FRANKLIN COVEY CO
For the period ended May 31, 2026. Filed Jul 7, 2026.
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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, 2026 · Filed Jul 7, 2026
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 2026-02-28; filed 2026-04-08.
0001193125-26-147784
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-05-31; filed 2026-07-07.
0001193125-26-297572
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 115 previous paragraphs and 103 current paragraphs.
48 unchanged; 41 reworded; 14 added; 19 removed; 7 previous and 0 current paragraphs rearranged.
Tables are not compared: 6 previous and 6 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
Education Division revenues in the third quarter of fiscal 2026 increased 2% to $19.0 million compared with the third quarter of fiscal 2025. The increase in Education Division revenue was primarily due to increased subscription revenue, which was partially offset by decreased classroom and training materials sales. Education Division subscription revenue increased by 11% primarily due to the delivery of more training and coaching days. Total training and coaching days delivered in the third quarter increased by over 200 days compared with fiscal 2025. The decrease in classroom and training materials was primarily due to state-wide initiatives in fiscal 2025 that did not repeat as a result of budget cuts or did not repeat at the same level due to the timing of implementation compared with the prior year. Sharp reductions in the funding for health and human services and education initiatives in one of the states had a significant adverse impact on our third quarter revenue and invoiced amounts. While we remain hopeful that some of these funds will be restored in future periods, the timing and amount of this restored governmental funding remains uncertain.
Current report
Operating Expenses – Our operating expenses for the quarter ended May 31, 2026 totaled $45.9 million, a $7.6 million decrease compared with the prior year. Reduced operating expenses were primarily the result of a $4.0 million reduction in restructuring charges and a $3.0 million decrease in selling, general, and administrative (SG&A) expenses, including a $0.7 million decrease in stock-based compensation. While we continued to execute on the long-term restructuring plan initiated in the second quarter of fiscal 2026, our restructuring activities were significantly less than in the third quarter of the prior year. SG&A expenses decreased primarily from ongoing restructuring and cost reduction activities which had a favorable impact on various areas of our operations.
Current report
Segment Results of Operations and Analysis
Current report
The following comparative year-to-date information is for our North America segment in the periods indicated (in thousands):
Current report
Revenue. For the quarter ended May 31, 2026, North America segment revenue increased 3%, or $1.0 million, to $38.0 million. North America segment revenues were positively impacted by higher service revenue which was partially offset by lower recognized subscription revenue. Revenue from services and products for the third quarter of fiscal 2026 was $15.4 million, which was 9%, or $1.2 million, higher than the prior year. Revenue from subscription offerings totaled $22.0 million, which was 2%, or $0.5 million lower than the third quarter of fiscal 2025. Lower subscription revenues were primarily due to lower subscription invoiced amounts generated in prior periods. During the third quarter of fiscal 2026, North America subscription plus subscription services revenues were $34.3 million compared with $35.4 million in the prior year. However, we were encouraged by the overall growth in North America segment invoiced amounts during the third quarter, which totaled $36.7 million and was 4% higher than the amount invoiced in the third quarter of fiscal 2025.
Current report
North America segment revenue for the three quarters ended May 31, 2026 decreased 4%, or $4.9 million, to $106.8 million. The decrease was primarily due to decreased subscription revenue and decreased service and products revenue. For the first three quarters of fiscal 2026, North America subscription plus subscription serviced revenues were $97.4 million, which was 6%, or $6.0 million, lower than the same period of fiscal 2025. However, invoiced amounts for the first three quarters of fiscal 2026 totaled $114.3 million, which was 6%, or $6.6 million, higher than the same period of the prior year. These invoiced amounts have added to our strong base of deferred revenue which will be recognized as revenue in future periods.
Current report
Gross Profit. Gross profit for the third quarter of fiscal 2026 was adversely impacted by increased costs to deliver training and coaching services, a change in the mix of services delivered and products sold, and increased product amortization expense. As a result of these factors, North America gross margin for the third quarter slipped to 79.5% of revenue compared with 82.9% in the prior year. For the three quarters ended May 31, 2026, gross profit decreased primarily due to lower revenue as described above. North America gross margin for the first three quarters of fiscal 2026 declined to 81.4% from 82.8% in fiscal 2025 primarily due to the same issues cited for the third quarter decline.
Current report
Revenue. International segment revenue for the quarter ended May 31, 2026, decreased slightly compared with the third quarter of fiscal 2025 as growth from our licensee channel was offset by lower direct office revenues in the quarter. Licensee revenue in the third quarter increased 3% over the prior year but were offset by lower revenues in our China, Japan, and United Kingdom direct offices. Our offices in France and Australia each grew compared with the third quarter of fiscal 2025. Our China operations in the third quarter continued to be adversely impacted by ongoing trade tensions and broader macroeconomic uncertainty which have impacted prior periods in fiscal 2026. For the third quarter of fiscal 2026, foreign exchange rates had a $0.2 million favorable impact on revenues and a $0.1 million favorable impact on operating income.
Current report
SG&A Expenses. Third quarter fiscal 2026 International segment SG&A expenses decreased $0.7 million compared with the prior year. For the first three quarters of fiscal 2026, International segment SG&A expenses decreased $2.5 million compared with fiscal 2025. Reduced SG&A expense in our International segment was driven by ongoing cost reduction and efficiency initiatives which produced increased Adjusted EBITDA during fiscal 2026.
Current report
Education Division revenue for the three quarters ended May 31, 2026, increased 5%, or $2.4 million, compared with the first three quarters of fiscal 2025. The increase in Education Division revenue was primarily due to increased subscription revenue, which was partially offset by decreased classroom and training materials sales. Education Division subscription revenue increased primarily due to the delivery of more training and coaching days. For the first three quarters of fiscal 2026 we delivered over 700 more coaching and training days than in the prior year. The decrease in classroom and training materials in the first three quarters of fiscal 2026 was primarily due to state-wide initiatives in the prior year that did not repeat as a result of budget cuts, as previously discussed, or did not repeat at the same level due to the timing of implementation compared with the prior year.
Current report
Gross Profit. For the quarter ended May 31, 2026, Education Division gross profit decreased primarily due to increased costs which resulted in lower gross margins. Our Education Division gross margin was 62.8% in the third quarter of fiscal 2026 compared with 65.6% in fiscal 2025. For the first three quarters of fiscal 2026, Education Division gross margin was 62.0% compared with 63.7% in the first three quarters of the prior year. Our fiscal 2026 Education Division gross margins were adversely impacted by increased delivery, platform, product amortization, and materials costs combined with a change in the mix of services delivered and products sold when compared with the prior year.
Current report
Income Taxes
Current report
For the three quarters ended May 31, 2026, our income tax expense totaled $0.7 million on a pre-tax loss of $(1.5) million. In the first three quarters of fiscal 2025, our income tax benefit totaled $0.6 million on a pre-tax loss of $(1.9) million. The change in our income tax expense/benefit between periods is primarily due to the impact of stock‑based compensation. Because we reported pre‑tax losses in both periods, the resulting effective tax rates are not considered meaningful or indicative of our expected annual effective tax rate.
Removed paragraphs (19)
Previous report
Education Division revenues in the second quarter of fiscal 2026 increased $2.4 million, or 16%, to $17.5 million compared with the second quarter of fiscal 2025. The increase 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 over the prior year primarily due to the delivery of over 300 more training and coaching days than the prior year. The strong growth in delivery contributed to 16% growth in Education Division subscription and subscription services revenue.
Previous report
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 report
Quarter Ended February 28, 2026 Compared with the Quarter Ended February 28, 2025
Previous report
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 report
SG&A Expenses. International SG&A expenses decreased $0.5 million compared with the prior year, as we continued to implement cost reduction and efficiency initiatives across our international operations.
Previous report
Gross Profit. Education Division gross profit increased primarily due to increased revenue as previously described. Education segment gross margin remained strong at 61.6% compared with 61.9% in the prior year. The slight decline from prior year was primarily due to a change in the mix of services delivered and products sold during the quarter.
Previous report
Two Quarters Ended February 28, 2026 Compared with the Two Quarters Ended February 28, 2025
Previous report
Enterprise Division
Previous report
North America Segment
Previous report
Revenue. For the two quarters ended February 28, 2026, North America segment revenue was $68.7 million compared with $74.7 million in the prior year. North America segment revenues for the first two quarters of fiscal 2026 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. During the first two quarters of fiscal 2026, North America AAP subscription plus subscription services revenues were $63.1 million compared with $68.0 million in the prior year, reflecting the decline in invoiced amounts during fiscal 2025, reductions in federal government spending, and decreased services revenues. However, we believe the increase in invoiced amounts in the first and second quarters will produce revenue growth in future periods.
Previous report
Gross Profit. Gross profit was adversely impacted by lower revenue as previously described. North America gross margin for the first two quarters of fiscal 2026 remained strong at 82.5%, and was relatively flat compared with 82.8% in the first half of the prior year.
Previous report
International Segment
Previous report
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 report
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 report
Education Division
Previous report
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 report
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 report
Other Operating Expense Items
Previous report
Our income tax benefit for the first two quarters of fiscal 2026 was $0.4 million on a pre-tax loss of $(5.7) million, for an effective benefit rate of 7.4%, compared with and effective tax rate of 56.1% through February 28, 2025, when we recorded income tax expense of $0.1 million on pre-tax income of $0.2 million. Our effective benefit rate in the first two quarters of fiscal 2026 was reduced primarily due to non-deductible stock-based compensation expense. Our effective tax rate in the first half of fiscal 2025 was higher than normal due to near break-even pre-tax income for the period.
Reworded paragraphs (41)
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 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.
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 in fiscal 2026. We view fiscal 2026 to be a year of execution, generating solid growth of invoiced amounts in Enterprise North America, and believe fiscal 2027 will continue the momentum and provide increased reported revenue, Adjusted EBITDA, 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 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.
Current wording
During the third quarter of fiscal 2026, we continued to be encouraged by growth in Enterprise North America invoiced amounts, which also saw growth in the first half of fiscal 2026. The Education Division also saw invoiced growth during the third quarter despite an unexpected budget reduction for education spending in a state which has a state-wide Leader in Me initiative. We believe invoiced amounts are a primary lead metric that demonstrates the positive momentum building from our go-to-market investments. In the third quarter of fiscal 2026, we were able to translate this operational momentum into increased revenue and Adjusted EBITDA compared with the prior year.
Previous 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:
Current wording
Our consolidated revenue for the quarter ended May 31, 2026, increased 1% to $67.8 million compared with $67.1 million in the prior year, and reflected increased invoiced amounts and increased subscription revenue. Revenue growth in the third quarter was partially offset by a $0.5 million decrease in sublease revenue following the exit from our previous headquarters campus. Foreign exchange rates had a $0.3 million favorable impact on our consolidated revenues and an insignificant impact on operating results and Adjusted EBITDA in the third quarter of fiscal 2026. The Company’s revenue performance for the quarter ended May 31, 2026, included the following key metrics:
Previous 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.
Current wording
Enterprise Division revenues for the third quarter of fiscal 2026 increased 2% to $48.1 million compared with $47.3 million in fiscal 2025. Enterprise Division revenue performance benefitted from a $1.0 million increase in North America segment revenues, which were partially offset by decreased International segment revenues in the quarter. Revenue performance in our North America segment was favorably impacted by increased invoiced amounts in the first half of fiscal 2026, but growth was still muted by the effects of canceled government contracts, geopolitical tensions, and other macroeconomic difficulties, which significantly lowered invoiced amounts in fiscal 2025 and continues to impact revenue in fiscal 2026 as we recognize previously deferred amounts. Despite ongoing uncertainties and difficulties in the macroeconomic environment, we were encouraged by continued growth in invoiced amounts in the North America segment in the first three quarters of fiscal 2026.
Previous 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.
Current wording
Consolidated subscription and subscription services revenues for the third quarter of fiscal 2026 totaled $57.5 million compared with $57.7 million in the third quarter of fiscal 2025. For the quarter ended May 31, 2026, subscription and contractually committed invoiced amounts increased $5.3 million, or 17%, to $37.0 million compared with $31.7 million in the same period of fiscal 2025.
Previous 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.
Current wording
Consolidated deferred revenue on May 31, 2026, increased $6.7 million, or 7%, to $96.0 million compared with $89.3 million on May 31, 2025.
Previous 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.
Current wording
As of May 31, 2026, 59% of our North America AAP contracts are for at least two years, compared with 58% at May 31, 2025, and the percentage of contracted amounts represented by multi-year contracts was 60% compared with 62% at May 31, 2025.
Previous 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.
Current wording
Unbilled deferred revenue on May 31, 2026, was $61.1 million compared with $62.0 million on May 31, 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 second quarter of fiscal 2026, which ended on February 28, 2026:
Current wording
The following is a summary of other unaudited consolidated financial information from the third quarter of fiscal 2026, which ended on May 31, 2026:
Previous 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.
Current wording
Cost of Revenue/Gross Profit – For the quarter ended May 31, 2026, our cost of revenue totaled $17.7 million compared with $15.8 million in the prior year. Gross profit in the third quarter of fiscal 2026 was $50.1 million compared with $51.3 million in the prior year. The decrease in gross profit was primarily due to increased costs which led to a decline in our gross margin to 73.9% of revenue compared with 76.5% in the prior year. The decrease in our gross margin was primarily due to increased costs related to the delivery of training and coaching services, a change in the mix of services delivered and products sold during the quarter, and increased amortization of capitalized curriculum expense.
Previous 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.
Current wording
Income Taxes – Our income tax provision for the quarter ended May 31, 2026, was $1.1 million on pre-tax income of $4.2 million, for an effective tax rate of 25.9%. In the third quarter of fiscal 2025, our income tax benefit was $0.7 million on a pre-tax loss of $(2.1) million, for an effective tax benefit rate of 33.8%. The effective tax rate for the third quarter of fiscal 2026 was lower than the effective tax benefit rate for the third quarter of the prior year primarily due to the impact of creditable foreign taxes.
Previous 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.
Current wording
Net Income and Adjusted EBITDA – For the third quarter of fiscal 2026, we recognized net income of $3.1 million, or $0.27 per diluted share, compared with a net loss of $(1.4) million, or $(0.11) per share, in the third quarter of fiscal 2025, reflecting the factors previously discussed. Our Adjusted EBITDA for the quarter ended May 31, 2026, increased $1.0 million, or 14%, to $8.3 million compared with $7.3 million in fiscal 2025. Foreign exchange rates had a $0.3 million favorable impact on our Adjusted EBITDA for the quarter ended May 31, 2026.
Previous 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.
Current wording
Liquidity and Financial Position –Our liquidity and financial position remained strong throughout the first three quarters of fiscal 2026. At May 31, 2026, we had over $74 million of available liquidity which consisted of $12.0 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 three quarters of fiscal 2026.
Previous wording
Further details regarding our results for the quarter ended February 28, 2026, are provided throughout the following Management’s Discussion and Analysis.
Current wording
Further details regarding our results for the quarter and three quarters ended May 31, 2026, are provided throughout the following Management’s Discussion and Analysis.
Previous wording
The North America segment includes our personnel that serve clients in the United States and Canada. The following comparative information is for our North America segment in the periods indicated (in thousands):
Current wording
The North America segment includes our personnel that serve clients in the United States and Canada. The following third quarter comparative information is for our North America segment in the periods indicated (in thousands):
Previous 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.
Current wording
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 its 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 third quarter of fiscal 2026.
Previous 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.
Current wording
SG&A Expense. North America segment SG&A expenses for the quarter ended May 31, 2026 decreased $2.0 million, or 8%, to $22.5 million. For the three quarters ended May 31, 2026, North America segment SG&A expenses decreased $4.7 million, or 7%, to $68.0 million. Decreased SG&A expense was primarily due to reduced associate costs, which have been lowered by recent restructuring activities, and by other cost reduction initiatives that have reduced expenses in various other areas of North America segment operations.
Previous wording
Our International segment consists of our directly owned international offices and our international licensees that provide our services and products in countries or regions that are not served by a directly owned office. Our directly owned international offices serve clients in Australia, Austria, China, France, Germany, Ireland, Japan, New Zealand, Switzerland, and the United Kingdom. The following comparative information is for our International segment in the periods indicated (in thousands):
Current wording
Our International segment consists of our directly owned international offices and our international licensees that provide our services and products in countries or regions that are not served by a directly owned office. Our directly owned international offices serve clients in Australia, Austria, China, France, Germany, Ireland, Japan, New Zealand,
Previous wording
The following comparative information is for our International segment in the periods indicated (in thousands):
Current wording
Switzerland, and the United Kingdom. The following comparative information is for our International segment in the periods indicated (in thousands):
Previous wording
Revenue. International revenues for the two quarters ended February 28, 2026, were essentially flat for both our direct offices and licensees when compared with the prior year. Increased sales at our offices in France and the United Kingdom were offset by decreased sales in China. Our China office continues to be adversely impacted by trade tensions and other related factors. Foreign exchange rates had a $0.6 million favorable impact on International segment revenue and a $0.2 million favorable impact on operating results in the first half of fiscal 2026.
Current wording
International segment revenues for the three quarters ended May 31, 2026, also decreased slightly when compared with the prior year. Increased sales at our offices in France and Australia were more than offset by decreased sales in China, Japan, and the United Kingdom. Licensee revenues for the first three quarters of fiscal 2026 were essentially flat year-over-year. For the first three quarters of fiscal 2026, foreign exchange rates had a $0.8 million favorable impact on revenues and a $0.2 million favorable impact on operating income.
Previous 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.
Current wording
We continue to believe International segment revenues will improve in future periods as multiple international trade issues are resolved and economic conditions stabilize and strengthen.
Previous wording
Gross Profit. Gross profit in the International segment increased slightly in the second quarter of fiscal 2026 due to improved revenues as previously described. Gross margin for the second quarter of fiscal 2026 remained strong at 77.3% of revenue compared with 78.2% in the prior year and decreased primarily due to increased direct costs to deliver programs in certain direct offices and reduced high-margin licensee royalty revenue in the quarter compared with the prior year.
Current wording
Gross Profit. Gross profit in the International segment for the third quarter of fiscal 2026 decreased primarily due to less revenue as previously described and decreased gross margin in the quarter. Gross margin for the quarter ended May 31, 2026, was 75.8% of revenue compared with 77.1% in fiscal 2025. Gross profit for the first three quarters of fiscal 2026 also declined due to decreased revenue and lower gross margins. Gross margin for the three quarters ended May 31, 2026, remained strong, but decreased to 76.8% compared with 77.9% in the prior year. Our international segment gross margins decreased in fiscal 2026 primarily due to the mix of services delivered and products sold, and increased direct costs to deliver programs in certain direct offices.
Previous wording
Revenue. Education Division revenue for the two quarters ended February 28, 2026, increased 7%, or $2.1 million, compared with the first two quarters of the prior year. The increase in Education Division revenue was primarily due to increased subscription and subscription-related revenue, which was partially offset by decreased classroom and training materials sales. Education Division subscription-related revenue increased primarily due to the delivery of over 500 more training and coaching days than the prior year. Training and coaching days are recognized as revenue when they are delivered. The decrease in classroom and training materials was 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 during the first two quarters of fiscal 2026. The strong growth in training and coaching delivery contributed to 7% growth in Education Division subscription and subscription services revenue in the first two quarters of fiscal 2026. Foreign exchange rates had a $0.2 million favorable impact on Education Division revenue and operating results in the first two quarters of fiscal 2026.
Current wording
Revenue. Education Division revenue for the quarter ended May 31, 2026, increased 2%, or $0.4 million, compared with the third quarter of the prior year. The increase in Education Division revenue was primarily due to increased subscription revenue, which was partially offset by decreased classroom and training materials sales. Education Division subscription revenue increased by 11% primarily due to the delivery of more training and coaching days, which are recognized as revenue when they are delivered. Total training and coaching days delivered in the third quarter increased by over 200 days compared with the prior year. The decrease in classroom and training materials was primarily due to state-wide initiatives in the prior year that did not repeat as a result of budget cuts or did not repeat at the same level due to the timing of implementation compared with the prior year. Funding for health and human services and education initiatives were sharply reduced in one of the states where we have a state-wide initiative, which had a significant adverse impact on our invoiced amounts, revenue, gross profit, and Adjusted EBITDA during the third quarter and for the three quarters ended May 31, 2026. We believe that a portion of these education funds will be restored in future periods, but the amount and certainty of the restored funding is dependent on legislative action in that state. Foreign exchange rates had an immaterial impact on Education Division revenue and operating results for the third quarter of fiscal 2026.
Previous 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.
Current wording
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. At May 31, 2026, over 8,000 schools around the world were using the Leader in Me program.
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 increased cost allocations from shared services.
Current wording
SG&A Expenses. For the quarter ended May 31, 2026, Education Division SG&A expenses increased primarily due to increased cost allocations from shared services and increased associate expenses from new personnel, including changes to compensation plans. For the first three quarters of fiscal 2026, Education Division SG&A expenses increased primarily due to increased commissions on previously deferred revenue and increased associate expenses from new personnel.
Previous wording
Depreciation Expense– Our depreciation expense for the two quarters ended February 28, 2026, increased $0.3 million to $2.2 million, primarily from assets acquired 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 May 31, 2026, increased $0.2 million to $1.2 million, compared with $1.0 million in the prior year. For the three quarters ended May 31, 2026, our depreciation expense was $3.4 million compared with $3.0 million in the first three quarters of fiscal 2025. The increase in our depreciation expense during fiscal 2026 was primarily due to assets acquired in connection with our new headquarters office. We currently anticipate that depreciation expense will total approximately $4.5 million in fiscal 2026.
Previous wording
Amortization Expense – Compared with the prior year, our amortization expense for the first two quarters of fiscal 2026 decreased $0.8 million to $1.4 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 as these intangible assets continue to be some of our primary revenue and cash flow generating assets. We currently anticipate our finite-lived intangible asset amortization expense will total $3.0 million in fiscal 2026.
Current wording
Amortization Expense – Our amortization expense from definite-lived intangible assets for the quarter ended May 31, 2026, decreased $0.5 million to $0.6 million compared with the third quarter of the prior year. For the three quarters ended May 31, 2026, our amortization expense totaled $2.0 million compared with $3.3 million in fiscal 2025. The decrease in our amortization expense was 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.
Previous 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.
Current wording
Interest Income – Our interest income for the quarter ended May 31, 2026, decreased $0.2 million compared with the prior year. For the first three quarters of fiscal 2026, our interest income decreased $0.6 million to $0.2 million. The decrease in interest income was primarily due to decreased cash and lower interest rates on those balances throughout fiscal 2026.
Previous 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.
Current wording
Interest Expense – Interest expense for the third quarter of fiscal 2026 of $0.1 million decreased by $0.1 million compared with the prior year. For the three quarters ending May 31, 2026, our interest expense decreased $0.2 million to $0.2 million compared with the prior year. The decrease in our interest expense during fiscal 2026 was primarily due to decreased debt balances compared with the prior year as payments have been made in the normal course of business.
Previous 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.
Current wording
Our income tax provision for the quarter ended May 31, 2026, was $1.1 million on pre-tax earnings of $4.2 million, for an effective tax rate of 25.9%. In the third quarter of fiscal 2025, our income tax benefit was $0.7 million on a pre-tax loss of $(2.1) million, for an effective tax benefit rate of 33.8%.
Previous wording
We currently estimate that our effective tax rate will normalize during the remainder of fiscal 2026 to approximately 37%, which is higher than normal statutory rates primarily due to non-deductible stock based compensation.
Current wording
We currently estimate that our effective tax rate will normalize during the remainder of fiscal 2026 to approximately 41%, which is higher than normal statutory rates primarily due to non-deductible stock based compensation.
Previous wording
We paid $0.3 million of cash for taxes during the two quarters ended February 28, 2026. Our cash paid for taxes in the first two quarters of fiscal 2026 was significantly less than cash paid in fiscal 2025 primarily due to payments made for the fiscal 2024 income tax provision, which was significantly larger than the fiscal 2025 tax provision. We anticipate our total cash paid for income taxes over the coming years will approximate our total income provision on an annual basis.
Current wording
We paid $0.4 million of cash for taxes during the three quarters ended May 31, 2026. Our cash paid for taxes in the first three quarters of fiscal 2026 was significantly less than cash paid in fiscal 2025 primarily due to payments made for the fiscal 2024 income tax provision, which was significantly larger than the fiscal 2025 tax provision. We anticipate our total cash paid for income taxes over the coming years will approximate our total income provision on an annual basis.
Previous 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).
Current wording
At May 31, 2026, we had over $74 million of available liquidity, which consisted of $12.0 million in cash combined with our full available $62.5 million revolving credit facility. Of our $12.0 million of cash on May 31, 2026, $6.0 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 two quarters ended February 28, 2026.
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, 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 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.
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 2026 was $17.5 million compared with $19.0 million in fiscal 2025. The slight decrease in cash flows from operating activities was primarily attributable to lower operating income and unfavorable changes in working capital balances compared with the first three quarters of fiscal 2025. While we expect our cash flows from operating activities will improve during the fourth quarter of fiscal 2026, 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 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.
Current wording
During the first three quarters of fiscal 2026, our cash used for investing activities totaled $9.0 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.
Previous 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.
Current wording
Through May 31, 2026, we spent $5.1 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 $6 million and $8 million in fiscal 2026. Certain projects previously expected to be developed during fiscal 2026 were postponed and are now expected to be developed in fiscal 2027, which may increase our overall spending for curriculum development in the future.
Previous 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.
Current wording
Our cash used for purchases of property and equipment during the first three quarters of fiscal 2026 totaled $3.9 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 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.
Current wording
For the three quarters ended May 31, 2026, our net cash used for financing activities totaled $28.1 million. Our primary uses 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), and $0.8 million used for the final payment for the purchase of Strive. Partially offsetting our uses of cash for financing activities were $0.9 million of proceeds received from our ESPP participants to purchase shares of common stock during the first three quarters 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 the end of the second quarter.
Previous wording
We expect to pay the liabilities from our leases and notes payable; pay for projected capital expenditures; and meet other obligations in fiscal 2026 and beyond from current cash balances and future cash flows from operating activities. Going forward, we will continue to incur costs necessary for the day-to-day operation of the business and may use additional credit and other financing alternatives, if necessary, for these expenditures. We have a credit agreement (the 2023 Credit Agreement) which we expect to renew and amend on a regular basis to maintain the long-term borrowing capacity of this credit facility. Additional potential sources of liquidity available to us include factoring receivables, issuance of additional equity, or issuance of debt to public or private sources. If necessary, we will evaluate all of these options and select one or more of them depending on overall capital needs and the associated cost of capital.
Current wording
We expect to pay the liabilities from our leases; pay for projected capital expenditures; and meet other obligations in fiscal 2026 and beyond from current cash balances and future cash flows from operating activities. Going forward, we will continue to incur costs necessary for the day-to-day operation of the business and may use additional credit and other financing alternatives, if necessary, for these expenditures. We have a credit agreement (the 2023 Credit Agreement) which we expect to renew and amend on a regular basis to maintain the long-term borrowing capacity of this credit facility. Additional potential sources of liquidity available to us include factoring receivables, issuance of additional equity, or issuance of debt to public or private sources. If necessary, we will evaluate all of these options and select one or more of them depending on overall capital needs and the associated cost of capital.
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Previous report — wording carried elsewhere
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 report — wording carried elsewhere
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 report — wording carried elsewhere
The following comparative information is for our North America segment in the periods indicated (in thousands):
Previous report — wording carried elsewhere
SG&A Expense. North America segment SG&A expenses decreased primarily due to reduced associate costs, which have been lowered by recent restructuring activities, and by other cost cutting initiatives.
Previous report — wording carried elsewhere
The following comparative information is for our Education Division in the periods indicated (in thousands):
Previous report — wording carried elsewhere
Interest Income – For the two quarters ended February 28, 2026, our interest income decreased by $0.4 million to $0.1 million due to decreased cash balances and lower interest rates on those balances.
Previous report — wording carried elsewhere
Interest Expense – Interest expense for the first half of fiscal 2026 decreased $0.1 million to $0.2 million compared with the first half of fiscal 2025 due to decreased debt balances as payments have been made in the normal course of business.