• Revenue: $59.6 million for Q2, or $60.1 million in constant currency, slightly below the $61.3 million from Q2 last year.
• Adjusted EBITDA: $2.1 million for the quarter, or $2.6 million in constant currency.
• Government Revenue Impact: Approximately $5 million in government revenue canceled or postponed.
• International Revenue Impact: Expected to be down by as much as $4 million due to external factors.
• Education Revenue Impact: Potential $3 million impact due to federal funding uncertainties.
• Revised Annual Revenue Guidance: Between $275 million and $285 million, down from the original guidance.
• Revised Annual Adjusted EBITDA Guidance: Between $30 million and $33 million.
• Multi-Year Contracts: 61% of subscription revenue under multi-year contracts.
• New Logo Sales Growth: Pacing to achieve approximately 40% growth for the year.
• Education Revenue Growth: Up 3% in Q2 and 7% year-to-date.
• Cash Flow and Liquidity: More than $100 million in liquidity, with $14.7 million invested in share repurchases in the first half of the year.
• Q3 Revenue Guidance: Between $67 million and $71 million.
• Q3 Adjusted EBITDA Guidance: Between $4 million and $6.5 million.

• Warning! GuruFocus has detected 8 Warning Signs with RH.

Release Date: April 02, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Franklin Covey Co (NYSE:FC) is experiencing significant traction in its go-to-market transformation in the Enterprise North America business.
• The education business remains strong, with education revenue growing 3% in the second quarter and 7% year-to-date.
• The company has seen a 40% growth in new logo sales for the year, exceeding its new logo plan by more than 50% in the second quarter.
• There is a high renewal rate for subscriptions, with 61% of subscription revenue under multi-year contracts.
• Franklin Covey Co (NYSE:FC) has a strong cash position with more than $100 million in liquidity, allowing for continued share repurchases and growth investments.

Negative Points

• The company is facing revenue impacts due to government-related actions, with approximately $5 million in government revenue already canceled or postponed.
• International revenues are expected to be down by as much as $4 million due to trade tensions and political factors, particularly in China.
• There is potential for a $3 million impact on education revenue due to uncertainty about federal funding changes.
• The company has adjusted its revenue guidance for the fiscal year to be between $275 million and $285 million, down from previous expectations.
• Adjusted EBITDA guidance has been lowered to between $30 million and $33 million, reflecting the impact of government actions and reduced revenue.

Q & A Highlights

Q: Can you clarify the impact of government-related revenue on your business? A: Paul Walker, CEO, explained that approximately 6% or $17 million of Franklin Covey's revenue is tied to government entities, primarily federal. The impact of government actions, including cancellations and postponements, has led to a decline in revenue, particularly affecting the Department of Defense, Veterans Affairs, and other agencies. The company does not expect to recover this revenue within the current fiscal year.

Q: How is the education business being affected by federal government changes? A: Paul Walker noted that while the Department of Education is not a direct client, changes at the federal level could cause uncertainty at the state level, potentially impacting decision-making and causing a $3 million revenue impact. However, the majority of education funding comes from state and local sources, and the company expects these funds to continue flowing, albeit possibly from different agencies.

Q: What is the status of the North American enterprise sales force restructuring and its impact? A: Paul Walker confirmed that the restructuring is on schedule, with investments in new personnel already made. The company is seeing positive early momentum, with new logo sales exceeding expectations by 50% in the second quarter. The focus remains on expanding the sales force to drive future growth.

Q: How does the company plan to manage potential economic downturns or recessions? A: Paul Walker highlighted the durability of their subscription model, with 55% of contracts being multi-year. This provides a buffer against economic downturns. The company also plans to direct its sales force towards solutions that are critical for clients during challenging times, such as execution and sales performance solutions.

Q: What are the expectations for free cash flow and share buybacks? A: Stephen Young, CFO, stated that despite the challenges, the company expects to generate positive free cash flow for the full fiscal year. They have been actively buying back shares, indicating confidence in the business fundamentals, and will continue to evaluate share repurchases based on cash availability and market conditions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.