Franklin Covey Co. is a global company focused on organizational performance improvement. The company's mission is to "enable greatness in people and organizations everywhere," and its worldwide resources are organized to help individuals and organizations achieve sustained superior performance at scale through changes in human behavior.

Business Overview

The company's business is currently structured around two divisions - the Enterprise Division and the Education Division. The Enterprise Division consists of the Direct Office and International Licensee segments and is focused on selling the company's offerings to corporations, governments, not-for-profits, and other related organizations. The Education Division is centered around the principles found in The Leader in Me and is dedicated to helping educational institutions build cultures that will produce great results, including increased student performance, improved school culture, and increased parental and teacher involvement.

Financials

Franklin Covey's consolidated revenue for the quarter ended May 31, 2024 increased to $73.4 million compared with $71.4 million in the prior year. For the latest 12 months, the company reported revenue of $281.1 million. The company's net income for the latest 12 months was $17.8 million, and its operating cash flow and free cash flow were $35.7 million and $22.2 million, respectively.

Enterprise Division Performance

The Enterprise Division's revenue in North America, which accounts for about 73% of total enterprise division revenue, was flat at $39 million in the third quarter. Subscription revenue in North America grew 3% in the quarter to $22 million, and the combination of subscription and subscription services revenue grew 3% to $35.9 million. The company's balance of deferred revenue, billed and unbilled, in North America continued to be strong, growing 3% to $111.6 million.

Revenue from the company's international direct operations, which accounts for approximately 17% of total enterprise division revenue, decreased 7% to $8.5 million in the third quarter, primarily due to a 39% decline in revenue from China. The company's international licensee partner revenue also decreased 5% to $2.7 million in the third quarter.

Education Division Performance

The Education Division's revenue grew 18% to $20.1 million in the third quarter, driven by increased classroom materials revenue and increased membership subscription revenues. Education subscription and subscription services revenue grew 13% to $18.2 million in the quarter.

Profitability and Cash Flow

The company's gross margin for the third quarter of fiscal 2024 remained strong at 76.6%, up from 75.9% in the prior year. Adjusted EBITDA for the quarter increased 17% to $13.9 million, and for the latest 12 months, adjusted EBITDA was $48.8 million.

The company's cash flows from operating activities for the first three quarters of fiscal 2024 increased 48% to $38.4 million, and its free cash flow increased 96% to $30.6 million. The company ended the quarter with nearly $100 million of total liquidity, including $36.3 million in cash and $62.5 million available under its revolving credit facility.

Outlook

Franklin Covey's management team is confident in the company's outlook, citing the mission-critical nature of the opportunities and challenges it helps organizations and schools address, the strength of its leading indicators of future growth, the strength of its business model, and its ability to invest its free cash flow and excess cash in the business at high rates of return.

The company expects full-year revenue to be approximately $284 million in constant currency, with fourth quarter revenue expected to be approximately $80.5 million. The company also expects full-year adjusted EBITDA to be within its original range of $54.5 million to $58 million in constant currency, at the low end of that range, excluding approximately $0.5 million of negative foreign exchange impact.

Conclusion

Overall, Franklin Covey's strong third quarter results, resilient business model, and positive outlook suggest the company is well-positioned to continue delivering consistent growth and value for its shareholders.