FC - Earnings call transcript Q1 2019

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Operator

Welcome to the Q1 2019 Franklin Covey Earnings Conference Call. My name is Angela, and I will be your operator for today's call. [Operator Instructions] Please note this conference is being recorded. I will now turn the call over to Derek Hatch. Mr. begin. may you Hatch,

Derek Hatch

financial afternoon, XXXX. of gentlemen, like Franklin our ended discuss you Good of first Year. XXXX, fiscal to Happy On to which our to call behalf Covey November conference for ladies Angela. the and quarter XX, and on New welcome results Thanks, Company, I'd

Litigation forward-looking the meaning of Before we remind to within like of everybody that Private statements Securities Reform begin, we'd this Act XXXX. presentation contains the

law. or obligation these circumstances are based targeted reflect cause are size beyond company conditions, in acceptance products, and are current based the identified meet our overall the strategies, the factors subject including the changes discussed company's of are Forward-looking forward-looking and company's control results hire and rates future Securities on upon current events by professionals, date except will statements competition All market reports Pass, spending as sales renewal and influence differ statements Annual expectations. no policies other to, revise expectations future products of and recent expectations services of filed the grow to we share, and various management's to the uncertainties company’s conditions company's to company's market of Access the to XX-K productive Report management's changes or to the These company's of and expectations the be company’s statements of the clients and required most the forward-looking but the Form today's management's in the current with periodic in assurance changes update risks materially ability and Many and actual to marketplace, may or revenues, can undertake and no which limited after other economic Exchange in the in marketing of not ability of training new or there and company of the of these from anyone for acceptance presentation general Commission. the market stabilize the the upon performance

transition turn standard. additional the recognizing $X.X be of has of additional according in primarily appendix Refer which we to way, resulted and We first on the revenue May to Division new net the beginning quarter, of that not revenue in impacted date those also new we the information over heard EBITDA, XXXX-XX, quarter, also information the and with to which of the Customers. from the new FASB adjustment, a Contracts on this in of slide impacted our everybody's standard which of Whitman, and prior million the And not Chief revenue were recognition continues we'd more Education in which Executive Education we applied of by earnings September the effect XXXX Mr. The Under impact of contracts $X of ASU tax. revenue $X.X X million which wanted Bob million this that time the new like like which the to out using recognition cumulative to standards, This ASU adopted us recognized a that accounting is issued restated about towards The adjusted for periods. and is comparative Officer. been the for method, the retrospective retained that the to to have the effect recording were and period adoption approach. point to XXXX-XX standard adoption next recognition Chairman out modified Revenue implementation point Division. lot we just reduced as with standard revenue adopted regarding primarily presented out the completed

Bob Whitman

Thanks months business in having our we our high going two rates year-end Derek. joining adjusted of report, now expect our you EBITDA today. appreciate growth cash transition model, In that we generate We to everyone. crossed flow said subscription really the to ago, us afternoon, Good bridge in and forward.

in which specifically between shown would is million $XX 'XX, million expect which said XX%, to we that to EBITDA As we to Slide in in increase fiscal 'XX between to million in of 'XX. $XX million than in then increase fiscal the $XX reported $XX.X from $XX.X fiscal triple X, and adjusted $XX million be growth and fiscal XX% more and XXXX, million

and and of EBITDA the happy these - by reported growth $XX very expectations revenue, still somewhat that us strong that in increase really would XX%, the given EBITDA, then then up first and $XX increase the this XX% in to today first we we achieving between had. the good and a $XX this year between expected, generated objectives of $XX have adjusted million for this $XX expect million million and fiscal for our they and million months in is performance than growth fiscal $XX fiscal reaffirmed $XX.X change EBITDA in net cash also XXXX. $XX in cash which 'XX, strengthened sum flow stronger happy to reported million and to increase the between quarter cash that have fiscal of in toward mountain rapid in finally, and flow of to expected push plus XX our XXXX. for and beyond. that latest is in and million longer We're fiscal to that between We were report $XX 'XX and to We're course million kind the and quarter 'XX and million to from deferred revenue fiscal 'XX And, million million between $XX from really

Just and that really it's rewarding want share time very Franklin I second, just at be for a Covey. a to to exciting

us for customer ongoing rewarding impact pervasive our problems a for is result to and distribution lot and relationships associates. our in a solving line subscription is value. clients are a our are having business way expectations exciting growth and resulting deep really really with and that they we're means performance clients, Equally as beyond. important and positioned because our of exciting of model, that, that First, in all and of we are strength and year bottom and our commitments growing achieving the our really this top this and This

There really you a are can at to Franklin to So takeaways Slide call in it's from three as time today's X. Covey. get like we'd great be see

generated. results expected strong year XX% to achieving off in first supported our to were got a start. us expectation of to strength in our adjusted XX% and quarter These and EBITDA net that results growth XX% First, growth stronger somewhat than XX% cash this

in and that remind of Me that Leader success. factors Second, a you I'll XX months and you membership and driving model’s the continue this in All the results latest - the remind value in from effectiveness models, are minute, of our the quarter Pass four and Access factors minute our four I'll a in

back expected opportunity three Russell in targets. these us beyond, Third, absolute companies and rapidly just the in detail as EBITDA on not address step creation a the for results. we I’d significant expected the the rate one, should would over like meet of first value each XX% with place three in strong in now, takeaways EBITDA us growth to the grow of next year perspective, that this is terms at just only our an to to XXXX top more the starting take grow This of and but provide and generated net years. basis quarter adjusted very cash these takeaway

you $XXX,XXX to points $X.X can you as XX.X%, XXX EBITDA As general, adjusted in a to and saw last as strong first our adjusted EBITDA administrative selling, costs and million, were increase revenue percentage growing of basis million of increasing is year's $X.X quarter press release, first which in see our a results declining with quarter. compared sales, our

a each at and the detail in more first, $X really a mentioned, $X.X results the XXX little came million standard. company of the of these a the The dive to increase - of rest $X.X full As - that from deeper that million it was our about divisions. increase all of like but, other level, revenue in review though, review performance I'd operations. I'll million came moment of

First results Enterprise Slide the first the in revenue total Division, our X, of XX% I'll of start the with approximately which on accounted quarter. for

increase shown first quarter. in the compared sales million on million million Slide net the to the That's last sales Enterprise As X, the upper chart, in Division's $XX.X $XX.X net left-hand year's in grew $X.X first a quarter. to the in XX.X%

ago. $XX.X latest for $XXX.X months, the XX% For which million XX-month increase $XXX.X is to grew had million sales a million, same latest the a compared to period year the XX we net

$XX.X the can and growth revenue right-hand in billed XX.X% our first of end million quarter. to in to our addition the unbilled balance that see balance at reported in of our grew first billed deferred last That's upper XX% $XX.X in of in $XX.X revenue of million quarter shown, you the year's deferred unbilled compared Division, million. a revenue As the growth Enterprise corner, and to

of up year's at million last The revenue quarter. And of our million, million of million of million Enterprise building the revenue. $XX.X billed the first That's quarter grew have deferred $XX.X to $X.X - in the unbilled unbilled million first $XX.X in billed we're end the quarter. Division compared last a first XX.X% to at at So the end quarter. an increase end of year's of right, big a lower the first grew in the balance first deferred revenue of deferred $XX.X future our left-hand quarter in to chart XX% balance of revenue balance $X balance the of increase compared of lower to balance deferred an

X. Going to Slide

Pass Gross the that's As shown, latest here last XX an grew million and the gross XX-month XX.X% quarter, $XXX.X in million period Division a subscriptions, of first higher the Access million of And in to the compared last latest to million, reflecting was slightly same increase of than quarter. million last Enterprise XX% to just services points the the Leader Enterprise. profit last $XXX Me to year's compared first sales grew XX.X% XX-month to in million basis percent XX% for in in Pass year profit XX% of $XX.X Gross well in latest year. latest first the an quarter. year, the mix $XX.X XXX same higher was for compared last reflecting of All is of than months, year's profit $XX.X the increase months, the period margin quarter Access high XX $X.X All gross impact gross first margin for the

the of point. general, an important terms is expenses, this selling, In and administrative

general, selling, a XXXX. as the administrative expenses our percentage decline in expect of to We and in sales Division Enterprise fiscal

first last the first this high drive from is flow quarter to of first to XX.X% XXX the in adjusted This they of and factors moderated in to the in to last flow you sales as can improved Division in investments percentage in reduction did. quarter, growth a will the SG&A see revenue In Enterprise year's EBITDA fiscal XX.X% our in one sales percentage declining increases quarter cash in in of points 'XX year, SG&A as of - that we and sales through increases As quarter. and first compared year's by basis beyond.

the Finally growth fiscal as quarter million 'XX. X.X X.X to of first Enterprise in to XX% Division's grew first million, compared X.X of quarter EBITDA. the to in million The EBITDA

terms of XX.X XX% EBITDA growth million, great the particularly year, the attractive model for growth Enterprise XX.X Division, million business For ago the period of which growth in invoice compared of for X.X potential subscription latest our in the is last model. to Truly the in of cash already of disrupt XX-month quarter have months EBITDA XX smallest drove to - same about a decision so - to latest is feel three kind really favor EBITDA new high the the increased flow achieving what our revenue. high million this it and years EBITDA Enterprise

this this important $XX.X grew months in increase to and last $X.X - like really XX% that's seen amounts power to back shown isn't the moves quarter but of we've amounts move latest to To things above. compared in an me XX chart Division's a of strong reported model the to double-digit latest increase million it's Enterprise XX-month Enterprise terms of invoiced which the million, million, quarter a amounts of Division showing the in on for range the up in and That's last really $XX.X growth same year's it invoiced grew in shown the $XX.X first as as million of compared forward. XX% to also the XX the and appendix, first invoice in period invoiced Slide the revenue, $XXX.X and invoiced one the million year. is exciting In this

Slide million compared million of terms signed in in first contract the contract also quarter that's during that's an signed, the total million, XX.X% quarter. of $X.X $XX grew XX, year to In to shown signed last in contract the $XX.X increase first total

our success the XX% take the So you first - quarter. Education gross All of which the and flow XX of margins about that's through of quarter, now very we'll the revenue strong revenue, for approximately Enterprise months, really a Division, strong high for strong Division impact Access I'll the through accounted the accounts Pass. in had a driven total talk about in minute latest incremental as very

net the in spill-over XX.X% XXX in our million, expiration million in compared large quarter. revenue the a contract second benefit accounting of Foundation in which the This year's also in months in from decline to X, Slide last first two last of included standard increase Division's of of quarter, sales that reflects first year's on $X.X related we an $X.X shown that's but discussed first $X.X the increase grew Education there quarter the the million the were quarter, $XX.X change the it Education report year-end resulting to million, to ago. detail As revenue in $XXX,XXX

gross period sales increased actually the increased latest first year percent latest ago. year. year's two million XX% large latest the gross was you months million of XX quarter months, the was the was to $XX.X XX basis same again, XX-month increase profit Education's in sales Foundation net first the percent their XX.X% and and quarter points that than higher the net of in $X for last growth an to years $XX.X to excluding Education's grew or months XXX basis last XX this we ago latest remind a million for in X.X% profit, period in just And, $X.X for profit million For both that $X.X period. script higher XX.X% from for Gross compared same Education million, - the profit months. gross than points the XX contract

sales with kind first additions Education improved quarter $XXX,XXX the in stabilized the move of declining from and last to percentage of to the quarter significantly, this they with had breakeven. of of 'XX quarter, in increased Division sort cost year XX.X% As Enterprise XX.X% XXX first first basis points, last the in in EBITDA SG&A Division's the spending from sales negative for first to the a as reflecting year. swallowing the SG&A of of year, $XXX,XXX quarter of this year's

$X.X 'XX, by the more of side, benefit contract for was million basis. XX quarter. accounting $X.X quarter, it quarter, Foundation XX million be latest positive after than in months QX this in second For of much the Education's months, contract of second the was apples-to-apples the be fiscal compared first on ended it'd EBITDA The on offset the the XXX with expiration be but latest an to impact the Education over impact last year's will good of so the reflecting,

by significant first the of In months invoiced quarter Invoice the million XX, the net shows this Foundation contract. Stepping impact we spill-over period background of despite the the last exchange even which company-wide company's was negatively the shown data year's of Foundation in foreign contract. from latest $X.X XX the more impact amount compared adverse this an on of total detail. $XX.X revenue the 'XX, back terms now a of was for up $X.X in divisions, revenue, XX no in of XXX - total of was in of the fiscal results same last the corner. absorbing Division's the expiration the compared of after million each about with the left-hand adoption quarter appendix, quarter accounting, the In year's total Education Slide sales company impact. benefit impacted in the the Education million year. which in first revenue, Education is invoiced $X.X invoiced to This some revenue $XX.X with shown - to net will grew $XXX,XXX it's upper first XX.X% to the review Slide increase sales million, million received

unbilled $X.X right, year. million million, of quarter. first billed our left the and in increase the of balance XX% an to year's at at balance deferred Lower For million of and hand increased the quarter. period ago. a same sales for latest XX.X% XX million and in increase $XXX.X $XXX in upper right million year compared one of just unbilled to of the first increase In year's $XX.X quarter months, to company's net balance billed deferred sales compared a last deferred unbilled first of of billed - balance $XX.X to million that's end of $X.X $X net of quarter we finally, I to million, million grew deferred balance deferred years corner, billed in compared an grew the million an the of bill years - of XX% to the XX% hand $X significantly million, to of had the to million, only the $XX.X million grew revenues, three of mean last compared growth we $XX.X this $XX.X first end a of about to balance couple chart, had $XX.X deferred lower $XX.X unbilled the quarter that to $XX.X million first grown million. And our increased million ago last in deferred the $XX.X

XX gross the grew million $XX.X and quarter to XX% million latest first grew to Slide in profit XX.X% in the or $XX.X months. quickly XX, Going

quarter to Of XXX,XXX adjusted compared increased to increase but achieved of XXX $X.X as fiscal Education of pace therefore the this percentage an lower quarter as strong quarter percentage we on same the that related year, compared standard, This and percentage for help of as to that last improved drive the incremental last $X quarter latest sales the fiscal of gross EBITDA EBITDA to adoption XX.X% is profit months, more adjusted the in the for impact in compared it's points operating XX.X% $X.X remained received $X.X divisions in improvement foreign more will to XXX,XXX. 'XX. at first million this noted million $X.X of the first a past noted, the got Adjusted margin the EBITDA last to that year's first And million, resulting EBITDA of and in reflected accounting in exchange million of company gross sales in in SG&A contract. reduction impact from spending for both and first represents increase we've and the we revenue the period of million 'XX, the the and after this XXX reflecting adverse absorbing first overall through. spill-over of revenue the change XX.X% growth the from EBITDA $XXX,XXX the of XXX,XXX mentioned, the quarter. in increased Already that in despite XX.X% flow growth adjusted remaining the an basis we XXX% a in year. adjusted SG&A as we XX Our approximately

period $X.X for the for That's increased adjusted half $X.X of For made with we strong cash quarter in quarter same 'XX. EBITDA is from 'XX. the first from big the This huge compared fiscal by operating we last first fourth positive $XX.X the million cash million working quarter. $XX.X quarter year. collections combination the had sales XX to operating activities appendix. of percent, $X.X where latest shown of This the in results year's flow of an from of increased months, a operating the And first compared last the reflected Slide on in also XX% quarter changes finally, million in million and to of first to flows the XXX% the activities for capital back XX the in increase million

months, latest last $X for $XX.X the million XX% For to million million, the cash XX latest our same generated XX-month $XX.X cash net generated year. period increased a of that's to increase net compared

the a lot in that a a lays So, Thank really stepping from the you you us to were about for first we're very pleased a we it. continues smooth, excited with lot. back was so it understand, there multi-year transition strong key but quarter performance. It's way the It's mountain, of behind for you up straightforward out can enduring. given this fairly that, data, hopefully it push strong assumptions and validate

key I'll is much As transition indicated takeaway to the in now will the quarter and second for that months, the be Slide which shorter, XX, XX mercifully.

Me our second Slide Access on explains results same in and Pass key Pass That quarter it to and Access factors for continue months in our and takeaway effectiveness All Pass's and that XX, is the specifically Access success As really to latest XX four Me. Leader that are the strong applies the relates All validate shown there the of All affirm the are models. subscription to driving as Leader

strong All Passes Access First, growth. continued

Second unit is economics. compelling

revenue continue very briefly. cash each high compelling Each flow, sales months. in incremental just very latest - factor the I'll Third, first for retention economics. these be to XX these of and in EBITDA And, to strong continued which economic durability. quarter fourth, both and it's sales on create the of force factors flow-through and rate annual of these touch it's strategic expansion high

the All continue continued growth. of First, for Pass's the and quarter Pass XX months. All rapidly first to Access in Sales very grow Access latest strong - sales

quarter shown to of in compared Pass first sales XX% in million, All in year's Access $X.X XX, in and As last $XX.X sales $XX.X to Pass first million Access Slide related increase quarter. and an related grew All the

$XX last and million, compared latest to XX-month grew Pass XX million in latest All months, the $XX.X For sales XX.X% same Access year. to the period million an increase related $XX.X of

All XX% introduction, powerful more year Pass related strong year-over-year us, that, so a its grew very For a forward. revenue basis, since engine Access us on than for moving the third consecutive and

can unit be On of Second, that very lifetime and continue to high strong XX four lifetime All the first combination for months. shown to customer value to XX, Slide the create level Pass's continue high elements, quarter economics there again, elements see create you in Access strong of these and customer the the value. each collectively continue latest

solutions First, All Access amount seats is including of legacy our model are Pass's This that where compared larger collection relatively for foundation user fact and such level entire they unit of having customers purchase is the by large purchasing of initial a establishes for receive that customer as value populations. much to cost from our this the strong reducing percentage business driven economics, our sales. access to acquisition

As last price the All $XX,XXX at of back years upper has purchase in $XX,XXX increased additional an average since at compared initial right shown Slide to of X.X% and average $XX,XXX Access in of sales inception, Pass's - to of a in an ago the XX, first just increase year's inception. first initial corner this price quarter quarter in couple

Enterprise than Second, and see overall point XX the you to margins All driver Pass's including services, XXX primary continued basis Division's over XX.X% increase can margin high of a Access as more gross the gross is XX%, months. latest in

client importance place predictor is clients organizational services substantial their important and services addressing purchase strong the the to on actually of of Pass Access of the an All add-on retentions help in The business tangible holder achieve objectives. it Third, amount attachment reflection subscription offerings. them challenges organizations raise

see that So, numbers stay we love high. to

Pass every For proven All XX purchase Access $X revenue. Pass's revenue holders latest $X.XX very months, has services to of And, of be for add-on Access fourth, sticky. subscription All

the straight quarter. revenue the XXth first the XX% there, for retention, shown again, in As exceeded quarter

more amount the than generating strong is year-over-year amount in retention increase for prior Pass XXX% very with Access XXX% it the this to of that each prior a All to year, those and contracted combination more Pass year revenue the the XX% prior same services All annual foundation equal more other In provides the Access service this the add-on in year equal than renewal, revenue is combined organizations for year year. more services retention of from combined words, each an from a when had amounts Importantly, Pass the upon of than Pass prior growth. future this or plus of

are strategically I element because is Pass the think what the important structurally. mean I'll War battlefields, analogy, both clients. is is, This giants By become our penicillin All have and effectively health of we're by vaccines true, matter solutions in you developed problems to know, intractable we problems companies really that. the pharmaceutical as Another Access durable delivered solving sustainable breakthrough to tell focused have results revenue challenges by is require I treatment, organizations combat diseases, that on cancer. Covey of Merck, similar HIV address way, creating identifying achieve behaviors invented seemingly the to them. Franklin cholesterol-lowering drugs by solutions and World a II In Slide created to not challenges Franklin developed to childhood that and culture. combat diabetes and to and as organizations nice changing change behavior which to shown scale like development scale. companies, many heart a but addressing disease, et cetera, et the Covey so skills cetera, other mindsets XX, on helped learning drugs XX:XX on training combat to rather, biggest face, of human in large a

the of performance, such harness a operational impact working sales improving Our intractable best good address leaders importance The metrics solve for challenges leadership change bad. challenges, in key together company the out major organizational This track industries, only challenges performance challenges. and increasing in very human power closing culture level best-in-class selling gap, seek improving provide have and as times. transcends measurably to all Big to organizations not most people shines. sizes, credibility is high solutions solve gaining executives Franklin of these to are size address where seek to and and also C The times Covey line The trust solutions both Access and that leaders and the loyalty customer or weaker budgets and we behavior, both have All strong time. in through of delivering are relevant solutions. Pass have but record to outcomes. They budgets a they the

utilizing a environment. we're with senior scaled with impact X,XXX Access In would with expanded organization team organization address our in their example, began their them, mid from leaders this global leader I This second changing years global For to to year unique goods the a Pass All lead and co-created quickly ago development company. XX be process, the equipped working consumer to who better they large XXX leadership work in rapidly to journeys package the Pass develop three and needs. leaders.

Over XX client has this on their headwinds, led across and faced initiatives a business the which scale workforce number back of have to reduce organization. the them months, past numerous

the the implementation downturn, they to us. will and they their are reduced and expand it the Pass, to number their pleased the with down They the days choosing time one-year working initial to they the However, of current to other. reduced in with, Covey that results Pass work the providers three-year development just coming one organization so Pass from Pass of Franklin with same of expanded are from All of leaders, their are have of a significantly X,XXX and in X,XXX a service they've leaders midst X,XXX leaders, the Access this

are them strategic the imports leaders we're All to to provided modalities the Franklin compete changing do durability of so the and and solutions of them the the Covey they solutions problems nature us breadth bigger of the clients. critical in of a in they've key world, this solving effectiveness with, the able dollars jobs tools the behaviors can hired so depth Pass, of And Access environment. help share because they just in with today's because of they're create our getting the the and The addresses And across better the spending. of

in the As shown Slide the including retention reflected All and on strategic XX, by is retention Pass's services. fees subscription high XXX% revenue revenue this total Access durability by

they XX%, not the over fact value they're latest organization average months So renewing, that's its in but value XX value statement. All Access enough are that by the increased also the renewal, and They're of gaining renewing that past holder and big a only Pass expanding. upon

really two In solving, say structural would strategic also durability. by the durability, we're addition to problems it's driven of is this elements as which

Access to binding their deciding every in least gives That past, are Pass year. further that multi-year shown XX, of Slide contracts an year into second, structural increasing entering continue. pay full for purchasers All as And Pass month people also at are First, contract in advance. not each holders and not a percentage stability

latest for ago. the Pass X% contracts into XX of the from months, extended a For multi-year organizations up XX% year

to It lot net currently and means $XXX of reflected more day. fiscal $XXX that that's XXXX, and really Enterprise certainty end in million Access visibility of million of So to shown the Pass revenue important. the structural is expected total to increased the equal into Slide twice million durability in contracts creating of quarter. present A visibility our all in in 'XX significant this first this further million and future value at that strategic revenue and of on ability $XXX has place 'XX the predictability. and future than XX, increasing This expected fiscal revenue as every All is the the from is magnitude $XXX combination reported Division's of approximately from

to $X.X expect more months this within XX than to or the next increase so. billion We

their All population know, similar with note, in is upon to X,XXX a growth in in Pass of by Me. the whole which Just by number we in have our, a increasing renew districts. not already over have is of Leader schools pattern schools, increasing now but school all schools this renewal, their Leader make membership, cetera, transformation Education, Leader When expand similar Me the of the them in expand is Me models, a they similar how in in are as population students in Access Leader the XXX within school, Leader you districts in number which because districts this et Me subscription, Me. in

high This - across school the schools, we one graduates. districts. school school XX each district In Just Leader since this, Me purpose chose started a in in up and example year Me in a large of excuse in first Louisiana, career-ready established me, as two add over building it stretching have intention XX year, we'll schools there to achieve initiative vehicle to then new bring years, the workforce headroom the lots with added they have two of college school to them. another Me are of Currently, between districts. these the about schools seven schools we to Leader XXX XX this stated more schools and next XX in now districts penetrating XX Leader over and year five with for

and in to for that's it that client force sales just high partners breakeven revenue ramp Me I'll within us us high to and to All our margins, and new up have year say Finally, allowing makes possible one accelerate hiring. retention Leader gross Passes Access

our In and growth on Slide new in EBITDA cash the one drivers note ramp-up have successful of XX, growth client hiring client and in since flows net accelerated of Just partners. important Division most XXXX, partners partners revenue November. and is of the in alone, of we we've reported see Enterprise including net a client XX, since new you that XX increase can six added in

Additionally, partners, bring will we're new XX client and partners new XX us expect meet clearly year year. hire to of we to this hires the to in the against our final stages new net of to client four for XX offers our making commitment which commitment

are XX% since familiar we're trajectory has people Pass, can the you ahead ramp, great - rate. as on historically our with, average has of the of addition, - trajectory. Access approximately chart, see it were ramp this XXXX these With a the All been hired In trajectories historical followed for you ahead

and and Offices. the of even international amount huge Direct And partners we claim both hire our so, in a growth Education number we Divisions, of the for more headroom in headroom have can Enterprise in US in

adjusted to to So rapidly EBITDA our absolute other takeaway simply lot, really that's me not grow expect basis, cash a and on Final only also net let is but that generated an conclude. organizations.

We as adjusted cash combination expect growth EBITDA in the you know, drive and three of accelerated flow. things, to

recurrence, in growth has which high subscription margin, model, revenue high high flow-through. First, the

our third, the incremental And, of a expenditures is dollars. and a predictable flow-through highly capital than will couple Second of in and slowly our more that much grow years. high SG&A past variable flow-through meaning is costs, there selling is the that fact

and three cash headroom this high believe growth EBITDA expected next us growth to of As an for the deliver in beyond. at grow expect substantial the with EBITDA on replaces which increasing the EBITDA very in rate top 'XX basis, only result, and and in XXXX flow over shareholder absolute this generated fiscal and rapidly not adjusted net we Russell cash years we're XX% the provides value a of companies terms we on but in in our as

you it's questions. to we'll for open time for and Stephen, our So, review guidance the it up

Stephen Young

Good afternoon, everyone.

Just thank on and for a guidance, today. you thank second on being and you, Bob, the call

this the But on our to the revenue year. the first growth range guidance. to strong sum pleased we a this year reminder, the just from our year-over-year Slide of $X.X for quarter, $XX a and that increase $XX on range million reflected year of this With adjusted last to on in as adjusted in the XX change guidance happy start the we're as EBITDA adjusted So, cash a will defined from increase between generated, this sheet And the $XX $XX have net million million million achieving balance off are growth deferred to from year, last the EBITDA in as $XX $XX to and appendix, million million $XX.X million guidance EBITDA million reaffirm of in will year current the toward a Bob $XX is we gotten for year range a to year. of $XX.X mentioned, the last this million will to year. to million of plus increase year full

retain million second EBITDA adjusted through year-over-year to year-to-date this We expect growth quarter. the $X.X

quarter, will the fourth of that will second in growth fourth in Foundation high substantially second expected and Education government our reflecting second federal high both be as our in essentially adjusted before flow the grow the rate last X% in for we growth time. all adjusted sequential we cetera, in with et quarters. the contract government even is This the EBITDA In cost the at high-single this impact final through impact of a the of quarter. in will EBITDA, whose same marketing shutdown strong X% stronger seasonally quarter's business spill-over increased sales to X% quarter over In The sales, But for revenue the the high the last from some for expect be partners, from quarter, be EBITDA our quarter. digit growth that subscription of in new in X% to for second client revenue reported revenue adjusted expected and year's and recognized year-over-year allows the recognized revenue, be current third quarter. back to the in margin, second expect growth quarter to moving year's to non-renewal third

quarter. So pleased our first strong very we're with performance again in the

We expect banner cash Thanks in very XXXX strong with growth to EBITDA and Bob. have a year in adjusted flow.

Bob Whitman

for to Great. turn the With we'll it operator. and it open back questions that,

Operator

[Operator from go Research. is with question Barrington Instructions] Paris Our Alex first Please ahead.

Chris Howe

areas two Howe in is I Chris for Alex. of for This have sitting concentration questions. these

between me population, the first the characterize What holder and The population. on approximately. to And excuse you this, multi-year as head XX,XXX that, goals you perhaps up increased what mentioned average its in how extending in - moving to are these purchase and regard price to Pass forward? average follow average frames? you the your is towards your volume is Pass just if - What price and time contracts mentioned is would growth you to mix holder regard XXXX to more just

Bob Whitman

population average and some that. early XXX is around where people more it – population, a start, the I correctly first typical roughly So it of size just kind the of or of question in expanded and like of in parts All mean, XXX the course the from that's I XXX contract, was Pass Access then, if that so is the , average average population, heard the what's

a greater helped a each So and have. referrals from schedule, We've the doing but and pricing typically we're inside organizations we the the increase at population other has you reputation organizations had us have price better finding job there. way absolute price a know better year, as you the scaled bigger which populations is

as Pass, reduces per it you've increase the and for of of expand they volume an our per the seat revenue revenue got revenue our on as customer. increase per at And that’s that you you focused positive qualify expand price, having really we're though the in look but per by, discounts impacted They so, population. customer, course somewhat revenue – when sum,

color move I XX% we'll want any And don't of the the or contracts from significant think the the commentary? next our is mid-XX% increase add with the over three that, that contracts, XXs in over years if expect forward know, that Paul, being terms with going you two so, toward of I multi-year or the multi-year of number we years. couple having trends next contracts, in to of

Paul Walker

said I Bob that, say also renewal, we would we upon you that just expansion. everything see that get

from well. worth so, that see And as as the which that average another get renewal out and well, so you these year's the with of them increase go probably ‘XX, mentioned thing longer this of couple think ‘XX, add-on we'll cycles clients, through will we into we'll standpoint I size have

Bob Whitman

suit Does you? that response

Chris Howe

was Yes, helpful. force. And is just sales area that very second then the on of my concentration

reaching XX been this for net with have the You so XX mentioned year. hires goal new far your of

last with sales call is force you the fully reach to entire and matured? completely the it sales be would line assuming from and that up existing timeframe be when for in the you optimized with XX just incremental that force, that ramped So what revenue mentioned

Bob Whitman

address do this? you Paul, want to

Paul Walker

million you expect full that the that point, So will to to ramped. $XXX,XXX Slide we million. at XX, them finally consider and in ramp, five-year our remember we to and will generate that back on first ramp, $XXX,XXX And, increase a with so and $X.X year partner fully $XXX,XXX if client new $X.X their

mention but year depending ramped, we're a five XX continue net numbers is them hiring when class to net hire the a this that XX in to we per are intend class year. years from year, year, Sean Education roughly will Enterprise hired we at and second, now, then ramps talking in each schedule. class These the and So Division that about. we're on

Bob Whitman

on Sean, infrastructure of they're last anything and years we're year. swallow the because it. if of investments XX kind in made built the holding the hire growth? line Division. more lot the to on This is sales we a the couple net I clarify, - Enterprise to year last force goal, the for address don't Just and Education, kind a XX We've But goal of want you of added know, lot

Sean Covey

No, by about just million, of the get that. And five-year client rate. over Education the $X lot ramp encouraged for partners so about period. find it's X, X, same, ramp a over we is can partners the XX four, rate well the X, client we're who same It's

Bob Whitman

then, I first we net think revenue a just when around fully toward total if years even the the end being if only through the million XX XX the ramped, salespeople ramped, revenue you’re class were classes, hire of is at five hiring straight another with up you headed XX. of five that only year classes would $XX up million ramped. of And to from what being we'd fully just straight add with one classes for stop five one - on just fully ramp the

the Access of mentioned, So one-year initiative we Pass just more that hires. than helping has historically on because new is All it's it important payback us initiative an as even meet

Operator

Our McHugh ahead. next Tim with Please Blair. William question is from go

Trevor Romeo

Hi, it's actually Trevor Romeo on for Tim.

contract, that are large the And being Education First, you I that talk Education out still if but down that more little there accelerating declining factors impact? wondering you impacts I remove metric would that be the are a other invoices decline? if XX%. just for could the about from bit any called you know Foundation

Bob Whitman

in. chime let I'll

in last pay total on impact months that in million that in on from this this invoice - $X $X.X quarter put the I contracts. for context million XX around from latest Education we Let was the me think revenue reported, just revenue

want don't can I see substantial to itself, but in you quite Sean, you So a know if add?

Sean Covey

big Education So contract again, quite and two was talked the big reasons contract a not as the we've renewing bit. about are; down Foundation signed some, one,

Leader it's over in stretched fact we for model. that the years. down is basically the The Me same this cost implementation second more the primary that We changed reason - we being it out

it impact the for that growth, so of workshops feel and previous good we've scheduled two in reasons. for quarter first didn't traditionally this term. term, it's looking the revenue, the in hit but were of the that of accounts thing good the just many we most time, ahead but get years but lack I in we'll it us got the a hurts year those for and more still we a won't us over of long get this - So same lot like Between short for growth hit hit forward,

schools elsewhere. last naturally so Between outcomes penetration academic and school focusing the than growth with the about healthier so of and X% and on improvements districts. X% this looks getting, growth, impact us a and We're just future in them we kind district and contract talk year. only consider school each the this our we're good now the of impact that of revenue better Foundation immediately, the is also but North really not helping other getting we've the And, again, results, one-year in cost feel our and spreading of our for in achieve results of in hurt focus forth. blip. lower opportunity pipeline got It attendance America schools Our and

not is a there major fundamentally market market feel and concern the I in So changes. the

Bob Whitman

velocity while we of from my years to we increase the for the in change be schools - have the have And for new have added new Foundation would had expectation our the with the aside revenue than we've more several biggest probably we school year year; model, expect less slightly this schools this of year, is and that per and addition contract.

Trevor Romeo

you that shutdown, this an probably impact from of depend at how think are impact I it's point? sure mentioned how the expecting but on on, you quarter second end Steve, at long government the an much then, And goes might see this I'm

Stephen Young

put would revenue the think but really cause on be a few going like to number X% haven't are normal that, to that comment to a a that there us it's won't just X%. to We X% to things our say maybe X% more

to what the partially impact delay don't know because that what of months. contract have of Our said, one government of being for government can implementation there be it's specific decides you of those, be, to how something it specific out going long but to really we a don't might put couple number go shutdown and to a or so I a

Bob Whitman

that much I continued federal government answer a context, so that idea Defense and start in government for and that have portion Department impact of a doing and pushed that and great in just potential in we're to point off think shave million, the million $X.X - would might it business if the to get with $X two million in big has our $X were contracts of context growth. it Just in order other state is this that a of putting magnitude could we of of or the hit $X unaffected we'd to and lot or just have forth. businesses and and be, local plan But that agencies that we million quarter us by, that's only that so deliver it the big, but a stuff of by doesn't in of noting things would are this putting because really

just the conservative on plus we a we're going - know to the so impact have Education be And from that little on that contract to the causes one.

Trevor Romeo

or Do help quarters one. sense, one And full-year point, the of XXX? then the just more quick would And of impact from year? any this ASC have this you hurt a it whether at

Bob Whitman

slightly essentially a immaterial at impact essentially the is - still for expecting the what We positive that, from said at last year believe but XXX we year. the

million and revenue QX, decrease the a we be XXX. benefit expect other but in under would of our versus have no little the timing revenue - QX, to that benefit of we are benefit essentially a recognizing saw to QX the and would dollar we So in to due in less of an way in as QX actually XXX then QX, we in bit go XXX, impact

I'd QX, so So, bit or in down say, impact million a slightly up for we but or like $XXX,XXX in little QX, up year. end almost with immaterial in in QX, a something pretty positive, QX, the up by that, even a maybe

Operator

question is Please Martin Jeff from ahead. ROTH Partners. next Capital Our with go

Jeff Martin

to been add-on the I quarter this on could, Bob, include because All had some revenue touch I on does the seeing and Slide Direct decline of Access if to first on-site transition XX, due revenue? facilitator, wanted year on-sites Pass, number in Office breakdown, of thought I that on-sites the

Bob Whitman

All that next break on-site. going All add out Pass going add-on to reconcile so we're Jeff, in it materials, Access What to services and you just the in We'll Access and for Pass, and going going an Pass plus out quarters, small. forward the starting and do legacy sales into is then out for other is Pass, see decline break in that the Access sale the you the is that'll that portion that, side All are plus break on-site you add-on total other we're and between future what to We we're All that and including to see - facilitator on because which in can offset which that manuals, growth for so more by a than facilitator legacy, - in had and add-on, add-on decline Access said. the to

Jeff Martin

the glean anything to quarter, are The decline or this going - that there to is abnormalities from that on? in in first there facilitator, year's quarter relating

Bob Whitman

thing, because our Otherwise, that we about is is occurred showed this contracts, contract contract. ongoing past the one days, up about year, very old wins that small. $XXX,XXX of - facilitator, difference in in of year we contract, happened in that this now contract those, IP that just that delivery than an is is of decline the number last had not contracts structural a a In getting is all the old difference $XXX,XXX contract. normal just that which There some sold channel it different of just so a relates it's small it's quarters timing always facilitator one to

points facilitator, - both So pretty $X the although year, $X basis it's XXX of getting this on-site million total on or becoming or in of total legacy drag is of a it will small into, as it's say, decline be XXX because in not sort legacy percent. growth million revenue

Jeff Martin

a could detail of terms you some the - us that And terms assumptions what expectations of into give growing on is high X% then of what in net the just are assumptions rate that? insight your level revenue at of adding people in sales XX on and behind are? that to a a core X% XXXX, for or outlined year, kind basis the Is

Bob Whitman

of the is. the XX% about X% in XX% revenue incremental incremental sales up and of XX% margin revenue high with flow-through incremental a revenue is next thereafter the people XX to to year to of to growth with flow-through range year; new a XX% ramp then X% EBITDA It this about XX% Yes, it is year; and maintained.

Jeff Martin

Okay.

Bob Whitman

of now. good right you're So it's play kind running

Operator

ahead. Our go question from next is with Capital. Stonegate Rodriguez Marco Please

Marco Rodriguez

obviously could can the if performance? there about more made I talk you a bit just you quarter a that your expectations, you drivers a bit about that exceeded maybe couple the little helped wondering saw, strength of if was little mentions you that maybe talk

Bob Whitman

Yes.

just we X% that revenue question revenue numbers said Jeff's growth, had we or as are of in our X% the I pegging all we think around growth.

thing basis. is faster invoiced a first than So and the reported both grew first revenue the contracted quarter in on that that

So a was pipeline news in just our of bit good stronger. normal, that conversion our that's the

Our have pipelines I don't to that? add it. think getting anything doing force and bigger sales you I are Paul, our is of better if to know,

Paul Walker

That's say. what I was going to

then in for contract that we get force think, we sales procurement in didn't that work reorder we of now that our so three to - confident we've every and used we through well - prior to our were we fact calls but for the facilitator departments finding the getting and at more pipeline to have getting these a opportunities the sell more and been at this we've purchase as a QX frankly. in - depth we're this saw big have shift sales get frankly talked I and lot I was them progressing that in the years of sale, are and - way think

Bob Whitman

and the books the quarter. growth that that we have on revenue So of amount also Access in with rapid in All benefits the deferred combined the Pass high

just our So going on our through. costs we and bit we in - up again, more a just are a was conservative better better, you if little so ended were Revenue forecasting, costs.

Marco Rodriguez

expense less quarter. or more just side, process spent any Where the then improvements overall or And conservative you mentioned, of sort a the on your obviously larger in bit bit in you're terms little spend? a little delayed it you items more was of a of

Bob Whitman

made the really of increases ERP is less a but we We No, the et some of in - just last system but that investment expense specialist costs, growth all we just is year it that rate big we process we've investments were in challenged spending. our - combination. the had the improvement We made implementation because the it's cetera. of had lot such in

now that's is the - what flow-through high So of very that's and incremental having the why growth underpins our and really on margin, of expectation guidance really revenues.

Our incremental. expenses were pretty much

margin. is As on commission paid you our sales know, the force on

add of heavily on sales Our leadership Most growth. one will or based is specialist two our year. a implementation

delayed And it's of deferred spending there flow is no a so nothing, through high on and or pretty anything any cost, variable substance. so

Marco Rodriguez

of kind kind lastly, international how progressing you All where model? update they're And maybe Pass of and Access if on they the are can licensee with the us just

Bob Whitman

Sure.

actually strong XX%. that, nearly world, on really about They being Sean starting in to them froze thing, nice focus they for, we talked slide, delayed delay and months that to the XX, I front a delay, they everybody. just All with that that and to geared had eight didn't to very able our of with grew us. them last them and behind around was Pass now nice up for it's and - kind able that's last the a training a You had slide, were that kind we that All have on And help was in mentioned up of grow. conference All I call a We Pass then some not by kick the XX and re-galvanized Access that's can done, had the they're we're had lot Pass year. through Access great quarter. licensee to of everybody And launch Access partners quarter, or and it them this where quarter, September of were see off think retrained We and think Slide see we've that

September in so to we're with licensee now those and than - well. November good bit grow better office pleased October, September, October, starting in December that as So was little little again,

Operator

Samir question Patel ahead. Our next from Askeladden Please with go is Capital.

Samir Patel

it think housekeeping just contracts? multi-year a your target first in question. a in that few penetration I you but is Paul, know So XX% was Bob, years don't you if I or mentioned

Bob Whitman

Yes.

Samir Patel

make sure. Just to wanted

cool. Okay,

missed didn't hear The any… second or question, I I unless

Bob Whitman

important are of people their in populations, more culture is things getting they're involved part bigger there just Sorry, in becomes more of doing. just it what and

to a instance, say to we sell you at we forces' to strong can up ability three just my to upfront sign don't And they they're we years that's to take of. if we are to driving. challenge sign you sell years up how So enough and rid weeks expect antibiotics metric, for my sign week, take together, when change drive you or recognize to be done get what's so in if them they for this get is three in the to customer know that least of want go sales tell for starting way take three sort so certainly we loyalty going We up when or just that.

Samir Patel

Right.

that Now makes sense.

The there second in, think of don't release discussed question, that I acquiring I'm and context. you've you but speaking trend markets out a about German the sort when done think, is and really I just curious, And China your did a that, operations you press it's it, Europe. you'd

to you of All markets go talked you'd kind forth so optimizes to model want what selling as that in and capable licensee curious time? so of different your that for the kind on maybe delivering of certain and about direct see extent You've what Pass. network and extent I'm Access to over

Bob Whitman

and our sums our very as get committed, invested to do speed good feel translation. We've ability they've licensee monies operations We of up They're and sell they've large to it. worked them. of on Sure. in about all to trained the

partner try to we few be to it'd and it our of to business us very that it and markets an Germany, forward China believe us Access deferred successful invoice partner felt was - but there on get out build and with partner made acquire possible here find licensee to the All partner was do we you previous Pass. just different over choice licensee speed in a basis. was and behind a be opportunity to as payment move like up that was International simply And, because which doesn't that so. our just What distribution that part whether find their licensee we get they that him the decided So in to the was know, with so that. for will to in up affect strategy coming revenue, China or contract to not China new end acquire Germany a situation we to for would the where there operation with previous was world not different new starting our of in brand is we turned like, operations, and it's It to the and it either moving terms we and different to different our for build do change felt and very question, to

with economies the we Germany. four the are that all largest US, Japan, direct with and Now China and

there just force. sales They idea is a the And good better like felt have starting there. so, over we

there. that delivered. to a Pass business have We lot needs Access that lot send be We of a All good of way business

good there, which be that opportunity a and like felt just we it situational. to anticipate is so, but don't anymore future, doing to in opportunistic direct the And

Operator

Please from B. Our next with is Zach ahead. FBR. go question Riley Cummins

Zach Cummins

the I to the want start the strong impact of terms But, quantify wanted in the loss the Steve, expected on say in that you revenue to you, I to to just Education related to Foundation congrats segment just line of the ask did year. contract?

Stephen Young

to quarter, $XXX,XXX of we're revenue of EBITDA. adjusted the around about $XXX,XXX and $XXX,XXX For

Bob Whitman

and half about in will be And then it it'd of quarter, over. the second that be

Zach Cummins

to was start or And terms just or domestically similar a this should as Access Pass? kind Pass to follow your ramp should rolled progress here thinking expect be as then it Access out your we of to trajectory this similarly international guidance and of on up All we Offices, Direct how All in with they about ramp how

Paul Walker

I'll that, Zach. take

same don't will know be trajectory of in whether offices. these So, I the exactly the some

new they bit same we at road and a much launched time down their in just have US Japan in we That's phenomenon Access English-speaking so So we countries. Japanese US for us. diet of about and with to business Pass, the the in the and selling the way Canada. the We the did are. as that's launched here them language. now Those Canada, are UK so converted Access context. like we the is since portal And All of easier All Australia Pass as have are a an and for

Pass but spring. China, kind won't In bit it their course, maybe them. we All just the thing. up China, Access language the of I it shape a start that it's a of just selling And elongated more of with same, the be little culture, just curve bit a of little a trajectory the we until the then look - the will expect will conversion actually similar Japan and We're the because and them but finishing portal. think for slower candidly,

and them. a portal separate do China the install for in to have We of version it

have then two think will I what we we'll is, these happen bet countries. is. really as my will each to it of or start go a going get And these would year What countries. in in

Zach Cummins

previous the call. I by all of are other analyst And asked on questions my kind think the

So to strong I questions on appreciate congrats year. you start my again taking the the and the answer to time

Operator

from Our go next Patrick is Retzer with Management. Capital Retzer question ahead. Please

Patrick Retzer

thing about silent fiscal Franklin last Congratulations you course, and about bit great And of shareholders, there meeting a thing, Covey on that start returning year. to guidance call, the on talk this anything for quarter, talked call a your on more one quite is capital there? you a we add didn't if can

Bob Whitman

quarter. things. we we during the fall collections can Yes, One, and the of part of I good cash the a add couple think had very just first second

will available intend a do on I liquidity think into authorization our we purchase credit in we that, amount We also to good line available the our desire have so and have changed haven't and and and our do it. to

getting During be ourselves - just position. the but did just we ready that not, in quarter, to

diversed we'll remind last But nothing over very It's well been it. we - about four there's there. the over million what approximately around you're bought and So exactly XX years.

could that our we're so that's the it's the Occasionally cash like be anticipate acquisition that's so are else to form. to material because in in returned be of we whether - German have first from be we there. that excess can't intend something from that that but do as office, it's of the And of we will being middle we in time like otherwise knowledge purchasers and something, perceived we anything, shareholders time that windows something

Patrick Retzer

for other things year time equal, XX% a being all opportune would some be notwithstanding would Well, reason. ago. about stock this up think is being mean locked I an the down from moderately. I

Bob Whitman

I the that low future cash the think compared we're is we be - agree. think in but price if do companies, if we Russell and cash in current you reflect EBITDA believe substantial. going all our look to flow, mean, the top growth value to XX% when you at flow doesn't XXXX the to, it's That of expected I

Patrick Retzer

Okay.

Bob Whitman

thanks me. reminding But for

Patrick Retzer

work. good the up Keep

Operator

questions at time. Speakers, closing have no further remarks? any this We

Bob Whitman

next you think We and for find more thank or of look that to have. go questions seeing detail go side, on week. things. and the at this and also answer forward everyone our but Analyst this will won't We Day lot we Just to on Investor it any here a of to deep of some a chance on these many you being the business understanding financial into side you part

forward look to So, and week, we Thank thanks you next seeing today. the for being you on call much. so

Operator

Thank today's concludes participating. and Ladies this you. conference. you gentlemen, Thank for

disconnect. now You may

Franklin Covey (FC) 9 Jan 192019 Q1 Earnings call transcript