• Revenue: $69.1 million, up 1% from $68.4 million in the previous year's first quarter.
• Adjusted EBITDA: $7.7 million, or $8.1 million in constant currency, compared to $11 million last year.
• Cash Flows from Operating Activities: $14.1 million, down from $17.4 million last year.
• Free Cash Flow: $11.4 million, compared to $13.7 million last year.
• Education Division Revenue: Grew 11% to $16.5 million.
• Enterprise Division Revenue: Down 2%, primarily due to challenges in Asia.
• Deferred Subscription Revenue: Increased 10% to $95.7 million.
• Stock Repurchases: 146,000 shares purchased at a cost of $6 million.
• Total Liquidity: Approximately $116 million, including $53.3 million in cash.
• Guidance for FY25: Revenue expected between $295 million and $305 million in constant currency; Adjusted EBITDA between $40 million and $44 million.

Release Date: January 08, 2025

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

Positive Points

• Franklin Covey Co (NYSE:FC) reported a 1% increase in Q1 revenue, reaching $69.1 million, driven by an 11% growth in the Education division.
• The company has successfully transitioned its sales structure to focus on expanding existing business and landing new clients, which is expected to accelerate revenue growth.
• Franklin Covey Co (NYSE:FC) has made significant investments in client expansion and new logo acquisition, which are anticipated to drive consistent double-digit revenue growth.
• The Education division saw a 58% increase in contracted Leader in Me schools, highlighting strong demand and successful district-level sales.
• The company has a robust balance sheet with $116 million in total liquidity, supporting ongoing growth initiatives and stock repurchases.

Negative Points

• Q1 adjusted EBITDA decreased to $7.7 million from $11 million in the previous year, primarily due to growth investments.
• Enterprise division revenue in North America was flat, and international operations faced challenges, particularly in Asia.
• The transition to the new sales model has led to some turnover in the sales team, indicating potential disruptions during the adjustment period.
• The company's guidance for Q2 adjusted EBITDA is significantly below analyst expectations, reflecting continued investment expenses.
• There is a reliance on the successful renewal of key contracts, with some timing-related delays impacting Q1 results.

Q & A Highlights

Q: Can you provide more details on the growth investments and their impact on Q1 and Q2 financials? A: Stephen Young, CFO, explained that Franklin Covey spent just under $3 million on growth investments in Q1 and expects to spend over $4 million in Q2. The total planned investment for the year is $16 million, with the remaining amounts to be evenly distributed in Q3 and Q4.

Q: What early returns have you seen from the growth initiatives, particularly in terms of new logos and deferred subscription revenue? A: Paul Walker, CEO, noted that the company initiated pilots over 18 months ago, which showed promising results. The new structure, fully implemented as of December 1, is expected to increase marketing lead generation, pipeline size, and invoiced revenue growth in the latter half of fiscal '25.

Q: How does the new sales structure impact your target market and client acquisition strategy? A: Holly Procter, Chief Revenue Officer, explained that the sales team is now organized by segments based on company size, allowing for more tailored solutions. This segmentation enables Franklin Covey to target a broader range of clients, from SMBs to large enterprises, with specialized offerings.

Q: What lessons were learned from the pilot project for the new sales model, and what are you optimistic about? A: Paul Walker highlighted that the pilot confirmed the need for specialized roles in sales, focusing on either landing new clients or expanding existing ones. This specialization has improved hiring and recruitment, and adjustments in sales compensation have been made to better incentivize these roles.

Q: How will the remaining growth investments be allocated throughout the year? A: Paul Walker stated that the remaining investments will focus on augmenting the sales development team and increasing marketing efforts aimed at lead generation. These efforts are designed to support both new client acquisition and expansion within existing accounts.

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