Stock-Based Compensation Plans

12 Months Ended

Aug. 31, 2024

Stock-Based Compensation Plans [Abstract]

12. STOCK-BASED COMPENSATION PLANS

Overview

We utilize various stock-based compensation plans as integral components of our overall compensation and associate retention strategy. Our shareholders have approved various stock incentive plans that permit us to grant performance awards, unvested stock awards, stock options, fully vested stock awards, and employee stock purchase plan (ESPP) shares. The Organization and Compensation Committee of the Board of Directors (the Compensation Committee) has responsibility for the approval and oversight of our stock-based compensation plans.

On January 14, 2022, our shareholders approved the Franklin Covey Co. 2022 Omnibus Incentive Plan (the 2022 Plan), which authorized an additional 1,000,000 shares of common stock for issuance as stock-based payments. A more detailed description of the 2022 Plan is set forth in our Definitive Proxy Statement filed with the SEC on December 15, 2021. At August 31, 2024, the 2022 Plan had approximately 307,000 shares available for future grants.

Our ESPP is administered under the terms of the Franklin Covey Co. 2017 Employee Stock Purchase Plan, which was approved by our shareholders at the annual meeting of shareholders held on January 26, 2018. For additional information regarding the Franklin Covey Co. 2017 Employee Stock Purchase Plan, please refer to our definitive Proxy Statement as filed with the SEC on December 22, 2017. At August 31, 2024, we had approximately 689,000 shares available for purchase by plan participants under the terms of the current shareholder approved ESPP.

The total compensation expense of our various stock-based compensation plans was as follows (in thousands):



YEAR ENDED
AUGUST 31,		2024		2023		2022
Performance awards	$	8,275	$	10,767	$	6,133
Strive acquisition compensation		660		739		1,196
Unvested stock awards		880		700		673
Compensation cost of the ESPP		252		269		239
Fully vested stock awards		75		45		45
	$	10,142	$	12,520	$	8,286

No stock-based compensation was capitalized during the fiscal years presented in this report. We recognize forfeitures of stock-based compensation instruments as they occur. During fiscal 2024, we issued 666,440 shares of our common stock from shares held in treasury for various stock-based compensation arrangements, including our ESPP. Our stock-based compensation plans allow shares to be withheld from the award to pay the participants’ statutory income tax liabilities. During fiscal 2024, we withheld 251,686 shares of our common stock, with a fair value of $10.3 million, for statutory income taxes on stock-based compensation awards.

The following is a description of our stock-based compensation plans.

Performance Awards

The Compensation Committee has awarded various performance-based stock compensation awards to our associates as long-term incentive awards. Some awards are based on the achievement of future goals and some awards are based upon the achievement of previously defined metrics, such as the achievement of specified levels of sales or days delivered. Compensation expense is recognized as we determine it is probable that the shares will vest and adjustments to compensation expense to reflect the number of shares expected to be awarded are made on a cumulative basis at the date of the adjustment. We reevaluate the likelihood and/or the number of shares expected to vest under performance awards at each reporting date. If all of our long-term performance awards outstanding at August 31, 2024 were to vest at the maximum number of shares that may be earned by participants, we have $13.1 million of unrecognized compensation expense related to our performance awards, which would be recognized over a weighted average period of 1.6 years.

Due to the significant impact of the COVID-19 pandemic on our results of operations in the third quarter of fiscal 2020, we determined that nearly all management long-term incentive plan (LTIP) award tranches based on qualified Adjusted EBITDA for outstanding LTIP awards would not vest before the end of the respective service periods. We therefore reversed the previously recognized stock-based compensation expense associated with these LTIP award tranches during fiscal 2020. On October 2, 2020, the Compensation Committee modified the terms of the fiscal 2020 LTIP to extend the service period of each performance-based tranche by two years and increase each qualified Adjusted EBITDA vesting target by $2.0 million. The time-based portion of the award was not modified. This modification impacted approximately 20 associates who were part of the 2020 LTIP, which vested on August 31, 2024. During the periods presented in this report, we reassessed the 2020 LTIP award (and other previously vested modified awards) using the modified terms and expensed the award based on the new vesting requirements and expected financial results over the revised service period.

LTIP Awards – The Compensation Committee has awarded annual performance-based stock compensation awards to members of our senior management as long-term incentive awards. All LTIP awards granted after fiscal 2020 have two tranches, which consist of: 1) shares that vest after three years of service, and 2) shares that vest based on the highest amount of rolling four quarter qualified Adjusted EBITDA earned in a three-year measurement period. The fiscal 2020 LTIP also includes a tranche that is based on the highest level of subscription sales achieved during the three-year measurement period, which was modified as described above. Twenty-five percent of a participant’s award vests after three years of service, and the number of shares awarded in this tranche does not fluctuate based on financial measures. The number of shares that vest to participants based on qualified Adjusted EBITDA achieved in the measurement period is variable and may be 50% of the award (minimum), 100% of the award (target), or up to 200% (maximum) of the participant’s award depending on the amount of qualified Adjusted EBITDA achieved. The following information is for

our LTIP awards outstanding that included fiscal 2024 in the measurement period, which have been adjusted for forfeitures.



		Time-	Qualified Adjusted EBITDA Shares				End of
Award	Grant	Vested				Subscription	Service
Name	Date	Shares	Minimum	Target	Maximum	Sales	Period
2024 LTIP	October 6, 2023	26,749	40,114	80,217	160,434	-	August 31, 2026
2023 LTIP	October 14, 2022	25,767	38,646	77,275	154,550	-	August 31, 2025
2022 LTIP	February 4, 2022	23,764	35,638	71,275	142,550	-	August 31, 2024
2020 LTIP	October 18, 2019	23,701	24,705	49,410	98,820	42,347	August 31, 2024

We achieved the maximum payout parameters for the fiscal 2022 and fiscal 2020 LTIP awards and distributed the number of shares shown in the maximum column and subscription sales column during the first quarter of fiscal 2025.

Long-Term Incentive and Retention Equity Awards - On October 14, 2022, the Compensation Committee approved a new long-term incentive award for client partners, managing client partners, managing directors, and certain other associates that management believes are critical to our long-term success. For sales-related personnel, their award amounts are based upon meeting minimum sales levels and determining the value of the award based on their total sales performance for the fiscal year. For the other associates, their award amount was approved by the Compensation Committee. One-third of these award shares vest each year over a three-year service period and the number of shares earned does not fluctuate based on future financial metrics. In fiscal 2024 we granted 48,740 shares under the terms of this award to eligible associates and granted 40,009 shares in fiscal 2023. These awards are expected to be granted annually by the Compensation Committee to retain these key associates.

Strive Acquisition Compensation – We structured two parts of the consideration for the fiscal 2021 acquisition of Strive Talent, Inc. as potentially payable in shares of our common stock. Each of the following amounts may be payable in shares of our common stock or cash at our sole discretion:

Contingent Consideration – A maximum of $4.2 million may be earned by the former principal owner of Strive over a five-year period ending in May 2026. The total value of this consideration is contingent upon sales and growth of the All Access Pass subscription and subscription services revenues during the five-year measurement period. We measure the contingent consideration each quarter and divide the total by the average of the closing share price of our common stock on the NYSE over the last 15 trading days of the quarter. Shares are required to be distributed within 45 days following the end of each quarter. Through August 31, 2024, we have recognized $2.2 million of stock-based compensation expense for the Strive contingent consideration payments.

Bonus Payments – Approximately $1.0 million was payable 18 months following the Closing Date to stockholders and option holders of Strive who were still employed by the Company as of the 18-month date, subject to certain exceptions. We expensed these awards evenly over the 18-month service period and recognized $0.8 million of share-based compensation expense for these awards, which were distributed in October 2022.

We have reserved 200,000 shares of our common stock from our 2019 Omnibus Plan for payment of this consideration related to the acquisition of Strive.

Unvested Stock Awards

The annual Board of Director unvested stock award, which is administered under the terms of the Franklin Covey Co. Omnibus Incentive Plans, is designed to provide our non-employee directors, who are not eligible to participate in our ESPP, an opportunity to obtain an interest in the Company through the acquisition of shares of our common stock as part of their compensation. For fiscal 2024, each eligible director received a whole-share grant equal to $120,000 with a one-year vesting period. The Board of Director unvested awards are generally granted in January (following the Annual Shareholders’ Meeting) of each year, and shares granted under the terms of this annual award may not be voted or participate in any common stock dividends until they are vested.

We issued 23,136 shares, 15,882 shares, and 13,260 shares of our common stock to eligible members of the Board of Directors during fiscal 2024, fiscal 2023, and fiscal 2022 as unvested stock awards. The fair value of shares awarded to the directors was $1.0 million in fiscal 2024, and $0.7 million in each of fiscal 2023 and fiscal 2022, as calculated on the grant date of the awards. The corresponding compensation cost of each award is recognized over the service period of the award, which is one year. The cost of the common stock issued from treasury for these awards was $0.4 million in fiscal 2024, $0.3 million in fiscal 2023, and $0.2 million in fiscal 2022. The following information applies to our unvested stock awards for the fiscal year ended August 31, 2024:



			Weighted-
			Average Grant-
			Date Fair
	Number of		Value Per
	Shares		Share
Unvested stock awards at
August 31, 2023	15,882	$	45.34
Granted	23,136		41.50
Forfeited	-		-
Vested	(15,882)		45.34
Unvested stock awards at
August 31, 2024	23,136	$	41.50

At August 31, 2024, there was $0.3 million of unrecognized compensation cost left on our unvested stock awards, which is expected to be recognized over the remaining service period of approximately four months. The total recognized income tax benefit from unvested stock awards totaled $0.2 million for each of the fiscal years ended August 31, 2024, 2023, and 2022. The intrinsic value of our unvested stock awards at August 31, 2024 was $0.9 million.

Employee Stock Purchase Plan

We have an employee stock purchase plan that offers qualified employees the opportunity to purchase shares of our common stock at a price equal to 85% of the average fair market value of our common stock on the last trading day of each quarter. ESPP participants purchased a total of 44,040 shares, 40,141 shares, and 36,960 shares of our common stock during the fiscal years ended August 31, 2024, 2023, and 2022, which had a corresponding cost basis of $0.8 million in fiscal 2024, $0.7 million in fiscal 2023, and $0.6 million in fiscal 2022. We received cash proceeds for these shares from ESPP participants totaling $1.5 million in each of fiscal 2024 and fiscal 2023; and $1.3 million during fiscal 2022.

Fully Vested Stock Awards

We have a stock-based incentive program that is designed to reward our client partners and training consultants for exceptional long-term performance. The program grants shares of our common stock to client partners who have achieved certain cumulative sales goals and to training consultants who have delivered a specified number of training days during their career. Five individuals qualified for these awards in fiscal 2024 and three individuals qualified for these awards in each of fiscal 2023 and fiscal 2022.