Franklin Covey Co. Q2 FY2026 earnings call

• CEO Paul Walker noted Q2 revenue and adjusted EBITDA grew year over year, met expectations, and were above consensus. Enterprise North America growth was broad-based with strong sales to new logos, retention, client expansion, and services bookings up 9% year-to-date. Deferred subscription revenue grew 16% and multi-year contracts increased to 62%. • International business had strong performance with invoiced amounts up 7%, especially direct offices up 14%. Education business had strong Q2 revenue and is positioned well for second half. • Paul discussed strategic importance of FranklinCovey's role in addressing human side of strategy, execution, change management, including with AI. AI increases premium on human leadership and execution, and FranklinCovey's model is about behavior change and measurable performance outcomes, not just content or software. • Jesse provided financial details, noting consolidated invoiced amounts grew 5%, deferred revenue increased, adjusted EBITDA increased, and discussed business divisions' performance.

Enterprise North America: Makes up over 50% of total company sales. In Q2, invoiced amounts grew 7% (10% excluding government business). Reported revenue was $32.5 million, 6% lower than prior year. Billed deferred revenue was $59.3 million, up 16% year-over-year. Unbilled deferred revenue was $61.1 million, up 3% year-over-year. Multi-year contracts for all-access passes increased to 59%, and contracted amounts from multi-year contracts increased to 62%. Enterprise International: Revenue was $9.2 million, 1% increase over prior year. International direct office revenue increased 7%, driven by France and China. Invoice amounts for international direct offices grew 14%, 6 points due to foreign exchange. Adjusted EBITDA was $1 million, up from $0.5 million prior year. Education: Reported revenue grew 16% in Q2, driven by strong demand for Leader & Me services and materials. Revenue was $17.5 million. Invoice amounts were $8.5 million, slightly lower than prior year. Education subscription-related revenue increased 19% to $12 million. Adjusted EBITDA was $0.4 million, up from a loss of $0.3 million prior year.

• Reaffirmed fiscal 2026 revenue guidance of $265 to $275 million and adjusted EBITDA guidance of $28 to $33 million. • Expect revenue to be slightly higher in Q4 compared to Q3, with approximately 50% to 55% of back half revenue in Q4. • Expect adjusted EBITDA to be approximately 60% to 65% generated in Q4, driven by education division contributions and margin expansion. • Anticipate EBITDA and free cash flow growth, improved margins, and free cash flow conversion in fiscal 2027 and beyond.

Q: Alex Paris from Barrington Research asked about North American enterprise invoiced amounts growth continuing and EBITDA breakdown by quarter.

A: Paul and Jesse confirmed invoiced amounts growth is expected to continue, and EBITDA is expected to be more heavily weighted towards Q4 with contributions from education.

Q: Jeff Martin from Roth Capital Partners asked about education business update.

A: Sean from education noted strong pipeline of new opportunities, large state and district deals, alignment with market needs like test scores, teacher retention, and mental wellness, but some headwinds like DOE uncertainty and ESSER funds expiration.

Q: Nehal Chokshi from Northland Capital Markets asked about Enterprise North America invoice growth breakdown by new and existing customers, free cash flow driver, and free cash flow conversion.

A: Paul and Holly noted they don't disclose detailed breakdown of new and existing customer invoiced amounts growth, free cash flow was strong due to positive swing in networking capital, and free cash flow conversion is expected to improve but not reach 100%.

Q: Dave Storms from Stonegate asked about new logo sales and logo recapture rate.

A: Paul and Holly noted very few new logos are pilots, there's strong interest in AI transformation, and there's a healthy win-back rate with clients coming back as needs evolve.

Q: Dave Storms also asked about international sector highlights.

A: Paul noted international is benefiting from learnings from Enterprise North America, with good performance in China, France, and Germany