FRANKLIN COVEY CO Q1 FY2025 earnings call

Management Statement and Operational Highlights:

• Q1 revenue grew 1% to $69.1 million. Adjusted EBITDA in constant currency was $8.1 million, in line with guidance of $7.5M-$8.5M.
• Transformed sales structure into Project Expand (focus on expanding existing client penetration) and Project Land (focus on landing new logos). Investments include client expansion resources, new hunter sales team, sales leadership/operations, and content/technology.
• Education Division revenue grew 11% in Q1, with contracted Leader in Me schools increasing 58% to 82 schools. An example of a statewide contract in the Southeastern US shows potential for expansion.
• Progress on go-to-market acceleration: Focus on client penetration/retention and building a new logo hunting team. Expect increased sustainable revenue growth from single digits to double digits, with impact seen in pipeline, invoice sales, and revenue recognition.

Segment Performance:

• Education Division: Revenue grew 11% to $16.5 million in Q1. Invoiced amounts grew to $12.2 million in Q1, representing 43% growth over prior year. Subscription and subscription services revenue grew 12% to $14.9 million for the quarter. Balance of billed deferred subscription revenue increased 29% to $44.2 million.
• Enterprise Division:
  • North America: Revenue in Q1 FY '25 was $40.1 million compared to $40.3 million last year. Subscription revenue was $21.8 million vs $22.5 million last year. Combination of subscription and subscription services revenue was $34.3 million, down 2% from prior year. Balance of billed deferred subscription revenue was $41.8 million, down 7% from last year. Balance of unbilled deferred revenue was $66.5 million, down 13% from last year.
  • International direct operations: Revenue was $8.2 million, a decrease of $0.5 million due to challenging business conditions in Asia.
  • International licensee revenue: $3.2 million, a decrease of $200,000 from Q1 last year.

Guidance:

• Affirmed revenue in constant currency range of $295M-$305M, with growth accelerating in back half of year as investments take effect.
• Adjusted EBITDA in constant currency expected to be in range of $40M-$44M.
• Q2 FY '25 revenue expected to be between $61.5M and $63M in constant currency. Adjusted EBITDA expected to be between $1.5M and $2.5M in constant currency.
• Need to achieve accelerated revenue growth in back half of year to meet full year guidance.

Risks:

• Ability of company to grow revenues.
• Acceptance and renewal rates for subscription offerings.
• Ability to hire productive sales and client-facing professionals.
• General economic conditions.
• Competition in targeted marketplace.
• Market acceptance of new offerings/services and marketing strategies.
• Changes in market share, market size, client training/spending policies.

Q: Allocation of remaining $16M growth investment A: Paul Walker said remaining investment includes augmenting SDR function, adding more implementation strategists, and increased marketing focused on lead generation for new logo sales and client expansion.