FRANKLIN COVEY CO
For the period ended May 31, 2025. Filed Jul 8, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
May 31, 2025 · Filed Jul 8, 2025
FC$16.15-0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-02-28; filed 2025-04-08.
0000886206-25-000036
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2025-05-31; filed 2025-07-08.
0000886206-25-000048
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 118 previous paragraphs and 119 current paragraphs.
55 unchanged; 49 reworded; 14 added; 12 removed; 2 previous and 1 current paragraphs rearranged.
Tables are not compared: 8 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (14)
Current report
During the quarter ended May 31, 2025, our operations were heavily impacted by various macroeconomic factors, including specific actions to reduce U.S. federal government spending, threatened or enacted tariffs that have created significant business environment uncertainty, and ongoing geopolitical tensions which continue to produce instability in certain areas of the world. While threatened or enacted tariffs have not directly impacted our operations, the uncertainty created by the threatened tariffs have adversely impacted our clients both domestically and internationally. In response to the economic uncertainty, many of our clients and prospective clients have sought to reduce their spending to maintain profitability. Despite these macroeconomic issues, we are pleased that the majority of our clients are renewing their All Access Pass subscriptions and Leader in Me memberships. Our solutions are designed to help clients achieve their own great purposes and manage difficult and uncertain times. The Company’s recently implemented new go-to-market strategy entered its second quarter of operations and these initiatives are designed to enable us to systematically drive growth in both the breadth and depth of our client relationships at scale.
Current report
Our consolidated revenue for the third quarter ended May 31, 2025, was $67.1 million, compared with $73.4 million in the third quarter of fiscal 2024 and reflected the impact of conditions previously described. Foreign exchange rates did not have a material impact on our consolidated revenue during the third quarter. The Company’s revenue performance during the third quarter of fiscal 2025 included the following key metrics:
Current report
o Education Division revenues in the third quarter of fiscal 2025 were $18.6 million compared with $20.2 million in the prior year. The decrease was primarily due to reduced classroom materials sales. In the third quarter of fiscal 2024, we entered into a new state-wide initiative and other new district-wide initiatives that included large materials orders during the first year of the contracts. Materials orders from these contracts did not repeat at the same level in fiscal 2025. However, decreased materials revenue was partially offset by increased training and coaching revenue and membership subscription revenues. Delivery of training and coaching days remained strong in the third quarter of fiscal 2025 and benefited from higher revenue per day than in same period of the prior year. Education deferred subscription revenue at May 31, 2025, increased 21% over the balance at May 31, 2024.
Current report
o Consolidated deferred subscription revenue on May 31, 2025, increased 7% to $89.3 million compared with $83.8 million on May 31, 2024.
Current report
Gross Profit. Despite consistent revenue performance when compared with the prior year, gross profit for the quarter ended May 31, 2025 decreased compared to fiscal 2024 primarily due to changes in the mix of services and products sold.
Current report
These changes in product mix reduced International Licensee gross margin from 89.7% in fiscal 2024 to 87.6% in the current year.
Current report
SG&A Expenses. International licensee SG&A expenses decreased $0.1 million primarily due to cost-cutting initiatives implemented during fiscal 2025.
Current report
Revenue. For the third quarter of fiscal 2025, Education Division revenue was $18.6 million compared with $20.2 million in the third quarter of fiscal 2024. The decrease in Education Division revenue during the quarter was primarily due to a $2.2 million decrease in training materials revenue, which was partially offset by increased coaching and consulting revenue and increased membership subscription revenues resulting primarily from new schools which started The Leader in Me during fiscal 2024. During the third quarter of fiscal 2024 a new state-wide initiative began that included $1.4 million of classroom materials sales and we also recognized significant materials sales from other new district-wide initiatives. These contracts included large materials orders in the first year and did not repeat at the same level in fiscal 2025. The delivery of training and coaching services remained strong during the third quarter of fiscal 2025 and benefited from higher revenue per day than the prior year. Training and coaching days are recognized as revenue when they are delivered. Education subscription and subscription services revenues in the third quarter of fiscal 2025 decreased 2% compared with the same period of the prior year due to decreased materials revenue. Foreign exchange rates had an immaterial impact on Education Division revenue and operating results for the third quarter of fiscal 2025.
Current report
SG&A Expenses. Education SG&A expenses were relatively flat compared with the prior year and increased slightly due to the impact of new personnel, recognition of previously deferred commissions, and increased salaries compared with the prior year. These increases were mostly offset by decreased variable pay and marketing expenses.
Current report
Our income tax benefit for the quarter ended May 31, 2025, was $0.7 million on a pre-tax loss of $(2.1) million, for an effective benefit rate of 33.8%. In the third quarter of the prior year, our income tax provision was $2.6 million on pre-tax income of $8.4 million, reflecting an effective income tax rate of 31.6%. The slightly higher benefit rate in the current quarter is primarily attributable to our expectation that withholding taxes on foreign-source income will remain consistent year-over-year, while pre-tax income is expected to be lower, thus increasing the impact on our effective rate.
Current report
Three Quarters Ended May 31, 2025 Compared with the Three Quarters Ended May 31, 2024
Current report
SG&A Expense. International Licensee SG&A expenses for the first three quarters of fiscal 2025 decreased primarily due to cost cutting efforts implemented during fiscal 2025 in response to decreased revenue.
Current report
For the first three quarters of fiscal 2025, we recognized an income tax benefit of $0.6 million on a pre-tax loss of $(1.9) million, resulting in an effective tax benefit rate of 30.9%. For the corresponding period of the prior year, we recognized income tax expense of $3.6 million on pre-tax income of $15.1 million for an effective tax rate of 24.0%.
Current report
The year-to-date effective tax rate reflects the impact of permanent differences, including non-deductible expenses and foreign withholding taxes not eligible for U.S. foreign tax credits. We currently expect our annual effective tax rate for fiscal 2025 to be approximately 39%, which exceeds the combined U.S. federal and average state statutory rate, primarily due to non-deductible executive compensation under Internal Revenue Code Section 162(m).
Removed paragraphs (12)
Previous report
Our consolidated revenue for the quarter ended February 28, 2025, was $59.6 million, or $60.1 million in constant currency, compared with $61.3 million in the second quarter of fiscal 2024. While the performance of the majority of our operations met expectations for the quarter, our International Direct Offices segment revenues were $1.0 million lower than anticipated, $0.5 million of government services in the U.S. were canceled, and foreign exchange rates had a $0.5 million adverse impact on our consolidated revenues. North America and International Direct Office revenues were both adversely impacted by macroeconomic conditions including cancelation or postponement of government contracts, significant geopolitical trade tensions, and business environment uncertainty. Growth in our Education Division during the quarter partially offset these decreases in the Enterprise Division. Revenue performance during the second quarter of fiscal 2025 included the following key metrics:
Previous report
o Enterprise Division revenues for the second quarter of fiscal 2025 totaled $43.6 million compared with $45.6 million in the prior year. Enterprise Division were primarily impacted by a $1.1 million decrease in
Previous report
o Education Division revenues in the second quarter of fiscal 2025 increased 3% to $15.1 million compared with $14.7 million in the prior year. The growth was primarily due increased training and coaching revenue, membership subscription revenues, and classroom materials sales. Delivery of training and coaching days remained strong in the second quarter of fiscal 2025, as the Education Division delivered approximately 70 more training and coaching days than the second quarter of fiscal 2024.
Previous report
Gross Profit. Gross profit increased primarily due to increased licensee revenues as previously described. International licensee gross margin remained strong and increased primarily due to product mix, which included more royalty revenue than in the prior year.
Previous report
SG&A Expenses. International licensee SG&A expenses were consistent with the prior year at $1.0 million in each period.
Previous report
SG&A Expenses. Education SG&A expenses increased primarily due to increased commissions on higher revenue, new personnel, and allocation of increased shared services costs compared with the same period of fiscal 2024.
Previous report
Depreciation –Depreciation expense for the quarter ended February 28, 2025, was $1.0 million, compared with $0.9 million in the second quarter of the prior year. The increase was primarily due to new capital assets added in late fiscal 2024 and the first half of fiscal 2025.
Previous report
Our income tax benefit for the quarter ended February 28, 2025, was $0.3 million on a pre-tax loss of $(1.3) million, for an effective benefit rate of 20.2%. In the second quarter of the prior year, our income tax provision was $0.5 million on pre-tax income of $1.4 million, which produced an effective income tax rate of 38.2% for that quarter. The effective tax rate for the second quarter of fiscal 2025 was lower than the effective rate for the second quarter of the prior year primarily due to foreign losses and the impact of stock-based compensation.
Previous report
Two Quarters Ended February 28, 2025 Compared with the Two Quarters Ended February 29, 2024
Previous report
SG&A Expense. International licensee SG&A expenses for the first half of fiscal 2025 increased primarily due to the allocation of increased shared services costs (benefits, people services, information systems, etc.) compared with fiscal 2024.
Previous report
Our income tax provision for the first two quarters of fiscal 2025 was $0.1 million on pre-tax income of $0.2 million, for an effective tax rate of 56.1%, compared with an effective rate of 14.4% through February 29, 2024, when we recorded income tax expense of $1.0 million on pre-tax income of $6.7 million.
Previous report
Our effective tax rate of 56.1% for the first two quarters of fiscal 2025 is unusual primarily due to near-break-even pre-tax income for the first half of fiscal 2025. We currently estimate that our effective tax rate will normalize during the remainder of fiscal 2025 to approximately 36%, which is higher than normal statutory rates primarily due to the non-deductible portion of stock-based compensation paid to executives.
Reworded paragraphs (49)
Previous wording
This Management’s Discussion and Analysis includes the concepts of Adjusted EBITDA and constant currency, which are non-GAAP financial measures. We define Adjusted EBITDA as net income or loss excluding the impact of interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items such as restructuring costs. Constant currency is a non-GAAP financial measure that removes the impact of fluctuations in foreign currency exchange rates and is calculated by translating the current period’s financial results at the same average exchange rates in effect during the prior year and then comparing this amount to the prior year. We reference these non-GAAP measures in our decision making because they provide supplemental information that facilitates consistent internal comparisons to the operating performance of prior periods and we believe it provides investors with greater transparency to evaluate operational activities and financial results. For a reconciliation of our reporting segment Adjusted EBITDA to net income, a related GAAP measure, refer to Note 7, Segment Information, to our unaudited condensed consolidated financial statements.
Current wording
This Management’s Discussion and Analysis includes the concept of Adjusted EBITDA, which is a non-GAAP financial measure. We define Adjusted EBITDA as net income or loss excluding the impact of interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items such as restructuring and headquarters moving costs. We reference this non-GAAP measure in our decision making because it provides supplemental information that facilitates consistent internal comparisons to the operating performance of prior periods and we believe it provides investors with greater transparency to evaluate our operational activities and financial results. For a reconciliation of our reporting segment Adjusted EBITDA to net income (loss), a related GAAP measure, refer to Note 7, Segment Information, to our unaudited condensed consolidated financial statements.
Previous wording
International Direct Office revenues and a $1.0 million decrease in North America segment revenues, which were affected by canceled government contracts and macroeconomic uncertainties. These challenging economic and business conditions were partially offset by new logo sales and strong client expansion activity in the second quarter from the Company’s newly restructured North America sales force.. All Access Pass (AAP) subscription plus subscription services revenue was $36.1 million in the second quarter of fiscal 2025 compared with $37.5 million in the second quarter of fiscal 2024.
Current wording
o Enterprise Division revenues for the third quarter of fiscal 2025 totaled $47.3 million compared with $51.9 million in fiscal 2024. Enterprise Division revenue performance was impacted by a $3.5 million decrease in North America segment revenues and a $1.0 million decrease in International Direct Office revenues, which were both affected by macroeconomic uncertainties and canceled government contracts. These challenging economic and business conditions adversely impacted new logo sales and expansion activity in the third quarter.
Previous wording
o Consolidated subscription and subscription services revenues for the second quarter of fiscal 2025 were $49.5 million compared with $50.3 million in the second quarter of fiscal 2024. For the quarter ended February 28, 2025, subscription revenue invoiced was $33.9 million compared with $34.6 million in the prior year.
Current wording
o Consolidated subscription and subscription services revenues for the third quarter of fiscal 2025 were $57.7 million compared with $60.8 million in the third quarter of fiscal 2024. For the quarter ended May 31, 2025, subscription revenue invoiced was $31.7 million compared with $34.5 million in fiscal 2024.
Previous wording
o Consolidated deferred subscription revenue at February 28, 2025, increased 10% to $94.4 million compared with $86.1 million at February 29, 2024. At February 28, 2025, 55% of our AAP contracts are for at least two years, compared with 56% at February 29, 2024, and the percentage of contracted amounts represented by multi-year contracts was 61% compared with 62% as of February 29, 2024.
Current wording
o As of May 31, 2025, 58% of our AAP contracts are for at least two years, compared with 55% at May 31, 2024, and the percentage of contracted amounts represented by multi-year contracts was 62% compared with 60% as of May 31, 2024.
Previous wording
o Unbilled deferred subscription revenue at February 28, 2025, was $64.5 million compared with $72.7 million at February 29, 2024. Unbilled deferred revenue represents business that is contracted, but unbilled and therefore excluded from our balance sheet.
Current wording
o Unbilled deferred subscription revenue on May 31, 2025, was $62.0 million compared with $69.4 million on May 31, 2024. Unbilled deferred revenue represents business that is contracted, but unbilled and therefore excluded from our balance sheet.
Previous wording
The following is a summary of other unaudited consolidated financial information from the second quarter of fiscal 2025, which ended on February 28, 2025:
Current wording
The following is a summary of other unaudited consolidated financial information from the third quarter of fiscal 2025, which ended on May 31, 2025:
Previous wording
Cost of Revenue/Gross Profit – For the quarter ended February 28 2025, our cost of revenue totaled $13.9 million compared with $14.5 million in the prior year. Gross profit for the second quarter of fiscal 2025 was $45.7 million compared with $46.9 million in the prior year. The decrease in gross profit was primarily due to revenue performance as described above. Our gross margin for the second quarter of fiscal 2025 remained strong and increased to 76.7% of revenue compared with 76.4% in the corresponding quarter of the prior year.
Current wording
Cost of Revenue/Gross Profit – For the quarter ended May 31, 2025, our cost of revenue totaled $15.8 million compared with $17.2 million in the prior year. Gross profit for the third quarter of fiscal 2025 was $51.3 million compared with $56.2 million in the prior year. The decrease in gross profit was primarily due to decreased revenue as described above. Gross margin for the third quarter of fiscal 2025 remained strong and was 76.5% of revenue compared with 76.6% in the third quarter of fiscal 2024.
Previous wording
Operating Expenses – Our operating expensesfor the second quarter of fiscal 2025 increased $1.8 million compared with the prior year, which was primarily due to a $4.3 million increase in selling, general, and administrative (SG&A) expenses, which were partially offset by a $1.7 million decrease in restructuring costs, and a $0.9 million decrease in impaired asset charges. The increase in SG&A expenses was primarily due to increased associate costs related to new personnel, including new sales and sales support personnel hired in connection with the restructuring of our North America sales force, compensation increases, and benefits.
Current wording
Operating Expenses – Our operating expensesfor the third quarter of fiscal 2025 totaled $53.5 million and increased $5.7 million compared with the prior year, which was primarily due to a $4.0 million increase in restructuring charges and a $1.6 million increase in selling, general, and administrative (SG&A) expenses. During the third quarter of fiscal 2025, we continued to restructure our sales force in the Enterprise Division and to reduce costs in certain areas of our operations. We incurred $4.7 million of expenses for these restructuring activities primarily for severance and related costs. The increase in SG&A expenses was primarily due to increased associate costs related to new personnel, including new sales and sales support personnel hired in connection with the implementation of our new go-to-market strategy and the restructuring of our North America sales force.
Previous wording
Income Taxes –Our income tax benefit for the quarter ended February 28, 2025, was $0.3 million on a pre-tax loss of $(1.3) million, for an effective benefit rate of 20.2%. In the second quarter of the prior year, our income tax provision was $0.5 million on pre-tax income of $1.4 million, which produced an effective income tax rate of 38.2% for that quarter. The effective tax rate for the second quarter of fiscal 2025 was lower than the effective rate for the second quarter of the prior year primarily due to foreign losses and the impact of stock-based compensation.
Current wording
Income Taxes –Our income tax benefit for the quarter ended May 31, 2025, was $0.7 million on a pre-tax loss of $(2.1) million, for an effective benefit rate of 33.8%. In the third quarter of the prior year, our income tax provision was $2.6 million on pre-tax income of $8.4 million, reflecting an effective income tax rate of 31.6%. The slightly higher benefit rate in the current quarter is primarily attributable to our expectation that withholding taxes on foreign-source income will remain consistent year-over-year, while pre-tax income is expected to be lower, thus increasing the impact on our effective rate.
Previous wording
Operating Income (Loss), Net Income (Loss), and Adjusted EBITDA– Primarily as a result of reduced revenue and increased operating expenses as discussed above, our results of operations for the quarter ended February 28, 2025, were a loss of $(1.5) million compared with income of $1.4 million in the second quarter of fiscal 2024. For the second quarter of fiscal 2025, we realized a net loss of $(1.1) million, or $(0.08) per share, compared with net income of $0.9 million, or $0.06 per diluted share, in the same quarter of fiscal 2024. Our Adjusted EBITDA for the quarter ended February 28, 2025, was in line with previously announced expectations and totaled $2.1 million compared with $7.4 million in the second quarter of fiscal 2024. In constant currency, our Adjusted EBITDA for the second quarter of fiscal 2025 was $2.6 million.
Current wording
Net Income (Loss) and Adjusted EBITDA – For the third quarter of fiscal 2025, we realized a net loss of $(1.4) million, or $(0.11) per share, compared with net income of $5.7 million, or $0.43 per diluted share, in the third quarter of the prior year, reflecting the factors previously discussed. Our Adjusted EBITDA for the quarter ended May 31, 2025, exceeded our previously announced expectations and totaled $7.3 million compared with $13.9 million in the third quarter of fiscal 2024. Foreign exchange rates had a $0.5 million favorable impact on our Adjusted EBITDA for the quarter ended May 31, 2025.
Previous wording
Liquidity and Financial Position –Our liquidity and financial position remained strong throughout the second quarter of fiscal 2025. At February 28, 2025, we had over $100 million of available liquidity which consisted of $40.4 million of cash and our full undrawn $62.5 million line of credit.
Current wording
Liquidity and Financial Position –Our liquidity and financial position remained strong throughout the third quarter of fiscal 2025. At May 31, 2025, we had over $95 million of available liquidity which consisted of $33.7 million of cash and our full undrawn $62.5 million line of credit even after purchasing $23.0 million of our common stock during the first three quarters of fiscal 2025.
Previous wording
Revenue. For the quarter ended February 28, 2025, North America segment revenue was $34.5 million compared with $35.5 million in the prior year. Our second quarter results were generally in line with our expectations as we implemented our new go-to-market strategy and transitioned the sales force in North America to a more focused structure. However, North America segment revenues for the quarter were adversely impacted by canceled or postponed government contracting and other U.S. government actions which led to an uncertain business environment. During the second quarter of fiscal 2025, our AAP subscription plus subscription services revenues totaled $36.1 million compared with $37.5 million in the prior year. Rolling four quarter AAP subscription and subscription service revenues grew to $162.8 million compared with $162.1 million for the same period ended February 29, 2024. We remain optimistic about the expected results of our new North America go-to-market strategy and sales force restructuring as our new North America sales force structure is in place and began executing on their directives in the second quarter.
Current wording
Revenue. For the quarter ended May 31, 2025, North America segment revenue was $37.1 million compared with $40.6 million in the prior year. North America segment revenues for the quarter were adversely impacted by the uncertain macroeconomic environment and by canceled or postponed government contracting. During the third quarter of fiscal 2025, total Enterprise Division AAP subscription plus subscription services revenues were $39.9 million compared with $42.6 million in the prior year. Rolling four quarter AAP subscription and subscription service revenues were $160.2 million compared with $163.3 million for the corresponding period ended May 31, 2024. We remain optimistic about the expected results of our new North America go-to-market strategy and sales force restructuring as our new North America sales force structure is in place and began executing on their directives earlier in fiscal 2025. However, continued economic uncertainty, including threatened or enacted tariffs, may prevent us from achieving expected sales goals in the near term. Foreign exchange rates had an insignificant impact on North America revenues and operating results during the third quarter of fiscal 2025.
Previous wording
Gross Profit. Gross profit was impacted by revenue performance as discussed above. North America gross margin remained strong during the quarter ended February 28, 2025, and was 83.9% of revenue compared with 84.1% in the prior year.
Current wording
Gross Profit. Gross profit was impacted by lower revenue as described above. North America gross margin remained strong during the quarter ended May 31, 2025, and increased to 82.9% of revenue compared with 82.3% in the third quarter of fiscal 2024.
Previous wording
SG&A Expense. North America SG&A expenses increased primarily due to associate costs resulting from new sales and sales support personnel (primarily related to our new go-to-market strategy and the restructuring of our North America sales force), compensation increases, and benefit costs.
Current wording
SG&A Expense. North America SG&A expenses increased primarily due to associate costs resulting from new sales and sales support personnel primarily related to our new go-to-market strategy and the restructuring of our North America sales force.
Previous wording
Revenue. International Direct Office revenues for the quarter ended February 28, 2025, were adversely impacted by ongoing economic disruptions and geopolitical tensions in Asia and by uncertain business and economic conditions in Europe. Second quarter revenues decreased in China by 35%, in Japan by 19%, in the United Kingdom by 17%, and in our Germany Switzerland, and Austria operations by 11% compared with the same period in fiscal 2024. These decreases were partially offset by increased sales through our Australia office and by revenue from our new France office. The fluctuation of foreign exchange rates had a $0.2 million adverse impact on our International Direct Office revenue and an insignificant impact on operating results in the second quarter of fiscal 2025. We believe the resolution of multiple international trade issues and improving economic conditions will lead to improved sales performance in future periods. However, the successful resolution of these macroeconomic issues is out of our control and may not generate revenue growth in future periods.
Current wording
Revenue. International Direct Office revenues for the quarter ended May 31, 2025, were adversely affected by ongoing economic uncertainty and geopolitical tensions as previously discussed. Third quarter revenues decreased in Japan by 22%, in the United Kingdom by 21%, and in China by 15% and were reflective of the macroeconomic conditions and their impact on existing and potential clients. Decreases in these offices were partially offset by increased revenue recognized through our new France office. The fluctuation of foreign exchange rates had a $0.1 million favorable impact on our International Direct Office revenue and an insignificant impact on operating results in the third quarter of fiscal 2025. We believe the resolution of multiple international trade issues and improving economic conditions will lead to improved sales performance in future periods. However, the successful resolution of these macroeconomic issues is not within our control and may not generate expected revenue growth at our International Direct Offices in future periods.
Previous wording
Gross Profit. Gross profit in the International Direct Office segment decreased primarily due to reduced revenue as previously described. Gross margin for the second quarter of fiscal 2025 was 73.5% of sales compared with 75.8% in the prior year and decreased primarily due to a shift in the mix of services delivered and products sold during the second quarter of fiscal 2025 when compared with fiscal 2024.
Current wording
Gross Profit. Gross profit in the International Direct Office segment decreased primarily due to reduced revenue as described above. Gross margin for the third quarter of fiscal 2025 was 73.2% of sales compared with 77.6% in the prior year and decreased primarily due to a shift in the mix of services delivered and products sold during the third quarter of fiscal 2025 when compared with fiscal 2024.
Previous wording
SG&A Expenses. International Direct Office SG&A expenses decreased $0.1 million primarily due to cost reduction initiatives enacted to offset the impact of reduced sales.
Current wording
SG&A Expenses. International Direct Office SG&A expenses decreased $0.2 million primarily due to cost reduction initiatives enacted to offset the impact of decreased revenue.
Previous wording
Revenue. International licensee revenue is primarily comprised of royalties on sales of our content by the licensees. For the quarter ended February 28, 2025, our international licensees’ revenue increased by 2%, which was primarily due to increased licensee royalty revenues. While we remain optimistic that our licensees’ sales and our corresponding royalty revenues will grow in future periods, continued difficult macroeconomic conditions, such as geopolitical trade tensions and economic uncertainty, may negatively impact our licensees’ operations and reduce growth compared with our expectations. Foreign exchange rates had a $0.1 million adverse impact on international licensee revenues and operating results for the quarter ended February 28, 2025.
Current wording
Revenue. International licensee revenue is primarily comprised of royalties on sales of our content by the licensees. For the quarter ended May 31, 2025, our International Licensees’ revenue was essentially flat when compared with the prior year at $2.7 million as licensee royalty revenues were relatively flat for the quarter. Our International Licensees’ operations continue to be unfavorably impacted by difficult macroeconomic conditions, such as geopolitical trade tensions and economic uncertainty, which have negatively impacted the industries that some of our licensees serve. While we remain optimistic about future growth in our International Licensee operations, ongoing economic uncertainty and geopolitical instability may impair or reduce their growth compared with our expectations. Foreign exchange rates had an immaterial impact on International Licensee revenues and operating results for the quarter ended May 31, 2025.
Previous wording
Gross Profit. Education Division gross profit increased primarily due to revenue growth as previously described. Education Division gross margin remained strong and increased to 61.9% compared with 59.1% in the prior year primarily due to a change in the mix of services and products sold during the quarter.
Current wording
Gross Profit. Education Division gross profit in the third quarter of fiscal 2025 decreased primarily due to revenue performance as previously described. Education Division gross margin remained strong and was consistent with the prior year at 65.6% of sales.
Previous wording
Interest Expense – Our interest expense decreased by $0.2 million compared with the second quarter of fiscal 2024 due to decreased term loan and financing obligation liabilities as payments have been made in the normal course of business.
Current wording
Interest Expense – Our interest expense of $0.1 million decreased by $0.1 million compared with the third quarter of fiscal 2024 due to decreased term loan and financing obligation liabilities as payments have been made in the normal course of business.
Previous wording
Revenue. North America segment revenue for the first two quarters of fiscal 2025 totaled $74.7 million compared with $75.8 million in fiscal 2024. Our results for the first half of fiscal 2025 were generally in line with our expectations as we transitioned our sales force in North America to a more focused structure. However, North America segment revenues were also impacted by canceled government contracts resulting from efficiency initiatives in the second quarter and by an uncertain business environment. For the first two quarters of fiscal 2025, our AAP subscription plus subscription services revenues totaled $77.1 million compared with $79.1 million in fiscal 2024. While we remain optimistic about the expected results of our North America sales force restructuring and associated growth initiatives, other factors such as further reductions in government spending and continued uncertainty in the business environment in North America may delay or lower expected revenue growth from these initiatives.
Current wording
Revenue. North America segment revenue for the first three quarters of fiscal 2025 totaled $111.7 million compared with $116.4 million in fiscal 2024. North America segment revenues were adversely impacted by continued business environment uncertainties and by canceled government contracts resulting from efficiency initiatives, which began in the second quarter of fiscal 2025. Our results for the first three quarters of fiscal 2025 were also somewhat lower than our expectations as we implemented a new go-to-market strategy and transitioned our sales force in North America to a more focused structure. For the first three quarters of fiscal 2025, total Enterprise AAP subscription plus subscription services revenues were $117.0 million compared with $121.6 million in fiscal 2024. While we remain optimistic about the expected results of our North America sales force restructuring and associated growth initiatives, other factors such as further reductions in government spending and continued uncertainty in the business environment in North America may delay or lower expected revenue growth from these initiatives. Foreign exchange rates had an insignificant impact on North America revenues and operating results for the three quarters ended May 31, 2025.
Previous wording
Gross Profit. Gross profit decreased due to revenue performance as discussed above. North America gross margin remained strong during the first two quarters of fiscal 2025 and increased to 82.8% compared with 82.6% in fiscal 2024.
Current wording
Gross Profit. Gross profit decreased due to revenue performance as discussed above. North America gross margin remained strong during the first three quarters of fiscal 2025 and increased to 82.8% compared with 82.5% in fiscal 2024.
Previous wording
Revenue. International Direct Office revenues for the first two quarters of fiscal 2025 were adversely impacted by ongoing economic disruptions and geopolitical tensions in Asia and by uncertain business and economic conditions in Europe. Fiscal 2025 year-to-date revenues decreased in China by 25%, in Japan by 17%, in the United Kingdom by 12%, and in our Germany, Switzerland, and Austria operations by 3% compared with fiscal 2024. These decreases were partially offset by increased sales through our Australia office and by revenue from our new France office. The fluctuation of foreign exchange rates for the first half of fiscal 2025 had an insignificant impact on International Direct Office revenue and operating results.
Current wording
Revenue. International Direct Office revenues for the first three quarters of fiscal 2025 were adversely affected by ongoing economic uncertainty and geopolitical tensions as previously discussed. Fiscal 2025 year-to-date revenues decreased in China by 22%, in Japan by 19%, in the United Kingdom by 15%, and in our Germany, Switzerland, and Austria operations by 3% compared with fiscal 2024. These decreases were partially offset by increased sales through our Australia office and by revenue from our new France office. The fluctuation of foreign exchange rates for the first three quarters of fiscal 2025 had a $0.1 million impact on International Direct Office revenue and an insignificant impact on operating results.
Previous wording
Gross Profit. Gross profit in the International Direct Office segment decreased primarily due to reduced revenue as described above. Gross margin for the first half of fiscal 2025 remained strong and was 73.9% of sales compared with 75.8% in the prior year. The fluctuation in gross margin was primarily due to changes in the mix of services delivered and products sold compared with the prior year.
Current wording
Gross Profit. Gross profit in the International Direct Office segment decreased primarily due to reduced revenue as previously described. Gross margin for the first three quarters of fiscal 2025 remained strong and was 73.7% of sales compared with 76.4% in fiscal 2024. The fluctuation in gross margin was primarily due to changes in the mix of services delivered and products sold compared with the prior year.
Previous wording
SG&A Expenses. International Direct Office SG&A expenses increased primarily due to increased bad debt expense, increased associate costs from new personnel, and increased advertising and marketing expense related to the launch of the new The 7 Habits of Highly Effective People offering, which occurred in the first quarter of fiscal 2025.
Current wording
SG&A Expenses. International Direct Office SG&A expenses increased primarily due to increased bad debt expense and increased advertising and marketing expense related to the launch of the new The 7 Habits of Highly Effective People offering, which occurred in the first quarter of fiscal 2025.
Previous wording
Revenue. For the first half of fiscal 2025, our international licensees’ revenue decreased by 3%, or $0.2 million, which was primarily due to decreased services revenue and a decrease in our share of AAP revenue. Licensee royalty revenues increased 1% compared with the prior year. During fiscal 2025, our foreign licensees have encountered difficult macroeconomic conditions and business uncertainty in the regions where they operate. Foreign exchange rates had a $0.1 million adverse impact on international licensee revenues and operating results for the first two quarters of fiscal 2025.
Current wording
Revenue. For the first three quarters of fiscal 2025, our International Licensees’ revenue decreased primarily due to decreases in services revenue and in our share of AAP revenue. Licensee royalty revenues were essentially flat compared with fiscal 2024. During fiscal 2025, our foreign licensees have encountered ongoing macroeconomic uncertainty and geopolitical instability in the regions where they operate, which have adversely impacted their operations. Foreign exchange rates had an immaterial impact on International Licensee revenues and operating results for the first three quarters of fiscal 2025.
Previous wording
Gross Profit. Gross profit decreased due to lower licensee revenue compared with the prior year. However, International Licensee gross margin remained strong and increased to 88.9% in the first half of fiscal 2025 primarily due to increased royalties in the mix of revenue.
Current wording
Gross Profit. Gross profit decreased due to lower licensee revenue compared with the prior year. However, International Licensee gross margin remained strong and was 88.5% in the first three quarters of fiscal 2025 compared with 88.7% in the first three quarters of the prior year.
Previous wording
Revenue. For the quarter ended February 28, 2025, Education Division revenue increased 3%, or $0.4 million, compared with the second quarter of fiscal 2024. Revenue growth in the second quarter was primarily due to increased coaching and consulting revenue, increased membership subscription revenues resulting from new schools which started The Leader in Me during fiscal 2024, and sales of classroom and training materials. Education Division growth was partially offset by foreign exchange rates, which had a $0.1 million adverse impact on revenue and a $0.3 million adverse effect on operating results for the second quarter of fiscal 2025. The delivery of training and coaching days remained strong during the second quarter of fiscal 2025 as the Education Division delivered approximately 70 more training and coaching days than in the prior year. Training and coaching days are recognized as revenue when they are delivered. Education subscription and subscription services revenues in the second quarter of fiscal 2025 increased 5% compared with the same period of the prior year. We continue to be pleased with the strength and momentum of our Education Division, which added 728 new The Leader in Me schools during fiscal 2024. We believe the momentum generated in fiscal 2024 and in the first half of fiscal 2025 will continue through the remainder of fiscal 2025. At February 28, 2025, over 3,800 schools were using The Leader in Meprogram in the United States and Canada or are contracted to begin using the program later this fiscal year.
Current wording
Revenue. Education Division revenue for the first three quarters of fiscal 2025 increased 1%, or $0.4 million, compared with the first three quarters of fiscal 2024. Fiscal 2025 revenue growth was primarily attributable to increased coaching and consulting revenue and increased membership subscription revenue, which were partially offset by decreased sales of classroom and training materials, primarily due to a new state-wide initiative and district contracts that included large training materials orders in the third quarter of fiscal 2024. These materials orders did not repeat at the same levels in the third quarter of fiscal 2025. Delivery of training and coaching days remained strong during the first three quarters of fiscal 2025 as the Education Division delivered approximately 70 more training and coaching days than in fiscal 2024. Education subscription and subscription services revenues in the first three quarters of fiscal 2025 increased 4% compared with the prior year and Education deferred subscription revenue at May 31, 2025, increased 21% over the balance at May 31, 2024. Education Division growth during the first three quarters of fiscal 2025 was partially offset by changes in foreign exchange rates, which adversely impacted revenue by $0.2 million and operating results by $0.4 million. We continue to be pleased with the strength and momentum of our Education Division, which added 728 new The Leader in Me schools during fiscal 2024. We believe the momentum generated in fiscal 2024 and over the first three quarters of fiscal 2025 will continue through the remainder of fiscal 2025 as we continue to add new schools. At May 31, 2025, nearly 8,000 schools around the world were using The Leader in Meprogram.
Previous wording
Gross Profit. Education Division gross profit increased primarily due to revenue growth as previously discussed. Education Division gross margin remained strong and increased to 62.6% compared with 61.4% in the prior year primarily due to a change in the mix of services and products sold during the quarter.
Current wording
Gross Profit. Education Division gross profit increased primarily due to revenue growth as previously discussed. Education Division gross margin remained strong and increased to 63.7% compared with 63.1% in the same period of the prior year.
Previous wording
SG&A Expenses. Education SG&A expenses increased primarily due to increased commissions on higher revenue, new personnel, and allocation of increased shared services costs compared with the prior year.
Current wording
SG&A Expenses. Education SG&A expenses increased primarily due to new personnel and increased commissions on higher sales when compared with the prior year.
Previous wording
Depreciation –Depreciation expense for the first half of fiscal 2025 was consistent with the prior year at $2.0 million in each period. We currently expect depreciation expense to total approximately $3.6 million in fiscal 2025.
Current wording
Depreciation – Through May 31, 2025, our depreciation expense was consistent with the prior year at $3.0 million in each period. We currently expect depreciation expense to total approximately $4 million in fiscal 2025.
Previous wording
Amortiza tion –Amortization expense for the first two quarters of fiscal 2025 was $2.2 million compared with $2.1 million in the prior year. The slight increase was primarily due to the reacquisition of license rights for France, which occurred in the first quarter of fiscal 2025. We currently expect definite-lived intangible asset amortization expense will total approximately $4.4 million during fiscal 2025.
Current wording
Amortiza tion –Amortization expense for the first three quarters of fiscal 2025 was $3.3 million compared with $3.2 million in the prior year. The slight increase was primarily due to the reacquisition of license rights for our France operations, which occurred in the first quarter of fiscal 2025. We currently expect definite-lived intangible asset amortization expense will total approximately $4.5 million during fiscal 2025.
Previous wording
Interest Expense – Our interest expense decreased by $0.3 million compared with the first half of fiscal 2024 primarily due to decreased term loan and financing obligation liabilities as payments have been made in the normal course of business.
Current wording
Interest Expense – Our interest expense of $0.5 million decreased by $0.4 million compared with the first three quarters of fiscal 2024 primarily due to decreased term loan and financing obligation liabilities as payments have been made in the normal course of business.
Previous wording
During the first half of fiscal 2025 we paid $6.0 million of cash for income taxes, most of which related to our fiscal 2024 income tax liability. We anticipate our total cash paid for income taxes over the coming years to approximate our total income tax provision on an annual basis.
Current wording
During the first three quarters of fiscal 2025 we paid $7.1 million of cash for income taxes, most of which related to our fiscal 2024 income tax liability. Over the long term, we expect annual cash tax payments to approximate our annual income tax provision.
Previous wording
At February 28, 2025 we had over $100 million of available liquidity, which consisted of $40.4 million in cash combined with our undrawn $62.5 million revolving credit facility. Of our $40.4 million of cash on February 28, 2025, $14.5 million was held outside the U.S. by our foreign subsidiaries. We routinely repatriate cash from our foreign subsidiaries and consider cash generated from foreign activities a key component of our overall liquidity position. Our primary sources of liquidity are cash flows from the sale of services and products in the normal course of business and available proceeds from our credit facility. Our primary uses of liquidity include payments for operating activities, purchases of our common stock, working capital expansion, capital expenditures (including curriculum development), and debt and leasing payments.
Current wording
At May 31, 2025 we had over $95 million of available liquidity, which consisted of $33.7 million in cash combined with our undrawn $62.5 million revolving credit facility. Of our $33.7 million of cash on May 31, 2025, $13.4 million was held outside the U.S. by our foreign subsidiaries. We routinely repatriate cash from our foreign subsidiaries and consider cash generated from foreign activities a key component of our overall liquidity position. Our primary sources of liquidity are cash flows from the sale of services and products in the normal course of business and available proceeds from our credit facility. Our primary uses of liquidity include payments for operating activities, opportunistic purchases of our common stock, working capital expansion, capital expenditures (including curriculum development), and debt and lease payments.
Previous wording
In fiscal 2023, we entered into a new credit agreement (the 2023 Credit Agreement) with KeyBank National Association leading a group of financial institutions, which replaced our previous credit agreement. The 2023 Credit Agreement provides up to $70.0 million in total credit, of which $7.5 million was used to replace the outstanding term loan balance from the previous credit agreement. The remaining $62.5 million is available as a revolving line of credit or for future term loans. The 2023 Credit Agreement matures on March 27, 2028.
Current wording
In fiscal 2023, we entered into a credit agreement (the 2023 Credit Agreement) with KeyBank National Association leading a group of financial institutions. The 2023 Credit Agreement provides up to $70.0 million in total credit, of which $7.5 million was used to replace the outstanding term loan balance from the previous credit agreement. The remaining
Previous wording
The following discussion is a description of the primary factors affecting our cash flows and their effects upon our liquidity and capital resources during the two quarters ended February 28, 2025.
Current wording
The following discussion is a description of the primary factors affecting our cash flows and their effects upon our liquidity and capital resources during the three quarters ended May 31, 2025.
Previous wording
Our primary source of cash from operating activities was the sale of services to our customers in the normal course of business. Our primary uses of cash for operating activities were payments for SG&A expenses, direct costs necessary to conduct training programs, to fund working capital changes, and to suppliers for materials used in training manuals sold. Our cash provided by operating activities during the first half of fiscal 2025 was $12.8 million compared with $30.2 million in the first half of fiscal 2024. The decrease in cash flows from operating activities was primarily attributable to lower operating income in the first two quarters of fiscal 2025 as previously discussed, working capital activity, and cash payments made for income taxes. While we expect our cash flows from operating activities to improve in the second half of fiscal 2025, certain conditions are beyond our control or influence such as general macroeconomic conditions, further reductions in government spending, and business conditions in international locations which impact our financial results at our international direct offices and our international licensees.
Current wording
Our primary source of cash from operating activities was the sale of services to our customers in the normal course of business. Our primary uses of cash for operating activities were payments for SG&A expenses, direct costs necessary to conduct training programs, to fund working capital changes, and to suppliers for materials used in training manuals sold. Our cash provided by operating activities during the first three quarters of fiscal 2025 was $19.0 million compared with $38.4 million in the first three quarters of fiscal 2024. The decrease in cash flows from operating activities was primarily attributable to lower operating income in the first three quarters of fiscal 2025 as previously discussed, and an $8.3 million decrease in taxes payable as we no longer benefit from the utilization of our net operating loss position compared with the prior year. While we expect our cash flows from operating activities to improve in future periods, certain conditions are beyond our control or influence such as general macroeconomic conditions, further reductions in government spending, and business conditions in international locations which impact our financial results at our international direct offices and international licensees.
Previous wording
During the first half of fiscal 2025, our cash used for investing activities totaled $5.0 million. Our primary uses of cash for investing activities consisted of additional investments in the development of our offerings and purchases of property and equipment in the normal course of business.
Current wording
Through May 31, 2025, our cash used for investing activities totaled $8.5 million. Our primary uses of cash for investing activities consisted of additional investments in the development of our offerings and purchases of property and equipment in the normal course of business.
Previous wording
In the first two quarters of fiscal 2025, we spent $2.4 million on the development of our various offerings and related content. During the first half of fiscal 2025, we launched a significantly refurbished The 7 Habits of Highly Effective People offering and expect to release additional/refurbished content in the second half of fiscal 2025 and in future years. We believe continued investment in our offerings and content is key to future growth and the development of our business. We currently expect that our capital spending for curriculum development will total approximately $8.3 million in fiscal 2025.
Current wording
In the first three quarters of fiscal 2025, we spent $4.1 million on the development of our various offerings and related content. During the first half of fiscal 2025, we launched a significantly refurbished The 7 Habits of Highly Effective People offering and expect to release additional/refurbished content in the remainder of fiscal 2025 and in future years. We believe continued investment in our offerings and content is key to future growth and the development of our business. We currently expect that our capital spending for curriculum development will total between approximately $7 million and $9 million in fiscal 2025.
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Current report — wording carried from elsewhere
$62.5 million is available as a revolving line of credit or for future term loans. The 2023 Credit Agreement matures on March 27, 2028.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
Revenue. Education Division revenue for the first two quarters of fiscal 2025 increased 7%, or $1.9 million, compared with the first half of fiscal 2024. Fiscal 2025 revenue growth was primarily attributable to increased coaching and consulting revenue, and increased membership subscription revenue, and increased sales of classroom and training materials, due in part to a new initiative with a state that began in the first quarter of 2025. Delivery of training and coaching days remained strong during the first half of fiscal 2025 as the Education Division delivered approximately 160 more training and coaching days than in fiscal 2024. Education subscription and subscription services revenues in the first two quarters of fiscal 2025 increased 8% compared with the prior year. Training and materials revenue increased $0.8 million over the prior year, which included $0.7 million of classroom and training materials from the new state-wide initiative. Education Division growth during the first half of fiscal 2025 was partially offset by adverse changes in foreign exchange rates, which impacted revenue by $0.3 million and operating results by $0.4 million.
Previous report — wording carried elsewhere
pricing of our products and services and those of competitors; adverse publicity; and other factors which may adversely affect our business.