Franklin Covey(FC) - 2025 Q3 - Quarterly Report

FORM 10-Q General Information Registrant Information This section provides fundamental details about Franklin Covey Co., including its legal name, jurisdiction of incorporation, principal executive offices, and contact information, identifying it as an Accelerated Filer with 12,641,822 shares of common stock outstanding as of June 30, 2025 - Franklin Covey Co. is an Accelerated Filer, indicating it meets certain market capitalization and public float requirements for expedited SEC reporting[5] - As of June 30, 2025, the company had 12,641,822 shares of common stock, $0.05 par value per share, outstanding[6] Title of Each Class | 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 | Financial Statements Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets from $261.5 million at August 31, 2024, to $218.3 million at May 31, 2025, primarily driven by a reduction in current assets, notably cash and accounts receivable, with total liabilities and shareholders' equity also declining - Current assets decreased by $49.25 million, primarily due to a $14.96 million decrease in cash and cash equivalents and a $36.16 million decrease in accounts receivable[8] - Total shareholders' equity decreased by $17.56 million, largely influenced by a $14.72 million increase in treasury stock at cost[8] Condensed Consolidated Balance Sheets (in thousands) | ASSETS | May 31, 2025 | August 31, 2024 | | :------------------------------------------------ | :----------- | :-------------- | | Cash and cash equivalents | $33,707 | $48,663 | | Accounts receivable, net | 49,843 | 86,002 | | Total current assets | 111,003 | 160,253 | | Total assets | $218,284 | $261,539 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Deferred subscription revenue (current) | 83,488 | 101,218 | | Total current liabilities | 132,307 | 162,453 | | Total liabilities | 152,705 | 178,404 | | Total shareholders' equity | 65,579 | 83,135 | | Total liabilities and shareholders' equity | $218,284 | $261,539 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the quarter ended May 31, 2025, the company reported a net loss of $(1.4) million, a significant decline from a net income of $5.7 million in the prior year, primarily due to decreased revenue and increased restructuring costs, with similar year-to-date trends - Revenue decreased by 8.5% for the quarter and 3.6% for the three quarters ended May 31, 2025, compared to the prior year periods[12] - Restructuring costs significantly increased to $4.7 million for the quarter and $6.7 million for the three quarters ended May 31, 2025, up from $0.7 million and $3.0 million respectively in the prior year[12] Condensed Consolidated Statements of Operations (in thousands, except per-share amounts) | Metric | Quarter Ended May 31, 2025 | Quarter Ended May 31, 2024 | Three Quarters Ended May 31, 2025 | Three Quarters Ended May 31, 2024 | | :-------------------------------- | :------------------------- | :------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $67,121 | $73,373 | $195,819 | $203,109 | | Gross profit | $51,322 | $56,206 | $149,779 | $155,336 | | Income (loss) from operations | $(2,203) | $8,343 | $(2,183) | $15,114 | | Net income (loss) | $(1,409) | $5,721 | $(1,304) | $11,446 | | Basic EPS | $(0.11) | $0.43 | $(0.10) | $0.87 | | Diluted EPS | $(0.11) | $0.43 | $(0.10) | $0.85 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased significantly to $19.0 million for the three quarters ended May 31, 2025, from $38.4 million in the prior year, primarily due to lower operating income and a decrease in taxes payable, while cash used for investing and financing activities saw smaller changes - The decrease in cash from operating activities was primarily due to lower operating income and an $8.3 million decrease in taxes payable[109] - Purchases of common stock for treasury amounted to $22.99 million in the first three quarters of fiscal 2025, compared to $25.84 million in the prior year[14] Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Category | Three Quarters Ended May 31, 2025 | Three Quarters Ended May 31, 2024 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $19,039 | $38,385 | | Net cash used for investing activities | $(8,469) | $(7,813) | | Net cash used for financing activities | $(25,613) | $(31,970) | | Net decrease in cash and cash equivalents | $(14,956) | $(1,656) | | Cash and cash equivalents at end of period | $33,707 | $36,574 | Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased from $83.1 million at August 31, 2024, to $65.6 million at May 31, 2025, primarily driven by net losses incurred during the period and significant purchases of common shares for treasury, partially offset by stock-based compensation - Net losses for the three quarters ended May 31, 2025, totaled $(1.3) million, contributing to the decrease in retained earnings[12] - Purchases of common shares for treasury amounted to $22.99 million for the first three quarters of fiscal 2025, increasing the treasury stock balance[114] Changes in Shareholders' Equity (in thousands) | Item | Balance at Aug 31, 2024 | Balance at May 31, 2025 | | :-------------------------------- | :---------------------- | :---------------------- | | Common Stock Amount | $1,353 | $1,353 | | Additional Paid-In Capital | $231,813 | $230,375 | | Retained Earnings | $123,204 | $121,900 | | Accumulated Other Comprehensive Loss | $(768) | $(863) | | Treasury Stock Amount | $(272,467) | $(287,186) | | Total Shareholders' Equity | $83,135 | $65,579 | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Franklin Covey Co. is a global company focused on organizational performance improvement, offering content and solutions through various delivery options like All Access Pass (AAP) subscriptions, The Leader in Me membership, digital online learning, and onsite training[23] - The company's internal reporting is organized around two divisions: Enterprise (North America, International Direct Office, International Licensee segments) and Education (Education practice)[23] - New accounting pronouncements, ASU 2024-03 (Disaggregation of Income Statement Expenses) and ASU 2023-09 (Improvements to Income Tax Disclosures), are expected to significantly impact future financial statement disclosures, while ASU 2023-07 (Segment Reporting) is not expected to have a material impact[29][30][31][32] NOTE 1 – BASIS OF PRESENTATION This note outlines the company's business, mission, and content delivery options, emphasizing its focus on organizational performance improvement through behavioral change, detailing the basis of financial statement preparation, and discussing recently issued accounting pronouncements Company Overview and Offerings - The company's mission is to 'enable greatness in people and organizations everywhere,' focusing on sustained superior performance through changes in human behavior[23] - Key offerings include the All Access Pass (AAP) subscription, The Leader in Me membership, and content based on best-selling books like 'The 7 Habits of Highly Effective People'[23][24] Accounting Policies and Estimates - Financial statements are prepared in accordance with GAAP, requiring management to make estimates and assumptions that affect reported amounts[26] - Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method, and consist solely of finished goods[28] Accounting Pronouncements Issued and Not Adopted - ASU 2024-03 (Disaggregation of Income Statement Expenses) is effective for fiscal years beginning after December 15, 2026, and is anticipated to have a significant impact on consolidated financial statement disclosures[29][30] - ASU 2023-07 (Segment Reporting) is effective for fiscal years beginning after December 15, 2023, and is not expected to materially impact consolidated financial statements as it only affects disclosures[31] - ASU 2023-09 (Improvements to Income Tax Disclosures) is effective for annual periods beginning after December 15, 2024, and the company is currently assessing its anticipated impact[32] NOTE 2 – PURCHASES OF COMMON STOCK The company purchased $22.99 million of common stock during the first three quarters of fiscal 2025, comprising open market purchases and shares withheld for income taxes on stock-based compensation, with a new $50.0 million share repurchase plan approved in April 2024, leaving $27.9 million authorized as of May 31, 2025 - A new plan to purchase up to $50.0 million of outstanding common stock was approved on April 18, 2024, replacing the previous plan and having no expiration date[33] - As of May 31, 2025, $27.9 million remained authorized under the current common share purchase plan[116] Common Stock Purchases (in thousands) – Three Quarters Ended May 31, 2025 | Type of Purchase | Shares | Cost | | :------------------------------------------ | :----- | :----- | | Shares withheld for taxes on stock-based compensation awards | 146 | $5,954 | | Open market purchases | 623 | $17,037 | | Total | 769 | $22,991 | NOTE 3 – REVENUE Deferred subscription revenue decreased from $107.9 million at August 31, 2024, to $89.3 million at May 31, 2025, with $108.8 million of previously deferred revenue recognized during the three quarters ended May 31, 2025, and $151.4 million in remaining performance obligations as of May 31, 2025 - Deferred subscription revenue decreased from $107.9 million at August 31, 2024, to $89.3 million at May 31, 2025[34] - During the three quarters ended May 31, 2025, $108.8 million of previously deferred subscription revenue was recognized[34] - As of May 31, 2025, remaining performance obligations totaled $151.4 million, including deferred subscription revenue, representing future recognized revenue from non-cancellable contracts[37] Contract Balances - Deferred subscription revenue primarily consists of billings or payments received in advance for subscription services, recognized as revenue when criteria are met[35] - The Leader in Me membership revenue is bifurcated into portal membership (recognized over contract term) and coaching delivery (recognized as services are performed)[36] Remaining Performance Obligations - Remaining performance obligations represent contracted revenue not yet recognized, including unearned and unbilled amounts, influenced by contract length and ability to secure multi-year non-cancellable contracts[37] - Customer deposits are excluded from remaining performance obligations as they are generally refundable prior to obligation satisfaction[37] NOTE 4 – STOCK-BASED COMPENSATION Stock-based compensation expense for the three quarters ended May 31, 2025, was $5.7 million, a decrease from $7.1 million in the prior year, primarily due to revisions in estimates for performance-based awards, with the company issuing 426,114 shares under various stock-based compensation arrangements - During the second quarter of fiscal 2025, revisions to estimates for performance-based long-term incentive plan awards reduced stock-based compensation by $1.0 million[40] - The company issued 426,114 shares of common stock under various stock-based compensation arrangements during the three quarters ended May 31, 2025[39] Stock-Based Compensation Expense (in thousands) | Category | Quarter Ended May 31, 2025 | Quarter Ended May 31, 2024 | Three Quarters Ended May 31, 2025 | Three Quarters Ended May 31, 2024 | | :-------------------------- | :------------------------- | :------------------------- | :-------------------------------- | :-------------------------------- | | Long-term incentive awards | $1,741 | $2,355 | $4,270 | $5,707 | | Strive acquisition compensation | $160 | $165 | $525 | $550 | | Unvested stock awards | $240 | $240 | $720 | $640 | | Employee stock purchase plan | $76 | $68 | $215 | $195 | | Total | $2,217 | $2,828 | $5,730 | $7,092 | NOTE 5 – RESTRUCTURING COSTS Restructuring costs for the first three quarters of fiscal 2025 totaled $6.7 million, primarily for severance and related personnel expenses, as the company continued to implement its new Enterprise Division go-to-market strategy and reduce operating expenses, impacting approximately 80 associates across various segments - Fiscal 2025 restructuring costs totaled $6.7 million through May 31, 2025, primarily for severance and related personnel expenses[44] - A $4.7 million expense was incurred in the third quarter of fiscal 2025 for severance to approximately 45 associates, mainly in the North America segment ($3.8 million)[45] - An additional $2.0 million expense was incurred in the first quarter of fiscal 2025 for severance to approximately 35 associates, primarily in the North America segment ($1.6 million)[46] NOTE 6 – EARNINGS (LOSS) PER SHARE For the quarter and three quarters ended May 31, 2025, the company reported a basic and diluted net loss per share of $(0.11) and $(0.10) respectively, compared to net income per share of $0.43 and $0.87 in the prior year periods, with dilutive securities excluded due to the net loss - Due to a net loss for the quarter and three quarters ended May 31, 2025, no potentially dilutive securities were included in the EPS calculation as their inclusion would be anti-dilutive[48] - Approximately 116,000 dilutive stock-based compensation awards would have been included if there was net income[48] Net Income (Loss) Per Share (in thousands, except per-share amounts) | Metric | Quarter Ended May 31, 2025 | Quarter Ended May 31, 2024 | Three Quarters Ended May 31, 2025 | Three Quarters Ended May 31, 2024 | | :-------------------------------- | :------------------------- | :------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $(1,409) | $5,721 | $(1,304) | $11,446 | | Basic weighted average shares outstanding | 12,891 | 13,160 | 13,028 | 13,222 | | Diluted weighted average shares outstanding | 12,891 | 13,378 | 13,028 | 13,499 | | Basic EPS | $(0.11) | $0.43 | $(0.10) | $0.87 | | Diluted EPS | $(0.11) | $0.43 | $(0.10) | $0.85 | NOTE 7 – SEGMENT INFORMATION The company operates through five reportable segments, with performance evaluated using Adjusted EBITDA, reporting consolidated revenue of $67.1 million and Adjusted EBITDA of $7.3 million for the quarter ended May 31, 2025, with the Enterprise Division contributing $47.3 million and the Education Practice $18.6 million - The company's operations are structured into five reportable segments: North America, International Direct Offices, International Licensees, Education Practice, and Corporate and Other[50] - Adjusted EBITDA is the primary measurement tool for business unit performance, defined as net income or loss excluding interest, income taxes, intangible asset amortization, depreciation, stock-based compensation, and certain other charges[51] Consolidated Revenue and Adjusted EBITDA (in thousands) | Metric | Quarter Ended May 31, 2025 | Quarter Ended May 31, 2024 | Three Quarters Ended May 31, 2025 | Three Quarters Ended May 31, 2024 | | :-------------------- | :------------------------- | :------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $67,121 | $73,373 | $195,819 | $203,109 | | Adjusted EBITDA | $7,307 | $13,924 | $17,041 | $32,340 | Segment Descriptions - North America segment focuses on leadership, productivity, execution, trust, and sales performance solutions in the U.S. and Canada[50] - International Direct Offices serve countries like Australia, Japan, and the UK, providing similar offerings as North America[50] - Education Practice, centered on 'The Leader in Me', targets educational institutions globally to improve student performance and school culture[53] Segment Financial Performance - Consolidated Adjusted EBITDA decreased from $13.9 million in Q3 2024 to $7.3 million in Q3 2025, and from $32.3 million to $17.0 million year-to-date, primarily due to lower operating income and increased restructuring costs[55][57] Segment Revenue and Adjusted EBITDA (Quarter Ended May 31, 2025, in thousands) | Segment | Revenue From External Customers | Adjusted EBITDA | | :------------------------ | :------------------------------ | :-------------- | | North America | $37,054 | $6,201 | | International direct offices | $7,496 | $313 | | International licensees | $2,716 | $1,349 | | Education practice | $18,640 | $2,053 | | Corporate and eliminations | $1,215 | $(2,609) | | Consolidated | $67,121 | $7,307 | Segment Revenue and Adjusted EBITDA (Three Quarters Ended May 31, 2025, in thousands) | Segment | Revenue From External Customers | Adjusted EBITDA | | :------------------------ | :------------------------------ | :-------------- | | North America | $111,711 | $19,788 | | International direct offices | $21,936 | $(884) | | International licensees | $8,749 | $4,449 | | Education practice | $50,169 | $2,006 | | Corporate and eliminations | $3,254 | $(8,318) | | Consolidated | $195,819 | $17,041 | Disaggregated Revenue - Subscription revenue remains a significant component, totaling $36.78 million for the quarter and $108.81 million for the three quarters ended May 31, 2025[61] Revenue by Geographic Region (in thousands) | Region | Quarter Ended May 31, 2025 | Quarter Ended May 31, 2024 | Three Quarters Ended May 31, 2025 | Three Quarters Ended May 31, 2024 | | :---------------------- | :------------------------- | :------------------------- | :-------------------------------- | :-------------------------------- | | Americas | $57,011 | $62,084 | $165,469 | $169,840 | | Asia Pacific | $5,609 | $6,460 | $17,209 | $19,438 | | Europe/Middle East/Africa | $4,501 | $4,829 | $13,141 | $13,831 | | Total | $67,121 | $73,373 | $195,819 | $203,109 | Revenue by Type of Service (Quarter Ended May 31, 2025, in thousands) | Segment | Services and Products | Subscriptions | Royalties | Leases and Other | Consolidated | | :------------------------ | :-------------------- | :------------ | :-------- | :--------------- | :----------- | | Enterprise Division | $19,485 | $25,009 | $2,772 | - | $47,266 | | Education practice | $6,214 | $11,774 | $652 | - | $18,640 | | Corporate and eliminations | - | - | $298 | $917 | $1,215 | | Consolidated | $25,699 | $36,783 | $3,722 | $917 | $67,121 | NOTE 8 – CORPORATE HEADQUARTERS LEASE The company signed a new 130-month lease for its corporate headquarters in Draper, Utah, with an initial annual base rent of approximately $0.8 million, resulting in the recognition of $6.4 million in right-of-use assets and $6.3 million in lease liabilities, while the master lease on the previous headquarters expires in June 2025 - A new 130-month lease for corporate headquarters in Draper, Utah, was signed on December 20, 2024, with an initial annual base rent of approximately $0.8 million[62] - The new lease resulted in the addition of $6.4 million in right-of-use assets and $6.3 million in lease liabilities on the balance sheet at May 31, 2025[62] - The master lease on the current headquarters expires in June 2025, and the $1.3 million long-term financing obligation will be written off[63] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Non-GAAP Measures This section defines Adjusted EBITDA as a non-GAAP financial measure used by management for internal comparisons and to provide investors with greater transparency into operational activities and financial results, excluding interest, income taxes, intangible asset amortization, depreciation, stock-based compensation, and certain other items - Adjusted EBITDA is a non-GAAP financial measure defined as net income or loss excluding interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items such as restructuring and headquarters moving costs[65] - This measure is used for consistent internal comparisons and to provide investors with greater transparency into operational activities and financial results[65] Results of Operations - Overview Franklin Covey Co. experienced a decline in consolidated revenue for the third quarter of fiscal 2025 to $67.1 million, down from $73.4 million in the prior year, primarily due to macroeconomic factors, government spending reductions, and geopolitical tensions, despite strong client renewals for All Access Pass subscriptions and Leader in Me memberships - Consolidated revenue for the third quarter ended May 31, 2025, was $67.1 million, a decrease from $73.4 million in the prior year, impacted by macroeconomic factors, U.S. federal government spending reductions, and geopolitical tensions[69] - Client renewals for All Access Pass (AAP) subscriptions and Leader in Me memberships remained strong despite economic uncertainties[67] - The company's new go-to-market strategy, in its second quarter of operation, is designed to systematically drive growth in client relationships[67] Quarter Ended May 31, 2025 Compared with the Quarter Ended May 31, 2024 The third quarter of fiscal 2025 saw a consolidated net loss of $(1.4) million and Adjusted EBITDA of $7.3 million, both significantly lower than the prior year, primarily due to decreased revenue across segments and increased restructuring costs, with North America, International Direct Offices, and Education Division experiencing revenue declines - Consolidated net loss for Q3 fiscal 2025 was $(1.4) million, or $(0.11) per share, compared to net income of $5.7 million, or $0.43 per diluted share, in Q3 fiscal 2024[74] - Consolidated Adjusted EBITDA for Q3 fiscal 2025 was $7.3 million, down from $13.9 million in Q3 fiscal 2024[74] - Operating expenses increased by $5.7 million, primarily due to a $4.0 million increase in restructuring charges and a $1.6 million increase in SG&A expenses[70] Enterprise Division - North America Segment - North America segment revenue decreased by $3.5 million to $37.1 million in Q3 fiscal 2025, impacted by macroeconomic uncertainty and canceled government contracts[72] - Adjusted EBITDA for North America decreased by $4.6 million to $6.2 million[72] - SG&A expenses increased due to associate costs for new sales and sales support personnel related to the new go-to-market strategy and sales force restructuring[75] Enterprise Division - International Direct Offices - International Direct Office revenues decreased by $1.0 million to $7.5 million in Q3 fiscal 2025, affected by economic uncertainty and geopolitical tensions, with significant declines in Japan, UK, and China[76] - Adjusted EBITDA for International Direct Offices decreased by $1.0 million to $0.3 million[76] - Gross margin decreased to 73.2% from 77.6% due to a shift in the mix of services delivered and products sold[77] Enterprise Division - International Licensees Segment - International Licensees' revenue was essentially flat at $2.7 million in Q3 fiscal 2025, still unfavorably impacted by difficult macroeconomic conditions[79] - Adjusted EBITDA for International Licensees was also relatively flat at $1.3 million[79] - Gross margin decreased from 89.7% to 87.6% due to changes in product mix[80][81] Education Division - Education Division revenue decreased by $1.6 million to $18.6 million in Q3 fiscal 2025, primarily due to a $2.2 million decrease in training materials revenue[82] - The decrease in materials revenue was partially offset by increased coaching and consulting revenue and membership subscription revenues[82] - Adjusted EBITDA for the Education Division decreased by $1.1 million to $2.1 million[82] Other Operating Expense Items (Quarterly) - Interest expense decreased by $0.1 million to $0.1 million in Q3 fiscal 2025 due to decreased term loan and financing obligation liabilities[85] Income Taxes (Quarterly) - Income tax benefit for Q3 fiscal 2025 was $0.7 million on a pre-tax loss of $(2.1) million, resulting in an effective benefit rate of 33.8%[74][86] - In Q3 fiscal 2024, the income tax provision was $2.6 million on pre-tax income of $8.4 million, with an effective rate of 31.6%[74][86] Net Income (Loss) and Adjusted EBITDA (Quarterly) - Net loss for Q3 fiscal 2025 was $(1.4) million, or $(0.11) per share, compared to net income of $5.7 million, or $0.43 per diluted share, in Q3 fiscal 2024[74] - Adjusted EBITDA for Q3 fiscal 2025 was $7.3 million, compared to $13.9 million in Q3 fiscal 2024[74] - Foreign exchange rates had a $0.5 million favorable impact on Adjusted EBITDA for Q3 fiscal 2025[74] Liquidity and Financial Position (Quarterly) - As of May 31, 2025, the company had over $95 million of available liquidity, consisting of $33.7 million in cash and a full undrawn $62.5 million line of credit[74] - The company purchased $23.0 million of common stock during the first three quarters of fiscal 2025[74] Three Quarters Ended May 31, 2025 Compared with the Three Quarters Ended May 31, 2024 For the first three quarters of fiscal 2025, consolidated revenue decreased to $195.8 million from $203.1 million in the prior year, resulting in a net loss of $(1.3) million and Adjusted EBITDA of $17.0 million, both significantly lower than the prior year, primarily due to macroeconomic headwinds, restructuring efforts, and increased operating expenses - Consolidated revenue for the first three quarters of fiscal 2025 was $195.8 million, a decrease from $203.1 million in the prior year[12] - Consolidated net loss for the first three quarters of fiscal 2025 was $(1.3) million, compared to net income of $11.4 million in the prior year[12] - Consolidated Adjusted EBITDA for the first three quarters of fiscal 2025 was $17.0 million, down from $32.3 million in the prior year[55] Enterprise Division - North America Segment (YTD) - North America segment revenue decreased by $4.7 million to $111.7 million for the first three quarters of fiscal 2025, impacted by business uncertainties and canceled government contracts[87] - Adjusted EBITDA for North America decreased by $10.6 million to $19.8 million[87] - SG&A expenses increased due to new sales and support personnel, compensation increases, and increased advertising for the refreshed 'The 7 Habits' offering[89] Enterprise Division - International Direct Offices (YTD) - International Direct Office revenues decreased by $2.6 million to $21.9 million for the first three quarters of fiscal 2025, affected by economic uncertainty and geopolitical tensions, with declines in China, Japan, and the UK[90] - Adjusted EBITDA for International Direct Offices turned negative, reporting $(0.9) million, down from $2.3 million in the prior year[90] - SG&A expenses increased due to higher bad debt expense and advertising for the new 'The 7 Habits' offering[92] Enterprise Division - International Licensees Segment (YTD) - International Licensees' revenue decreased by $0.2 million to $8.7 million for the first three quarters of fiscal 2025, primarily due to decreases in services revenue and AAP revenue share[93] - Adjusted EBITDA for International Licensees decreased by $0.2 million to $4.4 million[93] - SG&A expenses decreased due to cost-cutting efforts in response to decreased revenue[94] Education Division (YTD) - Education Division revenue increased by 1% to $50.2 million for the first three quarters of fiscal 2025, driven by increased coaching, consulting, and membership subscription revenue[95] - Growth was partially offset by decreased sales of classroom and training materials, which had large orders in the prior year that did not repeat[95] - Adjusted EBITDA for the Education Division decreased by $0.8 million to $2.0 million[95] Other Operating Expense Items (Year-to-Date) - Depreciation expense remained consistent at $3.0 million for both periods, with an expectation of approximately $4 million for fiscal 2025[98] - Amortization expense slightly increased to $3.3 million due to the reacquisition of license rights for France operations, with an expectation of approximately $4.5 million for fiscal 2025[99] - Interest expense decreased by $0.4 million to $0.5 million due to reduced term loan and financing obligation liabilities[100] Income Taxes (Year-to-Date) - For the first three quarters of fiscal 2025, the company recognized an income tax benefit of $0.6 million on a pre-tax loss of $(1.9) million, resulting in an effective tax benefit rate of 30.9%[101] - The effective tax rate for fiscal 2025 is expected to be approximately 39%, exceeding the statutory rate primarily due to non-deductible executive compensation[102] - Cash paid for income taxes during the first three quarters of fiscal 2025 was $7.1 million, mostly related to the fiscal 2024 income tax liability[103] Liquidity and Capital Resources As of May 31, 2025, Franklin Covey Co. maintained strong liquidity with over $95 million available, comprising $33.7 million in cash and a fully undrawn $62.5 million revolving credit facility, expecting to meet its obligations through existing cash, operating cash flows, and available credit, while continuing strategic investments and share repurchases - As of May 31, 2025, the company had over $95 million of available liquidity, including $33.7 million in cash and a $62.5 million undrawn revolving credit facility[104] - The 2023 Credit Agreement provides up to $70.0 million in total credit, maturing on March 27, 2028, and the company was in compliance with its covenants at May 31, 2025[105][106][107] - Primary uses of liquidity include operating activities, opportunistic common stock purchases, working capital expansion, capital expenditures (including curriculum development), and debt/lease payments[104] Introduction (Liquidity) - The company's primary sources of liquidity are cash flows from sales of services and products and available proceeds from its credit facility[104] - Of the $33.7 million cash at May 31, 2025, $13.4 million was held by foreign subsidiaries, which is routinely repatriated[104] Cash Flows Provided By Operating Activities - Cash provided by operating activities decreased to $19.0 million for the first three quarters of fiscal 2025, from $38.4 million in the prior year[109] - The decrease was primarily due to lower operating income and an $8.3 million decrease in taxes payable[109] Cash Flows Used For Investing Activities and Capital Expenditures - Cash used for investing activities totaled $8.5 million, primarily for curriculum development ($4.1 million) and purchases of property and equipment ($4.1 million)[110][111][112] - Capital spending for curriculum development is expected to be $7 million to $9 million in fiscal 2025, and property and equipment purchases are anticipated to be $10 million to $12 million[111][112] - The company reacquired license rights for France operations for $0.3 million in cash and $0.2 million of forgiven receivables[113] Cash Flows Used For Financing Activities - Net cash used for financing activities totaled $25.6 million for the first three quarters of fiscal 2025[114] - Primary uses included $23.0 million for common stock purchases and $3.7 million for principal payments on financing obligations and notes payable[114] - Partially offsetting these uses were $1.1 million in proceeds from ESPP participants[115] Sources of Liquidity - The company expects to meet future liabilities and capital expenditures from current cash balances, future operating cash flows, and available credit facilities[118] - Additional potential sources of liquidity include factoring receivables, issuing additional equity, or issuing debt[118] - Management believes existing cash, operating cash flows, and external funds will be sufficient for operations for at least the next 12 months[119] Material Uses of Cash and Contractual Obligations - Material cash requirements include associate and consultant compensation, information technology expenditures, content development costs, income taxes, and other contractual obligations[121] - No material changes to expected uses of cash or contractual obligations occurred during the quarter and three quarters ended May 31, 2025, except for the new corporate headquarters lease[120][122] CRITICAL ACCOUNTING ESTIMATES The company's consolidated financial statements are prepared in accordance with GAAP, requiring management to make estimates and assumptions that impact reported amounts, which are regularly evaluated based on historical experience and reasonable factors, with no significant changes to previously disclosed critical accounting estimates or policies - Financial statements require management to make estimates and assumptions that affect reported asset and liability amounts, and revenue and expense recognition[26][124] - Estimates are based on historical experience and factors believed to be reasonable, but actual results may differ due to economic conditions and other uncontrollable circumstances[124] - There have been no significant changes to the company's previously disclosed critical accounting estimates or policies[123] NEW ACCOUNTING PRONOUNCEMENTS This section refers to Note 1 of the condensed consolidated financial statements for a description of new accounting pronouncements that may impact the company, including ASU 2024-03, ASU 2023-07, and ASU 2023-09, which primarily affect disclosures related to income statement expenses, segment reporting, and income taxes - New accounting pronouncements, including ASU 2024-03, ASU 2023-07, and ASU 2023-09, are discussed in Note 1[125] - ASU 2024-03 requires disaggregation of income statement expenses, ASU 2023-07 improves segment reporting disclosures, and ASU 2023-09 enhances income tax disclosures[29][31][32] SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This statement clarifies that the report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from expectations, including macroeconomic factors, cybersecurity, litigation, competition, and changes in government spending, cautioning investors not to rely on these statements as predictions of actual results - The report contains forward-looking statements regarding future revenue, financial results, strategic plans, capital expenditures, and other expectations[126] - These statements are subject to risks and uncertainties, including cybersecurity, inflation, litigation, competition, foreign exchange rates, and government actions, which may cause actual results to differ materially[126][127] - Investors should not rely on forward-looking statements as predictions of actual results, and the company does not undertake to update them except as required by law[128][130] QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's interest rate sensitivity is primarily influenced by its variable-rate 2023 Credit Agreement, which had an effective interest rate of 6.0% at May 31, 2025, while other long-term obligations have fixed interest rates, with no material changes to market risk information previously reported or use of derivative instruments - The company's interest rate sensitivity is primarily influenced by the variable interest rate on its 2023 Credit Agreement, which was 6.0% at May 31, 2025[131] - Other long-term obligations, including the corporate headquarters financing obligation, have fixed interest rates (e.g., 7.7% for the financing obligation)[131] - No foreign currency or interest rate derivative instruments were utilized during the quarter or three quarters ended May 31, 2025[132] CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of May 31, 2025, providing reasonable assurance that required information is recorded, processed, and reported timely, with no material changes in internal controls over financial reporting during the most recently completed fiscal quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of May 31, 2025[134] - Disclosure controls are designed to ensure timely recording, processing, summarizing, and reporting of information required in Exchange Act reports[133] - No material changes in internal controls over financial reporting occurred during the most recently completed fiscal quarter[135] PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Franklin Saltlake LLC, the landlord of the company's former corporate offices, filed a lawsuit alleging breach of lease for failure to make certain repairs, seeking approximately $3.8 million in damages, which the company denies and intends to vigorously defend, though the outcome remains uncertain - A lawsuit was filed by the former landlord, Franklin Saltlake LLC, on December 20, 2024, alleging breach of lease for failure to make equipment repairs[136] - The landlord's damage claim increased to approximately $3.8 million in April 2025[136] - The company denies all material allegations, contends the premises are in sound operating condition, and intends to vigorously defend the suit, though the outcome is uncertain[136] Item 1A. RISK FACTORS Key risk factors include the potential loss of governmental funding (like ESSER) and charitable contributions for the Education Division, inherent risks in government contracting (e.g., funding changes, audits, political factors), and the adverse resolution of litigation, such as the ongoing landlord lawsuit, which highlights financial and reputational risks - The Education Division's growth is at risk from the loss or reduction of governmental funding (e.g., ESSER program) and charitable contributions[138] - Working with governmental clients exposes the company to risks such as project termination due to funding changes, audits of contract costs, and potential civil/criminal penalties for improper activities[139] - Adverse resolution of litigation, including the ongoing landlord lawsuit, could materially harm the company's operating results, financial condition, management focus, and reputation[141][142] Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the quarter ended May 31, 2025, the company purchased 372,627 shares of its common stock at an average price of $22.36 per share, totaling $8.33 million, as part of the $50.0 million common share purchase plan approved in April 2024, with $27.9 million remaining authorized - The purchases were made under a $50.0 million common share purchase plan approved on April 18, 2024, which has no expiration date[143] - As of May 31, 2025, $27.9 million remained authorized for future common stock purchases under the plan[143] Common Stock Purchases (Quarter Ended May 31, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (in thousands) | | :-------------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :----------------------------------------------------------------------------------------------------------------------------------- | | March 1, 2025 to March 31, 2025 | - | $ - | - | $36,206 | | April 1, 2025 to April 30, 2025 | 126,355 | $20.27 | 126,355 | $33,644 | | May 1, 2025 to May 31, 2025 | 246,272 | $23.43 | 246,272 | $27,873 | | Total Common Shares | 372,627 | $22.36 | 372,627 | $27,873 | Item 5. OTHER INFORMATION The company entered into indemnification agreements with its directors and executive officers on July 7, 2025, to indemnify them to the fullest extent permitted by Utah law and advance certain expenses, with no directors or executive officers adopting or terminating any Rule 10b5-1 trading arrangements during the quarter ended May 31, 2025 - Indemnification agreements were entered into with directors and executive officers on July 7, 2025, requiring the company to indemnify them to the fullest extent permitted by Utah law and advance certain expenses[145] - No directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements during the quarter ended May 31, 2025[147] Item 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including the form of Indemnification Agreement, Rule 13a-14(a) Certifications from the CEO and CFO, Section 1350 Certifications, and various XBRL documents for interactive data filing - Exhibits include the Form of Indemnification Agreement (10.1), Rule 13a-14(a) Certifications (31.1, 31.2), and Section 1350 Certifications (32)[149] - XBRL (eXtensible Business Reporting Language) documents are furnished for interactive data filing, including the Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase[149]