FRANKLIN COVEY CO (FC) FY 2023 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis is intended to provide a summary of the principal factors affecting the results of operations, liquidity and capital resources, and the critical accounting estimates of Franklin Covey Co. (also referred to as we, us, our, the Company, FranklinCovey, and Franklin Covey) and subsidiaries. This discussion and analysis should be read together with the accompanying consolidated financial statements and related notes contained in Item 8 of this Annual Report on Form 10-K (Form 10-K) and the Risk Factors discussed in Item 1A of this Form 10-K. Forward-looking statements in this discussion are qualified by the cautionary statement under the heading “Safe Harbor Statement Under the Private Securities Litigation Reform Act Of 1995” contained later in Item 7 of this Form 10-K.

Non-GAAP Measures

This Management’s Discussion and Analysis includes the concepts of adjusted earnings before interest, income taxes, depreciation, and amortization (Adjusted EBITDA) and “constant currency,” which are non-GAAP measures. We define Adjusted EBITDA as net income or loss excluding the impact of interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items such as adjustments to the fair value of expected contingent consideration liabilities arising from business acquisitions. Constant currency is a non-GAAP financial

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measure that removes the impact of fluctuations in foreign currency exchange rates and is calculated by translating the current period’s financial results at the same average exchange rates in effect during the prior year and then comparing this amount to the prior year.

We reference these non-GAAP financial measures in our decision making because they provide 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. For a reconciliation of our segment Adjusted EBITDA to net income or loss, a related GAAP measure, please refer to Note 17 Segment Information to our consolidated financial statements as presented in Item 8 of this Form 10-K.

EXECUTIVE SUMMARY

General Overview

Franklin Covey Co. is a global company focused on individual and organizational performance improvement. Our mission is to “enable greatness in people and organizations everywhere,” and our worldwide resources are organized to help individuals and organizations achieve sustained superior performance at scale through changes in human behavior. We believe that our content and services create the connection between capabilities and results. In the training and consulting marketplace, we believe there are three important characteristics that distinguish us from our competitors.

1.World Class Content – Our content is based on timeless principles of human effectiveness and is designed to help people change both their mindset and behavior. When our content is applied consistently in an organization, we believe the culture of that organization will change to enable the organization to get desired results and achieve its own great purposes.

2.Breadth and Scalability of Delivery Options – We have a wide range of content delivery options, including: the All Access Pass, the Leader in Me membership subscriptions, intellectual property licenses, digital online learning, on-site training, training led through certified facilitators, blended learning, and organization-wide transformational processes, including consulting and coaching. We believe our investments in digital delivery modalities over the past few years have enabled us to deliver our content to clients in a high-quality learning environment whether those clients are working remotely or in a centralized location.

3.Global Capability – We have sales professionals in the United States and Canada who serve clients in the private sector, in government, and in educational institutions; wholly owned subsidiaries that serve clients in Australia, New Zealand, China, Japan, the United Kingdom, Ireland, Germany, Switzerland, and Austria; and we contract with independent licensee partners who deliver our content and provide services in 150 countries and territories around the world.

We have some of the best-known offerings in the training industry, including a suite of individual-effectiveness and leadership-development training content based on the best-selling books, The 7 Habits of Highly Effective People, The Speed of Trust, Multipliers, and The 4 Disciplines of Execution, and proprietary content in the areas of Execution, Sales Performance, Productivity, Customer Loyalty, Leadership, and Education. We believe that our offerings help individuals, teams, and entire organizations transform their results through achieving systematic, sustainable, and measurable changes in human behavior. Our offerings are described in further detail at www.franklincovey.com. The information contained in, or that can be accessed through, our website does not constitute a part of this Annual Report on Form 10-K, and the descriptions found therein should not be viewed as a warranty or guarantee of results.

Our fiscal year ends on August 31, and unless otherwise indicated, fiscal 2023, fiscal 2022, and fiscal 2021 refer to the twelve-month periods ended August 31, 2023, 2022, 2021, and so forth.

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Fiscal 2023 Financial Overview

We were very pleased with our results for fiscal 2023 and the continued strength, durability, and growth of the business and our subscription business model. Fiscal 2023’s financial results were strong when viewed in the context that we were able to improve over a period of unprecedented growth in fiscal 2022, a period which benefited from strong sales performance and comparison with pandemic-impacted results in fiscal 2021. We believe the continued strength and durability of our subscription model is driven by 1) our clients’ mission critical challenges, which are typically more intense during periods of economic uncertainty; 2) our effective solutions for helping clients successfully address these challenges, which can be flexibly utilized to meet each organization’s needs; and 3) our strength in acquiring, retaining, and expanding meaningful client relationships. Our performance in fiscal 2023 reflects the continuation of three key trends that were evident throughout the fiscal year. These trends include:

All Access Pass subscription and subscription services sales grew nine percent to $158.0 million in fiscal 2023 compared with $144.5 million in fiscal 2022. In our Enterprise Division, where most AAP contracts are sold, sales increased six percent to $205.7 million compared with $194.4 million in the prior year. In constant currency, Enterprise sales grew to $209.6 million in fiscal 2023.

Education Division revenues grew 13 percent to $69.7 million in fiscal 2023 on the strength of increased training and consulting days delivered and increased Leader in Me membership revenues. During fiscal 2023, the Education Division added a record 791 new Leader in Me schools in the United States and Canada. Year-over-year Leader in Me school retention remained high during fiscal 2023 at nearly 85 percent.

Total Company deferred revenue at August 31, 2023 increased to $111.2 million compared with $102.4 million at August 31, 2022. The sum of billed subscription and unbilled deferred subscription revenue at August 31, 2023 grew 22 percent to $186.4 million, compared with August 31, 2022. We continue to be pleased with the growth of multi-year contracts and the overall increase in deferred subscription revenue, which provide a strong base for future sales growth.

Our results of operations for fiscal 2023 included increased sales, gross profit, operating income, pre-tax income, and Adjusted EBITDA. Our consolidated sales for fiscal 2023 increased seven percent, or $17.7 million, to a new annual sales record of $280.5 million despite the impact of unfavorable foreign exchange rates. In constant currency, our consolidated sales grew to $284.5 million for the year. This growth was on top of the strong 17 percent growth achieved in fiscal 2022, which benefited from strong sales performance and comparison with a pandemic-impacted fiscal 2021. Our sales in fiscal 2023 increased primarily due to strong sales of subscription and subscription services in both of our Enterprise and Education Divisions. Despite unfavorable exchange rates and some challenging macroeconomic factors during fiscal 2023, our AAP and Leader in Me membership revenues increased compared with the prior year and each of our operating segments were able to increase sales over the prior year. Our revenue growth in fiscal 2023 was driven primarily by a combination of contract renewals, expansions, new customers, and price increases. Enterprise Division sales for the year increased six percent, or $11.3 million, to $205.7 million compared with $194.4 million in fiscal 2022, and were driven primarily by increased AAP revenues, improved international direct office sales, and increased licensee revenues. All Access Pass subscription and subscription services sales grew nine percent in fiscal 2023, international direct office sales increased six percent, or $1.9 million, and licensee revenues increased 10 percent, or $1.1 million, compared with fiscal 2022. Fiscal 2023 growth in Enterprise Division was impacted by foreign exchange and by a somewhat reduced number of onsite presentations in the third and fourth quarters, compared with a record number of onsite presentations in fiscal 2022. Education Division revenues increased 13 percent, or $7.9 million, to $69.7 million compared with $61.9 million in fiscal 2022. Our Education Division subscription and subscription-related revenue, which primarily consists of the Leader in Me membership and consulting days invoiced with the Leader in Me online service, increased 13 percent compared with fiscal 2022.

At August 31, 2023, we had $111.2 million of deferred revenue compared with $102.4 million at August 31, 2022. Our deferred revenue noted above at August 31, 2023 and August 31, 2022 includes $3.7 million and $2.7 million, respectively, of deferred revenue that was classified as long-term based on expected recognition. Total deferred

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subscription revenue increased 12 percent to $99.0 million at August 31, 2023 compared with $88.1 million at August 31, 2022. Our unbilled deferred revenue at August 31, 2023 grew 34 percent to $87.4 million compared with $65.4 million at the end of fiscal 2022. At August 31, 2023, the sum of our deferred subscription revenue plus unbilled deferred subscription revenue grew 22 percent, or $33.0 million, to $186.4 million compared with $153.4 million at August 31, 2022. Unbilled deferred revenue represents business that is contracted, but unbilled and therefore excluded from our balance sheet.

The following table sets forth our consolidated net sales by division and by reportable segment for the fiscal years indicated (in thousands):

Gross profit consists of net sales less the cost of services provided or the cost of goods sold. Our cost of sales includes the direct costs of delivering content onsite at client locations, including presenter costs; amortization of previously capitalized curriculum development costs; content royalties; materials used in the production of training products and related assessments; manufacturing labor costs; and freight. Gross profit may be affected by, among other things, the mix of services sold to clients, prices of materials, travel, labor rates, changes in product discount levels, and freight costs. Consolidated cost of sales in fiscal 2023 totaled $67.0 million compared with $60.9 million for fiscal 2022. Our gross profit for the fiscal year ended August 31, 2023 increased six percent, or $11.6 million, to $213.5 million, compared with $201.9 million in fiscal 2022, and increased primarily due to increased sales as described above. Our gross margin in fiscal 2023 remained strong at 76.1 percent of sales compared with 76.8 percent in the prior year.

Our operating expenses in fiscal 2023 increased $8.9 million compared with fiscal 2022 primarily due to a $10.4 million increase in selling, general, and administrative (SG&A) expenses. Despite the increase in SG&A expenses, as a percentage of revenue, our SG&A expenses in fiscal 2023 decreased to 63.6 percent compared with 63.9 percent in fiscal 2022. Our SG&A expenses increased primarily due to increased associate costs resulting from new client-facing personnel and increased salaries; increased commissions on higher sales; a $4.2 million increase in non-cash stock-based compensation expense; and increased travel expense. At August 31, 2023, we had 303 client partners compared with 300 at August 31, 2022.

Our fiscal 2023 income from operations improved 11 percent to $26.4 million compared with $23.7 million in the prior year. Fiscal 2023 pre-tax income increased 17 percent, or $3.8 million, to $25.9 million compared with $22.1 million in fiscal 2022, reflecting the financial metrics noted above.

Our effective income tax rate for fiscal 2023 was approximately 31 percent compared with an effective income tax rate of approximately 16 percent in fiscal 2022. Our effective tax rate in fiscal 2022 was reduced primarily by a $2.8 million reduction in the valuation allowance against our deferred income tax assets. Our effective rate in fiscal 2023 was higher than statutory rates primarily due to $0.9 million of tax expense from non-deductible executive compensation.

Net income for the year ended August 31, 2023 was $17.8 million, or $1.24 per diluted share, compared with $18.4 million, or $1.27 per diluted share, in fiscal 2022. Our Adjusted EBITDA for fiscal 2023 increased 14 percent to $48.1 million compared with $42.2 million in fiscal 2022, reflecting the above-noted factors.

Further details regarding these items can be found in the comparative analysis of fiscal 2023 with fiscal 2022 as discussed within this Management’s Discussion and Analysis.

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Our liquidity, financial position, and capital resources remained strong during fiscal 2023. At August 31, 2023, we had $38.2 million of cash, with no borrowings on our $62.5 million revolving credit facility, even after spending $35.6 million on purchases of our common stock during fiscal 2023, compared with $60.5 million of cash, and no borrowings on our revolving credit facility, at August 31, 2022. Cash flows from operating activities remained strong and totaled $35.7 million in fiscal 2023. For further information regarding our liquidity and cash flows, refer to the Liquidity and Capital Resources discussion found within this Management’s Discussion and Analysis.

For a discussion of the results of operations and changes in financial condition for fiscal 2022 compared with fiscal 2021, refer to Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2022 Form 10-K, which was filed with the United States Securities and Exchange Commission on November 14, 2022.

Impact of the COVID-19 Pandemic on Our Financial Statements

The COVID-19 pandemic had a significant adverse impact on our financial results beginning in the third quarter of fiscal 2020 and lasting into early fiscal 2021. As individuals and businesses began adapting to pandemic-related circumstances in fiscal 2021, our business also began to recover. Driven primarily by previous changes to a subscription-based business model, we were able to quickly pivot to delivering content live-online and through our other digital modalities. As a result, our subscription service clients were able to access content and programs from remote locations, which allowed continued engagement of personnel and students during long periods of displacement from normal working or classroom conditions. The ability to deliver high-quality content to our clients, combined with adaptations to the pandemic and loosening restrictions provided a path to recovery beginning in fiscal 2021.

The momentum generated in fiscal 2021 continued into fiscal 2022 as our sales and profitability improved dramatically over fiscal 2021 and produced some of the best growth metrics in the Company’s history due to strong subscription and subscription services growth and comparisons with pandemic-impacted financial results in fiscal 2021. The strong growth in fiscal 2022 set a solid foundation for continued success in fiscal 2023 as the effects of the pandemic waned in most of the world. However, our direct offices in China and Japan, and certain regions served by our international licensee partners continued to be adversely impacted from the lingering effects of the pandemic in fiscal 2023. For example, in the first two quarters of fiscal 2023, our sales in China were down 18 percent and in Japan were down four percent compared with fiscal 2022, primarily due to continued pandemic-related restrictions in those countries. However, as restrictions were lifted in the third and fourth quarters, China’s sales improved and ended up 17 percent over fiscal 2022 and Japan was able to improve enough to end up even with fiscal 2022. While we are optimistic about the future in China, Japan, and certain other countries, we will continue to monitor developments related to the pandemic, and their actual and potential impacts on our financial position, results of operations, and liquidity.

Key Strategic Objectives

Our key strategic objectives for future growth remain largely unchanged from fiscal 2023. We believe following key strategic priorities will position us for continued growth in fiscal 2024 and in future years:

Increase the Impact and Scale of Our Solutions – We intend to build the capabilities to dramatically increase the impact and scale of our solutions with significant investments in people, content, and technology. During fiscal 2024 and future periods, we expect to continue to hire new leaders, salespeople, and team members; offer new and refreshed content and solutions, including a significantly refreshed 7 Habits of Highly Effective People offering in fiscal 2024 and new material for our Leader in Me program; make continued investments in our Impact Platform to continuously improve the user experience and to build in new technology; and work to integrate content, client personnel, and technology in a manner that will help our clients build winning cultures. We consistently seek to provide our clients world-class solutions, using the best technology, that will allow them to transform their organizations into high performing entities.

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Refresh our Brand and Messaging – We are focused on telling our story more broadly and powerfully, with the goal of helping significantly more people understand what we do and how we can help them. We recently launched a new brand that was designed to reflect our development into content and technology while retaining our connection to the principles that have driven our growth over the years. The new branding has brought more visitors to our website, registered more people for our marketing events, and generated more thought leadership guide downloads than ever before. We seek to increase the visibility of our services to a much larger audience and believe these efforts will provide added opportunities in the training marketplace.

Accelerate the Flywheel – We seek to build on the momentum of our subscription businesses, which are centered around the All Access Pass in the Enterprise Division and the Leader in Me membership in the Education Division. During fiscal 2023, we significantly grew our billed and unbilled deferred subscription revenue and believe this growth provides a solid foundation for future sales activity. Additionally, we added the most new schools in our history and maintained a high level of school retention during the fiscal year. With millions of AAP users throughout thousands of organizations globally and many thousands of students in schools around the world, we believe that our growth and building momentum have established a strong foundation for future growth and accelerating the “flywheel” of results for our clients, associates, and shareholders.

Invest in and Expand Our Culture – We believe that we are the workplace of choice for achievers with heart. During fiscal 2023 we sought to expand and improve our culture by integrating our corporate values into our associates’ work environment, focusing our teams on making a culture commitment, and standardizing our communication and collaboration toolset. We strive to maintain a culture that provides a great place to work and allows individuals to contribute their best talents and abilities. We believe this atmosphere produces better solutions for our clients and feelings of well-being and satisfaction for our associates. Through our efforts to improve our culture, we have made great progress in our diversity, equity, and inclusion initiatives and created a welcoming environment for the many new and talented associates that joined us during fiscal 2023.

We believe the pursuit of these strategic priorities will enable us to be the most trusted leadership company in the world by providing world-class solutions to our clients that will improve their organizations, by creating a rewarding and appealing environment for our associates, and by driving results that will provide return to our shareholders.

Other key factors that influence our operating results include: the number of organizations that are active customers; the number of people trained within those organizations; the continuation or renewal of existing services contracts, especially subscription renewals; the availability of budgeted training spending at our clients and prospective clients, which, in certain content categories, can be significantly influenced by general economic conditions; client satisfaction with our offerings and services; the number and productivity of our international licensee operations; and our ability to manage operating costs necessary to develop and provide meaningful offerings and related products to our clients.

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Results of Operations

The following table sets forth, for the fiscal years indicated, the percentage of total sales represented by the line items through income before income taxes in our consolidated income statements. This table should be read in conjunction with the accompanying discussion and analysis, the consolidated financial statements, and the related notes to the consolidated financial statements (amounts in percentages).

FISCAL 2023 COMPARED WITH FISCAL 2022 RESULTS OF OPERATIONS

Enterprise Division

Direct Offices Segment

The Direct Office segment includes our sales personnel that serve clients in the United States and Canada; our directly owned international offices that serve clients in Japan, China, the United Kingdom, Ireland, Australia, New Zealand, Germany, Switzerland, and Austria; and other groups such as our government services office and books and audio sales. The following comparative information is for our Direct Offices segment for the periods indicated (in thousands):

For fiscal 2023, our Direct Office segment sales increased six percent to $194.0 million compared with $183.8 million in the prior year. In constant currency, our Direct Office sales for the year increased to $197.5 million. Sales increased by six percent at each of our offices in the United States and Canada and international direct offices. During fiscal 2023 our AAP subscription and subscription related revenues increased nine percent over fiscal 2022. We remain confident that the strength and durability of our AAP offering, our principle-based content, and our subscription business model will help our clients solve difficult issues and will continue to drive growth in future periods despite increasing macroeconomic and geopolitical challenges. The sum of deferred subscription revenue on our balance sheet combined with unbilled multi-year contracts entered into, increased 22 percent, or $33.0 million, to $186.4 million, compared with $153.4 million at August 31, 2022. We believe the continued increase in invoiced AAP and other subscription sales, which are initially recognized on the balance sheet, provide a strong base for continued revenue growth in future periods.

Over the previous several quarters, the performance of our international direct offices has been directly related to the level of recovery from the pandemic and corresponding business and social activity in each country. These ongoing pandemic issues materially impacted our China and Japan offices during fiscal 2023. During late fiscal 2022, China had a

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resurgence of COVID cases and enacted strict lockdown measures in response to the rise in cases. These lockdown measures, economic instability, and social unrest adversely impacted our China office during the first half of fiscal 2023 and led to significant reductions in comparative sales for those periods. However, during the third and fourth quarters of fiscal 2023, China sales improved sharply over the first half of fiscal 2023 and led to overall growth in our foreign direct offices. For fiscal 2023, sales through our Germany, Switzerland, and Austria office increased 22 percent and our China office sales increased 17 percent over fiscal 2022. Sales were flat at our other international direct offices. While we remain confident in our international direct offices’ ability to grow in future periods, growth may continue to be hindered by unfavorable economic conditions and geopolitical issues in fiscal 2024. Foreign exchange rates had a $3.5 million unfavorable impact on our Direct Office sales and a $0.9 million unfavorable effect on operating income during fiscal 2023.

Gross Profit. Direct Office gross profit increased primarily due to sales growth as previously described. Direct Office gross margin remained strong in fiscal 2023, and was 80.9 percent compared with 80.5 percent in the prior year.

SG&A Expense. Direct Office SG&A expense for fiscal 2023 increased primarily due to increased associate costs, including new personnel and increased salaries, and increased commissions on higher sales.

International Licensees Segment

In foreign locations where we do not have a directly owned office, our training and consulting services are delivered through independent licensees. The following comparative information is for our international licensee operations in the periods indicated (in thousands):

Sales. Our international licensee revenues are primarily comprised of royalty revenues. During fiscal 2023 our licensee revenues increased primarily due to increased royalty revenues from certain licensees as economies in many of the countries where our licensees operate continue to recover from the pandemic. Compared with fiscal 2022, our royalty revenues increased 12 percent and our share of AAP revenues increased by five percent to $1.5 million. We receive additional revenue from the international licensees for AAP sales to cover a portion of the costs of operating the AAP portal. We remain optimistic that our licensees’ sales and our corresponding royalty revenues will continue to grow in future periods as licensee sales activity has nearly recovered to pre-pandemic levels and we expect the recovery to continue in fiscal 2024. However, difficult macroeconomic conditions, including unfavorable foreign exchange fluctuations, may negatively impact our licensees’ operations and our reported royalty revenues in future periods. Foreign exchange rates had a $0.5 million adverse impact on reported international licensee sales and operating results during fiscal 2023.

Gross Profit. Gross profit increased primarily due to increased royalty revenues as previously described. Gross margin remained strong at 90.2 percent compared with 88.9 percent in the prior year and improved due to the mix of revenue recognized during fiscal 2023.

SG&A Expense. International licensee SG&A expenses increased primarily due to additional spending on technology, development, and various other shared service costs.

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Education Division

Our Education Division is comprised of our domestic and international Education practice operations, which are focused on sales to educational institutions, and includes our widely acclaimed Leader in Me program. The following comparative information is for our Education Division in the periods indicated (in thousands):

Sales. Education Division sales in fiscal 2023 increased 13 percent, or $7.9 million, primarily due to increased consulting, coaching, and training days delivered during the year, increased Leader in Me subscription revenue, and an increase in the number of Symposium conference events held. During fiscal 2023, the Education Division delivered nearly 1,100 more training and coaching days than during fiscal 2022, which are recognized as they are delivered. Education Annual membership subscription and subscription-related revenue increased 13 percent compared with the prior year primarily due to increased revenue from previously deferred training and coaching days, and Annual Membership sales resulting from new schools. Our focus on creating strategic partnerships with school districts is working well and we added 147 new district partnerships in fiscal 2023 compared with 65 new partnerships in fiscal 2022. These new district partnerships helped drive a record 791 new schools entering the Leader in Me program during fiscal 2023. We also held four Symposium conference events to promote the Leader in Me program during fiscal 2023 compared with only one in the prior year. Increased sales from coaching days delivered, new membership subscriptions, and Symposiums were partially offset by decreased materials sales. Starting in fiscal 2023, student leadership guides are now all available on the Leader in Me online service, rather than in paper-based format for an additional charge. Overall, we continue to be pleased with the strength of our Education Division sales and believe the building momentum from fiscal 2023 will continue into fiscal 2024 and in future periods; however, many Leader in Me schools have benefitted from funding obtained through the Elementary and Secondary School Emergency Relief (ESSER) Program. The ESSER program is currently set to expire in September 2024 and the potential reduction in available funding may have an adverse impact upon our Education Division. As of August 31, 2023, the Leader in Me program is used in over 3,500 schools in the United States and Canada, compared with over 3,300 schools at August 31, 2022.

Gross Profit. Education Division gross profit increased primarily due to increased sales as previously described. Education segment gross margin was 63.7 percent of sales compared with 66.6 percent in fiscal 2022 and declined primarily due to increased travel costs and change in the product mix sold during fiscal 2023. Approximately 96 percent of coaching and consulting days delivered in fiscal 2023 were live events compared with 82 percent in fiscal 2022.

SG&A Expenses. Education SG&A expenses increased primarily due to increased associate expenses from investments in new personnel, increased commissions on higher sales, changes to compensation plans, and increased travel costs compared with the prior year.

Other Operating Expense Items

Depreciation – Depreciation expense decreased $0.6 million compared with fiscal 2022 primarily due to the full depreciation of certain assets during the fiscal year and reduced capital expenditures over the past couple of years. We currently expect depreciation expense will total approximately $6.0 million in fiscal 2024. Our forecast depreciation expense is somewhat dependent on leasehold improvements that may be necessary to our corporate campus as we approach the end of the master lease agreement in fiscal 2025. Therefore, our depreciation expense may fluctuate from the current expectation.

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Amortization – Amortization expense decreased $0.9 million compared with the prior year due to the full amortization of certain intangible assets from previous business acquisitions. We currently expect amortization expense will total $4.2 million during fiscal 2024.

Interest Income – Interest income increased $1.0 million compared with fiscal 2022 primarily due to increased interest rates in late fiscal 2022 and in fiscal 2023, which improved our ability to earn interest income on our cash balances.

Interest Expense – Our interest expense during fiscal 2022 decreased $0.1 million primarily due to reduced term loan debt and a reduced principal balance on our financing obligation (long-term lease on our corporate campus) compared with the prior year. However, rising interest rates during fiscal 2023 partially offset the benefit of lower debt balances during the fiscal year.

Income Taxes

Our effective income tax expense rate for the fiscal year ended August 31, 2023 was approximately 31 percent, compared with an income tax expense rate of approximately 16 percent in fiscal 2022. Our effective income tax rate for fiscal 2023 was higher than the statutory rate primarily due to tax expense of $0.9 million for non-deductible executive compensation and $0.4 million in tax differential on income subject to both U.S. and foreign taxes, which were partially offset by a $0.4 million decrease in the valuation allowance against our deferred income tax assets. Our effective income tax rate for fiscal 2022 was lower than the statutory rate due primarily to a $2.8 million decrease in the valuation allowance against our deferred income tax assets and a $0.6 million benefit for share-based compensation deductions in excess of the corresponding book expense. These benefits were partially offset by tax expense of $1.2 million for non-deductible executive compensation.

We paid $3.3 million in cash for income taxes during fiscal 2023. We anticipate that our total cash paid for income taxes over the coming two to three years will be less than our total income tax provision to the extent we are able to utilize net operating loss carryforwards, foreign tax credit carryforwards, and other deferred income tax assets.

LIQUIDITY AND CAPITAL RESOURCES

Introduction

Our cash at August 31, 2023 totaled $38.2 million, with no borrowings on our $62.5 million revolving credit facility. Of our $38.2 million of cash at August 31, 2023, $12.0 million was held outside the U.S. by our foreign subsidiaries. We routinely repatriate cash from our foreign subsidiaries and consider cash generated from foreign activities a key component of our overall liquidity position. Our primary sources of liquidity are cash flows from the sale of services and products in the normal course of business and available proceeds from our credit facility. Our primary uses of liquidity include payments for operating activities, purchases of our common stock, debt payments, working capital expansion, capital expenditures (including curriculum development), business acquisitions, and contingent payments from previous business acquisitions.

The following table summarizes our cash flows from operating, investing, and financing activities for the past three years (in thousands):

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Our New Credit Agreement

On March 27, 2023, we entered into a new credit agreement (the 2023 Credit Agreement) with KeyBank National Association (KeyBank) leading a group of financial institutions (collectively, the Lenders), which replaced our previous credit agreement with JPMorgan Chase Bank, N.A. (the 2019 Credit Agreement). The 2023 Credit Agreement provides up to $70.0 million in total credit, of which $7.5 million was used to replace the outstanding term loan balance from the 2019 Credit Agreement. The remaining $62.5 million is available as a revolving line of credit or for future term loans. Principal payments on the term loans consist of quarterly payments totaling $1.25 million that are due and payable on the last business day of each March, June, September, and December until the term loan obligation is repaid. These term loan payment provisions are essentially the same as under the 2019 Credit Agreement. We believe the 2023 Credit Agreement will provide significant flexibility and financial resources to allow us to grow the business in future periods.

The 2023 Credit Agreement matures on March 27, 2028, and interest on term loan borrowings under the 2023 Credit Agreement is due and payable when the term loan principal payments are due and payable. Interest on all other borrowings is due and payable on the last day of each month. The interest rate for borrowings on the 2023 Credit Agreement is based on the Secured Overnight Financing Rate (SOFR) and is a tiered structure that varies according to the Leverage Ratio as defined 2023 Credit Agreement (refer to Note 6, Secured Credit Agreement to our consolidated financial statements for the interest rate structure).

As defined in the 2023 Credit Agreement, we are (i) required to maintain a Leverage Ratio of less than 3.00 to 1.00 and a Fixed Charge Coverage Ratio greater than 1.15 to 1.00; and (ii) we are restricted from making certain distributions to stockholders, including repurchases of common stock. However, we are permitted to make distributions, including through purchases of outstanding common stock, provided that we are in compliance with the Leverage Ratio and Fixed Charge Coverage Ratio financial covenants before and after such distribution. At August 31, 2023, we believe that we were in compliance with the terms and covenants contained in the 2023 Credit Agreement.

In addition to our term loan obligation and notes payable to the former owners of Strive Talent, Inc., we have a long-term lease on our corporate campus that is accounted for as a financing obligation. For further information on our debt and leasing obligations, refer to the notes to our consolidated financial statements as presented in Item 8 of this Form 10-K.

The following discussion is a description of the primary factors affecting our cash flows and their effects upon our liquidity and capital resources during the fiscal year ended August 31, 2023.

Cash Flows from Operating Activities

Our primary source of cash from operating activities was the sale of services to our customers in the normal course of business. Our primary uses of cash for operating activities were payments for SG&A expenses, to fund changes in working capital, payments for direct costs necessary to conduct training programs, and payments to suppliers for materials used in training manuals sold. Our cash provided by operating activities during fiscal 2023 was $35.7 million compared with $52.3 million in fiscal 2022. The difference was primarily attributable to changes in working capital during the year related to cash used to pay accounts payable and accrued liabilities plus the impact of changes in deferred revenue compared with the prior year. We expect these working capital changes will moderate in future periods and that our cash flows from operating activities will improve. During fiscal 2023 our collection of accounts receivable remained strong and provided the necessary cash to support our operations, pay our obligations, and make critical investments. We anticipate that our cash flows from operating activities will improve and remain strong during fiscal 2024 and in future periods.

Cash Flows from Investing Activities and Capital Expenditures

During fiscal 2023, our cash used for investing activities totaled $13.6 million. Our primary uses of cash for investing activities consisted of additional investments in the development of our offerings and purchases of property and equipment in the normal course of business.

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In fiscal 2023 we spent $9.0 million on the development of our various offerings and related content. We believe continued investment in our offerings and content is key to future growth and the development of our subscription offerings. We currently expect that our capital spending for curriculum development will total $7.1 million in fiscal 2024.

Our purchases of property and equipment during fiscal 2023 consisted primarily of computer software and hardware, and leasehold improvements on our corporate campus. We currently anticipate that our purchases of property and equipment will total $8.0 million in fiscal 2024. Our purchases of property and equipment in fiscal 2024 are highly dependent upon leasehold improvements that may be necessary on our corporate campus as we approach the end of the master lease in fiscal 2025. Therefore, our capital expenditures for property and equipment may fluctuate from current expectations.

Cash Flows from Financing Activities

For the fiscal year ended August 31, 2023, our net cash used for financing activities totaled $44.2 million. Our primary use of financing cash was $35.6 million used to purchase shares of our common stock, which consisted of $34.8 million used to purchase shares on the open market and $0.8 million used to purchase shares withheld for statutory taxes on share-based compensation awards. Excluding the impact of transferring $7.5 million of term loan debt from one lender to another, we used $9.0 million of cash for principal payments on our notes payable and financing obligations, $0.7 million to pay contingent consideration liabilities from previous business acquisitions, and $0.4 million to pay loan origination and legal fees incurred for the 2023 Credit Agreement. Partially offsetting these uses of cash were $1.5 million of proceeds from our Employee Stock Purchase Plan participants to purchase shares of stock during fiscal 2023.

On February 14, 2023, our Board of Directors approved a new plan to purchase up to $50.0 million of our outstanding common stock. The previously existing common stock purchase plan was canceled, and the new common share purchase plan does not have an expiration date. At August 31, 2023, we have $15.7 million remaining on the current purchase authorization.

Our uses of financing cash in future periods are expected to include required payments on our notes payable and financing obligations and may include purchases of our common stock. However, the timing and amount of common stock purchases is dependent on a number of factors, including available resources, and we are not obligated to make purchases of our common stock during any future period.

Sources of Cash and Liquidity

We expect to meet the obligations on our notes payable, service our existing financing obligation, pay for projected capital expenditures, and meet other obligations in fiscal 2024 and beyond from current cash balances and future cash flows from operating activities. Going forward, we will continue to incur costs necessary for the day-to-day operation of the business and may use additional credit and other financing alternatives, if necessary, for these expenditures. During fiscal 2023 we entered into a new five-year credit agreement which we expect to renew and amend on a regular basis to maintain the long-term borrowing capacity of this credit facility. Additional potential sources of liquidity available to us include factoring receivables, issuance of additional equity, or issuance of debt to public or private sources. If necessary, we will evaluate all of these options and select one or more of them depending on overall capital needs and the associated cost of capital.

We believe that our existing cash and cash equivalents, cash generated by operating activities, and the availability of external funds as described above, will be sufficient for us to maintain our operations for at least the upcoming 12 months. However, our ability to maintain adequate capital for our operations in the future is dependent upon a number of factors, including sales trends, macroeconomic activity, further business disruptions associated with the pandemic, our ability to contain costs, levels of capital expenditures, collection of accounts receivable, and other factors. Some of the factors that influence our operations are not within our control, such as general economic conditions and the introduction of new offerings or technology by our competitors. We will continue to monitor our liquidity position and may pursue additional financing alternatives, as described above, to maintain sufficient resources for future growth and capital requirements. However, there can be no assurance such financing alternatives will be available to us on acceptable terms, or at all.

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Material Cash Requirements

We do not operate any manufacturing, mining, or other capital-intensive facilities, and we have not structured any special purpose entities, or participated in any commodity trading activities, which would expose us to potential undisclosed liabilities or create adverse consequences to our liquidity. However, we have cash expenditures and are subject to various contractual obligations that are required to run our business. Our material cash requirements include the following:

Associate and Consultant Compensation – Associate and consultant compensation is our largest recurring use of cash. Our compensation plans for associates and delivery consultants include fixed (salaried) and variable elements as well as the cost of benefits, and may fluctuate with sales, financial results, and hiring/retention activity. During fiscal 2023, we expensed approximately $172 million for associate and delivery consultant cash compensation. Associate compensation expense is included in SG&A expense and consultant compensation is included in our cost of sales. These associate costs include variable compensation such as commissions, incentives, and bonuses, and may fluctuate from year-to-year.

Content Development – We believe that ongoing investment in our content and offerings is key to our future success. Our innovations group is responsible for the development of new content as well as refreshing and maintaining our existing content. Including capitalized development, we spent approximately $11 million (excluding compensation discussed above) for the development and maintenance of our offerings and content in fiscal 2023.

Information Technology – Our business is reliant on computer software and hardware. Our subscription service portals require ongoing development, recurring maintenance, and utilize various software. In addition, we utilize various software programs to run our business, including applications for customer resource management, general ledger, cybersecurity, spreadsheets, word processing, e-mail, etc. Including capitalized hardware and software, we spent approximately $8 million for information technology software and hardware during fiscal 2023.

Income Taxes – We are required to pay income taxes in the various jurisdictions where we operate. During fiscal 2023, we paid $3.3 million in cash for income taxes during fiscal 2023. Our use of cash for income taxes in future periods depends upon our profitability and our ability to utilize tax assets such as net operating loss carryforwards and foreign income tax credits.

Contractual Obligations – In addition to the expenses described above, which we believe are required to successfully run our business, we have other longer-term contractual obligations, which require additional cash payments. We have summarized our significant contractual obligations at August 31, 2023 in the following table (in thousands):

(1)Payment amounts shown include interest at 6.9 percent, which is the current rate on our term loan obligation under the 2023 Credit Agreement.

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(2)The payment of contingent consideration resulting from prior business acquisitions is based on current estimates and projections. We reassess the fair value of estimated contingent consideration payments each quarter based on available information. The actual payment of contingent consideration amounts may differ in amount and timing from those shown in the table.

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The significant accounting policies that we used to prepare our consolidated financial statements are outlined primarily in Note 1 and in Note 2 (revenue recognition policies) to the consolidated financial statements, which are presented in Part II, Item 8 of this Form 10-K. Some of those accounting policies require us to make assumptions and use judgments that may affect the amounts reported in our consolidated financial statements. Management regularly evaluates its estimates and assumptions and bases those estimates and assumptions on historical experience, factors that are believed to be reasonable under the circumstances, and requirements under accounting principles generally accepted in the United States of America. Actual results may differ from these estimates under different assumptions or conditions, including changes in economic and political conditions and other circumstances that are not within our control, but which may have an impact on these estimates and our actual financial results.

The following items require the most significant judgment and often involve complex estimates:

Revenue Recognition

We account for revenue in accordance with Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). For the All Access Pass, judgment is required to determine whether the intellectual property and web-based functionality and content are considered distinct and accounted for separately, or not distinct and accounted for together.

We have determined to account for the AAP as a single performance obligation and recognize the associated transaction price ratably over the term of the underlying contract beginning on the commencement date of each contract, which is the date the Company’s platforms and resources are made available to the customer. This determination was reached after considering that our web-based functionality and content, in combination with our intellectual property, each represent inputs that transform into a combined output that represents the intended outcome of the AAP, which is to provide a continuously accessible, customized, and dynamic learning and development solution only accessible through the AAP platform.

Judgment is required to determine the stand-alone selling price (SSP) for each distinct performance obligation in a revenue contract. Where we have more than one distinct performance obligation, we must allocate the transaction price to each performance obligation based on its relative SSP. The SSP is the price which we would sell a promised product or service separately to a customer. In determining the SSP, we consider the size and volume of transactions, price lists, historical sales, and contract prices. We may modify our pricing from time-to-time in the future, which could result in changes to the SSP.

Stock-Based Compensation

Our shareholders have approved performance-based long-term incentive plans (LTIPs) that provide for grants of stock-based performance awards to certain managerial personnel and executive management as directed by the Organization and Compensation Committee of the Board of Directors. The number of common shares that are vested and issued to LTIP participants is variable and is based upon the achievement of specified performance objectives during defined service periods. Due to the variable number of common shares that may be issued under the LTIP, we reevaluate our LTIP grants on a quarterly basis and adjust the expected vesting dates and number of shares expected to be awarded based upon actual and estimated financial results of the Company compared with the performance goals set for the award. Adjustments to the number of shares awarded, and to the corresponding compensation expense, are made on a cumulative basis at the adjustment date based upon the new estimated probable number of common shares to be awarded.

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The analysis of our LTIP awards contains uncertainties because we are required to make assumptions and judgments about the timing and/or the eventual number of shares that will vest in each LTIP grant. The assumptions and judgments that are essential to the analysis include forecasted sales and operating income levels during the LTIP service periods. These forecasted amounts may be difficult to predict over the life of the LTIP awards due to changes in our business, such as from the introduction of subscription-based services, or other external factors, such as the COVID-19 pandemic, and their impact on our financial results. Events such as these may leave some previously approved performance measures obsolete or unattainable. The evaluation of LTIP performance awards and the corresponding use of estimated amounts may produce additional volatility in our consolidated financial statements as we record cumulative adjustments to the estimated service periods and number of common shares to be awarded under the LTIP grants as described above. For example, uncertainties associated with the impact of and expected recovery from the COVID-19 pandemic resulted in a significant reversal of previously recognized performance award stock-based compensation expense during fiscal 2020.

Accounts Receivable Valuation

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Our allowance for doubtful accounts calculations contain uncertainties because the calculations require us to make assumptions and judgments regarding the collectability of customer accounts, which may be influenced by a number of factors that are not within our control, such as the financial health of each customer. We regularly review the collectability assumptions of our allowance for doubtful accounts calculation and compare them against historical collections. Adjustments to the assumptions may either increase or decrease our total allowance for doubtful accounts and may adversely impact our financial results. For example, a 10 percent increase to our allowance for doubtful accounts at August 31, 2023 would decrease our reported income from operations by approximately $0.4 million.

For further information regarding the calculation of our allowance for doubtful accounts, refer to the notes to our financial statements as presented in Item 8 of this Form 10-K.

Valuation of Indefinite-Lived Intangible Assets and Goodwill

Intangible assets that are deemed to have an indefinite life and goodwill balances are not amortized, but rather are tested for impairment on an annual basis, or more often if events or circumstances indicate that a potential impairment exists. The Covey trade name intangible asset originated from the merger with the Covey Leadership Center in 1997 and has been deemed to have an indefinite life. This intangible asset is quantitatively tested for impairment using the present value of estimated royalties on trade name related revenues, which consist primarily of training seminars and related products, and international licensee royalties.

Goodwill is recorded when the purchase price for a business acquisition exceeds the estimated fair value of the net tangible and identified intangible assets acquired. Under current accounting guidance, an annual or interim goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.

We tested goodwill for impairment at August 31, 2023 at the reporting unit level using a qualitative approach. We determined that it was more likely than not that the fair value of each of our reporting units was more than their carrying values. This determination required judgment to estimate future cash flows and operating results and considered current operating results, expected future operating results, and various other factors such as macroeconomic conditions. Some of these factors are not within our control.

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On an interim basis, we consider whether events or circumstances are present that may lead to the determination that goodwill may be impaired. These circumstances include, but are not limited to, the following:

significant underperformance relative to historical or projected future operating results;

significant change in the manner of our use of acquired assets or the strategy for the overall business;

significant change in prevailing interest rates;

significant negative industry or economic trend;

significant change in market capitalization relative to book value; and/or

significant negative change in market multiples of the comparable company set.

If, based on events or changing circumstances, we determine it is more likely than not that the fair value of a reporting unit does not exceed its carrying value, we would be required to test goodwill for impairment.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable, but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. The timing and frequency of our goodwill impairment tests are based on an ongoing assessment of events and circumstances that would indicate a possible impairment. Based on the results of our goodwill impairment analysis during fiscal 2023, we determined that no impairment existed at August 31, 2023, as we determined that it was more likely than not that each reportable operating segment’s estimated fair value exceeded its carrying value. We will continue to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are present.

Impairment of Long-Lived Assets

Long-lived tangible assets and finite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We use an estimate of undiscounted future net cash flows of the assets over their remaining useful lives in determining whether the carrying value of the assets is recoverable. If the carrying values of the assets exceed the anticipated future cash flows of the assets, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based upon discounted cash flows over the estimated remaining useful life of the asset. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis, which is then depreciated or amortized over the remaining useful life of the asset. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent from other groups of assets.

Our impairment evaluation calculations contain uncertainties because they require us to make assumptions and apply judgment in order to estimate future cash flows, forecast the useful lives of the assets, and select a discount rate that reflects the risk inherent in future cash flows. Although we have not made any recent material changes to our long-lived assets impairment assessment methodology, if forecasts and assumptions used to support the carrying value of our long-lived tangible and finite-lived intangible assets change in the future, significant impairment charges could result that would adversely affect our results of operations and financial condition.

Acquisitions and Contingent Consideration Liabilities

We record acquisitions resulting in the consolidation of an enterprise using the purchase method of accounting. Under this method, the acquiring company records the assets acquired, including intangible assets that can be identified and named, and liabilities assumed based on their estimated fair values at the date of acquisition. The purchase price in excess of the fair value of the assets acquired and liabilities assumed is recorded as goodwill. If the assets acquired, net of liabilities assumed, are greater than the purchase price paid, then a bargain purchase has occurred and the Company will

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recognize the gain immediately in earnings. Among other sources of relevant information, we use independent appraisals or other valuations to assist in determining the estimated fair values of the assets and liabilities. Various assumptions are used in the determination of these estimated fair values including discount rates, market and volume growth rates, product or service selling prices, cost structures, royalty rates, and other prospective financial information.

Additionally, we are required to reassess the fair value of contingent consideration liabilities resulting from business acquisitions at each reporting period. Although subsequent changes to the contingent consideration liabilities do not affect the goodwill generated from the acquisition transaction, the valuation of expected contingent consideration often requires us to estimate future sales and/or profitability. These estimates require the use of numerous assumptions, many of which may change frequently and lead to increased or decreased operating income in future periods. For instance, during fiscal 2023 we recorded immaterial increases to the fair value of our contingent consideration liability compared with $0.1 million of net increases in fiscal 2022 and $0.2 million of increases during fiscal 2021. Business acquisitions in future periods may increase the volatility and amount of these charges. Changes to the fair value of contingent consideration liabilities are recorded as a component of SG&A expenses.

Income Taxes

We regularly evaluate our United States federal and various state and foreign jurisdiction income tax exposures. We account for certain aspects of our income tax provision using the provisions of ASC 740-10-05, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon final settlement. The provisions of ASC 740-10-05 also provide guidance on de-recognition, classification, interest, and penalties on income taxes, accounting for income taxes in interim periods, and require increased disclosure of various income tax items. Taxes and penalties are components of our overall income tax provision.

We record previously unrecognized tax benefits in the financial statements when it becomes more likely than not (greater than a 50 percent likelihood) that the tax position will be sustained. To assess the probability of sustaining a tax position, we consider all available evidence. In many instances, sufficient positive evidence may not be available until the expiration of the statute of limitations for audits by taxing jurisdictions, at which time the entire benefit will be recognized as a discrete item in the applicable period.

Our unrecognized tax benefits result from uncertain tax positions about which we are required to make assumptions and apply judgment to estimate the exposures associated with our various tax filing positions. The calculation of our income tax provision or benefit, as applicable, requires estimates of future taxable income or losses. During the course of the fiscal year, these estimates are compared to actual financial results and adjustments may be made to our tax provision or benefit to reflect these revised estimates. Our effective income tax rate is also affected by changes in tax law and the results of tax audits by various jurisdictions. Although we believe that our judgments and estimates discussed herein are reasonable, actual results could differ, and we could be exposed to losses or gains that could be material.

We establish valuation allowances for deferred tax assets when we estimate it is more likely than not that the tax assets will not be realized. The determination of whether valuation allowances are needed on our deferred income tax assets contains uncertainties because we must project future income, including the use of tax-planning strategies, by individual tax jurisdictions. Changes in industry and economic conditions and the competitive environment may impact the accuracy of our projections. We regularly assess the likelihood that our deferred tax assets will be realized and determine if adjustments to our valuation allowance are necessary. These evaluations may produce additional volatility in our tax provision or benefit, net income or loss, and earnings or loss per share. For example, in consideration of the relevant accounting guidance, we reevaluated our deferred tax assets during fiscal 2020 and considered both positive and negative evidence in determining whether it is more likely than not that some portion or all of our deferred tax assets will be realized. Because of the cumulative pre-tax losses over the past three fiscal years, combined with the expected continued disruptions and negative impact to our business resulting from uncertainties related to the recovery from the pandemic, we

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were unable to overcome accounting guidance indicating that it is more-likely-than-not that insufficient taxable income will be available to realize all of our deferred tax assets before they expire, which are primarily foreign tax credit carryforwards and a portion of our net operating loss carryforwards. Accordingly, we increased the valuation allowance against our deferred tax assets in fiscal 2020. Due to better-than-expected results in fiscal 2022 and 2021, we reversed a substantial portion of these valuation allowances in those years.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note 1 to the consolidated financial statements for information on recent accounting pronouncements.

REGULATORY COMPLIANCE

We are registered in states in which we do business that have a sales tax and we collect and remit sales or use tax on sales made in these jurisdictions. Compliance with environmental laws and regulations (including new laws and regulations relating to climate change) has not had a material effect on our operations. We believe we are in compliance with applicable governmental regulations in the United States and the countries in which we operate.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements made by the Company in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 as amended (the Exchange Act). Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain words such as “believe,” “anticipate,” “expect,” “estimate,” “project,” or words or phrases of similar meaning. In our reports and filings we may make forward-looking statements regarding, among other things, our expectations about future sales levels and financial results, expected effects from the COVID-19 pandemic, including effects on how we conduct our business and our results of operations, the timing and duration of the recovery from the COVID-19 pandemic, future training and consulting sales activity, expected benefits from the All Access Pass and the electronic delivery of our content, anticipated renewals of subscription offerings, the impact of new accounting standards on our financial condition and results of operations, the amount and timing of capital expenditures, anticipated expenses, including SG&A expenses, depreciation, and amortization, future gross margins, the release of new services or products, the adequacy of existing capital resources, our ability to renew or extend our line of credit facility, the amount of cash expected to be paid for income taxes, our ability to maintain adequate capital for our operations for at least the upcoming 12 months, the seasonality of future sales, future compliance with the terms and conditions of our line of credit, the ability to borrow on our line of credit, expected collection of accounts receivable, estimated capital expenditures, and cash flow estimates used to determine the fair value of long-lived assets. These, and other forward-looking statements, are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are disclosed from time to time in reports filed by us with the SEC, including reports on Forms 8-K, 10-Q, and 10-K. Such risks and uncertainties include, but are not limited to, the matters discussed in Item 1A of this annual report on Form 10-K for the fiscal year ended August 31, 2023, entitled “Risk Factors.” In addition, such risks and uncertainties may include unanticipated developments in any one or more of the following areas: cybersecurity risks; unanticipated costs or capital expenditures; delays or unanticipated outcomes relating to our strategic plans; dependence on existing products or services; the rate and consumer acceptance of new product introductions, including the All Access Pass and Impact Platform; competition; the impact of foreign exchange rates; the number and nature of customers and their product orders, including changes in the timing or mix of product or training orders; pricing of our products and services and those of competitors; adverse publicity; and other factors which may adversely affect our business.

The risks included here are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors may emerge and it is not possible for our management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any single factor, or combination of factors, may cause actual results to differ materially from those contained in forward-looking statements.

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Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results.

The market price of our common stock has been and may remain volatile. In addition, the stock markets in general have experienced increased volatility. Factors such as quarter-to-quarter variations in revenues and earnings or losses and our failure to meet expectations could have a significant impact on the market price of our common stock. In addition, the price of our common stock can change for reasons unrelated to our performance. Due to our relatively low market capitalization, the price of our common stock may also be affected by conditions such as a lack of analyst coverage and fewer potential investors.

Forward-looking statements are based on management’s expectations as of the date made, and the Company does not undertake any responsibility to update any of these statements in the future except as required by law. Actual future performance and results will differ and may differ materially from that contained in or suggested by forward-looking statements as a result of the factors set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in our filings with the SEC.