Franklin Covey Company

Welcome to the Q4 2021 FranklinCovey Earnings Conference Call. My name is Darrell, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then 1 on your touchtone phone. I will now turn the call over to Derek Hett, Corporate Controller. Derek, you may begin.

Thank you. Good afternoon, ladies and gentlemen. On behalf of FranklinCovey, it's my pleasure to welcome you to our fourth quarter and full fiscal year 2021 conference call. Before we get started, I'd like to remind everybody that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon management's current expectations and are subject to various risks and uncertainties, including but not limited to the ability of the company to stabilize and grow revenues, the acceptance of and renewal rates for our subscription offerings, including the All Access Passive Leader and Me memberships, the duration and recovery from the COVID-19 pandemic, the ability of the company to hire productive sales professionals, general economic conditions, competition in the company's targeted marketplace, market acceptance of new offerings or services and marketing strategies, changes in the company's market share, changes in the size of the overall market for the company's products, Changes in the training and spending policies of the company's clients and other factors identified and discussed in the company's most recent annual report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission. Many of these conditions are beyond our control or influence, any one of which may cause future results to differ materially from the company's current expectations, and there can be no assurance the company's actual future performance will meet management's expectations. These forward-looking statements are based on management's current expectations, and we undertake no obligation to update or revise these forward-looking statements, reflect events or circumstances after the date of today's presentation, except as required by law. With that out of the way, we'd like to turn the time over to Mr. Paul Walker, our Chief Executive Officer.

Paul? Thanks, Derek, and good afternoon, everyone. We're really excited to be with you today, and thanks so much for joining us. We're pleased to report that our fourth quarter and full year results were strong, in fact, very strong and stronger than expected. As you can see shown in slide three, adjusted EBITDA for fiscal 2021 increased to $28 million, which was up 96% from $14.3 million of adjusted EBITDA in fiscal 2020, and up 36% when compared to fiscal 2019 strong $20.6 million of adjusted EBITDA. This result was well above our original guidance for the 2021 fiscal year of between 20 and 22 million, and also $1.5 million above the high end of our updated guidance range of 24.5 to 26.5 million. These results reflect the strength and power of FranklinCovey's high growth and durable subscription business model, which is shown in slide four, achieves strong growth on every key metric. Specifically, as you can see in slide four, First, total revenue grew 40.7%, or $20 million in the fourth quarter, and grew 13%, or $25.7 million for the full fiscal year 2021. Second, you can see there that total subscription revenue grew 33%, or $7.2 million in the fourth quarter, and 15%, or $13 million for the full fiscal year. Total subscription and subscription service revenue grew 52%, or $17.7 million to $52.1 million in the fourth quarter, and 21% or $27.5 million for the year. And finally, as you can see shown there, the sum of billed and unbilled deferred revenue grew 27% or $27.2 million to $127.4 million for the year. There are five things we'd like to talk about today and have you take away from our discussion, and you can see these summarized in slide five. The first is that our results for the fourth quarter and full year 2021 were strong and even stronger than expected. And as you'll hear in a moment, this strength is reflected in every key P&L category, including revenue growth, growth margins, adjusted EBITDA, and cash flow. The second takeaway we'll talk about today is that this strong performance was driven by the strength of our rapidly growing subscription business model. The third is that also driving our growth is the fundamental importance of challenges we're helping our clients address. The fourth is that we expect subscription and subscription services to account for greater than 90% of the company's sales within three years. And finally, the fifth takeaway is that we expect our almost complete conversion to our subscription and subscription services to also drive significant additional value to our shareholders. To talk about this first takeaway, I'd like to turn time and ask Steve Young to address this, our performance for the fourth quarter and full fiscal year results.

Thank you, Paul. Good afternoon, everyone. I'm very pleased to have an opportunity to share some comments about our results for the quarter and for the year. As you can see in slide seven and eight, there are some key highlights for the quarter and for the year. As shown, revenue for FY21 grew 13% or $25.7 million to $224.2 million. Our fourth quarter revenue increased 40.7% or 20 million to 68.9 million. Gross margin for the year increased 388 basis points to 77.1% from 73.3% in FY20. The operating SG&A to sales percentage declined to 64.7% from 66.1% in FY20. Adjusted EBITDA for the year increased to 28 million, an increase of 96%, or 13.7 million compared to 14.3 million in FY20. Adjusted EBITDA for the fourth quarter increased 18.5%, to $10.6 million. Cash flow from operating activities for the year increased 68% to $46.2 million, up from $27.6 million in FY20, and we ended the quarter with $62.4 million in liquidity. I'd like to provide a little more detail on these key highlights, as shown in slide Revenue in the fourth quarter, like we said, grew 40.7% to $68.9 million, an increase of $20 million compared to the $49 million of revenue generated in last year's fourth quarter. This revenue was also $3.8 million higher than the $65.2 million of revenue recorded in the fourth quarter of FY19. We're also pleased that revenue for FY21 came in essentially the same as in FY19, with strong revenue growth in North America and the education division offsetting the fact that despite significant improvement, international revenue did not quite get back to the FY19 levels. And as strong as our revenue growth was, the growth in our profitability and cash flow related to this revenue was even more significant. Our gross margin percentage increased a strong 388 basis points for the year to 77.1 million, up from an already good 73.3 million in FY20. The gross margin percentage is 644 basis points higher than the 70.7 gross margin percentage we achieved in FY19, reflecting the ongoing shift to our high margin subscription offerings. Our operating SG&A as a percentage of sales declined 139 basis points to 64.7% for FY21, and this improvement despite operating SG&A increasing 287 basis points in the fourth quarter to 62%, primarily reflecting the accelerated commissions associated with FY21's strong finish compared to those in last year's COVID-impacted fourth quarter. Adjusted EBITDA increased 96%. or 13.7 million to 28 million for FY21 compared to 14.3 million in FY20. This 28 million of adjusted EBITDA also represented a 36% increase in adjusted EBITDA compared to the 20.6 million achieved in FY19. As noted, this was also significantly higher than our initial guidance in FY21 of 20 to 22 million, also higher than our updated full-year guidance of 24.5 million and 26.5 million of adjusted EBITDA. This 28 million of adjusted EBITDA also represented a 7.9 million or 36% increase over even the strong 20.6 million in adjusted EBITDA achieved in FY19. For the fourth quarter, adjusted EBITDA increased to 10.6 million, an increase of 18.5% compared to 8.9 million in adjusted EBITDA last year. Our cash flow and liquidity position were also very strong. As shown in slide 10, net cash generated for FY21 was 39.7 million, which is 30.8 million higher than the 8.9 generated in FY20, and up 78% compared to the 22.2 million of net cash generated in FY19. This increase in net cash generated reflects very strong growth in adjusted EBITDA, a very significant increase in deferred subscription revenue, and reduced amounts of capital expenditures and capitalized content development. Also shown in slide 11, our cash flow from operating activities for FY21 increased a very strong 18.6 million, or 68% to 46.2 million, compared to 27.6 million FY20. This strong cash flow reflects an additional benefit of our subscription model, specifically that we invoice upfront and collect the cash from invoiced amounts even faster than we recognize all of the subscription revenue. With this strong cash flow, we ended the fourth quarter with $62.4 million in cash. in total liquidity, even after investing $10.6 million in the third quarter related to the acquisition of Strive, extending our management training and learning platform. Our $62.4 million of liquidity at year end was comprised of $47.4 million in cash, which means no net debt, and with our 15 million revolving credit facility remaining fully undrawn. Importantly, this 26.4 million of liquidity is significantly higher than even the 39.8 million in liquidity we had at the end of our second quarter in February 2020, just before the start of the pandemic. So we're very pleased with our result. So now I'll turn it back to Bob.

Thank you, Steve. I'd just like to add that this strong performance reflects the continuation and acceleration of three key trends that we've talked about on the last number of calls with you. And these are shown on slide 12. The first is the enterprise division sales in North America have continued to be extremely strong. driven by rapidly accelerating growth in all access pass subscription and subscription services sales. Total revenue in North America grew 16.3 million, or 16%, from 103.3 million in fiscal 20 to 119.6 million in fiscal 21. The second, as you can see there in the middle of that page, is that our international operations have continued to strengthen. While pandemic-related challenges continue in Japan and in certain of our licensee partner operations, resulting in our total international revenue still being somewhat below fiscal 19 levels, we're pleased with the strong ongoing rebound in our international operations, where in the fourth quarter, revenue grew 54% compared to the fourth quarter of fiscal 2020. In addition, the strong focus on all-access past sales in our international operations has resulted in significant increases in all access paths deferred revenue, which will establish the foundation for strong sales growth in the future. And third, as you can see on the right side of slide 12, the performance of and trends in our education division have strengthened substantially. This strengthening is reflected by two things. First, an increase in the number of Leader and Me schools that renewed their Leader and Me membership to 2,323 schools in fiscal 21. up from 2,193 schools in fiscal 20. And second, the significant 79% increase in the number of New Leader and Me schools brought on during fiscal 21. We added 574 New Leader and Me schools, up from 320 in fiscal 20. This increase in new and retained schools drove strong performance in the education division, with revenue growing 5.5 million, or 12.7% compared to fiscal 20, and adjusted EBITDA increasing 4.9 million over fiscal 20 and 1.2 million over fiscal 19. So that's the first takeaway we wanted to share relative to our strong fourth quarter and strong full fiscal 21 results. The second takeaway we'd like to talk about is that this strong performance was driven by the strength of and our rapidly growing subscription business model. As you can see in slide 14, our total subscription and subscription services sales grew 21% to 157.2 million in fiscal 21, representing additional growth of 27.5 million compared to 129.7 million in subscription and subscription services revenue in fiscal 2020. In the fourth quarter, subscription and subscription services sales grew 52% to 52.1 million, which was an increase of 17.7 million compared to the fourth quarter of fiscal 2020. Importantly, this also represented growth of 29% compared to the 40.3 million in subscription and subscription services sales achieved even in the strong fourth quarter of fiscal 2019. As you can see, the sum of billed and unbilled deferred revenue also grew substantially, growing 27% for the year to 127.4 million. That was an increase of 27.2 million compared to our sum of 100.2 million of billed and unbilled deferred revenue at the end of last year's fourth quarter. This provides significant stability of and visibility into our future revenue growth. The breakout between bill deferred and unbilled deferred revenue, as you can also see on slide 14, as shown, our balance of deferred subscription revenue grew 27% or $16.4 million to $77 million at year end compared to $60.6 million at year end fiscal 2020. And our balance of unbilled deferred revenue grew 27% or $10.8 million to $50.4 million in this year's fourth quarter, reflecting the significant and ongoing increase in the percentage of our All Access Pass contracts, which are now multi-year. An example of this would be in North America. In fiscal 2021, 41% of All Access Pass contracts, representing 53% of total All Access Pass contract value, were under multi-year contracts. Importantly, we achieved this strong subscription growth in both enterprise and education divisions. As shown in slide 15 in the enterprise division, All Access Pass subscription and subscription services sales grew 24%, or $22 million to $112.5 million in fiscal 2021, compared with $90.5 million in fiscal 2020. This also reflected growth of 38%, or $31 million, compared to fiscal 2019. And in the fourth quarter, All Access Pass subscription and subscription sales grew 41%, or $9.3 million to $32 million. Additionally, the number of All Access Pass new logos in North America increased 39% in the fourth quarter. Annual revenue retention continued to exceed 90%. And the sale of multi-year contracts, as I mentioned a minute ago, continued to be strong with our balance of unbilled deferred revenue increasing 28% to $49.2 million in the enterprise division. And that compares to $38.5 million in the fourth quarter of fiscal 20%. and is up 69% compared to the $29.1 million balance of unbilled deferred revenue we had at the end of the fourth quarter fiscal 2019. As shown in slide 16, in the education division in fiscal 2021, Leader & Me subscription and subscription services sales grew 14%, or $5.4 million to $44.7 million, compared with $39.2 million in fiscal 2020. Fiscal 2021's 44.7 million of subscription and subscription services sales reflected growth of 5% or 2.1 million compared to fiscal 2019. In the fourth quarter, Leader & Me subscription sales and subscription services grew 8.4 million to 20.1 million. This represented growth of 72% compared to the 11.7 million in the fourth quarter of fiscal 20, and growth of 13% compared to the strong fourth quarter fiscal 19 which was pre-pandemic. The third overall takeaway we'd like to talk about today as shown in slide 17 is that also driving our strong performance is the importance of the opportunities and the challenges that we help our clients address. As you can see in slide 18, while lots of things including sharing information and helping people learn new skills can add value to an organization, what it takes to really move any organization aggressively forward is to achieve collective behavioral change on the most important challenges. In other words, getting everyone moving together and offering their collective best contributions toward the achievement of the organization's highest priorities. Helping organizations achieve this kind of seismic progress is where FranklinCovey really shines. This is the reason why in the middle of the pandemic, more than 1,000 organizations purchased, renewed, and or expanded their all-access pass and purchased support services from FranklinCovey to help them achieve their objectives in an incredibly challenging environment. It's also the reason why during the last 12 months, in the middle of the pandemic, when schools were scrambling to learn how to teach remotely, connect with kids, provide breakfast and lunches to students who otherwise wouldn't have any, and the myriad other challenges they were facing, 2,323 schools renewed their Leader in Me subscription, and 574 new schools became Leader in Me schools. It's also the reason why, as shown in slide 19, the lifetime value of our customers continues to be both large and growing. As shown in slide 20, the fourth takeaway that we want to share today is that we expect subscription and subscription services to account for greater than 90% of the company's sales within three years. As this almost complete conversion to subscription and subscription services occurs, We expect virtually the entire company to be able to generate the same strong growth in revenue, gross margins, revenue retention, and customer impact that we've seen in our subscription business over the past five years. In North America, All Access Pass subscription and subscription services already account for 83% of total sales. And this is expected to increase to more than 90% within the next couple of years. As shown in slide 21, All Access Pass subscription and subscription services sales represented only 13% or $13.7 million of total sales in North America in 2016 when we first introduced the All Access Pass. The dramatic sustained compounded growth since then has resulted in All Access Pass subscription and subscription services sales increasing to $112.5 million in fiscal 2021. With annual All Access Pass subscription and subscription services sales expected to continue to grow at a more than double-digit pace, and with legacy sales now at very low levels and expected to remain flat or even decline a bit further, we expect All Access Pass subscription and subscription services sales to increase to more than 90% in North America, as I mentioned, over the next couple of years. All Access Pass subscription and subscription services are also expected to make up the vast majority of our sales internationally in the coming years. The growth and penetration of All Access Pass subscription and subscription services has also progressed rapidly in our English-speaking direct offices. As you can see also shown on the right side of slide 21, from having no subscription sales at all in these offices just five years ago, All Access Pass subscription and subscription services sales for the latest 12 months now account for 81% of total sales in the UK and 76% in Australia. Both of these offices are well on their way towards the same 90% penetration we expect to achieve in North America. As you know, our largest international direct offices are in China and Japan, both of which are in the relatively early stages of converting themselves to All Access Pass. But having made the conversion in the US, Canada, UK, and Australia, we're confident that in China and Japan, we too will convert the vast majority of their revenue to All Access Pass subscription and subscription services in the coming years. In fact, I think it's important to note that in fiscal 21, All Access Pass subscription and subscription services made up a third of Japan's total sales. So we're pleased with the progress there. And finally, because of our Leader in Me subscription model, More than 90% of sales in the education division are already subscription and subscription services. Another reason we expect that our subscription and subscription services growth will accelerate is that we continue to make significant growth investments. We've continued to invest in hiring additional salespeople or client partners. As you can see in slide 22, we ended fiscal 2021 with 273 client partners. And as we've discussed in the past, we have many decades of headroom for additional client partner growth. As we continue to aggressively grow our sales force and our licensee network, the volume of new all-access path logos, all with high lifetime value, is expected to continue to accelerate. Additionally, we expect significant growth to come from the approximately 120 existing client partners we've hired over the past few years who are still in the middle of their ramp-up process. We've also made ongoing and growth investments in new content, technology, and as shown in slide 23, acquisitions, such as Jonna, Robert Gregory, and most recently, Strive. The combination of our powerful content and solutions, JANA, our vast coaching and training delivery capabilities, and key behavior change and performance metrics, all integrated into our new Strive learning platform, will create an industry-leading solution for clients who seek to drive collective behavior change to address their most important challenges. These investments are accelerating our ability to ensure that the all-access paths Users have constant access to the solutions and tools they need to improve performance and increase results on a daily basis. They're also providing an important foundation for us to address larger and larger populations inside existing and new path holding clients and are helping us accelerate the growth of all access path sales. I think it's important to note that we're also making significant investments in marketing and advertising. The annual global learning and development spend totals nearly $400 billion, with more than $90 billion of that spent externally. Additionally, billions more is spent by business leaders on strategy, execution, and sales performance, and by school superintendents and principals around the world. These markets are large and growing, and no single provider in the space owns more than 1% or 2% of the market. The opportunity before us is massive, and we're focusing heavily on ensuring that FranklinCovey is clearly positioned at the top of the minds for current and future clients around the world. Finally, the fifth takeaway today is that we expect our almost complete conversion to subscription and subscription services to drive significant additional value to our shareholders. And to discuss this takeaway, I'd like to turn the time to Bob.

Thanks, Paul. Nice to talk to all of you. Shareholders, you all have often asked us how we think about the true value of the company. And while the specific valuation is something we'll leave to you to determine, I would emphasize that we expect the achievement of our multi-year business plan to create significant incremental value for our shareholders. Just note that we expect that additional value to be created in three key ways. First, just as a natural result of the significant growth in adjusted EBITDA that we expect, with strong continued growth in subscription and subscription services revenue, And the expectation of achieving strong gross margins and a high flow-through of these additional sales to incremental adjusted EBITDA and cash flow is shown in the slide 25. We expect adjusted EBITDA over the next three years to grow from $28 million in fiscal 2021 to between $34 and $36 million in fiscal 2022 to between $44 and $46 million in fiscal 2023 and between $54 and $56 million in fiscal 24. Second reason we believe that just the natural result of our growth will drive shareholder value is that we expect to generate a significant amount of cash flow during those same years and to use it to create additional shareholder value. We expect our growth in cash to meet or even exceed our rapid growth in adjusted EBITDA. And we believe the expected growth in cash flow is likely to far exceed any reasonable discount rate anyone might apply to it. As a result, we believe the net present value of our expected cash flow is likely worth significantly more than the value implied by applying a multiple to a given year's adjusted EBITDA, particularly when adjusted EBITDA is growing at a 25% compounded rate or higher. As a consequence, we expect we'll be able to create additional shareholder value by investing a portion of the more than $100 million of available cash we expect to have over the coming years to make strategic acquisitions to grow the business and also to repurchase a substantial number of our shares. Finally, we expect that our almost complete conversion to being a high revenue growth, high adjusted EBITDA, and high cash flow growth subscription and subscription services business is likely to drive and increasingly SaaS-like valuation. We're pleased to be achieving metrics at levels very similar to those being achieved by the strongest SaaS companies, which are trading at high multiples of revenue. However, like Adobe and other companies who during their period of conversion to SaaS traded a discount to smaller subscription startups, we expect that as our conversion to subscription and subscription services to SaaS becomes nearly complete, The impressive quality of our subscription metrics is likely to drive a valuation more reflective of the lifetime customer value we're creating. Turn it back to Paul.

Thanks, Bob. And I'd like to turn to Steve to talk about guidance and our outlook.

Okay. Thank you, Paul. So, outlook and guidance. Our guidance for FY22 is that we expect to generate adjusted EBITDA of between $34 and $36 million. The midpoint of this range would reflect an approximately 25% increase in adjusted EBITDA compared to the $28 million of adjusted EBITDA achieved in FY21. Underpinning this guidance are the following expectations. First, the recognition that during FY22 of a large portion of the $77 million of deferred revenue already on the balance sheet and the billing of a large portion of the $50 million of unbilled deferred revenue which has been contracted. This provides significant visibility into our FY22 revenue and gross margin. Second, in addition to the recognition of deferred revenue, The factor which is expected to have the greatest impact on our FY22 results is also the one in which we have high confidence. That is the strength of All Access Pass and related sales. We expect that All Access Pass will continue to achieve, one, strong growth in both sales and invoice sales, two, high revenue retention rates, Three, strong sales to new logos. And four, continued growth in pass expansions and multi-year contracts. We also expect that All Access Pass subscription services will continue to be strong. Third, we expect that our revenue in Japan, China, and among our licensees will continue to strengthen. The increase in All Access Pass, which we expect to achieve in these countries, will obviously result in a portion of the new sales being added to the balance sheet as deferred revenue. And fourth, in education, we expect to continue to achieve strong retention of both schools and revenue among existing LeaderandMe schools. In addition, despite the fact that the number of new LeaderandMe schools grew significantly in FY21, We expect to achieve growth in the number of new Leader in Me schools beyond that achieved last year. Now for our first quarter, we expect that adjusted EBITDA will be between 5.5 and 7 million compared to the 3.7 million in the first quarter of fiscal 2021. reflecting strong performance by all access paths in the U.S., Canada, and government, and the same general expectations just outlined for international operations and education. Now, in addition to our guidance, we'll offer some insight into our targets for FY22, 23, and 24. Building on the 34 to 36 million in adjusted EBITDA we expect to achieve this year and driven substantially by the expected continued growth of all access paths. Our target is to achieve adjusted EBITDA increase by about 10 million per year each year thereafter. To be, as Bob said, around 45 million FY23 and around 55 million FY21. in FY24. These targets reflect our expectation of being able to achieve low double-digit revenue growth and approximately 40 percent of that growth in revenue to flow through to increase in adjusted EBITDA and cash flow. Even after significant growth investments in marketing, our sales force, technology, and expansion into new content areas. All of this at least until we achieve an adjusted EBITDA to sales percentage margin of approximately 20% or approaching 20%. While dramatic changes in the world environment could impact these expectations, we want to share that these are our current expectations and assumptions. We all want to share that not only Are these our targets and expectations? But when you read our proxy statement, you'll see that the executive team's LTIP awards still depend on achieving these strong multi-year growth goals.

Thank you, Steve. We feel great about our momentum and are pleased to be in a position to offer this guidance and are looking forward to a great 2022. And with that, we'd like to ask the operator to open up for questions.

If anyone has a question, you can press star then 1 on your touchtone phone. Once again, if you have a question, it's star then 1 on your touchtone phone. Our first question comes from Andrew Nicholas from William Blair. Go ahead, Andrew.

Hi, good afternoon. Thank you for taking my question. My first one was going to just be on the education segment. Really, really strong number. I think record revenue by at least a couple million. Just wondering, you spent some time talking about the strong new logo growth, but wondering if you could flesh that out a little bit further and maybe speak to if there's anything timing related in there or one time from maybe pent-up demand from prior years. I just want to get a sense for what drove such a strong number.

Yeah, great question. I'll turn to Sean. But just at the high level, really nothing one time. It was a really great, strong performance by the team. A lot of work during the pandemic and a lot of work pre-pandemic to reposition the solution and to prepare for what was a great year this last year. But let's have Sean provide a little additional detail there.

Okay, thank you, Paul. Hi, Andrew. How are you?

Good, good.

Good. Yeah, so to Paul's point, there was nothing, one thing in particular, I think if I had to point to a few things that made all the difference, one would be the focus that we have put on districts, on selling to districts instead of individual schools. We were able to bring on a lot of really large urban districts this last two quarters and And those are a lot stickier. We find the retention rate on districts is very, very high, like at the 95% range. And so that was the key reason. I also feel that we executed really well. We launched Leader in Me 4.0, the latest version of Leader in Me, in fiscal year 2020. And we really didn't get the chance to see it play through with all the improvements that we made. And we were able to see that once the pandemic cleared up some. So that helped as well. Definitely there was some backlog of demand that came through, but we're finding our momentum is continuing really strong. There's a lot of money in the market right now because of all the fiscal stimulus money that was sent into the market and will be for the next two to three years. That's not going to dry up anytime soon. So we're pleased, and as was mentioned, we feel like we can even do more schools this coming year.

Great. Thank you. That's very helpful. And then for my follow-up, I just wanted to talk about the client partner number a little bit. I think last quarter, not only did you mention kind of all the opportunity there from a TAM perspective, but I think a willingness to try and add 30 client partners or so a year is I'm just kind of curious if that's still the goal, whether or not that's something that's achievable in this current labor environment. I know that other companies across the economy, frankly, are having trouble filling sales roles in some cases. And to the extent that is an issue, whether or not that would have any impact on your ability to grow top line or new logos or in this upcoming year, or if you expect to offset any potential pressure there with increased productivity. Thank you.

Yeah, great question. So I'll take maybe just part of it and then ask Jen Colosimo to share some thoughts on that as well. So, yeah, as we reported, we added 19 new client partners. We actually, the 20th came on about a week after August 31st. So in our minds, we're saying we hit the 20th. But that was the projection we had for the year. We mentioned that we would hire. We kind of back-ended our hiring because of the impact of COVID earlier in the year. So we felt great about bringing on the net 20, and we're projecting and planning to bring on the net 30 this year we've talked about. It is a different environment for sure right now, and Jen can talk about that. But I would say to answer your question specifically, I think we'll get there. And, you know, if we're a person or two short, we don't expect that that would have any impact on new logo sales. As I mentioned in the remarks a few minutes ago, we have 120 client partners that are still in the middle of their ramp. There's, frankly, tens of millions of dollars of latent potential revenue that's just there as that group continues to ramp. And so that would more than cover, significantly more than cover any any gap there might have been if we failed to get to the hiring number. But, Jen, why don't you add a little bit of comment perspective? You're out there every day helping us recruit and onboard these new client partners.

Thanks, Paul. I think you tapped on two of the big elements, which is we have so much latent productivity in those client partners that are in RAMP. And, in addition, we are committed to the 30. Our subscription business, as you've heard in the comments, particularly the nature of the multi-year contracted engagements. That's very attractive to a sales force if, on average, 41% of our contracts and 53% of our contract value is in multi-year engagements, means if you're a salesperson, you are not starting a fiscal year at zero and trying to recreate what you obtained last year and grow on that. Of course, there's a significant amount of work to get those retention numbers, but it's a very attractive model. And in addition, having done two interviews today for client partners, our mission, our values, the culture we have and the impact we have on these large problems and the partnership we build with clients is attractive to client partners, both within our industry and those coming from outside, but very successful salespeople in other industries. We are committed to doing that, and as Paul mentioned, we're also looking forward to the growth of those that we have.

Really helpful. Thank you. Have a nice night.

Thanks, Andrew.

Thanks, Andrew.

And our next question comes from Alex Paris from Barrington Research. Go ahead, Alex.

Hi, guys. Congratulations on the strong finish to the year, and thanks for taking my questions.

Thanks, Alex.

I have a couple of higher-level questions, I suppose, as we transition from pre-COVID to COVID to endemic COVID or post-COVID. As I look back, as we look back pre-COVID, I think you've said before that 90% to 95% of your content delivery was in person. Only 5% to 10% was live online. Obviously, it flipped during the COVID years. Where does it go from here? What does the delivery look like today as the economy has begun to open again? Is it still the vast majority live online? And what do you think it looks like steady state a year from now or two years from now?

Yeah, it's a great question. So you're right. Pre-COVID, it was 95% live in-person delivery. that completely flipped to greater than 90% live online, and it remains there. So, in whatever phase we're in right now of COVID, it remains substantially all live online. We saw in the fourth quarter, you know, a little bit of a return to live in person. What I say a little bit, it was, you know, we deliver hundreds and hundreds and hundreds of days a quarter, and we, you know, had 20 more days, 25 more days were live in person. So, It substantially remains live online. I think the answer to your broader question, I think it stays mainly live online. And the reason for that is I think there's some things that we can do live online and that others in the industry can do that are frankly, that provide a better experience. The way that learning can be spaced over time and in between the spacing of the learning can be coaching and reinforcement and on-the-job application, the use of the tools that you learned in the last session can be applied on the job the next week, and then you come back to that. It provides a better experience for behavior change, and I think this plays into our strength. It's one of the reasons we purchased Strive, is to make sure that we have a platform that is the best out there to support that kind of development and that kind of deployment and to make that kind of deployment easy. Historically, if you're the learning administrator and you have to You have to manage all those individual touch points over time. It's just frankly harder than saying, hey, let's just have everybody come next Tuesday. We'll get in a room. We'll do it. We'll say we did it. We're done and we're out. And so to combat that and to make it really easy for our clients, what we're building on Strive is this platform that really kind of powers that by itself and makes it very easily deployable by the learning leader and enjoyable and easily accessible by the individual. But you still have that cohort group experience. and the coaching and the other things that we know are important to drive behavior change. So, so I think it stays live online to the extent that live in person comes back. That would be great for us too, because that's right in our wheelhouse. We've done that our entire time as a company. So I think we're in a position to kind of, to get the best of both worlds, whatever the world ends up officially looking like in the endemic COVID period.

Great. Thanks. And then, uh, Just to follow up, and since you brought it up, Strive, it was only acquired, what, five months ago or so in April. That's right. I wonder where we stand with regard to the integration process and just a little additional color there.

Yeah, great, great. Happy to talk about that. We were thrilled when we purchased Strive. We're more thrilled today now, honestly, than we were then. We're right on track. We had targeted a January launch of Strive, kind of in its version 1.0 for us, which is Strive powering all of our core content, and we're right there expecting the launch then. And over the course of this fiscal year, from January on, we'll add more and more functionality for our users. We have a great short-term and long-term roadmap for what happens with Strive, but we're right where we are. expected we would be in the integration and preparing for the launch phase of that.

Great. Good to hear. Let me just sneak in one last one here kind of related to the first question. In-person events, it is pre-COVID, it was a producer of leads for FranklinCovey. COVID obviously stopped that. What are your plans here? I know you kind of shifted to Zoom to some extent, but maybe just a little additional color, and that'll be my last question. Thanks.

Oh, yeah, great question. Jen, you live in the event world all the time. You want to take that one?

Yes. We have had significant lead generation as the statistic is in the 50% that many B2B buyers buy via web research. And we have lead magnets on our website and take each of those leads and follow up on them In addition, our online event strategy has grown significantly, leaps and bounds, both in terms of the follow-up out of those events. So we are finding actually more lead gen in the digital world than we were having with our live event strategy. To the previous conversation, I think we're well-positioned regardless of where the world goes. if we have larger conferences in the future or return to some live events, it will at a minimum remain complemented by the work that we're doing with our website and our live online events because we've had such great success. Is that responsive, Alex?

That's exactly what I was looking for. Thanks, Jen, and I'll get back in the queue.

Thank you. Thanks, Alex.

And our next question comes from Marco Rodriguez from Stony. Go ahead, Marco.

Good afternoon, guys. It's Stonegate Capital. Hey, Marco. Hey, I wanted to kind of follow up on kind of that last couple questions as it relates to kind of a high-level question. discussion on training service and sort of important market dynamics. You kind of alluded to the fact that online is becoming much more important for behavior changes. Just wondering if you can maybe talk about any other important market dynamics you kind of see coming for training services over the next 12 to 24 months.

Yeah, it's a great question. I think, and so I'll I'll describe one, and it'll probably appear a little bit biased in my response, but it's something we see happening in the market, and we think it's really important, and it's why we've organized the way we have. Over the last couple of years, this training market, this industry that we're in, is a pretty hot market right now. A lot of people are entering, and many of those that have entered the last few years have entered as large library providers, lots and lots and lots of content. As I mentioned in my remarks earlier, really set up to impart knowledge, help people with individual skills they may need, but not necessarily set up to drive true behavior change and collective action across a large population or across an entire organization. And that's kind of the holy grail, we think. And so you talk about trends we see coming. I think you see these cycles go through all kinds of industries. We've been through this cycle where it's been all about how much content could a company acquire and put out there. And there's a value to that. But I think where the next phase of the cycle is likely to be, and we think it will be, is this premium on, yep, it's great to have a lot of content, but what we really wanted was the result. We needed behavior to change. We needed cultures to change. We needed the leaders to really become more proficient in how they – I mean, there's a war for talent right now, and the war is going to be won by those companies who can create the right kind of environment where people feel trusted, they feel valued, leaders are able to drive performance, et cetera. And so I think you'll see the pendulum, to the extent that it ever shifted away from that, to shift back right onto that. And so we're spending all of our time making sure That's been our heritage, but making sure that we're right there staying on those important topics that our clients care about. So I think that'll be one. It's just that the nature of the problems and the ability to deliver on those problems and deliver real solutions won't become less important. I think it'll become even more important. And that's really being driven and exacerbated by just what's going on in the world. It's hard to find people. It's hard to retain people. And we used to say culture was a competitive advantage. Culture is a competitive advantage right now without question. and will be, I think, for some time to come. That would be one, I guess, in addition to kind of the digitization and being able to deliver in a variety of modalities. Very helpful.

And then thinking about your all-access pass multi-year holders as it relates to percentage of your total revenue, How are you guys thinking about that as far as an upper limit is concerned when it comes to your clients and their particular demands, if you will?

Yeah, I don't know if we know exactly what the upper limit will be, but I'll bet it's still a fair bit higher than where it is today. It's a funny little inside joke around here. When we launched All Access Pass, we didn't even really think early in that multi-year was something we had to do. And one day we said, hey, we got to see if we can get some clients to buy this thing for more than one year at a time. And we've been really pleased with how rapidly that has grown. And I think it's grown because, again, back to this, the nature of what we're helping clients with, it's not going to get solved in a month or three months or even in the year, right? These are big challenges and They exist across entire organizations. And so just the nature of the problem lends to a discussion that is longer term in nature. And so it's a great win-win for us and for our clients to sign a multi-year agreement. We provide a little bit of a discount to them. They don't have to go through the recontracting phase every year. And our whole mantra is it's a client relationship for life. and we hope on their side they feel the same way. And so I think today where we're at 41% of the contract, 53% of the revenue, I think easily that gets over 50, and who knows how high that will go. But I suspect there's still a fair bit of headroom there on both the number and the percentage of revenue.

Got it. And last question for me, just on your international direct, I appreciate the statistics and the data you provided in the presentation. But can you give us a little bit more of some color updated on China and Japan, on their conversion and kind of where they are in terms of innings? And are there any dynamics in those markets that might differ from North America, UK, Australia, that would kind of relate to timing issues when it comes to getting them up to the same all-access task percentages?

Yeah, great question. We mentioned, so first of all, taking international direct in total, the UK is pretty much mirroring exactly where the US has been. They're at 80, I think I said 83%, and on their way to the same 90% we are. I think the same thing will happen in Australia. They're at 76% right now, and they're well on their way. In Japan, we're really pleased. A third of their sales last year were All Access Pass and subscription services. And I think we'll see in Japan the same conversion rate we saw such that over the next four years from now or so, or maybe five years from now, they're where we are today. I think you'll see that just continue to go along. China, I think we'll get on, we believe we'll follow the same trajectory. We, as we've mentioned in the past, we started later in China, quite a bit later in China. We had to build our own instance of the portal behind the firewall, behind the great China firewall. And so that, they got out of the gates last. And we have sold small access passes there. In fact, we have a large multi-year contract and a number of other sales we've made in China. So I think what you'll see happen is U.S. will get their first to 90%. U.K. and Australia will arrive, you know, second, but not too far behind. Japan will get their third, and it'll be, you know, a couple, three, four years from now. And China will probably lag another, you know, year or two beyond that. And, you know, And that's if we don't figure out a way to accelerate it. But if it just followed the normal trajectory, I think that's what we'd expect to see. And then I think important, while it doesn't necessarily change revenue or profitability for us, it is important for our licensee partner network. They're also selling All Access Pass. And they're having great success. Nearly a third of their gross revenues last year were also All Access Pass. We have a couple. We have one, our licensee operation in Northern Europe, 90% of their revenue is All Access Pass subscription-related services. And so they're right there with, you know, the highest in the world right now, actually. And so we're seeing partners come across as well.

Very helpful. Thank you, guys. I appreciate your time.

Thanks, Marco.

And our next question comes from Jeff Martin from Roth Capital Partners. Go ahead.

Thanks. Good afternoon, everyone. Thanks for taking my questions here. Paul, I wanted to get a sense for new logos, specifically what you're seeing in terms of conversion rates of new logos that you're going after, and if you're seeing a change in that conversion rate, what is driving that?

Yeah, I'll share a thought and then ask Jen to also share some perspective on from the field as well. We had a great new logo quarter in the fourth quarter. As we mentioned, new logo growth, we're up 39%. And we continue to be pleased with the new logo sales and the trajectory and progression there. I would say, as Jen mentioned, one of the things that we're benefiting from is we are getting more lead flow. we used to think coming to the live event was kind of the cat's meow. And actually, these live online events that we can do, we can attract a lot more people, get to a lot of tier two markets. So that's helping us. And I think the more reps we get here, the more times our salespeople get around the bases on how to position We're doing a lot of work right now on clarifying our positioning and softening the beach for our salespeople with marketing and advertising initiatives. I think it all helps. I think the ecosystem that throws off new logos is getting stronger. But, Jen, what would you add that you're seeing from the field?

I would primarily second what you just described, that our ecosystem around selling new logos has strengthened significantly. key messaging based on these durable big problems that clients address and being very clear on how we address that, how we will drive the behavior change and I think one thing that's different in some senses, not of all, but with some of the other solutions that are out there is we do focus on how people think and that part of the mindset drives that skill set and part of the challenge we've had for several years, for many years, is people knowing who we are and how we approach behavior change, the neuroscience behind it. And so it's the marketing. We've got a significantly stronger business development arm that works on making sure that we are getting out there and setting meetings in addition to our client partner group. So it is the ecosystem. And then I would say In addition, based on what we do and the change that we drive on these big durable problems, the market is ripe for us. The reason that we see others coming into this space is because building an inclusive culture and building your leaders and having effective individuals that can collaborate and innovate and are resilient, people want that. So we're also talking about things that clients have a need, they have a challenge, and they see how we can address it.

Great. And then I wanted to get your thoughts, Paul, on whether the recovery demand cycle that we're essentially at the front end of right now, what's your experiences in the past coming out of that? I know the training industry in general, I wouldn't classify you as a pure training company, but the training industry comes out of a recovery cycle. in a very high demand situation. I was just curious, does FranklinCovey face that kind of tailwind at this point? And then I had a follow-up with respect to the service attach rate on all excess pass, the add-on services reaching 52% most recently. I was curious if there's room for further expansion on that and what you think steady state is.

Okay, great. I'll take the first and then the second. You know, we've So you alluded to kind of past whatever the downturn was, what happens on the back end of that, and there has been, and historically there's been tailwinds, and we've certainly benefited from those. I suspect to the extent there's a tailwind, we'll benefit here as well to the same degree we have or even a greater degree. What's interesting about this particular event we've been through is it's put a premium, I think, and I mentioned this a minute ago when... I can't remember if it was Alex or Marco that asked the question, but it really plays into our areas of strength. The things that organizations are grappling with right now as they come out of this, hopefully we are coming out of this, but the things they're grappling with are the very things that we exist to solve. I mentioned them, Jen's mentioned them, and I think that to the extent there's a tailwind, it ought to be an accelerating tailwind for us. The time has really arrived. If it wasn't here before, it's really arrived now for a company like FranklinCovey to be able to work on and be a partner with our clients in these big areas around how leaders lead and engage their teams, how individuals show up, as Jen mentioned, and to be resilient and deal with change, and how organizations come together and really get clear on the key thing they need to get done and execute that, and the way cultures are formed and maintained. So I think there are and there will be some tailwinds. I think there's lots of investment and energy and mind share being devoted on these kinds of topics right now. To your second question about service attach rate, that's continued to be something that has been something we're very excited about. That number has stayed in the high 40s, low 50s for quite a while. I think whether the percentage keeps going up or not, just, you know, this is probably obvious, but that 52% is a percentage of a continually growing all-access pass subscription base. And so as the subscription portion of that continues to grow in the significant double digits, even if the attach rate stayed at 50% or 52%, that would represent significant growth in those services. And that's such a key part of what we do. That's a real competitive advantage. Again, it differentiates us from a lot of other people in the space is that we We've chosen to maintain and support all the modalities that we feel our clients need to get the result they're after. And so we have this multimodal approach, and services are a big part of that. So I don't know how high it goes above 52, but in fact, if it stayed at 52, that would be fantastic on a growing basis subscription.

I agree with that. Congratulations on a successful close to the end. Good luck in 22.

Thanks. Thanks, Jeff.

And we have no more questions at this time. I'd like to turn it back to Paul for closing remarks.

Well, thank you. Thanks, everyone, for joining us today and for your great questions. And thanks for your continued interest in the company. We're really happy about what happened last year and in the fourth quarter and look forward to talking to you again as we get ready to report T1 here in another couple months. I hope you all have a great evening.

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