Franklin Covey Company

Good day and thank you for standing by. Welcome to the Q4 Franklin Covey Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your questions, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Derek Hatch, Corporate Controller. Go ahead, Derek.

Thanks, Mark. Hello, everyone, and thanks for joining us today. We're glad to have the opportunity to talk with you today about our fourth quarter and fiscal year ended August 31st, 2024. Participating on our call this afternoon are Paul Walker, our CEO, Steve Young, our CFO, Jennifer Colosimo, President of our Enterprise Division, Sean Covey, President of our Education Division, and other members of the Executive Team. As we get started, I would like to remind everyone 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 grow revenues, the acceptance of and renewal rates of our subscription offerings, including the All Access Pass and Leader in Me memberships, the ability of the company to hire productive sales and other client-facing 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 overall size of the 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 managers' 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 to 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, take it away.

Thank you, Derek. Welcome, everyone. It's great to be with you today. There are two things that I am excited to share during our time together. First is the strength of the results we achieved in the fourth quarter and for the year, where fourth quarter revenue grew 8% and full year revenue was $287.2 million compared to the $284 million we'd expected. Fourth quarter adjusted EBITDA grew 39%, and for the year adjusted EBITDA was $55.3 million versus the $48.1 million that we achieved in fiscal 23%. Cash flows from operating activities grew 69% for the year, and free cash flow grew 121% in the year. These results are a continued reflection of what we anticipated when we converted to a subscription business model nine years ago. As shown on slide four, since our conversion, we've achieved significant growth in revenue, adjusted EBITDA, and cash flow. The second thing I want to talk about today, and this is something I've been looking forward to talking with you about for some time now, is that having substantially completed our transition to subscription and having made major investments in technology and content to solidify our position of leadership, we're now ready to make the necessary growth investments to shift our ongoing revenue growth from the mid to high single digits to consistent double digit growth. This increased growth will be driven by investments in two key areas. First, further expansion of our penetration within existing clients. Even though we've already expanded our average revenue per client from $39,000 to $85,000 since our conversion to subscription, within the vast majority of our clients, we remain only about 10% penetrated, with lots of headroom for further expansion and growth. The second area of investment is in winning significantly increased numbers of new logos. Even though we've won thousands of logos, we're only scratching the surface of the potential within the large markets we serve. Accordingly, I'm pleased to tell you that we're making approximately $16 million of incremental net growth investments into the following areas, which you can also see reflected on slide five. The first of these areas is that we're adding client-facing sales and support roles to increase the penetration bandwidth of those client partners who will now be responsible solely for client expansion. The second area of investment is that we're providing significant additional marketing and closing resources to help those client partners who will now be focused solely on winning new logos. And the third area is that we're making investments into central sales leadership and sales operations functions, including having hired a new chief revenue officer, her name is Holly Proctor, and establishing an expanded revenue operations function that's going to allow us to scale our sales force even more rapidly in the future. We expect these investments to show impact in the back half of fiscal 25, and then to fundamentally shift our growth curve thereafter. As shown in slide six, we expect reported revenue to grow approximately 4.5% or 13 million in fiscal 25. You should note that this will be an investment year and where we expect a lot of the new invoice revenue to end up on the balance sheet. We then expect to begin a pattern of double-digit revenue growth as the impact of these growth investments accelerate our growth to 10% or around $30 million in fiscal 26. We then model accelerating growth to 12% or approximately $40 million in fiscal 27 and then to 14% growth or approximately $50 million in fiscal 28. As also shown on slide six, we expect the impact of these investments to decrease adjusted EBITDA in fiscal 25 to a range of approximately $40 to $44 million, which will then grow to $48 million in fiscal 26 to approximately $60 million in fiscal 27, and then to approximately $75 million in fiscal 28. This is an exciting time for us. Having successfully converted to our technology-enabled subscription model and having made the significant investments in content and technology, which have further enhanced our strategic position, while at the same time continuing to grow adjusted EBITDA and cash flow, we're now ready to make the next jump forward that of accelerating our growth. I'd like to now turn some time over to Steve to talk about our Q4 and fiscal year results in a little bit more detail and also get into guidance.