Mixed Financial Signals
Franklin Covey Reports Q3 Profit and EPS Beat Driven by Subscriptions, Lowers Full-Year Guidance
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Key Points
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North America Enterprise revenue rose by $1.0 million driven by higher service revenue, while International segment revenue fell by $0.2 million, indicating a mixed regional pattern within the Enterprise division.
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Education division revenue increased to $19.0 million, underpinned by higher subscription revenue from more training and coaching days, even as materials revenue declined for the quarter.
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Subscription and related services continued to be a major revenue driver, totaling $57.5 million, with $37.0 million of subscription and contractually committed services invoiced for Q3 2026 — up 17% year over year.
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The company reported that 59% of North American AAP contracts were for at least two years as of May 31, 2026, a slight uptick from 58% a year earlier, signaling more durable revenue.
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EPS beat expectations ($0.27 vs. consensus of about $0.24), but revenue of about $67.81 million missed estimates around $68.33 million; several outlets also noted that FY2026 sales guidance was being revised lower to roughly $260–$267 million, below some estimates.
Franklin Covey (NYSE: FC) reported a profit of $3.1 million in its third fiscal quarter of 2026, reversing a $1.4 million loss from a year earlier, according to Barchart. But shares tumbled roughly 24% after the company cut its full-year revenue guidance to $260–$267 million, down from $265–$275 million, missing some analyst targets.
Revenue for the quarter ended May 31, 2026 came in at $67.8 million — up slightly from a year ago but short of the roughly $68.33 million consensus estimate, Benzinga noted. Earnings per share of $0.27 beat the $0.24 consensus, but the top-line miss and lowered outlook spooked investors.
Profit Rebounds as Subscriptions Drive the Quarter
Subscription and related services totaled $57.5 million for the quarter, the main engine of Franklin Covey's revenue, according to Barchart. Of that, $37.0 million came from subscription and contractually committed services — a 17% jump year over year. Adjusted EBITDA rose 14% to $8.3 million.
The Enterprise division brought in $48.1 million, while Education grew to $19.0 million. North America Enterprise revenue rose $1.0 million on stronger service revenue. International revenue dipped $0.2 million, a sign of uneven regional performance, Financial Content reported.
State Budget Cuts and Timing Shifts Hurt the Outlook
CEO Paul Walker said the company hit "an unexpected headwind" in its Education division after a last-minute state budget reduction slashed a major contract, according to Financial Content. That cut, combined with a large Enterprise contract shifting its service delivery into future quarters, pressured the top line.
CFO Stephen Young called the guidance cut a result of "service delivery timing shifts" rather than lost demand. Still, the revised guidance range of $260–$267 million fell below the prior midpoint and some analyst estimates of around $267.4 million, Benzinga reported.
Multi-Year Contracts and Deferred Revenue Signal Stability
Despite the guidance cut, Franklin Covey's contract base looks durable. Some 59% of North American All Access Pass contracts now run for at least two years, up from 58% a year ago, according to Barchart. Deferred revenue — money already collected but not yet recognized — climbed 7% to $96.0 million.
The company also holds $61.1 million in unbilled deferred revenue, meaning contracted work not yet on the balance sheet. Total liquidity stands above $74 million, including $12 million in cash and a fully undrawn $62.5 million credit line, Financial Content reported.
Stock Drops 24% as Bears and Bulls Debate What Comes Next
Shares fell about 24% after the announcement. Bears argue the revenue miss points to slowing new client growth and rising competition from cheaper, digital-only training platforms. The gap between a clean EPS beat and a top-line miss created a sharp divide among analysts, Benzinga noted.
Management pushed back. Walker said the "underlying strength" of both Enterprise North America and Education "remains solid." Bulls point to a net income swing from a $1.4 million loss to a $3.1 million profit as proof the subscription model is working. The real test will be whether the $96 million deferred revenue backlog converts into recognized sales in Q4.
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