Franklin Covey widens 2025 guidance to $265M–$275M amid cost reductions and market uncertainty

Earnings Call Insights: Franklin Covey Co. (FC) Q3 2025

Management View

• CEO Paul Walker highlighted that "despite an external environment that continues to be uncertain and where, as a result of this uncertainty, organizations are scrutinizing costs at a greater level and delaying many investment decisions," third quarter revenue was $67.1 million, with adjusted EBITDA of $7.3 million, which Walker noted "was higher than the top end of our expected range of between $4 million and $6.5 million."
• Walker stated the company completed a series of cost reductions designed "to offset the impact of these factors on our profitability," expecting these actions "will help offset declines in revenue related to government actions and to the general uncertainty in the economy."
• The CEO reported strong traction from the go-to-market transformation in the Enterprise North America business, noting "we're really encouraged by the traction and the early results we're achieving" and described the restructuring of the sales force into dedicated teams for new and existing clients as complete.
• Walker cited a notable new logo win with a $6 billion information management company, resulting in "a $2.3 million contract with about $1.7 million scheduled to deliver in the coming quarters."
• The CEO also emphasized robust client retention and a "15-point increase in the number of clients who expanded outside of their renewal period compared to the third quarter last year."
• Walker announced the appointment of Dariusz Paczuski as Chief Marketing Officer on June 1 to lead expanded marketing efforts.
• In Education, Walker stated "we still expect to grow our Education business year-over-year on both the top and bottom lines and expect our addition of new schools and our school retention results to be as good, if not better this year than they were last year."
• CFO Jessica Betjemann said, "Total revenue in the third quarter was $67.1 million and finished in line with our previously shared expectation, at the low end," and that "gross margin for the third quarter remained strong and was approximately flat year-over-year at 76.5% of revenue."
• Betjemann explained, "We incurred $4.7 million in expenses for these restructuring activities, primarily for severance and related costs," and the cost actions "resulted in savings of $3 million in this quarter and results in $4 million savings in Q4 and an annualized run rate savings of $8 million in fiscal year 2026."

Outlook

• The company revised its fiscal 2025 guidance, now expecting revenue in the range of $265 million to $275 million.
• Adjusted EBITDA guidance widened to $28 million to $33 million, with CFO Betjemann noting, "the midpoint and top end of this range is consistent with our previous guidance due to the cost reduction actions we took in the third quarter that will produce savings to beneficially impact this year."
• Management explained the revision reflects "continued uncertainty impacting our clients' decision-making" and "the timing risk for the delivery of services for some contracts we have closed in the last 90 days and expect to close this quarter that could slip into the first quarter of the next fiscal year."
• Updated guidance for fiscal year 2026 will be provided at year-end, but management expects "a meaningful increase in adjusted EBITDA and free cash flow in fiscal year 2026."

Financial Results

• Third quarter revenue was $67.1 million, down 9% from the prior year quarter, but up 13% sequentially.
• Adjusted EBITDA was $7.3 million, exceeding the top end of the prior guidance range.
• Operating expenses rose to $53.5 million, primarily due to a $4 million increase in restructuring charges and $1.6 million in higher SG&A tied to the new go-to-market initiative.
• Free cash flow through the third quarter totaled $10.6 million compared to $30.6 million for the same period last year, with year-to-date cash flow from operating activities at $19 million.
• At quarter end, liquidity was over $95 million, with $33.7 million in cash and no drawdowns on the $62.5 million credit facility.
• During the quarter, the company repurchased approximately 372,000 shares for $8.3 million, with $27.9 million remaining under the current buyback authorization.

Q&A

• Alexander Paris, Barrington Research, asked about additional milestones in the Enterprise division and pipeline growth. Paul Walker explained the company is "continuing to see our pipelines grow," highlighted strong marketing activity, and noted a 60% services attach rate in the Enterprise division.
• Paris also questioned expectations for new schools in Education. Walker responded, "we do expect that the way that business is pacing is that we'll be there or potentially even a little bit better" compared to the prior year.
• Paris sought clarification on the $10 million guidance reduction by bucket; Walker indicated the primary delta relates to the timing of service delivery, especially in Education and Enterprise.
• Jeff Martin, ROTH Capital, inquired about the environment for fiscal '26. Walker said, "we're certainly planning with that in mind, that tariffs and other actions...that uncertainty, hopefully, it will eventually go away. But...we're not planning that it will."
• Nehal Chokshi, Northland Capital Markets, pressed on why subscription revenue invoiced was down 8% year-over-year despite strong new logo and expansion activity. Walker cited client downsizing, smaller expansion dollar amounts, and a large client converting to an intellectual property agreement as key factors.
• Chokshi questioned the wide Q4 revenue range. Betjemann stated, "the delivery of services and the timing for decision-making...is tight. There is a possibility, though. So the top end of the range is reflecting that we were able to close and do everything in this quarter, but there's a realistic view that it may not happen and things could get pushed into next year."
• David Storms, Stonegate, asked about Education materials revenue volatility. Walker explained materials revenue fluctuates based on the timing and size of district/statewide contracts.

Sentiment Analysis

• Analysts showed a slightly negative to neutral tone, focusing on guidance reductions, revenue timing uncertainty, and reconciling strong client metrics with falling subscription revenue. One analyst said, "given those 3 positive things, that would imply that invoice subscription revenue should be up, not down 8% year-over-year, even with these headwinds being cited."
• Management maintained a confident but cautious tone, emphasizing cost actions, strategic initiatives, and future growth. Walker repeatedly stressed confidence: "we continue to be confident in the actions that we're undertaking to accelerate future growth."
• Compared to the previous quarter, both analysts and management maintained a cautious approach, but management highlighted more concrete cost actions and a wider guidance range this quarter.

Quarter-over-Quarter Comparison

• The company revised annual revenue guidance down again, now to $265 million–$275 million, compared to $275 million–$285 million last quarter.
• Adjusted EBITDA guidance widened to $28 million–$33 million, but the midpoint/top end remains in line with previous guidance due to increased cost savings.
• Strategic focus shifted to cost reductions and maintaining investment in growth, while the previous quarter stressed the go-to-market transformation's early traction and expansion plans.
• Analyst questions this quarter centered more on reconciling lower revenue with positive client activity, as well as the timing of revenue recognition and service delivery.
• Management's tone remained cautiously optimistic, but with increased emphasis on prudent cost management and operational discipline.

Risks and Concerns

• The uncertain macroeconomic environment and client cost scrutiny continue to impact sales cycles and service delivery timing, with management noting, "the uncertainty in the environment pushed some of these wins late enough into our year to create a timing risk."
• Ongoing government actions, tariffs, and the end of ESSER funds present risks to both Enterprise and Education revenue.
• Management cited the possibility of further timing-related revenue slippage into next fiscal year.
• Analysts raised concerns about the wide revenue guidance range and the disconnect between client activity and subscription revenue trends.

Final Takeaway

Franklin Covey completed significant cost reductions and maintained strategic investment in growth initiatives, resulting in a widened annual guidance range of $265 million–$275 million revenue and $28 million–$33 million adjusted EBITDA. Management remains confident in the business model, citing strong client retention, expanding multiyear contracts, and early traction from go-to-market transformations, while acknowledging the impact of macroeconomic uncertainty and timing risks on near-term results. Looking ahead, the leadership expects actions taken this year to support a meaningful increase in adjusted EBITDA and free cash flow in fiscal 2026.

Read the full Earnings Call Transcript