NOTE 10 – 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, and our new operations in 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 11), and certain corporate administrative expenses.

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

Our operations are not capital intensive and we do not own any manufacturing facilities or equipment. Accordingly, we do not allocate assets to the reportable segments for analysis purposes. Interest expense and interest income are primarily generated at the corporate level and are not allocated. Income taxes are likewise calculated and paid on a corporate level (except for entities that operate in foreign jurisdictions) and are not allocated for analysis purposes. We 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
November 30, 2019		Customers		Gross Profit		EBITDA

Enterprise Division:
Direct offices	$	42,111	$	31,411	$	5,710
International licensees		3,721		3,120		2,035
		45,832		34,531		7,745
Education practice		11,082		6,657		(1,102)
Corporate and eliminations		1,699		841		(1,682)
Consolidated	$	58,613	$	42,029	$	4,961

Quarter Ended
November 30, 2018

Enterprise Division:
Direct offices	$	38,471	$	27,070	$	3,640
International licensees		3,677		2,862		1,629
		42,148		29,932		5,269
Education practice		10,347		6,393		(265)
Corporate and eliminations		1,334		458		(1,835)
Consolidated	$	53,829	$	36,783	$	3,169

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



	Quarter Ended
		November 30,		November 30,
		2019		2018
Segment Adjusted EBITDA	$	6,643	$	5,004
Corporate expenses		(1,682)		(1,835)
Consolidated Adjusted EBITDA		4,961		3,169
Stock-based compensation expense		(1,851)		(946)
Increase in the fair value of contingent
consideration liabilities		(91)		(24)
Knowledge Capital wind-down costs		(389)		-
Licensee transition costs		-		(60)
Depreciation		(1,619)		(1,554)
Amortization		(1,170)		(1,238)
Loss from operations		(159)		(653)
Interest income		5		28
Interest expense		(606)		(632)
Loss before income taxes		(760)		(1,257)
Income tax benefit (provision)		216		(100)
Net loss	$	(544)	$	(1,357)

Revenue by Category

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



	Quarter Ended
		November 30,		November 30,
		2019		2018

Americas	$	44,036	$	40,918
Asia Pacific		10,139		9,280
Europe/Middle East/Africa		4,438		3,631
	$	58,613	$	53,829

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



Quarter Ended		Services and						Leases and
November 30, 2019		Products		Subscriptions		Royalties		Other		Consolidated

Enterprise Division:
Direct offices	$	27,251	$	14,288	$	572	$	-	$	42,111
International licensees		590		-		3,131		-		3,721
		27,841		14,288		3,703		-		45,832
Education practice		3,585		6,818		679		-		11,082
Corporate and eliminations		-		-		379		1,320		1,699
Consolidated	$	31,426	$	21,106	$	4,761	$	1,320	$	58,613

Quarter Ended
November 30, 2018

Enterprise Division:
Direct offices	$	25,009	$	12,675	$	787	$	-	$	38,471
International licensees		872		-		2,805		-		3,677
		25,881		12,675		3,592		-		42,148
Education practice		3,917		5,713		717		-		10,347
Corporate and eliminations		-		-		-		1,334		1,334
Consolidated	$	29,798	$	18,388	$	4,309	$	1,334	$	53,829