Release Date: July 02, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Franklin Covey Co (FC, Financial) reported third-quarter revenue of $67.1 million, in line with expectations, and adjusted EBITDA of $7.3 million, exceeding the top end of the expected range.
- The company successfully implemented cost reductions, which are expected to result in meaningful year-over-year increases in adjusted EBITDA next year.
- Franklin Covey Co (FC) achieved strong traction in its go-to-market transformation in the Enterprise North America business, with an increase in new client wins and revenue per win.
- The Education business continues to be strong, with subscription revenue growing 13% and deferred revenue increasing 21% in the third quarter.
- The company reported a high attachment rate of strategically important subscription services, with a 60% attach rate in the Enterprise division.
Negative Points
- Revenue was down 9% from the prior year quarter, primarily due to the impact of government actions and macroeconomic uncertainty.
- Operating expenses increased by $5.7 million compared to the prior year, driven by restructuring charges and increased SG&A expenses.
- The company revised its fiscal 2025 revenue guidance to a range of $265 million to $275 million, reflecting continued uncertainty impacting client decision-making.
- Subscription revenue invoiced was down 8% year-over-year, attributed to government contract cancellations and economic uncertainty.
- The company experienced some client downsizing in subscription sizes, impacting overall subscription growth.
Q & A Highlights
Q: Can you provide more details on the improvements in the Enterprise division despite challenges related to government actions and uncertainty?
A: Paul Walker, CEO, highlighted that new logos are up and expansion within existing clients is ongoing. The sales force transition is showing positive results, with increased pipeline growth and a high services attach rate. The company is also seeing more services attached to new logo wins, indicating strong traction in their sales model.
Q: How is the Education division performing amid uncertainties like the Department of Education funding and ESSER funds sunsetting?
A: Paul Walker, CEO, expressed confidence in the Education division, expecting to match or exceed the 728 new schools added in fiscal 2024. Despite uncertainties, the division is growing due to the strong demand for the Leader in Me program and successful navigation of the current environment.
Q: What factors contributed to the recent revision in revenue guidance?
A: Paul Walker, CEO, explained that the revision is primarily due to the timing of service deliveries and decision-making delays in both the Education and Enterprise divisions. While the direct impact from government contracts has stabilized, the uncertainty in the macroeconomic environment continues to affect client decision timelines.
Q: How is Franklin Covey leveraging AI in its service delivery?
A: Paul Walker, CEO, mentioned the use of an AI sales coach as part of their sales performance solution, which provides real-time coaching tailored to clients' unique circumstances. AI is also being used for content customization and personalization, enhancing the value and efficiency of their offerings.
Q: Can you elaborate on the cost reduction actions taken and their impact on EBITDA guidance?
A: Jessica Betjemann, CFO, stated that the company implemented cost reductions resulting in $3 million savings in Q3 and an expected $4 million in Q4. These actions have allowed Franklin Covey to maintain its EBITDA guidance range despite the revenue decline, with an annualized savings of $8 million anticipated for fiscal 2026.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
