Franklin Covey(US:FC)2025-07-02 22:00Financial Data and Key Metrics Changes - Revenue for Q3 2025 was $67.1 million, down 9% year-over-year and 4% year-to-date, but up 13% sequentially [27] - Adjusted EBITDA was $7.3 million, exceeding expectations and down from $13.9 million in the prior year [30][31] - Gross margin remained strong at approximately 76.5% of revenue, flat year-over-year [27] - Operating expenses increased to $53.5 million, primarily due to restructuring charges and increased selling, general, and administrative expenses [28] Business Line Data and Key Metrics Changes - The Enterprise Division generated 70% of total revenue, with Q3 revenue at $47.3 million, down from $51.9 million in the prior year [32] - The Education Division's revenue was $18.6 million, down 8% year-over-year but grew 1% year-to-date [36] - Subscription revenue in the Education Division increased by 13% to $11.8 million [36] Market Data and Key Metrics Changes - The North America segment revenue was $37.1 million, a decrease of $3.5 million from the prior year, affected by government actions [33] - International direct operations revenue was $7.5 million, down $1 million due to challenging business conditions [34] - The number of multi-year contracts in North America increased from 55% to 58% [34] Company Strategy and Development Direction - The company is focused on cost reductions while maintaining investments in growth initiatives [5][6] - A new Chief Marketing Officer has been appointed to accelerate marketing efforts and penetrate the total addressable market [21] - The company expects to grow its education business year-over-year despite uncertainties [22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertain external environment affecting investment decisions and cost scrutiny [5] - Revised revenue guidance for the fiscal year is now between $265 million and $275 million, with adjusted EBITDA guidance widened to $28 million to $33 million [7][40] - Confidence remains in the fundamental strengths of the business and the potential for future growth [7] Other Important Information - The company has completed cost reduction initiatives that are expected to yield significant savings in the coming fiscal year [6][29] - Deferred subscription revenue increased by 7% year-over-year, indicating a strong foundation for future growth [31] Q&A Session Summary Question: Can you share milestones regarding the enterprise division's performance? - Management noted improvements in new logo sales and expansion within existing clients, with a focus on off-cycle expansion opportunities [50][52] Question: What are the expectations for new school additions in the education division? - Management expects to meet or exceed the previous year's new school additions, citing strong demand for their solutions [60][61] Question: Can you break down the guidance reduction by segment? - The reduction primarily stems from timing issues in service delivery and ongoing uncertainty affecting enterprise clients [63][66] Question: How do you foresee the current environment impacting fiscal 2026? - Management is planning for continued scrutiny of budgets and uncertainty in the enterprise level due to tariffs and other factors [70][71] Question: What is the current status of deferred revenue growth relative to total revenue growth? - Management explained that deferred revenue growth is driven by invoiced amounts from prior years, and they expect future growth to translate into reported revenue [73][78] Question: What is the adoption rate of AI service delivery among clients? - Approximately 43% of clients are using the AI sales coach, with expectations for continued growth in this area [81]