NOTE 9 – SEGMENT INFORMATION

Segment Information

Our sales are primarily comprised of training and consulting services. Our internal reporting and operating structure is currently organized around two divisions. The Enterprise Division, which consists of our Direct Office and International Licensee segments and the Education Division, which is comprised of our Education practice. Based on the applicable guidance, our operations are now comprised of three reportable segments and a corporate services group. The following is a brief description of our reportable segments:

Direct Offices – Our Direct Office segment has a depth of expertise in helping organizations solve problems that require changes in human behavior, including leadership, productivity, execution, trust, and sales performance. We have a variety of principle-based offerings that help build winning and profitable cultures. This segment includes our sales personnel that serve the United States and Canada; our international sales offices located in Japan, China, the United Kingdom, Australia, and our new offices in Germany, Switzerland, and Austria; our government services sales channel; and our public programs operations.

Education Practice – Centered around the principles found in The Leader in Me, the Education practice is dedicated to helping educational institutions build a culture that will produce great results. We believe these results are manifested by increases in student performance, improved school culture, decreased disciplinary issues, and increased teacher engagement and parental involvement. This segment includes our domestic and international Education practice operations, which are focused on sales to educational institutions such as elementary schools, high schools, and colleges and universities.

International Licensees – Our independently owned international licensees provide our offerings and services in countries where we do not have a directly-owned office. These licensee partners allow us to expand the reach of our services to large multinational organizations as well as smaller organizations in their countries. This segment’s results are primarily comprised of royalty revenues received from these licensees.

Corporate and Other – Our corporate and other information includes leasing operations, shipping and handling revenues, and certain corporate administrative expenses.

We determined that the Company’s chief operating decision maker is the Chief Executive Officer (CEO), and the primary measurement tool used in business unit performance analysis is Adjusted EBITDA, which may not be calculated as similarly titled amounts disclosed by other companies. Adjusted EBITDA is a non-GAAP financial measure. For reporting purposes, our consolidated Adjusted EBITDA may be calculated as our income or loss from operations excluding stock-based compensation, depreciation expense, amortization expense, and certain other charges such as adjustments for changes in the fair value of contingent liabilities from business acquisitions. The Company references this non-GAAP financial measure in its decision making because it provides supplemental information that facilitates consistent internal comparisons to the historical operating performance of prior periods and we believe it provides investors with greater transparency to evaluate operational activities and financial results.

Our operations are not capital intensive and we do not own any manufacturing facilities or equipment. Accordingly, we do not allocate assets to the reportable segments for analysis purposes. Interest expense and interest income are primarily generated at the corporate level and are not allocated. Income taxes are likewise calculated and paid on a corporate level (except for entities that operate in foreign jurisdictions) and are not allocated for analysis purposes.

We account for the following segment information on the same basis as the accompanying condensed consolidated financial statements (in thousands).



		Sales to
Quarter Ended		External				Adjusted
February 28, 2019		Customers		Gross Profit		EBITDA

Enterprise Division:
Direct offices	$	36,414	$	27,294	$	2,543
International licensees		2,906		2,221		1,218
		39,320		29,515		3,761
Education practice		9,698		5,429		(909)
Corporate and eliminations		1,338		422		(1,888)
Consolidated	$	50,356	$	35,366	$	964

Quarter Ended
February 28, 2018

Enterprise Division:
Direct offices	$	33,275	$	24,881	$	1,331
International licensees		3,046		2,364		1,162
		36,321		27,245		2,493
Education practice		9,007		5,163		(1,151)
Corporate and eliminations		1,219		336		(2,010)
Consolidated	$	46,547	$	32,744	$	(668)

Two Quarters Ended
February 28, 2019

Enterprise Division:
Direct offices	$	74,885	$	54,364	$	6,183
International licensees		6,583		5,084		2,846
		81,468		59,448		9,029
Education practice		20,044		11,822		(1,174)
Corporate and eliminations		2,673		878		(3,722)
Consolidated	$	104,185	$	72,148	$	4,133

Two Quarters Ended
February 28, 2018

Enterprise Division:
Direct offices	$	67,471	$	49,442	$	3,723
International licensees		6,366		4,866		2,572
		73,837		54,308		6,295
Education practice		18,183		10,593		(1,993)
Corporate and eliminations		2,459		711		(4,368)
Consolidated	$	94,479	$	65,612	$	(66)

A reconciliation of our consolidated Adjusted EBITDA to consolidated net loss is provided below (in thousands).



	Quarter Ended				Two Quarters Ended
		February 28,		February 28,		February 28,		February 28,
		2019		2018		2019		2018
Segment Adjusted EBITDA	$	2,852	$	1,342	$	7,855	$	4,302
Corporate expenses		(1,888)		(2,010)		(3,722)		(4,368)
Consolidated Adjusted EBITDA		964		(668)		4,133		(66)
Stock-based compensation expense		(1,043)		(779)		(1,989)		(1,736)
Increase in contingent consideration liabilities		(52)		(477)		(76)		(652)
Licensee transition costs		(428)		-		(488)		-
ERP system implementation costs		-		(429)		-		(855)
Depreciation		(1,697)		(1,379)		(3,251)		(2,280)
Amortization		(1,300)		(1,395)		(2,538)		(2,791)
Loss from operations		(3,556)		(5,127)		(4,209)		(8,380)
Interest income		9		25		22		59
Interest expense		(623)		(692)		(1,255)		(1,240)
Discount accretion on related
party receivable		243		29		258		56
Loss before income taxes		(3,927)		(5,765)		(5,184)		(9,505)
Income tax benefit		410		3,025		310		4,373
Net loss	$	(3,517)	$	(2,740)	$	(4,874)	$	(5,132)

Revenue by Category

The following table presents our revenue disaggregated by geographic region (in thousands).



	Quarter Ended				Two Quarters Ended
		February 28,		February 28,		February 28,		February 28,
		2019		2018		2019		2018

Americas	$	39,839	$	34,786	$	80,757	$	70,751
Asia Pacific		7,398		8,711		16,678		17,491
Europe/Middle East/Africa		3,119		3,050		6,750		6,237
	$	50,356	$	46,547	$	104,185	$	94,479

The following table presents our revenue disaggregated by type of service (in thousands).



Quarter Ended		Services and						Leases and
February 28, 2019		Products		Subscriptions		Royalties		Other		Consolidated

Enterprise Division:
Direct offices	$	23,102	$	12,416	$	896	$	-	$	36,414
International licensees		517		-		2,389		-		2,906
		23,619		12,416		3,285		-		39,320
Education practice		2,583		5,368		1,747		-		9,698
Corporate and eliminations		-		-		-		1,338		1,338
Consolidated	$	26,202	$	17,784	$	5,032	$	1,338	$	50,356

Quarter Ended
February 28, 2018

Enterprise Division:
Direct offices	$	22,108	$	9,982	$	1,185	$	-	$	33,275
International licensees		568		-		2,478		-		3,046
		22,676		9,982		3,663		-		36,321
Education practice		3,396		3,749		1,862		-		9,007
Corporate and eliminations		-		-		-		1,219		1,219
Consolidated	$	26,072	$	13,731	$	5,525	$	1,219	$	46,547

Two Quarters Ended
February 28, 2019

Enterprise Division:
Direct offices	$	48,111	$	25,091	$	1,683	$	-	$	74,885
International licensees		1,389		-		5,194		-		6,583
		49,500		25,091		6,877		-		81,468
Education practice		6,501		11,080		2,463		-		20,044
Corporate and eliminations		-		-		-		2,673		2,673
Consolidated	$	56,001	$	36,171	$	9,340	$	2,673	$	104,185

Two Quarters Ended
February 28, 2018

Enterprise Division:
Direct offices	$	46,981	$	19,099	$	1,391	$	-	$	67,471
International licensees		1,059		-		5,307		-		6,366
		48,040		19,099		6,698		-		73,837
Education practice		8,181		7,482		2,520		-		18,183
Corporate and eliminations		-		-		-		2,459		2,459
Consolidated	$	56,221	$	26,581	$	9,218	$	2,459	$	94,479