Franklin Covey Co. (FC) - Q3 2026 10-Q Summary
Business Context and Reporting Period
This summary covers Franklin Covey Co.'s quarterly report (Form 10-Q) for the period ended May 31, 2026. The company provides leadership development, organizational performance, and educational solutions globally. Operations are organized into three reportable segments: North America, International, and the Education Division. The company is currently executing a long-term restructuring plan initiated in Q2 2026 to streamline operations and reduce costs.
Key Financial Metrics
| Metric | Q3 2026 | Q3 2025 | YTD 2026 | YTD 2025 |
|---|---|---|---|---|
| Revenue | $67.8 million | $67.1 million | $191.5 million | $195.8 million |
| Gross Profit | $50.1 million | $51.3 million | $143.7 million | $149.8 million |
| Gross Margin | 73.9% | 76.5% | 75.1% | 76.5% |
| Operating Income (Loss) | $4.2 million | $(2.2) million | $(1.5) million | $(2.2) million |
| Net Income (Loss) | $3.1 million | $(1.4) million | $(2.2) million | $(1.3) million |
| Diluted EPS | $0.27 | $(0.11) | $(0.19) | $(0.10) |
| Adjusted EBITDA | $8.3 million | $7.3 million | $25.6 million | $25.4 million |
| Cash & Equivalents | $12.0 million | $33.7 million | $12.0 million | $33.7 million |
| Operating Cash Flow (YTD) | $17.5 million | $19.0 million | $17.5 million | $19.0 million |
| Deferred Revenue | $96.0 million | $89.3 million | $96.0 million | $89.3 million |
Material Changes vs. Prior Period
- Profitability Turnaround: The company returned to profitability in Q3 2026 with $3.1 million in net income, compared to a $1.4 million loss in Q3 2025. This was driven by a significant reduction in restructuring costs ($0.7 million in Q3 2026 vs. $4.7 million in Q3 2025) and lower SG&A expenses.
- Revenue Growth: Q3 revenue increased 1% year-over-year. The North America segment grew 3%, while the Education Division grew 2%. The International segment declined slightly.
- Margin Compression: Gross margin decreased to 73.9% from 76.5% due to increased costs for training/coaching delivery, changes in service mix, and higher amortization of capitalized curriculum costs.
- Share Repurchases: The company spent $28.1 million on share repurchases during the first three quarters of 2026, significantly reducing cash balances from $31.7 million to $12.0 million.
- Segment Performance: North America Adjusted EBITDA increased 25% to $7.7 million. International Adjusted EBITDA increased 25% to $2.1 million. Education Division Adjusted EBITDA declined 18% to $1.7 million due to state funding cuts impacting classroom material sales.
Guidance, Outlook, and Risks
- Outlook: Management views fiscal 2026 as a year of execution, expecting solid growth in invoiced amounts in Enterprise North America. They anticipate fiscal 2027 will see increased reported revenue, Adjusted EBITDA, and cash flow as transformation investments mature.
- Deferred Revenue: Deferred revenue increased 7% to $96.0 million, providing a strong base for future revenue recognition. Unbilled deferred revenue stands at $61.1 million.
- Restructuring: A long-term restructuring plan is ongoing, expected to span four to five quarters. Costs incurred in Q3 were $0.7 million, primarily for severance.
- Liquidity: The company maintains over $74 million in available liquidity, consisting of $12.0 million in cash and a full $62.5 million revolving credit facility. No borrowings were outstanding under the credit facility as of May 31, 2026.
- Risks:
- Legal Proceedings: The former landlord of the corporate headquarters is suing for damages totaling at least $9.2 million, alleging breach of lease and holdover. The company denies these claims.
- Government Funding: Sharp reductions in state funding for education initiatives in one key state have adversely impacted the Education Division's revenue and invoiced amounts.
- Macroeconomic Factors: Geopolitical tensions and reduced government spending continue to impact invoiced amounts, particularly in the North America segment.
Investor Verification Checklist
- Legal Exposure: Verify the status and potential financial impact of the $9.2 million lawsuit filed by the former landlord.
- Education Funding: Monitor legislative developments regarding the restoration of state education funding that was cut in Q3 2026.
- Restructuring Progress: Track the execution of the long-term restructuring plan and associated future cash outflows for severance.
- Deferred Revenue Quality: Assess the composition of the $96.0 million deferred revenue balance to ensure it aligns with future growth expectations.
- Share Buyback Impact: Evaluate the sustainability of the aggressive share repurchase program ($28.1M YTD) given the reduced cash balance and ongoing capital expenditure needs.