Stock-Based Compensation Plans

12 Months Ended

Aug. 31, 2022

Stock-Based Compensation Plans [Abstract]

12. STOCK-BASED COMPENSATION PLANS

Overview

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

On January 14, 2022, our shareholders approved the Franklin Covey Co. 2022 Omnibus Incentive Plan (the 2022 Plan), which authorized an additional 1,000,000 shares of common stock for issuance as stock-based payments. A more detailed description of the 2022 Plan is set forth in our Definitive Proxy Statement filed with the SEC on December 15, 2021. At August 31, 2022, the 2022 Plan had approximately 838,000 shares available for future grants.

Our employee stock purchase plan (ESPP) is administered under the terms of the Franklin Covey Co. 2017 Employee Stock Purchase Plan, which was approved by our shareholders at the annual meeting of shareholders held on January 26, 2018. For additional information regarding the Franklin Covey Co. 2017 Employee Stock Purchase Plan, please refer to our definitive Proxy Statement as filed with the SEC on December 22, 2017. At August 31, 2022, we had approximately 773,000 shares available for purchase by plan participants under the terms of the current shareholder-approved ESPP.

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



YEAR ENDED
AUGUST 31,		2022		2021		2020
Performance awards	$	6,133	$	7,298	$	(1,518)
Strive acquisition compensation		1,196		354		-
Unvested stock awards		673		700		700
Compensation cost of the ESPP		239		205		185
Fully vested stock awards		45		60		60
	$	8,286	$	8,617	$	(573)

No stock-based compensation was capitalized during the fiscal years presented in this report. We recognize forfeitures of stock-based compensation instruments as they occur. During fiscal 2022, we issued 272,060 shares of our common stock from shares held in treasury for various stock-based compensation arrangements, including the ESPP. Our stock-based compensation plans allow shares to be withheld from the award to pay the participants’ statutory income tax liabilities. We withheld 86,125 shares of our common stock, with a fair value of $3.5 million, for statutory income taxes during fiscal 2022.

At each quarterly or annual reporting date, we evaluate the number and probability of shares expected to vest in each of our performance-based long-term incentive plan (LTIP) awards and adjust our stock-based compensation expense to correspond with the number of shares expected to vest over the anticipated service period. Due to the significant impact of the COVID-19 pandemic on our results of operations in the third quarter of fiscal 2020 and the uncertainties surrounding the recovery of the world’s economies and our business, we determined that the LTIP award tranches based on qualified Adjusted EBITDA for outstanding LTIP awards (except the fiscal 2018 LTIP award) would not vest before the end of the respective service periods. We therefore reversed the previously recognized stock-based compensation expense associated with these awards during fiscal 2020, which produced a benefit from stock-based compensation for the year. On October 2, 2020, the Compensation Committee modified the terms of our performance-based LTIP award tranches to extend the service period of each financial-metric based tranche by two years and increase each qualified Adjusted EBITDA vesting target by $2.0 million. No time-based vesting LTIP tranches were modified. During fiscal 2022 and fiscal 2021 we reassessed the probability of awards vesting under the modified conditions and have expensed awards based on the new vesting requirements and expected financial results over the revised service periods.

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

Performance Awards

The Compensation Committee has awarded various performance-based stock compensation awards to members of our senior management as long-term incentive-based compensation. These awards vest to the participants based upon the achievement of specified performance criteria. Compensation expense is recognized as we determine it is probable that the shares will vest. Adjustments to compensation expense to reflect the timing of and the number of shares expected to be awarded are made on a cumulative basis at the date of the adjustment. We reevaluate the likelihood and/or the number of shares expected to vest under performance awards at each reporting date. Based on current estimates and projections, we have $10.6 million of unrecognized compensation expense related to our annual LTIP awards at August 31, 2022. The following is a description of our performance-based awards as of August 31, 2022.

Fiscal 2022 LTIP Award – On February 4, 2022, the Compensation Committee granted a new LTIP award to our executive officers and members of senior management. The fiscal 2022 LTIP award has two tranches, which consist of the following: 1) shares that vest after three years of service and 2) shares that vest based on the achievement of specified levels of qualified Adjusted EBITDA. Twenty-five percent of a participant’s award vests after three years of service, and the number of shares awarded in this tranche does not fluctuate based on financial measures. The number of shares granted in this tranche totals 24,649 shares. The remaining tranche is based on the highest rolling four-quarter level of qualified Adjusted EBITDA achieved in the three-year period ended August 31, 2024. The number of shares that will vest to participants for this tranche is variable and may be 50 percent of the award (minimum award threshold) or up to 200 percent of the participant’s award (maximum threshold) depending on the level of qualified Adjusted EBITDA

achieved. The number of shares that may be earned for achieving 100 percent of the performance-based objective totals 73,929 shares. The maximum number of shares that may be awarded in connection with the performance-based tranche of the 2022 LTIP totals 147,858 shares.

Fiscal 2021 LTIP Award – On October 2, 2020, the Compensation Committee of the Board of Directors granted a new LTIP award to our executive officers and members of senior management. The fiscal 2021 LTIP award has two tranches, which consist of the following: 1) shares that vest after three years of service and 2) the achievement of specified levels of qualified Adjusted EBITDA. Twenty-five percent of a participant’s award vests after three years of service, and the number of shares awarded in this tranche does not fluctuate based on financial measures. The number of shares granted in this tranche totals 52,696 shares. The remaining tranche is based on the highest rolling four-quarter level of qualified Adjusted EBITDA achieved in the three-year period ended August 31, 2023. The number of shares that will vest to participants for this tranche is variable and may be 50 percent of the award (minimum award threshold) or up to 200 percent of the participant’s award (maximum threshold) depending on the level of qualified Adjusted EBITDA achieved. The number of shares that may be earned for achieving 100 percent of the performance-based objective totals 158,088 shares. The maximum number of shares that may be awarded in connection with the performance-based tranche of the 2021 LTIP totals 316,176 shares.

Strive Acquisition Compensation – We structured two parts of the consideration for the fiscal 2021 acquisition of Strive (Note 3) as potentially payable in shares of our common stock. Each of the following amounts may be payable in shares of our common stock or cash at our sole discretion:

Contingent Consideration – A maximum of approximately $4.2 million may be earned by the former principal owner of Strive over a five-year period ending in May 2026. The total value of this consideration is contingent upon sales and growth of the All Access Pass subscription and subscription services revenues during the five-year measurement period. We measure the contingent consideration each quarter and divide the total by the average of the closing share price of our common stock on the NYSE over the last 15 trading days of the quarter. Shares are required to be distributed within 45 days following the end of each quarter. Through August 31, 2022, we have recognized $0.8 million of share-based compensation expense for the Strive contingent consideration payments.

Bonus Payments – Approximately $1.0 million will be paid 18 months following the Closing Date to stockholders and option holders of Strive who are still employed by the Company or its affiliates as of the 18-month date, subject to certain exceptions. We are expensing these awards evenly over the service period, which is 18 months. We have less than $0.1 million of unrecognized share-based compensation expense for these awards at August 31, 2022.

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

Fiscal 2020 LTIP Award – On October 18, 2019, the Compensation Committee of the Board of Directors granted a new LTIP award to our executive officers and members of senior management. The fiscal 2020 LTIP award has three tranches, which consist of the following: 1) shares that vest after three years of service; 2) shares that vest based on the achievement of specified levels of qualified Adjusted EBITDA; and 3) shares that vest based on the achievement of specified levels of subscription service sales. Twenty-five percent of a participant’s award vests after three years of service, and the number of shares awarded in this tranche does not fluctuate based on financial measures. The number of shares granted in this tranche totals 25,101 shares. The remaining two tranches of the award are based on the highest rolling four-quarter levels of qualified Adjusted EBITDA and subscription service sales achieved in the three-year period which originally ended August 31, 2022. The number of shares that will vest to participants for these two tranches is variable and may be 50 percent of the award (minimum award threshold) up to 200 percent of the participant’s award (maximum threshold). The maximum number of shares that may be awarded in connection with these tranches totals 150,630 shares. As described above, the qualified Adjusted EBITDA vesting targets for the fiscal 2020 LTIP were increased by $2.0 million and the life of the award was extended to August 31, 2024.

Fiscal 2019 LTIP Award – On October 1, 2018, the Compensation Committee granted a performance-based LTIP award to our executive officers and members of senior management. The fiscal 2019 LTIP award has three tranches, which consist of the following: 1) shares that vest after three years of service; 2) the achievement of certain levels of qualified Adjusted EBITDA; and 3) the achievement of certain levels of subscription service sales. Twenty-five percent of a participant’s award vests after three years of service, and the number of shares awarded in this tranche will not fluctuate based on financial measures. The number of shares granted in this tranche totals 36,470 shares. The remaining two tranches of the fiscal 2019 award are based on the highest rolling four-quarter levels of qualified Adjusted EBITDA and subscription service sales achieved in the measurement period that originally ended August 31, 2021. The number of shares that will vest to participants for these two tranches is variable and may be 50 percent of the award (minimum threshold) up to 200 percent of the participant’s award (maximum threshold). The maximum number of shares that may be awarded in connection with these tranches totals 218,818 shares. During fiscal 2021, the fiscal 2019 LTIP award was modified by increasing the qualified Adjusted EBITDA vesting targets by $2.0 million and extending the measurement period by two years to August 31, 2023.

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Unvested Stock Awards

The annual Board of Director unvested stock award, which is administered under the terms of the Franklin Covey Co. Omnibus Incentive Plans, is designed to provide our non-employee directors, who are not eligible to participate in our ESPP, an opportunity to obtain an interest in the Company through the acquisition of shares of our common stock as part of their compensation. For fiscal 2022, each eligible director received a whole-share grant equal to $110,000 with a one-year vesting period. The Board of Director unvested awards are generally granted in January (following the Annual Shareholders’ Meeting) of each year, and shares granted under the terms of this annual award may not be voted or participate in any common stock dividends until they are vested.

We issued 13,260 shares, 28,049 shares, and 21,420 shares of our common stock to eligible members of the Board of Directors during fiscal 2022, fiscal 2021, and fiscal 2020 as unvested stock awards. The fair value of shares awarded to the directors was $0.7 million in each of fiscal 2022, fiscal 2021, and fiscal 2020 as calculated on the grant date of the awards. The corresponding compensation cost of each award is recognized over the service period of the award, which is one year. The cost of the common stock issued from treasury for these awards was $0.2 million in fiscal 2022, $0.4 million in fiscal 2021, and $0.3 million in fiscal 2020. The following information applies to our unvested stock awards for the fiscal year ended August 31, 2022:



			Weighted-
			Average Grant-
			Date Fair
	Number of		Value Per
	Shares		Share
Restricted stock awards at
August 31, 2021	28,049	$	24.96
Granted	13,260		49.78
Forfeited	-		-
Vested	(28,049)		24.96
Restricted stock awards at
August 31, 2022	13,260	$	49.78

At August 31, 2022, there was $0.2 million of unrecognized compensation cost left on our unvested stock awards, which is expected to be recognized over the remaining service period of approximately four months. The total recognized income tax benefit from unvested stock awards totaled $0.2 million for each of the years ended August 31, 2022, 2021, and 2020. The intrinsic value of our unvested stock awards at August 31, 2022 was $0.6 million.

Stock Options

On January 12, 2021, our Chief Executive Officer (CEO) exercised his remaining stock options, which would have expired on January 14, 2021. After these stock options were exercised, we do not have any remaining stock options outstanding. The Stock options exercised during fiscal 2021 and 2020 were exercised on a net basis, meaning no cash was paid to exercise the options. For the 218,750 options exercised in fiscal 2021, we withheld 51,738 shares of our common stock with a fair value of $1.3 million for income taxes. The intrinsic value of options exercised in fiscal 2021 totaled $2.9 million and we recognized an income tax benefit of $0.7 million, of which $0.5 million was recognized upon the exercise of the options. During fiscal 2020, 350,000 stock options were exercised and we withheld 102,656 shares of our common stock for statutory income taxes, which had a fair value of $3.6 million. The intrinsic value of options exercised during fiscal 2020 totaled $8.0 million and we recognized an income tax benefit of $1.8 million from the exercise of these options.

Employee Stock Purchase Plan

We have an employee stock purchase plan that offers qualified employees the opportunity to purchase shares of our common stock at a price equal to 85 percent of the average fair market value of our common stock on the last trading day

of each quarter. ESPP participants purchased a total of 36,960 shares, 51,581 shares, and 41,409 shares of our common stock during the fiscal years ended August 31, 2022, 2021, and 2020, which had a corresponding cost basis of $0.6 million in fiscal 2022, $0.8 million in fiscal 2021, and $0.6 million in fiscal 2020. We received cash proceeds for these shares from ESPP participants totaling $1.3 million in fiscal 2022; $1.1 million in fiscal 2021; and $1.0 million during fiscal 2020.

Fully Vested Stock Awards

We have a stock-based incentive program that is designed to reward our client partners and training consultants for exceptional long-term performance. The program grants shares of our common stock to client partners who have achieved certain cumulative sales goals and to training consultants who have delivered a specified number of training days during their career. Three individuals qualified for these awards in fiscal 2022 and four individuals qualified for these awards in each of the fiscal years ended August 31, 2021 and 2020.