Franklin Covey Company

Hello, and thank you for standing by. Welcome to FranklinCovey first quarter fiscal year 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I'd now like to turn the conference over to Boyd Roberts, Head of Investor Relations. You may begin.

Thank you, Tawanda. Hello, everyone, and thank you for joining us today. We appreciate having the opportunity to connect with you. Before we begin, please remember that today's remarks contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including without limitation statements that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain words such as believe, anticipate, expect, estimate, project, or words or similar phrases of similar meanings. These statements reflect management's current judgment and analysis and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations, including but not limited to risk related to macroeconomic conditions, tariffs, and other risk factors described in our most recent Form 10-K and other findings made with the SEC. We undertake no obligation to update or revise any forward-looking statements except as required by law. Now, with that out of the way, I'd like to turn it over to Mr. Paul Walker, our CEO and President.

Thank you, Boyd. Good afternoon, everyone, and thank you for joining us. It's great to be with you to have an opportunity to share our results for the first quarter and an update on the business and our outlook for the year. As we noted in our November earnings call, after a year of transition last year in fiscal 25, we expect this year, fiscal 26, to be a year of execution and a return to growth. After a transition year last year in which both invoice and reported sales declined, We expect strong growth in invoice amounts in fiscal 26, led by Enterprise North America, but also for the company overall. Importantly, because much of our growth in invoice amounts goes on the books and is recognized over time, a portion of this growth in invoice amounts will be recognized in the back half of the year, resulting in modest growth in reported revenue for the year, but positioning the company for accelerated growth in both invoice amounts and reported revenue. along with adjusted EBITDA and cash flow in fiscal 27. As we'll address in more detail in a moment, consistent with these expectations, we're pleased with the strong growth in invoiced amounts we achieved in the North America enterprise portion of the business in Q1, where invoiced amounts grew 7%. And importantly, excluding our government business, where this year's first quarter is the last quarter where results are still being compared to pre-DOGE sales levels, invoiced amounts in the rest of Enterprise North America grew an even more significant 13%. This growth was driven by significant increases in new logo subscription sales and also the sales of subscription services to our new logo and our existing All Access Pass clients. We anticipate that the strong growth in North America invoiced amounts will continue in the second quarter. We have a strong pipeline and have had a significant year-over-year increase in advanced bookings of services that we'll deliver in the second quarter and throughout the remainder of the year. This expected strong growth in invoice sales is important, both strategically and financially. Strategically, it reflects the traction we're achieving in our go-to-market transformation. And financially, while much of this revenue will go on the books and be recognized over time, the actual economics of these increases in invoiced amounts are being realized well ahead of when we actually report them because we receive the proceeds from these invoiced amounts. In addition to this strength in Enterprise North America, we expect operations in education and international enterprise to be on track with expectations for the year and that invoiced amounts for the company overall will grow meaningfully for the full fiscal year. Just a comment or two about education. As you know, the Education Division has achieved significant growth and strong results over a number of years, and we're pleased that the Education Division achieved growth last year in fiscal 25, even in the context of the uncertainty faced by almost every school district last spring about the potential impact on school funding from the proposed elimination of the Department of Ed. Absent this uncertainty this year, we expect education to achieve strong growth in both invoiced and reported sales in fiscal 26. While we have a lot of subscription revenue in education that's recognized throughout the year, because schools and districts run on an education year which begins in September, our first fiscal quarter, which is our first fiscal quarter, a lot of materials and services are purchased and recognized in our fourth fiscal quarter, when schools train their teachers and staff in preparation for their school year. As a result, we have a disproportionate amount of our revenue in the education business, which is recognized in our third and especially our fourth quarter. This has been the normal seasonality for this division over time. Over the past years, in addition to continuing to win a large number of individual schools, we've focused on winning districts and now even entire state contracts. This has been important for the business both strategically and financially. However, because the timing of winning these larger state contracts can occur at different times throughout the year, occasionally a contract entered into in one quarter is then booked and recognized in other quarters or even into the next fiscal year. This occurred in last year's first quarter, which we comped against in this year's first quarter. In last year's first quarter, we won. entered into and invoiced for a large number of schools that began implementation as part of a significant multiyear contract with the state. This quarter, we had fewer schools start implementation in comparison to last year, which caused an approximate $3.5 million gap in invoiced amounts. However, we've already received and have the cash in hand for the second year of this contract, and we expect the timing of the launch of the schools for this particular state to occur in Q3 and Q4 this year, where they had occurred in Q1 last year. Overall, we expect education to have a strong year in fiscal 26, with the pattern of invoiced amounts and recognized revenue being similar to prior years, with the exception of the large contract that drove the one-time spike in growth in last year's invoiced amounts that I just outlined. Regarding international, we expect international invoice amounts and reported revenue as a whole to grow modestly this year. And for the first quarter, revenue was down slightly, mainly due to China, which, though now stable, is still comping against the period before tariffs were announced in early April last year. Overall, we expect to achieve our full-year revenue and adjusted EBITDA guidance. With our full-year guidance intact, we anticipate that the meaningful growth in invoiced amounts we expect to generate this year will translate into even more substantial growth in reported revenue, adjusted EBITDA, and free cash flow in fiscal 27. Jessie will provide some more detail on education and international in her segment remarks in just a minute. Before I turn the time to her, I'd like to focus my comments today primarily on Enterprise North America, which makes up more than 50% of our total company sales. It's the engine that we reorganized and invested heavily in last year in order to prepare it for accelerated growth. And it will be the key driver of invoice growth in fiscal 26, as well as invoiced and reported growth in fiscal 27 and beyond. So a few comments about Enterprise North America. As I mentioned earlier, we're pleased with the strong 7% growth in invoiced amounts that we achieved in the first quarter and the momentum we continue to see. And when looking at the overall strength of the North American engine, we're really pleased, also as I mentioned, that we achieved 13% growth in North America overall when excluding the government business, which was impacted by DOGE last year. We also expect to achieve significant growth in invoice amounts in the second quarter and for the full year. Key results embedded in the first quarter's overall 7% increase in these invoiced amounts include that first, our new logo subscription invoiced amounts grew a significant 25% year-over-year. Our deferred subscription balance grew 8% year-over-year to $49.1 million, and our services booking pace was up 29% in the quarter, an important leading indicator of future services revenue that will be recognized and an indication of the importance our clients place on the outcomes we're helping them achieve. Our logo or client retention rate remained consistent with previous quarters, and our percent of revenue contracted for multi-year periods increased to 61%. The momentum in return to growth in Enterprise North America, first in invoiced amounts, which will be reflected in growth and reported revenue later into the year and into next year, is being driven by two important factors. First is the strategic importance of what we're doing and the need our clients have for a partner to help them achieve breakthrough business results. And second, the traction and execution we began to see from our go-to-market investments in last year's fourth quarter and the fact that it's really beginning to kick in. I'd like to just for a couple of minutes briefly touch on each of these two growth drivers. First, related to the strategic importance of what we're doing and the need our clients have for a partner to help them achieve breakthrough results, strategically we're playing for something very clear and important. That is to be the partner of choice for leaders seeking to achieve breakthrough results. Achieving and sustaining breakthrough results requires not only good strategy, it also depends on getting large groups of people throughout an organization working together to achieve better and more consistent behaviors and actions to deliver it. Our role is to help organizations achieve their most important goals by strengthening the people part of execution. raising the level and consistency of how people lead, collaborate, and execute, and to help organizations scale what already works well in pockets across the entire organization. AI is, of course, transforming how work gets done, and at the same time it's making human capabilities such as judgment, trust, and collaboration more critical than ever. We're incorporating AI into our solutions and with some exciting results for clients. In addition to building AI into our products, for example, the AI sales coach I referenced last quarter, as well as our new AI coach for our four disciplines of execution solution, which will launch this year, that is going to leverage our experience and our vast amounts of data to help leaders accelerate the execution of their most important goals and objectives. We're also helping our clients on the human side of AI adoption. In the first quarter, we launched two new solutions, one called Leading AI Adoption, and the other called Working with AI. These solutions are designed to help leaders and individuals develop the mindsets and skill sets to effectively incorporate AI into their daily work to make them and their teams more efficient. However, even with these enhanced AI capabilities, the ability of leaders to clearly determine, communicate, and gain broad-scale commitment to their critical priorities, and then to get their entire organization to become committed to and to stay aligned and focused and accountable while working together with high trust and execution remains the ultimate differentiator in achieving breakthrough organizational performance. We're focused on further strengthening our already significant capabilities in being the partner of choice for organizations that are seeking to achieve breakthroughs in performance. This requires being a leader in combining world-class content, technology, and services to deliver breakthrough impact for clients. And we have and continue to invest to expand our position of leadership here. Emphasizing the importance of the critical people side of the execution equation, even in a world of increasing AI, in the first quarter we closed a growing number of large and transformational deals that were tied to a client seeking to achieve a major breakthrough in performance. And I'd like to highlight and share just two of many with you. The first was a large new client win where we unseated the incumbent provider to be the sole leadership performance partner to a leading global agriculture company. We'll be working with this client to help them achieve their critical objective of ensuring that their 3,500 global leaders are equipped both with and able to exhibit world-class leadership capabilities as they seek to accelerate progress on their multi-year strategy and create an even higher performing culture. This win resulted in a three-year, $6 million contract with a very strong mix of services and subscription revenue. A second win I'll just briefly highlight is with a large industrial packaging company. We're partnering with the executive team of this organization to build and strengthen the capability of leaders throughout this organization to transform the culture of this company in connection with a new multi-year strategy to ignite accelerated growth. This is also a multi-year, multi-million dollar win that will draw on the solutions in the all-access path as well as our coaching and delivery capabilities. The second key growth driver that I'll touch on is the traction and execution we began to see throughout the back half of last year from our go-to-market investments and the fact that it's really beginning to kick in. In addition to ensuring that our solutions deliver seismically important impact on helping our clients achieve performance breakthroughs, our second priority has been to transform how we take these solutions to market so that we can win more strategic clients and further expand our impact with existing clients. Over the past four quarters, we completed the organizational implementation of this transformation, reorganizing sales and client success teams around two clear goals. First, landing new strategic clients, and second, further expanding relationships with those we already serve. I reported in November that the structure is fully in place, and now with a full four quarters under our belt and with the organizational transformation fully behind us, the evidence that this new structure is enabling greater growth is clear. As I mentioned earlier, our new logo hunting team increased invoice new logo amounts by 25% in the first quarter. Within these new logo wins, we're also seeing a higher attachment rate of services. which is an illustration of both the importance of the challenges we're helping clients address and their desire to engage our experts to help them achieve their most critical objectives. It's also an illustration of our strategic shift in our sales force to a dedicated hunting team with the surround sound resources that are allowing us to call even higher in organizations, focused on more strategic buyers, and to solution larger deals with a strong mix of subscription and subscription services. We saw this reflected in our 29% services booking rate increase in the first quarter over what we booked in the first quarter of last year. Our services attach rate in the enterprise division on an apples-to-apples basis was a strong 55% in the first quarter when considering that 1.6 million of the services we delivered were to a very large and strategic client who purchased intellectual property instead of all-access paths. That places their services spend in our traditional services reporting category instead of our subscription services category. As a result of our strong growth in invoice sales in North America, our balance of deferred revenue in North America increased 8% year over year to 49.1 million. Stepping back, I would just say that we're pleased with the momentum we're seeing in Enterprise North America. Driven by this momentum and the expectation of a strong year for education, We expect invoiced amounts for the company to grow meaningfully this year, establishing the foundation for significant growth in reported EBITDA, adjusted – reported revenue, sorry, adjusted EBITDA, and cash flow in fiscal 27 and beyond. I'd now like to turn the time over to Jessie to share some more detail on our first quarter results.