FRANKLIN COVEY CO (FC)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations (Management’s Discussion and Analysis) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management’s current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in forward-looking statements are set forth below under the heading “Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995.”

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.

Non-GAAP Measures

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.

RESULTS OF OPERATIONS

Overview

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.

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.

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

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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.

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:

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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.

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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.

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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.

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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.

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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.

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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.

The following is a summary of other unaudited consolidated financial information from the third quarter of fiscal 2026, which ended on May 31, 2026:

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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.

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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.

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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.

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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.

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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 m

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion and Analysis) is intended to provide a summary of the principal factors affecting the results of operations, liquidity and capital resources, and the critical accounting estimates of Franklin Covey Co. (also referred to as we, us, our, the Company, FranklinCovey, and Franklin Covey) and subsidiaries. This discussion and analysis should be read together with the accompanying consolidated financial statements and related notes contained in Item 8 and the Risk Factors discussed in Item 1A of this Annual Report on Form 10-K. Forward-looking statements in this discussion are qualified by

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the cautionary statement under the heading “Safe Harbor Statement Under the Private Securities Litigation Reform Act Of 1995” contained later in Item 7 of this Annual Report on Form 10-K.

Non-GAAP Measures

This Management’s Discussion and Analysis includes the concepts of adjusted earnings before interest, income taxes, depreciation, and amortization (Adjusted EBITDA) and “constant currency,” which are non-GAAP measures. We define Adjusted EBITDA as net income excluding the impact of interest, income taxes, intangible asset amortization, depreciation, stock-based compensation expense, and certain other items such as restructuring charges and building exit costs. Constant currency is a non-GAAP financial measure that removes the impact of fluctuations in foreign currency exchange rates and is calculated by translating the current period’s financial results at the same average exchange rates in effect during the prior year and then comparing this amount to the prior year.

We reference these non-GAAP financial measures in our decision making because they provide supplemental information that facilitates consistent internal comparisons to the historical operating performance of prior periods, and we believe it provides investors with greater transparency to evaluate operational activities and financial results. For a reconciliation of our segment Adjusted EBITDA to income before income taxes, a related GAAP measure, refer to Note 17 Segment Information to our consolidated financial statements as presented in Item 8 of this Annual Report on Form 10-K.

EXECUTIVE SUMMARY

General Overview

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. In the training and consulting marketplace, we believe there are three important characteristics that distinguish us from our competitors.

1.World Class Content – Our content is based on timeless principles of human effectiveness and is designed to help people change both their mindset and behavior. When our content is applied consistently in an organization, we believe the culture of that organization will change and improve to enable the organization to get desired results and achieve its own great purposes.

2.Breadth and Scalability of Delivery Options – We have a wide range of content delivery options, including: the All Access Pass and Leader in Me membership subscriptions, coaching and consulting, organization-wide transformational processes, intellectual property licenses, digital online learning, on-site training, training led through certified facilitators, and blended learning. We believe our expert delivery consultants combined with investments in digital delivery modalities have enabled us to deliver our content to clients in a high-quality learning environment whether those clients are working remotely or in a centralized location.

3.Global Capability – We have sales professionals in the United States and Canada who serve clients in the private sector, in government, and in educational institutions; wholly owned subsidiaries that serve clients in Australia, Austria, China, France, Germany, Ireland, Japan, New Zealand, Switzerland, and the United Kingdom; and we contract with independent licensee partners who deliver our content and provide services in approximately 150 countries and territories around the world. Our capabilities allow us to serve a wide range of clients from small locally owned entities to large multinational enterprises.

We have some of the best-known offerings in the training industry, including a suite of individual-effectiveness and leadership-development training content based on the best-selling books, The 7 Habits of Highly Effective People, The Speed of Trust, Multipliers, The 4 Disciplines of Execution, and Trust & Inspire, and proprietary content in the areas of Execution, Sales Performance, Productivity, Customer Loyalty, Leadership, and Education. We believe that our offerings help individuals, teams, and entire organizations transform their results through achieving systematic, sustainable, and

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measurable changes in human behavior. Our offerings are described in further detail at www.franklincovey.com. The information contained in, or that can be accessed through, our website does not constitute a part of this Annual Report on Form 10-K, and the descriptions found therein should not be viewed as a warranty or guarantee of results.

Our fiscal year ends on August 31, and unless otherwise indicated, fiscal 2025, fiscal 2024, and fiscal 2023 refer to the twelve-month periods ended August 31, 2025, 2024, 2023, and so forth.

Key Strategic Objectives

The theme of our fiscal 2026 Company kickoff was, “Deep Roots, Bold Future.” Building on our enduring areas of competitive strength and the significant growth investments we made in fiscal 2025, we plan to focus on the following four strategic objectives that we intend to execute with discipline in fiscal 2026 to help us achieve our vision of helping our clients achieve their missions and strategic objectives.

Clarify our position in the market. FranklinCovey is not just a training company. We believe we are a trusted leadership and performance partner and that our comprehensive solutions can help drive breakthroughs in performance as our clients engage leaders and teams across their organizations to move their strategies forward. In fiscal 2026, our message to potential and current clients is designed to firmly position us in this more strategic, outcomes-oriented place in the market.

Focus and declare who we serve. In fiscal 2026 we intend to significantly increase the precision and impact of our outcome-oriented messaging to our target buyers, namely, senior executive leaders who own the responsibility for achieving strategic outcomes and who can make the spending decisions to do what it takes to achieve them. Our messaging target also includes senior, performance-oriented talent and human resource leaders who serve as internal partners to these executives inside of their organizations. As we increase the effectiveness of our messaging, we expect that we will engage with more significant clients in more strategic ways, driving better results for our clients and for FranklinCovey.

Build and sell like a “solutions leadership” company. A solutions leadership company is differentiated by the strength of its products and services. We intend to increasingly position and package our solutions as integrated offerings that drive collective action and deliver breakthrough results for clients. Our trusted content and frameworks will be more frequently combined with consulting and technology to help clients achieve measurable outcomes at scale—enabling lasting client impact and durable growth for FranklinCovey.

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Model what we teach, internally and visibly. As we pursue our growth strategy, we will heavily use and model our own methodologies and frameworks. This process includes further investments in our already strong culture to increase our ability to execute with even higher trust and accountability as we engage our own leaders and teams in achieving our own breakthrough results.

We believe the pursuit of these strategic priorities will enable us to make more progress toward our mission of enabling greatness in both people and organizations and our vision to impact billions. In addition, we believe that successful implementation of these objectives will provide our associates with additional resources and opportunities for growth and impact in the future and will drive results that are expected to provide return to our shareholders.

Other key factors that influence our operating results include: the number of organizations that are active customers; the scale and duration of our engagements with them; the number of people engaged in our solution implementations within those organizations; the continuation or renewal of existing services contracts, especially subscription renewals; the availability of budgeted spending in our solution areas among our clients and prospective clients, which, in certain content categories, can be significantly influenced by general economic conditions; client satisfaction with our offerings and services; the number and productivity of our international licensee operations; and our ability to manage operating costs necessary to develop and provide meaningful offerings and related products to our clients.

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Fiscal 2025 Financial Overview

Fiscal 2025 was a challenging year as our operations and financial results were adversely impacted by various macroeconomic factors, including threatened or enacted tariffs that have created significant business environment uncertainty, specific actions to reduce U.S. federal government spending, a general weakening of economic conditions both domestically and internationally, and ongoing geopolitical tensions which continue to produce instability in certain regions of the world. While threatened or enacted tariffs have not directly impacted our operations, the uncertainty created by the threatened tariffs have adversely impacted our clients both domestically and internationally. In response to the economic uncertainty, many of our clients and prospective clients have sought to reduce their spending to maintain profitability, which led to delayed decision making, decreased contract expansion, and lower client retention. Despite these challenging macroeconomic issues, we are pleased that the majority of our clients are renewing their All Access Pass subscriptions and Leader in Me memberships. Our solutions are designed to help clients improve their key metrics and manage through difficult and uncertain times. During fiscal 2025, we implemented a new go-to-market strategy in North America, and these initiatives are designed to enable us to systematically drive growth in both the breadth and depth of our client relationships at scale. We believe these initiatives will provide strong growth in amounts invoiced during fiscal 2026, which will then translate into meaningful growth in reported revenue toward the back half of fiscal 2026 and increasing in future periods.

Our consolidated revenue for the fiscal year ended August 31, 2025, totaled $267.1 million, compared with record-high revenues of $287.2 million in fiscal 2024 and reflected the impact of business conditions and macroeconomic challenges previously described. In constant currency, our consolidated revenue was $267.3 million for fiscal 2025. The Company’s revenue performance during fiscal 2025 included the following key metrics:

Enterprise Division revenue in fiscal 2025 totaled $188.1 million compared with $208.1 million in the prior year. Enterprise Division revenue perfo

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