NOTE 11 – 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 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, Germany, Switzerland, and Austria; our government services sales channel; and our public programs operations.

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.

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.

Corporate and Other – Our corporate and other information includes leasing operations, shipping and handling revenues, royalty revenues from Franklin Planner Corp. (Note 12), and certain corporate administrative functions.

We have determined that the Company’s chief operating decision maker is the 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 net income or loss excluding interest expense, income taxes, depreciation expense, amortization expense, stock-based compensation expense, and certain other charges such as adjustments for changes in the fair value of contingent liabilities arising from business acquisitions. We reference this non-GAAP financial measure in our 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 periodically make minor changes to our reporting structure in the normal course of operations. The segment information presented below reflects certain revisions to our reporting structure which occurred during the second quarter of fiscal 2019. Prior period segment information has been revised to conform with our current segment reporting.

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 29, 2020		Customers		Gross Profit		EBITDA

Enterprise Division:
Direct offices	$	37,973	$	28,702	$	4,734
International licensees		2,691		2,237		1,384
		40,664		30,939		6,118
Education practice		10,893		6,460		(1,068)
Corporate and eliminations		2,188		1,267		(994)
Consolidated	$	53,745	$	38,666	$	4,056

Quarter Ended
February 28, 2019

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

Two Quarters Ended
February 29, 2020

Enterprise Division:
Direct offices	$	80,085	$	60,113	$	10,444
International licensees		6,411		5,357		3,419
		86,496		65,470		13,863
Education practice		21,974		13,117		(2,171)
Corporate and eliminations		3,887		2,108		(2,675)
Consolidated	$	112,357	$	80,695	$	9,017

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

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



	Quarter Ended				Two Quarters Ended
		February 29,		February 28,		February 29,		February 28,
		2020		2019		2020		2019
Segment Adjusted EBITDA	$	5,050	$	2,852	$	11,692	$	7,855
Corporate expenses		(994)		(1,888)		(2,675)		(3,722)
Consolidated Adjusted EBITDA		4,056		964		9,017		4,133
Stock-based compensation expense		(1,793)		(1,043)		(3,644)		(1,989)
Decrease (increase) in the fair value of
contingent consideration liabilities		182		(52)		91		(76)
Knowledge Capital wind-down costs		-		-		(389)		-
Licensee transition costs		-		(428)		-		(488)
Depreciation		(1,653)		(1,697)		(3,273)		(3,251)
Amortization		(1,170)		(1,300)		(2,340)		(2,538)
Loss from operations		(378)		(3,556)		(538)		(4,209)
Interest income		13		9		18		22
Interest expense		(557)		(623)		(1,162)		(1,255)
Discount accretion on related
party receivable		-		243		-		258
Loss before income taxes		(922)		(3,927)		(1,682)		(5,184)
Income tax benefit		2,019		410		2,235		310
Net income (loss)	$	1,097	$	(3,517)	$	553	$	(4,874)

Revenue by Category

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



	Quarter Ended				Two Quarters Ended
		February 29,		February 28,		February 29,		February 28,
		2020		2019		2020		2019

Americas	$	42,721	$	39,839	$	86,756	$	80,757
Asia Pacific		7,089		7,398		17,228		16,678
Europe/Middle East/Africa		3,935		3,119		8,373		6,750
	$	53,745	$	50,356	$	112,357	$	104,185

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



Quarter Ended		Services and						Leases and
February 29, 2020		Products		Subscriptions		Royalties		Other		Consolidated

Enterprise Division:
Direct offices	$	21,644	$	15,172	$	1,157	$	-	$	37,973
International licensees		410		-		2,281		-		2,691
		22,054		15,172		3,438		-		40,664
Education practice		2,950		6,192		1,751		-		10,893
Corporate and eliminations		-		-		935		1,253		2,188
Consolidated	$	25,004	$	21,364	$	6,124	$	1,253	$	53,745

Quarter Ended
February 28, 2019

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

Two Quarters Ended
February 29, 2020

Enterprise Division:
Direct offices	$	48,895	$	29,461	$	1,729	$	-	$	80,085
International licensees		1,000		-		5,411		-		6,411
		49,895		29,461		7,140		-		86,496
Education practice		6,535		13,010		2,429		-		21,974
Corporate and eliminations		-		-		1,314		2,573		3,887
Consolidated	$	56,430	$	42,471	$	10,883	$	2,573	$	112,357

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