Franklin Covey Company

Thank you for standing by. Welcome to the Franklin Covey Third Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Boyd Roberts, Head of Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today on Franklin Covey's third quarter 2026 earnings call. 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 phrases of similar meaning. 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 relating to macroeconomic conditions, tariffs and other risk factors described in our most recent Form 10-K. and other filings 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 Chief Executive Officer.

Thank you, Boyd. Good afternoon, everyone, and thank you for joining us today. It's great to be with you and to have the opportunity to share our results for the third quarter. and provide an update on the business and our outlook for the remainder of the year. There are two themes I'd like to address today. The first is that the company's strategic strength and resiliency continues to be reflected in the company's performance, including in this year's third quarter results and in our expected results for the year. Importantly, the impact of this strategic strength and resilience is also establishing the foundation for accelerated growth in fiscal 27. The second theme is that the strategic importance of the opportunities and challenges we help our clients address, coupled with our focused investments in high-impact solutions and go-to-market activities, are further strengthening our strategic positioning and establishing the foundation for accelerated growth. I'd like to briefly touch on each of these themes. Before I do, I want to address our full year guidance. Key 3 was our third consecutive quarter this year finishing in line with our expectations and the underlying business is performing as we expected. We are revising our revenue guidance to allow for a timing shift in $2 million of previously invoiced services for which the delivery shifted from this year to next year for a contract in Enterprise North America. A $2 million new school contract with an existing and ongoing statewide education client that received gubernatorial budget reductions that we expect to return next year. And the approximately $2 million impact of the challenging international environment due to ongoing geopolitical tensions. Our new expectation is that revenue will be between $260 and $267 million. We are maintaining our prior adjusted EBITDA guidance within a narrower range of $28 million to $31 million. I wanted to acknowledge this up front so it's not a distraction as I walk you through what's actually happening in the business and the many areas of strength we experienced in the third quarter. So to our themes. The first theme, again, is that the company's strength and resiliency continue to be reflected in the company's performance, including, importantly, Q3 being our third consecutive quarter where we finished in line with our expectations and in our expected results for the year and this even in the midst of a somewhat turbulent external environment. The importance of the challenges and opportunities we help organizations address and the success of our solutions in addressing them is reflected by both first the high levels of retention, expansion, and purchases of services we're achieving with existing clients and second, our increasing revenue from winning new clients across both our enterprise and education businesses. I'd like to briefly address how this strategic strength played out in both divisions. In the enterprise division in North America, which accounts for approximately 80% of our total enterprise division revenue, invoiced amounts are up 6% year to date and we're up 4% in the third quarter, growing for a third consecutive quarter. Revenue retention is up meaningfully year-to-date and was particularly strong in Q3, driven by both further increases in client expansion and continued strong logo retention. The percent of subscription contracts whose term is for multi-year periods continues to be high at 59%, and the percent of our subscription revenue contracted for multi-year periods was 60%. Year to date, services booking pace at the end of Q3 was up more than 25% compared to the prior year. And the amount of our services already sold and contracted year to date this year, which are scheduled for delivery in fiscal 27, is meaningfully higher than at this point last year. Our balance of deferred revenue at the end of the third quarter was $58 million versus $49 million in the prior year, or an increase of 18% Thank you for joining us. On the economies of several of our international operations, our total enterprise reported and invoice revenue for the quarter was in line with our expectations for the quarter and year to date. This underlying strength and momentum of our results, particularly in Enterprise North America, is exactly what we designed the go-to-market transformation to produce. We're achieving the traction we'd expected, and we expect results in Enterprise North America for the year to be strong. Growth in invoice amounts, coupled with significant services bookings already contracted for fiscal 27 delivery gives us high confidence in the year ahead. Turning to our education division. Our school retention rate at both the district and school levels remains very strong year to date and our subscription revenue was up 11% in the third quarter and is up 14% year to date. This together with our significant subscription base Our pace of new school contracting and the size of our advanced services bookings all provide us with confidence that the education division will finish the year strong. As I indicated previously last quarter, we mentioned that we'd won our third statewide commitment to Leader in Me with a southeastern state that has made significant Leader in Me commitments in each of the last three years. At the last minute, the governor held up the budget approval for health and human services and education line items. resulting in delayed funding for this year's allotment of new schools. We believe funds will be restored in the next fiscal budget and we're working directly with impacted schools to proceed with as many as possible in the interim. This creates up to $2 million of pressure on the education revenue this year. However, what it does not reflect is any weakness in school and district demand for Leader and Me. Our other two fully funded state commitments are on track for a strong year, and our education business is expected to finish the year strong. We continue to expect that our strong momentum to close the year, particularly in Enterprise North America, with deferred revenue up 18% year over year, is setting the stage for strong reported revenue growth in fiscal 27. The second theme I'd like to touch on is that the strategic importance of the opportunities and challenges we help our clients address coupled with our focused investments in high-impact solutions and go-to-market activities are strengthening our strategic position and are establishing the foundation for accelerated growth. 90 days ago I spoke about three dynamics positioning Franklin Covey well in an AI-driven environment. First, that AI is increasing the premium on human leadership and execution. Second, that our model is built around behavior change and collective action These convictions have only strengthened. As AI creates extraordinary new possibilities, leaders are discovering that the path between AI investment and achieving meaningful results runs directly through the quality of their leaders, cultures, and execution systems. This is a behavior change and collective action challenge and we see it not only with AI, but across the full range of leadership and performance challenges organizations face every day. Our role is to help organizations strengthen the people side of execution, clarifying priorities, aligning teams, building capabilities, and creating accountability systems that translate strategy into measurable results. Having completed our go-to-market transformation in Enterprise North America, and having already seen continued progress in achieving the kinds of results we'd expected, we're now importing those learnings into our international business. The model is working and we are scaling it. Fiscal 26 is one of our biggest solution launch years, and we'll build on that momentum in fiscal 27, launching new solutions across leadership, execution, and AI transformation. while embedding AI-enabled coaching and execution tools into our platforms to even further support behavior change and collective action. With this foundation in place, we are well positioned for growth in fiscal 27 and beyond. The numbers support this confidence. Deferred revenue for the company is up 7% year-over-year to $96 million. Services already contracted and scheduled for fiscal 27 delivery are meaningfully ahead of where they were at this point last year. and subscription and contractually committed invoice amounts grew 17% in the third quarter alone. The work we've done this year is translating directly into the revenue and adjusted EBITDA growth we expect to report in fiscal 27.