiscal 2024 from **$2.2 million** in the prior year, due to the full depreciation of certain assets[87](index=87&type=chunk) - Interest income increased by **$0.1 million** in the first two quarters of fiscal 2024 due to increased interest rates on cash balances, while interest expense decreased by **$0.2 million** due to reduced debt liabilities[88](index=88&type=chunk)[89](index=89&type=chunk) [Income Taxes](index=23&type=section&id=Income%20Taxes) The effective tax rate for the first two quarters of fiscal 2024 was significantly lower due to a tax benefit from stock-based compensation - The effective tax rate for the first two quarters of fiscal 2024 was **14.4%** (on **$6.7 million** pre-tax income), significantly lower than **27.6%** in the prior year, primarily due to a **$3.2 million** tax benefit from stock-based compensation deductions[90](index=90&type=chunk)[91](index=91&type=chunk) - The company anticipates a full fiscal 2024 effective income tax rate of approximately **30%**, including a net benefit of **2%** for stock-based compensation[92](index=92&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=23&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's liquidity, capital structure, and cash flow management, including sources, uses, and debt obligations [Introduction](index=23&type=section&id=Introduction) This introduction outlines the company's cash position, available credit, and liquidity sources and uses, including credit agreement details - As of February 29, 2024, the company had **$40.9 million** in cash and cash equivalents and no borrowings on its **$62.5 million** revolving credit facility[94](index=94&type=chunk) - The 2023 Credit Agreement provides up to **$70.0 million** in total credit, with a **$62.5 million** revolving line of credit, maturing on March 27, 2028, and requires maintaining specific Leverage and Fixed Charge Coverage Ratios[95](index=95&type=chunk)[97](index=97&type=chunk) [Cash Flows Provided By Operating Activities](index=24&type=section&id=Cash%20Flows%20Provided%20By%20Operating%20Activities) Operating cash flows significantly increased in the first half of fiscal 2024 due to favorable working capital and strong collections - Cash provided by operating activities increased by **$19.0 million** to **$30.2 million** in the first half of fiscal 2024, driven by strong accounts receivable collections and less cash used for accounts payable and accrued liabilities[99](index=99&type=chunk) [Cash Flows Used For Investing Activities and Capital Expenditures](index=24&type=section&id=Cash%20Flows%20Used%20For%20Investing%20Activities%20and%20Capital%20Expenditures) Cash used for investing activities funded curriculum development and property purchases, with continued investment expected - Cash used for investing activities totaled **$5.5 million** in the first two quarters of fiscal 2024, including **$3.8 million** for curriculum development and purchases of property and equipment[100](index=100&type=chunk)[101](index=101&type=chunk) - The company expects capital spending for curriculum development to total **$7.1 million** and property and equipment purchases up to **$8.0 million** in fiscal 2024, with the latter dependent on leasehold improvements[101](index=101&type=chunk)[102](index=102&type=chunk) [Cash Flows Used For Financing Activities](index=24&type=section&id=Cash%20Flows%20Used%20For%20Financing%20Activities) Net cash used for financing activities primarily funded common stock repurchases and debt payments, partially offset by ESPP proceeds - Net cash used for financing activities totaled **$22.0 million** in the first two quarters of fiscal 2024, primarily for **$18.4 million** in common stock purchases and **$4.2 million** in debt payments[103](index=103&type=chunk)[104](index=104&type=chunk) - As of February 29, 2024, **$7.7 million** remained on the board-approved **$50.0 million** common stock purchase plan[105](index=105&type=chunk) [Sources of Liquidity](index=25&type=section&id=Sources%20of%20Liquidity) The company expects to meet obligations through existing cash, operating cash flows, and available credit, considering other financing - The company believes existing cash, operating cash flows, and available external funds will be sufficient to maintain operations for at least the next 12 months[108](index=108&type=chunk) - Potential additional liquidity sources include factoring receivables, issuing additional equity, or issuing debt to public or private sources[107](index=107&type=chunk) [Material Uses of Cash and Contractual Obligations](index=25&type=section&id=Material%20Uses%20of%20Cash%20and%20Contractual%20Obligations) Material cash requirements include compensation, IT, content development, income taxes, and contractual obligations, with no material changes - Material cash requirements include associate and consultant compensation, information technology expenditures, content development costs, income taxes, and contractual obligations[110](index=110&type=chunk) - There have been no material changes to expected uses of cash and contractual obligations from those discussed in the Annual Report on Form 10-K for the fiscal year ended August 31, 2023[109](index=109&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=26&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) This section refers to critical accounting estimates from the Annual Report on Form 10-K, noting no significant changes for the period - There have been no significant changes to the company's previously disclosed critical accounting estimates or policies[112](index=112&type=chunk) [NEW ACCOUNTING PRONOUNCEMENTS](index=26&type=section&id=NEW%20ACCOUNTING%20PRONOUNCEMENTS) This section directs readers to Note 1 for a description of new accounting pronouncements that may impact the company - New accounting pronouncements are described in Note 1 to the condensed consolidated financial statements[114](index=114&type=chunk) [SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995](index=26&type=section&id=SAFE%20HARBOR%20STATEMENT%20UNDER%20THE%20PRIVATE%20SECURITIES%20LITIGATION%20REFORM%20ACT%20OF%201995) This statement provides a cautionary note on forward-looking statements, outlining risks and uncertainties that could impact actual results - Forward-looking statements are subject to risks and uncertainties, including cybersecurity, inflation, macroeconomic risks, unanticipated costs, competition, foreign exchange rates, and customer order changes, which may cause actual results to differ materially[115](index=115&type=chunk) - The market price of the company's common stock has been and may remain volatile, influenced by factors such as quarterly variations in revenues and earnings, and its low market capitalization[118](index=118&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=27&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the company's exposure to market risks, primarily focusing on interest rate sensitivity of variable-rate debt [Interest Rate Sensitivity](index=27&type=section&id=Interest%20Rate%20Sensitivity) The company's interest rate sensitivity is influenced by variable-rate debt, with a 1% increase having an immaterial impact - The effective interest rate on the company's variable-rate term loans and line of credit facility was **6.9%** at February 29, 2024[120](index=120&type=chunk) - A **1%** increase in the effective interest rate on the unpaid term loan balance at February 29, 2024, would result in an immaterial amount of additional interest expense over the next 12 months[120](index=120&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=27&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section details the company's disclosure controls and internal controls over financial reporting, confirming effectiveness [Evaluation of Disclosure Controls and Procedures](index=27&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the reporting period - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of February 29, 2024[123](index=123&type=chunk) [Changes in Internal Control Over Financial Reporting](index=28&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) No material changes in internal controls over financial reporting occurred during the most recently completed fiscal quarter - No changes in internal controls over financial reporting occurred during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[124](index=124&type=chunk) PART II. OTHER INFORMATION This section provides other information, including risk factors, equity sales, and exhibits, supplementing the financial statements [Item 1A. RISK FACTORS](index=28&type=section&id=Item%201A.%20RISK%20FACTORS) This section refers to significant risk factors from the Annual Report on Form 10-K, noting no material changes for the period - There have been no significant changes to the company's risk factors during the first two quarters of fiscal 2024, as detailed in Item 1A of the Form 10-K for the fiscal year ended August 31, 2023[125](index=125&type=chunk) [Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=28&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section summarizes the company's common stock purchases during the fiscal quarter under its board-approved repurchase plan Common Stock Purchases (Fiscal Quarter Ended February 29, 2024) | Period | Total Shares Purchased | Average Price Per Share ($) | Shares Purchased Under Plans | Max Value Remaining Under Plans (in thousands $) | | :-------------------------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :----------------------------------------------------------------------------------------------------------------------------------- | | December 1, 2023 to December 31, 2023 | - | $ - | - | $9,765 | | January 1, 2024 to January 31, 2024 | 52,013 | $40.47 | 52,013 | $7,660 | | February 1, 2024 to February 29, 2024 | - | $ - | - | $7,660 | | Total Common Shares | 52,013 | $40.47 | 52,013 | $7,660 | - As of February 29, 2024, **$7.7 million** remained available under the board-approved common stock purchase plan, which has no expiration date[126](index=126&type=chunk) [Item 5. OTHER INFORMATION](index=28&type=section&id=Item%205.%20OTHER%20INFORMATION) This section states that no directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements - No directors or executive officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended February 29, 2024[127](index=127&type=chunk) [Item 6. EXHIBITS](index=29&type=section&id=Item%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL-related documents - Exhibits filed include Rule 13a-14(a) Certifications of the CEO and CFO, Section 1350 Certifications, and various Inline XBRL documents[133](index=133&type=chunk) [SIGNATURES](index=29&type=section&id=SIGNATURES) This section contains the required signatures of the company's authorized officers, certifying the filing of the report - The report is signed by Paul S. Walker, President and Chief Executive Officer, and Stephen D. Young, Chief Financial Officer, on April 5, 2024[134](index=134&type=chunk)

Franklin Covey (FC) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.Over the past month, shares of this corporate training and consultanting company have returned -3.4%, compared to the Zacks S&P 500 composite's +1.6% change. During this period, the Zacks Consulting Services industry, which Franklin Covey falls in, has lost 10.1%. The key question now is: What could be the stock ...

When deciding whether to buy, sell, or hold a stock, investors often rely on analyst recommendations. Media reports about rating changes by these brokerage-firm-employed (or sell-side) analysts often influence a stock's price, but are they really important?Let's take a look at what these Wall Street heavyweights have to say about Franklin Covey (FC) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.Franklin Covey currently has an average brokerage recommend ...

[Executive Summary](index=1&type=section&id=Executive%20Summary) Franklin Covey reported a slight revenue decrease in Q2 FY24, but achieved record rolling four-quarter subscription sales, strong cash flow, and robust liquidity, while revising FY24 Adjusted EBITDA guidance to the lower end of the range [Q2 Fiscal 2024 Performance Highlights](index=1&type=section&id=Q2%20Fiscal%202024%20Performance%20Highlights) Franklin Covey reported second-quarter fiscal 2024 consolidated revenue of $61.3 million, a slight decrease from the prior year, with subscription and subscription services sales reaching a record $227.3 million for the rolling four quarters, demonstrating strong cash flow and robust liquidity | Metric | Q2 FY24 | Q2 FY23 | Change | Rolling 4 Qtrs FY24 | Rolling 4 Qtrs FY23 | Change | | :-------------------------------- | :------ | :------ | :------ | :------------------ | :------------------ | :------ | | Consolidated Revenue | $61.3M | $61.8M | -0.8% | $279.1M | $276.1M | +1.1% | | Subscription & Services Sales | $50.3M | - | - | $227.3M | - | - | | Cash Flows From Operating Activities (YTD) | $30.2M | $11.2M | +169.6% | - | - | - | | Free Cash Flow (YTD) | $24.7M | $3.3M | +648.5% | - | - | - | | Adjusted EBITDA (Q2) | $7.4M | $8.2M | -9.7% | $46.8M | $43.9M | +6.6% | - Liquidity remains strong at over **$103 million**, comprising **$40.9 million** in cash and an undrawn **$62.5 million** credit facility[2](index=2&type=chunk)[11](index=11&type=chunk) [CEO Commentary and Strategic Outlook](index=3&type=section&id=CEO%20Commentary%20and%20Strategic%20Outlook) The CEO noted that Q2 results met expectations despite slower-than-expected subscription services sales and a difficult selling environment due to economic concerns, revising FY24 Adjusted EBITDA guidance to the lower end but anticipating record sales, Adjusted EBITDA, and free cash flow in the second half - Revised fiscal 2024 Adjusted EBITDA expectation to approximately **$54.5 million** (constant currency), at the low end of the previously announced guidance range[3](index=3&type=chunk)[6](index=6&type=chunk) - Anticipates third and fourth quarters to achieve all-time highs in sales, Adjusted EBITDA, and free cash flow in fiscal 2024[6](index=6&type=chunk) - Business resilience highlighted by strong client retention, over **90% revenue retention** in the US and Canada, and growth in deferred subscription revenue[6](index=6&type=chunk) - Multi-year contracts continue to grow, with **62% of All Access Pass (AAP) contracted revenue** now for 2 years or more[6](index=6&type=chunk) [Second Quarter Fiscal 2024 Financial Review](index=1&type=section&id=Second%20Quarter%20Fiscal%202024%20Financial%20Review) This section provides a detailed analysis of Franklin Covey's financial performance for the second quarter of fiscal 2024, covering consolidated and segmental revenues, profitability, cash flow, and deferred revenue trends [Consolidated Revenue and Sales Performance](index=1&type=section&id=Consolidated%20Revenue%20and%20Sales%20Performance) Consolidated sales for the second quarter slightly decreased year-over-year, primarily due to a decline in Direct Office sales and international licensee revenues, partially offset by growth in subscription and subscription services | Metric | Q2 FY24 | Q2 FY23 | Change | | :-------------------------------- | :------ | :------ | :------ | | Consolidated Sales | $61.3M | $61.8M | -0.8% | | Direct Office Sales | $43.0M | $43.6M | -1.4% | | Total Subscription & Subscription Services Sales | $50.3M | - | +5% | - Foreign exchange rates had an unfavorable impact of **$0.3 million** on sales during the second quarter[9](index=9&type=chunk) [Segmental Revenue Performance](index=1&type=section&id=Segmental%20Revenue%20Performance) The Enterprise Division experienced a slight revenue decline, with increased AAP subscription sales offset by decreases in legacy training and international licensee revenues, while the Education Division achieved revenue growth driven by increased membership subscriptions and training days [Enterprise Division](index=1&type=section&id=Enterprise%20Division) Enterprise Division revenues decreased slightly, as strong growth in AAP subscription sales was counteracted by reduced legacy training, subscription services, and international licensee revenues, though revenue retention for AAP subscriptions in the US and Canada remained robust | Metric | Q2 FY24 | Q2 FY23 | Change | | :-------------------------------- | :------ | :------ | :------ | | Enterprise Division Revenues | $45.7M | $46.6M | -1.9% | | AAP Subscription Sales Growth | - | - | +9% | | AAP Subscription & Services Sales Growth | - | - | +6% | | Rolling 4 Qtrs AAP Subscription & Services Sales | $162.1M | $154.4M | +5% | | International Licensee Revenues | - | - | -6% | - AAP subscription revenue retention levels in the United States and Canada remained strong, greater than **90%**[4](index=4&type=chunk) [Education Division](index=1&type=section&id=Education%20Division) The Education Division saw a 3% increase in revenues, primarily fueled by higher membership subscription revenues and increased sales of classroom and training materials, delivering significantly more training and coaching days compared to the prior year | Metric | Q2 FY24 | Q2 FY23 | Change | | :-------------------------------- | :------ | :------ | :------ | | Education Division Revenues | $14.6M | $14.2M | +3% | | Education Membership Subscription & Services Revenue Growth | - | - | +4% | - The Education Division delivered nearly **100 more training and coaching days** than the prior year[5](index=5&type=chunk)[10](index=10&type=chunk) [Profitability and Operating Expenses](index=3&type=section&id=Profitability%20and%20Operating%20Expenses) Second-quarter net income and Adjusted EBITDA decreased year-over-year, primarily due to increased operating expenses from restructuring costs and an impaired asset charge, partially offset by lower stock-based compensation, while gross margin remained strong and consistent | Metric | Q2 FY24 | Q2 FY23 | Change | | :-------------------------------- | :------ | :------ | :------ | | Gross Profit | $46.9M | $47.2M | -0.6% | | Gross Margin | 76.4% | 76.4% | 0.0% | | Operating Income | $1.4M | $2.8M | -50.0% | | Net Income | $0.9M | $1.7M | -47.1% | | Diluted EPS | $0.06 | $0.12 | -50.0% | | Adjusted EBITDA | $7.4M | $8.2M | -9.7% | - Operating expenses increased by **$1.0 million**, primarily due to **$1.7 million** in restructuring expenses and a **$0.9 million** impaired asset charge[11](index=11&type=chunk) - The increase in operating expenses was partially offset by a **$1.6 million decrease** in stock-based compensation expense[11](index=11&type=chunk) [Cash Flow, Liquidity, and Capital Allocation](index=3&type=section&id=Cash%20Flow%2C%20Liquidity%2C%20and%20Capital%20Allocation) The company significantly improved its cash flows from operating activities and free cash flow in the first half of fiscal 2024, driven by favorable working capital changes, maintaining strong liquidity even after substantial common stock repurchases | Metric | H1 FY24 | H1 FY23 | Change | | :-------------------------------- | :------ | :------ | :------ | | Cash Flows From Operating Activities | $30.2M | $11.2M | +169.6% | | Free Cash Flow | $24.7M | $3.3M | +648.5% | - The increase in cash flows was primarily due to favorable changes in working capital and strong collections of accounts receivable[8](index=8&type=chunk) - The company purchased **460,609 shares** of common stock for **$18.4 million** during the first two quarters of fiscal 2024[11](index=11&type=chunk) - Available liquidity stood at over **$103 million**, including **$40.9 million** in cash and an undrawn **$62.5 million** line of credit[11](index=11&type=chunk) [Deferred Revenue and Contract Trends](index=3&type=section&id=Deferred%20Revenue%20and%20Contract%20Trends) Franklin Covey continued to see strong growth in its deferred subscription revenue, both billed and unbilled, indicating a solid foundation for future sales, with the proportion of multi-year contracts for its All Access Pass also increasing significantly | Metric | Feb 29, 2024 | Feb 28, 2023 | Change | | :-------------------------------- | :----------- | :----------- | :------ | | Consolidated Deferred Subscription Revenue | $86.1M | $76.1M | +13.1% | | Billed and Unbilled Deferred Subscription Revenue | $158.8M | $145.8M | +8.9% | - The percentage of AAP contracts for at least two years increased to **56%** from **50%** in the prior year[8](index=8&type=chunk) - The percentage of contracted amounts represented by multi-year contracts increased to **62%** from **57%** at the end of the second quarter of fiscal 2023[8](index=8&type=chunk) [Year-to-Date Fiscal 2024 Financial Review](index=5&type=section&id=Year-to-Date%20Fiscal%202024%20Financial%20Review) This section reviews Franklin Covey's year-to-date financial performance for the first two quarters of fiscal 2024, including consolidated and segmental revenue, and profitability metrics [Consolidated Revenue and Sales Performance](index=5&type=section&id=Consolidated%20Revenue%20and%20Sales%20Performance_YTD) For the first two quarters of fiscal 2024, consolidated revenue slightly decreased compared to the prior year, primarily due to a decline in Enterprise Division sales, partially offset by growth in the Education Division | Metric | H1 FY24 | H1 FY23 | Change | | :-------------------------------- | :------ | :------ | :------ | | Consolidated Revenue | $129.7M | $131.1M | -1.1% | [Segmental Revenue Performance](index=6&type=section&id=Segmental%20Revenue%20Performance_YTD) Year-to-date, the Enterprise Division experienced a slight revenue decrease, despite growth in AAP subscription and services sales, mainly due to weaker foreign direct office sales, while the Education Division continued its positive trend with a 3% increase in sales | Metric | H1 FY24 | H1 FY23 | Change | | :-------------------------------- | :------ | :------ | :------ | | Enterprise Division Sales | $98.3M | $100.0M | -1.7% | | AAP Subscription & Services Sales | $79.1M | $75.0M | +5.5% | | Foreign Direct Office Sales | - | - | -$0.6M | | International Licensee Revenues | $6.1M | $6.2M | -1.6% | | Education Division Sales | $29.3M | $28.5M | +2.8% | - Education Division sales growth was primarily due to increased consulting, coaching, and training days delivered, increased international education royalties, and increased recognition of previously deferred revenue related to Leader in Me subscriptions[13](index=13&type=chunk) [Profitability and Operating Expenses](index=7&type=section&id=Profitability%20and%20Operating%20Expenses_YTD) Year-to-date gross profit remained strong, but operating income, net income, and Adjusted EBITDA decreased compared to the prior year, primarily due to higher restructuring expenses and an impaired asset charge, partially offset by reduced stock-based compensation | Metric | H1 FY24 | H1 FY23 | Change | | :-------------------------------- | :------ | :------ | :------ | | Consolidated Gross Profit | $99.1M | $100.0M | -0.9% | | Gross Margin | 76.4% | 76.2% | +0.2% | | Income from Operations | $6.8M | $9.2M | -26.1% | | Adjusted EBITDA | $18.4M | $19.7M | -6.6% | | Net Income | $5.7M | $6.4M | -10.9% | | Diluted EPS | $0.42 | $0.44 | -4.5% | - Operating expenses increased by **$1.6 million**, primarily due to **$2.3 million** of restructuring expenses and a **$0.9 million** impaired asset charge, partially offset by a **$1.6 million reduction** in stock-based compensation expense[14](index=14&type=chunk) [Fiscal 2024 Guidance and Outlook](index=7&type=section&id=Fiscal%202024%20Guidance%20and%20Outlook) Despite first-half challenges, Franklin Covey anticipates a strong second half of fiscal 2024, expecting to achieve Adjusted EBITDA at the lower end of its guidance range, representing 13% growth over fiscal 2023, and remains confident in its subscription offerings to drive record revenue, Adjusted EBITDA, and Free Cash Flow - Expected Adjusted EBITDA for fiscal 2024 is at the lower end of the **$54.5 million to $58.0 million** guidance range (constant currency), representing **13% growth** over fiscal 2023's **$48.1 million**[15](index=15&type=chunk) - The company expects to achieve the highest levels of revenue, Adjusted EBITDA, and Free Cash Flow since the sale of its consumer products division in fiscal 2024[15](index=15&type=chunk) - Confidence is driven by the strength of its business model, high recurring revenue, high gross margins, low capital intensity, and the strategic durability of All Access Pass and Leader in Me membership subscriptions[15](index=15&type=chunk) [Supplemental Information](index=7&type=section&id=Supplemental%20Information) This section provides essential background on Franklin Covey Co., clarifies non-GAAP financial measures, outlines forward-looking statement disclaimers, and lists investor relations contacts [About Franklin Covey Co.](index=9&type=section&id=About%20Franklin%20Covey%20Co.) Franklin Covey Co. is a global leadership company operating in over 160 countries, focused on transforming organizations by building leaders, teams, and cultures through its All Access Pass content and solutions, with an approach emphasizing lasting behavioral change refined over 30 years with diverse clients - Franklin Covey (NYSE: FC) is a global leadership company providing professional services in over **160 countries and territories**[22](index=22&type=chunk) - The company's core offering is the All Access Pass, which integrates content, solutions, experts, technology, and metrics to drive behavioral change[22](index=22&type=chunk) - Clients include Fortune 100, Fortune 500 companies, small- and mid-sized businesses, governmental entities, and educational institutions[23](index=23&type=chunk) [Non-GAAP Financial Measures](index=9&type=section&id=Non-GAAP%20Financial%20Measures) The report includes non-GAAP financial measures, Adjusted EBITDA and Free Cash Flow, used by management for internal comparisons and to provide investors with greater transparency into operational activities and financial results, with a reconciliation to GAAP measures provided for historical data but not for forward-looking Adjusted EBITDA estimates due to inherent uncertainties - Adjusted EBITDA is defined as net income excluding interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other infrequent items like restructuring costs and impaired assets[20](index=20&type=chunk) - Free Cash Flow is defined as cash flows from operating activities less capitalized expenditures for purchases of property and equipment and curriculum development[20](index=20&type=chunk) - A forward-looking reconciliation of Adjusted EBITDA to GAAP measures is not provided due to the difficulty in obtaining certain information dependent on future uncertain events[21](index=21&type=chunk) [Forward-Looking Statements](index=7&type=section&id=Forward%20Looking%20Statements) This press release contains forward-looking statements regarding future results and growth, which are based on management's current expectations but are subject to various risks and uncertainties, including macroeconomic conditions, subscription renewals, market acceptance of new products, inflation, and geopolitical conflicts, which could cause actual results to differ materially - Forward-looking statements are subject to various risks and uncertainties, including general macroeconomic conditions, renewals of subscription contracts, client demand for add-on services, and impacts from geopolitical conflicts[17](index=17&type=chunk) - Other factors include market acceptance of new products, inflation, and the ability to achieve sustainable growth, as detailed in the Company's Form 10-K[17](index=17&type=chunk) - The company undertakes no obligation to update or revise these statements to reflect events or circumstances subsequent to the press release[19](index=19&type=chunk) [Investor Relations Contact](index=9&type=section&id=Investor%20Relations%20Contact) Contact information for investor and media inquiries is provided for Franklin Covey Co - Investor Contact: Boyd Roberts, 801-817-5127, investor.relations@franklincovey.com[24](index=24&type=chunk) - Media Contact: Debra Lund, 801-817-6440, Debra.Lund@franklincovey.com[24](index=24&type=chunk) [Condensed Consolidated Financial Statements](index=10&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents Franklin Covey's detailed financial statements, including income statements, balance sheets, and reconciliations of non-GAAP measures for the reported periods [Income Statements](index=10&type=section&id=Income%20Statements) The condensed consolidated income statements provide a detailed breakdown of revenues, costs, and profitability for the second quarter and first two quarters of fiscal 2024 and 2023 | | Quarter Ended Feb 29, 2024 ($ thousands) | Quarter Ended Feb 28, 2023 ($ thousands) | Two Quarters Ended Feb 29, 2024 ($ thousands) | Two Quarters Ended Feb 28, 2023 ($ thousands) | | :-------------------------------- | :------------------------- | :------------------------- | :------------------------------ | :------------------------------ | | Net sales | $61,336 | $61,756 | $129,736 | $131,125 | | Cost of sales | 14,485 | 14,546 | 30,607 | 31,173 | | Gross profit | 46,851 | 47,210 | 99,129 | 99,952 | | Selling, general, and administrative | 40,771 | 42,338 | 84,976 | 86,350 | | Restructuring costs | 1,726 | - | 2,307 | - | | Impaired asset | 928 | - | 928 | - | | Depreciation | 913 | 951 | 2,005 | 2,196 | | Amortization | 1,071 | 1,093 | 2,142 | 2,185 | | Income from operations | 1,442 | 2,828 | 6,771 | 9,221 | | Interest expense, net | (27) | (47) | (80) | (377) | | Income before income taxes | 1,415 | 2,781 | 6,691 | 8,844 | | Income tax provision | (541) | (1,042) | (966) | (2,438) | | Net income | $874 | $1,739 | $5,725 | $6,406 | | Diluted EPS ($) | $0.06 | $0.12 | $0.42 | $0.44 | | Adjusted EBITDA ($ thousands) | $7,448 | $8,187 | $18,418 | $19,659 | [Reconciliation of Net Income to Adjusted EBITDA](index=11&type=section&id=Reconciliation%20of%20Net%20Income%20to%20Adjusted%20EBITDA) This section provides a reconciliation of net income (GAAP) to Adjusted EBITDA (non-GAAP), detailing the adjustments made for interest, income taxes, amortization, depreciation, stock-based compensation, restructuring costs, and impaired assets | | Quarter Ended Feb 29, 2024 ($ thousands) | Quarter Ended Feb 28, 2023 ($ thousands) | Two Quarters Ended Feb 29, 2024 ($ thousands) | Two Quarters Ended Feb 28, 2023 ($ thousands) | | :-------------------------------- | :------------------------- | :------------------------- | :------------------------------ | :------------------------------ | | Net income | $874 | $1,739 | $5,725 | $6,406 | | Adjustments: | | | | | | Interest expense, net | 27 | 47 | 80 | 377 | | Income tax provision | 541 | 1,042 | 966 | 2,438 | | Amortization | 1,071 | 1,093 | 2,142 | 2,185 | | Depreciation | 913 | 951 | 2,005 | 2,196 | | Stock-based compensation | 1,368 | 3,315 | 4,265 | 6,050 | | Restructuring costs | 1,726 | - | 2,307 | - | | Impaired asset | 928 | - | 928 | - | | Increase in the fair value of contingent consideration liabilities | - | - | - | 7 | | Adjusted EBITDA ($ thousands) | $7,448 | $8,187 | $18,418 | $19,659 | | Adjusted EBITDA margin (%) | 12.1% | 13.3% | 14.2% | 15.0% | [Sales, Gross Profit, and Adjusted EBITDA by Division/Segment](index=12&type=section&id=Sales%2C%20Gross%20Profit%2C%20and%20Adjusted%20EBITDA%20by%20Division%2FSegment) This table provides a breakdown of sales, gross profit, and Adjusted EBITDA across the Enterprise Division (Direct Offices and International Licensees), Education Division, and Corporate and other segments for the second quarter and first two quarters of fiscal 2024 and 2023 | Sales by Division/Segment ($ thousands): | Quarter Ended Feb 29, 2024 | Quarter Ended Feb 28, 2023 | Two Quarters Ended Feb 29, 2024 | Two Quarters Ended Feb 28, 2023 | | :-------------------------------- | :------------------------- | :------------------------- | :------------------------------ | :------------------------------ | | Enterprise Division: | | | | | | Direct offices | $42,960 | $43,646 | $92,175 | $93,812 | | International licensees | 2,748 | 2,935 | 6,126 | 6,213 | | Total Enterprise Division | 45,708 | 46,581 | 98,301 | 100,025 | | Education Division | 14,579 | 14,198 | 29,323 | 28,549 | | Corporate and other | 1,049 | 977 | 2,112 | 2,551 | | Consolidated Sales | $61,336 | $61,756 | $129,736 | $131,125 | | Gross Profit by Division/Segment ($ thousands): | | | | | | Enterprise Division: | | | | | | Direct offices | $35,514 | $35,854 | $75,015 | $75,775 | | International licensees | 2,374 | 2,659 | 5,426 | 5,635 | | Total Enterprise Division | 37,888 | 38,513 | 80,441 | 81,410 | | Education Division | 8,597 | 8,392 | 17,977 | 17,568 | | Corporate and other | 366 | 305 | 711 | 974 | | Consolidated Gross Profit | $46,851 | $47,210 | $99,129 | $99,952 | | Adjusted EBITDA by Division/Segment ($ thousands): | | | | | | Enterprise Division: | | | | | | Direct offices | $9,122 | $9,641 | $20,809 | $20,890 | | International licensees | 1,342 | 1,541 | 3,238 | 3,372 | | Total Enterprise Division | 10,464 | 11,182 | 24,047 | 24,262 | | Education Division | (529) | (622) | (487) | (341) | | Corporate and other | (2,487) | (2,373) | (5,142) | (4,262) | | Consolidated Adjusted EBITDA | $7,448 | $8,187 | $18,418 | $19,659 | [Balance Sheets](index=13&type=section&id=Balance%20Sheets) The condensed consolidated balance sheets present the company's financial position as of February 29, 2024, and August 31, 2023, detailing assets, liabilities, and shareholders' equity | Assets ($ thousands) | Feb 29, 2024 | Aug 31, 2023 | | :-------------------------------- | :----------- | :----------- | | Current assets: | | | | Cash and cash equivalents | $40,904 | $38,230 | | Accounts receivable, net | 57,153 | 81,935 | | Inventories | 4,196 | 4,213 | | Prepaid expenses and other current assets | 20,182 | 20,639 | | Total current assets | 122,435 | 145,017 | | Property and equipment, net | 8,708 | 10,039 | | Intangible assets, net | 38,371 | 40,511 | | Goodwill | 31,220 | 31,220 | | Deferred income tax assets | 1,655 | 1,661 | | Other long-term assets | 19,544 | 17,471 | | Total Assets | $221,933 | $245,919 | | Liabilities and Shareholders' Equity ($ thousands) | | | | Current liabilities: | | | | Current portion of notes payable | $3,335 | $5,835 | | Current portion of financing obligation | 3,718 | 3,538 | | Accounts payable | 7,734 | 6,501 | | Deferred subscription revenue | 82,365 | 95,386 | | Other deferred revenue | 22,012 | 12,137 | | Accrued liabilities | 19,301 | 28,252 | | Total current liabilities | 138,465 | 151,649 | | Notes payable, less current portion | 1,577 | 1,535 | | Financing obligation, less current portion | 2,515 | 4,424 | | Other liabilities | 7,492 | 7,617 | | Deferred income tax liabilities | 1,057 | 2,040 | | Total liabilities | 151,106 | 167,265 | | Shareholders' equity: | | | | Common stock | 1,353 | 1,353 | | Additional paid-in capital | 225,776 | 232,373 | | Retained earnings | 105,527 | 99,802 | | Accumulated other comprehensive loss | (1,075) | (987) | | Treasury stock at cost | (260,754) | (253,887) | | Total shareholders' equity | 70,827 | 78,654 | | Total Liabilities and Shareholders' Equity | $221,933 | $245,919 | [Free Cash Flow](index=15&type=section&id=Free%20Cash%20Flow) This section details the calculation of Free Cash Flow for the first two quarters of fiscal 2024 and 2023, starting from net income and adjusting for non-cash items and changes in working capital, then subtracting capital expenditures | CASH FLOWS FROM OPERATING ACTIVITIES ($ thousands) | Two Quarters Ended Feb 29, 2024 | Two Quarters Ended Feb 28, 2023 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net income | $5,725 | $6,406 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | Depreciation and amortization | 4,146 | 4,381 | | Amortization of capitalized curriculum costs | 1,501 | 1,648 | | Impairment of assets | 928 | - | | Stock-based compensation | 4,265 | 6,050 | | Deferred income taxes | (978) | 1,130 | | Change in fair value of contingent consideration liabilities | - | 7 | | Amortization of right-of-use operating lease assets | 403 | 411 | | Changes in working capital | 14,222 | (8,825) | | Net cash provided by operating activities | 30,212 | 11,208 | | CASH FLOWS FROM INVESTING ACTIVITIES ($ thousands) | | | | Purchases of property and equipment | (1,716) | (2,644) | | Curriculum development costs | (3,770) | (5,277) | | Net cash used for investing activities | (5,486) | (7,921) | | Free Cash Flow ($ thousands) | $24,726 | $3,287 |

Franklin Covey (FC) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.Over the past month, shares of this corporate training and consultanting company have returned +5.5%, compared to the Zacks S&P 500 composite's +3.6% change. During this period, the Zacks Consulting Services industry, which Franklin Covey falls in, has gained 3%. The key question now is: What could be the stock' ...