FRANKLIN COVEY CO

Previous wording

This Management’s Discussion and Analysis includes the concept of Adjusted EBITDA which is a non-GAAP financial measure. We define Adjusted EBITDA as net income excluding the impact of interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items, including infrequently occurring items such as restructuring and impaired asset costs. We reference this non-GAAP measure in our decision making because it provides supplemental information that facilitates consistent internal comparisons to the historical operating performance of prior periods and we believe it provides investors with greater transparency to evaluate operational activities and financial results. For a reconciliation of our segment Adjusted EBITDA to net income, a related GAAP measure, refer to Note 9, Segment Information, to our condensed consolidated financial statements.

Current wording

This Management’s Discussion and Analysis includes the concept of Adjusted EBITDA which is a non-GAAP financial measure. We define Adjusted EBITDA as net income excluding the impact of interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items, including infrequently occurring items such as restructuring and impaired asset costs. We reference this non-GAAP measure in our decision making because it provides supplemental information that facilitates consistent internal comparisons to the 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, a related GAAP measure, refer to Note 9, Segment Information, to our condensed consolidated financial statements.

Previous wording

o Enterprise Division revenues totaled $45.7 million compared with $46.6 million in the second quarter of fiscal 2023. Increased AAP revenues in the quarter were offset primarily by decreased legacy training program sales, decreased subscription services, and reduced international licensee revenues. AAP subscription sales grew 9% compared with the second quarter of fiscal 2023 and AAP subscription and subscription services sales grew 6% compared with the prior year. For the rolling four quarters ended February 29, 2024, AAP subscription and subscription services sales increased 5% to $162.1 million compared with $154.4 million for the rolling four quarters ended February 28, 2023. During the first two quarters of fiscal 2024, AAP subscription revenue retention levels in the United States and Canada remained strong and were greater than 90%.

Current wording

o Enterprise Division revenues for the third quarter of fiscal 2024 totaled $52.0 million compared with $53.2 million in fiscal 2023. Increased All Access Pass (AAP) revenues in the third quarter were offset by decreased legacy training program revenue and reduced international direct office and licensee revenues. AAP subscription revenue grew 4% compared with the third quarter of fiscal 2023 and AAP subscription plus subscription services revenue grew 3% compared with the prior year. During the first three quarters of fiscal 2024, AAP subscription revenue retention levels in the United States and Canada remained strong and were greater than 90%.

Previous wording

o Subscription and subscription services sales reached $50.3 million, a 5% increase over the second quarter of the prior year. For the rolling four quarters ended February 29, 2024, subscription and subscription service sales reached a record level of $227.3 million, a $10.0 million, or 5%, increase over the rolling four quarters ended February 28, 2023.

Current wording

o Our consolidated subscription and subscription services revenues reached $60.8 million, a 6% increase over the third quarter of fiscal 2023. For the rolling four quarters ended May 31, 2024, subscription and subscription service revenue reached $230.6 million, an $8.4 million, or 4%, increase over the rolling four quarters ended May 31, 2023.

Previous wording

o The sum of billed subscription and unbilled deferred subscription revenue at February 29, 2024 grew 9%, or $13.0 million, to $158.8 million, compared with $145.8 million at February 28, 2023. 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. At February 29, 2024, 56% of our AAP contracts are for at least two years, compared with 50% at February 28, 2023, and the percentage of contracted amounts represented by multi-year contracts increased to 62% from 57% at the end of the second quarter of fiscal 2023.

Current wording

o Consolidated deferred subscription revenue at May 31, 2024 increased 15% to $83.8 million compared with $72.7 million at May 31, 2023. At May 31, 2024, 55% of our AAP contracts are for at least two years, compared with 50% at May 31, 2023, and the percentage of contracted amounts represented by multi-year contracts increased to 60% from 57% at May 31, 2023.

Previous wording

The following is a summary of consolidated financial highlights from our second quarter of fiscal 2024:

Current wording

The following is a summary of other consolidated financial highlights from our third quarter of fiscal 2024:

Previous wording

Cost of Sales/Gross Profit – For the second quarter of fiscal 2024, our cost of sales was consistent with the prior year at $14.5 million. Gross profit for the quarter ended February 29, 2024, was $46.9 million compared with $47.2 million in the corresponding period of fiscal 2023. Our gross margin for the second quarter of fiscal 2024 remained strong and was consistent with the prior year at 76.4% of sales. Cost of goods sold and gross profit each decreased primarily due to sales performance as previously described.

Current wording

Cost of Revenue/Gross Profit – For the quarter ended May 31, 2024, our cost of revenue was consistent with the prior year at $17.2 million. Gross profit for the quarter ended May 31, 2024, was $56.2 million compared with $54.2 million in the third quarter of fiscal 2023. Our gross margin for the third quarter of fiscal 2024 remained strong and increased to 76.6% of revenue compared with 75.9% in the prior year. The improvement was primarily due to a change in the mix of services provided and products sold compared with the prior year.

Previous wording

Income Taxes –Our income taxprovision for the quarter ended February 29, 2024, was $0.5 million compared with $1.0 million in the second quarter of fiscal 2023. Our effective tax rate for the second quarter was generally consistent with the prior year at 38.2% in fiscal 2024, compared with 37.5% in fiscal 2023. The effective tax rates for the second quarters of both fiscal 2024 and 2023 were higher than statutory rates primarily due to non-deductible executive compensation and additional income tax related to foreign earnings.

Current wording

Income Taxes –Our income tax provision for the quarter ended May 31, 2024, was $2.6 million compared with $2.0 million in the third quarter of fiscal 2023. Our effective tax rate for the third quarter of fiscal 2024 was generally consistent with the prior year at 31.6% compared with 30.7% in fiscal 2023. The effective tax rates for the third quarters of both fiscal 2024 and 2023 were higher than statutory rates primarily due to non-deductible executive compensation, non-deductible meals and entertainment expense, and additional income tax expense related to foreign earnings.

Previous wording

Operating Income, Net Income, and Adjusted EBITDA– Our income from operations for the quarter ended February 29, 2024, was $1.4 million compared with $2.8 million in the prior year, which reflected the above noted factors. Net income for the second quarter of fiscal 2024 was $0.9 million, or $0.06 per diluted share, compared with $1.7 million, or $0.12 per diluted share, in fiscal 2023. Our Adjusted EBITDA for the quarter ended February 29, 2024, was $7.4 million, compared with $8.2 million in the second quarter of the prior year.

Current wording

Operating Income, Net Income, and Adjusted EBITDA– Our income from operations for the quarter ended May 31, 2024, increased 27%, or $1.8 million, to $8.3 million compared with $6.6 million in the prior year, which reflected the above noted factors. Net income for the third quarter of fiscal 2024 increased 25% to $5.7 million, or $0.43 per diluted share, compared with $4.6 million, or $0.32 per diluted share, in the prior year. Our Adjusted EBITDA for the quarter ended May 31, 2024, increased 17%, or $2.0 million, to $13.9 million, compared with $11.9 million in the third quarter of fiscal 2023. For the three quarters ended May 31, 2024, our Adjusted EBITDA increased to $32.3 million, compared with $31.6 million in the prior year.

Previous wording

Cash Flows –Our cash flows from operating activities increased to $30.2 million compared with $11.2 million in the first two quarters of fiscal 2023. The increase was primarily due to favorable changes in working capital and featured strong collections of accounts receivable and reduced payments for accounts payable and accrued liabilities.

Current wording

Cash Flows –Our cash flows from operating activities for the first three quarters of fiscal 2024 increased to $38.4 million compared with $25.9 million in the first three quarters of fiscal 2023. The increase was primarily due to favorable changes in working capital and featured strong collections of accounts receivable and reduced payments for accounts payable and accrued liabilities.

Previous wording

Purchases of Common Stock – During the first two quarters of fiscal 2024, we purchased 460,609 shares of our common stock for $18.4 million, including 251,686 shares withheld for income taxes on stock-based compensation awards and 208,923 shares purchased on the open market under the terms of a Board of Director approved purchase plan (see Note 3, Purchases of Common Stock for Treasury, to our condensed consolidated financial statements).

Current wording

Purchases of Common Stock – During the quarter ended May 31, 2024, we purchased 188,373 shares of our common stock on the open market for $7.4 million. Over the first three quarters of fiscal 2024, we purchased approximately 649,000 shares of our common stock for $25.8 million (see Note 3, Purchases of Common Stock for Treasury, to our condensed consolidated financial statements).

Previous wording

Liquidity and Financial Position –Even after the purchase of $18.4 million of common stock during the first two quarters of 2024, our liquidity and financial position remained strong. At February 29, 2024, we had over $103 million of available liquidity which consisted of $40.9 million of cash and our undrawn $62.5 million line of credit.

Current wording

Liquidity and Financial Position –Even after the purchase of $25.8 million of common stock during the first three quarters of 2024, our liquidity and financial position remained strong. At May 31, 2024, we had nearly $100 million of available liquidity which consisted of $36.6 million of cash and our undrawn $62.5 million line of credit.

Previous wording

Further details regarding our results for the quarter and two quarters ended February 29, 2024 are provided throughout the following management’s discussion and analysis.

Current wording

Further details regarding our results for the quarter and three quarters ended May 31, 2024, are provided throughout the following management’s discussion and analysis.

Previous wording

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 and books and audio department.

Current wording

The Direct Office segment includes our 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 and books and audio department.

Previous wording

Sales. For the second quarter of fiscal 2024, our Direct Office segment revenue was $43.0 million compared with $43.6 million in the prior year. During the second quarter, our AAP subscription sales grew 9% compared with the second quarter of fiscal 2023 and AAP subscription and subscription services grew 6% to $37.5 million for the quarter. For the quarter ended February 29, 2024, AAP subscription revenue retention levels remained strong and were greater than 90%. Consistent with the first quarter, subscription sales growth in the second quarter was offset by decreased legacy onsite presentation and subscription add-on services revenue in the Company’s domestic and international offices. Add-on services and days delivered reached record high levels in the first quarter of fiscal 2023 and have trended downward in subsequent quarters. However, our booking pace for the second half of fiscal 2024 is improving and we expect to see subscription services growth later in fiscal 2024. Foreign direct office sales continue to be impacted by weak economic conditions in many of the countries in which we operate, and sales were flat in the second quarter compared with the prior year. 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. The sum of deferred subscription revenue on our balance sheet combined with unbilled multi-year contracts entered into, increased 9%, or $13.0 million, to a second-quarter record $158.8 million, compared with $145.8 million at February 28, 2023. 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 revenue growth in future periods. The fluctuation of foreign exchange rates had a $0.2 million adverse impact on our Direct Office sales and operating results for the quarter ended February 29, 2024.

Current wording

Revenue. For the quarter ended May 31, 2024, our Direct Office segment revenue totaled $49.3 million compared with $50.4 million in fiscal 2023. During the third quarter of fiscal 2024, our AAP subscription revenue grew 4% compared with the prior year and AAP subscription plus subscription services revenues grew 3% to $42.6 million for the quarter. During the third quarter our AAP subscription revenue retention levels remained strong and were greater than 90%. Consistent with the first and second quarters of fiscal 2024, subscription revenue growth in the third quarter was offset by decreased legacy onsite presentations in the Company’s domestic and international offices. However, add-on services in our domestic sales operations increased slightly in the third quarter and the booking pace for future add-on services strengthened during the quarter. Foreign direct office revenue performance during the third quarter was primarily impacted by decreased revenues in China, which declined 39% compared with the prior year. Our China office revenue continues to be adversely impacted by current Chinese governmental actions and initiatives. Revenue increased at all of our other international direct office locations, which partially offset decreased China revenue. Despite a challenging and uncertain economic environment, we remain confident in the strength and durability of our AAP offering, our principle-based content, and our subscription business model in both our domestic and international markets. We believe the combination of these strengths will continue to help our clients solve difficult issues and will continue to drive growth and stakeholder value in future periods. The fluctuation of foreign exchange rates had a $0.3 million adverse impact on our Direct Office revenue and a $0.2 million unfavorable impact on its operating results for the quarter ended May 31, 2024.

Previous wording

Gross Profit. Gross profit decreased primarily due to sales performance as previously described. Direct Office gross margin remained strong and increased to 82.7% of sales compared with 82.1% in the prior year. Our Direct Office gross margin improved primarily due to the mix of services and products sold to clients compared with the prior year.

Current wording

Gross Profit. Gross profit decreased primarily due to sales performance as previously described. Direct Office gross margin remained strong and increased to 81.4% of sales compared with 80.2% in the prior year. Our Direct Office gross margin improved primarily due to the mix of services provided and products sold to clients compared with the prior year.

Previous wording

SG&A Expense. Direct Office SG&A expense increased primarily due to increased associate and travel costs compared with the prior year.

Current wording

SG&A Expense. Direct Office SG&A expense decreased primarily due to less associate costs resulting from decreased headcount and lower variable compensation on less revenue compared with the prior year.

Previous wording

Sales. International licensee sales are primarily comprised of royalty revenues. In the second quarter of fiscal 2024, our international licensees’ revenue decreased by 6%, which was primarily due to an 8% decrease in royalty revenues, and a 7% decrease in our share of AAP revenue during the quarter, which was partially offset by increased licensee support revenues. Licensee royalties declined primarily due to economic challenges and staffing issues in certain of the countries in which our licensees operate. While we remain optimistic that our licensees’ sales and our corresponding royalty revenues will grow during fiscal 2024, difficult macroeconomic conditions, such as slowing economic growth and regional conflicts may negatively impact our licensees’ operations and our royalty revenues in future periods. Foreign exchange rates had a $0.1 million adverse impact on international licensee sales and operating results for the quarter ended February 29, 2024.

Current wording

Revenue. International licensee revenue is primarily comprised of royalties on sales of our content by the licensees. In the third quarter of fiscal 2024, our international licensees’ revenue decreased by 5%, which was primarily due to a 4% decrease in royalty revenues and a small decrease in our share of AAP revenue during the quarter. Licensee royalty revenue declined primarily due to economic challenges in certain of the countries in which our licensees operate and staffing issues at some of the licensee operations. While we remain optimistic that our licensees’ sales and our corresponding royalty revenues will grow during fiscal 2024, difficult macroeconomic conditions, such as slowing economic growth and regional conflicts may negatively impact our licensees’ operations and our royalty revenues in future periods. Foreign exchange rates had a $0.1 million adverse impact on international licensee revenues and operating results for the quarter ended May 31, 2024.

Previous wording

Gross Profit. Gross profit decreased due to licensee revenue performance as previously described. Licensee gross margin was 86.4% compared with 90.6% in the second quarter of fiscal 2023 and declined primarily due to the mix of revenue recognized during the third quarter, which included less royalty revenue than in the prior year.

Current wording

Gross Profit. Gross profit decreased due to licensee revenue performance as previously described. International licensee gross margin was generally consistent with the prior year at 90.2% compared with 89.9% in fiscal 2023.

Previous wording

SG&A Expense. International licensee SG&A expenses decreased primarily due to cost savings initiatives enacted during the second quarter of fiscal 2024.

Current wording

SG&A Expense. International licensee SG&A expenses decreased slightly due to cost savings initiatives enacted during the third quarter of fiscal 2024.

Previous wording

Sales. Education Division sales for the quarter ended February 29, 2024, increased 3%, or $0.4 million, compared with the prior year. This growth was primarily due to increased membership subscription revenues in the quarter and increased sales of classroom and training materials. Education subscription and subscription services revenues increased 4% compared with the prior year primarily due to increased annual membership revenue recognized from new schools engaged in fiscal 2023. The delivery of training and coaching days remained strong, and during the second quarter of fiscal 2024 the Education Division delivered nearly 100 more training and coaching days than the prior year, which are recognized in sales as they are delivered. We continue to be pleased with the strength and momentum of our Education Division, which added a record 791 new Leader in Me schools during fiscal 2023. We believe this positive momentum generated in fiscal 2023 and in the first half of fiscal 2024 will continue through the remainder of fiscal 2024. At February 29, 2024, we had over 3,600 schools using the Leader in Me program in the United States and Canada.

Current wording

Revenue. Education Division revenue for the quarter ended May 31, 2024, increased 18%, or $3.0 million, compared with the prior year. This growth was primarily due to increased sales of classroom and training materials, due in part to a new initiative with a state that began in the third quarter, and increased membership subscription revenues. We invoiced $4.9 million related to this new state-wide initiative in the third quarter, which included $1.4 million of classroom and training materials. Training materials are recognized in revenue upon shipment of the product. Education subscription and subscription services revenues in the third quarter of fiscal 2024 increased 13% compared with the prior year. In addition, the delivery of training and coaching days remained strong, and during the third quarter of fiscal 2024 the Education Division delivered nearly 100 more training and coaching days than the prior year, which are recognized as revenue when they are delivered. We continue to be pleased with the strength and momentum of our Education Division, which added a record 791 new Leader in Me schools during fiscal 2023. We believe this positive momentum generated in fiscal 2023 and in the first three quarters of fiscal 2024 will continue through the remainder of fiscal 2024. At May 31, 2024, we had over 3,800 schools using the Leader in Meprogram in the United States and Canada.

Previous wording

SG&A Expenses. Education SG&A expenses increased primarily due to increased associate expenses from new personnel and changes to compensation plans.

Current wording

SG&A Expenses. Education SG&A expenses increased primarily due to increased commissions on higher revenue, new personnel, and changes to compensation plans.

Previous wording

Depreciation –Depreciation expense for the second quarter of fiscal 2024 was $0.9 million, compared with $1.0 million in the second quarter of fiscal 2023, and decreased primarily due to the full depreciation of certain assets. We currently expect depreciation expense to total approximately $5.0 million in fiscal 2024. Our estimated depreciation expense is somewhat dependent on leasehold improvements that may be necessary on our corporate campus as we approach the end of the master lease agreement in fiscal 2025. Therefore, our fiscal 2024 depreciation expense may differ from current expectations.

Current wording

Depreciation –Depreciation expense for the quarter ended May 31, 2024, was $1.0 million, compared with $0.9 million in the quarter ended May 31, 2023, and increased primarily due to new assets acquired or put into service during the third quarter of fiscal 2024. We currently expect depreciation to total approximately $4.4 million in fiscal 2024. Our estimated depreciation expense is somewhat dependent on leasehold improvements that may be necessary on our corporate campus as we approach the end of the master lease agreement in fiscal 2025. Therefore, our fiscal 2024 depreciation expense may differ from current expectations.

Previous wording

Amortiza tion –Amortization expense during the quarter ended February 29, 2024, was consistent with the second quarter of the prior year at $1.1 million. We currently expect definite-lived intangible asset amortization expense will total $4.2 million during fiscal 2024.

Current wording

Amortiza tion –Amortization expense during the quarter ended May 31, 2024, was consistent with the third quarter of fiscal 2023 at $1.1 million. We currently expect definite-lived intangible asset amortization expense will total $4.3 million during fiscal 2024.

Previous wording

Interest Expense – Our interest expense decreased $0.1 million compared with the second quarter of the prior year primarily due to decreased term loan and financing obligation liabilities as payments have been made in the normal course of business.

Current wording

Interest Expense – Our interest expense decreased $0.1 million compared with the third quarter of the prior year due to decreased term loan and financing obligation liabilities as payments have been made in the normal course of business.

Previous wording

Our income tax provision for the quarter ended February 29, 2024, was $0.5 million compared with $1.0 million in the second quarter of fiscal 2023. Our effective tax rate for the second quarter of fiscal 2024 was generally consistent with the prior year at 38.2% compared with 37.5% percent in fiscal 2023. The effective tax rates for the second quarters of both fiscal 2024 and 2023 were higher than statutory rates primarily due to non-deductible executive compensation and additional income tax related to foreign earnings.

Current wording

Our income tax provision for the quarter ended May 31, 2024, was $2.6 million compared with $2.0 million in the third quarter of fiscal 2023. Our effective tax rate for the third quarter of fiscal 2024 was generally consistent with the prior year at 31.6% compared with 30.7% in fiscal 2023. The effective tax rates for the third quarters of both fiscal 2024 and 2023 were higher than statutory rates primarily due to non-deductible executive compensation, non-deductible meals and entertainment expense, and additional income tax expense related to foreign earnings.

Previous wording

Sales. For the first two quarters of fiscal 2024, our Direct Office segment revenue was $92.2 million compared with $93.8 million in the first half of fiscal 2023. During fiscal 2024, our AAP subscription sales grew 11% to $53.1 million compared with the first two quarters of fiscal 2023 and our AAP subscription and subscription services grew 5% compared with the prior year. For the rolling four quarters ended February 29, 2024, AAP subscription and subscription services sales increased 5% to $162.1 million compared with $154.4 million for the rolling four quarters ended February 28, 2023. During the first two quarters of fiscal 2024, AAP subscription revenue retention levels remained strong and were greater than 90%. However, subscription sales growth in our Direct Offices for the first two quarters of fiscal 2024 was offset by decreased legacy onsite presentation and add-on subscription services revenue in both of the Company’s domestic and international offices. Our booking pace for subscription services in the second half of fiscal 2024 has strengthened and we expect improved subscription service sales later in the fiscal year. Foreign direct office sales in the first half of fiscal 2024 were adversely impacted by continued weak economic conditions in many of the countries in which we operate, and sales in these offices decreased by $0.6 million compared with the first half of the prior year. The fluctuation of foreign exchange rates had a $0.3 million adverse impact on our Direct Office sales and a $0.2 million unfavorable impact on our Direct Office operating results for the first two quarters of fiscal 2024.

Current wording

Revenue. Through the first three quarters of fiscal 2024, our Direct Office segment revenue was $141.5 million compared with $144.2 million in fiscal 2023. During fiscal 2024, our AAP subscription revenue grew 8% to $79.4 million compared with the first three quarters of fiscal 2023 and our AAP subscription plus subscription services revenues grew 5% to $121.6 million compared with the prior year. During the first three quarters of fiscal 2024, AAP subscription revenue retention levels remained strong and were greater than 90%. Increased subscription revenue growth in our Direct Offices during the first three quarters of fiscal 2024 was offset by decreased legacy onsite presentation and add-on subscription services revenue in both the Company’s domestic and international offices. However, the booking pace for subscription services strengthened in the third quarter of fiscal 2024 and we are confident that subscription service sales will improve in the fourth quarter and into fiscal 2025. Foreign direct office sales in the first three quarters of fiscal 2024 were adversely impacted by decreased revenue in our China operations and by weak economic conditions in many of the countries in which we operate. Fiscal 2024 revenue from our China office decreased by 20% compared with the prior year and the other international direct officers were essentially flat compared with fiscal 2023. The fluctuation of foreign exchange rates had a $0.6 million adverse impact on our Direct Office revenue and a $0.4 million unfavorable impact on our Direct Office operating results in the first three quarters of fiscal 2024.

Previous wording

Gross Profit. Gross profit decreased primarily due to sales performance as previously described. Direct Office gross margin remained strong and increased to 81.4% of sales compared with 80.8% in the prior year. Our Direct Office gross margin improved primarily due to the mix of services and products sold to clients compared with the prior year.

Current wording

Gross Profit. Gross profit decreased primarily due to sales performance as previously described. Direct Office gross margin remained strong and increased to 81.4% of sales compared with 80.6% in the prior year. Our Direct Office gross margin improved primarily due to the mix of services and products sold to clients compared with the prior year.

Previous wording

SG&A Expense. Direct Office SG&A expense decreased primarily due to decreased associate costs resulting from lower variable compensation resulting from decreased sales in fiscal 2024.

Current wording

SG&A Expense. Direct Office SG&A expense decreased primarily due to decreased associate costs resulting from lower variable compensation on decreased revenue and reduced headcount compared with the prior year.

Previous wording

Sales. During the first two quarters of fiscal 2024, our international licensees’ revenue decreased by 1%, which was primarily due to a 3% decrease in royalty revenues. Decreased royalty revenue was partially offset by increased licensee support revenues during the first half of fiscal 2024. Foreign exchange rates had an insignificant impact on international licensee sales and operating results during the two quarters ended February 29, 2024.

Current wording

Revenue. During the first three quarters of fiscal 2024, our international licensees’ revenue decreased by 3%, which was due to a 3% decrease in royalty revenues. Decreased royalty revenue was partially offset by increased licensee support revenues during the first three quarters of fiscal 2024. Foreign exchange rates had a $0.2 million adverse impact on international licensee sales and operating results for the three quarters ended May 31, 2024.

Previous wording

Gross Profit. Gross profit decreased primarily due to lower licensee revenues as previously discussed. Gross margin was 88.6% compared with 90.7% in the first half of fiscal 2023 and decreased primarily due to the mix of revenue recognized during fiscal 2024, which included less royalty revenue and more licensee support revenues than in the prior year.

Current wording

Gross Profit. Gross profit decreased primarily due to lower licensee revenues as previously discussed. Gross margin was 89.1% compared with 90.5% in the first three quarters of fiscal 2023 and decreased primarily due to the mix of revenue recognized during fiscal 2024, which included less royalty revenue and more licensee support revenues than in the prior year.

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SG&A Expense. International licensee SG&A expenses decreased by $0.1 million compared with the prior year primarily due to efforts to reduce operating expenses in the international licensee segment that were initiated during the second quarter.

Current wording

SG&A Expense. International licensee SG&A expenses decreased by $0.1 million compared with the prior year primarily due to efforts to reduce operating expenses in the international licensee segment that were initiated during fiscal 2024.

Previous wording

Sales. Education Division sales for the two quarters ended February 29, 2024, increased 3%, or $0.8 million, compared with the first two quarters of fiscal 2023. Fiscal 2024 growth was primarily driven by increased membership subscription revenues and higher international royalties, which were partially offset by decreased sales of classroom and training materials. Education subscription and subscription services revenues increased 2% compared with the prior year primarily due to increased annual membership revenue recognized and delivery of contracted coaching and training days from new schools engaged in fiscal 2023. During the first two quarters of fiscal 2024, the Education Division delivered nearly 300 more training and coaching days than the prior year, which are recognized as sales when they are delivered. We continue to be pleased with the Education Division performance and believe the momentum generated in fiscal 2023 and in the first half of fiscal 2024 will continue through the remainder of fiscal 2024.

Current wording

Revenue. Education Division revenue through May 31, 2024, increased 8%, or $3.8 million, compared with the first three quarters of fiscal 2023. Fiscal 2024 growth was primarily driven by increased revenues from classroom and training materials, membership subscriptions, and international royalties. Education subscription and subscription services revenues increased 6% compared with the prior year. Delivery of coaching and training days also remained strong during the first three quarters of fiscal 2024, as the Education Division delivered over 300 more training and coaching days than in fiscal 2023. We continue to be pleased with the Education Division performance and believe the momentum generated in fiscal 2023 and in the first three quarters of fiscal 2024 will continue in the fourth quarter and contribute to a strong finish to fiscal 2024.

Previous wording

Gross Profit. Education Division gross profit increased primarily due to sales growth as previously described. Education segment gross margin remained strong at 59.0% of sales compared with 59.1% in the prior year.

Current wording

Gross Profit. Education Division gross profit increased primarily due to sales growth as previously described. Education segment gross margin remained strong during fiscal 2024 and increased to 63.1% compared with 62.5% in fiscal 2023. The increase was primarily attributable to a change in the mix of services delivered and products sold during the fiscal year.

Previous wording

SG&A Expenses. Education SG&A expenses increased primarily due to increased associate expenses from new personnel and changes to compensation plans.

Current wording

SG&A Expenses. Education SG&A expenses increased primarily due to increased associate expenses from new personnel, changes to compensation plans, and increased commission on higher revenue.

Previous wording

Depreciation –Depreciation expense for the first two quarters of fiscal 2024 was $2.0 million, compared with $2.2 million in the first half of fiscal 2023, and decreased primarily due to the full depreciation of certain assets.

Current wording

Depreciation –Depreciation expense for the three quarters ended May 31, 2024, was $3.0 million, compared with $3.1 million in the corresponding period of fiscal 2023, and decreased primarily due to the full depreciation of certain assets.

Previous wording

Amortiza tion –Amortization expense during the first half of fiscal 2024 was $2.1 million compared with $2.2 million in the corresponding period of the prior year. Amortization expense decreased primarily due the full amortization of certain intangible assets generated from previous business acquisitions.

Current wording

Amortiza tion –Amortization expense for the first three quarters of fiscal 2024 was $3.2 million compared with $3.3 million in the corresponding period of the prior year. Amortization expense decreased primarily due to the full amortization of certain intangible assets generated from previous business acquisitions.

Previous wording

Interest Expense – Our interest expense decreased $0.2 million compared with the first half of the prior year primarily due to decreased term loan and financing obligation liabilities as payments have been made in the normal course of business.

Current wording

Interest Expense – Our interest expense decreased $0.3 million compared with the first three quarters of fiscal 2023 primarily due to decreased term loan and financing obligation liabilities as payments have been made in the normal course of business.

Previous wording

Our effective tax rate for the first two quarters of fiscal 2024 was lower than the effective rate for the first half of fiscal 2023 primarily due to a $3.2 million tax benefit for stock-based compensation deductions in the first quarter of fiscal 2024 that exceeded the corresponding expense for book purposes, which was partially offset by $2.2 million of tax expense for the non-deductible portion of stock-based compensation paid to executives. These stock-based compensation factors produced a net benefit of $1.0 million or 15.1%, in the first two quarters of fiscal 2024.

Current wording

Our income tax provision for the first three quarters of fiscal 2024 was $3.6 million on pre-tax income of $15.1 million, for an effective tax rate of 24.0%, compared with an effective rate of 28.9% for the three quarters ended May 31, 2023, when we recorded income tax expense of $4.5 million on pre-tax income of $15.4 million. Our effective tax rate for the first three quarters of fiscal 2024 was lower than the effective rate in fiscal 2023 primarily due to a $3.2 million tax benefit for stock-based compensation deductions in the first quarter of fiscal 2024 that exceeded the corresponding expense for book purposes, which was partially offset by $2.2 million of tax expense for the non-deductible portion of stock-based compensation paid to executives. These stock-based compensation factors produced a net benefit of $1.0 million, or 6.6%, in the first three quarters of fiscal 2024.

Previous wording

We currently expect our effective income tax rate for the full fiscal 2024 year to be approximately 30%, including a net benefit of 2% for stock-based compensation, compared with the effective rate of 14.4% for the first two quarters of fiscal 2024, including the net benefit of 15.1% for stock-based compensation discussed above.

Current wording

We currently expect our effective income tax rate for the full fiscal 2024 year to be approximately 30%, including a net benefit of 2% from stock-based compensation, compared with the effective rate of 24.0% for the first three quarters of fiscal 2024, including the net benefit of 6.6% for stock-based compensation discussed above.

Previous wording

During the first half of fiscal 2024 we paid $1.6 million of cash for income taxes. We anticipate that our total cash paid for income taxes over the coming one to two 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.

Current wording

During the first three quarters of fiscal 2024 we paid $3.0 million of cash for income taxes. During the fourth quarter of fiscal 2024, we expect to pay significantly less cash for income taxes thanour income tax provision for the quarter as we expect to utilize nearly all of our remaining U.S. domestic net operating loss carryforwards and foreign tax credit carryforwards. In fiscal 2025 and in subsequent years, we expect that our cash paid for income taxes will approximate our total income tax provision for each year.