Franklin Covey Co. Stock

Thank you for standing by. Welcome to the Franklin Covey Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Boyd Roberts, Head of Investor Relations. Please go ahead, sir.

Thank you, and good afternoon, everyone. Thank you for joining us today on Franklin Covey's Third Quarter 2026 Earnings Call. We appreciate having the opportunity to connect with you.

Before we begin, please remember that today's remarks contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including, without limitation, statements that may predict, forecast, indicate or imply future results, performance or achievements and may contain words such as believe, anticipate, expect, estimate, project or words or phrases of similar meaning. These statements reflect management's current judgment and analysis and are subject to a variety of risks and uncertainties and that could cause actual results to differ materially from current expectations, including, but not limited to, risks relating to macroeconomic conditions, tariffs and other risk factors described in our most recent Form 10-K and other filings made with the SEC. We undertake no obligation to update or revise any forward-looking statements, except as required by law.

Now with that out of the way, I'd like to turn it over to Mr. Paul Walker, our Chief Executive Officer.

Thank you, Boyd. Good afternoon, everyone, and thank you for joining us today. It's great to be with you and have the opportunity to share our results for the third quarter and provide an update on the business and our outlook for the remainder of the year.

There are 2 themes I'd like to address today. The first is that the company's strategic strength and resiliency continues to be reflected in the company's performance, including in this year's third quarter results and in our expected results for the year. Importantly, the impact of this strategic strength and resilience is also establishing the foundation for accelerated growth in fiscal '27.

The second theme is that the strategic importance of the opportunities and challenges we help our clients address coupled with our focused investments in high-impact solutions and go-to-market activities, are further strengthening our strategic positioning and establishing the foundation for accelerated growth.

I'd like to briefly touch on each of these themes. Before I do, I want to address our full year guidance. Q3 was our third consecutive quarter this year, finishing in line with our expectations, and the underlying business is performing as we expected. We are revising our revenue guidance to allow for a timing shift and $2 million of previously invoiced services for which the delivery shifted from this year to next year for a contract in Enterprise North America, a $2 million new school contract with an existing and ongoing statewide education client that received gubernatorial budget reductions that we expect to return next year, and the approximately $2 million impact of the challenging international environment due to ongoing geopolitical tensions. Our new expectation is that revenue will be between $260 million and $267 million. We are maintaining our prior adjusted EBITDA guidance within a narrower range of $28 million to $31 million. I wanted to acknowledge this upfront, so it's not a distraction as I walk you through what's actually happening in the business and the many areas of strength we experienced in the third quarter.

So to our themes. The first theme, again, is that the company's strength and resiliency continue to be reflected in the company's performance, including, importantly, Q3 being our third consecutive quarter where we finished in line with our expectations and in our expected results for the year and this, even in the midst of a somewhat turbulent external environment. The importance of the challenges and opportunities we help organizations address and the success of our solutions in addressing them is reflected by both: first, the high levels of retention expansion and purchases of services we're achieving with existing clients; and second, our increasing revenue from winning new clients across both our enterprise and education businesses. I'd like to briefly address how this strategic strength played out in both divisions.

In the Enterprise division in North America, which accounts for approximately 80% of our total Enterprise Division revenue invoiced amounts are up 6% year-to-date and were up 4% in the third quarter, growing for a third consecutive quarter. Revenue retention is up meaningfully year-to-date and was particularly strong in Q3. We driven by both further increases in client expansion and continued strong logo retention. The percent of subscription contracts whose term is for multiyear periods continue to be high at 59%, and the percent of our subscription revenue contracted for multiyear periods was 60%. Year-to-date, services booking pace at the end of Q3 was up more than 25% compared to the prior year and the amount of our services already sold and contracted year-to-date this year, which are scheduled for delivery in fiscal '27 is meaningfully higher than at this point last year. Our balance of deferred revenue at the end of the third quarter was $58 million versus $49 million in the prior year or an increase of 18% compared to this time last year, establishing a strong foundation for growth and reported sales next year.

Reflecting this strong performance, our invoiced amounts and reported revenue for the third quarter in North America came in as we had expected and despite somewhat lower-than-expected revenue in Enterprise International, which I mentioned previously, again, primarily reflecting weakness in our direct office operations in China and some impact from the conflict in Iran on the economies of several of our international operations. Our total enterprise reported and invoice revenue for the quarter was in line with our expectations for the quarter and year-to-date. This underlying strength and momentum of our results, particularly in Enterprise North America is exactly what we designed the go-to-market transformation to produce. We're achieving the traction we had expected, and we expect results in Enterprise North America for the year to be strong. Growth in invoiced amounts, coupled with significant services bookings already contracted for fiscal '27 delivery gives us high confidence in the year ahead.

Turning to our education division. Our school retention rate at both the district and school levels remains very strong year-to-date, and our subscription revenue was up 11% in the third quarter and is up 14% year-to-date. This, together with our significant subscription base, our pace of new school contracting and the size of our advanced services bookings, all provide us with confidence that the Education division will finish the year strong.

As I indicated previously, last quarter, we mentioned that we had won our third statewide commitment to Leader in Me with a southeastern state that has made a significant Leader in Me commitments in each of the last 3 years. At the last minute, the governor held up the budget approval for health and human services and education line items, resulting in delayed funding for this year's allotment of new schools. We believe funds will be restored to the next fiscal budget, and we're working directly with impacted schools to proceed with as many as possible in the interim. This creates up to $2 million of pressure on the education revenue this year. However, what it does not reflect is any weakness in school and district demand for Leader in Me.

Our other 2 fully funded state commitments are on track for a strong year and our education business is expected to finish the year strong. We continue to expect that our strong momentum to close the year, particularly in Enterprise North America with deferred revenue up 18% year-over-year is setting the stage for strong reported revenue growth in fiscal '27.

The second theme I'd like to touch on is that the strategic importance of the opportunities and challenges we help our clients address coupled with our focused investments in high-impact solutions and go-to-market activities, are strengthening our strategic position and are establishing the foundation for accelerated growth.

90 days ago, I spoke about 3 dynamics positioning Franklin Covey well in an AI-driven environment. First, that AI is increasing the premium on human leadership and execution. Second, that our model is built around behavior change and collective action tied to measurable outcomes, not simply content or software delivery. And third, that we have significant room to grow within our existing client base. These convictions have only strengthened.

As AI creates extraordinary new possibilities, leaders are discovering that the path between AI investments and achieving meaningful results runs directly through the quality of their leaders, cultures and execution systems. This is a behavior change and collective action challenge, and we see it not only with AI but across the full range of leadership and performance challenges organizations face every day.

Our role is to help organizations strengthen the people side of execution, clarifying priorities, aligning teams building capabilities and creating accountability systems that translate strategy into measurable results.

Having completed our go-to-market transformation in Enterprise North America, and having already seen continued progress in achieving the kinds of results we had expected, we're now importing those learnings into our international business. The model is working, and we are scaling it.

Fiscal '26 is 1 of our biggest solution launch years and we'll build on that momentum in fiscal '27 launching new solutions across leadership, execution and AI transformation, while embedding AI-enabled coaching and execution tools into our platforms to even further support behavior change and collective action.

With this foundation in place, we are well positioned for growth in fiscal '27 and beyond. The numbers support this confidence. Deferred revenue for the company is up 7% year-over-year to $96 million. Service is already contracted and scheduled for fiscal '27 delivery are meaningfully ahead of where they were at this point last year and subscription and contractually committed invoiced amounts grew 17% in the third quarter alone. The work we've done this year is translating directly into the revenue and adjusted EBITDA growth we expect to report in fiscal '27.

I'd now like to turn the time to Jessi to go into more detail on our third quarter.

Thanks, Paul, and good afternoon, everyone. Franklin Covey continued to see strong demand for our solutions in the third quarter. We are pleased with our third quarter results, particularly in Enterprise North America. And despite an unexpected state funding challenge and education that Paul discussed, we reported growth in education for the quarter.

As we have stated previously, fiscal 2026 is a year of execution where growth in invoiced amounts is expected to set us up for accelerated reported growth in fiscal '27.

In my remarks today, I'll start by providing some details of our third quarter financial performance. Then I'll turn to our balance sheet and capital allocation priorities, and finally, I will provide additional context around our revised fiscal year 2026 financial guidance.

Total third quarter reported revenue was $67.8 million, Revenue grew 1% over the prior year, with both the enterprise and education divisions growing 2%. This was partially offset by the $0.5 million decline in corporate revenue we have reported each quarter this year so far as we no longer recognize sublease revenue since exiting our previous headquarters campus in June of last year.

Foreign exchange rates had a $0.3 million favorable impact on our consolidated revenue in the quarter.

With the enterprise and education divisions had invoiced amounts growth this quarter of 1% and resulting in a 7% increase in consolidated deferred revenue at the end of the third quarter, establishing the foundation for accelerated growth in reported revenue in fiscal year '27.

A summary of our consolidated financial results is on Slide 3 in the earnings presentation.

We are especially pleased that consolidated subscription and committed services invoiced amounts for the quarter was up 17% to $37 million, building upon the 12% growth we saw in the first half of the year, driven by the strong growth in Enterprise North America. Consolidated subscription and subscription services revenue recognized for the third quarter of $57.5 million was relatively even with that achieved in last year's third quarter. The foundation for increased future growth remains solid, and as evidenced by the 7% year-over-year increase in our consolidated deferred revenue balance of $96 million, which will be recognized as reported revenue in the coming quarters. The amount of unbilled deferred revenue contracted for the third quarter was $7.3 million, even with last year, with a total balance of $61.1 million, down 1% over the prior year. This $61.1 million will convert to invoiced amounts and deferred revenue in the future.

Gross margin for the third quarter was 73.9% compared to 76.5% in the prior year and decreased primarily due to increased delivery costs for services, a shift in mix of services delivered and products sold during the quarter and increased capitalized curriculum amortization expense.

Operating, selling, general and administrative expenses for the third quarter was $41.8 million, a level 5% lower than the $44 million in the prior year, reflecting reduced associate costs and other cost reduction efforts taken this year.

Adjusted EBITDA for the third quarter was $8.3 million, an increase of 14% or $1 million compared to last year's third quarter, reflecting revenue growth and the lower SG&A expenses I just mentioned. Foreign exchange rates had an immaterial impact on our adjusted EBITDA in the quarter.

During the third quarter, we continued to streamline our business in certain areas of our operations. We incurred $0.7 million of expense for this restructuring activity, which consisted primarily of severance and related costs. We recognized net income of $3.1 million compared to a net loss of $1.4 million in the prior year, reflecting a $4 million decrease in restructuring costs, a $0.7 million decrease in share-based compensation expense and the lower operating SG&A expenses I previously mentioned.

While we continue to execute on the long-term restructuring plan initiated in the second quarter of this year, our restructuring activities were significantly less than in the third quarter of the prior year.

Cash flows from operating activities for the first 3 quarters of fiscal '26 decreased 8% to $17.5 million primarily due to lower operating income and unfavorable changes in working capital compared with the first 3 quarters of fiscal 2025.

Free cash flow for the third quarter was a negative $1 million compared with a positive cash generated last year with higher operating income in the quarter, which was more than offset by unfavorable changes in working capital, largely due to a $10 million increase in deferred revenue over the prior year.

I'll turn now to a discussion of our business divisions. For the third quarter at fiscal '26, our Enterprise division generated 71% of the company's overall revenue. with the Education division generating 28% of the company's revenue. Third quarter Enterprise division invoiced amount grew 1% to $46.5 million and subscription and committed services in waste amounts grew 18% to $27.8 million. Third quarter Enterprise Division reported revenue was $48.1 million, an amount 2% higher than the $47.3 million reported in the prior year. As shown on Slide 4, the North American segment invoiced amounts grew 4% this quarter to $36.7 million. We are encouraged by the continued progress year-to-date and this quarter in invoiced amounts, which reflects the positive momentum coming from our investment to transform our Enterprise North America go-to-market organization, and we expect this to translate into increased reported revenue in future quarters.

In the third quarter, approximately $6.6 million in invoiced amount was for contractually committed predefined services. And while we continue to recognize the revenue upon delivery because these services have been contractually committed upfront, any on these days are guaranteed and will be recognized at the end of the contract term, if not delivered during the term.

On Slide 10 in the appendix to our earnings presentation, our roll-forward analysis of deferred revenue includes both subscription and committed services amounts with the timing of revenue recognition for committed services depending on the delivery schedule of our clients.

The North America segment's reported revenue of $38 million accounted for 79% of our Enterprise division sales in the third quarter of fiscal '26 and grew 3% over the prior year, primarily due to higher services delivered, including those that were contractually committed in prior periods.

Adjusted EBITDA for the North America segment increased $1.5 million to $7.7 million for the third quarter compared with $6.2 million last year, primarily due to lower SG&A costs resulting from the restructuring activities in recent quarters. Our balance of billed deferred revenue in North America was $58 million at the end of the third quarter. an increase of 18% from the prior year and unbilled deferred revenue was $56 million, a decrease of 1% from the prior year. Importantly, the number of North America's All Access Passes contracted for a multiyear period continued to be high at 59% in the third quarter, and the contracted amount represented by multiyear contracts was 60%.

As shown on Slide 5, third quarter revenue from our Enterprise International segment, which is the combination of our international licensee revenue and our international direct office revenue was $10.1 million. This accounts for 21% of our total Enterprise Division revenue and represented a slight decline compared to the prior year's $10.2 million.

License revenue in the third quarter increased 3% over the prior year, but was offset by lower revenues in our China, Japan and United Kingdom Direct Offices. Our offices in France and Australia each grew compared with the third quarter of fiscal '25.

Our China operations continued to be adversely impacted by ongoing trade tensions and broader macroeconomic uncertainty. And excluding China, the international segment achieved growth compared to the prior year.

Adjusted EBITDA in the third quarter of fiscal '26 for the International segment was $2.1 million, a 25% increase compared to $1.7 million in the prior year, driven by a reduction in SG&A expenses.

Turning now to our Education division. As shown on Slide 6, revenue in the third quarter increased 2% to $19 million, driven primarily by an 11% increase in subscription revenue partially offset by lower material sales associated with the statewide initiative that did not receive funding this year for new schools and also not holding any symposium events in the quarter compared to the prior year.

In the third quarter, we had 200 additional training and coaching days delivered compared to last year and 700 more year-to-date. As Paul described, there was a Southeastern statewide initiative to fund new schools that we anticipated launching in the quarter that did not come through because of the last minute signatorial budget cut targeting health and human services and education services. The financial impact of this budget cuts reduced invoiced amounts approximately $2 million.

Net revenue, approximately $1 million and adjusted EBITDA approximately $1 million from our previous expectations this quarter. This further impacts our fiscal year results by approximately $6 million in invoiced amounts net revenue and $2 million in adjusted EBITDA compared to our previous expectations. However, we continue to be in active discussions with individual schools that would like to proceed with launching leader need this year even without the state funding, and that opportunity is included within the high end of our revised guidance range. We believe that these education funds will be restored in the next steep budget cycle, which should support growth in our next fiscal year.

Despite the impact of the large statewide initiative budget cut, invoiced amounts in the third quarter of $15.1 million increased 1% from the prior year and subscription invoice amounts grew 14% to $9.3 million. Education subscription revenue increased 11% in the third quarter to $13.1 million compared with $11.8 million in the prior year.

Adjusted EBITDA for the Education Division in the third quarter decreased $0.4 million to $1.7 million due to lower gross margin, primarily driven by the timing of fixed cost for coaching services and product mix and increased SG&A expenses primarily due to increased commission on previously deferred revenue and increased associate expenses. Education's balance of build to forward revenue decreased 6% to $32.2 million as a result of the strong increase in the number of days associated with leader and knee subscriptions that were delivered in the quarter.

With the unfortunate timing impact of the statewide initiative, we currently anticipate education and waste amounts to slightly decline for the year as growth in the fourth quarter will be lower than previously expected.

While net revenue should continue to grow, albeit at a lower rate than expected due to the 13% increase in deferred revenue last year and continued growth in subscription revenue and Coaching days.

I would now like to spend a few minutes discussing our balance sheet and reiterating our capital allocation priorities. We continue to pursue a balanced capital allocation strategy focused on 3 primary areas that are aligned with our strategic goals. First, maintaining adequate liquidity and flexibility. Our total liquidity remains strong at over $74 million at the end of the third quarter. with $12 million cash on hand compared with the company's $62.5 million credit facility, which is fully available. Second, investing for growth. We will continue to invest in strategic opportunities to drive improved market positioning, accelerated profitable growth and financial value, such as our continued investments in product innovation, business transformation initiatives and opportunistic acquisitions when available; and finally, continuing to return capital to shareholders as appropriate.

As a reminder, year-to-date, the company has purchased nearly 1.6 million shares of its stock for $28.1 million. During the last 12 quarters, the company has used 120% of free cash flow to buy back shares. We have a $50 million share repurchase authorization from the Board of Directors with $20 million remaining after the 2 10b5-1 plans we had in place have been completed.

In the near term, we plan to rebuild the base of our cash on hand as we generate cash, and we'll evaluate opportunistic share buybacks in the future. We remain committed to being disciplined stewards of capital while staying focused on driving long-term value creation.

Now turning to our revised guidance for fiscal 2026 as shown on Slide 7. As Paul walked through, I will -- and I will do again now, our revised revenue projections reflect a timing shift in $2 million of previously committed and invoice services for which the delivery shifted from this year to next for a contract in Enterprise North America. We also took into account the $2 million for new school contracts with a statewide education client that received gubernatorial budget reductions that we expect to return next year and approximately $2 million in lower year-to-date and forecasted revenue for Enterprise International due to ongoing geopolitical challenges. These factors, combined with a disciplined view of the variability risks that could occur as we close the year, led us to revise our revenue guidance range to $260 million to $267 million.

Despite the revision of our revenue projections, we have maintained our prior adjusted EBITDA guidance within a narrower range of $28 million to $31 million, reflecting the effectiveness of cost reduction measures implemented throughout the year.

With solid growth in invoiced amounts for Enterprise North America this year and our transformation investments behind us, we believe the company will deliver a net revenue, EBITDA and free cash flow growth in fiscal '27 and thereafter grounded in strong client retention, continued demand for our services and the resilience of our business model, we remain fully committed to creating long-term value for our shareholders and clients.

Before I pass it back to Paul, I would like to thank the entire Franklin Covey team for their hard work and dedication to our business and providing unparalleled service to our clients.

Paul, I now turn it back to you.

Jessi, thanks for taking us through that. And we'd now like to invite the operator to open the line for questions.

Certainly. And our first question for today comes from the line of Alex Paris from Barrington Research.

Got a couple of questions. Starting with the macro environment. In the first half, we noticed both positives and negatives better than a year ago. Clients have adjusted feels a little bit more stable, but we've had a couple of issues on this call, the timing shift for the large enterprise contract, the education gubernatorial budget cutback and the challenging international environment. If you kind of peeled away the timing shift for the large enterprise client and the education reduction. Can you talk a little bit about the underlying strength of the various businesses?

Yes. Yes, you bet. Maybe just as I peel those 2 away for a second, maybe just to comment on those 2 really quickly. So the large contract, this is a contract we actually won in Q1 of this year. And it's a combination of a very nice All Access Pass contract with a large number of services. And this is actually a 3-year contract for us. And the clients paid for all of your 1 and the majority of your 2 already. We've invoiced for that. And along with that is scheduling of a number of contracted committed services. And as the years move forward, they've delivered quite a few services against that contract and what we thought would be delivered. But is the balance of what we thought would be delivered here towards the end of this year, some of those are shifting into early next year and throughout next year. And so that's -- this is business we've won, business has contracted, largely business we've already invoiced for and then pay for, and it's just the timing of when the client will deliver. And so that's that piece of enterprise.

So now to connect that to your question, we're not seeing really enterprise North America a change right now on the larger environment. It's just isolated at the timing of that -- the delivery of that on contract. In education, I'd say it's a very similar story. It was a bit of a surprise to us in the 11th hour that the funds, which have been approved by the state legislature, when the governor went to sign off, he pulled a large amount of funds back and we were wrapped up in that. We do expect that we'll get those back next year, and we're working with those schools to try to even get some number of them to begin with us here in the fourth quarter because they're ready to go. They were waiting and ready to go as they kick off their new school year in August. And so those I wouldn't really connect to the environment at all, really. It's just isolated to 2 contracts. Where we are seeing a little bit of environmental impact is in our international business. Certain of our licensee partners, our largest licensee partner, for example, is actually in the Middle East, they're in Dubai. And so it's been a challenging situation for them there. That we expect to abate. We don't -- we think that's more timing related to some of the geopolitical things that are going on and not necessarily a reflection of the underlying strength of that business.

And then -- sorry, thanks, Jessi. And then China is -- that has continued to be a problem. And what we thought this year was we were kind of at the bottom, we're going to be a little lower than that this year in China in the larger macro environment, it really hasn't changed at all. We -- we're not seeing a change there from what we reported last quarter or the quarter before.

Got you. And then let's talk a minute about the education division because this fourth quarter is a big quarter for education. So again, setting aside the large contract, the gubernatorial change. Maybe just get a little update on progress there in terms of net new schools and school retention and so on?

Yes, I've got Sean Covey here. Sean, do you want to comment?

Sure. Yes. So a few things about education. So we just talked about the deal that was delayed. We had won this the last 3 years and expected it this year, and we expect it to come back. But we feel really good about the fourth quarter and about the year as a whole, pushing that aside. As Paul shared, we are working to get back some of these schools. We won't get all of them, but we can get a few of them back with their own funding mechanisms. Our retention is very key because we've got a lot of retention revenue. And it's running right now 1% to 2% higher than last year. We already have really good school retention and -- so that's a really good sign of strength in the business. Our new school growth, we expected it to be higher than last year with the Georgia deal without it. We'll be and it's going to be harder to get there, but it will be comparable to last year. We're also finding great success with charter schools and after schools. These are adjacent markets. They're large. There's a lot of money behind them, and we're able to make up some ground with our after-school initiatives. They're helping a lot.

And then finally, I'd just state that we've got other state deals, 2 other state deals that are coming through. We've got large district deals. And sometimes these large district deals are as big as state deals. And those are doing really well. And then also, what we offer is needed today more than ever before. And in the world of AI, so much of what we do is going to be even more important teaching these leadership durable skills, initiative, collaboration, empathy, the things that we do, and we continue to get great outcomes. So we just came out with a new report that shows that leader and me help significantly with chronic absenteeism, which is a major issue right now in you have schools after COVID. And compared to other non Leader in Me schools, we do far better. We do great with teacher turnover, reducing that with increased test scores. So we've got really good solid outcomes that we continue to produce. So we feel really good about the business generally, and we had this setback with the state deal we expect to recover. But I hope that gives you a little bit of color.

No, that's really helpful. I appreciate it, Sean. And before I yield the floor. I just wanted to talk a little bit about the enterprise business, new logos versus retention there. win back rate on perhaps lost contracts? And maybe specifically, the government contracts that were lost because of those as last year.

I'll just maybe make 1 quick comment, and then we've got Holly Procter here as well, she can share a couple of thoughts. So we had another good quarter in terms of retention. And this is our -- last quarter, we commented as well that the retention driven really by a lot of client expansion. And so maybe, Holly, do you want to talk about that? And just generally, and you talk about the overall enterprise business.

Yes, sure. So a couple of thoughts, as Paul referenced, both strong retention and strong expansion in the enterprise business, which was -- as you know, a big part of our transformation effort that we could both increase the retention effort and also drive additional and incremental expansion beyond our run rate. You specifically called out government, so I'll comment on that. We have not yet seen our government business have an uptick post the large impact from those. So for any of it, we've remained flat from the bottom out of from Q1 of last year, but we see and we're hopeful that we can see impact on that 1 as we get to the next 2 years.

And our next question comes from the line of Dave Storms from Stonegate.

Just wanted to maybe start in international. I think Paul, you mentioned in your prepared remarks that you're starting to move some of the go-to-market strategy over into international markets. Just curious as to if you have any early indications of how the is go and any expectations there? Could it maybe counteract some of the macro headwinds you're seeing? Anything like that?

Yes. Wonderful, Holly, do you want to take that one?

Yes. I'll comment on that. So Dave, we will start our situation internationally in Europe. And so in Europe, our direct offices include the U.K., Ireland, Germany, Switzerland and Austria and France. And so our efforts will focus on those countries to begin. And the primary effort there will be around dividing the sales force into a similar Hunter pharma structure, where we focus on our new logo acquisition, have dedicated hunters that are focused on just acquiring net new customers. And then the theme that will play out in the post sale effort that we have a dedicated set of farmers that are attached to the retention effort and expansion effort of our current customer base in Europe. So after we've successfully navigated that transition in Neuro, we'll evaluate other geographies that start in Europe, given that's our largest direct office. Just to comment on timing. We will begin most of those efforts with a go-live date in Q1 and begin our execution in Q1 and plan to roll that out over next year.

Understood. That's really helpful. I appreciate that. And maybe if I could just linger internationally. I know China has kind of been a for side for a couple of quarters now. Is there any thoughts around what could put that back on track? Or how many moves do you have left to make over there?

Yes. Great question. Yes. We're looking at some options there, Dave, and have been this year. I think we see China is obviously a very large market. You'll recall, just stepping back, we China was a licensee operation for us 10-plus years ago. We converted it to a direct operation just recognizing the size of that economy, the size of that country. And for a few years, that looked like a really good decision. We grew it rapidly on the top line and the bottom line. And then the last kind of coming out of Cove in the last number of years has been much more challenging for us and there's been a drag on our overall growth. There's still a good opportunity for the business, I believe, in China, but we're just looking at a number of different options there on how to operate China in a way that would give it the best chance to grow top line and bottom line. And we'll share more as we kind of get through that process of evaluating different options.

Perfect. I appreciate you answering my questions and good luck on the next quarter.

Thank you, Dave. .

And our next question comes from the line of Nehal Chokshi from Northland.

Speaking to the strength of underlying nature, is it fair to say that on Slide 10, the bottom line, the total additions to the balance sheet under the breakout of subscription and committed services is the best indicator with respect to that underlying strength that you're talking about here?

Yes, that's right. I mean that's always a good indicator to look at what we're adding there for the subscription and contractually committed invoiced amounts, and we had very strong growth with Enterprise growing 18% this quarter, we're very pleased to know by that. So it's definitely a very good indicator because that's just going to translate into the net revenue growth into next year.

Okay. And yes, I do know that for the second quarter in a row, the overall, what I'll call subscription invoice is up basically 16%, 17% year-over-year.

17%, double digits. Last quarter, we grew 16% first quarter 5. So moving in the right direction or pleased by that.

Yes. Huge positive. And so that's what's driving the continued confidence in the ongoing healthy buyback rate. Is that fair to say?

Yes. So this quarter, 2 days, right, year-to-date, we purchased $2 million. You're talking about the share buybacks. And so yes, I mean, we definitely believe in the growth prospects in the future. for the company and the strategy that we have to be able to deliver on that. And the invoiced amount this year, the growth that we have to serve then translate to net revenue growth next year. We -- through the restructuring we've been doing, we do believe that we'll have operating leverage, and we'll be able to have growth in EBITDA and free cash flow as well in 2027 and going beyond. So all underlying indicators for growth of the business.

Okay. And could you give us a sense as to how much of this mid-teens growth that you're seeing is coming from the existing customers versus new customers?

I would say, Nehal, it's there's a pretty good split here between the 2. If you step back and Holly alluded to this earlier, when we undertook the go-to-market transformation in Enterprise North America a couple of years ago, there were a number of -- there were a few core bets or key bets underlying that. One of them was, of course, that we could have a team dedicated to selling to new customers and that there, we could get not only growth in as the revenue would grow, not only come from subscription but from services, and we've really seen that play out. And that same -- the second bet was if we focused a team of people on our existing customer base that we could drive more expansion, better retention and more services there as well. And that service is part of our business is an important strategic differentiator, and more and more of our clients are looking for that expertise from us as they're trying to navigate these complex problems. And so stepping back, what we're seeing is not only are we now through the transition of the go-to-market. We're seeing that play out like we hoped it would, and we're seeing higher and higher attach rates of services and that -- so the growth is really coming from both sides, the new customers and the existing customers this year. And I wanted to just to build on something Jessi said just a second ago. In addition to invoiced amounts growing this year, we're -- I mentioned this in my prepared remarks, we've got -- we're starting out next year with many more of these contracted services on the books to be delivered with our clients. And so all of that with the visibility into next year, more growth in reported revenue, adjusted EBITDA, that's shaping up like we expected that it would as we move through this year.

Great. That's really helpful. And just to conceptualize the potential durability of this momentum that you're seeing in the underlying metrics here. Where would you say you are in terms of market share of your core markets that you're serving right now?

Fortunately and unfortunately, we're were underpenetrated. I say fortunately and importantly, we would love to be more penetrated, and we're excited by the size of the markets that we serve and the opportunity that's there. And as we -- and so that was 1 of the reasons, frankly, for the go-to-market transformation were to say, "Hey, we've got -- we believe that the market needs, our clients need what we have to offer. Of course, there's more that we want to build and we will build -- and we believe that we can capture more and more of the potential that's out there and now these pieces are all coming together and we're seeing that begin to play out this year. I don't want to get out over our skis. We're just beginning to see that play out and encouraged about what that means for the future.

And our next question comes from the line of Jeff Martin from ROTH Capital Partners.

I wanted to dive into kind of what you're seeing and hearing in terms of the sales environment? How do you feel that sales productivity was in the period? And is that productivity accelerating from the beginning of the year through Q3? Or are we in a sales environment where it's a little choppy still.

So as you know, our Enterprise division makes up about 70% of our business and Enterprise North America makes up about 80% of enterprise. So maybe I'll see a big part of that is Enterprise on Holly, take that one.

Yes. Thank you, Jeff, for the question. So a couple of things I'd just call out. I'm generally pleased with the sales productivity, both the measures that we use to track our success. And then some of the signal that we've received. So examples of that would be, we have invested in several ancillary functions that support the sales team today. That allows that the individual seller can carry more revenue than they've historically carried in the past. So dollars under management. So per person productivity is up greater than it used to be in our old model. We've supported the sales team with ancillary teams. So for example, we've added an SDR function. This is primarily a piece function that produces meetings for the sales team. The reason why I mentioned that is because when you think about sales productivity without an SDR function, we have -- it's been harder for us to onboard and ramp a net new hire. So to be able to build a function where we can promote internally and build talent up through the org, that allows our ramp time to go way down. So when you think about productivity, not just in year but in years to come, the functions that we've supported the file team with have created our ability to onboard and ramp them in a much quicker time line for us to put more dollars under management for each seller. And so we're really pleased with the progress we've seen.

Great. And then Paul, just curious how you'd characterize the add-on services environment?

Yes. We've been very pleased. This has been quite a bright spot for us. Our services booking rate. So of course, the flow of services is we find new customers or we talk to existing customers. We identify new jobs we can help them with new initiatives we can attach to. And when we attach to those, it might drive more AAP subscription seats or it might drive more services or a combination of the 2. We then close business and the part that services related, we then contract for those and we begin to book those services and those bookings go on the calendar for future delivery. And the year-to-date through the third quarter, the bookings of services is up more than 25%. And so it's been quite a significant growth rate for those services. As I mentioned, while we're delivering those services right now in the year, for the year, we're also pleased with the amount of services that are actually being booked out ahead of next year and into next year. And that's also happening at a higher rate than it did at the same time last year. So overall, we've been very pleased. I think what's driving that, Jeff, is back to the strategic nature of what we're trying to do. We're in there helping our clients trying to execute strategy right now in a very tumultuous environment for them. We're in there trying to advise clients around change in transformation related to we're in there working with clients where there's a lot going on and the need for high levels of trust and high levels of engagement are there. And so the -- we're getting invited in by our clients to work with their senior leaders and they want our experts to come in and to deliver and consult and coach with them. And those are all the services that we provide. And so the services as being really, I think, driven largely by the demand in the marketplace. And then it's coupled with a more -- even more sophisticated sales force that we've been able to put together and their ability to go in and position, call hire and position more strategic integrated solutions.

Yes. And just some data points around that, that I want to highlight, and we have this in the investor presentation, but in the enterprise division this quarter, you'll see in the chart, it looks as though -- well, it shows in there that we have 59% services attach rate, and that's compared to 60% a year ago. But we noted in there that you have to take into account that 1 large IP deal that doesn't show up as a services attached to the subscription because they're no longer a subscription client. So we had $1.8 million of services for that large finance this quarter. And so when you normalize for that, we actually had 66% of the services attach rate relative to that 60%. So you see the growth year-over-year in terms of the services attached to it.

That's a great flag. So the way I'm kind of understanding some of your messaging here is there's a lot of demand for leadership. There's a lot of demand, it sounds like for execution. Are those going to be your 2 largest content areas going forward, do you think?

I would say, categorically, yes. I mean I think if you think about the key -- we've talked in the past about our company and what we've been moving towards over many years is to not be a company who exists to impart knowledge or to just teach skills. We're a partner to organizations helping them generate the collective action necessary to execute their most important strategies. We're on the human side of whatever strategic initiatives they're trying to accomplish. And when you think about what it takes then to execute strategy, the human part of that, it requires great leadership. It requires high-performing cultures, high trust cultures. It requires alignment. It's 1 thing to come up with a strategy. It's a different thing to get everybody organized around that strategy, clear on their roles able to work together in highly collaborative ways. And so yes, it's leadership, it's trust, it's execution those areas are where we tend to find the collective action needs of our clients, and that's our sweet spot as an organization. That's what we do best. And so yes, that has been and will continue to be where we play in the future. And then we're excited about the places we can point that. We issued a press release not that long ago about the work we're doing in hospitals. And this is a quickly growing part of our business. If you think about hospitals. This is a very human strategy set of issues where hospitals are trying to provide a really good patient experience that drives a lot of their economics. But it turns out that patient experience is a function of what's happening with the nurses and the doctors in that hospital and how they work with patients. And that goes, so goes your culture, so goes, how they're led, so go, how they're engaged, Sogo's nursing turnover and retention rates and some of these things that are so closely connected to those patient outcomes. So those are the types of problems and opportunities we help our clients with. And we have these great solutions to attach to those, and they do fall in some of those categories you just mentioned.

Okay. And then 1 more if I could. I know you're not establishing fiscal '27 guidance at the moment, but I was just curious if there is a scenario where you could foresee growing high single digit to low double-digit revenue and with operating leverage and maybe a little bit of help on the margin -- on the gross margin side, adjusted EBITDA growth significantly outpaces that next year?

So you're right. We're not going to be providing guidance right now for next year. I mean, I will say that we -- with the growth that we've been having this year on invoiced amounts. We believe that, that will translate to meaningful growth next year to net revenue with the -- just in terms of like our -- the major investments behind us, that we had done last year with Evolve and some of the restructuring and cost initiatives that we've taken into place, that's going to translate not only through the revenue flow-through, but EBITDA growth as well for next year. So -- and those are some indicating points. And then for the longer term, I mean, we do believe that we'll be able to get to the higher level of growth amounts to the strategy that we're executing in the longer term.

And our next question is a follow-up from the line of Alex Paris from Barrington Research.

I just wanted to sneak this last 1 and we didn't really talk about it too much. I -- you had said, Paul, in your prepared comments, this is 1 of the biggest years for new products solutions introductions in fiscal 2027, you expect leadership, execution and AI solution enhancement. I just thought maybe we can get a little bit of an update on what's going on with AI. I know you introduced AI sales coach for the 4 disciplines. You launched a leading AI adoption. You launched working with AI. What's the AI road map in other words?

Yes, great. We have launched those solutions. Those are out in the market. We have seen a lot of interest and demand from our clients. In fact, last quarter, I shared that we'd won a nice size deal to be the partner on AI transformation for a large technology company. That was in Q2. In Q3, we actually expanded quite significantly our work with that client as the early work that we were doing had been quite well received. And so we're seeing increased demand. On the AI front, we'll be launching in the fall, in -- early in the fall. The next set of modules to build on our leading AI transformation and working with AI. And then we are also making -- we're about to launch additional functionality within our AI coach. And so we -- there's -- on both the AI technology embedded in our solutions side, there's more down there, simulations, role play, how we can incorporate more of that, how our clients, how our customers are going to be able to get access to a lot of our content even embedded in some of their own internal AI systems and some of the tools they use like Slack and Microsoft Teams and things like that. So we're embedding AI that way into our solutions. And then we're developing solutions on the AI readiness and AI change in transformation side to be the advisory and leadership support and partner to our clients there. So like a lot of people, we're deep in the middle of that one.

I can add 2 things to that, Alex. So the largest, most pervasive question that we get right now, both from current customers and from net new clients is how do you want to equip my current leadership team to navigate the large-scale disruption they're facing right now is pervasive across almost every industry. And so -- and after they figure out how to put their leaders, the very next obvious question is how do I equip our team and they're thinking about that through the lens of AI fluency. -- right, how do I navigate and get every single member of the team ready to leverage AI scale and they're looking for a partner to help them navigate that amount of disruption.

Super helpful. And then the very last question is to kind of press you a little bit on fiscal 2027. Again, based on the press release based on your prepared comments, it looks like you're committed to revenue growth and then even faster adjusted EBITDA and free cash flow growth because of restructuring actions and so on. Is that fair to say?

Yes. That's what we believe and expect relative to this year, yes.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Paul Walker for any further remarks.

Wonderful. Well, thank you, everyone, for tuning in today. Thanks for your great questions, and we appreciate you. We hope everyone has -- if you're in the U.S., I hope you have a good fourth this weekend and look forward to connecting with you. Have a great day.

Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Good day, and thank you for standing by. Welcome to the Second Quarter 2026 Franklin Covey Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded.

I would now like to hand it over to our first speaker, Boyd Roberts, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today on Franklin Covey's Second Quarter 2026 Earnings Call. We appreciate having the opportunity to connect with you.

Before we begin, please remember that today's remarks contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including, without limitation, statements that may predict, forecast, indicate or imply future results, performance or achievements and may contain words such as believe, anticipate, expect, estimate, project or words or phrases of similar meaning. These statements reflect management's current judgment and analysis and are subject to a variety of risks and uncertainties that could cause actual results to differ materially -- materially from current expectations, including, but not limited to, risks relating to macroeconomic conditions, tariffs and other risk factors described in our most recent Form 10-K and other filings made with the SEC. We undertake no obligation to update or revise any forward-looking statements, except as required by law.

Now with that out of the way, I'd like to turn it over to Mr. Paul Walker, our CEO.

Thanks, Boyd. Good afternoon, everyone, and thank you for joining us. It's great to be with you and to have the opportunity to share our results for the second quarter and provide an update on the business and our outlook for the remainder of the year.

We're pleased with our results in Q2. Revenue and adjusted EBITDA grew year-over-year, met our expectations and were above consensus. As we've shared previously, fiscal 2026 is a year of execution and a return to growth. And we're encouraged by the continued progress and momentum we saw in the second quarter and throughout the first half of the year. Invoice amounts in the quarter grew 5%, driven by 7% growth in Enterprise North America, or 10% when excluding our government business, which was impacted by the disruption caused by a reduction in federal spending.

Invoiced growth overall was also driven by a 7% growth in Enterprise International. We expect invoice growth to remain strong through the balance of the year. Because a significant portion of invoice growth is recognized over time, this positions us for accelerating reported revenue, adjusted EBITDA and cash flow in fiscal '27.

In Enterprise North America, growth was broad-based. We saw strong sales of subscription and services to new logos, continued strong retention and meaningful client expansion, resulting in one of our highest revenue retention levels in recent periods. Services bookings also continue to be strong and are up 9% for the year as of this week, reinforcing the importance clients place on the business outcomes we help them achieve. In addition, deferred subscription revenue grew 16% year-over-year and the percentage of revenue under multiyear contracts increased to 62%, reflecting both client confidence and the long-term nature of our partnerships.

In an environment where leaders are working to accelerate results while navigating uncertainty and disruption, Franklin Covey continues to be sought out as a key partner in addressing the human side of strategy, execution, change management, including related to clients' implementation of AI and achieving measurable performance transformation. We expect the momentum we've experienced in the first half to continue to be strong through the second half of the fiscal year.

Turning to our business outside of North America. Our international business delivered strong performance, partially benefiting from foreign exchange with invoiced amounts growing 7% and particularly strong performance in our direct offices where invoiced amounts grew a strong 14%. And in our Education business, reported revenue grew 16% in the quarter, driven by strong demand for Leader in Me services and materials. We feel very good about the momentum in Education and the business is positioned well for a strong second half and full year performance.

Overall, we remain confident in achieving our full year revenue and adjusted EBITDA guidance and in the strength of the foundation we're building for accelerated growth in fiscal '27. Jessi will provide more detail on our specific segments in her remarks in a few moments.

I'm going to focus the remainder of my remarks today, first, on Enterprise North America, which makes up more than 50% of total company sales and the area in which we have invested for accelerated growth. And second, I'll talk briefly about the strategic importance of what we do and why a growing number of organizations are partnering with Franklin Covey to drive the human side of strategy and transformation, particularly as a simultaneously leveraged AI to transform.

So first, as it relates to enterprise, North America. Enterprise North America, which represents more than half of our total revenue is at an important inflection point. The growth we're seeing reflects both the increasing strategic importance of what we do for our clients, and the traction from the go-to-market transformation we implemented last year. We're now seeing clear evidence that these investments are driving stronger new client acquisition, deeper client relationships, and greater expansion within key accounts.

Key results embedded in the second quarter's overall 7% increase in invoiced amounts in Enterprise North America include the following: First, we had strong sales to new clients or to new logos, reflecting a combination of both subscription sales and services. Second, our balance of deferred subscription revenue grew a very strong 16% year-over-year to $59 million, building on the 8% growth in deferred subscription revenue last quarter. Third, we again had a strong logo or client retention quarter. Fourth, we achieved strong existing client expansion where expansion drove one of the highest overall revenue retention percentages we've achieved. Fifth, the percentage of our revenue, which is contracted for multiyear periods increased to 62%.

With our sales engine accelerating as planned, I'd like to focus the remainder of my remarks on the strategic importance of what we do and the growing need organizations have for a partner who can help them unleash their organizations to achieve breakthrough results, and why we believe our position has strengthened in the current environment.

Artificial intelligence is creating extraordinary new possibilities for organizations. But before addressing that directly, it's helpful to step back and consider a broader pattern we've seen over time. Franklin Covey has been a trusted partner to leaders and organizations through multiple periods of significant disruption, from the digitization of business processes to the global financial crisis to rapid shifts in how and where we work and where work gets done like during the pandemic. In each case, one principle has remained consistent.

In times of disruption and transformation, the need for strong leadership, trust and disciplined execution increases, it doesn't decrease. We believe AI follows the same pattern. And as a result, there are 3 things that are important to understand about how AI interplays with our business. The first of these, as I noted, is that AI is actually increasing the premium on human leadership and execution.

AI is accelerating change inside organizations. It has the potential to raise productivity, expand spans of control and increase the pace and complexity decision-making. As routine work is automated and access to information becomes more widely distributed, the differentiators for organizations increasingly become judgment, trust, collaboration, alignment and disciplined execution. At the same time, we're seeing how AI has the potential to reduce the amount of routine and analytical work organizations do. We also see how AI is increasing opportunities that can result from strong leadership, high trust, winning cultures and great execution.

The second area and the second interplay is that our model is built around behavior change and collective action tied to real measurable performance outcomes. Our model is not about just delivering content or software digitally. Our role is to help organizations strengthen the people side of execution, helping leaders clarify priorities, align teams, build capability and create accountability system that translates strategy into measurable results. For many of our clients, Franklin Covey functions as a long-term performance partner to their leadership teams and their organizations overall.

While a significant portion of our revenue is subscription-based, our model is fundamentally different from SaaS. Our subscriptions are related and related services are tied to enterprise-wide performance outcomes and long-term partnerships, not simply software usage. This positions us as a performance and advisory partner rather than a software provider. For example, this is reflected in our work with health care systems, where we partner directly with chief nursing officers to strengthen leadership capability, trust and execution across care providing teams. This drives higher employee engagement, lower nurse turnover and improved patient satisfaction and outcomes, which also directly impacts hospital reimbursement.

This reflects the core of our model, the integrated combination of content, technology, services and advisory applied together to drive sustained behavior change and collective action across organizations. That capability and the measurable outcomes it produces is not something AI can replicate at scale. We also saw this in the second quarter with a large technology company that selected Franklin Covey to support the CEO's strategy to transform the organization to an AI-enabled operating model. While the strategy is technical in nature, successful execution of this transformation shift in their business will depend heavily on strong leadership, successful change management and high trust fast-moving culture, all areas where we're a key partner.

This work that we're involved in is about changing collective behavior across teams and organizations, something fundamentally different from simply providing access to ideas or content. The significant impact our engagement and solutions have is exactly what is behind the fact that even in and perhaps especially in times of significant change, we continue to retain a high percentage of clients and they continue to extend both the duration and size of their contracts with us.

The third interplay with AI is that we have significant room for growth within our existing client base. Today, our solutions typically reach only a small portion of the employee population within our client organizations, generally in the range of 5% to 10%, which provides substantial room for growth over time, even in a more efficient or AI-enabled workforce. We saw this clearly in the second quarter where we delivered one of our strongest expansion quarters in recent periods, driven by increasing demand for enterprise-wide transformation and leadership capability. Taken together, these dynamics position us well in an AI-driven environment.

At the same time, we're continuing to evolve our solutions to incorporate AI in ways that increase the value we provide to our clients. We're embedding AI-enabled coaching and execution tools into our platforms and we're helping organizations lead the human side of AI adoption. We're seeing this play out directly in our business through strong client expansion, increasing multiyear commitments and growing demand for enterprise-wide transformation engagements. These trends reinforce our conviction that as organizations navigate increasing technological change and complexity, the need for strong leadership, trust-based cultures and disciplined execution will continue to grow.

Stepping back from all of that, as I conclude my remarks here today, I just would say that we're pleased with the momentum we're seeing in the enterprise North America portion of our business and across the business as a whole. Driven by this momentum and the expected strength in education, we believe we're well positioned to deliver meaningful invoice growth this year, and to establish the foundation for significant growth in reported revenue, adjusted EBITDA and cash flow in fiscal '27 and beyond.

I'd now like to turn time to Jessi to share more detail on our second quarter results.

Thanks, Paul, and good afternoon, everyone. Franklin Covey continued to see strong demand for our solutions in the second quarter, and as Paul discussed, the strategic investments we've undertaken to transform our Enterprise North America go-to-market strategy are continuing to gain traction. We expect fiscal 2026 to be a year of execution where our adjusted EBITDA and free cash flow will return to growth and where our meaningful growth in an invoice amount will set us up for accelerated growth in fiscal 2027.

In my remarks today, I'll start by providing some details of our second quarter financial performance, then I'll turn to our balance sheet and capital allocation priorities. And finally, I will provide additional context around our reaffirmed fiscal year '26 financial guidance.

Total second quarter reported revenue was $59.6 million. Revenue, which was in line with our expectations for the quarter was flat to the prior year as a 4% decline in reported revenue in the Enterprise division was offset by a 16% improvement in the Education division. Foreign exchange rates had a $0.7 million favorable impact on our consolidated revenue in the quarter. Importantly, our consolidated invoiced amounts grew by 5%, resulting in a 7% increase in deferred revenue at the end of the second quarter, establishing the foundation for accelerated growth in reported revenue in fiscal 2027. A summary of our consolidated financial results is on Slide 3 in the earnings presentation.

Consolidated subscription and subscription services revenue recognized for the second quarter increased 3% to $50.9 million. We are especially pleased that consolidated subscription and committed services invoiced amounts for the quarter was up 16% to $39.3 million, continuing the growth we saw in the first quarter for the Enterprise North America and now including growth in Enterprise International.

The total value of contracts signed in the second quarter grew 8% to $53.7 million, and was led by the Enterprise division, which raised the value contract signed by 12%. The foundation for increased future growth remains solid and as evidenced by the 7% year-over-year increase in our consolidated deferred revenue balance to $101.5 million, which will be recognized as reported revenue in the coming quarters. The total amount of unbilled deferred revenue contracted for the second quarter was also strong, increasing 9% to $10.6 million, with the total balance increasing 1% over the prior year to $64.9 million, which will convert to invoiced amounts and deferred revenue in the future.

Gross margin for the second quarter was 75.9% compared to 76.7% in the prior year due to increased amortization of capitalized curriculum expenses and a shift in mix of services delivered and products sold during the quarter.

Operating, selling, general and administrative expenses for the second quarter were $41.2 million, which was 6% lower than the $43.7 million in the prior year, reflecting reduced associate costs and other cost reduction efforts taken in fiscal 2025 and in the first quarter of this year.

Adjusted EBITDA for the second quarter was $4.1 million, an increase of 99% or $2 million compared to last year's second quarter, reflecting the stable revenue, gross margin and lower SG&A expenses I just mentioned. Foreign exchange rates had a $0.2 million favorable impact on our adjusted EBITDA in the quarter.

During the second quarter, we continued to streamline our business in certain areas of our operations. We incurred $1.5 million in expense for this restructuring activity, which consisted of severance and related costs. We realized a net loss of $2 million compared to a net loss of $1.1 million in the prior year, reflecting the $1.5 million increase in restructuring costs, a $1.3 million increase in share-based compensation expense and $0.5 million increase in building exit costs, which primarily consists of legal expenses. These increases were partially offset by decreased SG&A expenses.

Cash flow from operating activities for the first two quarters of fiscal '26 increased 28% to $16.4 million, reflecting the strength of second quarter operating cash flow of $16.3 million versus a negative $1.4 million of cash used in the second quarter last year. This was driven by improved receivables collections and higher invoiced amounts. These improvements offset lower operating income and increased capitalized development costs in the second quarter of fiscal '26 compared with the prior year.

Free cash flow for the second quarter was $13.2 million compared to a negative $3.6 million of cash used last year.

I'll turn now to a discussion of our business divisions. For the second quarter of fiscal '26, our Enterprise division generated 70% of the company's overall revenue, with the Education division generating 29% of the company's revenue. Second quarter Enterprise division invoiced amounts grew 7% to $52 million. Second quarter Enterprise Division reported revenue was $41.6 million or 4% lower when compared to $43.6 million in the prior year. As shown on Slide 4, the North America segment invoiced amounts grew a consecutive 7% this quarter to $42.7 million, and excluding government contracts, it grew 10%. We are encouraged by the continued progress this quarter in invoiced amounts, which reflects the positive momentum coming from our investment to transform our Enterprise North America go-to-market organization, and we expect this to translate into increased reported revenue in future quarters.

Last quarter, I highlighted an important change aligned with our strategic focus on solution selling, whereby clients now may contractually commit upfront for services, which will be delivered over time as we bundle content and predefined services together.

In the second quarter, approximately $3.5 million in invoiced amounts was for such contractually committed predefined services. And while we continue to recognize the revenue upon delivery, because these services have been contractually committed upfront, any unused states are guaranteed and will be recognized at the end of the contract term.

On Slide 10 in the appendix to our earnings presentation, our roll-forward analysis of deferred revenue includes both subscription and committed services amounts and the timing for revenue recognition for committed services will depend on the delivery schedule of our clients.

The North America segment's reported revenue of $32.5 million accounted for 78% of our Enterprise Division sales in the second quarter of fiscal '26. And was 6% or $2 million lower than prior year, primarily due to lower subscription revenue recognized as a result of a lower invoiced amount and deferred revenues last fiscal year.

Adjusted EBITDA for the North America segment increased $1.1 million to $5.9 million for the second quarter of fiscal '26 compared to $4.8 million last year, primarily due to lower SG&A costs resulting from the restructuring activities in recent quarters.

Our balance of billed deferred revenue in North America was $59.3 million at the end of the second quarter, an increase of 16% from the prior year and unbilled deferred revenue of $61.1 million, an increase of 3% from the prior year. Importantly, the number of North America's all Access Passes contracted for multiyear periods increased to 59% in the second quarter compared to 55% last year, and the contracted amounts represented by multiyear contracts increased to 62% compared to 61% in the prior year.

As shown on Slide 5, second quarter revenue from our Enterprise International segment, which is the combination of our international license fee revenue and our international direct office revenue was $9.2 million. This accounts for 22% of our total Enterprise Division revenue and represented a 1% increase over the prior year of $9 million.

International direct office revenue, which accounts for approximately 70% of total international revenue increased 7%, driven primarily by improved year-over-year revenues in France and China due to a foreign exchange currency benefit, while international licensee revenue, which accounts for approximately 30% of total international revenue decreased 10% from the prior year.

Invoiced amounts for our international direct offices grew 14% year-over-year. And while 6 points of this growth is due to foreign exchange, we are encouraged by the overall growth trend this quarter. Adjusted EBITDA in the second quarter of fiscal '26 for the International segment was $1 million compared with $0.5 million in the prior year, driven by increased revenue and lower operating costs, including lower bad debt expense compared with the prior year.

Now turning to our Education division. As shown on Slide 6, revenue in the second quarter increased 16% to $17.5 million. This primarily reflects increased training and switching revenue from the delivery of more than 300 additional training and cushing days compared to last year as well as an additional symposium events and increased purchases of classroom and training materials by schools.

Invoiced amounts in the second quarter of fiscal '26 of $8.5 million decreased slightly from the $8.6 million generated in the prior year, partially due to the timing of a large statewide deal, whose revenue began in the first quarter of fiscal 2025, but which is expected to fall into this year's third and fourth quarters.

Education subscription-related revenue increased 19% in the second quarter to $12 million compared to $10.1 million in the prior year. Adjusted EBITDA for the Education division in the second quarter was $0.4 million compared to a loss of $0.3 million in the prior year due to increased revenue. Education's balance of billed deferred revenue decreased 4% to $36.1 million as a result of the strong increase in the number of as associated with the Leader in Me subscriptions that were delivered in the quarter.

We currently expect education to have a strong year in fiscal 2026, with the pattern of large invoiced amounts and recognized revenue to come in the back half of the year and especially in the fourth quarter.

I would like to now spend a few minutes discussing our balance sheet and capital allocation priorities. We continue to pursue a balanced capital allocation strategy focused on 3 primary areas that are aligned with our strategic goals.

First, maintaining adequate liquidity and flexibility. Our total liquidity remains strong at over $76 million at the end of the second quarter with $13.7 million of cash on hand, even after having repurchased $17 million of our stock, combined with the company's $62.5 million credit facility, which is fully available.

Second, investing for growth. We will continue to invest in strategic opportunities to drive improved market positioning, accelerated profitable growth and financial value, such as our continued investments in product innovation, business transformation initiatives and opportunistic acquisitions when available. And finally, continuing to return capital to shareholders as appropriate. In the second quarter, we purchased approximately 922,000 shares in the open market at a cost of $16.5 million. And in January '26, completed the $20 million 10b5-1 purchase plan we initiated in November of 2025.

The company also acquired approximately 25,000 shares to cover income taxes on stock-based compensation awards issued during the second quarter for a value of $0.4 million. Year-to-date, the company has purchased nearly 1.6 million shares of its stock for $28.1 million.

During the last 4 quarters, the company has used 130% of free cash flow to buy back shares. We have a $50 million share repurchase authorization from the Board of Directors with $20 million remaining after the 2 10b5-1 plans we had in place have now been completed. We remain committed to being disciplined stewards of capital while being focused on driving long-term value creation.

Now turning to our guidance for fiscal 2026. We continue to affirm the revenue and adjusted EBITDA guidance for the year, as shown on Slide 7. Our projections reflect the positive momentum we are seeing and expecting in both the enterprise and education divisions balanced with a disciplined view of the risks and opportunities ahead as we continue to execute in an uncertain macro environment. We continue to expect to achieve solid growth in invoiced amounts this year as demonstrated by the progress in Enterprise North America and the international segments this quarter. Our revenue guidance of $265 million to $275 million is after reflecting the lower deferred revenue generated in fiscal 2025 and the conversion lag of invoiced to reported revenue in the year as a portion of the invoice growth will go on to the balance sheet as deferred revenue.

We continue to expect fiscal '26 adjusted EBITDA in the range of $28 million to $33 million, capturing the benefit of our cost reduction efforts including additional restructuring actions taken this quarter while maintaining flexibility to manage through continued macro uncertainty. We expect revenue to be slightly higher in Q4 compared to Q3, with approximately 50% to 55% of back half revenue in Q4, reflecting normal seasonality, especially in the education division and the timing of delivery of client services.

For adjusted EBITDA, we expect approximately 60% to 65% to be generated in the fourth quarter, driven by the strong contributions from the Education division along with expected overall margin expansion as cost savings and operating leverage bill through the back half of the year. With our transformation investments behind us and the expected increase in operating leverage, we believe the company would deliver EBITDA and free cash flow growth with improved margins and free cash flow conversion in fiscal 2027 and thereafter.

Grounded in strong client retention, expanding demand for our services and the resilience of our business model, we remain fully committed in creating long-term value for our shareholders and clients.

Before I pass it back to Paul, I would like to thank the entire Franklin Covey team for their hard work and dedication to our business and for providing the unparalleled service to our clients.

With that, Paul, I'll now turn it back to you.

Thank you, Jessi. That was great. And as we prepare to open the line for questions, I'll just reiterate what Jessi said in thanking our teams for their hard work. We're pleased with the momentum that we're seeing right now across the business and look forward to a great second half of our year.

And with that, we'll ask the operator to open up the line for questions.

[Operator Instructions] Our first question will come from the line of Alex Paris from Barrington Research.

Congrats on the better-than-expected results in the first quarter. Now we have two consecutive quarters of growth in invoiced amounts in North American enterprise. So it's not simply a data point. We have two data points so we can draw a line. And I think you said that you expect that to continue to be the case through the balance of the year. Is that correct?

Yes. Yes.

Yes.

Good. And then just one quick point of clarification. Jessi, you said that revenue is slightly higher in the fourth quarter than the third quarter, 55% and 45%. Is that how we look at the second half of the year?

That's right.

Yes. And then adjusted EBITDA, it will be $60 million to $65 million in the fourth quarter. So I guess what is that...

A little bit more on EBITDA as we talk about our restructuring and some of the cost operating leverage will increase towards the back half of the year, but more heavily weighted towards Q4, but then also because of the contributions of EBITDA coming from Education in Q4.

Yes, makes sense. And it's a typical seasonal pattern anyway, right?

That's right. -- we normally have.

Good. The -- next question is really a question about the macro environment, Paul. I think in response to a question last quarter, you sort of said it was neutral. There's some both positives and negatives. I wonder if you could just kind of freshen up that response for us.

Yes. I'd say it's largely unchanged from what we saw a quarter ago. And but -- and so neutral in the current environment better than it was a year ago at this time. I remember we're reporting Q2 a year ago. And there was quite a bit of uncertainty for lots of reasons. And while there's still uncertainty out there. I think our clients have adjusted to that, the current environment, and it feels a little bit more stable for us, certainly now than it did a year ago and largely unchanged from what we saw a quarter ago.

Great. And then again, with this ramping up of invoiced amounts, we would expect growth in revenue, EBITDA and free cash flow in fiscal 2027 and beyond. And then to that point, I think the last time you gave longer-term guidance was on the Q4 '24 conference call, after making the announcement about the sales force transformation. Obviously, with tariffs and government shutdowns and war and that's it kind of changed it a little bit. I'm wondering, number one, when will you update that longer-term guidance with -- is that potentially a fall 2026 event?

And then second, -- answer that first, and then I have a follow-up.

Yes. Okay.

Let me start with in the fall -- in our Q4 call, when we were going to provide the guidance for our fiscal year 2027, we'll be going through our planning cycle in the summer. And as we work through that, we'll be updating our 5-year plan at that time. And we'll make a call as to whether or not we provide some direction with the longer term.

So obviously, you'll do one for yourselves. The question is what will you share this wall, right?

Well, we'll work through with that, Alex.

Okay. No problem. And then -- but in the meantime, adjusted EBITDA margins in fiscal 2024 kind of peaked at 19.2%. In 2025 is significantly lower, 10.8%. And I think based on your guidance, we're expecting a little margin expansion in 2026 and then more in 2027. Is 20% adjusted EBITDA margin still a reasonable target? It's on slightly above the fiscal 2024 level over the next several years. And when you get there by 100 to 200 basis points a year sort of thing?

Yes. I mean so we are planning to increase and improve our operating leverage. I think our goal is to have around 1 point improvement a year and whether or not that can be accelerated or not, that will determine that as we work through our long-term planning. But I think that is roughly what seems reasonable to me.

And we do believe that, that 20% that we nearly got to is still a good number out there. And all these investments were to permanently reset the cost structure of the company. We were -- it was to accelerate growth and certainly get us back up to that level. And who knows could ever get above that level, maybe.

Our next question will come from the line of Jeff Martin from ROTH Capital Partners.

I was curious if you could go into a little bit more on the education side of the business, had a very good quarter. What you're seeing as states and districts and obviously, you're having some success there. So maybe an update there would be helpful.

Yes. Great question. Sean is here next to me. I'll ask him to make a comment, but it was a good quarter and congratulations, Sean, on the great quarter. Go ahead and share you thoughts.

Yes. So a few things on education. We're feeling really good about the year and where it's headed for a few reasons. We have a really good pipeline of new opportunities, probably the best we've ever had in terms of large opportunities. We have three state-level opportunities. These are very large multimillion, multiyear deals. We've got large district opportunities larger than we've had before. So that's really positive. We've got a really strong funding partners out there, and this is in the range of $20 million a year in help from partners that help schools get off the ground. And those partnerships remain in place right now.

We feel good about -- we're aligned well with market needs. There's a lot of big issues right now after COVID, getting test scores up is like the #1 thing. The U.S. is still struggling with that, and we are aligned well and we've got great data around how we can increase mouth and reading scores. Teacher retention, a lot of teacher burnout. We're really good at that. And we've got great data that shows that we retain Leader in Me schools are 600% more likely to retain their teachers than non-Leader in Me schools. And then mental wellness continues to be a big factor, and we're well aligned to address those issues.

So just given the pipeline we have, the large opportunities we have in place that we need to close, of course, in the third and fourth quarters, we're feeling really good about the year. Some of the headwinds are still there. The Department of Education, there's still some uncertainty with what the Trump administration is going to do, but it's better than last year, much better. And so that helps the serve funds, expired COVID relief funds are gone. So that's a factor 2. And there's some declining enrollment in the public sector, they're moving to a lot of people -- a lot of kids are moving to charter schools, private schools and home schools, and we're well equipped to help with a lot of the -- I mean to deliver on those other channels as well. But I just feel like the tailwinds are stronger than the headwinds, especially the funding partners. We've got a great reputation in the marketplace. This is how we get state bills as we start with a single school than a district goes really well. It leads to state confidence and then they get behind us. So all things considered, we're feeling good about the second half of the year and where we're headed overall.

That's great color, Sean. Paul, could you go into some detail with respect to -- I mean, invoice growth is 7%, so -- a positive inflection -- how does that compare with what you were thinking internally maybe? And then what, if anything, do you see in the near future accelerating that growth from here?

Yes. Great. Yes, 7%. So 5% overall for the company invoice growth in Q2, which we felt good about that. And then as you mentioned, 7% kind of the engine pulling that as we alluded to last quarter and as we went through the transition of our sales force was Enterprise North America. So two quarters in a row, 7%, we feel good about that and feel that, that will continue to generate good invoice growth this year in the back half and for the full year at both the enterprise division level, specifically but also for the company. And as we mentioned that, that invoice growth out ahead of our reported revenue growth will help us next year in generating more substantial reported revenue growth. So I do feel good about the continued momentum there on the invoice growth side.

The next question come from the line of Nehal Chokshi from Northland Capital Markets.

Congratulations on this really strong free cash flow. And just a comment here real quickly before I get into my question. But with more than free cash flow deployed in share buybacks and given Franklin Covey shares are trading at basically 6x free cash flow, 4x fiscal year '24 free cash flow. Really happy to see the bold move to aggressively buy back shares at this incredibly attractive valuation. So just applaud of that.

Now I do have some questions. Excluding government, invoice value is up 10% year-over-year on Enterprise North America. It's a really nice core number that I'd like to focus on. Can you help break up that invoice value growth between, say, new customers and existing customers?

I mean, we have not been disclosing that level of detail now. But we did have -- I mean, overall, the new customers in North America combined, we had very strong performance this quarter that we continue to -- that we had in Q1 as well, but we don't provide the details of the invoiced amounts...

Maybe point you to, Nehal, just as said, pointing to two things, and I mentioned this in my remarks. But to Jessi's point, yes, we continue to see another head quarter with new customers and the overall invoice growth from new customers, we're pleased with that again in Q2 after a really good quarter in Q1. And then with our existing customer base, we actually had quite a strong expansion quarter. As you know, when we initiated our go-to-market transformation, there were two core bets in that move. One was that we could win more strategic, larger new customers and that we could move our way into the expansion opportunity that existed within our existing customers, where, on average, we're kind of 5% to 10% of the way penetrated into what we think is the addressable population inside the vast majority of our existing clients. And in Q2, we saw a really good expansion. And so really both sides of the house had good quarters as we think about that 7% or 10% without government overall invoice growth.

Okay. Great. And presumably, you're expecting both new customers and ongoing expansion of existing customers to continue to power the year-over-year growth is out one -- exclusively one.

I'll have share, by the way, too, Holly, any thoughts on that?

Nehal, yes, we expect both the new logos to continue to grow and for us to make improvements on both retention and expansion. I'll call it just a couple of areas that we're seeing some great growth that will contribute on both sides of the house. The first is the specialization in health care. We've seen -- we made a big investment in the current customer base that we have around health care. There's real organic use cases that we can make a real impact around patient sat and nurse retention. So we've seen real lift there.

The second is a new horizon for us, but we're also starting to gain great traction is around helping companies through their AI transformation. Both of those, we think, will fuel growth on both the new logo side of the house and the customer side.

Got it. And then Paul, you mentioned that, on average, 5% to 10% of the addressable opportunity. That's on a user basis within an existing customer. Is that correct?

That's right. That's right. And then there's really -- yes, significant upside for us in attaching services on top of that. But yes, that's specifically referencing kind of the user base.

Okay. And then that user base that you're referencing, is that just leaders? Or is that also knowledge workers? Or is that the whole liquor force is given organization?

Yes. Yes, great question. So we have kind of a little formula, if you will, that adjusts for certain portions of populations that we aren't really well suited to address. So you get into factories and things like that, that's not exactly where we play. So depending on the industry, so it's leaders, it's knowledge workers. And in some organizations like tech, it's -- that's almost everybody in the company. And for other organizations that might have a massive manufacturing footprint, we may not be working with everybody all the way down the front line, although we do quite a bit of work in manufacturing with our for discipline of execution solutions. So yes, it's kind of a formulaic-based approach that we have. It's not the entire population of a company.

Great. Okay. A couple more questions from me. So what was the driver of this strong free cash flow, $13 million, $9 million above your $4 million adjusted EBITDA. Can you help us understand that?

Yes. We had a very strong positive swing in the net working capital. So a lot of it was with regards to the collections on AR. As you see -- you can see in the balance sheet, the AR balance went down. So that was a huge contributor to the improvement in our free cash flow. And we continue to expect that our free cash flow will be -- I know last quarter, we had negative free cash flow we expect going forward. We'll continue to have positive free cash flow and especially be strong in Q4 when we have the strong net income and EBITDA in Q4 coming through.

Okay. Great. So kind of already answering my follow-on question, but just to be clear, I think historically, you guys have talked about free cash flow roughly matching EBITDA on a trailing 12-month or forward 12-month basis? Is that the way that we should continue to think about this? Or is there some deviation from that?

Well, so I'm not particularly sure of the exact comment. I mean, I think that we do have -- 2025, we had lower EBITDA to free cash flow conversion. We expect our free cash flow conversion to increase over time because we're not a heavy capital-intensive business. And the amount that we spend on CapEx and capitalized development is relatively steady going forward. So as our operating leverage and our EBITDA increases, we expect that we should have stronger conversion over time.

Okay. But you're not expecting to get back to close to 100% conversion that you were reflecting in fiscal year '24?

No. I mean I mean, I -- no. I mean, definitely an improvement from the 42% level that we had in 2025, but it wouldn't be 100%.

So there will be --

Yes. Understood. Understood. And then you talked about our fiscal year '26 guidance unchanged. And the way to think about parsing out that effective next 2 quarters of guidance, in terms of typical seasonality. Can you just remind us what is actually typical seasonality for 2Q, 3Q and 3Q to 4Q?

So what we are projecting in terms of the revenue and EBITDA for Q3 and Q4, that's basically -- that has been the normal seasonality. When you look at last year, we were pretty much in that same range of what we're expecting now as well. So it's been similar.

so -- right, right. So like last year, it was about a $7 million Q-o-Q increase from the second quarter, third quarter and then $4 million from third quarter to fourth quarter?

Yes. Last year, if you were to look at Q3 revenue, for example, it was around 49% in Q3 and EBITDA was around 38%. So roughly within the same range of what we're seeing now.

Our next question will come from the line of David Storms from Stonegate.

Just wanted to start with maybe some commentary on the new logo sales. I know in the past, right, new logos tend to come on as either Pilot based first or maybe a specific project that the company is looking to accomplish. Could you maybe spend a little time talking about what you're seeing in the current marketplace and maybe tailored to the AI trends if you're having clients come on with a specific goal in mind or if they are maybe a little more highly oriented to start?

Yes. And just to make sure I understand, Dave, the question is around how much of our new logos are pilots and then some examples on the use cases?

Exactly.

Perfect. Very few of our new logos are pilots. It's really hard to pilot a solution like ours. You either want to drive behavior change and make a big impact in your org or you don't. And so we really don't see any pilots. On the AI solution, it's a great question. There's a ton of interest around this right now. There is not an org that we're partnering with or that we're interested in partnering with that isn't trying to figure this out. And one of the unique things about an AI transformation is it's both top down and bottoms up. So the question earlier around who does it touch and see or it touches everyone and nobody has figured out exactly how to get this right. And there's so much around the way that you deploy your leaders to navigate this type of large-scale transformation that's critical to get right. And so we're excited to help a lot of companies to this transformation.

That's great commentary. I really appreciate that. I also want to maybe spend a little bit of time, Paul, you mentioned that you had a really strong expansion quarter. And just thinking about how you also mentioned you had maybe two quarters of a neutral macro environment. Can we apply that same kind of mentality to maybe a logo recapture rate? Do you have any thoughts around maybe what you're seeing in the market about clients coming back now that the dust has settled a little bit?

Yes. I'll just make a quick point and then ask Holly to comment on that as well. That is actually a metric we do track. We have a mantra around here and its clients for life. And when we lose a client, we agonize over that. And so it is actually a metric that we track internally. We don't disclose it. But we are intent on trying to get those clients back regardless of the reason they needed to leave or -- and so Holly, any commentary on thoughts about what we're seeing there, what you and the team are driving?

Yes. We absolutely see a really healthy win back rate as Paul referenced. So as needs inside their organization shift, they go from trying to drive a high trust workforce to try to prepare our workforce for AI transformation, then needs evolve over time, and there might be gaps between one deployment and the next deployment. So if we do a good job on the first round, we're excited to welcome them back on the second round.

And then I think just a point on the environment, one of the things I don't think we talk about enough and a structural advantage that we have is the breadth of the market that we serve. Our addressable market is enormous, not just in the company type that we pursue, but it's across segments, across buyer types, across use cases, there's virtually no company that isn't trying to solve the issues that we attached to. And so in a world where there's a sector that's down, we can quickly pivot to go after a sector that's up with enormous upside for us. So we moved very fast when the market has a lot...

That's great. If I could just sneak one more, and I would love to spend a little time on the international sector. I know it's not as big for you guys, but it does seem like it's having some strong growth even after accounting for foreign exchange. I guess is there anything to highlight here as to what's working? Is this just general tailwinds and you're catching it right? Maybe any thoughts there would be great.

Yes. One thought is -- could -- it's just a couple of thoughts. So we are porting over into international much of the learnings and the strategies that Holly and team have been deploying inside Enterprise North America, that was always the plan. And so we -- now that we've got Enterprise North America, the structure up and running and through that change, where -- international has been fast followers there. And so I think we'll continue to benefit from that. Second, in the second quarter, China didn't continue to decline for us and was actually relatively flattish. And so that helps from a year-over-year standpoint as well. And...

For France.

And then we brought France on as a direct office, i.e. a little over a year ago. And we're seeing good growth in France. We continue to see good growth from our German operation that we brought over from a licensee to a direct office a few years ago. And so there's some good performance across international directs in particular, in the second quarter. And we look forward to seeing as we -- as they embrace more and more of what we've been doing in enterprise North America, I think there'll be good quarters out ahead of us as well.

I'm not showing any further questions at this time. I would now like to turn it back over to Paul Walker for any closing remarks.

Thank you very much. Thanks, everyone, for joining us today. Thanks for your great questions, and we appreciate you and all that you do to understand our story and where we're headed as a company. We feel great about our momentum, make thanks to the overall Franklin Covey team as well for their hard work, and we wish you a great evening. Thanks.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Hello, and thank you for standing by. Welcome to Franklin Covey First Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] I'd now like to turn the conference over to Boyd Roberts, Head of Investor Relations. You may begin.

Thank you, Towanda. Hello, everyone, and thank you for joining us today. We appreciate having the opportunity to connect with you. Before we begin, please remember that today's remarks contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including, without limitation, statements that may predict, forecast, indicate or imply future results, performance or achievements and may contain words such as believe, anticipate, expect, estimate, project, or words or similar phrases of similar meetings. These statements reflect management's current judgment and analysis and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations, including, but not limited to, risks related to macroeconomic conditions, tariffs and other risk factors described in our most recent Form 10-K and other filings made with the SEC. We undertake no obligation to update or revise any forward-looking statements, except as required by law.

Now with that out of the way, I'd like to turn it over to Mr. Paul Walker, our CEO and President.

Thank you, Boyd. Good afternoon, everyone, and thank you for joining us. It's great to be with you to have an opportunity to share our results for the first quarter and an update on the business and our outlook for the year. As we noted in our November earnings call, after a year of transition last year in fiscal '25, we expect this year, fiscal '26 to be a year of execution and a return to growth. After a transition year last year in which both invoice and reported sales declined, we expect strong growth in invoiced amounts in fiscal '26 led by Enterprise North America but also for the company overall. Importantly, because much of our growth in invoiced amounts goes on the books and is recognized over time, a portion of this growth in invoiced amounts will be recognized in the back half of the year, resulting in modest growth in reported revenue for the year but positioning the company for accelerated growth in both invoiced amounts and reported revenue, along with adjusted EBITDA and cash flow in fiscal '27.

As we'll address in more detail in a moment, consistent with these expectations, we're pleased with the strong growth in invoiced amounts we achieved in enterprise in the enterprise -- North America Enterprise portion of the business in Q1, where invoiced amounts grew 7%. And importantly, excluding our government business, where this year's first quarter is the last quarter where results are still being compared to pre-DOGE sales levels, invoiced amounts in the rest of Enterprise North America grew an even more significant 13%. This growth was driven by significant increases in new logo subscription sales, and also the sales of subscription services to our new logo and our existing All Access Pass clients.

We anticipate that the strong growth in North America invoiced amounts will continue in the second quarter. We have a strong pipeline and have had a significant year-over-year increase in advanced bookings of services that will deliver in the second quarter and throughout the remainder of the year. This expected strong growth in invoice sales is important, both strategically and financially. Strategically, it reflects the traction we're achieving in our go-to-market transformation. And financially, while much of this revenue will go on the books and be recognized over time, the actual economics of these increases in invoiced amounts are being realized well ahead of when we actually report them because we received the proceeds from these invoiced amounts.

In addition to this strength in Enterprise North America, we expect operations in Education and international enterprise to be on track with expectations for the year and that invoiced amounts for the company overall will grow meaningfully for the full fiscal year. Just a comment or two about Education. As you know, the Education Division has achieved significant growth and strong results over a number of years, and we're pleased that the Education Division achieved growth last year in fiscal '25, even in the context of the uncertainties faced by almost every school district last spring about the potential impact on school funding from the proposed elimination of the Department of Ed. Absent this uncertainty this year, we expect Education to achieve strong growth in both invoiced and reported sales in fiscal '26.

While we have a lot of subscription revenue and education is recognized throughout the year, because schools and districts run on an education year, which begins in September, our first fiscal quarter, which is our first fiscal quarter, a lot of materials and services are purchased and recognized in our fourth fiscal quarter when schools train their teachers and staff in preparation for their school year. As a result, we have a disproportionate amount of our revenue in the Education business, which is recognized in our third and especially our fourth quarter. This has been the normal seasonality for this division over time.

Over the past years, in addition to continuing to win a large number of individual schools, we focused on winning districts and now even entire state contracts. This has been important for the business, both strategically and financially. However, because the timing of winning these larger state contracts can occur at different times throughout the year, occasionally, a contract entered into in one quarter is then booked and recognized in other quarters or even into the next fiscal year. This occurred in last year's first quarter, which we comped against in this year's first quarter.

In last year's first quarter, we won entered into and invoice for a large number of schools that began implementation as part of a significant multiyear contract with the state. This quarter, we had fewer school start implementation in comparison to last year, which caused an approximate $3.5 million gap in invoiced amounts. However, we've already received and have the cash in hand for the second year of this contract, and we expect the timing of the launch of the schools for this particular state to occur in Q3 and Q4 this year where they had occurred in Q1 last year.

Overall, we expect education to have a strong year in fiscal '26 with the pattern of invoiced amounts and recognized revenue being similar to prior years with the exception of the large contract that drove the onetime spike in growth in last year's invoiced amounts that I just outlined.

Regarding international, we expect international invoiced amounts and reported revenue as a whole to grow modestly this year. And for the first quarter, revenue was down slightly, mainly due to China, which though now stable, is still comping against the period before the high tariffs -- or before tariffs were announced in early April last year. Overall, we expect to achieve our full year revenue and adjusted EBITDA guidance.

With our full year guidance intact, we anticipate that the meaningful growth in invoiced amounts we expect to generate this year will translate into even more substantial growth in reported revenue, adjusted EBITDA and free cash flow in fiscal '27. Jessi will provide some more detail on Education and International in her segment remarks in just a minute. Before I turn the time to her, I'd like to focus my comments today primarily on Enterprise North America, which makes up more than 50% of our total company sales. It's the engine that we reorganized and invested heavily in last year in order to prepare it for accelerated growth. And it will be the key driver of invoiced growth in fiscal '26 as well as invoiced and reported growth in fiscal '27 and beyond. So a few comments about Enterprise North America.

As I mentioned earlier, we're pleased with the strong 7% growth in invoiced amounts that we achieved in the first quarter and the momentum we continue to see. And when looking at the overall strength of the North American engine, we're really pleased, also, as I mentioned, that we achieved 13% growth in North America overall, when excluding the government business which was impacted by DOGE last year. We also expect to achieve significant growth in invoiced amounts in the second quarter and for the full year. Key results embedded in the first quarter's overall 7% increase in these invoiced amounts include that, first, our new logo subscription invoiced amounts grew a significant 25% year-over-year. Our deferred subscription balance grew 8% year-over-year to $49.1 million, and our services booking pace was up 29% in the quarter, an important leading indicator of future services revenue that will be recognized and an indication of the importance our clients place on the outcomes we're helping them achieve. Our logo or client retention rate remained consistent with previous quarters and our percent of revenue contracted for multiyear periods increased to 61%.

The momentum in return to growth in Enterprise North America, first in invoiced amounts, which will be reflected in growth in reported revenue later into the year and into next year is being driven by two important factors. First is the strategic importance of what we're doing and the need our clients have for a partner to help them achieve breakthrough business results. And second, the traction and execution we began to see from our go-to-market investments in last year's fourth quarter, and the fact that it's really beginning to kick in. I'd like to just for a couple of minutes briefly touch on each of these two growth drivers.

First, related to the strategic importance of what we're doing and the need our clients have for a partner to help them achieve breakthrough results. Strategically, we're playing for something very clear and important. That is to be the partner of choice for leaders seeking to achieve breakthrough results. Achieving and sustaining breakthrough results requires not only good strategy, it also depends on getting large groups of people throughout an organization working together to achieve better and more consistent behaviors and actions to deliver it. Our role is to help organizations achieve their most important goals by strengthening the people part of execution, raising the level and consistency of how people lead, collaborate and execute and to help organizations scale what already works well in pockets across the entire organization.

AI is, of course, transforming how work gets done. And at the same time, it's making human capabilities such as judgment, trust and collaboration more critical than ever. We're incorporating AI into our solutions and with some exciting results for clients. In addition to building AI into our products, for example, the AI sales coach I referenced last quarter, as well as our AI Coach for our 4 Disciplines of Execution solution, which we'll launch this year that is going to leverage our experience and our vast amounts of data to help leaders accelerate the execution of their most important goals and objectives.

We're also helping our clients on the human side of AI adoption. In the first quarter, we launched 2 new solutions, one called Leading AI Adoption and the other called Working with AI. These solutions are designed to help leaders and individuals develop the mindsets and skill sets to effectively incorporate AI into their daily work to make them and their teams more efficient. However, even with these enhanced AI capabilities, the ability of leaders to clearly determine, communicate and gain broad scale commitment to their critical priorities and then to get their entire organization to become committed to and to stay aligned and focused and accountable while working together with high trust and execution remains the ultimate differentiator in achieving breakthrough organizational performance.

We're focused on further strengthening our already significant capabilities in being the partner of choice for organizations that are seeking to achieve breakthroughs in performance. This requires being a leader in combining world-class content, technology and services to deliver breakthrough impact for clients. And we have and continue to invest to expand our position of leadership here.

Emphasizing the importance of the critical people side of the execution equation even in a world of increasing AI, in the first quarter, we closed a growing number of large and transformational deals that were tied to a client seeking to achieve a major breakthrough in performance. And I'd like to highlight and share just two of many with you. The first was a large new client win where we unseated the incumbent provider to be the sole leadership performance partner to a leading global agriculture company. We'll be working with this client to help them achieve their critical objective of ensuring that their 3,500 global leaders are equipped both with and able to exhibit world-class leadership capabilities as they seek to accelerate progress on their multiyear strategy and create an even higher performing culture.

This win resulted in a 3-year $6 million contract with a very strong mix of services and subscription revenue. A second one I'll just briefly highlight is with a large industrial packaging company. We're partnering with the executive team of this organization to build and strengthen the capability of leaders throughout this organization to transform the culture of this company in connection with a new multiyear strategy to ignite accelerated growth. This is also a multiyear, multimillion dollar win that will draw on the solutions in the All Access Pass as well as our coaching and delivery capabilities.

The second key growth driver that I'll touch on is the traction and execution we began to see throughout the back half of last year from our go-to-market investments and the fact that it's really beginning to kick in. In addition to ensuring that our solutions deliver seismically important impact on helping our clients achieve performance breakthroughs, our second priority has been to transform how we take these solutions to market so that we can win more strategic clients and further expand our impact with existing clients.

Over the past 4 quarters, we completed the organizational implementation of this transformation, reorganizing sales and client success teams around 2 clear goals: first, landing new strategic clients; and second, further expanding relationships with those we already serve. I reported in November that the structure is fully in place, now with a full 4 quarters under our belt and with the organizational transformation fully behind us, the evidence that this new structure is enabling greater growth is clear.

As I mentioned earlier, our new logo hunting team increased invoiced new logo amounts by 25% in the first quarter. Within these new logo wins, we're also seeing a higher attachment rate of services, which is an illustration of both the importance of the challenges we're helping clients address and their desire to engage our experts to help them achieve their most critical objectives. It's also an illustration of our strategic shift in our sales force to a dedicated hunting team with the surround sound resources that are allowing us to call even higher in organizations, focused on more strategic buyers and to solution larger deals with a strong mix of subscription and subscription services. We saw this reflected in our 29% services booking rate increase in the first quarter over what we booked in the first quarter of last year.

Our services attach rate in the Enterprise division on an apples-to-apples basis was a strong 55% in the first quarter when considering that 1.6 million of the services we delivered were to a very large and strategic client who purchased intellectual property instead of All Access Pass. That places their services spend in our traditional services reporting category instead of our subscription services category. As a result of our strong growth in invoice sales in North America, our balance of deferred revenue in North America increased 8% year-over-year to $49.1 million.

Stepping back, I would just say that we're pleased with the momentum we're seeing in Enterprise North America. Driven by this momentum and the expectation of a strong year for education, we expect invoiced amounts for the company to grow meaningfully this year, establishing the foundation for significant growth in reported EBITDA adjusted -- reported revenue -- sorry, adjusted EBITDA and cash flow in fiscal '27 and beyond.

I'd now like to turn the time over to Jessi to share some more detail on our first quarter results.

Thanks, Paul, and good afternoon, everyone. Franklin Covey continue to see healthy demand for our solutions and services in the first quarter. And as Paul discussed, the strategic investments we've undertaken to transform our Enterprise North America go-to-market strategy are gaining traction. We expect fiscal 2026 to be a year of execution where our adjusted EBITDA and free cash flow will return to growth this year and where our meaningful growth in invoiced amounts will set us up for accelerated growth in fiscal 2027.

In my remarks today, I'll start by providing some details on our first quarter financial performance. Then I'll turn to our balance sheet and capital allocation priorities, and finally, I will provide additional context around our reaffirmed fiscal year 2026 financial guidance.

Total first quarter reported revenue was $64 million. Revenue, which was essentially in line with our expectations for the quarter, was down 7% from the prior year, driven by an 8% decline in the Enterprise division and a 2% decrease in the Education Division, reflecting the decline in invoiced amounts we generated last year due in large part to the impact of government actions and macro environmental factors, which provided a smaller amount of deferred revenue to be recognized in this year's first quarter. A summary of our consolidated financial results is on Slide 3 in the earnings presentation.

Consolidated subscription revenue recognized for the first quarter was even with last year at $37 million. And as a result of the realization of lower invoiced amounts in fiscal 2025, however, we were pleased that overall subscription and committed services and invoiced amounts for the quarter began to grow again, growing 5% to $26 million, led by the strong growth achieved in Enterprise North America. Importantly, the foundation for increased future growth remains solid and as evidenced by the 5% year-over-year increase in our consolidated deferred revenue balance to $100.2 million, which will be recognized as reported revenue in the coming quarters.

Unbilled deferred revenue contracted for the first quarter was also strong increasing 9% to $8.5 million, with a total balance slightly declining 1% to $72.1 million, reflecting the lower balance through fiscal 2025. Gross margin for the first quarter was 75.5% compared to 76.3% in the prior year due primarily to increased product amortization costs and slightly lower margins in our Education Division, reflecting, as Paul noted, last year's first quarter results in Education, which benefited from high material sales for the large state contract we won in that quarter.

Operating, selling and general and administrative expenses for the first quarter of fiscal 2026 were $44.7 million, which was slightly lower than $45 million in the prior year reflecting the increased amounts we have made in our go-to-market transformation, offset by our cost reduction efforts. During the first quarter, we continued to restructure and refine our business model to reduce costs and streamline certain areas of our operations. We incurred $3.4 million in expense for this restructuring activity, which consisted primarily of severance and related costs.

Adjusted EBITDA was $3.7 million compared to $7.7 million in the previous year, reflecting the lower reported revenue, gross margin and higher SG&A expenses I previously mentioned. Cash flows from operating activities in the first quarter were $0.1 million compared to $14.1 million in the previous year. The decrease was driven primarily by $10.1 million in timing-related changes in working capital, including less cash collected from a lower beginning receivables balance and a $4.5 million decrease in net income, stemming from lower revenues, a $1.5 million increase in restructuring and a $0.7 million increase in headquarters moving costs. We also had a $0.7 million increase in CapEx for building construction costs, and $0.7 million increase in capitalized development costs. All of these factors resulted in free cash flow for the quarter of negative $3.7 million compared to $11.4 million generated in the first quarter last year. We expect, however, free cash flow to improve in the future quarters and become increasingly positive in the back half of the year as our adjusted EBITDA grows and we decrease net working capital.

I'll turn now to a discussion of our business divisions. For the first quarter, our Enterprise Division generated 74% of the company's overall revenue with Education Division generating 25% of the company's revenue. First quarter Enterprise Division invoiced amounts grew 4% to $45.5 million. First quarter Enterprise Division reported revenue was $47.5 million compared to $51.6 million in the prior year. The North America segment invoiced amounts grew 7% to $34.9 million, and excluding government contracts, it grew 13%. We are encouraged by the progress this quarter in invoiced amounts, which reflects the positive momentum coming from our investment to transform our Enterprise North America go-to-market organization and will translate to increased reported revenue in future quarters. I do want to highlight an important element tied to the growth in our invoiced amounts that is aligned to our strategic focus on solution selling, whereby we are bundling the content and predefined services to be able to deliver measurable outcomes for our clients.

Approximately $5.6 million was for contractually committed predefined services primarily associated with the global agriculture company deal that Paul referenced in his remarks. This reflects that clients are increasingly willing to contractually commit upfront for services which will be delivered over time. And while we continue to recognize the revenue upon delivery, because these services have been contractually committed upfront, any unused days are guaranteed and will be recognized at the end of the contract term. Historically, our contract terms didn't include a contractually committed clause for service days and therefore, were an option and they were not fully known or locked in until scheduled and delivered.

On the appendix slide in our -- Slide 10 in our earnings presentation, our roll-forward analysis of deferred revenue will include both subscription and committed services amounts and the timing for revenue recognition for committed services will depend on the delivery schedule of our clients. Therefore, some of this $5.6 million could be pushed out to fiscal 2027 as reported revenue.

As shown on Slide 4 in the earnings presentation, the North America segment reported revenue of $36.3 million accounted for 76% of our Enterprise Division sales in the first quarter, and was 10% or $3.9 million lower than prior year due to $2.5 million of lower services revenue and $1.3 million of lower subscription revenue recognized as a result of lower amounts invoiced amounts and deferred revenue last fiscal year driven by the various macroeconomic factors impacting the business, which included cancelable government contracts that we have previously discussed.

Adjusted EBITDA for the North America segment decreased to $5.3 million for the first quarter of fiscal 2026 compared to $8.7 million last year, primarily due to lower revenue and resulting lower gross margin. Our balance of billed deferred subscription revenue in North America was $49.1 million at the end of the first quarter, which is an increase of 8% from the prior year, and unbilled deferred revenue was $66.6 million, which is consistent with the prior year. Importantly, the number of the North America's All Access Passes contracted for multiyear periods increased to 58% in the first quarter and the contracted amounts represented by multiyear contracts remained strong at 61%.

Now as shown on Slide 5, for the Enterprise International segment, Q1 fiscal year 2026 revenue, which accounts for 24% of our total Enterprise Division revenue was $11.2 million, and this was down slightly from $11.4 million in the prior year, primarily as a result of our business in China decreasing due to challenging business conditions as a result of geopolitical and trade tensions. Excluding China, our revenue from the International segment increased 4%, and our licensee revenue increased 8% compared with the first quarter of fiscal 2025.

Q1 fiscal year '26 adjusted EBITDA for the International Direct Operations segment was $2.4 million compared to $1.4 million in Q1 2025, driven by cost reduction initiatives enacted to offset the impact of decreased revenue and lower bad debt expense compared with the prior year.

Now turning to our Education Division, as shown on Slide 6, revenue in the first quarter was $16.1 million, which was 2% lower than the prior year, primarily due to decreased material sales due in part to the large statewide deal that's been referenced and a symposium event that was held in the first quarter of last year. As Paul discussed, the Education Division invoiced amounts in last year's first quarter included a very large statewide deal that began in the first quarter of fiscal 2025, but will expand this year in the third and fourth quarters, largely due to this contract and also some other smaller multiyear prepaid deals that did not repeat this quarter, invoiced amounts in the first quarter of fiscal '26 of $6.6 million declined $5.6 million from the prior year. Materials revenue declined $0.7 million over the prior year, which included $0.4 million of classroom and training materials from the large statewide initiative in fiscal 2025.

These declines were partially offset by increased coaching and consulting revenue and increased membership subscription revenues resulting from schools which started the Leader in Me during fiscal 2025. Education subscription revenue increased 12% in the first quarter to $11.8 million compared to $10.5 million in the prior year.

The delivery of training and coaching days remained very strong during the first quarter of fiscal '26 as the Education Division delivered over 100 more training and coaching days than in the prior year. Adjusted EBITDA for the Education Division in the first quarter was a loss of $0.9 million compared to a gain of $0.3 million in the prior year due to lower revenue and higher SG&A driven by increased associated expenses and increases to the allowance for doubtful accounts. Education's balance of billed deferred subscription revenue increased 2% to $45.1 million, establishing a strong foundation for continued growth in fiscal '26. We expect Education to have a strong year in fiscal '26 with the pattern of large invoiced amounts and recognized revenue to come in the back half of the year.

I would like to spend a few minutes now discussing our balance sheet and capital allocation priorities. We continue to pursue a balanced capital allocation strategy based on 3 primary areas that are aligned with our strategic goals. First, maintaining adequate liquidity and flexibility. Our liquidity remains strong at $80 million at the end of the first quarter, with a $17.5 million cash on hand and no drawdowns on the company's $62.5 million credit facility. Second, investing for growth. We will continue to invest in strategic opportunities to drive improved market positioning, accelerated profitable growth and financial value such as our continued investments in product innovation, business transformation initiatives and opportunistic acquisitions. And finally, returning capital to shareholders as appropriate.

In the first quarter, we purchased approximately 582,000 shares in the open market at a cost of $10.4 million. On August 14, we initiated a 10b5-1 plan to purchase $10 million of our common stock. This 10b5-1 plan was completed in the first quarter of fiscal 2026 as we purchased $6.7 million of our common stock against this plan. On November 17, 2025, we initiated a new 10b5-1 plan to purchase up to $20 million of our common stock, of which we spent $3.7 million in the quarter. And we anticipate that this repurchase plan will be completed by the end of January.

The company also acquired 42,000 shares which were withheld for statutory taxes on stock-based compensation awards issued during the quarter. These shares had a value of $0.7 million. We remain committed to being disciplined stewards of capital while staying focused on driving long-term value creation.

Now turning to our guidance for fiscal 2026. We are affirming the revenue and adjusted EBITDA guidance provided at year-end, as shown on Slide 7. Our projections reflect the positive momentum we are seeing and expecting in both the Enterprise and Education divisions, balanced with a disciplined view of the risks and opportunities ahead as we continue to execute in an uncertain macro environment. We continue to expect to achieve solid growth in invoiced amounts this year as demonstrated by the progress specifically in Enterprise North America this quarter. Our revenue guidance of $265 million to $275 million reflects the lower deferred revenue generated in fiscal '25 and the conversion lag of invoiced to reported revenue in the year as a portion of this invoice growth will go onto the balance sheet as deferred revenue.

We continue to expect fiscal 2026 adjusted EBITDA in the range of $28 million to $33 million, capturing the benefit of our cost reduction efforts, including additional restructuring actions taken this quarter, while maintaining flexibility to manage through continued macro uncertainty. We continue to anticipate approximately 45% to 50% of our fiscal year revenue will be recognized in the first half of this year, reflecting normal seasonality, especially in the Education Division and the timing of client delivery. For adjusted EBITDA, we now expect approximately 25% to 30% to be generated in the first half due to the timing of large education contracts that have pushed out a bit more compared to our previous expectations, along with expected margin expansion as cost savings and operating leverage build through the back half of the year.

With our transformation investments behind us and the expected increase in operating leverage, we believe the company will deliver strong EBITDA and free cash flow growth with improved margins and free cash flow conversion in fiscal 2027 and thereafter. We have strong conviction in our strategy and long-term plans, and we're confident in the company's ability to deliver sustainable growth. Our optimism is grounded in strong client retention, expanding demand for leadership development and breakthrough organizational performance services across both enterprise and education divisions and the continued strength and resiliency of our business model.

As mentioned at the start of my remarks, we view fiscal 2026 as a year of execution and the return to growth and fiscal 2027 as a year of acceleration and compounding growth in revenue, adjusted EBITDA and cash flow. We remain fully committed to and confident about creating long-term value for our shareholders and clients.

Before I pass it back to Paul now, I would like to thank the entire Franklin Covey team for the ingenuity, hard work and dedication to our business, and providing unparalleled service to our clients. Paul I now, turn it back to you.

Thanks, Jessi. We'll now ask Towanda, she'll open up the line for your questions. Happy to take those.

[Operator Instructions] Our first question comes from the line of Alex Paris with Barrington Research.

So I have a few follow-up questions, although your prepared comments are quite thorough as usual. Not in any order, just starting with guidance and this one is for Jessi. You reaffirmed guidance for the full year. The only real change though was the -- a little bit more of the adjusted EBITDA will come in the back half than you had previously thought. I was having trouble keeping up, but you said this was due to the timing of large education contracts? Or was that enterprise contracts?

Education. So as we had mentioned, when we were looking at that for this year, the addition of some schools for that large state by contract that we have won last year. The anticipation of that is that, that is going to be in Q3 and Q4. So that just pushed a little bit more in terms of the adjusted EBITDA. So previously, we thought 30% to 35% of our adjusted EBITDA will be in the first half and now we're saying 25% to 30%, so just a little bit lower, but overall, we are affirming the overall EBITDA guidance for the year.

Okay. So just so I understand it, this was a large education statewide contract won in the fourth quarter of the previous year that began to be implemented in the first quarter of fiscal 2025, with school openings and so on. It's a multiyear contract. So the additional schools this year won't come in Q1 like it did last year, it's going to come in Q3 and Q4. And you didn't know that several months ago...

There was an anticipation. We knew that it was going to be more back-end loaded and is kind of normal for the education business. But there was a thought that there would be some schools added in the first quarter. So that just got solidified.

Okay. Got you. I appreciate that. And that you expect strong adjusted EBITDA growth and free cash flow growth in 2026 versus 2025 with more growth in both of those metrics as well as revenue in 2027.

I mean revenue, adjusted EBITDA and free cash flow growth in 2027, I mean, obviously -- when you look at our EBITDA range for this year, there's growth on the -- in the midpoint and the top end as well.

Got you. Okay. And then regarding North American enterprise sales force, an update, again, pretty thorough in the prepared comments, more new logos, All Access Pass expansion within resisting -- within existing clients, retention at comparable levels to last year. Do I have that right?

You do have that right. Yes.

Okay. And then invoice growth is what we're really focused on and invoiced growth in Q1 was up 7% in North America enterprise, up 13%, excluding the DOGE contract. What was it in Q4 or Q3? I just want to see if we're accelerating as we expect to.

Yes. Yes. Great question. Let's just get that for you real quick here.

Yes. It's probably in the slide deck, but I haven't gone through it yet.

Oh no, we can find it.

The North American enterprise invoiced amounts up 7% in Q1. What was it in Q4?

It was down in Q1...

Q4.

Oh, in Q4...

Q4, Q3. Alex, we're just getting this for you.

Sure no problem, appreciate it. And then while you're looking for stuff. In the Enterprise Division, you've historically given direct offices and international licensees. Is that in the slight deck also, it wasn't in the press release.

Which one?

You want to talk about the international licensee.

Yes, the revenue growth in the quarter. Yes, the revenue growth in the quarter was 8%. So if you noticed in our -- well when we published the 10-Q, so we have consolidated our segment to an Enterprise International segment combined. But specifically, we did want to call out the growth in the revenue, and it was 8% for the licensee.

Okay. So you're not going to be giving that separately going forward? Or will it be in the...

We're not. So we're consolidated -- we really manage the business together between our direct offices and our licensees. So it's collapsed in our 10-Q, but we did want to call out on the revenue side the difference between total international and then how much is in the licensee fee.

And then Alex, as Jessi mentioned -- go ahead...

I was just going to say -- so just to be clear, the segment reporting will be Enterprise, and then within enterprise, there will be North America and International. No distinction on what's international licensee or international direct office and then Education segments. So 2 segments, but within Enterprise, we're getting in North America and international.

That's right.

Okay. And then for -- just going back to your previous question, sorry, it took me a while to dig it out here. So the Enterprise North America invoiced amounts in Q4 was [ $37.2 million ]. It was actually a decline from the prior year period.

Do you know how much down or is it in the...

It was down 26%.

Okay. Yes. I kind of remember that. So a big inflection point here in Q1.

And then Q3 was also down 11%. So when you go -- I mean, this is a great quarter for us for Enterprise North America invoiced amounts. I think Q1 was -- last year, Q1 was down 8%. And it grew 2% in Q2 and then it declined 11% and 26%. So this is a great quarter for us.

And the best growth quarter we had in a while.

Yes. I mean actually, when you go back -- I mean it wasn't -- we didn't have kind of growth like this. We had growth like this in Q4 2024. But even the previous quarters, like first quarter of 2024, it was a decline of 2%.

Got you. So pretty easy comps in the back half of the year for invoiced amount, so it's reasonable to expect those invoiced amounts are going to continue to increase on a year-over-year basis.

Yes. That's our expectation is for North America invoiced amounts to continue to grow.

Our next question comes from the line of Nehal Chokshi with Northland Capital Markets. .

That's great to hear on the significant upward trajectory on North America Enterprise invoice. To be clear, is this largely now being driven by a higher attach rate of services on the invoiced amounts? Or are you also seeing also a positive inflection with the subscription portion.

It's a combination of both. The -- as I mentioned in my remarks, our attach rate for Enterprise in the first quarter was roughly the same as it was in Q1 last year, mid-50s percent. And so it's not a crazy increase in services attach rate there. We did -- we are pleased and encouraged and this is something that Holly and the team have been working on strategically is, as we're selling to higher -- even higher level buyers inside organizations attaching to even bigger opportunities and challenges that they're facing, there's a powerful combination of our great content along with our expertise and the ability to come in and to facilitate that content to get cohorts of people together to work on behavior change, to work on performance to work on culture. And so the coaching and delivery that goes along with that, we think, is a is a very compelling thing for our clients is needed by our clients. We did book a lot of additional services in the first quarter. I mentioned that services booking rate was up 29%, but the attach rate was pretty consistent year-over-year. .

Yes. And as I mentioned as well, we had $5.6 million of contractually committed services that was invoiced in the quarter as well. And just to highlight that point again, I mean this is a good thing for us for a while. It's upfront and some of those services -- because it was tied to that large agriculture deal where -- and it's multiyear, so some of those services the recognition of that revenue from a reported standpoint may not -- may or may not happen until 2027. The good thing about that is that it really does derisk the services for us there because they're all guaranteed.

Yes. Understood. And then I believe you -- Paul, you talked about 25% growth in new logo invoice amount. Is that correct? Did I hear that correct?

That's right. Yes.

Okay. And is that 25% in new logo and voice amount even across, again, subscription and then service attached subscription? Or is it more weighted towards service attach subscription?

That's a good question. In that case, that metric is subscription only. There's no services in that. So the team -- this was -- it was a great new logo quarter again. So the 7%, we haven't seen that kind of overall invoice growth in a while and 25% growth in the subscription portion. And then those had services attached to them, which will deliver that revenue throughout the year this year. But that's just a subscription-only metric.

Got it. Well, that's amazing. Is it Safe to say that you don't expect that momentum to that level of new logo subscription invoice amount to sustain into the future quarters? I mean that would be pretty amazing if it did...

I would say we expect to have the growth, but not at that percentage.

I'd say we're certainly going to try. It may not always come in at 25%, but we're expecting growth. .

Got it. And so what was the driver of this unusual growth? Was it basically these two large deals that you called out?

It was more than that, Holly Procter is here, who leads Enterprise. Do you want to share or give a little color there? .

Yes, for sure. A couple of comments. I mean, we're pleased, of course, because of the results, but also because the effort we put into this go-to-market transformation is finally bearing fruit. In our last earnings, we talked about examples of wins, and that came at the deal level. So we would see a deal that we likely wouldn't have won in our former model that we now won. And now we're seeing not just in the deal level, but in the compounding result of lots of deals compounded to deliver what we delivered instead of Q1.

The primary wins are showing up in several fashions. We're seeing, one, larger deals. So when you look at the average sales price, the size of the deal that we're winning is larger. I'm talking about not just the number of seats sold, but the total dollars that we're able to extract from that win. We're seeing more strategic deals, meaning it's sold into a higher level, and we're attached to a really powerful use case, meaning an initiative that an executive can't quite figure out how to proceed with or without us.

And then the services that Paul referenced, the reason why the services are so critical, they're strategic in a couple of ways. Yes, of course, we're grateful for the revenue, but also the services are the same that ensures we can drive the impact that we're looking for. If you think about an example, let's say, an executive team is integrating a merger or an acquisition into their company, they're now looking to check a box. They're looking to successfully integrate and they're doing that in partnership with us and the expertise that we bring to that. So the services are critical for us being able to make the impact that we want to make. We know that services contribute to a couple of things for us outside of this revenue. It improves our ability to renew that customer and likely results in us having [ increased at ] multiyear deals with that customer, too. So generally up across the board.

Okay. Great. Sorry, I do want to go back to the data points that you've -- that Alex was asking for. I got the Q4 number for North America enterprise invoice the Q3 number, I did not quite hear correctly the 1Q and 2Q numbers 1Q, 1Q '25 and Q2 '25 numbers. Could you repeat that? .

Yes, Q1 '25 declined 8%, and Q2 grew 2%, Q3 down 11% and Q4 down 26%. This was the -- in the last 2 years, this was the second highest growth of invoiced amounts in North America, the highest one was in Q4 '24.

Got it. Okay. Last question for me. So you mentioned your liquidity is quite strong with your -- I think it's a revolver that you have access to. Under what conditions would you be willing to draw on that revolver given the -- what I believe is a very attractive share price.

Well, we have the $20 million plan in place. I mean if you think about it, we've spent -- we plan to be spending by the end of this month $30 million just since July. So we've been taking advantage of the opportunity that we have right now in the marketplace. And when you look at -- over the last 12 quarters, we've spent over 130% of our free cash flow to buy back shares. So I think we're taking advantage of the opportunity.

Our next question comes from the line of Dave Storms with Stonegate.

I wanted to start maybe by going back to Holly's commentary around the strong growth in new logo sales and maybe just ask a little more about what you're seeing and once those -- the landers hand off to the expanders and maybe what we maybe expect the life cycle of those new logos in terms of attach rate expansion, anything like that? .

Mostly in your question. Is it about the life cycle of what happens with the customer after the initial sale and it passes to the expansion. Is that right, Dave?

Esseentially, yes.

Okay. Great. Yes. So that was in -- that was a huge part of our experiment that we could successfully land a new logo and then transition that relationship over to a client partner to manage over time. So there's two bets that you're placing. The first is that you can land a sizable new logo, right, and secure the net new customer. And the second bet is that you can increase and improve your retention and grow your expansion revenue by having just one person that owns that whole part of the life cycle. So we've seen really good success of transitioning the new logo to a client partner and having to manage it over time. It's created incredible focus for both sides of the house. So you have one team that's focused only on the hunt and the new customer, and then there's one team that's focused solely on customer success and expansion. And so we've seen great success. We have not seen any difference in our retention numbers based on deals that we had our customers we had in the prior relationships to those that we've inherited in our new structure. So we don't see any threat to churn or retention based on that transition.

That's great. I really appreciate that. Perfect. Okay. Paul, turning into maybe some of your more prepared remarks, you did spend a little bit of time talking about some of the AI initiatives that you're working on. Just curious as to how you're thinking about the balancing act between bringing on AI talent and building some of that in-house compared to stuff that might be easier, more cost-effective to purchase and customized?

Yes. Great question. I think we'll do a bit of both. We launched an AI lab a while back and the whole focus of that AI lab is on creatively looking at how can we embed AI across our portfolio of solutions inside the Impact Platform. I mentioned earlier on the call, one of the things we're excited about that's coming next is we're releasing a new addition of the 4 Disciplines of Execution that solution a little bit later this year, and that's going to have a pretty strong AI coaching component in it. That's something we think we can do ourselves internally.

There are might be and are under consideration some other great tools that are out there that if we can license those or partner with somebody who's already built it, we're certainly not opposed to doing that. At the end of the day, we're maybe a little more agnostic on how we get there. We just know that this is an important new component of our solutions that can really help when it comes to changing behavior and generating the collective action that organizations need to drive their most important strategies and objectives. So probably do a bit of both.

That's perfect. That's great color. And then I did have maybe one more for Jessi. Jessi, I know you mentioned in your prepared remarks that you're expecting some of the margin expansion to come from maybe some cost takeout over the back half of this year into 2027. Is there any more you can give us there maybe expand on the magnitude of that? Any dollar amounts, any specific verticals that you're targeting that we should know about?

So that commentary is really around the -- because we did take an additional Q1 restructuring. And with taking some of the costs out this quarter, you'll see then the compounding effect of that as we move greater throughout the rest of the year because it was a mid-quarter when that started to happen. And then, of course, obviously, from the restructuring that we had taken last year. So now you'll see the full annualized impact of that as we start moving later on throughout the year.

Understood. So we shouldn't expect any more restructuring of that magnitude this year?

I mean we're always going to be looking at our cost structure. So I would -- I'm not going to say necessarily no to that, but I would say that right now it's stabilized at this point in time.

Very fair. I appreciate that. Maybe Paul, one more for you. We just got through kind of budgeting season or early in the year, maybe a high-level customer sentiment question here. As you're having conversations with current and potential customers, are there any verticals that you're specifically targeting? Any high-level thoughts there around where you see opportunity in market?

Maybe I'll let Holly answer that one.

Yes. There are several. The benefit -- one of the many benefits of this business is our large total addressable market. We have massive range across the verticals that we serve, but we see about 17% of our revenue today sitting within health care. And so we see a lot of consistent use cases and how hospitals in particular, leverage us, one of the large ones for example, on nurse retention. And so we're actively in a motion right now on building out how we support with incremental resources, both our new logo acquisition for additional hospitals and how we support the 17% of our revenue that we have today instead of health care.

Our next question comes from the line of Jeff Martin with ROTH Capital Partners.

Paul, could you characterize any changes in the macro environment with respect to enterprises making decisions over the course of the last 3 months or so since we last talked to you publicly?

Yes. Again, I think Holly since focus a lot on Enterprise North America, do you want to talk about that? .

Yes. Jeff, we certainly look at this a lot, hoping to see signals of improvement. We would still categorize the state of the macro environment is mostly natural. We see examples of both some positive uptick and still some downward pressure. Examples of positive uptick include things like discretionary spend. So people that have dollars that they want to devote to Franklin Covey but are not yet sure how to spend it. A year ago that was unheard of. And so we're grateful to see that but still see plenty of examples of budgetary pressures from our customers. And so I'd categorize it as mostly still neutral.

Okay. Great. And then Paul, could you characterize if clients are coming to you asking for help in terms of AI-related issues that they're concerned about, changes in behavior, et cetera? Or is this more, "oh, we could utilize something like that", to add on to a totally separate journey that they're working on.

If I understand your question correctly, I think a little bit of both. So we've got some examples, in fact, a handful of examples right now where clients are coming to us and saying, we've been battling the integration of AI into our business. And the bigger challenge turns out is not the technical side of that. It's the human side of that. It's getting leaders throughout the organization to embrace and adopt and to be able to get over the fear their teams have. And it comes back to some of the same challenges of getting people clear, leading with clarity, creating the levels of trust that need to exist for people to adopt a new way of working.

And it's interesting. We've been in the business where it's getting humans to work better with humans, but some of the same principles are actually coming to bear and are necessary for humans working with AI and becoming comfortable with that. So we are seeing more and more clients coming and saying, hey, could you help with that? Because our clients see us as a credible partner to transform. And whether that transformation is 2 companies coming together, whether it's some new strategy or in this case, whether it's transformation by bringing in a powerful new capability like AI, there are just our human barriers to get over.

So we see clients coming. And in that case, that would be net new. And then we have somewhere where we're engaged in a leadership journey already, and we can bolt on to that some of our new AI -- our 2 new AI solutions to augment that. We like both those because in both cases, we're becoming strategically more important, more relevant and it gives us a platform from which to extend those relationships for more years and to more people.

Great. And then last one for me is for Jessi. Was the restructuring that occurred in the first fiscal quarter contemplated in the original fiscal '26 guidance? Or was that subsequent to the establishment of that guidance? .

No, that was factored in. We did mention that in the Q4 call, and it was a sub event that was listed in our 10-K. So this was factored in.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Paul for closing remarks.

Okay. Thank you so much. Again, everybody, thank you for joining today, and we appreciate the questions and how thoughtfully you think about the business, and I hope you all have a wonderful rest of your day and a great rest of the week. .

Thank you ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Franklin Covey Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Boyd Roberts, Head of Investor Relations. Please go ahead.

Thank you. Hello, everyone, and thank you for joining us today. We appreciate having the opportunity to connect with you. Before we begin, please remember that today's remarks contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including, without limitation, statements that may predict, forecast, indicate or imply future results, performance or achievements and may contain words such as believe, anticipate, expect, estimate, project or words or phrases of similar meaning.

These statements reflect management's current judgment and analysis and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations, including, but not limited to, risks relating to macroeconomic conditions, tariffs and other risk factors described in our most recent Form 10-K and other filings made with the SEC. We undertake no obligation to update or revise any forward-looking statements, except as required by law.

Now with that out of the way, I'd like to turn it over to Mr. Paul Walker, our Chief Executive Officer and President.

Thanks, Boyd, and good afternoon, everyone, and thank you for joining us. It's great to be with you and to have the opportunity to share our results and an update on the business. We're pleased with our momentum and that our fiscal '25 full year revenue and adjusted EBITDA results came in right in line with what we expected when we provided guidance in our Q3 call. We're also pleased that while much of fiscal '25 was a period of transition and organizational transformation, beginning in the fourth quarter and as we turn to fiscal '26, we're now in a period of execution and a return to growth.

In a few minutes, Jessi will share more detail about our fiscal '25 results and our fiscal '26 guidance. Before we go there, I just wanted to share a couple of thoughts with you. And the first is that we're off to a strong start in the first quarter, particularly in our Enterprise North America business, where we're experiencing the acceleration in invoice growth we expected to see from investment in and implementation of our go-to-market sales transformation.

A few points of evidence of this acceleration in Enterprise North America include we're having a strong contracting quarter in Q1 and expect to achieve strong growth in our invoiced amounts in the first quarter. A portion of this meaningful increase in invoiced amounts is being driven by strong new logo growth across the first 2 months of this Q1 of this new fiscal year, where the number of new logos sold and the associated revenue is pacing above prior year.

Similarly, our services booking pace through the first 2 months this year is off to a very strong start, with services booked in Enterprise North America up double digits over the prior year. This is an indication of the importance of the outcomes we're helping our clients achieve and is an important leading indicator of future reported revenue growth. This acceleration in North America, coupled with the fact that we anticipate our education business to have a strong year, indicates that we expect invoiced amounts for the company, which declined last year to return to meaningful growth in fiscal '26. A portion of this meaningful growth in invoiced amounts will translate into reported revenue in fiscal '26 and an even greater portion will translate into even greater reported growth in fiscal '27, which will also flow through to strong growth in adjusted EBITDA and free cash flow. The objective of our investments in our go-to-market transformation was always to accelerate growth in revenue, adjusted EBITDA and free cash flow beyond the levels we'd achieved in our previous model. And this is still very much our objective.

While we took a step back in fiscal '25, primarily due to external factors we could not foresee at the time we made our investments, we're back on the road to growth and expect this to be reflected in our fiscal '26 results and even more so in fiscal '27. Strategically, we're planning for something very clear and very important, to be the partner of choice for leaders pursuing breakthrough results, results that depend not only on great strategy, but also on how people work together to deliver it. Every organization faces these challenges, whether the goal is faster growth, integrating cultures after an acquisition, improving customer experience or transforming culture, success depends on institutionalizing the right behaviors and practices across leaders and teams.

We help leaders make the link between behavior and performance tangible, measurable and scalable. That's what drives breakthrough results. This work doesn't get easier in uncertain times. It becomes more essential. AI is transforming how work gets done, but it also makes human capabilities, judgment, trust and collaboration more critical than ever. The ability of people to stay aligned, focused and accountable while working together with high trust and execution remains the ultimate differentiator. Our role is to help organizations achieve their most important goals by strengthening collective behavior, raising the level and the consistency of how people lead, collaborate and execute and scaling what already works well in pockets across entire organizations.

As you can see shown on Slide 4, in pursuit of this objective, we're focused on 2 key priorities. The first is to be the leader in combining world-class content, technology and services to deliver breakthrough impact for our clients. And the second priority is to transform and accelerate our go-to-market approach to win more larger and more strategic new logos and to expand and retain existing ones.

I'd like to just take a couple of minutes here and go into each of these priorities in a little bit more detail. First, as it relates to building world-class solutions, a few years ago, we asked what would it take to accelerate our ability to be the partner of choice for leaders pursuing breakthrough performance. Our answer led to 4 key initiatives. First, we sharpened our focus on helping organizations address mission-critical challenges. As you can see shown on Slide 5, the market in which we operate ranges from content providers to true performance partners. Our strategic focus is on the latter as a performance partner, the space where large-scale behavior change delivers measurable business results. That focus is reflected in flagship solutions like the 4 Disciplines of Execution, Helping Clients Succeed, the Leader in Me and our leadership suite of offerings.

Focused here, we see AI not as a threat, but as a very important enabler. Many of the largest companies in the world across a variety of industries who are themselves pouring millions, if not billions of dollars into building AI capabilities throughout their organizations are at the very same time turning to Franklin Covey every day to help them navigate the vital leader and people elements of alignment, trust, change and execution.

For example, we're currently partnering with one of the largest technology companies in the world, a leader in AI, who engaged us to work with one of the key teams in their organization to speed their progress in making sure they stay at the forefront of the AI race. For this organization, speed will make all the difference. And while they have the best AI engineering capability in the world, their speed is impacted by the level of trust, alignment and collaboration they're able to achieve. These are among the very breakthrough behaviors Franklin Covey excels at helping leaders address, and we're partnering with those organizations to implement our speed of trust solution. Leading in the current environment is perhaps more difficult than it's ever been, and Franklin Covey is a trusted partner to leaders around the world.

Last March, we held our first ever virtual Impact Conference, and we were pleased to have 20,000 people registered to attend. Building on the success of that first conference yesterday, we kicked off this year's Impact Conference and are pleased to have not 20,000, but 30,000 leaders and individuals joining for sessions throughout this week focused on disruption, trust, AI and leadership.

Second, we continue to invest in proven high-impact content and services. Our trusted frameworks like the 7 Habits, the Speed of Trust, the 4 Disciplines of Execution, Leader in Me and a host of others continue to deliver measurable client outcomes. Our average Net Promoter Scores are very high. And when I say very high, they're in the 70s and for some of our offerings in the 80s. These solutions have generated billions in cumulative revenue and immense value for our clients.

Third, we leverage technology to scale performance. Our impact platform integrates content, services and technology to deliver solutions globally in multiple languages and at every level. We followed a similar model in education where Leader in Me now serves more than 8,000 schools worldwide. Importantly, we're now embedding AI across all of our offerings, providing real-time coaching, feedback and reinforcement. For example, in our Helping Clients Succeed sales transformation solution, AI now supports sales professionals with live deal coaching and objection handling to improve win rates. We view the combination of our best-in-class content, our expert facilitation and coaching services and AI as a powerful combination of capabilities to help our clients accelerate leadership, culture and execution results.

And fourth, we rebuild our business model to support long-term client partnerships. We created the All Access Pass and built a deep ecosystem of implementation strategists, consultants and coaches dedicated to lasting partner for life relationships.

The second key priority that I'll just talk about for a minute here is that of transforming the way we go to market to win more strategic clients and to expand our work with existing ones. Over the past 3 quarters, we completed this transformation, reorganizing our sales and client success teams around 2 clear goals: first, landing new strategic clients; and second, expanding relationships with those we already serve. This structure is now fully in place, and it's delivering strong early results across 3 areas.

The first area is around new client wins. New client growth is up both in volume and deal size with higher services attachment driven by clients who desire collective behavior change and a partnership with us to help them do that. For example, in the fourth quarter, we won a new client. It's a global ingredient processing manufacturer. This resulted in approximately $250,000 contract that's comprised of around $50,000 in subscription revenue and $200,000 in subscription services. This client is partnering with us to equip their leaders to lead through a high degree of change and to drive performance during a period of rapid expansion for them in their business. And they not only want access to our content and tools and frameworks, but to our expert coaches and facilitators as well to really drive and cement the behavior change that they're seeking to achieve.

The second area and evidence of acceleration is around client retention and expansion. More clients are extending subscriptions, adding services and broadening their reach. Even in a more difficult environment where some clients have had to adjust over this past year, the overall size of their subscription, and we did lose a couple of clients we talked about last quarter, including a couple of government contracts. We continue to achieve the same high percentage of overall client retention that we've been able to achieve over many years, providing a very strong base for expansion both in terms of subscription seats and services this year into that existing client base.

And the third area is our subscription services attachment. I mentioned this briefly, but I'll just touch on it again. Despite tighter client budgets, enterprise services attachment overall was a strong 53% in fiscal '25. And as I mentioned a minute ago, it was an even stronger 56% in North America this last year. And through the first 2 months of this year, as I mentioned, North America services bookings are up double digits year-over-year, which is a leading indicator of future services revenue.

While fiscal '25 results didn't turn out like we expected at the beginning of the year, due to DOGE related government slowdowns, midyear tariff uncertainty and short-term effects of our own transformation. The lead metrics are strong, and our momentum accelerated through year-end and continues into the first quarter of fiscal '26, setting us up for strong invoice growth in fiscal '26 that, as I mentioned, will lead to growth in fiscal '26 and even more reported growth in fiscal '27.

Shifting gears to Education. We're pleased with the continued strength of our Education business. Despite a difficult and uncertain education environment this past year, where we saw the Department of Ed threaten closure and shrink in size and where large amounts of federal Title dollars were initially available, then pulled back and then only restored very late in our fiscal year. We're pleased that Education reported revenue growth for the year overall that our Education subscription revenue grew 13% in the fourth quarter and 10% for the full year, that our balance of deferred revenue increased 13%, establishing a strong foundation for accelerated growth in fiscal '26. And that we were able to bring on 624 new schools and the school retention remained a very high 84%, which was equal to the year before, which we felt quite good about in the environment.

Just a closing perspective here before I turn the time over to Jessi. As we enter fiscal '26, I feel confident in both our progress and our direction. I'm pleased with the progress our teams are making, and I'm grateful for the clients who continue to trust us. And I'm confident that the strategy we've been pursuing will continue to create value in the years ahead.

I'd now like to turn the time over to Jessi, and she'll share more detail on our results in the fourth quarter and for the full year and also lay out our guidance for fiscal '26.

Thanks, Paul, and good afternoon, everyone. Franklin Covey continues to see healthy demand for our products and services in the fourth quarter despite the ongoing macroeconomic and industry headwinds. And as Paul discussed, the strategic investments we've undertaken to transform our go-to-market strategy are gaining traction.

As shown on Slide 6, our fiscal year 2025 results were in line with our most recent guidance provided on our third quarter earnings call on both revenue and adjusted EBITDA. Fiscal 2025 was a year of transition and transformation. I'd like to take a step back and provide a reminder of the events that took place this year that impacted our financial performance.

At the beginning of the fiscal year, we laid out a strategic go-to-market transformation plan for the Enterprise North America segment, which required significant SG&A investment that would result in an approximate $50 million decline in year-over-year EBITDA but enable significant future growth -- revenue growth starting back in the back half of the year and beyond. As we implemented these growth investments, several unanticipated macroeconomic factors unfolded starting in January, including threatened or enacted tariffs that created significant business environment uncertainty for our clients, specific actions to cut U.S. federal government spending, ongoing geopolitical tensions and a general weakening of economic conditions, both domestically and internationally.

In response to the economic uncertainty, many of our current and prospective clients sought to reduce their spending to maintain their profitability, which led to delayed decision-making and decreased contract expansion. The government's actions also disrupted the Department of Education and Title funds available to districts and schools across the country. All of the preceding events adversely impacted our business and financial results across both divisions for the fiscal year from our original expectations.

Despite these headwinds, however, we have retained the vast majority of our client base and now with the bulk of our transformation investments coming to completion and those efforts beginning to bear fruit, we expect fiscal 2026 to be a year of focused execution where our adjusted EBITDA and more importantly, our free cash flow will return to growth this year and accelerate thereafter.

In my remarks today, I'll start by providing some highlights for the fiscal year and walk through our fourth quarter financial performance. Then I'll turn to our balance sheet and capital allocation priorities. And finally, I will provide context around our fiscal year 2026 outlook. Franklin Covey generated total reported revenue of $267.1 million or $267.3 million in constant currency, which was within our guidance range. Reflecting the macroeconomic factors I just summarized, revenue was down 7% from the prior year due to a 10% decline in the Enterprise Division, which was partially offset by a 1% increase in the Education Division.

A summary of our consolidated financial results is on Slide 7 in the earnings presentation. As we expected and captured in the guidance we shared in the third quarter, total revenue for the fourth quarter of fiscal 2025 was down 15%. Of this, revenue in the Enterprise Division was down approximately 22%, reflecting the government actions and macroeconomic environment. In addition, there was a $6.2 million IP contract with a large client in the fourth quarter of last year that did not repeat this year, although this client is still an ongoing client today.

The Education Division was flat in the fourth quarter compared with the prior year, reflecting disruption in the Department of Education and associated Title funds, which delayed new school purchases in the spring and early summer, which we expect to recapture in fiscal 2026. Consolidated subscription revenue recognized for the year was flat year-over-year at $147.9 million.

Importantly, the foundation for increased future growth remains solid and is evidenced by the 3% year-over-year increase in our consolidated deferred revenue balance to $111.7 million, which will be recognized as reported revenue in the coming quarters. Unbilled deferred revenue contracted for the year increased 7% to $48.4 million, with the total balance declining 3% to $72.8 million, reflecting the lower beginning balance at the start of the year.

Gross margin for fiscal 2025 was 76.2% compared to 77% in fiscal year 2024. This reflected increased product amortization costs and softened margins in our international direct offices due to lower sales. Gross margins for the fourth quarter were 75.5% compared to 78.1% in the prior year as a result of lower margins in Enterprise North America from the recognition of the IP portion of the large contract last year that did not repeat in our non-subscription-related business, lower margins in the international direct office and also lower margins in Education as a result of shifts in product mix.

Operating, selling, general and administrative expenses for fiscal '25 were $174.8 million compared with $165.8 million in the prior year, reflecting the increased associate costs from the hiring of new sales and sales support personnel, marketing and product-related costs in connection with the rollout of the go-to-market transformation in our North America segment. Offsetting these investments were the cost reductions we made in the third quarter, which resulted in $7 million in SG&A savings for the year and an annualized run rate savings of $8 million in fiscal year '26 that will be partially offset by normal investment levels this year.

Adjusted EBITDA was $28.8 million or $29 million in constant currency, in line with our guidance of $28 million to $33 million. In the fourth quarter, adjusted EBITDA was $11.7 million compared to $22.9 million in the previous year, reflecting the lower revenue, gross margin and higher SG&A expenses I previously mentioned.

Cash flow from operating activities were $29 million for the year compared to $60.3 million in the previous year. The decrease was driven primarily by a $20 million decrease in net income stemming from lower revenues, planned increases in spending to fuel the Enterprise North America go-to-market transformation, increased restructuring and headquarter moving costs as well as $7 million in unfavorable changes in working capital, including the impact of higher cash paid for taxes. We also had a $5 million increase in CapEx for building construction costs, and all of this resulted in free cash flow for the year of $12.1 million compared to $48.9 million generated in fiscal 2024.

I'll turn now to a discussion of our business divisions. For fiscal '25, our Enterprise Division generated 70% of the company's overall revenue with Education Division generating 28% of the company's revenue. Fiscal '25 Enterprise Division revenue was $188.1 million compared to $208.1 million in the prior year. As mentioned previously, Enterprise revenue was heavily affected by canceled U.S. federal government contracts, geopolitical trade tensions and as a result, ongoing macroeconomic uncertainty. The challenging business environment adversely impacted the value of new logo sales and expansion revenue, both domestically and internationally during the second half of the year.

As shown on Slide 8, the North America segment revenue was $147.6 million, a 10% decrease from the prior year. Fourth quarter Enterprise Division revenue was $45.7 million, down 22% versus the prior year, with North America being down 24% compared to the prior year. Our North America sales accounted for 79% of our Enterprise Division sales in fiscal year '25. It is important to note that 60% of the Enterprise Division's decline for the year was driven by declines in direct office non-subscription and services revenue, and half of that was attributable to the $6.2 million North America IP contract that I previously referenced. This is an indication that our core subscription-related business is still fundamentally strong, declining by 5% year-over-year, reflecting the macroeconomic factors previously discussed.

Adjusted EBITDA for the North America segment decreased to $27.4 million for fiscal 2025 compared to $46.6 million last year due to lower revenue and increased SG&A expenses tied to our planned go-to-market investments. Our fourth quarter adjusted EBITDA in North America was $7.6 million compared to $16.2 million in the prior year and again, mainly driven by the large IP deal recognized in the fourth quarter of the prior year. Our balance of billed deferred subscription revenue in North America was $46.7 million at the end of the fourth quarter, down 5% from the prior year and unbilled deferred revenue was $67.6 million, down 1% compared to last year. Importantly, the number of North America's All Access Passes contracted for multiyear periods increased to 57% in the fourth quarter, and the contracted amounts represented by multiyear contracts remained strong at 60%.

Turning to the international direct operations. As shown on Slide 9, revenue for our international direct operations, which accounts for approximately 16% of our total Enterprise Division revenue in fiscal '25 was $29.3 million, which is now -- which was down from $33.3 million in the prior year as a result of our business in Asia and the U.K. decreasing due to challenging business conditions as a result of geopolitical and trade tensions. Revenue in the fourth quarter from these offices was $7.4 million compared to $8.8 million generated in the fourth quarter of the prior year.

Adjusted EBITDA for the international direct operations segment was a loss of $0.4 million in fiscal '25 compared to a positive $3.4 million generated in the prior year. This loss was primarily driven by the decreased revenue, whereby the segment was not able to absorb all of the cost allocations distributed to them. Adjusted EBITDA in the fourth quarter was $0.5 million, which was down from the $1 million generated in the prior year.

Our international licensee revenue, which accounts for approximately 6% of our total Enterprise division revenue in fiscal '25 was $11.1 million, down 3% compared to the prior year. International licensee revenue for the fourth quarter was $2.4 million, which was essentially flat with the previous year. Adjusted EBITDA for the international license segment was $5.5 million for fiscal '25 and $1 million for the fourth quarter, both slightly down compared with the prior year.

Turning now to our Education Division, as shown on Slide 10. Education Division revenue in fiscal '25 was $74.6 million, which was 1% higher than the prior year as lower material sales were offset by increased coaching and consulting revenue. The lower material revenue was primarily due to a new statewide initiative in the second half of fiscal '24 that included a significant amount of training materials in the initial phases of the program. Revenue for the fourth quarter of this year was $24.4 million, which was slightly higher than prior year.

Education subscription revenue increased 10% in fiscal '25 to $45.9 million. Combined subscription and subscription services revenue was $69.4 million, up 4% versus the prior year. Education subscription and subscription revenue in the fourth quarter was $23.3 million, up 3% compared to the fourth quarter in the prior year. Adjusted EBITDA for the Education Division in fiscal ' 25 decreased to $8.2 million compared to $9.8 million last year, reflecting increased SG&A for associate expenses. Adjusted EBITDA for the fourth quarter was $6.2 million compared to $7 million in the prior year. Education's balance of billed deferred subscription revenue increased 13% to $54.6 million, establishing a strong foundation for continued growth in fiscal '26. We are seeing good momentum in our Education Division, particularly in the number of large state and district level opportunities we are actively pursuing. This pipeline strength, together with the base of more than 8,000 schools globally at the end of August, gives us confidence in the demand for the kind of outcomes our Leader in Me solution delivers.

I would now like to spend a few minutes discussing our balance sheet and capital allocation priorities. We continue to pursue a balanced capital allocation strategy focused on 3 primary areas that are aligned with our strategic goals. First, maintaining adequate liquidity. Our business continues to produce reliable cash flow and our liquidity remains strong at over $94 million at the end of the fourth quarter with $31.7 million cash on hand and no drawdowns on the company's $62.5 million credit facility.

Second, investing for growth. We will continue to invest in strategic opportunities to drive improved market positioning, accelerated profitable growth and financial value, such as continued spend in product innovation, business transformation initiatives and opportunistic acquisitions.

And finally, returning capital to shareholders as appropriate is our third priority. In the fourth quarter, we purchased approximately 168,000 shares in the open market at a cost of $3.3 million. For the full year, we purchased approximately 791,000 shares in the open market at a cost of $20.4 million. On August 11, 2025, the Board of Directors approved a replenishment of the previous authorized plan to purchase up to $50 million of common stock. On August 14, we initiated a 10b5-1 plan to purchase $10 million of our common stock. This plan was completed in the first quarter of fiscal '26. We remain committed to being disciplined stewards of capital while staying focused on driving long-term value creation.

Now turning to our financial outlook for fiscal '26. The company's projections reflect the positive momentum we are seeing and expecting in both the Enterprise and Education Divisions, balanced with a disciplined view of the risks and opportunities ahead as we continue to execute in an uncertain macro environment. We expect to achieve solid growth in invoiced amounts this year. However, net reported revenue growth this year will be constrained in comparison, driven by the lower deferred revenue generated in fiscal '25 and the conversion lag of invoiced to reported revenue in the year as a portion of the invoiced growth will go onto the balance sheet as deferred revenue.

As shown in Slide 11, we currently expect fiscal '26 revenue in the range of $265 million to $275 million. We currently anticipate fiscal '26 adjusted EBITDA in the range of $28 million to $33 million, capturing the benefit of our cost reduction efforts, including additional restructuring actions taken this quarter while maintaining flexibility to manage through continued macro uncertainty. We expect both revenue and adjusted EBITDA to be weighted towards the back half of the year. We anticipate approximately 45% to 50% of fiscal year revenue will be recognized in the first half, reflecting normal seasonality, especially in the Education Division and the timing of client delivery.

For adjusted EBITDA, we expect approximately 30% to 35% to be generated in the first half, with margin expansion expected as cost savings and operating leverage build through the back half of the year. Given the volatility we experienced in fiscal '25 and the continued challenging market environment, we would like to execute our strategic and operational plans in the current and upcoming near-term quarters before providing specific longer-term guidance. However, while most of the projected strong growth in invoiced amounts this year will not translate to high reported revenue growth in fiscal year '26 itself, we anticipate this will result in meaningful top line growth in fiscal '27.

With the bulk of our transformation investments coming to completion and the expected increase in operating leverage, we believe the company will deliver strong EBITDA and free cash flow growth with improved margins and free cash flow conversion in fiscal '27 and thereafter. We have strong conviction in our strategy and long-term plan, and we're confident in the company's ability to deliver sustainable growth. Our optimism is grounded in strong client retention, expanding demand for leadership development and breakthrough organizational performance services across both Enterprise and Education Divisions, and the continued strength and resiliency of our business model. As mentioned at the start of my remarks, we view fiscal '26 as a year of execution and the return to growth and fiscal '27 as a year of acceleration and compounding growth in revenue, adjusted EBITDA and free cash flow. We remain fully committed to creating long-term value for our shareholders and clients.

Before I pass it back to Paul, I would like to thank the entire Franklin Covey team for their hard work and dedication to our business and for providing unparalleled services to our clients. Paul, now I'll turn it back to you.

Thanks, Jessi, for that review of the year and for laying out the guidance. Thanks all of you for joining today. We'll now look forward to asking the operator to open the line and taking your questions.

[Operator Instructions] And our first question comes from Jeff Martin of ROTH Capital Partners.

I apologize I was late on the call, so some of these questions might be redundant to what you've already had in your prepared remarks. But I was just curious if you could give us a sense of kind of how the decision-making environment has evolved the last several months here. And then also an update on how your sales transformation has performed in the past quarter relative to expectations. I'll just -- I'll cut it off there. I have a couple of more questions on top of that.

Okay. Great. As far as the decision-making environment goes, I would characterize it this way. I would say that we launched last year and at the time we talked at this time last year, we were kind of on the eve of the new administration. And after we got done reporting the year-end, the year before, we started to see then some of the uncertainty show up in the market as the new administration came in and started to enact some of the policies and decisions they made. And that created a fair bit of turbulence during a good bulk of last fiscal year. We talked about that a lot. I won't go back and dwell on that. But the reason I start there is to then kind of contrast that with where we are today.

I would say that we -- having come through that period of turbulence and uncertainty, I think the team is doing a nice job of navigating that. And while I'm not sitting here today saying that the environment is all of a sudden a lot more certain than it was, there's still uncertainty out there. I think our -- we're dealing with that uncertainty better today than we were certainly November through April, May last year during that period there. And so I would say the environment is -- there's still uncertainty. We're seeing, though, as it trickled down, our clients have kind of moved from a lot of uncertainty to, okay, we've got to keep moving our businesses forward. We saw budgets start to free up and loosen up a little bit, and that's been reflected in. I think that's being reflected now as we move to your second question of how is the transformation going or the sales transformation going.

We're really seeing some of the evidence of both that us navigating the uncertainty and maybe a little bit more certainty in some of our clients' decision-making plus then just us now being 3 quarters into this transformation. And you might not have been on the beginning there, but just to quickly recap a couple of things I said. We're seeing some strong indicators that we'll have a good invoiced growth in the first quarter in Enterprise North America. Our new logos count and the size of new logos are up in the first 2 months here in September and October. Our services booking pace is up quite significantly, double digits over what it was a year ago.

And so we look at those things as evidence that we're starting to gain some traction here with the go-to-market transformation, and we're doing that in an environment that's not tremendously more certain, but I think for us, we're navigating that environment better than we were certainly back in the December, January, February, March-ish time period.

Great. And then could you comment on the renewals? Are clients renewing at similar size contracts? Are they contracting a little bit? Are they expanding? What's been your recent?

Yes, great question. So I would start first with, when we look at renewals, we look at renewals on -- through 2 lenses. One is the percentage of clients overall that we retain, which is a client count retention metric. And then we look at the revenue associated with those clients we're retaining. One of the things we're pleased with is that the percentage of overall clients staying with us has remained very consistent and very steady. So we've now been in the all Access Pass game for about 10 years and measuring client retention for 10 years now. And while we don't -- we haven't disclosed that number specifically, I'll just tell you that the percentage rate we're achieving today and that we even -- we achieved throughout this last fiscal year amid all that uncertainty has remained quite consistent with where it was even in the heady years where interest rates were really low and the economy was quite different. So we feel good about that, and we see that as an indicator of, hey, what we're doing with clients is important to them.

Now that doesn't mean that there haven't been some clients who amid their own uncertainty this last year, didn't need to rescope the size of their pass. And we did see on the margin, some clients that where they might have purchased for a larger population, brought that back down for a more discrete population for that moment in time. And so that has been happening on one side. On the other side, we're seeing some clients really meaningfully expand very significantly.

And so net-net, as we went through fiscal '25, the client retention was about like it had always been. The revenue retention was a little bit lower in fiscal '25, and that's part of what contributed to the decline in invoiced amounts last year we talked about. But we believe that our go-to-market focus, having a whole dedicated team of client partners who now only service those existing accounts and are in looking for expansion opportunities there that over time, we expect to begin to see the expansion outweigh any of the contraction and that this will be -- the retention -- the overall revenue retention revenue percentage we'll get back up into the historical rates we'd always be able to achieve.

And then one more, if I could. Jessi, could you maybe give us a little bit of help with respect to what you're expecting revenue and EBITDA in Q1?

Yes. So what I indicated was we're not giving specific guidance for Q1. What I indicated was kind of first half, second half type of trajectory. So from a revenue perspective, around 40% to 50% of revenue will come in first half. And the EBITDA would be around 30% to 35% in the first half. So it will be a little bit more back-end weighted in terms of first half of the year versus second half.

And our next question comes from Nehal Chokshi of Northland Capital Markets.

So I believe that you said this twice now, but I just want to make sure I heard it correct, that invoice subscription bookings for North America Enterprise is up year-over-year for basically the first 2 months of the fiscal year. Is that correct?

Yes.

Yes, it is. Yes.

Okay. That's fantastic. And that is off of what was the growth rate in the year ago period that you guys were seeing of that metric?

In the last -- I don't have that for the last 2 months.

For the first 2 months?

Of last year. I don't have that readily available.

Okay. Or maybe just the fiscal first quarter of '25?

For North America?

Yes. Yes.

So the invoiced -- I have -- for total Enterprise Division, the invoiced amounts for the fourth quarter.

First quarter, last year.

First quarter.

Well, first quarter last year, Nehal?

Correct.

Yes, first quarter last year.

We'll have to come back to you on that. I don't have that readily available.

Okay. All right. Well, just the growth that you're seeing is obviously strong evidence that the investments you're making in the hunter and farmer go-to-market model is producing results. Can you refresh us on what was working in the prior quarters? And what's been the incremental as far as working in terms of farmers versus hunters? And I know you call it differently, but sorry.

No, no. It's okay. We totally understand what you're -- yes, the distinction there between hunters and farmers. So I think just stepping back for a second, of course, just -- and I'll do this briefly. But the reason for making the transition in the first place is that we've grown our subscription business nicely over the time we've had All Access Pass. And we recognized for the last number of years that as nicely as we've grown that, there was a lot of potential in the market we weren't getting to, and there was a lot of potential inside the existing clients we had that we also were not getting to. And we recognize we were asking the same sales force to kind of do both to try to go after the potential in the market for net new customers and to expand inside their existing customers. That was the first reason.

The second reason to make the transition is consistent with what I shared is we've been on this journey now for a few years to move our overall business to being a more strategic outcomes partner to clients. And so getting the right team in place that could sell at that level to those types of buyers. And so that was the original thesis and the original bet. We feel good about that still today, and we are beginning to see -- started to see the evidence of that last year show up in the pipelines, and we're now seeing the conversion of that pipeline beginning to happen as we -- specifically in gaining steam as we're moving into the first quarter, as I mentioned, we're seeing new logo wins up in the first 2 months. The services booking rates are up, right?

So what's happening is Nehal is as we move to a bit more of a strategic buyer focused on more strategic outcomes, not only are we winning logos, but the size of those initial clients are larger because we're attaching a greater amount of services to those new logo wins as well. And I think that's indicative of solving problems that are bigger, that are more strategic where clients value and those buyers, business leaders value not only our great content and tool frameworks, but also the expert services that we can provide those clients. And the combination of those 2 things is rolling through. We're getting good conversion rates on that pipeline.

And so for us now, the key measures we're looking at are how do we continue to grow the pipeline of opportunities. Part of what we did is we made a bet last year on standing up a more robust SDR function, kind of a presales function. That's been -- we have now had that for a few quarters, and that's kicking in. And so everything -- we're just moving everything righter and tighter around executing the original strategy that we put in place, and we're seeing that begin to roll through.

Nehal, just coming back to you. I was able to track that number down for you. So the Enterprise Division because we don't report out invoiced amounts for North America, but the total Enterprise Division in Q1 of '25 was $43.7 million.

And that was up how much percent year-over-year in that year ago period?

Well, it was 2025, right? So it was actually down year-over-year. 7% down from the prior year. Yes.

Got it. Okay. Very good. And so what gives you confidence that this growth in invoice subscriptions you're seeing in the first 2 months isn't just simply a year ago easy compare then?

Holly Proctor's here, our President of Enterprise, you want to comment on that?

Yes, sure. The reason why there's confidence here, as you can imagine, we are students right now, especially our large deals. So when we see multi-million -- trillion dollar deals come in, we're students of not just how we want them, but what ingredients inside that deal did we not have in our prior model. And so as we study those deals, there are several things that are pointing to the win that we didn't have in our prior model, where we're confident we likely wouldn't have won that business before. And so I'll give you an example. A large deal that we'll announce in Q1, multimillion dollar multiyear deal was a product of an RFP win. That RFP win was turned around in a handful of days based on systems that we've implemented as part of this structure. We never would have been able to facilitate that type of engagement a year ago. And so as we study these large wins and we see the system starting to work and then more volume going into the system that brings a lot of confidence that this is a trend.

And our next question comes from Alex Paris of Barrington Research.

Nice finish to what was a really challenging year and nice green shoots of activity in the first 2 months of fiscal 2026. I had a question about guidance also, and I appreciate the color about first half versus second half on both revenues and adjusted EBITDA. But as I look over my historical model, that's kind of the way it always is. You get more revenue and more EBITDA in the second half of the year, typically looking back before the year just ended. But what I also see that happens is between Q1 and Q2 there is a sequential decline in both. I'm wondering if this year, it might be flipped because you're claiming out of that transition. In other words, the revenue that you expect in the first half, would you think that Q2 would be greater than Q1, which is history?

No. I think it will follow more to what we've had in the past. And remember, when the kind of the time period of Q2, you're starting to get into a holiday time period and all that. So you're going to have the normal seasonality that will come into play. So we still will have some of that.

Okay. So not necessarily a decline in revenue -- sequential decline in revenue from Q1 to Q2. And the same thing for EBITDA.

No, no. I'm saying there will be -- I mean, we would still expect a slight decline in the revenue from Q1 to Q2, similar to prior years. That seasonality is still going to continue. Yes.

Got you. I was suggesting would it be the opposite of that this year, but you're saying not.

I'm saying, no. Yes.

I appreciate that.

Alex, part of the reason for that just is that Q2 services with the holidays. There's just fewer services delivered during the -- with December being in the holiday period. And so that always kind of shows up a little bit in the Q1 to Q2.

Great. And then just a follow-up question on the sales force transformation. Any updates in terms of the size of the sales force between hunters and farmers? I think the last note that I had is you had 44 hunters and around 65 farmers. And then turnover, both voluntary and involuntary turnover in the new sales force. How is that working for you?

Yes. Great question. So the sales force is still very, very close, like very close to the size -- the numbers you just threw out there. I think it's the same. We haven't had any turnover in the sales force. Of course, we turned some of the sales force over last year as part of the transformation. But the folks that we have here and in place now, we have that team. I think that on a go-forward basis, where you'll see growth in the sales force in the periods to come will be on that, particularly on the new logo hunting side, where -- and as we continue to make investments on the marketing side to drive even greater leads of that sales force. That will be the factor that allows us to expand that hunting sales force. And then there's good leverage on the farming side of the sales force as we throw those new accounts over the wall and have them service them through a combination of our client partners and our implementation or our client success team. So same size as we've had, and we do expect we'll grow that. And on Education, it's roughly the same size as well right now.

Okay. Helpful. And then since you brought it up Education, I was wondering if we can get a little bit more color on Education. We spent a lot of time on North American enterprise because that makes sense. It's a bigger business, and there's big changes happening on that side. But on the Education side, it was a flat year and a flat quarter in terms of revenue and gross income, a decline in adjusted EBITDA in both periods. I get it, there's a lot of disruption in Education, reduction in force. How should we think about fiscal 2026 in Education? I think the comps would be relatively easy, but whatever color you could offer, I'd appreciate.

Yes, Sean is here. Sean, do you want to share perspective?

Yes. Alex. Yes. So looking at this year, we remain quite bullish about the year. Last year was hard because 2 things happened last year. One is we had the ESER COVID relief funds expire, right, in September of '24. That hit us. And then the Department of Education shenanigans of withdrawing Title funds and reinstating them kind of left a hangover effect, where a lot of schools were hesitant to buy, purchase. We probably had 100 to 150 schools that delay we might have got in otherwise.

Looking to this year, we feel good about the year and think we can get back into good solid growth like we have been doing for the last decade; for 2 reasons. One is we have -- as you can see in the data, we've got lots of deferred revenue. That grew by 13% last year. It's going to help us. We have that on our balance sheet. It's going to be recognized this year. We also have many large district and state opportunities. We mentioned that we had one big one last year. It will repeat. And so, the pipeline of the bigger opportunities is really strong. Our funding partner that we've shared before remains in place. This is a partner that helps with really hundreds of schools every year. That helps to drive demand. There's still a great need in the marketplace for what we offer. It seems to be increasing all the time, higher test scores since COVID, test scores have dropped a lot. Everybody wants to get them back up. We're good at that. Teacher retention is a big turnover problem right now in schools. We're good at that as well and then mental wellness that we address also.

And then finally, I think it's hard to predict the Department of Education and the Trump administration, what they're going to do, but it's likely to get better than last year. I don't see how it could get worse. Of the Title dollars, which is where most -- where Title I is for low-income students, and that is what funds a lot of Leader in Me schools, at least in part. Most experts agree that that's not going to be touched and it's going to be safe. And whether it goes to the states or remains at the federal level remains to be seen, but there's strong support for Title I dollar. So all of that combined, all things considered, we feel good about the upcoming year and feel we can get back to some good solid growth.

And our next question comes from Dave Storms of Stonegate.

You mentioned in your prepared remarks, Paul, how much AI you're starting to implement into your services. I was hoping you could maybe spend a little more time there and maybe lay out kind of what inning you think we are in when it comes to implementing AI.

Innings for the world, innings for Franklin Covey? No, just teasing. Yes, so I think, obviously, I think the whole world is still in very early innings on AI and trying to exactly predict where all this is going to go is -- but I wouldn't pretend to do that. I will say that where the first, where we're focused and where we see real opportunity with AI is in 2 places, and then I'll get into a little bit more specifics. The 2 areas that we see AI as an important opportunity for Franklin Covey. The first is actually what AI is doing out there with our clients. Increasingly, the deals we're winning and the existing clients we're partnering with, a common circumstance that they want help with is as the more they're implementing AI, the more it's shining a light on some of the human, people, leader, culture, collaboration, aligning people challenges. Those have always been hard parts of leadership, and they don't get easier with because you have AI. And so I think it's actually shining a light on many of the things that we are good at and have been good at for a long time. And so strategically, I think that's an opportunity for us is to really help and we are helping to be a partner in that set of circumstances and in that environment.

Second, we've always had what I would -- I think is really, really fantastic content. We talk about world-class content because it is. One of the things we hear from our clients over and over again is that they value the quality of the content, the quality of the principles and frameworks and insights that it's just -- it's differential from others. We also have always had really great -- we call it services, but really what that is, is people who are going in and doing facilitation and coaching and in some places, some consulting, and they're helping schools and organizations implement this powerful content in a way that really does change behavior, change performance and lead to better outcomes. We've always had those 2 legs of the stool.

AI is this really new unique third leg of the stool. And we see it as a real accelerator to add to those other 2 legs because it's this wonderful technology that allows people who are trying to change behavior and leaders who are trying to move people, it allows for better visibility into that, better -- a new type of coaching, a new way to reinforce the principles we're teaching. Our AI coach picks up where a human coach leaves off and is able to be there all the time with somebody helping and coaching them through specific situations and circumstances they find themselves in. And our clients can trust that, that what's being coached is coming from this very trusted principle-based reservoir of content. We've trained our AI coach on all of our stuff and clients can really trust that.

And so for us, we view it as kind of this important third leg of the stool. And candidly, it wasn't a leg of the stool that was even available a few years ago. Nobody had come up with AI. But now that it's here, we see it as this great third piece. And so as we think about, as I made the comments that we're investing in embedding AI into our solutions, it's kind of with that third leg of the stool in mind, how does it complement our great content and our great services that we already provide our clients, and we're seeing all kinds of ways to do that. I just gave the one example earlier of the -- how it's helping with our -- Helping Clients Succeed sales performance solutions, where now not only being taught great content and learning how to use tools and not only having a great facilitator and coach personally, I've got an AI coach that's with me all the time who can give me real-time feedback on how that last sales call went, how I should position the product better next time? How do I overcome this kind of common objection? How do I get prepared for this next upcoming sales call? Those are the things that really make a difference.

And for organizations, if they can improve that behavior by even a marginal amount, 5% or 10% across a large sales force, that trickles down to significantly more won revenue. And so that's just one example, and we're applying that across our leadership content, our 4 Disciplines of Execution solution. We're excited to see how this can come into our Leader in Me offerings as Sean and team are imagining what that looks like. And so I would say innings-wise, we're in the early innings. I think the world is still in the early innings, but we're quickly trying to advance into deeper into the game as quickly as we can.

Understood. That's great color. One more for me, if I could. Just earlier in the year, there was the government cuts that could be pretty directly tied to some of your results, some of the headwinds that we've seen. Are you seeing anything of this magnitude from the current government shutdown?

No, we're not. When we reported at the end of Q1 last year, so in January, we outlined what the impact we expected to see last year at that time. We don't expect to see anything like that this year. In fact, if anything, that might be -- we get to lap against that last year. Of course, the government shutdown at the moment. But as that government opens back up, we expect that we'll continue to win some business with the government. And actually, on a comp basis, we get a chance to kind of comp against that last year. And that hopefully -- we expect that should work in our favor somewhat this year.

I'm showing no further questions at this time. I'd like to turn it back to Paul Walker for closing remarks.

Thanks, everyone, for joining today. Thanks for your great questions, as always. We appreciate the lengths you go to understand the business. Hopefully, this came through today, but we're pleased and optimistic about as we turn the page into fiscal '26 and what we're seeing happening on the invoice growth side that, that we expect that to trickle through this year into increased growth and really next year as those invoice amounts build up this year.

So we're looking forward to that and off to a good start and just hope you all have a wonderful rest of your evening. And again, thanks for being here today.

This concludes today's conference call. Thank you for participating, and you may now disconnect.