Franklin Covey (FC) investor relations material

Executive summary

• Q3 revenue was $67.1M, down from $73.4M last year, with adjusted EBITDA of $7.3M exceeding guidance but down year-over-year due to macroeconomic headwinds and restructuring costs.

• Net loss for Q3 was $1.4M, compared to net income of $5.7M last year, mainly due to $4.7M in restructuring charges and lower revenue.

• Deferred subscription revenue increased 7% year-over-year to $89.3M, reflecting strong subscription renewals.

• Liquidity remains strong with $33.7M in cash and no credit facility drawdowns; $23M spent on share repurchases in FY2025 to date.

• Macroeconomic uncertainty, government actions, and geopolitical tensions continue to impact client budgets and contract renewals.

Financial highlights

• Gross margin for Q3 was 76.5%, nearly flat year-over-year; gross profit was $51.3M, down from $56.2M.

• Adjusted EBITDA margin for Q3 was 10.9%, down from 19.0% last year.

• Operating expenses rose by $5.7M, mainly from $4.7M in restructuring charges and higher SG&A.

• Free cash flow for the first three quarters was $10.6M, down from $30.6M last year.

• Net loss for Q3 was $1.4M ($0.11/share) versus net income of $5.7M ($0.43/share) last year.

Outlook and guidance

• FY2025 revenue guidance revised to $265M–$275M, with adjusted EBITDA guidance at $28M–$33M.

• Cost reductions expected to benefit Q4 FY2025 and support future EBITDA growth.

• FY2026 expected to see meaningful increases in adjusted EBITDA and free cash flow due to annualized cost savings.

• Effective tax rate for FY2025 estimated at 39%.

• Management expects continued macroeconomic and geopolitical uncertainty to impact near-term results.