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 net loss excluding interest expense, income taxes, depreciation expense, amortization expense, stock-based compensation, 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
May 31, 2020		Customers		Gross Profit		EBITDA

Enterprise Division:
Direct offices	$	26,760	$	21,108	$	352
International licensees		708		339		(724)
		27,468		21,447		(372)
Education practice		8,216		4,711		(1,536)
Corporate and eliminations		1,421		663		(1,734)
Consolidated	$	37,105	$	26,821	$	(3,642)

Quarter Ended
May 31, 2019

Enterprise Division:
Direct offices	$	40,387	$	29,836	$	4,520
International licensees		3,014		2,432		1,281
		43,401		32,268		5,801
Education practice		11,088		6,846		(181)
Corporate and eliminations		1,517		550		(2,549)
Consolidated	$	56,006	$	39,664	$	3,071

Three Quarters Ended
May 31, 2020

Enterprise Division:
Direct offices	$	106,844	$	81,221	$	10,796
International licensees		7,120		5,696		2,696
		113,964		86,917		13,492
Education practice		30,190		17,828		(3,707)
Corporate and eliminations		5,309		2,772		(4,410)
Consolidated	$	149,463	$	107,517	$	5,375

Three Quarters Ended
May 31, 2019

Enterprise Division:
Direct offices	$	115,271	$	84,200	$	10,703
International licensees		9,598		7,515		4,127
		124,869		91,715		14,830
Education practice		31,132		18,668		(1,355)
Corporate and eliminations		4,190		1,429		(6,272)
Consolidated	$	160,191	$	111,812	$	7,203

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



	Quarter Ended				Three Quarters Ended
		May 31,		May 31,		May 31,		May 31,
		2020		2019		2020		2019
Segment Adjusted EBITDA	$	(1,908)	$	5,620	$	9,785	$	13,475
Corporate expenses		(1,734)		(2,549)		(4,410)		(6,272)
Consolidated Adjusted EBITDA		(3,642)		3,071		5,375		7,203
Stock-based compensation		5,104		(1,051)		1,460		(3,040)
Decrease (increase) in the fair value of
contingent consideration liabilities		276		(1,069)		367		(1,145)
Gain from insurance proceeds		933		-		933		-
Knowledge Capital wind-down costs		-		-		(389)		-
Licensee transition costs		-		-		-		(488)
Depreciation		(1,652)		(1,556)		(4,925)		(4,806)
Amortization		(1,164)		(1,259)		(3,504)		(3,797)
Loss from operations		(145)		(1,864)		(683)		(6,073)
Interest income		18		8		36		30
Interest expense		(621)		(562)		(1,783)		(1,817)
Discount accretion on related
party receivable		-		-		-		258
Loss before income taxes		(748)		(2,418)		(2,430)		(7,602)
Income tax benefit (provision)		(10,220)		394		(7,985)		704
Net loss	$	(10,968)	$	(2,024)	$	(10,415)	$	(6,898)

Revenue by Category

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



	Quarter Ended				Three Quarters Ended
		May 31,		May 31,		May 31,		May 31,
		2020		2019		2020		2019

Americas	$	32,788	$	44,919	$	119,545	$	125,676
Asia Pacific		2,759		7,914		19,987		24,592
Europe/Middle East/Africa		1,558		3,173		9,931		9,923
	$	37,105	$	56,006	$	149,463	$	160,191

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



Quarter Ended		Services and						Leases and
May 31, 2020		Products		Subscriptions		Royalties		Other		Consolidated

Enterprise Division:
Direct offices	$	10,051	$	15,965	$	744	$	-	$	26,760
International licensees		191		-		517		-		708
		10,242		15,965		1,261		-		27,468
Education practice		1,373		6,286		557		-		8,216
Corporate and eliminations		-		-		334		1,087		1,421
Consolidated	$	11,615	$	22,251	$	2,152	$	1,087	$	37,105

Quarter Ended
May 31, 2019

Enterprise Division:
Direct offices	$	26,295	$	13,363	$	729	$	-	$	40,387
International licensees		403		-		2,611		-		3,014
		26,698		13,363		3,340		-		43,401
Education practice		5,065		5,564		459		-		11,088
Corporate and eliminations		-		-		-		1,517		1,517
Consolidated	$	31,763	$	18,927	$	3,799	$	1,517	$	56,006

Three Quarters Ended
May 31, 2020

Enterprise Division:
Direct offices	$	58,946	$	45,425	$	2,473	$	-	$	106,844
International licensees		1,191		-		5,929		-		7,120
		60,137		45,425		8,402		-		113,964
Education practice		7,908		19,296		2,986		-		30,190
Corporate and eliminations		-		-		1,649		3,660		5,309
Consolidated	$	68,045	$	64,721	$	13,037	$	3,660	$	149,463

Three Quarters Ended
May 31, 2019

Enterprise Division:
Direct offices	$	74,405	$	38,453	$	2,413	$	-	$	115,271
International licensees		1,793		-		7,805		-		9,598
		76,198		38,453		10,218		-		124,869
Education practice		11,565		16,644		2,923		-		31,132
Corporate and eliminations		-		-		-		4,190		4,190
Consolidated	$	87,763	$	55,097	$	13,141	$	4,190	$	160,191