Franklin Covey Q4 2026 Earnings Call Transcript
Franklin Covey (NYSE:FC) reported fourth-quarter financial results on Wednesday. The transcript from the company’s fourth-quarter earnings call has been provided below.
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Summary
Franklin Covey’s fiscal 2026 revenue was $261.5 million, with adjusted EBITDA of $28.9 million, both within guidance ranges.
Enterprise North America saw a 4% increase in invoiced amounts to $151.4 million and a 17% rise in deferred revenue, laying a strong foundation for fiscal 2027 growth.
The company is investing in expanding its sales force, particularly in the ‘hunting’ team, as part of its go-to-market transformation to drive growth.
The Education division aims to return to growth, expecting contributions from delayed large deals in fiscal 2027.
Franklin Covey is transitioning its China operations to a licensee model, affecting revenue but expected to be EBITDA neutral.
Fiscal 2027 guidance projects revenue between $253 to $273 million and adjusted EBITDA between $29 to $34 million, anticipating growth across all segments.
Management emphasized the importance of the ‘human edge’ in the age of AI, which they believe strengthens their business durability.
Full Transcript
OPERATOR
You will then hear an automated message advising a hand is raised; to withdraw your question, please press star one one. Again, please be advised that today’s conference is being recorded. I would like to hand the conference over to your first speaker today, Boyd Roberts, Head of Investor Relations. Please go ahead.
Boyd Roberts (Head of Investor Relations)
Thank you. Good afternoon, everyone, and thank you for joining us today on Franklin Covey’s fourth quarter and fiscal year 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 regarding our fiscal 2027 guidance and other 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 related to macroeconomic and geopolitical conditions, the timing of client and government funding decisions, the transition of our China operations, the success of our go-to-market and product investments, 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. With that, I’d like to turn it over to Mr. Paul Walker, our Chief Executive Officer.
Paul Walker (Chief Executive Officer)
Thank you, Boyd. Good afternoon everyone, and thank you for joining us today. If I were to summarize fiscal 26 in one sentence, it would be this: the transformation investments we made have gained traction and are producing results, positioning us for growth in fiscal 27. For the full year, fiscal 26 revenue was 261.5 million, within the guidance we revised on our third quarter call, and adjusted EBITDA was 28.9 million, within our original guidance range.
In the fourth quarter, adjusted EBITDA grew 9% to $12.8 million. Those results matter, but the more important story for fiscal 27 is what’s happening beneath them. In Enterprise North America, our largest business and the main focus of our investment, fiscal 26 invoiced amounts grew 4% to 151.4 million and deferred revenue grew 17% to 59.2 million. That growth is already on our books, establishing a strong foundation for the revenue and adjusted EBITDA growth we expect in fiscal 27. I’d like to focus on three themes today, which you can see reflected on slide 3. The first theme is related to our business in Enterprise North America.
Enterprise North America has a resilient core. Our go-to-market transformation there is working, and we’re accelerating our investment to further build on the invoice growth we achieved last year. The second theme I’ll focus on is that our Education business is a proven platform, which has achieved significant growth over time, and we expect it to return to meaningful growth. And third, in the age of AI, the human edge matters more than ever, and that makes our business even more durable.
So, diving into these themes—first, the first theme: Enterprise North America and its resilient core and the success of our go-to-market transformation. Enterprise North America accounts for approximately 80% of our Enterprise division revenue and more than half of the total company revenue. It’s the engine we reorganized and invested in to accelerate growth, and we expect it to drive the majority of our revenue growth in fiscal 27. As shown on slide 4, the core of this business has been resilient, growing 30% since fiscal 21, or 5% compounded over the last few years.
It’s absorbed a pullback in federal government spending, the impact of our own go-to-market transformation, and a cooling in demand for unconscious bias training after the surge that followed 2020. Excluding our federal government and unconscious bias business, our core Enterprise North America business grew approximately 8% in fiscal 26. In addition, clients are committing for longer—60% of our contracted amounts in North America are now under multi-year agreements.
As we’ve discussed throughout the year, much of our invoice growth is recognized over time. We collect the cash as we invoice, but the full benefit shows up in reported revenue over the following quarters. That’s why the 4% invoice growth and 17% growth in deferred revenue in Enterprise North America that we built in fiscal 26 sets a strong foundation for fiscal 27. We expect growth in both revenue and adjusted EBITDA this year, with adjusted EBITDA growing faster than revenue as we benefit from the operating leverage in our model.
To build on that resilient core and accelerate growth in Enterprise North America, we invested in transforming our go-to-market model. Today we have dedicated hunters focused on winning new clients and a dedicated farming team focused on retaining and expanding existing relationships, supported by a central sales hub. These bets are working, which you can see reflected on slide 5. First, on the hunting side, compared with fiscal 24, the year before we launched the new model, invoice amounts per hunter have more than doubled.
Each hunter is winning more than 30% new clients, and invoiced amounts per new client are more than 50% higher than they were in the old model. This is driving our growth in invoiced amounts that will flow through reported revenue growth. Second, on the farming side, the invoiced amounts per farmer are also increasing. This has driven a significant increase in our invoiced amounts per retained client, which grew in the high single digits this last year as existing clients expanded their work with us.
This was partially offset by our client logo retention rate being a couple of points lower than we like. This is something that we’re putting extra focus on this year. These larger new client deals and growing client relationships reflect the strategic importance clients are placing on the outcomes we’re helping them achieve. Clients are bringing us in to help them with bigger challenges and engaging both our experts and our solutions and content. I’ll share just two brief stories from the fourth quarter that show what’s behind these numbers—one from our hunters and another from our farmers. First, on the hunting side, this is a story that’s exactly the kind of win our dedicated hunting team was built to deliver: a new client engaged at a strategic level, starting with a larger initial commitment.
This is a story of a global consumer packaged goods company who partnered with us to accelerate the adoption and execution of its strategy across its commercial operation as it expands its retail footprint. What began as a conversation about aligning field execution with growth objectives quickly became a multi-solution, multi-year enterprise partnership totaling $300,000, well above the size of a typical first engagement for us, and the relationship is already growing.
Following early momentum and rapid adoption, the client expanded the engagement within weeks of launch, adding a new phase focused on developing senior and mid-level leaders through our leadership solutions and executive coaching services that positions their leaders to execute against aggressive expansion targets, and it shows how the relationship our hunters win today becomes the expansion opportunities our farmers grow tomorrow. The second example is on the farming side. As a reminder, our farmers’ job is to retain clients and expand our impact within them, and this story is a great example of that. One of the world’s largest energy companies has grown a regional engagement with us into a global execution partnership that now spans 10 countries. The work began with operating teams in the Americas, where Franklin Covey helped leaders deliver against aggressive cost and growth targets.
When the executive who sponsored that work was promoted into a global leadership role, he brought Franklin Covey with him, recommending our Four Disciplines of Execution consulting and coaching to the company’s senior leadership as a system for delivering on a major company priority. The client’s success across that initial deployment is now leading to additional work—pilots across nine business units with the potential to reach tens of thousands of people at more than 200 sites worldwide.
This is what drives the high single-digit growth in invoice amounts per retained client that I mentioned. Clients who see results with our content, our experts, and our technology bring us into more of their organization. Our key bets are working, and in fiscal 27 we’ll enter phase two of our transformation to build upon the traction we’ve gained. As we continue to invest in these areas, we’re also restructuring other areas of the company to ensure that every dollar we spend is focused on the most important growth areas. In fiscal 27, we’re focused in the following areas as we build on the traction we’ve gained. First, hunters: we’re growing our hunting team by more than 20% this year and plan to keep adding each year.
We’re backing them with roughly 30% more sales development representatives and a 25% increase in marketing to scale the lead generation that worked in fiscal 26. Relative to our farmers, our farming team is already sized to support the growth our hunters are delivering, so we don’t need to add investments here. Instead, our farmers will be squarely focused on what they do best: retaining and expanding our client relationships. Building on the meaningful improvement in revenue retention we achieved in fiscal 26, we expect our existing clients to become an even stronger engine of growth at very attractive incremental margins.
The third area is our central sales hub. The hub we built as part of this transformation is operating as designed and requires almost no incremental investment. It will support both teams as they scale. And the fourth area is our solutions. We’ve meaningfully increased our investment in solution development over the past few years, and we plan to increase it again in fiscal 27, funded within our operating budget and now being led by our company-wide Chief Product Officer, Sean Covey.
Prior to successfully building and running our Education business, Sean led all of product development for the company, and we believe this transition will enable us to further bring clients the best content, technology, and AI services to address their mission-critical needs. Because the central hub is already in place and little incremental investment is needed on the farming side, more of each new dollar of revenue in fiscal 27 and beyond will flow through to profit.
That’s a key reason that we expect adjusted EBITDA to grow faster than revenue in fiscal 27. We’re also extending these same go-to-market disciplines to our business in the Enterprise division in Europe, Japan, and Australia, where we see a similar opportunity to accelerate growth. The second theme I’d like to talk about briefly is related to our Education business. Education is a proven platform which has achieved significant growth over time, and we expect it to return to meaningful invoice growth. Our Education division grew reported revenue 2% in fiscal 26 to 76.2 million, driven by subscription growth and more coaching and consulting days delivered. School retention improved to its highest level since 2022, and Leader in Me now serves more than 8,000 schools worldwide.
Over the last several years, we’ve won a number of larger district and statewide commitments in addition to individual schools. That’s been very good for the business overall. However, it can shift timing from one year to the next because district and state funding decisions don’t follow our fiscal calendar. Slide 6 shows how the division has grown over time and separates the core individual school and district sales from very large district and state contracts.
This year, a few of those large deals, including the statewide commitment I mentioned on our third quarter call, did not land in fiscal 26, and that’s the primary reason Education invoice amounts declined. However, these opportunities remain in our pipeline, and we expect them to contribute in fiscal 27. We see no change in underlying demand or in the results schools achieve with Leader in Me. Our focus here is on sharpening sales execution, reaching new schools and districts, increasing renewals, and adapting the disciplines working in Enterprise North America to educators’ buying cycles.
To lead this work and build on the tremendous Education division foundation Sean Covey built, we welcome John Buchanan as Executive Vice President of Education. John joins us from GoGuardian, a leading education technology company where he led sales and marketing teams that reached more than 50% of U.S. K–12 schools. I’m really pleased with John’s early progress. With John’s leadership and the market demand for outcomes Leader in Me produces, a strong subscription base, and a solid pipeline of opportunities, we expect Education to return to invoice growth in fiscal 27.
The third theme: in the age of AI, the human edge matters more than ever, and that makes our business even more durable. You can see this reflected on slide 7. We believe the opportunity ahead of us is both large and very durable. AI is making information, analysis, and tools more accessible than ever, but it doesn’t solve one of the hardest problems in business: turning strategy into collective action across an organization. Every organization has pockets of great performance and significant variability everywhere else.
One of the biggest opportunities for breakthrough performance for an organization lies in moving the entire performance distribution curve righter and tighter toward the results that the best teams are already achieving. Technology can help identify those pockets of great performance and help to analyze what makes them work. However, it still requires people throughout an organization to change their collective behavior to turn that answer into a result.
An organization can have the right strategy, the right technology, and even the right answer and still fall short if its leaders can’t align people, build trust, change habits, and execute consistently. As technology becomes more widely available, that ability becomes an even greater differentiator. That’s what we mean by the human edge, and our entire focus is on helping organizations build it. We see the value clients place in our solutions and how they work with us.
A majority are committing for multiple years. In Enterprise North America, 59% of contracts, representing 60% of contract value, are now for multi-year periods. And these clients are not only entering into licenses to use our tools, assessments, and content, but a majority are also engaging our experts to help them ensure their objectives are met. Our value is in the combination of proven frameworks, trusted content, experienced consultants and coaches, and technology—and clients don’t make those kinds of multi-year commitments for something peripheral.
They make them when the outcome really does matter. We’re also building AI into our own solutions, and it will be a powerful part of how we help clients achieve their outcomes. And we have substantial room to grow by expanding our work within the many clients we serve today and by capturing new clients within the large markets in which we’re focused. I’ll close by returning to the central point. Fiscal 26 was a year in which we continued to build a stronger company and in which we saw clear evidence that our investments are producing the results we intended. We have a resilient core, a more productive growth engine, an Education business positioned to grow, and rising demand for the human edge we help clients build. We’re entering fiscal 27 building on the measurable progress we achieved on our key investment initiatives.
The size, duration, and importance of client relationships are expanding. Our business model is strong, and we expect to see our progress translate into growth in reported revenue, adjusted EBITDA, and cash flow. I’m deeply grateful to our clients for their trust and to our associates around the world for their brilliance, hard work, and commitment. With that, I’d like to turn over to Jesse to walk through our fourth quarter and full-year results and share our outlook for fiscal 27.
Jesse, over to you.
Boyd Roberts (Head of Investor Relations)
Thanks, Jesse. Great job taking us through all that. And with that, we’ll now ask the operator to open the line to your questions.
OPERATOR
Thank you. At this time, we’ll conduct the question-and-answer session. As a reminder, to ask a question you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Alex Paris of Barrington Research. The line is now open.
Alex Paris (Analyst at Barrington Research)
Hi, guys. Thanks for taking my question tonight. A couple of cats and dogs to start with. China number one, what was revenue and adjusted EBITDA for the full year in fiscal 2026?
Jesse (Chief Financial Officer)
In fiscal ’26, it was about 2% of our total revenue. And because of the transition that we’re doing, we’re expecting that by the end of Q2. That’s why we were adjusting about half a year. We adjusted the second half of fiscal year ’26 in the guidance that we provided. So it was about a $2 million adjustment to revenue and neutral on EBITDA. Because it’s not just the China revenue that comes out, but there’s also the impact with regards to the licensee royalties, too.
Alex Paris (Analyst at Barrington Research)
So in 2026, did China produce positive adjusted EBITDA or was it an adjusted EBITDA loss in 2026?
Jesse (Chief Financial Officer)
It was positive adjusted EBITDA. That’s why the $2 million takes into—normally, what we were neutralizing was the revenue impact as well as the EBITDA that’s coming from that, too, because when we convert it to a license, you would receive that EBITDA as a royalty. Fifteen percent of that will come back as a royalty. So that’s why we’re saying it’s EBITDA neutral.
Alex Paris (Analyst at Barrington Research)
Gotcha. So that was my next question. Royalty is 15%. That’s what I thought. And then just remind me, where do royalties come into the P&L? At revenue?
Jesse (Chief Financial Officer)
Yeah, it comes in at revenue and it flows through to adjusted EBITDA.
Alex Paris (Analyst at Barrington Research)
Okay, thank you. And then, regarding the full-year guidance, and just to make sure I got the sequence or the cadence of it, you said 45% to 50% of the full-year revenue will be in the first half, 30% to 35% of EBITDA will be in the first half. Okay. And then—revenue in—Q, sorry—
Jesse (Chief Financial Officer)
That’s right. Similar to historical. That was the same similar guidance that we provided this year and that we had this year in actual. And then relative to the first half, we said expect the revenue to be roughly split equally between the two quarters, and then the adjusted EBITDA will slightly increase. So second quarter will be a little bit higher. It’ll increase throughout the year because of the impact of some of the restructuring that’s happened as it compounds as you go through the year.
Alex Paris (Analyst at Barrington Research)
Okay, that’s great. And then I think you touched on this really quickly, but that’s a big difference. In full-year revenue guidance, it could be at 1%. In constant currency, it could be up 5%. And you mentioned something about risks on the low end. What would get you to the high end? What would put you at the low end of that guidance in terms of underlying assumptions?
Jesse (Chief Financial Officer)
Yeah, so, I mean, on the low end, when we looked at what happened this year, for example, there were a couple of timing things that happened. So, you know, the timing of delivery and schedule days, especially with regards to Q4 and what happens in Q4 with education—that’s one. We are assuming some of the things that happened this year are pushed to this year. But in the event some of those large state deals, for example, if something were to happen, we’re trying to be able to understand what happened to us this year.
We don’t want to be in a situation that happened to us this year, and we want to be able to think about what this risk can be on the low end. On the high end, it’s continuing the progression that we’re seeing, especially in North America. If the invoiced amounts continue to grow at the levels that we’re expecting all through the year, and especially if things happen maybe a little bit earlier in the year—first half—that can translate then into net revenue, because you get a higher amount of that conversion in-year. That can lead towards a higher amount on the high end.
Alex Paris (Analyst at Barrington Research)
Great, that’s helpful. I appreciate that color. And then one more cat and dog: you’re going to add to the hunting team by about 20% this year. On what basis? I think the last time I asked the question you had somewhere in the neighborhood of 44 hunters.
Paul Walker (Chief Executive Officer)
Yeah, that’s right. And that number fluctuates a little bit. It came down just slightly in the year, as you recall. So the base is close to that, Alex, and we’ll add about 20% onto that number this year, is the short answer there. You’ll recall that was a new team we started up as part of our transition and we hired most of those people from the outside. And we’ve been really pleased with the way that they’ve ramped—you can see that in some of the percentage increases we shared on the call.
And so we’ll grow 20% this year on roughly the same size base.
Alex Paris (Analyst at Barrington Research)
Gotcha. And then no planned addition to the farming group, which is around 65%?
Paul Walker (Chief Executive Officer)
That’s right. We don’t need to on that side. As you may recall on a previous call, we talked about when we went through the transition, farming is where we had some of our best instincts and some really good talent there. And we intentionally didn’t cut as deep there in some of the transitions so that we could prepare for the new logos that would come over. And so we built ahead. We had capacity ahead of what we needed, and we’ll continue to grow into that.
Alex Paris (Analyst at Barrington Research)
And then you refer to business developers. Is that what we used to call implementation strategists, or is that a different group of people?
Paul Walker (Chief Executive Officer)
Great question. Slightly different group of people. So we still have implementation strategists. Business developers are, as the name would imply—in some organizations they’ll call them SDRs, sales development representatives—but it’s the team of people who are qualifying leads, setting appointments for salespeople. They do a lot of outbound cold prospecting. They’re filling our marketing events. This is a growing team meant to improve the time-on-task for our hunters to be in more selling and closing situations, not only in prospecting situations.
Alex Paris (Analyst at Barrington Research)
Gotcha. And then lastly, do you plan to add to—or how many business development, or SDRs, do you have, roughly?
Paul Walker (Chief Executive Officer)
Twenty. Going to twenty-eight. Somewhere in that neighborhood. Holly Procter’s on too—she can check me if that’s not right, but I think that’s about right.
Holly Procter (President)
That’s accurate.
Alex Paris (Analyst at Barrington Research)
Excellent. Thank you. And then I guess the last question—I’ll let somebody else have a chance. Long-term targets, you’ve teased about giving those out again. Do you have any plans to update long-term targets?
Paul Walker (Chief Executive Officer)
I don’t think Jesse’s here on that one, Alex.
Jesse (Chief Financial Officer)
So, as I mentioned, we’re not providing that right now, but obviously wanted to indicate that the momentum for ’26, especially in North America, we’re seeing that translate into 2027 in terms of the revenue there. And we expect ’28 to continue to grow. I mean, we do expect that in the longer term we’ll be able to get to higher growth rates, and each year our revenue should be growing progressively more. And with adjusted EBITDA, we are expecting that we will have that margin improvement and operating leverage continue each year.
Alex Paris (Analyst at Barrington Research)
Okay, so said another way, you’ve given us revenue growth targets for fiscal 2027. You’re saying in 2028 revenues would continue to grow but at an increasing rate—so maybe some acceleration in revenue growth—and continued adjusted EBITDA margin expansion. Great. All right, thank you very much. I’ll get back in the queue.
Paul Walker (Chief Executive Officer)
Thanks, Alex.
OPERATOR
Thank you. One moment for our next question. Our next question comes from the line of Neha Jakshi of Northern Capital Markets. Your line is now open.
Paul Walker (Chief Executive Officer)
Hi, Neha. Thank you.
Neha Jakshi (Analyst at Northern Capital Markets)
Great to see the evidence that the hunter transition is working with the double in productivity—that’s awesome. Help frame, though, how North America invoiced was flat year over year for the August quarter. Why was that?
Jesse (Chief Financial Officer)
Yeah, so a couple of things. One I want to highlight: we were focused on the full year in terms of the invoiced amounts growing. If you recall, in Q1 we had a very large contract that was committed up front. It was part of the contractually committed services where we disclosed $5.6 million. A large portion of that $5.6 was that one contract. And by the way, that is going to be comparable from Q1 of fiscal year ’26 going into Q1 of fiscal year ’27.
So I do want people to make sure that you keep that in mind, because we are expecting North America invoiced amounts will decline because of the positive impact that we had in Q1 in ’26. Because of that, we had the growth in Q1—the very high growth in Q1—that sustained in Q2. We were not necessarily expecting to have the same levels of high growth every single quarter; we were trying to target what we were going to expect for the full year. So that’s one thing to keep in mind. The core business actually did increase about 1%. There are some allocations of royalties that get put in there that kind of made it more neutral and flat.
But I think what you really want to focus on is the deferred revenue. What we built in deferred revenue for North America was 17%. And if you look at that number, we have not had growth at that level—the last time in 2022 was around 10%. So we have not had very high double-digit growth rates of deferred revenue for North America in many years. We’re really excited about the momentum that we’re seeing and expect that to continue and to grow in this year.
But keep in mind Q1 will be down, but we expect then after Q1 to have growth.
Paul Walker (Chief Executive Officer)
Just a point on Q1 as well. At the high level, it’ll be down if you isolate that one contract, and you look at all the underlying metrics of the productivity per hunter—so everybody else is growing—apart from that one large deal, we would have had again good invoiced growth in Q1. And those same metrics that we just reported out on, the productivity per hunter and revenue per client, those are all intact as we move into Q1, apart from just the seasonality timing of this one big deal.
Neha Jakshi (Analyst at Northern Capital Markets)
Okay, got it. And then you also said that you do expect North American invoiced amounts to grow for full-year fiscal year ’27. Just want to verify: does that include subscription invoiced growing also for fiscal year ’27? Okay, great. And in order for fiscal year ’28 revenue to accelerate, that would imply that you would expect invoiced amounts overall to do better than the 4% for the full year. Is that correct as well?
Paul Walker (Chief Executive Officer)
Yes, yes. Both for North America and then for the broader company to have accelerated reported growth in ’28 as well. Areas like Education would also return to invoiced growth this year and set up then the reported growth in ’28.
Neha Jakshi (Analyst at Northern Capital Markets)
Got it. Okay. And then, Jesse, you said that you expect fiscal year ’27 free cash flow performance—but the last item that you had said cut off. Could you just repeat what you were saying about fiscal year ’27 free cash flow performance?
Jesse (Chief Financial Officer)
Yeah, we’re expecting the free cash flow conversion to improve compared to this year, and that’s going to be driven by the operating cash flows. Our CapEx and CAPD investments are going to be, in total, roughly similar to this year—so maybe a slight increase. But in terms of overall free cash flow conversion, we expect that to improve.
Neha Jakshi (Analyst at Northern Capital Markets)
Okay, great. And then Paul, last thing for me, as in your prepared remarks, I think you mentioned that retention was lower than desired. Did I hear that correct? And if so, why is that?
Paul Walker (Chief Executive Officer)
So the point there, revenue retention improved meaningfully in 26 over where it was in 25. The point in the remarks there was simply as we saw revenue per hunter grow meaningfully and revenue per farmer and revenue per customer, new logo and revenue per existing client also grow meaningfully in 26 over what we’d experienced in our previous selling model, there was a slight offset in the logo retention. So you’ll recall that that logo retention has been relatively consistent.
It is still relatively consistent. It was a couple of percentage points below where it had been in the previous year. And that was what I was calling out there. We don’t see any trend. We actually expect that that will improve this coming year in fiscal 27. Just a couple of deals that we didn’t renew this year that would have renewed in previous years.
Neha Jakshi (Analyst at Northern Capital Markets)
Got it. That’s great. All right, thank you.
Paul Walker (Chief Executive Officer)
Thanks, Nehal.
OPERATOR
Thank you. One moment for our next question. Our next question comes from the line of Dave Storms of Stonegate. Your line is now open.
Dave Storms (Analyst at Stonegate)
Hi, Dave. Good evening. And hey, Paul. Good evening, Paul and Jesse. Thanks for taking my questions. Paul, maybe just wanted to stick with that logo retention. It sounded like also in your prepared remarks that you had some initiatives in place maybe to get that back to where you wanted it. Is there any comments you have on what those might look like and how that might manifest?
Paul Walker (Chief Executive Officer)
Yeah, absolutely. In fact, Holly, do you want to take that as you and the team are focused on customer and revenue retention?
Holly Procter (President)
Yeah, happy to. Hi, Dave. Thanks for the question. There’s a couple things we’re doing to focus on both revenue retention and logo retention. I’ll start with the sales structure side. So, as Paul referenced, we talked quite a bit about our investment in sales hiring, but there’s a bunch of support roles that also help engage our customers. For example, we have a customer success team and many others that are attached to the customer lifecycle to ensure that we have the highest possible renewal rates and they’re set up for success in those engagements.
So we’ve tightened those ratios as a key way to invest in that relationship and ensure that they get the impact that they’re realizing. The second is on the solution side, which is what are the things that a customer might migrate to, other new solutions that they’re interested in. And one of the trends that we’re seeing that we’ll double down on this year is you’re seeing a lot of customers, naturally, that have large AI adoption programs and they’re looking to partner with us in their AI adoption and rollouts. And so we’re seeing customers who might have been traditional leadership development clients transition and maintain their leadership development work, but also move into AI adoption related efforts.
And so we’re hoping to see an increase in retention based on that large trend.
Paul Walker (Chief Executive Officer)
Thank you, Holly, and Dave, maybe just since this came up with both you and Nahal, just one other point. We enjoy relatively consistent and steady client retention rates. And it’s not uncommon that on occasion a client will have had a very successful engagement with us, the NPS will be very high, the results will have been exactly what they hoped to achieve, if not greater than, and the next initiative isn’t fully lined up yet to start. And so we have a category of clients that we call win back that are just in that exact situation where they’re not really gone.
There’s a lapse there or a lull, and sometimes that can go for a quarter or two and then we win that client back. And so that’s certainly always on the forefront of our mind as well. And I suspect a number—again, there weren’t that many in this category—but I suspect we’ll win our share back too.
Dave Storms (Analyst at Stonegate)
Understood. That’s great color. I appreciate that on the AI adoption, Holly, that you mentioned there and how clients have those programs. And maybe on the theme of the human edge mattering, for the clients that you’re working with this on, does their budget or you get wrapped up with things like their token spend? And I guess what I’m trying to ask there is, are your services competing with other ancillary AI spend that they might have, or do they tend to view this as a separate spend category—that if they’re bringing AI into the fold, they’re also going to be bringing you into the fold because of the value that you bring?
Holly Procter (President)
Yeah, there’s a couple comments to talk through around that, Dave. So one is just who the buyer is. So the other thing that’s been unlocked with this solution is traditionally if we’re working with, let’s say, heads of HR or business unit leaders, it is not typical for us to partner with chief technology officers or CIOs. And that has been a net new buyer that’s been introduced and is engaged in many of these deals because they’re both owning not just the purchasing of the technology, but also the successful rollout of that technology.
So that’s been an incremental net new buyer for us to engage with. And they do, as you said, have a budget dedicated to technology, but a portion of that budget is dedicated to the adoption of the technology. And the reason why it’s viewed separately is because it’s generally seen as more of a wide one-time or point-in-time spend, not recurring, as they’re budgeting for token spend that is recurring in nature and increasing. And so we’ve been able to price these engagements in partnership with the CIO and think about what might be a two- or three-year adoption plan for their large org that isn’t potentially tied to token spend.
Dave Storms (Analyst at Stonegate)
That’s great commentary, I appreciate that. Maybe just one more, switching to some of the conversation around the new hunters with this new cohort. Just trying to think through how, you know, it’s taking a couple quarters to get these new hunters ramped. Should we expect that to truncate? I gotta imagine there’s a bit of a J-curve when you bring on, you know, 20% more headcount. Just any thoughts there?
Holly Procter (President)
Yeah, a couple comments on ramp time. So as you mentioned, this is a critical component of the plan. Beating ramp time really accelerates our growth in the year. There’s a couple things we’re doing on ramp. So the first to call out is, as Paul referenced, the sales development or SDR reps. This is an investment not just in our lead gen, but also in our talent pipeline. And so that population of business developers is a group that we’ve seen promoted into hunter roles, and so that certainly accelerates ramp time and we’re looking forward to more and more of that internal promotability.
The second is, in previous calls we’ve referenced an investment we’re making in healthcare, and healthcare is a team that we’re building out this year. We’ve hired several people that are from industry that have great experience in healthcare. And so while they’re ramping to Franklin Covey, they are deep experts in the industry that they serve, and so we also expect that ramp time to accelerate. And then lastly, part of our hub resources have been deep sales enablement expertise—how we train not just on Franklin Covey’s content and Franklin Covey’s solutions, but on our sales methodology. And so we’re making a bunch of investments there this year as well and look forward to ramping our sellers quicker than we did in prior years.
Dave Storms (Analyst at Stonegate)
Understood. Thank you for taking my questions and good luck in the next quarter.
Paul Walker (Chief Executive Officer)
Thanks, Dave.
OPERATOR
Thank you. One moment for our next question. Our next question comes from the line of Jeff Martin of Roth Capital Partners. Your line is now open.
Jeff Martin (Analyst at Roth Capital Partners)
Thanks. Good afternoon everyone. Hey Paul, wanted to pick your brain about the client environment out there. Do you feel that the sales cycles are normal at this point? Are they still elongated? Are you seeing hesitation? You know, are people still expressing macro uncertainty concerns? Do you think, you know, now that we’re post midterm elections that things could pick up? Just curious, kind of your pulse on the general market environment for Franklin Covey services.
Paul Walker (Chief Executive Officer)
I’ll give a general comment and then may ask Holly to double-click on it with her specific experience. But I would say as we think about this over time, the external environment we have seen for the last few quarters now is relatively stable, particularly in North America—maybe not quite to the same degree internationally. In some of the regions around the world, there’s maybe a little more unevenness out there for various reasons. But in North America, our core markets for both education and enterprise, which make up the vast, vast majority of our revenues, it’s been pretty consistent now and stable for a while.
I don’t know exactly what last night’s elections will mean. We’ll see how that plays out in the coming days, but generally we’re not seeing that as headwind. And I think stability actually is a little bit of a potential tailwind for us. I believe it doesn’t have to be an amazing environment, but a stable environment is actually a good thing. So, Holly, I don’t know if you would add anything to that.
Holly Procter (President)
Yeah, I agree with Paul’s comments on stability. I’ll just add a couple more points. So, one, I just want to remind you of the large addressable market that we serve. There’s almost no industry that we don’t partner with today. And so while there might be peaks in one industry and troughs in another, we have really great diversity across the industries we serve in a really large market. The second, as we referenced to the AI solutions earlier, it is, you know, obviously a massive wave. And there’s not a leader out there right now that’s not struggling with how to figure out how to get the most out of their AI investments. And so while there might be other market conditions that are challenging, that is, you know, such a large wave for us. And so we’re really invested there and seeing a lot of progress.
And then last is one of the other market trends that’s been interesting is to watch the shift of some of our services market from potentially delivered online to delivered in person. And the spirit of that is that leaders are really feeling pulled to unite their teams, especially during all this disruption, and bring them together to focus on the vision they’re trying to accomplish. So it’s been interesting to watch that shift and that’s been another great opportunity for us to invest and build more meaningful relationships with clients in person.
Jeff Martin (Analyst at Roth Capital Partners)
Thank you. And I appreciate the reminder on the first quarter. Difficult comparison, or, you know, just was curious if there are other items that are worth pointing out for other quarters in fiscal 27 that would be challenging or beneficial to the year-over-year comparisons.
Paul Walker (Chief Executive Officer)
No, no, just Q1. Just Q1.
Jeff Martin (Analyst at Roth Capital Partners)
Got it. All right. Thank you very much.
Paul Walker (Chief Executive Officer)
Thank you, Jeff.
OPERATOR
Thank you. I’m showing no further questions at this time. I’ll now turn it back to Paul for closing remarks.
Paul Walker (Chief Executive Officer)
Wonderful. Thank you again everybody for joining today and we hope you have a great evening and thanks so much for your questions.
OPERATOR
Thank you for your participation in today’s conference. It does conclude the program. You may now disconnect.
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