Franklin Covey Sees FY2027 Growth as Q4 Profitability Improves

Franklin Covey Co. (NYSE: FC) projected modest revenue growth and potentially stronger earnings expansion for fiscal 2027 after lower sales but improved profitability in its fiscal fourth quarter. The company expects its Enterprise North America business to generate most of the coming year’s reported revenue growth as it increases investment in a revamped sales model.

For fiscal 2027, Franklin Covey forecast constant-currency revenue of $263 million to $273 million, representing growth of 0.6% to 4.4% from fiscal 2026. Adjusted EBITDA is expected to range from $29 million to $34 million, equivalent to growth of 0.4% to 17.7%, with an adjusted EBITDA margin of 11.0% to 12.5%.

The guidance incorporates a planned transition of the company’s China operation from a direct office to a licensee by the end of the second quarter. Excluding an estimated $2 million second-half revenue impact from that transition, comparable revenue growth is projected at 1.4% to 5.2%. Franklin Covey does not expect the change to have a material effect on adjusted EBITDA.

Fourth-quarter profitability rises as revenue declines

Fiscal fourth-quarter revenue fell 1.8% to $70 million from $71.2 million a year earlier. Gross profit declined 2.8% to $52.3 million, while gross margin narrowed by 75 basis points to 74.7%.

Lower operating selling, general and administrative expenses helped offset the revenue decline. Operating SG&A decreased 6.1% to $39.5 million, reducing that expense to 56.5% of revenue from 59.1% a year earlier. Adjusted EBITDA increased 9% to $12.8 million, and the adjusted EBITDA margin expanded to 18.3% from 16.4%. GAAP net income rose to $7.1 million from $4.4 million.

For the full fiscal year, revenue decreased 2.1% to $261.5 million. Adjusted EBITDA was nearly unchanged at $28.9 million, compared with $28.8 million in fiscal 2025, while GAAP net income increased to $4.9 million from $3.1 million. Free cash flow declined to $9.2 million from $12.1 million as net cash from operating activities fell to $21.6 million from $29 million.

Fiscal 2026 revenue and adjusted EBITDA remained within the company’s guidance ranges. On a constant-currency basis, revenue was $260.4 million and adjusted EBITDA was $28.6 million.

The deferred revenue balance ended the year at $116.1 million, up 4% from $111.7 million. Unbilled deferred revenue, which represents future billings under non-cancellable subscription agreements that have not yet been invoiced, declined 7.6% to $67.3 million.

Enterprise North America positioned as fiscal 2027 growth driver

Enterprise Division revenue declined 0.4% to $45.5 million in the fourth quarter and 2.9% to $182.7 million for the year. Full-year adjusted EBITDA increased 2.8% to $33.4 million as lower operating SG&A offset weaker revenue and gross profit.

Within the division, North America generated fourth-quarter revenue of $35.8 million, compared with $35.9 million a year earlier. Full-year revenue fell to $142.6 million from $147.6 million, although invoiced amounts increased to $151.4 million from $144.9 million. Billed deferred revenue rose to $59.2 million from $50.4 million, while unbilled deferred revenue decreased to $63.1 million from $67.6 million.

Management said the core Enterprise North America business, excluding federal government activity and the earlier surge in unconscious-bias programs, represents more than 90% of the segment and grew 8% in fiscal 2026. The company expects North America to provide most of its reported revenue growth in fiscal 2027.

Franklin Covey attributed its plans to expand the sales organization to productivity gains under its new go-to-market structure. According to the presentation, invoiced revenue per new-business salesperson has more than doubled from the fiscal 2024 model, with each salesperson winning more than 30% more new clients and revenue per new client increasing by more than 50%. Revenue per retained client grew at a high-single-digit rate.

In fiscal 2027, the company plans to expand its new-business sales team by more than 20%, increase business-development staffing by about 30% and raise marketing investment by approximately 25%. Management said the centralized sales infrastructure is already operating and should not require proportional cost growth as the sales teams expand.

International Enterprise revenue was $9.7 million in the fourth quarter, compared with $9.8 million a year earlier, and declined to $40.1 million from $40.5 million for the full year.

Education revenue grows for the year despite weaker invoicing

Education Division fourth-quarter revenue decreased 3.5% to $23.6 million, while invoiced amounts fell 5.2% to $42.6 million. Adjusted EBITDA rose 11% to $6.9 million as operating SG&A declined and gross margin expanded to 66.6% from 64.5%.

For fiscal 2026, Education revenue increased 2.1% to $76.2 million, but invoiced amounts declined 9.8% to $72.8 million. Adjusted EBITDA decreased 2% to $8 million. The division’s billed deferred revenue balance ended the period at $51.2 million, down from $54.6 million.

The company said its core K-12 business accounts for roughly 80% to 90% of K-12 invoiced amounts, while large district and state contracts have historically represented 9% to 22%. Management expects Education to return to meaningful invoiced growth, though the presentation did not provide a separate divisional forecast.

Franklin Covey expects fiscal 2027 capital expenditures of $4 million to $6 million and capitalized curriculum spending, excluding acquired content, of $8.5 million to $10.5 million. Its current estimate for the fiscal 2027 effective tax rate is approximately 30%.

The outlook remains subject to subscription acceptance and renewal rates, client training budgets, economic conditions, competition, demand for new offerings and the company’s ability to recruit productive sales and client-facing employees. Results may also be affected by changes in federal government activity, the timing and size of Education contracts, foreign-exchange movements and execution of the planned China transition.