Franklin Covey(FC) - 2025 Q3 - Quarterly Results

Executive Summary Franklin Covey's Q3 FY2025 saw $67.1 million revenue, $7.3 million Adjusted EBITDA, and a $1.4 million net loss, with deferred subscription revenue up 7% Q3 FY2025 Key Highlights Franklin Covey reported Q3 FY2025 consolidated revenue of $67.1 million, within guidance, and Adjusted EBITDA of $7.3 million, exceeding guidance. The company recorded a net loss of $1.4 million, impacted by restructuring costs, while deferred subscription revenue increased 7% year-over-year Q3 FY2025 Key Financial Metrics | Metric | Q3 FY2025 Value | | :----------------------------- | :-------------- | | Consolidated Revenue | $67.1 million | | Adjusted EBITDA | $7.3 million | | Net Loss | $(1.4) million | | Deferred Subscription Revenue | $89.3 million | | Cash and Cash Equivalents | $33.7 million | | Common Stock Repurchases (Q3) | $8.3 million | - Adjusted EBITDA of $7.3 million exceeded guidance, despite a net loss of $1.4 million after $4.7 million in restructuring costs[1] - Deferred subscription revenue grew 7% year-over-year to $89.3 million, indicating strong recurring revenue streams[1] Third Quarter Fiscal 2025 Financial Results The company's Q3 FY2025 financial results reflect a decline in consolidated revenue and a net loss, primarily due to restructuring charges and increased SG&A expenses Consolidated Financial Overview Consolidated revenue for Q3 FY2025 decreased to $67.1 million from $73.4 million in Q3 FY2024, leading to a net loss of $(1.4) million, or $(0.11) per share, compared to net income of $5.7 million, or $0.43 per diluted share, in the prior year. This net loss included $4.7 million in restructuring charges and a $1.6 million year-over-year increase in SG&A expenses Consolidated Financial Performance | Metric | Q3 FY2025 | Q3 FY2024 | Change (YoY) | | :-------------------------------- | :-------- | :-------- | :----------- | | Consolidated Revenue | $67.1 million | $73.4 million | -8.58% | | Net Income (Loss) | $(1.4) million | $5.7 million | -124.56% | | Net Income (Loss) per Diluted Share | $(0.11) | $0.43 | -125.58% | - The net loss of $(1.4) million in Q3 FY2025 included $4.7 million in restructuring charges related to optimizing go-to-market transformation investments and cost reductions[3][4] - Selling, general, and administrative expenses increased by $1.6 million year-over-year due to the implementation of the Company's go-to-market strategy[4][5] Divisional Performance Both the Enterprise and Education Divisions experienced revenue declines in Q3 FY2025 compared to the prior year, primarily due to macroeconomic factors, geopolitical tensions, and specific contract changes Enterprise Division Enterprise Division revenue decreased to $47.3 million in Q3 FY2025 from $51.9 million in the prior year, primarily due to a $3.5 million decrease in North America and a $1.0 million decrease in International Direct Office revenue, attributed to macroeconomic uncertainties, geopolitical trade tensions, and canceled U.S. federal government contracts Enterprise Division Revenue | Metric | Q3 FY2025 | Q3 FY2024 | Change (YoY) | | :------------------- | :-------- | :-------- | :----------- | | Enterprise Revenue | $47.3 million | $51.9 million | -8.7% | - North America segment revenue decreased by $3.5 million, and International Direct Office revenue decreased by $1.0 million, impacted by ongoing macroeconomic uncertainties, geopolitical trade tensions, and canceled U.S. federal government contracts[3] Education Division Education Division revenue was $18.6 million in Q3 FY2025, down from $20.2 million in Q3 FY2024. This decrease was mainly due to lower materials revenue, as the prior year included a significant state-wide initiative, though partially offset by increased training, coaching, and membership subscription revenue Education Division Revenue | Metric | Q3 FY2025 | Q3 FY2024 | Change (YoY) | | :--------------- | :-------- | :-------- | :----------- | | Education Revenue | $18.6 million | $20.2 million | -7.9% | - The decrease in Education Division revenue was primarily due to less materials revenue compared to Q3 FY2024, which had benefited from a new state-wide initiative[3] - Increased training and coaching revenue and membership subscription revenue partially offset the decline in materials revenue[3] Key Financial Metrics & Balance Sheet Items Adjusted EBITDA for Q3 FY2025 was $7.3 million, a significant decrease from $13.9 million in the prior year. Consolidated deferred subscription revenue increased 7% year-over-year to $89.3 million, with multi-year contracts representing 62% of contracted amounts. Cash provided by operating activities and free cash flow for the first three quarters of fiscal 2025 also saw substantial declines Key Financial Metrics and Balance Sheet Summary | Metric | Q3 FY2025 | Q3 FY2024 | Change (YoY) | | :------------------------------------ | :-------- | :-------- | :----------- | | Adjusted EBITDA | $7.3 million | $13.9 million | -47.5% | | Consolidated Deferred Subscription Revenue (May 31) | $89.3 million | $83.8 million | +6.6% | | Cash Provided by Operating Activities (YTD) | $19.0 million | $38.4 million | -50.5% | | Free Cash Flow (YTD) | $10.6 million | $30.6 million | -65.3% | | Cash and Cash Equivalents (May 31) | $33.7 million | $40.4 million (Feb 28) | -16.6% | - The percentage of AAP contracts in North America for at least two years increased to 58% at May 31, 2025, from 55% in the prior year, and multi-year contracts represented 62% of contracted amounts, up from 60%[9] - The company repurchased approximately 372,000 shares of common stock for $8.3 million in Q3 FY2025, bringing the fiscal year total to 769,000 shares for $23.0 million[9] Management Commentary CEO Paul Walker expressed satisfaction with Q3 revenue and Adjusted EBITDA performance, highlighting confidence in the ongoing sales transformation despite market uncertainties. He noted an increase in new clients, robust client expansion, strong retention, and a high Enterprise Division attachment rate. CFO Jessi Betjemann emphasized the company's commitment to driving growth and creating long-term shareholder value through its high-margin recurring revenue model - CEO Paul Walker noted that the company landed more new clients and achieved robust expansion across a significant portion of its client base in Q3, with client retention remaining strong[6] - The Enterprise Division attachment rate remained high at 60%, and the percentage of subscription revenue from multi-year periods increased to 62% in Q3[6] - Management anticipates accelerated future revenue growth and significant growth in Adjusted EBITDA and Free Cash Flow in fiscal 2026 and beyond, with the Education business expected to achieve full-year top and bottom-line growth[6] Fiscal 2025 and 2026 Guidance The company has updated its FY2025 guidance due to market uncertainties and expects meaningful growth in Adjusted EBITDA and free cash flow for FY2026 Updated FY2025 Guidance Franklin Covey updated its FY2025 guidance, revising total revenue to a range of $265 million to $275 million and Adjusted EBITDA to $28 million to $33 million. This revision is attributed to continued uncertainty impacting client decision-making and timing risks for service delivery Updated FY2025 Guidance Ranges | Metric | Updated FY2025 Guidance Range | | :------------- | :---------------------------- | | Total Revenue | $265 million to $275 million | | Adjusted EBITDA | $28 million to $33 million | - The guidance revision is due to continued uncertainty impacting clients' decision-making and the timing risk for delivery of services, which could slip into the first quarter of the next fiscal year[7] FY2026 Outlook The company expects to generate a meaningful increase in Adjusted EBITDA and free cash flow in FY2026, partly due to recent cost reduction actions. Updated guidance for FY2026 will be shared at year-end in November - The Company expects to generate a meaningful increase in Adjusted EBITDA and free cash flow in FY2026, partly due to recent cost reduction actions[8] - Updated guidance for FY2026 will be provided when the company reports at year-end in November[8] Additional Company Information This section provides details on the earnings call, forward-looking statements, non-GAAP financial measures, and an overview of Franklin Covey Co Earnings Conference Call Franklin Covey will host a conference