Franklin Covey Co. Q3 FY2026 earnings call

### Core Business Resilience and Strategic Positioning - Q3 2026 marked the third consecutive quarter where results met management expectations, demonstrating the business's resilience amid turbulent external conditions - High client retention, expansion, and new client wins across both enterprise and education divisions validate the company's solution fit for client needs - The completed go-to-market transformation in Enterprise North America is delivering expected results, with learnings now being rolled out to international operations - Deferred revenue for the full company grew 7% year-over-year to $96 million, with contracted services scheduled for fiscal 2027 delivery meaningfully higher than at the same point last year, laying the foundation for accelerated 2027 growth - 59% of subscription contracts are multi-year, representing 60% of total subscription revenue, creating high future revenue visibility

- Product and Innovation Strategy - Fiscal 2026 is one of the company's largest solution launch years, with additional new solutions launching across leadership, execution, and AI transformation in fiscal 2027 - AI is increasing demand for the company's core offerings: AI investment creates a greater need for strong leadership, aligned culture, and behavior change to deliver measurable results, which is Franklin Covey's core competency - The company is embedding AI-enabled coaching and execution tools into its platforms, and developing dedicated solutions to help clients navigate AI transformation and build organizational AI fluency

- Capital Allocation - The company maintains a balanced capital strategy focused on: (1) preserving liquidity (total liquidity exceeded $74 million at end-Q3, with $12 million cash on hand and a fully available $62.5 million credit facility); (2) investing in growth initiatives including product innovation and transformation; (3) returning capital to shareholders opportunistically - Year-to-date 2026, the company has repurchased nearly 1.6 million shares for $28.1 million; $20 million remains remaining under the current $50 million share repurchase authorization. The company will prioritize rebuilding cash balances in the near term and evaluate future opportunistic buybacks.

- Operational Execution - Year-to-date enterprise services booking is up more than 25% year-over-year, with a larger volume of pre-contracted services scheduled for 2027 delivery than at this point last year - SG&A expenses for Q3 2026 were 5% lower than the prior year, reflecting successful cost reduction and streamlining efforts

### Enterprise Division (71% of total company revenue in Q3 2026) - Total reported revenue: $48.1 million, up 2% year-over-year; total invoiced amounts grew 1% to $46.5 million; subscription and committed services invoiced grew 18% to $27.8 million - North America Enterprise (79% of enterprise division revenue): Invoiced amounts grew 4% to $36.7 million, reported revenue grew 3% to $38 million; adjusted EBITDA increased 24% to $7.7 million; billed deferred revenue rose 18% year-over-year to $58 million; 59% of all-access passes are multi-year contracts, representing 60% of contracted amounts - International Enterprise (21% of enterprise division revenue): Reported revenue was $10.1 million, a slight 1% decline year-over-year; licensee revenue grew 3%, offset by declines in China, Japan, and UK direct operations (France and Australia grew); adjusted EBITDA increased 25% to $2.1 million, driven by lower SG&A expenses

### Education Division (28% of total company revenue in Q3 2026) - Total reported revenue grew 2% year-over-year to $19 million; invoiced amounts grew 1% to $15.1 million; subscription revenue increased 11% to $13.1 million (subscription invoiced grew 14% to $9.3 million); adjusted EBITDA decreased $0.4 million to $1.7 million, driven by fixed cost timing, product mix shifts, and higher SG&A; billed deferred revenue decreased 6% to $32.2 million due to higher delivery volumes of Leader in Me subscription days

### Corporate Segment - Corporate revenue declined $0.5 million year-over-year, as the company no longer recognizes sublease revenue after exiting its former headquarters in June 2025

- Management revised full-year 2026 revenue guidance to $260–$267 million, down from prior guidance, driven by three timing shifts: $2 million of Enterprise North America service delivery pushed to 2027, $2 million of statewide education contract revenue delayed by gubernatorial budget cuts (expected to resume in 2027), and $2 million of revenue impact from challenging geopolitical conditions impacting international operations - Management maintained full-year 2026 adjusted EBITDA guidance within a narrower range of $28–$31 million, matching the prior midpoint of the original range and reflecting the effectiveness of 2026 cost reduction measures - Management expects that 2026 growth in invoiced amounts and contracted future delivery will translate to meaningful reported revenue, adjusted EBITDA, and free cash flow growth in fiscal 2027, with EBITDA growth expected to outpace revenue growth due to prior restructuring and cost initiatives

- Ongoing geopolitical tensions have negatively impacted international operations, particularly the Middle East licensee partner and China, creating near-term revenue headwinds - China direct operations have underperformed relative to expectations post-COVID, and continue to be a drag on overall international growth; management is evaluating alternative operating models for the market - State-level education budget volatility can create unexpected timing shifts in revenue, as seen in the delayed southeastern statewide Leader in Me contract - The government enterprise segment has remained flat at post-Doge budget cut levels, and has not yet seen a rebound from the 2025 contraction - Macroeconomic uncertainty can impact client spending and project scheduling, leading to potential unanticipated revenue timing shifts

Q: After excluding the three one-time revenue timing impacts (enterprise contract shift, education budget cut, geopolitical headwinds), what is the underlying strength of Franklin Covey's business segments? / A: The enterprise contract shift is just a delivery timing change for an already won, invoiced, three-year large North America enterprise contract — there is no change in underlying demand in Enterprise North America. The education budget cut is an isolated 11th-hour gubernatorial action, not a reflection of weak school demand for Leader in Me, and funding is expected to be restored next year. The only material macro impact is in international operations: geopolitical tensions are pressuring the Middle East's largest licensee, and China operations continue to underperform relative to expectations. There is no broader change in the overall macro demand environment compared to prior quarters.

Q: Excluding the delayed statewide education contract, what is the update on education division net new growth, retention, and underlying momentum? / A: Retention is running 1-2% higher than last year, on top of already strong base retention, which is a key indicator of strength. New school growth will be comparable to last year, down from prior higher expectations tied to the delayed state contract. Growth in adjacent charter school and after-school programs is offsetting some of the delay, and other large state and district deals are on track to perform as expected. Management remains confident in the long-term demand for Leader in Me, especially as its focus on durable leadership skills grows more relevant in the AI era.

Q: What is the plan for rolling out the North America go-to-market transformation to international operations, and what impact is expected? / A: The transformation will launch first in Europe in Q1 2027, focusing on the region's direct offices (UK, Ireland, Germany, Switzerland, Austria, France). The core change is adopting the same hunter-farmer sales structure: dedicated hunters for net new logo acquisition, and dedicated farmers focused on retaining and expanding existing client accounts. After successful implementation in Europe, the model will be rolled out to other international geographies. The change is expected to improve growth and counteract ongoing macro headwinds.

Q: Is strong double-digit growth in subscription and committed invoicing a good indicator of underlying business strength, and is this growth driving the company's confidence in future share repurchases? / A: Yes, growth in contracted invoicing is the best leading indicator of future reported revenue growth, and 18% enterprise invoicing growth in Q3 2026 is very strong. This year's invoicing growth will translate directly to reported revenue growth in 2027, and completed restructuring efforts will deliver operating leverage, leading to faster adjusted EBITDA and free cash flow growth. Management believes strongly in the company's growth prospects, which underpins the ongoing commitment to returning capital to shareholders when opportunistic.