Franklin Covey reports Q1 fiscal 2025 results, highlights revenue growth and strategic investments
Franklin Covey, a provider of subscription-based content, training, and tools that help organizations improve performance, has reported its financial results for the first quarter of fiscal 2025, ending November 30, 2024.
Consolidated revenue increased 1% year-over-year to $69.1 million, driven by strong growth in the Education Division, while profitability was impacted by investments in strategic initiatives.
Mixed performance across divisions
The company’s Enterprise Division reported $51.6 million in revenue, a 2% decline from $52.4 million in the same quarter of the prior year. This decrease was primarily due to lower sales in China and Japan and reduced international licensee revenues. North America sales remained stable, aligning with expectations during the transition to a new sales structure.
In contrast, the Education Division recorded 11% growth, with revenue rising to $16.5 million from $14.9 million in the prior year. This growth was attributed to:
Higher sales of classroom and training materials through a new state initiative.
Increased coaching and consulting revenues.
Subscription growth from new schools implementing The Leader in Me program.
Overall, subscription and subscription services revenue increased 2% to $55.8 million, while deferred subscription revenue rose 10% to $95.7 million, reflecting strong renewal rates and multi-year contracts.
Strategic investments affect income
Operating income declined to $1.5 million, compared with $5.3 million in the prior year. Net income was $1.2 million ($0.09 per diluted share), down from $4.9 million ($0.36 per diluted share). These results reflect:
A $3.0 million increase in selling, general, and administrative (SG&A) expenses, driven by new personnel, compensation increases, and promotional costs tied to the refreshed 7 Habits of Highly Effective People offering.
$1.4 million in restructuring costs related to the North America sales team realignment.
Adjusted EBITDA totaled $7.7 million ($8.1 million in constant currency), compared with $11.0 million in the prior year. While lower than fiscal 2024, the results met company expectations given planned investments to enhance sales capabilities.
Strategic initiatives and sales force transition
Franklin Covey has implemented a restructured North America sales strategy, dividing its sales force into two focused groups: one targeting client expansion and the other acquiring new clients. This realignment is expected to drive higher revenue growth in future periods.
Paul Walker, President and CEO, said:
Our first quarter revenue grew 1% to $69.1 million compared with $68.4 million in last year’s first quarter. This result reflects strong growth in our Education Division where revenue grew 11% while sales were flat in the Enterprise Division, which was in-line with our expectations when we began the transition of our sales force to a more focused and powerful go-to-market model in North America.
“First quarter Adjusted EBITDA was $7.7 million, or $8.1 million in constant currency, which was also in-line with our expectations for the quarter. This result compares with $11.0 million of Adjusted EBITDA in fiscal 2024 and includes the first quarter impact of $16 million of expected growth investments in fiscal 2025 to transform our sales structure and accelerate sales growth in North America.”
Cash flow and liquidity
Cash flow from operating activities remained strong at $14.1 million, compared with $17.4 million in the prior year. Free cash flow totaled $11.4 million, down from $13.7 million due to the impact of lower operating income.
The company ended the quarter with $53.3 million in cash and no borrowings on its $62.5 million credit facility, ensuring liquidity of over $115 million.
During the quarter, Franklin Covey repurchased 145,768 shares of its common stock for $6.0 million.
Outlook and guidance
The company reaffirmed its fiscal 2025 guidance, citing confidence in its subscription-based business model, technology investments, and content enhancements. The go-to-market strategy aims to deliver sustainable revenue growth and higher profitability.
Walker concluded:
“The two key areas of focus and investment in our go-to-market efforts are: First, to achieve significant ongoing increases in client penetration, which is the sole focus of a large number of our client partners, and provide them with the additional client support resources necessary to achieve this expansion within our existing clients; and second, to make winning a significantly increased number of new clients the only focus of a separate, specially trained group of client partners. Our target was to begin the second quarter of fiscal 2025 fully transitioned into the new sales structure and we are pleased to report that we hit that target.
“Today in our Enterprise North America segment every salesperson is either focused fully on client expansion or on winning new clients. We expect the impact of these go-to-market initiatives to result in a significant increase in our sustainable revenue growth rate to consistently achieve double-digit growth and to also generate accelerated levels of Adjusted EBITDA and cash flows in the future.”
