FRANKLIN COVEY CO

Previous wording

We suggest that the following discussion and analysis be read in conjunction with the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2025, as filed with the SEC on November 12, 2025.

Current wording

We suggest that the following discussion and analysis be read in conjunction with the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.

Previous 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 reportable segment Adjusted EBITDA to income or loss before income taxes, 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 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 reportable segment Adjusted EBITDA to income or loss before income taxes, a related GAAP measure, refer to Note 7, Segment Information, to our unaudited condensed consolidated financial statements.

Previous wording

Franklin Covey Co. is a global company focused on individual and organizational performance improvement. Our mission is to “enable greatness in people and organizations everywhere,” and our worldwide resources are organized to help individuals and organizations achieve sustained superior performance at scale through changes in human behavior. We believe that our content and services create the connection between capabilities and results. Our business is currently structured around two divisions, the Enterprise Division and the Education Division. The Enterprise Division consists of our North America and International segments and is focused on selling our offerings to corporations, governments, not-for-profits, and other related organizations. Our offerings delivered through the Enterprise Division are designed to help organizations and individuals achieve their own great results. Our Education Division is centered around the principles found in The Leader in Me and is dedicated to helping educational institutions build cultures that will produce great results, including increased student performance, improved school culture, and increased parental and teacher involvement.

Current wording

Franklin Covey Co., a global leadership and organizational performance company, gives strategy the human edge. Our mission is to “enable greatness in people and organizations everywhere,” and our worldwide resources are organized to help clients achieve breakthrough results and transform how they execute strategy at scale. We believe that our content and services create the connection between capabilities and results. Our business is currently structured around two divisions, the Enterprise Division and the Education Division, which are driven to develop high-performing leaders at all levels of the organization and align people around purpose and priorities. The Enterprise Division consists of our North America and International segments and is focused on selling our offerings to corporations, governments, not-for-profits, and other related organizations. Our Education Division is centered around the principles found in the Leader in Me and is dedicated to helping educational institutions build cultures that will produce great results, including increased student performance, improved school culture, and increased parental and teacher involvement.

Previous wording

For Franklin Covey, fiscal 2025 was a year of transition and transformation as we initiated a new go-to-market and sales strategy in North America. In addition, our fiscal 2025 results of operations were adversely impacted by various macroeconomic factors, including reduced U.S. federal government spending and geopolitical tensions that produced instability in certain regions of the world. This resulted in a reduction of invoiced amounts and net revenue for fiscal 2025, which will continue to impact fiscal 2026 as we recognize a lower base of previously deferred revenue. Despite these headwinds, we have retained the vast majority of our client base and now with the bulk of our transformation investments coming to completion, we believe these efforts are beginning to bear fruit. We view fiscal 2026 to be a year of execution and a return to growth, and believe fiscal 2027 will continue the momentum and provide accelerating and compounding growth and cash flow. We believe the transformative investments made in our Enterprise North America go-to-market strategy plus our continued investments in content and technology position us for meaningful growth in the future.

Current wording

For Franklin Covey, fiscal 2025 was a year of transition and transformation as we initiated a new go-to-market and sales strategy in North America. In addition, our fiscal 2025 results of operations were adversely impacted by various macroeconomic factors, including reduced U.S. federal government spending and geopolitical tensions that produced instability in certain regions of the world. This resulted in a reduction of invoiced amounts and net revenue for fiscal 2025, which will continue to impact fiscal 2026 as we recognize a lower base of previously deferred revenue. Despite these headwinds, we have retained the vast majority of our client base and now with the bulk of our revenue-generating transformation investments nearly completed, we believe these efforts are beginning to produce growth in invoiced amounts the first half of fiscal 2026. We view fiscal 2026 to be a year of execution and a return to growth, and believe fiscal 2027 will continue the momentum and provide accelerating and compounding growth and cash flow. We believe the transformative investments made in our Enterprise North America go-to-market strategy plus our continued investments in content and technology position us for meaningful growth in the future.

Previous wording

During the first quarter of fiscal 2026, we were encouraged by strong growth in Enterprise North America invoiced amounts. This is a primary lead metric that we believe demonstrates the positive momentum building from our go-to-market investments.

Current wording

During the second quarter of fiscal 2026, we continued to be encouraged by strong growth in Enterprise North America invoiced amounts, which also saw growth in the first quarter. We believe invoiced amounts are a primary lead metric that demonstrates the positive momentum building from our go-to-market investments and which we expect to continue in the second half of fiscal 2026. In the second quarter of fiscal 2026, we were able to translate this operational momentum into improved cash flows and increased Adjusted EBITDA compared with the prior year.

Previous wording

Our consolidated revenue for the quarter ended November 30, 2025, was $64.0 million, compared with $69.1 million in the first quarter of fiscal 2025 and reflected the impact of conditions previously described. Foreign exchange rates did not have a material impact on our consolidated revenue during the first quarter of fiscal 2026. The Company’s revenue performance during the quarter ended November 30, 2025, included the following key metrics:

Current wording

Our consolidated revenue for the quarter ended February 28, 2026, was essentially flat compared with the second quarter of fiscal 2025 at $59.6 million, and reflected the impact of fiscal 2025 conditions as previously described. Foreign exchange rates had a $0.7 million favorable impact on our consolidated revenues and a $0.2 million favorable impact on operating results and Adjusted EBITDA in the second quarter of fiscal 2026. The Company’s revenue performance for the quarter ended February 28, 2026, included the following key metrics:

Previous wording

Enterprise Division revenues for the first quarter of fiscal 2026 totaled $47.5 million compared with $51.6 million in the first quarter of fiscal 2025. Enterprise Division revenue performance was impacted by a $3.9 million decrease in North America segment revenues and a $0.2 million decrease in International segment revenues. Revenue performance in these segments were adversely impacted by canceled government contracts, ongoing geopolitical tensions, and other macroeconomic difficulties, which hampered subscription revenue growth in fiscal 2025 and which now flow through as we recognize previously deferred revenue. Despite these difficult conditions, we were encouraged by the growth in invoiced amounts in the North America segment in the first quarter as previously described, which we believe will translate to increased reported revenue in future quarters.

Current wording

Enterprise Division revenues for the second quarter of fiscal 2026 totaled $41.6 million compared with $43.6 million in the second quarter of the prior year. Enterprise Division revenue performance was impacted by a $2.0 million decrease in North America segment revenues and a $0.1 million increase in International segment revenues. Revenue performance in our North America segment was adversely impacted by canceled government contracts, ongoing geopolitical tensions, and other macroeconomic difficulties, which hampered subscription revenue growth in fiscal 2025 and which now flow through as we recognize previously deferred revenue. Despite these difficult conditions, we were encouraged by continued growth in invoiced amounts in the North America segment in both the first and second quarters of fiscal 2026, which we believe will translate to increased reported revenue in future quarters.

Previous wording

Consolidated subscription and subscription services revenues for the first quarter of fiscal 2026 were $52.0 million compared with $55.8 million in the first quarter of the prior year. For the quarter ended November 30, 2025, subscription and contractually committed revenue invoiced was $26.0 million compared with $24.7 million in fiscal 2025.

Current wording

Consolidated subscription and subscription services revenues for the second quarter of fiscal 2026 increased to $50.9 million compared with $49.5 million in the second quarter of fiscal 2025. For the quarter ended February 28, 2026, subscription and contractually committed invoiced amounts increased $5.4 million, or 16%, to $39.3 million compared with $33.9 million in the same period of fiscal 2025.

Previous wording

Consolidated deferred revenue on November 30, 2025, increased 5% to $100.2 million compared with $95.7 million on November 30, 2024.

Current wording

Consolidated deferred revenue on February 28, 2026, increased $7.1 million, or 7%, to $101.5 million compared with $94.4 million on February 28, 2025.

Previous wording

As of November 30, 2025, 58% of our AAP contracts are for at least two years, compared with 55% at November 30, 2024, and the percentage of contracted amounts represented by multi-year contracts was 61% compared with 60% at November 30, 2024.

Current wording

As of February 28, 2026, 59% of our North America AAP contracts are for at least two years, compared with 55% at February 28, 2025, and the percentage of contracted amounts represented by multi-year contracts was 62% compared with 61% at February 28, 2025.

Previous wording

Unbilled deferred revenue on November 30, 2025, was $72.1 million compared with $73.0 million on November 30, 2024. Unbilled deferred revenue represents business that is contracted, but unbilled and therefore excluded from our balance sheet.

Current wording

Unbilled deferred revenue on February 28, 2026, increased to $64.9 million compared with $64.5 million on February 28, 2025. 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 first quarter of fiscal 2026, which ended on November 30, 2025:

Current wording

The following is a summary of other unaudited consolidated financial information from the second quarter of fiscal 2026, which ended on February 28, 2026:

Previous wording

Cost of Revenue/Gross Profit – For the quarter ended November 30, 2025, our cost of revenue totaled $15.7 million compared with $16.4 million in the prior year. Gross profit for the first quarter of fiscal 2026 was $48.4 million compared with $52.7 million in the prior year. The decrease in gross profit was primarily due to decreased revenue as described above. Gross margin for the first quarter of fiscal 2026 remained strong and was 75.5% of revenue compared with 76.3% in the prior year. The decrease was primarily due to increased fixed costs related to the delivery of consulting days and live seminar presentations in our Education and International segments, combined with lower revenue.

Current wording

Cost of Revenue/Gross Profit – For the quarter ended February 28, 2026, our cost of revenue totaled $14.4 million compared with $13.9 million in the prior year. Gross profit in the second quarter of fiscal 2026 was $45.3 million compared with $45.7 million in the prior year. The decrease in gross profit was primarily due to a slight decrease in our gross margin for the second quarter of fiscal 2026, which remained strong at 75.9% of revenue compared with 76.7% in the prior year. The decrease was primarily due to increased amortization of capitalized curriculum expense and a shift in the mix of services delivered and products sold during the quarter.

Previous wording

Operating Expenses – Our operating expenses for the first quarter of fiscal 2026 totaled $52.0 million and increased $0.8 million compared with the prior year, which was primarily due to a $1.5 million increase in restructuring charges and a $0.7 million increase in building exit costs which primarily consist of legal expenses. These increases were partially offset by decreased selling, general, and administrative (SG&A) expenses driven by cost reduction efforts, and decreased stock-based compensation expense. During the first quarter of fiscal 2026, we continued to restructure our business to reduce costs and streamline certain areas of our operations. We incurred $3.4 million of expense for this restructuring activity, which consisted primarily of severance and related costs.

Current wording

Operating Expenses – Our operating expenses for the second quarter of fiscal 2026 totaled $47.3 million and increased $0.1 million compared with the prior year. The increase was primarily due to a $1.5 million increase in restructuring charges, a $1.3 million increase in share-based compensation expense, and a $0.5 million increase in building exit costs which primarily consist of legal expenses. These increases were partially offset by decreased selling, general, and administrative (SG&A) expenses driven by reduced associate costs and other cost reduction efforts. During the second quarter of fiscal 2026, we continued to restructure our business to reduce costs and streamline certain areas of our operations. We incurred $1.5 million of expense for this restructuring activity, which consisted primarily of severance and related costs. In an effort to retain the services of the former principal owner of Strive, which we purchased in a prior year, we agreed to pay the remaining unearned contingent consideration from the purchase of Strive, which was paid in shares of our common stock (Note 4). The additional contingent consideration totaled $1.4 million and was expensed in the second quarter of fiscal 2026.

Previous wording

Income Taxes – Our income tax benefit for the quarter ended November 30, 2025, was $0.3 million on a pre-tax loss of $(3.6) million, resulting in an effective benefit rate of 9.4%. By comparison, our first quarter of fiscal 2025 income tax provision was $0.4 million on pre-tax income of $1.6 million, reflecting an effective income tax rate of 25.6%. The lower effective tax benefit rate in the first quarter of fiscal 2026 is primarily due to a significant decrease in non-deductible executive compensation compared with the first quarter of fiscal 2025.

Current wording

Income Taxes – Our income tax benefit for the quarter ended February 28, 2026, was $0.1 million on a pre-tax loss of $(2.1) million, for an effective benefit rate of 3.9%. In the second quarter of fiscal 2025, our income tax benefit was $0.3 million on a pre-tax loss of $(1.3) million, for an effective benefit rate of 20.2%. The effective tax benefit rate for the second quarter of fiscal 2026 was lower than the effective tax benefit rate in the prior year primarily due to increased non-deductible stock based compensation.

Previous wording

Net Income (Loss) and Adjusted EBITDA – For the first quarter of fiscal 2026, we realized a net loss of $(3.3) million, or $(0.27) per share, compared with net income of $1.2 million, or $0.09 per diluted share, in the first quarter of fiscal 2025, reflecting the factors previously discussed. Our Adjusted EBITDA for the quarter ended November 30, 2025, totaled $3.7 million compared with $7.7 million in the prior year. Foreign exchange rates had an insignificant impact on our Adjusted EBITDA for the quarter ended November 30, 2025.

Current wording

Net Income (Loss) and Adjusted EBITDA – For the second quarter of fiscal 2026, we realized a net loss of $(2.0) million, or $(0.17) per share, compared with a net loss of $(1.1) million, or $(0.08) per share, in the second quarter of fiscal 2025, reflecting the factors previously discussed. Our Adjusted EBITDA for the quarter ended February 28, 2026, increased $2.0 million, or 99%, to $4.1 million compared with $2.1 million in the prior year. Foreign exchange rates had a $0.2 million favorable impact on our Adjusted EBITDA for the quarter ended February 28, 2026.

Previous wording

Liquidity and Financial Position –Our liquidity and financial position remained strong throughout the first quarter of fiscal 2026. At November 30, 2025, we had $80 million of available liquidity which consisted of $17.5 million of cash and our full undrawn $62.5 million line of credit even after using $10.7 million of cash to purchase shares of our common stock during the first quarter of fiscal 2026.

Current wording

Liquidity and Financial Position –Our liquidity and financial position remained strong throughout the first two quarters of fiscal 2026. At February 28, 2026, we had over $76 million of available liquidity which consisted of $13.7 million of cash and our full available $62.5 million line of credit even after using $28.1 million of cash to purchase shares of our common stock for treasury during the first two quarters of fiscal 2026.

Previous wording

Revenue. For the quarter ended November 30, 2025, North America segment revenue was $36.3 million compared with $40.1 million in the prior year. North America segment revenues for the quarter were adversely impacted by lower invoiced amounts in prior periods, canceled or postponed government contracting, and ongoing macroeconomic uncertainty. However, we were encouraged by strong growth in North America segment invoiced amounts in the first quarter of fiscal 2026 and believe the new go-to-market strategy is gaining momentum. During the first quarter of fiscal 2026, North America AAP subscription plus subscription services revenues were $32.2 million compared with $36.0 million in the prior year, reflecting the decline in invoiced amounts during fiscal 2025 and decreased services revenues. Rolling four quarter North America AAP subscription and subscription service revenues were $134.6 million compared with $144.5 million for the corresponding period ended November 30, 2024. We remain optimistic about the expected results of our new North America go-to-market strategy as our new North America sales structure is in place and executing on their directives. However, the continued uncertain macroeconomic environment may prevent us from achieving expected sales goals during fiscal 2026. Foreign exchange rates had an insignificant impact on North America revenues and operating results during the first quarter of fiscal 2026.

Current wording

Revenue. For the quarter ended February 28, 2026, North America segment revenue was $32.5 million compared with $34.5 million in the prior year. North America segment revenues for the quarter were adversely impacted by various macroeconomic factors that resulted in lower invoiced amounts in prior periods for our subscription offerings which are recognized pro-ratably over the life of the contact. However, we were encouraged by strong growth in North America segment invoiced amounts in each of the first and second quarters of fiscal 2026 and believe the new go-to-market strategy is gaining momentum. During the second quarter of fiscal 2026, North America AAP subscription plus subscription services revenues were $30.9 million compared with $32.0 million in the prior year, reflecting the decline in invoiced amounts during fiscal 2025 and decreased services revenues. Rolling four quarter North America AAP subscription and subscription service revenues were $133.5 million compared with $143.7 million for the corresponding period ended February 28, 2025. We remain optimistic about the expected results of our new North America go-to-market strategy as our new North America sales structure is in place and executing on their directives. However, the continued uncertain macroeconomic environment may prevent us from achieving expected sales goals during fiscal 2026. Foreign exchange rates had an insignificant impact on North America revenues and operating results during the second quarter of fiscal 2026.

Previous wording

Gross Profit. Gross profit was impacted by lower revenue as described above. North America gross margin remained strong and relatively flat during the quarter ended November 30, 2025, and was 81.5% of revenue compared with 81.8% in the prior year.

Current wording

Gross Profit. Gross profit was adversely impacted by lower revenue as described above. North America gross margin remained strong and was relatively flat at 83.6% of revenue during the quarter ended February 28, 2026, compared with 83.9% in the prior year.

Previous wording

SG&A Expense. North America segment SG&A expenses remained relatively flat when compared with the prior year.

Current wording

SG&A Expense. North America segment SG&A expenses decreased primarily due to reduced associate costs, which have been lowered by recent restructuring activities.

Previous wording

Revenue. International revenues for the quarter ended November 30, 2025, decreased primarily due to lower revenue from our China office, which continues to be adversely impacted by international geopolitical tensions. Excluding China, our revenue from the International segment increased 4% and our licensee revenue increased 8% compared with the first quarter of fiscal 2025. Our revenue in international markets is highly dependent upon regional macroeconomic strength, which can vary significantly in the current global macroeconomic environment. Foreign exchange rates had an insignificant impact on the revenue and operating results of our International segment in the first quarter of fiscal 2026. We believe international revenues will improve in future periods as multiple international trade issues are resolved and economic conditions stabilize and strengthen.

Current wording

Revenue. International segment revenues for the quarter ended February 28, 2026, reflect modest growth with increased direct offices revenues that were partially offset by decreased licensee revenues in the quarter. International direct office revenue increased 7% driven primarily by improved year-over-year revenues in France and China. International licensee revenues decreased 10% compared with the second quarter of fiscal 2025 and were unfavorably impacted by ongoing macroeconomic issues, such as geopolitical and trade uncertainties in the regions where many of our licensees operate. Foreign exchange rates had a $0.4 million favorable impact on International segment revenue and a $0.1 million favorable impact on operating results during the second quarter of fiscal 2026. We believe international revenues will improve in future periods as multiple international trade issues are resolved and economic conditions stabilize and strengthen.

Previous wording

Our Education Division is comprised of our domestic and international Education practice operations (focused on sales to educational institutions) and includes our widely acclaimed The Leader in Me program. The following comparative information is for our Education Division in the periods indicated (in thousands):

Current wording

Our Education Division is comprised of our domestic and international Education practice operations (focused on sales to educational institutions) and includes our widely acclaimed Leader in Me program. The following comparative information is for our Education Division in the periods indicated (in thousands):

Previous wording

Revenue. Education Division revenue for the quarter ended November 30, 2025, decreased 2%, or $0.4 million, compared with the first quarter of the prior year. The decrease in Education Division revenue was primarily due to decreased sales of classroom and training materials, due in part to a new initiative with a state that began in the first quarter of fiscal 2025 that did not repeat at the same level in fiscal 2026, and a symposium event that did not repeat. These declines were partially offset by increased coaching and consulting revenue and increased membership subscription revenues resulting from schools which started The Leader in Me during fiscal 2025. Materials revenue declined $0.7 million over the prior year, which included $0.4 million of classroom and training materials from the state-wide initiative in fiscal 2025. The delivery of training and coaching days remained strong during the first quarter of fiscal 2026 as the Education Division delivered over 100 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 first quarter of fiscal 2026 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 first quarter of fiscal 2026. We continue to be pleased with the strength and momentum of our Education Division, which added 624 new Leader in Me schools in a very challenging funding environment during fiscal 2025. We believe the momentum generated in fiscal 2025 will continue through the remainder of fiscal 2026. At November 30, 2025, over 8,000 schools around the world were using The Leader in Meprogram.

Current wording

Revenue. Education Division revenue for the quarter ended February 28, 2026, increased 16%, or $2.4 million, compared with the second quarter of the prior year. The increase in Education Division revenue was primarily due to increased subscription and subscription-related revenue, increased classroom and training materials sales, and an additional symposium event. Education Division subscription-related revenue increased primarily due to the delivery of over 300 more training and coaching days than the prior year. Training and coaching days are recognized as revenue when they are delivered. This strong growth in delivery contributed to 16% growth in Education Division subscription and subscription services revenue. Foreign exchange rates had an immaterial impact on Education Division revenue and operating results for the second quarter of fiscal 2026. We continue to be pleased with the strength and momentum of our Education Division, which added 624 new Leader in Me schools in a very challenging funding environment during fiscal 2025. We believe the momentum generated in fiscal 2025 and the first half of fiscal 2026 will continue through the remainder of the year. At February 28, 2026, over 8,000 schools around the world were using the Leader in Me program.

Previous wording

Depreciation Expense– Our depreciation expense for the quarter ended November 30, 2025, increased $0.1 million to $1.1 million, compared with $1.0 million in the prior year, primarily due to new assets acquired in the fourth quarter of the prior year in connection with our new headquarters office. We currently anticipate that depreciation expense will total approximately $4.5 million in fiscal 2026.

Current wording

Depreciation Expense– Our depreciation expense for the quarter ended February 28, 2026, increased $0.1 million to $1.1 million, compared with $1.0 million in the prior year, primarily due to assets acquired in connection with our new headquarters office.

Previous wording

Amortization Expense – Compared with the prior year, our amortization expense decreased $0.4 million to $0.7 million primarily due to the re-evaluation of the useful lives of content and license rights originally acquired in the merger with the Covey Leadership Center. These intangible assets continue to be some of our primary revenue and cash flow generating assets. Based on the re-evaluation of these intangible assets, we extended the useful lives of these assets by approximately 5 years. We currently anticipate our finite-lived intangible asset amortization expense will total $3.0 million in fiscal 2026.

Current wording

Amortization Expense – Compared with the prior year, our amortization expense decreased $0.4 million to $0.7 million primarily due to the re-evaluation of the useful lives of content and license rights originally acquired in the merger with the Covey Leadership Center. These intangible assets continue to be some of our primary revenue and cash flow generating assets. Based on the re-evaluation of these intangible assets, we extended the useful lives of these assets by approximately 5 years.

Previous wording

Interest Income – Our interest income decreased by $0.2 million to $0.1 million in the first quarter of fiscal 2026 compared with the prior year due to decreased cash and lower interest rates on those balances.

Current wording

Interest Income – Our interest income decreased by $0.2 million in the second quarter of fiscal 2026 compared with the prior year due to decreased cash and lower interest rates on those balances.

Previous wording

Interest Expense – First quarter interest expense of $0.1 million decreased by $0.1 million compared with the first quarter of fiscal 2025 due to decreased debt balances as payments have been made in the normal course of business.

Current wording

Interest Expense – Interest expense for the second quarter of fiscal 2026 of $0.1 million decreased by $0.1 million compared with the prior year primarily due to decreased debt balances as payments have been made in the normal course of business.

Previous wording

Our income tax benefit for the quarter ended November 30, 2025, was $0.3 million on a pre-tax loss of $(3.6) million, for an effective benefit rate of 9.4%. In the first quarter of the prior year, our income tax provision was $0.4 million on pre-tax income of $1.6 million, reflecting an effective income tax rate of 25.6%. Our effective tax benefit rate for the first quarter of fiscal 2026 was lower than the effective rate for the first quarter of fiscal 2025 primarily due to a significant decrease in non-deductible executive compensation in the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025.

Current wording

Our income tax benefit for the quarter ended February 28, 2026, was $0.1 million on a pre-tax loss of $(2.1) million, for an effective benefit rate of 3.9%. In the second quarter of fiscal 2025, our income tax provision was $0.3 million on a pre-tax loss of $(1.3) million, for an effective benefit rate of 20.2%. Our effective tax benefit rate for the second quarter of fiscal 2026 was lower than the effective rate for the second quarter of the prior year primarily due to increased non-deductible stock based compensation.

Previous wording

Gross Profit. Gross profit in the International segment decreased primarily due to reduced revenue in our China office as previously described. Gross margin for the first quarter of fiscal 2026 was 77.4% of revenue compared with 78.5% in the prior year and decreased primarily due to increased fixed costs related to the delivery of live seminars combined with lower revenue in our China office when compared with fiscal 2025. Excluding China, our International gross margin was 79.5% for the first quarter of fiscal 2026.

Current wording

Gross Profit. Gross profit in the International segment decreased primarily due to increased costs necessary to deliver our services and products. Gross margin for the first half of fiscal 2026 was 77.3% of revenue compared with 78.3% in the prior year and decreased primarily due to increased fixed costs related to the delivery of live seminars combined with increased costs to support our licensee channel when compared with fiscal 2025.

Previous wording

SG&A Expenses. International SG&A expenses decreased $1.3 million primarily due to cost reduction initiatives enacted to offset the impact of decreased revenue and decreased bad debt expense compared with the prior year.

Current wording

SG&A Expenses. International SG&A expenses decreased $1.8 million primarily due to cost reduction and efficiency initiatives enacted to offset the impact of essentially flat revenue growth and decreased bad debt expense when compared with the prior year.

Previous wording

Gross Profit. Education Division gross profit decreased primarily due to revenue performance as previously discussed. Education segment gross margin declined to 61.6% compared with 63.2% in the prior year as a result of increased fixed costs associated with school memberships, increased materials costs, and increased platform costs combined with lower revenue during the first quarter of fiscal 2026.

Current wording

Gross Profit. Education Division gross profit increased primarily due to increased revenue as previously described. Education Division gross margin for the first half of fiscal 2026 declined to 61.6% compared with 62.6% in the prior year primarily due to increased materials and platform costs combined with a change in the mix of services delivered and products sold.

Previous wording

SG&A Expenses. Education SG&A expenses increased primarily due to increased associate expenses from new personnel, changes to compensation plans, increased commissions on previously deferred revenue, and increases to the allowance for credit losses.

Current wording

SG&A Expenses. Education SG&A expenses increased primarily due to increased associate costs for new personnel, changes to compensation plans, increased commissions on previously deferred revenue, increased cost allocations from shared services, and increases to the allowance for credit losses.

Previous wording

At November 30, 2025 we had $80 million of available liquidity, which consisted of $17.5 million in cash combined with our undrawn $62.5 million revolving credit facility. Of our $17.5 million of cash on November 30, 2025, $8.6 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, and capital expenditures (including curriculum development).

Current wording

At February 28, 2026 we had over $76 million of available liquidity, which consisted of $13.7 million in cash combined with our full available $62.5 million revolving credit facility. Of our $13.7 million of cash on February 28, 2026, $7.5 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, opportunistic purchases of our common stock, working capital expansion, and capital expenditures (including curriculum development).

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 quarter ended November 30, 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 two quarters ended February 28, 2026.

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 quarter of fiscal 2026 was $0.1 million compared with $14.1 million in the first quarter of fiscal 2025. The decrease in cash flows from operating activities was primarily attributable to unfavorable changes in working capital balances, including less cash collected from receivables, and lower operating income in the first quarter compared with the prior year. We expect our cash flows from operating activities will improve in future periods of fiscal 2026; however certain conditions are beyond our control, including ongoing difficulties in the macroeconomic environment and further governmental actions, and our cash flows from operating activities may be less than our expectations.

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 two quarters of fiscal 2026 increased $3.6 million, or 28%, to $16.4 million compared with $12.8 million in the first half of fiscal 2025. The increase in cash flows from operating activities was primarily attributable to favorable changes in working capital balances, which featured improved collections of receivables compared with the first quarter of fiscal 2026 and continued increases in invoiced amounts. These improvements offset lower operating income in the first half of fiscal 2026 compared with the prior year. We expect our cash flows from operating activities will continue to improve during fiscal 2026; however certain conditions are beyond our control, including ongoing difficulties in the macroeconomic environment, geopolitical tensions, and further governmental actions, and our cash flows from operating activities may be less than our current expectations.

Previous wording

For the quarter ended November 30, 2025, our cash used for investing activities totaled $3.8 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

For the two quarters ended February 28, 2026, our cash used for investing activities totaled $6.8 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 quarter of fiscal 2026, we spent $2.0 million on the development of our various offerings and related content. 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 $8 million and $10 million in fiscal 2026.

Current wording

In the first half of fiscal 2026, we spent $4.1 million on the development of our various offerings and related content. 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 cash used for curriculum development will total between approximately $8 million and $10 million in fiscal 2026.

Previous wording

Our cash used for purchases of property and equipment during the first quarter of fiscal 2026 totaled $1.7 million and consisted primarily of leasehold improvements on our new corporate headquarters, and computer software and hardware. We currently anticipate that our purchases of property and equipment will total between approximately $5 million and $7 million in fiscal 2026.

Current wording

Our cash used for purchases of property and equipment during the first two quarters of fiscal 2026 totaled $2.8 million and consisted primarily of leasehold improvements on our new corporate headquarters, and computer software and hardware. We currently anticipate that our cash used for purchases of property and equipment will total between approximately $5 million and $7 million in fiscal 2026.

Previous wording

In the first quarter of fiscal 2026, our net cash used for financing activities totaled $10.4 million. Our primary use of financing cash was $10.7 million used to purchase shares of our common stock, which consisted of shares purchased on the open market and shares withheld for income taxes on stock-based compensation awards (Note 2). Partially offsetting our use of cash for purchasing shares of our common stock for treasury were $0.3 million of proceeds received from our ESPP participants to purchase shares of common stock during the first quarter of fiscal 2026.

Current wording

In the first two quarters of fiscal 2026, our net cash used for financing activities totaled $27.6 million. Our primary use of financing cash was $28.1 million used to purchase shares of our common stock, which consisted of shares purchased on the open market and shares withheld for income taxes on stock-based compensation awards (Note 2). Partially offsetting our use of cash for purchasing shares of our common stock for treasury were $0.6 million of proceeds received from our ESPP participants to purchase shares of common stock during the first half of fiscal 2026. We utilized proceeds from our available line of credit to facilitate purchases of common stock during the second quarter of fiscal 2026. However, we repaid the outstanding balance on the line of credit prior to February 28, 2026.

Previous wording

On April 18, 2024, our Board of Directors approved a plan to purchase up to $50.0 million of our outstanding common stock. On August 11, 2025, the Board of Directors approved a replenishment of the plan to purchase up to $50.0 million of common stock. On August 14, 2025 we initiated a 10b5-1 plan to purchase up to $10.0 million of our common stock through daily transactions. This 10b5-1 plan was completed in October 2025. On November 17, 2025, we initiated a new 10b5-1 plan to purchase up to $20.0 million of our common stock through daily transactions. We anticipate that this repurchase plan will be completed in the second quarter of fiscal 2026.

Current wording

On April 18, 2024, our Board of Directors approved a plan to purchase up to $50.0 million of our outstanding common stock. On August 11, 2025, the Board of Directors approved a replenishment of the plan to purchase up to $50.0 million of common stock. On August 14, 2025 we initiated a 10b5-1 plan to purchase up to $10.0 million of our common stock through daily transactions. This 10b5-1 plan was completed in October 2025. On November 17, 2025, we initiated a new 10b5-1 plan to purchase up to $20.0 million of our common stock through daily transactions. This purchase plan was completed in January 2026.