Industrial Select Sector

Russell 2000

The Cannibal

Comparable Companies - FC

The report covers data for Franklin Covey Co. (FC). One discretionary insider sale was recorded. Top institutional holders include AllianceBernstein L.P. with an 8.0% stake. Short interest as of 2025-11-28 was 12.4% of the float with 6.6 days to cover.

PRESIDENT, EDUCATION DIVISION

1,052,680 shares acquired solely for investment purposes on behalf of client discretionary investment advisory accounts.

Securities acquired and held in the ordinary course of business.

641,620 shares acquired solely for investment purposes on behalf of client discretionary investment advisory accounts.

614,501 shares acquired solely for investment purposes on behalf of client discretionary investment advisory accounts.

Paul S. Walker

Jessica G. Betjemann

Stephen D. Young

M. Sean Covey

Jennifer C. Colosimo

Colleen Dom

Anne H. Chow

Craig Cuffie

Donald J. McNamara

Nancy Phillips

Efrain Rivera

Derek C.M. van Bever

Paul S. Walker, as President and Chief Executive Officer of Franklin Covey Co., has steered the company through a period of strategic transformation, notably leading the successful transition to the FranklinCovey All Access Pass, a key digital initiative aimed at expanding reach and impact. While fiscal year 2025 saw a decline in consolidated revenue, net income, Adjusted EBITDA, and free cash flow compared to the prior year, the company reported strong growth in its Education Division and positive indicators such as new logo growth and client retention. Under his leadership, Franklin Covey has also engaged in significant share repurchase programs, demonstrating a commitment to returning capital to shareholders. His provenance is marked by a long tenure within Franklin Covey, progressing through various leadership roles and consistently focusing on strategic growth and digital innovation.

President and Chief Executive Officer

Jessica G. Betjemann assumed the role of Executive Vice President & CFO at Franklin Covey Co. in May 2025, following her tenure as Executive Vice President and CFO at Life Time, Inc. from 2021 to 2024. Her extensive career in finance includes senior leadership positions at prominent companies such as Amazon and The Home Depot, and her early career at General Electric. While specific quantifiable performance metrics directly attributable to her in these prior roles are not publicly detailed, her consistent progression to CFO positions in publicly traded companies underscores a strong foundation in financial management and strategic acumen. She is expected to play a key role in Franklin Covey's financial execution and anticipated growth in Adjusted EBITDA and Free Cash Flow in fiscal 2026 and beyond.

Executive Vice President & CFO

Stephen D. Young served as Executive Vice President & CFO of Franklin Covey Co. from 2013 to May 2025, a significant tenure during which he was responsible for the company's financial reporting and strategy. During his time, he reported on key financial metrics such as consolidated revenue and Adjusted EBITDA, and oversaw capital allocation activities including substantial share repurchases. His career also includes financial leadership roles at Novell, Inc. and WordPerfect Corporation, demonstrating a long-standing expertise in corporate finance. While specific individual performance metrics from his earlier roles are not publicly detailed, his consistent leadership in senior financial positions highlights a proven capability in managing complex financial operations and contributing to corporate financial health.

Former Executive Vice President & CFO

M. Sean Covey, as President of Franklin Covey Education since 2000, has been a key driver of the division's growth and impact. Under his leadership, the Education Division has demonstrated consistent revenue increases, with an 11% rise in Q1 fiscal 2025 and a 7% increase in the first two quarters of fiscal 2025. This growth is fueled by initiatives such as increased training, coaching, and new Leader in Me subscriptions. His authorship of highly successful books, including 'The 7 Habits of Highly Effective Teens' which has sold over 4 million copies, further establishes his provenance as a prominent thought leader in education and personal development, contributing significantly to Franklin Covey's brand and educational offerings.

President of Franklin Covey Education

Jennifer C. Colosimo, currently a Senior Advisor and former President of Franklin Covey's Enterprise Division, has a long and dedicated career with the company, joining in 2004. As President of the Enterprise Division from 2019 to August 2025, she oversaw a period where the division experienced some revenue declines in fiscal year 2025, particularly in international markets and North America. Prior to this, she served as Executive Vice President of Global Sales and Delivery. Her extensive tenure in various sales and leadership capacities within Franklin Covey demonstrates a deep understanding of the company's core business, client engagement strategies, and the dynamics of its enterprise solutions.

Senior Advisor, Former President of Enterprise Division

Colleen Dom has served as Executive Vice President of Operations at Franklin Covey Co. since 2016, building upon her prior role as Vice President of Operations. Her responsibilities are central to the company's operational efficiency and supply chain management. While specific quantifiable performance metrics directly attributable to her leadership in these roles are not publicly detailed, her long tenure in operations at Franklin Covey, coupled with prior experience in similar leadership positions at various companies, demonstrates a strong and consistent background in managing complex operational functions and contributing to organizational effectiveness.

Executive Vice President of Operations

Anne H. Chow, Lead Independent Director at Franklin Covey, brings extensive executive leadership experience, most notably as the former CEO of AT&T Business, where she led a $35 billion global operating unit with over 35,000 employees and fostered a culture of innovation and performance. Her leadership philosophy, articulated in her book 'Lead Bigger,' emphasizes inclusion, purpose, and a human-centric approach, focusing on building trust and empowering individuals. Recognized for her inspirational leadership and commitment to diversity and sustainability, her provenance is defined by a consistent track record of driving large-scale transformations and cultivating high-performing, values-driven organizations.

Lead Independent Director

Craig Cuffie, an Independent Director at Franklin Covey, possesses a robust background in global procurement and supply chain management, cultivated through significant leadership roles at multinational corporations. His career includes serving as Group Chief Procurement Officer at HSBC since June 2022, and previously as Chief Procurement Officer at PepsiCo, along with senior supply chain positions at Dell Technologies and Procter & Gamble. While specific quantifiable performance metrics directly attributable to his individual contributions in these roles are not publicly detailed, his extensive experience in optimizing global operations, managing complex supply chains, and driving strategic value within large organizations demonstrates a proven capability in these critical business functions.

Independent Director

Donald J. McNamara, a long-standing Independent Director at Franklin Covey, is the founder and Chairman of The Hampstead Group LLC, a private equity firm with over 35 years of successful investment experience. His provenance is marked by significant capital allocation, including over $1 billion in real estate equity investments, primarily in the hospitality and senior housing sectors, where he played a key role in building companies like Wyndham Hotels and Resorts. As a Senior Advisor to TPG's real estate platform, he is involved with substantial assets. His extensive background in private equity, coupled with expertise in financial and strategic matters, capital raising, and M&A, positions him as a highly experienced and impactful board member.

Nancy Phillips, an Independent Director at Franklin Covey, has built a distinguished career as a human resources leader across several major global corporations. As Chief People Officer at Paramount Global, she was instrumental in driving HR strategy and cultivating a high-performance culture. Her leadership at Nielsen resulted in the company being recognized for diversity and as a 'Great Place to Work.' She played a key role during Broadcom's historic sale to Avago Technologies and was incentivized for key staff retention during Paramount's sale, demonstrating her involvement in significant corporate transactions. Her provenance is characterized by expertise in organizational development, talent management, and a consistent focus on creating inclusive, high-performing employee experiences across large, complex organizations.

Efrain Rivera, an Independent Director at Franklin Covey, brings extensive financial leadership experience, primarily from his role as Senior Vice President and Chief Financial Officer of Regal Beloit Corporation (now Regal Rexnord Corporation) from 2011 to 2018. His career also encompasses senior financial positions at Cooper Industries and General Electric, showcasing a robust background in corporate finance across diverse industrial sectors. While specific quantifiable performance metrics directly attributable to his individual contributions in these roles are not publicly detailed, his long tenure in senior financial management indicates a proven capability in financial reporting, strategic planning, and internal controls within complex corporate environments.

Derek C.M. van Bever, an Independent Director at Franklin Covey, is a recognized thought leader in business strategy and innovation. His provenance is significantly shaped by his role as a Senior Fellow and former Chief Research Officer at The Corporate Executive Board, and his co-authorship of the influential book 'When Growth Stalls.' This background highlights his expertise in analyzing and addressing critical challenges related to corporate growth, strategic planning, and understanding the dynamics of subscription-based business models. His contributions are rooted in research-driven insights and a focus on innovative solutions for organizational development.

Robert A. Whitman, Chairman of the Board at Franklin Covey, possesses a distinguished career marked by significant leadership in both public and private equity sectors. As CEO of Franklin Covey from 2000 to 2021, he guided the company for over two decades. Prior to that, as President and Co-CEO of The Hampstead Group LLC, he was instrumental in significant private equity investments across various industries and helped build major hospitality companies like Wyndham Hotels and Resorts. His role as Co-Founder and Co-Managing Partner of Whitman Peterson further solidifies his provenance in large-scale capital allocation, overseeing investments exceeding $20 billion in total capitalization across numerous properties. His background demonstrates a strong strategic and financial acumen, complemented by a disciplined and driven personal character.

Private Equity Investments (The Hampstead Group LLC)

Real Estate Investments (Whitman Peterson)

Chairman of the Board

Global organizational consulting firm leveraging proprietary data and IP to power performance across the talent lifecycle, offering integrated solutions that combine organizational strategy, assessment, talent acquisition, and leadership development.

Provides executive search, professional search, and interim solutions for talent acquisition.

Offers organizational strategy, assessment, leadership development, and digital solutions.

Specialized talent solutions and business consulting firm connecting skilled job seekers with opportunities, operating through contract talent solutions, permanent placement, and Protiviti (global consulting for internal audit, risk, and technology).

Provides contract professionals in finance, accounting, technology, and administrative fields.

Provides consulting in internal audit, risk, business, and technology.

Global professional services firm partnering with clients to put strategy into practice, specializing in healthcare, education, and commercial sectors with a mix of consulting, managed services, and digital solutions.

Consulting and managed services for health systems, academic medical centers, and research institutes.

Consulting and managed services for colleges, universities, and research institutes.

Consulting and managed services for financial services, energy, industrials, and public sector.

Professional services firm focused on project execution, offering flexible engagement models through consulting, on-demand talent, and outsourced services, specializing in navigating complex business challenges.

Primary market for consulting, on-demand talent, and outsourced services.

International operations serving clients with similar service offerings.

The company does not own any manufacturing facilities or equipment. Its property and equipment primarily consist of computer hardware and software, and furniture, fixtures, and leasehold improvements at its corporate headquarters and other offices. The company has wholly-owned direct offices in Australia, New Zealand, China, Japan, the United Kingdom, Ireland, France, Germany, Switzerland, and Austria.

Franklin Covey's management team is executing a high-risk, high-conviction strategy to reaccelerate growth, which has severely impacted near-term financials but is consistent with the long-term needs of a Mature Compounder. CEO Paul Walker, supported by a deeply experienced board, is using the company's fortress balance sheet to simultaneously fund a $16 million sales transformation and an aggressive share buyback program. The primary tension lies in the misalignment between the board's exceptional capital allocation expertise and management's incentive structure, which favors generic EBITDA and revenue targets over per-share value creation. While the strategic vision is sound, the execution in FY2025 has been painful, and the team must now deliver on its promise of a re-acceleration in FY2026 to justify the significant profit and cash flow sacrifice.

Compliance with environmental laws and regulations (including new laws and regulations relating to climate change) has not had a material effect on our operations. We believe we are in compliance with applicable governmental regulations in the United States and the countries in which we operate. We expect to face increasing regulations relating to climate change, including disclosure of the impacts of climate change on our business. Climate change may increase the frequency and severity of extreme weather conditions and natural disasters, which may affect our business operations or the activities of our vendors, suppliers, and customers. The delivery of our services is dependent on reliable and relatively inexpensive electricity; if electricity is not readily available or affordable, our operating results may be adversely impacted.

Full-time employees: 1,084. Associates reported a 77% favorable engagement score in fiscal 2025. The Company conducts a market competitiveness assessment of employee benefits offerings. Competition for skilled personnel is intense at all levels of experience and seniority.

We offer nearly all of our training materials and related accessories in digital format. Our printed training materials are primarily comprised of paper, which we believe is a renewable and sustainable resource and all of our primary printer’s paper suppliers are Forest Stewardship Council (FSC) certified. The Company is subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect personal data, including the General Data Protection Regulation (GDPR) and various U.S. state privacy laws. The Company has implemented policies, controls, and procedures, including a team dedicated to data protection, to comply with these requirements.

We purchase our training materials and related products from vendors and suppliers located both domestically and internationally, and we are not dependent upon any one vendor for the production of our training and related materials as the raw materials for these products are readily available. We partner with charitable organizations to fund the Leader in Me programs in many schools across the country.

This narrative is built upon a challenging financial reality where revenue declined 7% to $267.1 million and Free Cash Flow collapsed 75% to $12.1 million in FY2025, driven by macro headwinds and a deliberate $16 million incremental investment in sales and marketing.

The P14 Innovation Dossier states the primary purpose of CapEx is investment in growth platforms, including new/refurbished content for subscription offerings and the expansion of direct office operations (e.g., a new office in France). The Q4 FY2024 transcript announced a $16 million incremental growth investment, which is primarily OpEx (headcount, marketing) but is part of the same strategic reinvestment thesis. The company is focused on combining content, technology (AI), and services.

The P8 Annual Report discloses that the auditor identified Revenue Recognition as a Critical Audit Matter, but does not highlight asset impairments as a CAM for FY2025. However, the P14 Innovation Dossier notes that in FY2024, the company suspended development of a student leadership assessment and impaired the associated asset, and wrote off property from its previous headquarters. This indicates a history of asset write-downs.

The primary reinvestment in FY2025 was the $16 million in incremental OpEx for the sales transformation. The narrative is that this investment will drive future growth. The P14 Innovation Dossier shows the company is also reinvesting in content and AI capabilities. However, there is no quantitative evidence yet that this reinvestment is creating value, as FY2025 profitability collapsed.

Note Payable to former owners of Strive Talent, Inc.

P/FCF

EV/EBITDA

Sales, enterprise relationships, distribution, cross-functional global leadership, management, operations, finance, and marketing.

Sourcing, procurement, expense management, corporate travel, sustainability, third-party management, real estate, and substantial financial knowledge.

Private equity, financial and strategic matters, raising capital, capital deployment, acquisitions, dispositions, and Audit Committee financial expert.

Human resources, global HR organization oversight, executive compensation, and talent management.

Financial reporting, accounting, internal controls, and Audit Committee financial expert.

Thought leadership, business growth, innovation, subscription businesses, strategy, and research.

Company operations, sales strategy, content, technology deployment, organizational development, and digital transformation.

Leadership, strategic priorities, operations, finance, private-equity investing, raising capital, and capital deployment.

Robert A. Whitman

CEO: 5x base salary; CFO: 3x base salary; Other NEOs: 2x base salary. Executives are prohibited from selling shares until guidelines are met. New executives have five years to achieve compliance.

Franklin Covey Co. is a global company focused on organizational performance improvement. The company's mission is to 'enable greatness in people and organizations everywhere' by helping individuals and organizations achieve results that require collective behavior change. The company's expertise is rooted in the foundational work of Dr. Stephen R. Covey in leadership and personal effectiveness, and Hyrum W. Smith in productivity and time management. The company delivers its solutions through a combination of subscription-based access to proprietary content, implementation tools, assessments, and expert consulting and advisory services. Key offerings include the All Access Pass (AAP) for enterprise clients and the Leader in Me membership for educational institutions.

This segment includes sales personnel and operations that serve the United States and Canada. It has a depth of expertise in helping organizations solve problems that require changes in human behavior, including leadership, productivity, execution, trust, and sales performance.

This segment consists of directly owned offices that provide the same offerings and content as the North America segment in countries outside of North America, including Australia, Austria, China, France, Germany, Ireland, Japan, New Zealand, Switzerland, and the United Kingdom.

This segment consists of independently owned international licensees who provide the company's offerings and services in countries where the company does not have a directly-owned office. The segment's revenue is primarily comprised of royalty revenues received from the licensees.

This segment is centered around the principles found in The Leader in Me and is dedicated to helping educational institutions build a culture that will produce great results, such as increased student performance and improved school culture. It includes domestic and international Education practice operations focused on sales to educational institutions.

Held WACC (10.0%) and Terminal Multiple (10.0x) constant, and solved for the implied Year 5 operating margin required to justify the current market valuation of $206.6M.

Balance Sheet - Supplemental

Balance Sheet

Cash Flow Statement - Supplemental

Cash Flow Statement

Income Statement - Supplemental

Income Statement

Ratios

Valuation

Historical Ratios & Multiples - FC

The broader corporate training market is growing at a 4.7% CAGR, but the industry is currently in a 'repair' phase. Peers like Robert Half and Resources Connection are seeing revenue declines of 7% to 11%, indicating that Franklin Covey's 7% decline is largely a function of a cyclical downturn rather than a loss of competitive position.

Franklin Covey is at a critical juncture as it enters the 'execution phase' of its sales transformation. With the stock trading at a multi-year low and short interest elevated at 12.4%, any sign of fundamental stabilization could trigger a significant re-rating.

FY2026 Q3 Earnings Results. This will be the first clean look at the sales transformation's impact. Investors will look for a re-acceleration in reported revenue and a return to double-digit operating margins, validating the $16 million investment.

Activist Pressure from Butler Hall Capital. The activist has proposed a sale of the Education Division, which they value at $200 million. A sale or strategic review would immediately unlock value and re-rate the core Enterprise business.

Moat Erosion via AI Disruption. Generative AI could lower the barrier to entry for leadership training, allowing competitors to offer similar content at a fraction of the price, permanently impairing FC's 76% gross margins.

Persistent Macroeconomic Headwinds. Continued cuts in U.S. federal spending (DOGE) and international tariffs could permanently reduce the addressable market for the Enterprise division.

Liquidation value analysis is not relevant for the company's archetype ('Mature_Compounder') and was not performed.

Cash & Equivalents

Accounts Receivable

Inventory

Tax Assets

Other Current Assets

Net PP&E

Intangibles

Other Non-Current

Accounts Payable

Current Debt

Deferred Revenue

Tax Liabilities

Other Current Liabilities

Deposits

Other Non-Current Liabilities

Exhibit 99.1 Q4FY25

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM

Exhibit 99.1 Q3FY25

Exhibit 99.1 Q2FY25

Exhibit 991 Q1FY25

Exhibit 991 Q4FY24

Exhibit 991 Q3FY24

Exhibit 991 Q4FY23

Exhibit 991 Q3FY23

Exhibit 991 Q2FY23

Exhibit 991 Q3FY22

Exhibit 991 Q2FY22

Exhibit 99.1 Q1FY22

Exhibit 991 Q3

Franklin Covey price target raised to $25 from $22 at Barrington

Franklin Covey price target lowered to $22 from $27 at Barrington

Franklin Covey is navigating a self-inflicted 'investment trough' where a $16 million sales transformation has temporarily collapsed free cash flow by 75% to $12.1 million. While the market is focused on a 7% revenue decline and macro headwinds in the Enterprise segment, the core subscription moat remains intact with 76.2% gross margins and a growing mix of multi-year contracts (57%). We recommend a Hold as we await quantitative proof that the new 'hunter-farmer' sales model can re-accelerate growth in FY2026.

Executive Summary

The primary value driver is the successful execution of a sales force overhaul designed to shift the company from mid-single-digit to double-digit growth. This transition is protected by a high-margin subscription model and a net cash position, with the ultimate catalyst being the realization of operating leverage in FY2026.<ul><li>Driver: Go-to-market sales transformation and separation of 'hunter' and 'farmer' roles.</li><li>Catalyst: FY2026 revenue re-acceleration and margin expansion as the $16 million investment annualizes.</li><li>Protection: Fortress balance sheet with $30.9 million in net cash and a durable switching-cost moat.</li></ul>Our variant perception is based on time arbitrage. The market is pricing the stock for a 'fade to average' due to the recent 79% collapse in free cash flow and a 7% revenue decline. However, our analysis of the switching cost moat-evidenced by 76.2% gross margins-suggests the company can sustain above-average returns on capital once the temporary $16 million front-loaded investment in sales productivity annualizes, justifying a premium valuation that the market currently ignores.This is a long-term, buy-and-hold investment predicated on the continued execution of a proven business model and the compounding of per-share intrinsic value through aggressive share repurchases.

Core Investment Rationale

Franklin Covey operates a high-margin, subscription-based consulting model centered on the All Access Pass (AAP) for enterprise clients and the Leader in Me program for schools. The company generates 76.2% gross margins by leveraging proprietary intellectual property-including the 7 Habits of Highly Effective People-delivered through a SaaS-like digital platform. The current strategy involves a $16 million incremental investment to restructure the sales force into dedicated 'hunters' for new logos and 'expanders' for existing accounts, aiming to increase average revenue per account from $63,000 to over $130,000. Revenue is highly recurring, with multi-year contracts now representing 57% of the total mix. Despite a 7% revenue decline in FY2025 to $267.1 million, deferred revenue grew 3% to $111.7 million, signaling that underlying contracted business remains more resilient than the reported P&L suggests.The company's primary assets are intangible, consisting of a vast library of proprietary content and a globally recognized brand. Key intellectual property includes 706 trademarks and 265 registered copyrights, with the 'Covey' trade name alone valued at a net carrying amount of $23.0 million. The All Access Pass (AAP) serves as the core 'System of Record' for leadership development within 5,000+ enterprise clients, while the Leader in Me program is embedded in over 8,000 schools globally. These assets create high switching costs, as removing the programs would disrupt established organizational cultures and require significant retraining costs.The corporate training market is highly fragmented, with Franklin Covey competing against large consulting firms like Deloitte and McKinsey, specialized peers such as Korn Ferry, and digital platforms like LinkedIn Learning. Despite this fragmentation, the industry exhibits rational pricing; peers like Korn Ferry maintained 88.0% gross margins even during recent revenue softness. Franklin Covey maintains a significant pricing power advantage, with its 76.2% gross margin sitting 3,830 basis points above the Tier 1 peer median of 37.9%.Franklin Covey has a history of consistent execution, successfully transitioning from a physical products company to a subscription-led digital powerhouse over the last decade. This strategy solidified their leadership, evidenced by a 5-year average revenue growth of 6.5% and a history of stable, high-return performance prior to the current pivot. Key moves, such as the launch of the All Access Pass in 2016, transformed the business into a predictable compounder. However, the most important historical story currently is the deliberate decision in late 2024 to sacrifice near-term profitability-dropping operating margins from 11.5% to 2.1%-to fund a $16 million sales transformation intended to break through a mid-single-digit growth ceiling.

Business & Situation

<ul><li>Bull Case: The sales transformation is already showing leading indicators of success, with new logo wins exceeding plans by 50% in Q2 FY2025. Furthermore, the company's aggressive share repurchase program has reduced the share count by 9.7% over the last five years, creating a powerful per-share compounding engine as margins normalize.</li><li>Bear Case: Macroeconomic headwinds, including a $9 million revenue hit from government spending cuts and international trade tensions, may prove more persistent than management anticipates. There is also a risk that the $16 million investment fails to drive the promised double-digit growth, leading to a permanent impairment of the company's historical 10%+ operating margins.</li></ul>The consensus view is that Franklin Covey is a 'falling knife' in a declining industry. Investors are focused on the 79% collapse in free cash flow and the 7% revenue decline, viewing the $16 million sales investment as a desperate attempt to fix a maturing business model. The stock's 52-week range of $14.04 to $39.22 reflects this deep skepticism, with the stock currently trading near multi-year lows. This narrative is reinforced by the company's underperformance against the XLI sector benchmark, trailing by over 120% since late 2022.The broader corporate training market is growing at a 4.7% CAGR, but the industry is currently in a 'repair' phase. Peers like Robert Half and Resources Connection are seeing revenue declines of 7% to 11%, indicating that Franklin Covey's 7% decline is largely a function of a cyclical downturn rather than a loss of competitive position.Our differentiated view is that the market is overly focused on a short-term headwind while underappreciating the durability of the moat and long-term compounding power. While reported revenue is down, the 7% growth in unbilled deferred revenue to $48.4 million and the 13% growth in Education deferred revenue suggest the business is actually expanding its contracted base. The $16 million 'hit' to EBITDA is a deliberate, non-recurring investment in human capital that the market is incorrectly treating as a permanent increase in the cost of doing business.The debate centers on whether FY2025 is a temporary trough or the start of a permanent decline. Given the 76.2% gross margins and the 57% multi-year contract mix, the evidence supports the 'temporary trough' thesis. The company is using its fortress balance sheet to buy back 11.6% of its market cap (net yield) while the market is distracted by short-term P&L noise.Our analytical edge comes from a deeper appreciation of the company's intangible assets and switching costs, leading us to believe the market is underestimating the durability of its high returns on capital in the face of perceived short-term threats. We have quantified the impact of the sales transformation and believe the market is ignoring the 808% incremental ROIC potential of this pivot.

Core Thesis

CEO Paul Walker is a 25-year veteran of the company who led the original digital transformation to the All Access Pass. His tenure has been marked by a deep understanding of the core business, though his recent pivot has yet to show up in the reported P&L.Capital allocation is exceptional. Management has reduced the share count by 9.7% over the analysis period and maintained a net cash position of $30.9 million. In FY2025 alone, they repurchased $26.4 million in stock, representing over 12% of the current market cap.Management maintains high candor, explicitly detailing the $16 million investment and acknowledging the $9 million impact from external macro factors. They have consistently met EBITDA guidance even while lowering revenue targets.<ul><li>Board Independence: 75% (6 of 8 directors)</li><li>Chairman/CEO Roles: Separate</li><li>Chairman Tenure: 28 years (Robert A. Whitman)</li><li>Insider Ownership: 15.2%</li><li>Shareholder Rights: Declassified Board, Plurality Voting</li></ul>The leadership and governance structure is a net positive. The board possesses deep private equity and capital allocation expertise (Donald McNamara), and the high insider ownership aligns management with shareholders. While the incentive structure is somewhat generic, the aggressive buyback program confirms a commitment to per-share value.

Leadership & Governance

The valuation floor is anchored to the Bear Case DCF value of $15.87, which models a scenario where the sales transformation fails to re-accelerate growth and operating margins remain depressed at 2.5% indefinitely.The base case assumes a return to 3.8% revenue growth in FY2027 and operating margins normalizing at 8.0% as the $16 million investment annualizes. This results in a fair value of $20.63.The bull case models a successful sales pivot with revenue growth accelerating to 10% and margins expanding to 10%. Blue-Sky Potential: $36.60.The bear case is defined by moat erosion and declining profitability. The final Bear Case value of $15.87 is determined directly by the Bear Case DCF scenario value, assuming 0-1% growth and permanent margin compression.

Valuation Context

<ul><li>FY2026 Q3 Earnings Results. This will be the first clean look at the sales transformation's impact. Investors will look for a re-acceleration in reported revenue and a return to double-digit operating margins, validating the $16 million investment.</li><li>Activist Pressure from Butler Hall Capital. The activist has proposed a sale of the Education Division, which they value at $200 million. A sale or strategic review would immediately unlock value and re-rate the core Enterprise business.</li></ul>Franklin Covey is at a critical juncture as it enters the 'execution phase' of its sales transformation. With the stock trading at a multi-year low and short interest elevated at 12.4%, any sign of fundamental stabilization could trigger a significant re-rating.

Catalyst Path & Context

<ul><li>Moat Erosion via AI Disruption. Generative AI could lower the barrier to entry for leadership training, allowing competitors to offer similar content at a fraction of the price, permanently impairing FC's 76% gross margins. The company's operating margin fell to 2.1% in FY2025, leaving little room for error if pricing pressure intensifies.</li><li>Persistent Macroeconomic Headwinds. Continued cuts in U.S. federal spending (DOGE) and international tariffs could permanently reduce the addressable market for the Enterprise division. The company quantified a $9 million revenue loss in FY2025 directly attributable to these factors.</li></ul>

Primary Risks

<ul><li>Entry Target: Calculated threshold price required to restore a 30% expected return based on internal valuation ($20.63 / 1.30).</li><li>Stop Loss: The primary stop-loss is fundamental, but a secondary technical stop is set at the 52-week low to protect against a structural multiple de-rating.</li><li>Position Size: The business is a high-quality compounder with a stable moat, which would normally support a 'Full' position. However, the current sizing is constrained to 'Starter' due to the 'Falling Knife' revenue trend and the execution risk inherent in the sales transformation model. Sizing reflects a 'Maintenance' posture while awaiting a more attractive valuation-based entry point.</li><li>Time Horizon: A 12-24 month horizon is required to allow the FY2026 recovery catalysts to materialize and for the market to digest the normalization of free cash flow.</li></ul><ul><li>Quarterly Invoiced Subscription Growth (must return to 5%+)</li><li>Operating Margin expansion (target 8%+ by FY2027)</li><li>New Logo acquisition counts in the 'Hunter' sales team</li></ul>A permanent decline in gross margins below 70%, indicating that the proprietary content has lost its pricing power and the switching cost moat has been breached.

Actionable Parameters & Monitoring

Franklin Covey is a high-quality business model currently obscured by a temporary investment cycle and cyclical macro headwinds. While the 75% collapse in free cash flow is jarring, the underlying 76.2% gross margins and aggressive share repurchases suggest the compounding engine is still intact. We recommend a Hold with a Fair Value of $20.63, as the current risk/reward is balanced between a $15.87 floor and significant blue-sky potential if the sales pivot succeeds.

Final Conclusion

Go-to-market sales transformation and separation of 'hunter' and 'farmer' roles.

Driver

FY2026 revenue re-acceleration and margin expansion as the $16 million investment annualizes.

Catalyst

Fortress balance sheet with $30.9 million in net cash and a durable switching-cost moat.

Protection

The sales transformation is already showing leading indicators of success, with new logo wins exceeding plans by 50% in Q2 FY2025. Furthermore, the company's aggressive share repurchase program has reduced the share count by 9.7% over the last five years, creating a powerful per-share compounding engine as margins normalize.

Bull Case

Macroeconomic headwinds, including a $9 million revenue hit from government spending cuts and international trade tensions, may prove more persistent than management anticipates. There is also a risk that the $16 million investment fails to drive the promised double-digit growth, leading to a permanent impairment of the company's historical 10%+ operating margins.

Bear Case

Franklin Covey is navigating a self-inflicted 'investment trough' where a $16 million sales transformation has temporarily collapsed free cash flow by 75% to $12.1 million. While the market is focused on a 7% revenue decline and macro headwinds in the Enterprise segment, the core subscription moat remains intact with 76.2% gross margins and a growing mix of multi-year contracts (57%). We recommend a Hold as we await quantitative proof that the new 'hunter-farmer' sales model can re-accelerate growth in FY2026.

From cautious transformation to aggressive growth execution. The company has shifted from a period of cost reduction and strategic refinement (FY2024) to a more aggressive growth posture (FY2025-2026), marked by significant go-to-market investments and AI integration. The narrative has evolved from 'managing through uncertainty' to 'positioning for double-digit growth'.

Method	Implied Value	Weight	Weighted Value
DCF	$26.68	53%	$14.03
Comps	$13.16	32%	$4.16
Historicals	$15.43	16%	$2.44
Total Weighted			$20.63

FC

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Price History