Earnings Call Transcript - FC Q4 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Franklin Covey Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Boyd Roberts, Head of Investor Relations. Please go ahead.

Boyd Roberts, Head of Investor Relations

Thank you. Hello, everyone, and thank you for joining us today. We appreciate having the opportunity to connect with you. Before we begin, please remember that today's remarks contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including, without limitation, statements that may predict, forecast, indicate or imply future results, performance or achievements and may contain words such as believe, anticipate, expect, estimate, project or words or phrases of similar meaning. These statements reflect management's current judgment and analysis and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations, including, but not limited to, risks relating to macroeconomic conditions, tariffs and other risk factors described in our most recent Form 10-K and other filings made with the SEC. We undertake no obligation to update or revise any forward-looking statements, except as required by law. Now with that out of the way, I'd like to turn it over to Mr. Paul Walker, our Chief Executive Officer and President.

Paul Walker, CEO and President

Thanks, Boyd, and good afternoon, everyone, and thank you for joining us. It's great to be with you and to have the opportunity to share our results and an update on the business. We're pleased with our momentum and that our fiscal '25 full year revenue and adjusted EBITDA results came in right in line with what we expected when we provided guidance in our Q3 call. We're also pleased that while much of fiscal '25 was a period of transition and organizational transformation, beginning in the fourth quarter and as we turn to fiscal '26, we're now in a period of execution and a return to growth. In a few minutes, Jessi will share more detail about our fiscal '25 results and our fiscal '26 guidance. Before we go there, I just wanted to share a couple of thoughts with you. And the first is that we're off to a strong start in the first quarter, particularly in our Enterprise North America business, where we're experiencing the acceleration in invoice growth we expected to see from investment in and implementation of our go-to-market sales transformation. A few points of evidence of this acceleration in Enterprise North America include we're having a strong contracting quarter in Q1 and expect to achieve strong growth in our invoiced amounts in the first quarter. A portion of this meaningful increase in invoiced amounts is being driven by strong new logo growth across the first 2 months of this Q1 of this new fiscal year, where the number of new logos sold and the associated revenue is pacing above prior year. Similarly, our services booking pace through the first 2 months this year is off to a very strong start, with services booked in Enterprise North America up double digits over the prior year. This is an indication of the importance of the outcomes we're helping our clients achieve and is an important leading indicator of future reported revenue growth. This acceleration in North America, coupled with the fact that we anticipate our education business to have a strong year, indicates that we expect invoiced amounts for the company, which declined last year to return to meaningful growth in fiscal '26. A portion of this meaningful growth in invoiced amounts will translate into reported revenue in fiscal '26 and an even greater portion will translate into even greater reported growth in fiscal '27, which will also flow through to strong growth in adjusted EBITDA and free cash flow. The objective of our investments in our go-to-market transformation was always to accelerate growth in revenue, adjusted EBITDA and free cash flow beyond the levels we'd achieved in our previous model. And this is still very much our objective. While we took a step back in fiscal '25, primarily due to external factors we could not foresee at the time we made our investments, we're back on the road to growth and expect this to be reflected in our fiscal '26 results and even more so in fiscal '27. Strategically, we're planning for something very clear and very important, to be the partner of choice for leaders pursuing breakthrough results, results that depend not only on great strategy, but also on how people work together to deliver it. Every organization faces these challenges, whether the goal is faster growth, integrating cultures after an acquisition, improving customer experience or transforming culture, success depends on institutionalizing the right behaviors and practices across leaders and teams. We help leaders make the link between behavior and performance tangible, measurable and scalable. That's what drives breakthrough results. This work doesn't get easier in uncertain times. It becomes more essential. AI is transforming how work gets done, but it also makes human capabilities, judgment, trust and collaboration more critical than ever. The ability of people to stay aligned, focused and accountable while working together with high trust and execution remains the ultimate differentiator. Our role is to help organizations achieve their most important goals by strengthening collective behavior, raising the level and the consistency of how people lead, collaborate and execute and scaling what already works well in pockets across entire organizations. As you can see shown on Slide 4, in pursuit of this objective, we're focused on 2 key priorities. The first is to be the leader in combining world-class content, technology and services to deliver breakthrough impact for our clients. And the second priority is to transform and accelerate our go-to-market approach to win more larger and more strategic new logos and to expand and retain existing ones. I'd like to just take a couple of minutes here and go into each of these priorities in a little bit more detail. First, as it relates to building world-class solutions, a few years ago, we asked what would it take to accelerate our ability to be the partner of choice for leaders pursuing breakthrough performance. Our answer led to 4 key initiatives. First, we sharpened our focus on helping organizations address mission-critical challenges. As you can see shown on Slide 5, the market in which we operate ranges from content providers to true performance partners. Our strategic focus is on the latter as a performance partner, the space where large-scale behavior change delivers measurable business results. That focus is reflected in flagship solutions like the 4 Disciplines of Execution, Helping Clients Succeed, the Leader in Me and our leadership suite of offerings. Focused here, we see AI not as a threat, but as a very important enabler. Many of the largest companies in the world across a variety of industries who are themselves pouring millions, if not billions of dollars into building AI capabilities throughout their organizations are at the very same time turning to Franklin Covey every day to help them navigate the vital leader and people elements of alignment, trust, change and execution. For example, we're currently partnering with one of the largest technology companies in the world, a leader in AI, who engaged us to work with one of the key teams in their organization to speed their progress in making sure they stay at the forefront of the AI race. For this organization, speed will make all the difference. And while they have the best AI engineering capability in the world, their speed is impacted by the level of trust, alignment and collaboration they're able to achieve. These are among the very breakthrough behaviors Franklin Covey excels at helping leaders address, and we're partnering with those organizations to implement our speed of trust solution. Leading in the current environment is perhaps more difficult than it's ever been, and Franklin Covey is a trusted partner to leaders around the world. Last March, we held our first ever virtual Impact Conference, and we were pleased to have 20,000 people registered to attend. Building on the success of that first conference yesterday, we kicked off this year's Impact Conference and are pleased to have not 20,000, but 30,000 leaders and individuals joining for sessions throughout this week focused on disruption, trust, AI and leadership. Second, we continue to invest in proven high-impact content and services. Our trusted frameworks like the 7 Habits, the Speed of Trust, the 4 Disciplines of Execution, Leader in Me and a host of others continue to deliver measurable client outcomes. Our average Net Promoter Scores are very high. And when I say very high, they're in the 70s and for some of our offerings in the 80s. These solutions have generated billions in cumulative revenue and immense value for our clients. Third, we leverage technology to scale performance. Our impact platform integrates content, services and technology to deliver solutions globally in multiple languages and at every level. We followed a similar model in education where Leader in Me now serves more than 8,000 schools worldwide. Importantly, we're now embedding AI across all of our offerings, providing real-time coaching, feedback and reinforcement. For example, in our Helping Clients Succeed sales transformation solution, AI now supports sales professionals with live deal coaching and objection handling to improve win rates. We view the combination of our best-in-class content, our expert facilitation and coaching services and AI as a powerful combination of capabilities to help our clients accelerate leadership, culture and execution results. And fourth, we rebuild our business model to support long-term client partnerships. We created the All Access Pass and built a deep ecosystem of implementation strategists, consultants, and coaches dedicated to lasting partner for life relationships. The second key priority that I'll just talk about for a minute here is that of transforming the way we go to market to win more strategic clients and to expand our work with existing ones. Over the past 3 quarters, we completed this transformation, reorganizing our sales and client success teams around 2 clear goals: first, landing new strategic clients; and second, expanding relationships with those we already serve. This structure is now fully in place, and it's delivering strong early results across 3 areas. The first area is around new client wins. New client growth is up both in volume and deal size with higher services attachment driven by clients who desire collective behavior change and a partnership with us to help them do that. For example, in the fourth quarter, we won a new client. It's a global ingredient processing manufacturer. This resulted in approximately $250,000 contract that's comprised of around $50,000 in subscription revenue and $200,000 in subscription services. This client is partnering with us to equip their leaders to lead through a high degree of change and to drive performance during a period of rapid expansion for them in their business. And they not only want access to our content and tools and frameworks, but to our expert coaches and facilitators as well to really drive and cement the behavior change that they're seeking to achieve. The second area and evidence of acceleration is around client retention and expansion. More clients are extending subscriptions, adding services and broadening their reach. Even in a more difficult environment where some clients have had to adjust over this past year, the overall size of their subscription, and we did lose a couple of clients we talked about last quarter, including a couple of government contracts. We continue to achieve the same high percentage of overall client retention that we've been able to achieve over many years, providing a very strong base for expansion both in terms of subscription seats and services this year into that existing client base. And the third area is our subscription services attachment. I mentioned this briefly, but I'll just touch on it again. Despite tighter client budgets, enterprise services attachment overall was a strong 53% in fiscal '25. And as I mentioned a minute ago, it was an even stronger 56% in North America this last year. And through the first 2 months of this year, as I mentioned, North America services bookings are up double digits year-over-year, which is a leading indicator of future services revenue. While fiscal '25 results didn't turn out like we expected at the beginning of the year, due to government-related slowdowns, midyear tariff uncertainty and short-term effects of our own transformation. The lead metrics are strong, and our momentum accelerated through year-end and continues into the first quarter of fiscal '26, setting us up for strong invoice growth in fiscal '26 that, as I mentioned, will lead to growth in fiscal '26 and even more reported growth in fiscal '27. Shifting gears to Education. We're pleased with the continued strength of our Education business. Despite a difficult and uncertain education environment this past year, where we saw the Department of Ed threaten closure and shrink in size and where large amounts of federal Title dollars were initially available, then pulled back and then only restored very late in our fiscal year. We're pleased that Education reported revenue growth for the year overall that our Education subscription revenue grew 13% in the fourth quarter and 10% for the full year, that our balance of deferred revenue increased 13%, establishing a strong foundation for accelerated growth in fiscal '26. And that we were able to bring on 624 new schools and the school retention remained a very high 84%, which was equal to the year before, which we felt quite good about in the environment. Just a closing perspective here before I turn the time over to Jessi. As we enter fiscal '26, I feel confident in both our progress and our direction. I'm pleased with the progress our teams are making, and I'm grateful for the clients who continue to trust us. And I'm confident that the strategy we've been pursuing will continue to create value in the years ahead. I'd now like to turn the time over to Jessi, and she'll share more detail on our results in the fourth quarter and for the full year and also lay out our guidance for fiscal '26.

Jessica Betjemann, CFO

Thank you, Paul, and good afternoon, everyone. Franklin Covey continues to experience strong demand for our products and services in the fourth quarter, despite various macroeconomic challenges. As Paul mentioned, our strategic investments aimed at transforming our market approach are beginning to show positive results. Our fiscal year 2025 outcomes align with the guidance shared during our third quarter earnings call regarding revenue and adjusted EBITDA. This past year was one of transition and transformation, and it's important to recap the events that have influenced our financial performance. Early in the fiscal year, we outlined a strategic go-to-market transformation plan for the Enterprise North America segment, necessitating significant SG&A investments that would lead to an expected $50 million decline in year-over-year EBITDA, but ultimately facilitate substantial future growth, beginning in the latter half of the year. However, as we executed these growth investments, unexpected macroeconomic developments emerged starting in January, including potential tariffs that introduced substantial uncertainty for our clients, actions aimed at reducing U.S. federal government spending, ongoing geopolitical tensions, and a general downturn in economic conditions at home and abroad. In reaction to this uncertain economic climate, many of our existing and potential clients opted to cut back on spending to safeguard their profitability, resulting in delayed decision-making and reduced contract expansions. Additionally, government actions disrupted the Department of Education and Title funds available to districts and schools nationwide. All these factors negatively impacted our business and financial results compared to our initial projections. Nonetheless, we have maintained most of our client base, and as we near the completion of our transformation investments and begin to see their benefits, we anticipate fiscal 2026 will focus on execution, with both adjusted EBITDA and free cash flow projected to grow this year and accelerate beyond that. I will start today by highlighting key achievements for the fiscal year and reviewing our financial performance in the fourth quarter, then discuss our balance sheet and capital allocation priorities, and finally, provide context regarding our outlook for fiscal year 2026. Franklin Covey reported total revenue of $267.1 million, or $267.3 million in constant currency, which fell within our guidance range. Reflecting the macroeconomic conditions, revenue declined 7% from the prior year, mainly due to a 10% decrease in the Enterprise Division, though partially offset by a 1% increase in the Education Division. A summary of our consolidated financial results is available in our earnings presentation. As anticipated and noted in the guidance we provided in the third quarter, total revenue for the fourth quarter of fiscal 2025 was down 15%. Specifically, revenue in the Enterprise Division dropped roughly 22%, primarily due to government actions and macroeconomic pressures. Additionally, we had a $6.2 million IP contract with a significant client in the fourth quarter last year that was not repeated this year, although this client remains with us. The Education Division was flat relative to the fourth quarter of the previous year, impacted by disruptions in the Department of Education and associated Title funds, which delayed new school purchases in the spring and early summer, with expectations of recovery in fiscal 2026. Our consolidated subscription revenue was flat year-over-year at $147.9 million. Importantly, our foundation for future growth remains solid, as indicated by a 3% year-over-year increase in our consolidated deferred revenue balance to $111.7 million, expected to be recognized as reported revenue in upcoming quarters. Unbilled deferred revenue rose 7% to $48.4 million, while the total balance decreased 3% to $72.8 million, reflecting a lower beginning balance this fiscal year. Gross margin for fiscal 2025 was 76.2%, down from 77% in fiscal year 2024, due to higher product amortization costs and reduced margins in our international direct offices as a result of lower sales. For the fourth quarter, gross margins stood at 75.5%, compared to 78.1% in the prior year, driven by lower margins in the Enterprise North America segment due to the non-repeat of last year's large IP contract, as well as lower margins and variations in product mix in both the international direct offices and Education Division. Operating, selling, general and administrative expenses for fiscal 2025 totaled $174.8 million compared to $165.8 million the previous year, reflecting higher associate costs from hiring new sales personnel and investments in marketing and product related to the go-to-market transformation in North America. These increases were partially offset by cost reductions made in the third quarter, resulting in $7 million in total SG&A savings for the year and an expected annualized run rate savings of $8 million for fiscal year 2026, though these will be somewhat countered by normal investment levels. Adjusted EBITDA for the year reached $28.8 million or $29 million in constant currency, in line with our guidance of $28 million to $33 million. For the fourth quarter, adjusted EBITDA was $11.7 million, down from $22.9 million the prior year, reflecting the lower revenue, gross margin, and increased SG&A expenses I've mentioned. Cash flow from operating activities totaled $29 million for the year, down from $60.3 million the prior year, due mainly to a $20 million decline in net income resulting from reduced revenues, planned expenditure increases for the Enterprise North America transformation, rising restructuring costs, and a $7 million negative shift in working capital, alongside a $5 million rise in CapEx attributable to building construction costs. Consequently, our free cash flow for the year was $12.1 million, compared to $48.9 million generated in fiscal 2024. For fiscal 2025, our Enterprise Division represented 70% of total company revenue, while the Education Division accounted for 28%. Enterprise Division revenue was $188.1 million, down from $208.1 million the prior year, significantly affected by canceled U.S. federal government contracts, geopolitical trade tensions, and ongoing macroeconomic uncertainty. These challenges adversely impacted new business sales and expansion revenue both domestically and internationally during the latter half of the year. The North America segment generated $147.6 million, a 10% decrease from the previous year. Fourth quarter Enterprise Division revenue was $45.7 million, down 22% compared to last year, with North America experiencing a 24% decline. Notably, 60% of the overall decrease in the Enterprise Division was due to drops in direct office non-subscription and services revenue, with half of this attributable to the previously mentioned $6.2 million IP contract. This highlights that our core subscription-related business remains fundamentally strong, with only a 5% decline year-over-year, reflecting the discussed macroeconomic factors. Adjusted EBITDA for North America decreased to $27.4 million for fiscal 2025 from $46.6 million last year, driven by lower revenue and increased SG&A expenses related to our market investments. In the fourth quarter, adjusted EBITDA for North America was $7.6 million compared to $16.2 million the prior year, again mainly due to last year's large IP contract recognition. Our billed deferred subscription revenue in North America was $46.7 million at the fourth quarter's end, down 5% from the prior year, while unbilled deferred revenue was $67.6 million, a 1% decrease compared to last year. Notably, the number of multi-year All Access Passes in North America increased to 57% in the fourth quarter, with multi-year contracts representing 60% of the contracted amounts. Turning to international direct operations, revenue for fiscal 2025 was $29.3 million, down from $33.3 million last year, primarily due to challenges faced in our Asian and U.K. businesses stemming from geopolitical and trade issues. Fourth quarter revenue from these offices was $7.4 million compared to $8.8 million the previous year. Adjusted EBITDA for the international direct operations segment showed a loss of $0.4 million for fiscal 2025, shifted from a positive $3.4 million the prior year, mainly due to decreased revenue that the segment could not offset with cost absorption. For the fourth quarter, adjusted EBITDA was $0.5 million, down from $1 million from the prior year. The international licensee revenue, making up about 6% of total Enterprise Division revenue for fiscal 2025, was $11.1 million, a 3% decrease compared to the prior year. Fourth quarter international licensee revenue stood at $2.4 million, roughly flat with the previous year, with adjusted EBITDA at $5.5 million for the fiscal year and $1 million in the fourth quarter, both slightly lower compared to the prior year. In the Education Division, fiscal 2025 revenue was $74.6 million, a 1% increase from the prior year, with declines in material sales offset by rises in coaching and consulting revenue. The decline in material revenue was mainly due to a new statewide initiative initiated in the second half of fiscal 2024, encompassing a considerable volume of training materials at the program’s outset. Revenue for the fourth quarter of this year was $24.4 million, slightly exceeding the prior year. Education subscription revenue grew by 10% in fiscal 2025 to $45.9 million, with combined subscription and subscription services revenue totaling $69.4 million, a 4% increase versus the prior year. Education subscription and service revenue for the fourth quarter was $23.3 million, up 3% against the fourth quarter of the prior year. Adjusted EBITDA for the Education Division in fiscal 2025 declined to $8.2 million from $9.8 million the previous year, influenced by increased SG&A expenses for associates. Fourth quarter adjusted EBITDA was $6.2 million compared to $7 million from the prior year. The balance of billed deferred subscription revenue in Education increased by 13% to $54.6 million, establishing a robust base for ongoing growth in fiscal 2026. We are witnessing a positive momentum in our Education Division, particularly in large state and district level opportunities we are pursuing. This strength in our pipeline, combined with a foundation of over 8,000 schools globally by the end of August, reinforces our confidence in the demand for the outcomes delivered through our Leader in Me solution. Now, I would like to discuss our balance sheet and capital allocation priorities. We continue implementing a balanced capital allocation strategy centered on three primary areas that align with our strategic goals. First, we are committed to maintaining sufficient liquidity. Our business consistently generates reliable cash flow, and at the end of the fourth quarter, our liquidity was robust at over $94 million, with $31.7 million in cash and no withdrawals from our $62.5 million credit facility. Second, we will continue investing for growth in strategic opportunities aimed at enhancing our market position, accelerating profitable growth, and maximizing financial value, including spending on product innovation, business transformation projects, and pursuing opportunistic acquisitions. Finally, our third priority is appropriately returning capital to shareholders. In the fourth quarter, we repurchased around 168,000 shares in the open market for $3.3 million. For the entire year, we bought back approximately 791,000 shares at a cost of $20.4 million. On August 11, 2025, the Board approved the replenishment of a previous plan allowing us to buy back up to $50 million in common stock. Following this, on August 14, we initiated a $10 million common stock buyback plan, which was completed in the first quarter of fiscal 2026. We remain committed to judicious capital management while focusing on long-term value creation. Now regarding our financial outlook for fiscal 2026, the company's projections reflect the positive momentum anticipated in both the Enterprise and Education Divisions, weighed against a careful assessment of potential risks and opportunities as we navigate an uncertain macro environment. We expect to see solid growth in invoiced amounts this year; however, net reported revenue growth will be limited in comparison due to lower deferred revenue accumulated during fiscal 2025 and the time lag between invoiced and reported revenue, as part of the invoiced increase will be recorded as deferred revenue. We currently foresee fiscal 2026 revenue in the range of $265 million to $275 million. For adjusted EBITDA, we're projecting a range of $28 million to $33 million, realizing the benefits from our cost reduction measures, including additional restructuring actions taken in this quarter while maintaining flexibility to respond to ongoing macro uncertainties. We anticipate both revenue and adjusted EBITDA figures will be stronger in the latter half of the year, with around 45% to 50% of fiscal year revenue expected to be recognized in the first half, consistent with typical seasonality particularly within the Education Division and the timing of client delivery. For adjusted EBITDA, we expect approximately 30% to 35% to occur in the first half, with expectations of margin expansion as cost savings and operational leverage build throughout the second half of the year. Given the volatility we experienced in fiscal 2025 and the continuing difficult market conditions, we prefer to execute our strategic and operational plans in the current and immediate quarters before offering specific longer-term guidance. Nonetheless, while most of the projected strong growth in invoiced amounts this year may not directly convert to high reported revenue growth in fiscal year 2026, we expect this to yield significant top-line growth in fiscal 2027. With the substantial completion of our transformation investments and the anticipated rise in operational leverage, we are confident that the company will achieve robust EBITDA and free cash flow growth with enhanced margins and free cash flow conversion in fiscal 2027 and beyond. We firmly believe in the strength of our strategy and long-term vision, and we are optimistic about our ability to deliver sustainable growth. Our belief is anchored in strong client retention, growing demand for leadership development, and enhanced organizational performance services across both our Enterprise and Education Divisions, coupled with the resilience of our business model. As I mentioned in my opening remarks, we view fiscal 2026 as a year for execution, while anticipating fiscal 2027 will serve as a period of acceleration and compounded growth in revenue, adjusted EBITDA, and free cash flow. We remain fully dedicated to long-term value creation for our shareholders and clients. Now, I'll turn it back to Paul.

Paul Walker, CEO and President

Thanks, Jessi, for that review of the year and for laying out the guidance. Thanks to all of you for joining today. We'll now look forward to asking the operator to open the line and taking your questions.

Operator, Operator

Our first question comes from Jeff Martin of ROTH Capital Partners.

Jeff Martin, Analyst

I apologize for being late on the call, so some of these questions may overlap with what you've already covered. I would like to know how the decision-making environment has changed over the past few months, as well as an update on how your sales transformation has performed in the last quarter compared to expectations. I'll stop there for now, as I have a few more questions to ask after this.

Paul Walker, CEO and President

Okay. Great. In terms of the decision-making environment, I would describe it like this. We launched last year, and when we spoke at this time last year, we were on the verge of a new administration. After completing our year-end report, we began noticing some market uncertainty as the new administration implemented its policies, which caused considerable turbulence throughout a large portion of the last fiscal year. We discussed this extensively, so I won't dwell on it. However, I mention it to highlight the contrast to our current situation. Having navigated that period of turbulence and uncertainty, I believe the team is managing the situation well. While I’m not suggesting that the environment is suddenly much more certain, there is still uncertainty present. However, we are handling that uncertainty more effectively now compared to the period from November to April of last year. I would say there is still uncertainty in the environment, but our clients have shifted from a high level of uncertainty to a focus on moving their businesses forward. We have seen budgets beginning to loosen up, and that is reflected in our performance. Regarding your second question about how the sales transformation is progressing, we are witnessing evidence of us managing the uncertainty, alongside an increase in certainty in some of our clients' decision-making, coupled with our current advancement three quarters into the transformation. Although you may not have been present at the beginning, I want to quickly recap a few points I made. We anticipate good invoiced growth in the first quarter in Enterprise North America, as our count of new clients and the size of those clients have risen in September and October. Our pace of service bookings has significantly increased, showing double-digit growth from a year ago. We consider these signs as evidence that we are gaining momentum with our go-to-market transformation, and we are progressing in an environment that isn’t significantly more certain. However, I believe we are navigating the situation better than we were in the December, January, February, and March timeframe.

Jeff Martin, Analyst

Great. And then could you comment on the renewals? Are clients renewing at similar size contracts? Are they contracting a little bit? Are they expanding? What's been your recent?

Paul Walker, CEO and President

Yes, that's a great question. To begin with renewals, we assess them through two main lenses. The first is the overall percentage of clients we retain, which helps us gauge client retention. The second is the revenue linked to those retained clients. We are pleased to report that the overall percentage of clients staying with us has remained consistent and steady. We've been involved with the All Access Pass for about 10 years, measuring client retention over that time. While we haven't shared a specific retention number, I can say that the percentage rate we are currently achieving, and which we consistently reached throughout the last fiscal year despite uncertainty, remains comparable to the rates from previous years when interest rates were lower and the economic conditions were different. We regard this as a positive sign that our offerings are valuable to clients. However, some clients have had to adjust the size of their pass during this uncertain year. We observed some clients reducing the size of their purchases to better suit a more targeted audience temporarily. Conversely, we are also witnessing other clients significantly expanding their commitments. Overall, as we moved through fiscal '25, client retention remained stable, though revenue retention was somewhat lower, which contributed to the decline in invoiced amounts we discussed last year. We believe that our focused approach, with a dedicated team of client partners assigned to existing accounts and seeking expansion opportunities, will ultimately lead to expansion outweighing any reductions, enabling us to return revenue retention to our historical levels.

Jeff Martin, Analyst

And then one more, if I could. Jessi, could you maybe give us a little bit of help with respect to what you're expecting revenue and EBITDA in Q1?

Jessica Betjemann, CFO

Yes. So what I indicated was we're not giving specific guidance for Q1. What I indicated was kind of first half, second half type of trajectory. So from a revenue perspective, around 40% to 50% of revenue will come in first half. And the EBITDA would be around 30% to 35% in the first half. So it will be a little bit more back-end weighted in terms of first half of the year versus second half.

Operator, Operator

And our next question comes from Nehal Chokshi of Northland Capital Markets.

Nehal Chokshi, Analyst

So I believe that you said this twice now, but I just want to make sure I heard it correct, that invoice subscription bookings for North America Enterprise is up year-over-year for basically the first 2 months of the fiscal year. Is that correct?

Jessica Betjemann, CFO

Yes.

Paul Walker, CEO and President

Yes, it is. Yes.

Nehal Chokshi, Analyst

Okay. That's fantastic. And that is off of what was the growth rate in the year ago period that you guys were seeing of that metric?

Jessica Betjemann, CFO

I don't have that information for the last 2 months.

Nehal Chokshi, Analyst

For the first 2 months?

Jessica Betjemann, CFO

Of last year. I don't have that readily available.

Nehal Chokshi, Analyst

Okay. Or maybe just the fiscal first quarter of '25?

Jessica Betjemann, CFO

For North America?

Nehal Chokshi, Analyst

Yes. Yes.

Jessica Betjemann, CFO

So I have the invoiced amounts for the total Enterprise Division for the fourth quarter.

Nehal Chokshi, Analyst

First quarter, last year.

Paul Walker, CEO and President

Well, first quarter last year, Nehal?

Jessica Betjemann, CFO

We'll have to come back to you on that. I don't have that readily available.

Nehal Chokshi, Analyst

Okay. All right. Well, just the growth that you're seeing is obviously strong evidence that the investments you're making in the hunter and farmer go-to-market model is producing results. Can you refresh us on what was working in the prior quarters? And what's been the incremental as far as working in terms of farmers versus hunters? And I know you call it differently, but sorry.

Paul Walker, CEO and President

No, it's okay. We totally understand the distinction between hunters and farmers. Stepping back for a moment, we've seen our subscription business grow steadily since introducing the All Access Pass. We realized that despite this growth, there was significant market potential we were not tapping into, as well as opportunities within our existing client base that we also left unexplored. We were asking the same sales team to pursue both new customer potential in the market and expand within our current clients, which was the main reason for our transition. The second reason aligns with our goal of becoming a more strategic outcomes partner for our clients. We needed the right team to sell effectively at that level to those kinds of buyers. That was our original plan, and we still feel confident about it today. We started to see positive evidence of this last year, which is now manifesting in our sales pipelines. As we look at the first quarter, we're seeing new customer acquisitions increase in the first couple of months. Our service booking rates are also up. What's happening is, as we adjust our focus more towards strategic buyers interested in achieving broader outcomes, not only are we securing new clients, but the initial clients we gain are bigger because we are providing a larger array of services with those wins. This suggests we are addressing more significant, strategic challenges that our clients appreciate, alongside our valuable content and frameworks, as well as the expert services we offer. The combination of these elements is working well, leading to favorable conversion rates in our pipeline. Our focus now is on how to further grow the pipeline of opportunities. Last year, we made the decision to enhance our sales development representative function, which has been operational for a few quarters and is now yielding results. Everything is aligning well as we execute our original strategy, and we're beginning to see the outcomes of that effort.

Jessica Betjemann, CFO

Nehal, just coming back to you. I was able to track that number down for you. So the Enterprise Division because we don't report out invoiced amounts for North America, but the total Enterprise Division in Q1 of '25 was $43.7 million.

Nehal Chokshi, Analyst

And that was up how much percent year-over-year in that year ago period?

Jessica Betjemann, CFO

Well, it was 2025, right? So it was actually down year-over-year. 7% down from the prior year. Yes.

Nehal Chokshi, Analyst

Got it. Okay. Very good. And so what gives you confidence that this growth in invoice subscriptions you're seeing in the first 2 months isn't just simply a year ago easy compare then?

Paul Walker, CEO and President

Holly Procter’s here, our President of Enterprise, you want to comment on that?

Holly Procter, President of Enterprise

Yes, we have confidence in our current situation, especially concerning our large deals. When we see multi-million dollar deals coming in, we analyze not only our approach but also the factors within those deals that were absent in our previous model. As we examine these deals, we identify several aspects contributing to our success that we didn't recognize before, which gives us confidence that we likely wouldn't have secured that business previously. For instance, we will announce a significant multi-million dollar, multi-year deal in Q1 that resulted from a rapid turnaround on an RFP, thanks to the systems we've put in place. A year ago, we wouldn't have been able to handle that type of engagement, so as we analyze these large successes and observe our systems functioning effectively with increased volume, it reinforces our belief that this is a growing trend.

Operator, Operator

And our next question comes from Alex Paris of Barrington Research.

Alexander Paris, Analyst

Nice finish to what was a really challenging year and nice green shoots of activity in the first 2 months of fiscal 2026. I had a question about guidance also, and I appreciate the color about first half versus second half on both revenues and adjusted EBITDA. But as I look over my historical model, that's kind of the way it always is. You get more revenue and more EBITDA in the second half of the year, typically looking back before the year just ended. But what I also see that happens is between Q1 and Q2 there is a sequential decline in both. I'm wondering if this year, it might be flipped because you're claiming out of that transition. In other words, the revenue that you expect in the first half, would you think that Q2 would be greater than Q1, which is history?

Jessica Betjemann, CFO

No. I think it will follow more to what we've had in the past. And remember, when the kind of the time period of Q2, you're starting to get into a holiday time period and all that. So you're going to have the normal seasonality that will come into play. So we still will have some of that.

Alexander Paris, Analyst

There is not necessarily a decline in revenue, but there is a sequential decline in revenue from Q1 to Q2. The same applies to EBITDA.

Jessica Betjemann, CFO

No, I'm saying we would still expect a slight decline in revenue from Q1 to Q2, similar to prior years. That seasonality is going to continue. Yes.

Paul Walker, CEO and President

Alex, part of the reason for that is that in the second quarter, services are affected by the holidays. There are fewer services delivered during this time, particularly with December falling into the holiday period. This usually reflects in the comparison from the first quarter to the second quarter.

Alexander Paris, Analyst

Great. And then just a follow-up question on the sales force transformation. Any updates in terms of the size of the sales force between hunters and farmers? I think the last note that I had is you had 44 hunters and around 65 farmers. And then turnover, both voluntary and involuntary turnover in the new sales force. How is that working for you?

Paul Walker, CEO and President

Yes. That’s a great question. The sales force is still very close to the numbers you mentioned. I believe it remains the same. We haven't experienced any turnover in the sales force. We did have some turnover last year as part of the transformation, but our current team is stable. Moving forward, we expect to see growth in the sales force, particularly on the new logo hunting side, as we continue to invest in marketing to generate more leads for them. This growth will help us expand our hunting sales force. Additionally, there’s good leverage on the farming side as we hand over new accounts, which will be serviced by our client partners and our client success team. The size remains the same, and we anticipate growth. The Education team is also roughly the same size at the moment.

Alexander Paris, Analyst

Okay. Helpful. And then since you brought it up Education, I was wondering if we can get a little bit more color on Education. We spent a lot of time on North American enterprise because that makes sense. It's a bigger business, and there's big changes happening on that side. But on the Education side, it was a flat year and a flat quarter in terms of revenue and gross income, a decline in adjusted EBITDA in both periods. I get it, there's a lot of disruption in Education, reduction in force. How should we think about fiscal 2026 in Education? I think the comps would be relatively easy, but whatever color you could offer, I'd appreciate.

Michael Covey, Executive

Looking at this year, we remain very optimistic. Last year was challenging for two main reasons. First, the expiration of the ESER COVID relief funds in September '24 impacted us. Second, the Department of Education's issues with Title funds made many schools hesitant to make purchases, resulting in delays for about 100 to 150 schools that we might have engaged otherwise. This year, we are confident that we can return to strong growth similar to what we've experienced over the past decade, for two reasons. We have a significant amount of deferred revenue, which grew by 13% last year and will be recognized this year. Additionally, there are numerous large district and state opportunities on the horizon. We had a major opportunity last year that is expected to repeat, and our pipeline for larger prospects looks robust. Our funding partner, who supports hundreds of schools annually, continues to drive demand. The need for our services in the marketplace is substantial and seems to be increasing. Test scores have significantly dropped since COVID, and there's a strong desire to improve them, which is where we excel. Teacher retention is another pressing issue that we can address, along with mental wellness. While it's difficult to predict the actions of the Department of Education and the current administration, conditions should improve compared to last year—it's hard to imagine they could worsen. Most experts believe that Title I funding for low-income students, which supports many Leader in Me schools, will remain stable. We feel positive about the upcoming year and are hopeful for a return to solid growth.

Operator, Operator

And our next question comes from Dave Storms of Stonegate.

David Storms, Analyst

You mentioned in your prepared remarks, Paul, how much AI you're starting to implement into your services. I was hoping you could maybe spend a little more time there and maybe lay out kind of what inning you think we are in when it comes to implementing AI.

Paul Walker, CEO and President

I think the world is still in the early stages of AI development, and predicting its future trajectory is challenging. However, we see significant opportunities with AI in two main areas. First, as our clients increasingly implement AI, they often encounter challenges related to people, leadership, culture, and collaboration. These issues have always been difficult aspects of leadership, and AI brings them to light rather than solving them. This presents us with an opportunity to support our clients as they navigate these complexities. Second, we have always delivered exceptional content, which our clients greatly value. Our material features principles and frameworks that stand out from others. Alongside this, we offer services including facilitation, coaching, and consulting that help organizations implement our content effectively, leading to improved behaviors and outcomes. With the emergence of AI, we see it as a valuable addition to our existing strengths. AI serves as a new dimension that enhances our approach by providing better visibility and innovative coaching methods. Our AI coach complements the work of human coaches, offering continuous support to individuals in specific situations, drawing from our established content. We view AI as an essential enhancement to our offerings, which wasn't even an option a few years ago. Now that it is available, we are committed to incorporating it into our services to complement our quality content and services. For example, in our sales performance solutions, AI coaching can provide real-time feedback after calls, helping to improve outcomes significantly over time. As we explore opportunities across our leadership and educational content, we recognize that we are in the early innings of this journey, but we are eager to progress deeper into the game as quickly as possible.

David Storms, Analyst

Understood. That's great color. One more for me, if I could. Just earlier in the year, there was the government cuts that could be pretty directly tied to some of your results, some of the headwinds that we've seen. Are you seeing anything of this magnitude from the current government shutdown?

Paul Walker, CEO and President

No, we're not. When we reported at the end of Q1 last year, in January, we outlined the impact we expected to see at that time. We don't anticipate anything similar this year. In fact, if anything, we will have the opportunity to compare against last year's performance. Of course, there is currently a government shutdown, but as the government reopens, we expect to continue gaining business with them. This gives us a chance to compare our results to last year, which we hope will work in our favor this year.

Operator, Operator

I'm showing no further questions at this time. I'd like to turn it back to Paul Walker for closing remarks.

Paul Walker, CEO and President

Thanks, everyone, for joining today. Thanks for your great questions, as always. We appreciate the lengths you go to understand the business. Hopefully, this came through today, but we're pleased and optimistic about as we turn the page into fiscal '26 and what we're seeing happening on the invoice growth side that, that we expect that to trickle through this year into increased growth and really next year as those invoice amounts build up this year. So we're looking forward to that and off to a good start and just hope you all have a wonderful rest of your evening. And again, thanks for being here today.

Operator, Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect.