FC - Earnings call transcript Q3 2019

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Operator

Welcome to the Q3 2019 Franklin Covey Earnings Conference Call. My name is Daryl, 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. [Operator Instructions]

conference recorded. this that note is being Please I turn the to Mr. call over will now Hatch. Derek Mr. begin. may you Hatch,

Derek Hatch

Thank you, to behalf would this Daryl. On like Covey, of afternoon. to I Franklin welcome everyone our call of conference the management

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

company discussed in management’s the including, to services subject factors to Securities ability and uncertainties and market spending overall market or but Forward-looking revenues policies of limited the are and of and company’s and statements various and in size the stabilize reports and acceptance the in are -- changes with grow rates product training sales of to Access marketplace, All our the and professionals, Form in company’s of current filed expectations the strategies, of marketing company’s based products, on annual the of productive other the not the the ability the upon to, of and acceptance hire competition renewal Pass, market the products company’s conditions, changes company’s targeted general risks other economic periodic XX-K and Exchange clients, for identified the recent report changes share, most in and new Commission. the the company

from to be materially influence management’s the and can anyone control, that future differ may company’s and our future -- are will or company’s of beyond results conditions meet assurance Many these of which current expectations. no cause performance there the expectations,

statements undertake after revise no on events management’s based or expectations of to law. obligation forward-looking presentation, the today’s as date reflect update to circumstances except required current statements we and or these forward-looking are by These current

to time Officer. Chief With the that to I our Whitman, and Bob? the turn over Executive Bob Chairman would like of way, out

Bob Whitman

most a today. off your thank Good appreciate summers you you us really to afternoon, places good not. of that live the you much. We who start. having joining countries Hope in Derek, of summer, so Those are everyone. are

pleased are they with pleased results, strong really better quarter expected. We and our than third were

our flow EBITDA year-to-date ’XX, great significant beyond. fiscal foundation a on believe and achieve cash the the adjusted and strong growth in to we We’re performance, years a we robust in coming in trajectory for XXXX establish fiscal building on are very and to also

represents to ‘XX. Specifically, $XX three, $XX slide EBITDA XX% $XX and as million to and fiscal adjusted which in have between million see expect between $XX in and you fiscal in from million million that and million -- ‘XX currency fiscal to XX% growth, EBITDA ‘XX grow constant then million in $XX and said XX% and ‘XX, grow million adjusted we between we $XX.X in $XX fiscal reported can in to

We -- $XX of in EBITDA have of to also range of and adjusted some the our the $XX deferred to next million year, the year. getting million range $XX this $XX the year, plus increased million about million million million to $XX following the talked change in $XX

flow we then again million and million generated year between million $XX activities, to is be $XX ‘XX. EBITDA, reported $XX expect cash net to $XX fiscal the very which $XX year cousin and close next million from million adjusted importantly, And cash really this and closely and million in to tracked a very operating $XX to

four. takeaways four strong moved on that high year-to-date up and and have and has there I’d performance like in meeting just us our in reinforced mountain quarter key toward expectations third to business the these objectives rapidly touch So the we has slide

sales, the of flow income higher were higher results of The XX% then –almost in flow. of gross drove combination the as well lines as of broad lower growth the as in increases flow. to a third the revenue all that expected these increases both and is across SG&A in takeaway as higher based flow a First margins, in to through cash quarter factors better than cash statement operating operation and percentage adjusted much EBITDA even through in and EBITDA, to adjusted sales, increases showing in

strategic is results our driven that strength sales these takeaway be and significant continue growth by of our related business, model. subscription business subscription-based Second to in by and structural the and

contract. and high significantly increasing We customer creating retaining value. the lifetime new It visibility related and substantially we subscriptions our into revenue. all selling are of This subscription revenue is is future

are strong because in people related buying we’re problems passes, XX%. quarter. the solving It’s up are and important signing durable so year-over-year also and sales upfront, agreements, XX% Subscription year-to-date third grew and paying and multi-year we strategically structurally continued that and

number in of key subscribers compared total same year. of the subscription some our metrics paying company to place the period to grew And continue addition top of the last Our very businesses. XX% subscription in of

be intensive. our it again on models, relatively recurring may and the margins, capital models high is, gross our flow-through, subscription expanding withly strong central costs, and low revenues, emphasis again takeaway an fixed Third

flow driving flow in increases in to increases reflected cash This You’re revenue EBITDA flow. adjusted and is of economics through. again through compelling really and high in the

payback These with our it four, partner year, only a in metrics sales we finally, these for combination of are a are And growth, so is that force sales investment of have for the and takeaway creating taking making opportunity. force rate headroom factors advantage period economics. about really client an compelling new huge expansion is we

-- our of the seven for XXX, we that year, partners quarter of through total the net of since addition this the expect quarter far client to So a the new new for net least added We’ve net year. end and client third added end XX the fourth quarter. then third few through additional least have that brought at a partners at XX we to through the

a So, with take our deeper look quarter those results. takeaways, let’s into third

based. broad was can and you quarter, our the As strong see third in growth revenue

third XX months. grew latest the XX% in You year-to-date six, slide quarter. the and see grown can for XX% XX.X% in revenue It’s

for growth Enterprise the rates, exchange in actually and in year-to-date XX% the Education revenue divisions. third foreign both and grew XX.X% in quarter Adjusted with -- XX.X% changes strong

balance of related an in last That’s all Our grew the quarter. of subscription million. compared to and year’s quarter unbilled third XX% $XX.X sales to deferred increase to million revenue $XX.X billed

grew to XX%, billed and XX% $XX.X deferred last of million of quarter third unbilled year’s Balance quarter to $XX.X million, $XX balance revenue our grew last third to compared deferred to revenue million. year’s compared

large growing worth contractual have our to which annual revenue. in licensee balance recurring international this and deferred further of payments million of royalty adds annually also revenue, addition partners, in noting $XX for It’s increasing we that to balance large and minimum

grew and year-to-date, X.X% after for contract. impact X.X% government latest the revenue of contracted the X% in $X foreign total exchange absorbing the than quarter, the of delay from from Our more million and months XX

don’t multi-year there as terms of the appear they contract did were In multi-year Education actuality, was we contracted division won’t year are it that that we appear as deferred those rights certain have so those – to that reflective some in those last though were revenue that they to some but the contracts as unbilled really modify the now. this, than on even signed Enterprise of the large us because this of was repeated not agreements and agreements but was division substantially down year allow higher some put

cash profitability metrics also increased significantly. flow and Our

it’s XX.X% XX seven, slide and the in profit gross grew months. grown XX.X% can the you in see year-to-date, So, XX.X% on quarter, latest

accelerated percent margin basis Gross to and from XX.X%. XXX has This improved sales. subscription points related resulted in growth

in were basis year-to-date been course flow. it’s terms The in in basis and Our quarter XXX points it SG&A is relative increase last EBITDA operating and -- the third XX.X%, SG&A adjusted better at in to of XX% of operating in better as third year’s percent result improved down, points compared of sales sales. XXX cash has was quarter coming the to significant

quarter. $XXX,XXX in Adjusted year’s increased to million. EBITDA in $X.X rates, Adjusted quarter $X.X the last $X.X from exchange actually million foreign increased for adjusted $X.X in third EBITDA quarter million in million to to changes third the

quarter, the to $X.X $X.X third last in constant million, quarter year-to-date adjusted of year. to the increased EBITDA through through third currency compared only million Year-to-date

to through $X.X period XX quarter in year. million the in and $X.X the million, XX.X% same $XX.X adjusted again for currency, last for million, to it’s constant So increased $XX.X EBITDA third months adjusted the EBITDA million latest compared

flow activities, the to cash $XX in last million XXX%, or can to slide increased XX through million, year’s you by net appendix in see as compared increase million of Finally, $X.X provided an operating $XX.X quarter. third that’s

good cetera, also cash overall, about both delivery really flow performance it So, based felt statement the we lines relates as the statement. et income broad modality, company’s on division, to the to nature and as the geography, of

some there. of of Just a results, the will looking I our at touching division, results with just start headlines the on review for the Enterprise segment

revenue third the and is which division revenue you see XX% growth can based the our the strong approximately our Enterprise offices. U.S. with and on our of of was in throughout growth total eight, slide international each broad direct in of As kind Canada, quarter,

though in the conversion was also they they their pay the some job. them process results But on of the reflecting year, licensee to German in for last affect Licensee good year, foreign this because even transition learning to there’s the direct and us recognizes and it division a revenue. Revenue exchange Pass sell impact are All last doing of of down slightly Access our doesn’t that invoice a in our based office

quarter in in the and revenue changes grew grew grown Enterprise foreign quarter X.X% XX.X% see the revenue year-to-date exchange, in can eight, year-to-date. XX.X% As in for has months. has the you third latest and X.X% the grown in and division, Adjusted for XX slide XX.X%

these deferred the balance move for in that sheet $XX.X deferred quarter up show balance Our $XX.X in as our the we unbilled XX% foundation Enterprise then increasing our and and million. of and build our as With signed revenue unbilled deferred into are XX% mature. we increasing revenue grew billed, third of balance and strong XX.X% are and don’t million to balance billed $XX but into revenue division established on revenue there agreements multi-year of recognized and growth they to the to will future actually million contractual

for X.X% made growth would contracted basis XX% quarter again we and higher contracted or year-to-date, The grew months is sales. this had third X.X% X% in related in currency, so in XX and AEP revenue have not which points latest and the XXX the constant and it

increased year-to-date on XX.X% Just quarter, the latest touching nine. profit in XX.X% third Gross slide XX% next on and in Enterprise XX profitability months. division’s the the slide, the

quarter occurred even Gross support margin. have sales Access in All a margin during points That services, XXX XX.X%. growth strong lower all of Pass add-on the basis increased slightly third with to which

as of basis third a as sales SG&A quarter XXX sales improved and to compared year-to-date. operating improved in of points last ratio XX%, percentage in The XX.X% XXX just operating coming SG&A at year’s basis that points

a $X.X representing to quarter, constant Enterprise Finally, adjusted the adjust of adjusted $X.X quarter. in third flow reflects EBITDA million division of year’s in third of This increased in million, XX%. XX% a actually of incremental to to growth XX%. growth compared EBITDA EBITDA was In revenues, which increased the through currency incremental last

quarter to XX%. $XX.X Year-to-date million. foreign third division EBITDA through increased $XX.X to million adjusted adjusted adjusted and year-to-date in That’s compared actually the million exchange again or the for $XX.X growth, to year-to-date year EBITDA of XX.X% increased Enterprise last growth

XX it which XX% EBITDA foreign $XX at grew adjusted latest months period million XX%. million, exchange last to the $XX the $X.X for Finally to growth compared million to year of grown has and of same XX% growth is adjusted for

invoice significant division fourth amount momentum the we be very contract the of and revenue and strong to in a continues the quarter. to expect So in in generate growth Enterprise

will growth recognized establishes fiscal known balance revenue, it our and strong be that primarily XXXX to revenue sure accelerated it as all deferred as foundation sheet for in is of onto next a year. goes So for be a deferred

division, quarter, Just the touching XX.X% the in XX% total has XX.X% -- strong, which on our growth very was quarter. XX the growing year-to-date. grown Revenue a of quickly point Education revenue represented in

for for have XX been quarter, last multi-year quarter XX by third the in should was X.X%, year’s would in last the and remember reduced of growth contract, large contract that Revenue Education but the adjusted revenue expiration that, this changes latest grew year-to-date. the of revenue XX.X% XX.X% impact Foundation year a months impact was in you the months XX.X% foreign exchange latest large be and growth third of

revenue deferred Education the grew XX.X% balance the third Division Our in quarter. in

latest quarter, good Gross XX third strong year-to-date and Education Again figure increased in The again in XX.X% of XX year. large Division profit expiration the the strong, XX% for the was the and profitability XX.X% improvements. has months grown latest foundation last contracts months. the reflecting

last quarter. Gross margin basis XX.X%, which up third has improved is XXX points to over year’s

quarter sales of improved job in third last XX.X% XXX year-to-date. in the basis improving the there points great a quarter is as at a XXX SG&A compared done have year’s We operating on basis percentage XX.X%, and points coming to for

adjusted know last compared year. $X.X Education the is And $XXX,XXX, to last of through the quarter, the Division increased finally, negative third substantially $X.X negative a quarter, Year-to-date improvement compared a EBITDA in third in year’s fiscal all profitability our $XXX,XXX occurs in the to an $XXX,XXX to is Education negative fourth Division as you million, adjusted EBITDA quarter. million

really staging of good And being quarter. they and so fourth Education the I feel very are the of contractual generating while about business lots up revenue also the for pipeline

So points faster. discussion that but on long that a through one, be will the other results, will point you the take are

driven in Takeaway by the subscription are growth business. two is results that our the being strong

third related year-to-date. to quarter the and sales growth very we in As Pass Access mentioned strong continue and be in All

All As $XX.X All and XX% million. and related up related Access you latest in to XX, and the the quarter slide to Access Pass for metric Year-to-date, has XX% XX sales that can in same grew is XX%. see months increased Pass third

the the of of number the The XX% ago. All of deferred third Access XXX,XXX year-over-year our at balance compared year Enterprise revenue paid of XX%, grew the one reached subscribers is quarter quarter, in Division subscribers XXX,XXX increase which third or end the XXX,XXX an and Pass to in

Importantly, are that comfortable. some we not are growing is and that and think metrics only we durable growing, sustainable, we in also way are has very a but

best subscription So those the are companies.

of for over -- metrics a more with price, Shown large correlated retention initial includes year-over-year client expansion, which retention XX%, add-on XX, high establishes retention include revenue relatively typically economics. size reflects highly population, All which these this and and the the of subscription slide revenue relatively than rate is the and just purchase purchased some XX%, services than annual more of unit Pass is of to XXX% strong Access customer same foundation which services of revenue XXX%, large which total

customer sales initial X:X, for to year purchase pursue expansion force. in costs you the relative to gives pay the strong a than so fact of and very Our acquisition is can them the sales the ramp-up less plus price that a reason people

$XXX of done have And in Licensee ahead achieved this expectation achieve and recurring million then the that we companies year four other somewhere revenue have contractual of five royalty years year of mid-term annual in recurring fifth have when business. to we fourth our will is the many the between And the revenue that also minimum years for so. payments

great really the and the they we in So doing. fact All is we can from and customers that can and we are things Pass enormous combination way of quality durable and things getting grow reflects that are value that think is the these the grow our Access that a

in share of their to shows is their are cases they headwinds us they value give in that contract industry proposition term renew, of that when expanding, extending both very fact a higher consolidate and they the and many are higher might getting of some their is choosing particular they value, the real So these -- they oftentimes and are face are compelling. clients business, or whatever the

To increase impact, content Access to committed capabilities this are consistently the to and Pass. we client adding All

these major all As the are the in were the pushed capabilities. coaching you articles, weekly. populations out to all created to courses new which had added leaders added slide in client and of on We we new Group time X,XXX modalities Gregory and now capabilities Robert We that offered a acquisition consistently were our see articles being digital. and live four broad with added Jhana content acquisition have can micro of learning XX, and with

the that content -- of continuing categories theme we are into continuing think expanding this powerful. with very In

really just multipliers to are we the renowned on book of announce We pleased Liz most one have with and an author after sought Wiseman, that of signed speakers leadership. exclusive bestselling agreement teachers and the

and executives XX a one researcher leadership of around the to leadership and the the has is on world teaches listed Liz ranking the named been Thinker’s in thinkers executive who advisor world. XX top and

and and Wiseman leadership significant Harvard business writes field intelligence the Business a other research for conducted variety journals. Liz and leadership a fortunate Review, of of collective in has The

expanded entered multipliers developing into we times based be Covey’s development will which agreement, have can a leadership We Access beyond to tenure together be an on in Pass. and powerful premier term be initial solution that included Franklin in multiple All

sending are with the partnership a thrilled on We this partnership Wiseman about new really with be Liz partners group be morning. excited release will new this more tomorrow are providing and and we press to out entire information

based change big build problems to by are in continue behavior. we the intractable strategic lasting durability scaled those identifying human that and in So

structural Access their and pay driven by We Pass that’s in year advance. at for purchase subscription least All have durability full that the also fact a contract

in is shown slide of XX, pass that or into percentage holders second, an multi-year And increasing entering any contracts.

of For XX% from year a into holder ago. XX-months, XX% up pass contracts, organization the latest entered multi-year

As top is in tier illustrated related in strong and these achieve top top flow. be reviewed in of tier growth and slide adjusted the economic of simultaneously and to to sales, combination of our -- rates in growth cash EBITDA the of there customer -- to tier be metrics goal XX, in subscription the also growth

to believe for in value of are prospect reinforces our and of to be our and the three these thing do clients. in us and We achieving so, them. hitting all significant this of factors rare for can that a That’s for creating three we intersection continue shareholders increases we

margins economics. recurring takeaway strong costs capital the compelling on high intensity low and gross is relatively central bullet our A three, revenue, fixed point that driving models which and is

to increases and XX, much how which gets has revenue adjusted slide EBITDA the is line EBITDA, in the the revenue the in in to of As words adjusted growth flow-through you can other actually see quarter, the for year-to-date, XX% bit than in latest increases XX% and the faster XX-months, that. the EBITDA flow third grown cash has strong the has of the XX% in a incremental revenue very incremental been flow-through actually

have final takeaway we economics. that, noted the growth compelling metrics our force create As is sales subscription

are fact But several acquisition years combined -- a you over period on of at big we the on first than that we partners gross we reported advantage who client we there. over least net we first taking third mentioned have we $X.X times that very himself XX will in client, to the of added to as expectation you can and at the the through since fully base then new meet less XX, margin quarter, our compelling and really to new see net you of added start next a least by a end few the have summer we partners a the five that have we a our have of partner We expect client with invest the the add slide years, get XX opportunity and customer revenue, new would gives for pace XXX. year also toward herself in client that partners said high of year client economics new years is or net XX three X:X generating the we million cost at the over XX can of

that conclusion, sales amount already us the take high this we forecasted on great have grown continued -- established already would know in of the based even years, be So guidance flow-through we and opportunity expected recruiters our than subscription -- is is for the this very of coming very advantage our in foundation and model five -- make we in things you that sales strength expected expansion a that we we to driven a takeaways, the the to I take this. being and for of that has XX, expect many happening in by in and growth the to our of what the that the and have for higher slide force which we and that are year were flow we already gotten results school both there quarter broad with sure the by high related we of other growth that rates new cash put so kind to EBITDA third again, that the which achieve growth that are have advantage with sales high with doing unit great and with have year

appreciate of world. your X,XXX the throughout the appreciate approximately efforts We really support. We associates

excited about and would exciting on really opportunities are and trajectory year say time are our the We an I growth Covey. to it’s to this we years Franklin the at achieve be and and great about significant ahead just

of I a a to Covey. exciting Covey. an Franklin time and owner Hopefully be it’s of time client also it’s Franklin good a thing great and be exciting think to

over Steve? So, for with review of our the turn now CFO to balance and our time will the that, Young, guidance I the Steve outlook to year.

Steve Young

everyone. Hey. you, afternoon, Good Thanks. Thank Bob.

Our from $XX specific XX% that you fiscal of of range year-over-year in constant guidance adjusted currency fiscal ‘XX representing know between million $XX million and $XX.X was XX%. growth in increase as between EBITDA FYXX, for a in would to and XXXX a

guidance. this reaffirm We

are currency We $X.X -- in said, from year-to-date the Bob million pleased has through as third adjusted really quarter. that EBITDA, increased constant increased

fourth year-over-year in We are the and our this it million right retain EBITDA result to very business, the $X.X growth adjusted strong in we experiencing add to expect quarter essentially of to adjusted the of year as $XX EBITDA million, year-to-date to putting bit in of adjusted a $XX EBITDA representing middle XX%. guidance approximately in full XX% of range our growth even a momentum

for and will EBITDA hiring know client in in expect cost quarter subscription the recognized you of time, the new partners but spite revenue our growth to marketing this for invoice as quarter. be expensed that to Specifically, is the we whose $XXX,XXX expected in year-over-year be will be over quarter. increase revenue fact sales whose by fourth the all And almost up fourth adjusted fourth to in in of

compared the us of to quarter adoption last of a that EBITDA the of year, year. reason will in And new cost this second accounting our approximately topic $X.X quarter adjusted the standard fourth ASC fourth XXX million

the excited quarter conclude to results business by strength we fourth the the significant about momentum really of are expected overall. by year-to-date the of and our So

of to our and future. this but momentum our for strong foundation a result results achieve for year, the model, a not only establish we As very expect strong the in guidance business

Bob. you, thank So,

Bob Whitman

Thanks, the for line. questions. let’s Steve. Thanks. our point this At I open will it open to ask operator

Operator

do from we Alex a And Go have Alex. question with Instructions] Paris. ahead question, [Operator your

Chris Howe

This Howe in for is everyone. Chris sitting afternoon, Good Alex.

Bob Whitman

Hi, are How Chris. you?

Chris Howe

good. am I

sorting Just my last notes call, mentioned you a previously through and contract. XX% here, the the trending and multi-year thoughts to on time seven-year have over contracts about I believe you mentioned

think As push contracts, contracts break you you you we as of the the efforts of can or more to down overtime? mix these are that characterize these length seeing accrue forward multi-year

Bob Whitman

ask Sure. Thanks. I through. to Paul Walker will talk

Paul Walker

Yeah. Chris. Hi,

-- you our was one mentioned, we accurately that And time XX% and of as increased be contracts years we are of last to months, to each of So, now the last as are the possible up course, we talked for interested we contracts years. remember multi-year many have in XX having are as -- multi-year. one in about of -- seven those

years am three-year We how do but increasingly clients seeing these will seven sure clients two of years. a now multi-year for are many are are do just -- not will becoming contracts not that contracts. number I

for We will try that.

to minute are and XX%, contracts to Bob We slide pleased with that that. years are it’s two the up was saw a our we X% showed we of But really ago, we work XX%, and continue it that -- in now ago, momentum.

makes with positioning right is, so think we force we fourth out it of embedded sense. second with comfortable the two, cycle of and these one, as are that to renewal I gates. lot that now becomes now of sales more are year some our them approaching clients, happens into our third And and a what

we the are to just commitment will them sense by with into them things with just a it longer the little that talking makes term enter about, multi-year a and save bit journeys and client so to us. multi-year we going aspect on for are The to have

growing. to expect So we keep that

Chris Howe

mentioned questions here, that And you multi-year great. time last then, more Okay. targeting the That’s agreements. some solely rep

As focus are are on you this -- say? that both, on now that people is other main I the focused force sales the not on still in are is move they transition should there force, still forward there or or focused of agreements multi-year sales their

Paul Walker

is I Paul that. will stay This with again.

the our sales of focused all, in Access Enterprise Division. important exclusively to it’s exclusively So force is selling note, first focused, on are All Pass they

Access So with sell the the it. All along that that all go and related Pass services is we

There the are some essentially our just business all still they either client that trying but Pass. clients bit of will All and and or of still partners a stay over of ours, are selling clients that convert traditional energy Access on have time to effort those traditional of is

might everybody where and Pass out can. to that the Within make and with are trying attempt commitment, yes, period clients not and of But at this year to at kind as for renewal selling timing are come position to we they’ll right there Access their that that, try point a our that us. we we this for time context, some they first them every they first position go that might that back a multi-year is All multi-year and multi-year can, we time becoming is then client of ours

Bob Whitman

firm, try every it’s they to of technology recognized their firm lasting ongoing sales the is was this the then say, they and different to or behavioral into to a if force journey -- they the one be get a transform of be because just and what in coaching get note, across of are major you and that XXX,XXX going going both nature or and something if and it is Chris, consulting -- a multi-year do are getting are journey when major solve better way tools, maintain is all the get do they’d recognize, of the going that that to journey Paul really this engages Bob clients, frontline trying it salespeople change they that’s day. know that to to better the worth employees a as problems, the mentioned, helping we clients payback

drive it you So are have on that it an you need going guest will frontline to forever to new always keep initiative and they be a satisfaction, people, that’s going.

to And is in initial they just, nature it’s to journeys. get so, in of to argues you have match and -- Paul way. look, the term we are Once do be for engaged, very as said, engaged year, we are multi-year in the to to get big the very which going you don’t a can what know you thing, they contracts a during save straightforward way if little the done the the trying contract these what extent they

Chris Howe

the for I have I one color. you here, if more, many questions Thank may. but

Bob Whitman

Sure.

Chris Howe

being and continue XXXX as you see you deferred higher additional move Franklin more As to the do to cash others there generated, about talked Gregory, you cash How this recognized. be and are that repurchases, investments, to cash viable to net integration regard and of that and/or are Covey? in anticipate allocating present going acquisitions? this with of And this you revenue into John candidates levels for towards Robert

Bob Whitman

ongoing in Great. just recurring keeping cash order, all, is in we the investing of needs of ongoing the existing the and kind investment or this Yeah. the of utilization that’s Priorities are first everything for content in go business, an do budget the year. fresh, we every within that, that and to priority well that’s all portals, that it’s our our on but the and first investment make

such we whether and our to payback a new it could very now things get return second additional utilization. grow take year, the said, the of the capital That’s add-on is it a growth when content, in take it’s sales those an could as acquisition, person, all force you whatever. be business first in the to be XXX% hiring some second have right the will high sales acceleration steps that The new ability would

that we shares. The the utilized repurchasing excess a beyond flow of lot for third those have years two is cash in

Some one have to asked if active we not in due why if last And of shares quarter, haven’t a -- repurchasing active quarters. we really haven’t we things. on repurchasing in it’s in shares are been the three

cash acquisition. in so in additional new did. system, business made We making year are last we portal, acquisitions one, and Either in investments made We substantial we incremental forth. the investments our our which ERP

be Pass. we historically historically would development we about of and that We with in business. had the our All spend been in just innovation unusual revenue the Access has one had not X% product So That the case. -- requirements

We not budget. if be are business. that live investing have it X% we we by the investing up stocks now buying usually that moved but are are could we parts of other to within that But in we year, a because

We second so may of significant education. cash so not invest the fiscal sometimes our lot fourth working of of the all excess terms don’t late be in of are quarter sales fund fourth just if capital our there in lot our in is cash because your those to is, part of and we and in generally we particularly year where have the a time revenue a quarter money in year that it’s usually, so buying. So

buying. from that having are we and The about could that third in which honestly or could business enough be may something material we precluded significant the be something, involved discussions be to

do, inclination investing But otherwise, available a by can least the have our helpful? that any we doing that earn is do of we we cash at year and we XX% we believe time we and continued which in have the so. that can Is stock, to and this coming expect expectation IRR what will in we think

Chris Howe

Yes. I have It queue. is. back but the jump I will more in

Bob Whitman

Okay. Thanks.

Chris Howe

taking for questions. my you Thank

Bob Whitman

.We you are I to should forward to. talking you like questions will to look are say. the if Those We happy

Operator

from with Tim go And McHugh. our Tim, your next you ahead question can comes question.

Bob Whitman

Hi, Tim.

Trevor Romeo

on Tim. Romeo for actually Trevor afternoon. Good It’s

Bob Whitman

are Hi, you? Trevor. How

Trevor Romeo

the call. I yourself? How am about well. Thanks taking for doing

Bob Whitman

Great. Thanks.

Trevor Romeo

Yeah.

involves your that, ask here, it find for is want qualified you in So, and question difficult the then those the market, among growing of roles first along for I retention headcount. people labor just current strategy growth partner to with your how client to partner client group? so how the part trending is

Bob Whitman

Great.

who working Services Todd Davis, these ask People to every me who Todd, respond Let five recruitment with them has day. you and will our professionals heads that?

Todd Davis

Yeah. to you. join Thanks. I pleased am

key the strategy. a part question. it’s So great of a It’s

as staff mentioned, we our have we very industry. have -- Bob a for seasoned particularly recruiting So

is are reasons. interest have Pass more them quite call with before while primary who challenging, certainly we at seasoned they partners labor company And model finding sales the client becoming for we we your much door, found not as the are All more point two from interested while knocking our are so to people market frankly more than Access in

that, organization they based business and the then not talking in investment to with pleased Bob and the organization can just model the in -- go they in and are is where difference, of our train the the so offerings are but are ill the my can was that reasons subscription significant just our so primary our lost an investment actually the thought of model others, investment we reasons There difference within in the then financial have two competitors but the model they a also and and making make actually about, make client solution. are be any I of can talking that two a

some are are talking day. top interviewing as quite every pulling the This come is and those that phenomenal So recruiting frankly mind of together two team we candidates.

direction headed. difficult So, is yes, it has we finding become the the and are company more with

We for our are becoming in industry. sales attractive more that are those people

Bob Whitman

Paul, want retention you the question, do to that? address on

Paul Walker

Yeah.

reasons have we labor right to a retention given here. there’s the pretty lot think where tenure quite of we long -- have company good now actually, retention who good join and is So, especially we the have market --

headquarters. something some of our in people run making to Lake, that’s are That’s this here come Salt weeks year join five-week fact, have the our Two this doing In They tremendous sales difference. academies. been a We sales academy. we us. in-person

peers we one and good fellow say and a partners refrains in long feel a really that here really around client way do tour have of they And they campus people the and know get and their a you been out that have there, of is that some thing. in common People come is time. our good a their they to like

are feel where right are we ones and do can a retain we are mentioned, we hiring retain. to everything there, as them, to especially we now. Todd we -- people about good we so We the want And lot of great

Bob Whitman

And client to I XX hire terms we over metrics, just need of in to XX retain partners think time. specific about

Paul Walker

Yeah.

Bob Whitman

in over -- heavily that the have rate is time. out go win. that’s that’s to And sales business so a we if and commissioned retention that -- And good certain they that very feel can you happens where lose, and

Paul Walker

Yeah.

Bob Whitman

that client succeed. to adding a have established do for We But our ramping we things efforts little that and schools, marketing other to according grateful bit are tools keep new also help ahead retain and and we them partners that are of schedule we them. the

got than top been here who and we group and where some ago, some great for think through all people, of years. sales of of our have selling people many, I meeting been are And have went many, many here our have years, XX of long more whom a not we we people senior

we retention, ramp, the once so good never And you have get to tend to you a leave.

So, thanks.

Trevor Romeo

helpful. come know had very And this revenue the That’s then, basis necessarily question, despite a quarter. I past improvement growth. you Great. second seen margin some you pretty strong quarters, nice of Okay. couple through hadn’t on in gross year-over-year that

than gross quarter? of through So other the margin could kind of drivers revenue that the helped talk this improvement you just growth

Bob Whitman

Yeah.

the think is I just first factor mix.

couple margin helped think But on tend It this get mix is subscriptions, to the that which addition significant services, we and you to the mix and change same gross it expansion that some somewhat subscription had more a to have that. in I offset a in such think thing. that our we of down primary expansion just up will as So of given have the add services will revenue little as top important will to a of we percentage, shift quarters the bit. by, first the services and we revenue, XX% was margins that’s now year more and moving we are the

that can price for the Access the to had All and it the entire also do that have do agreements that or doesn’t annual up, despite those to it by Pass population flows avoid most it we of well people sign -- them population want signing because through whatever or apply and We if and increment expanding increases -- else, they multi-year things. they can to their

bit revenue a give up incentives because give revenue that’s little our that’s per and to We our something grow. favor. are they per those we want the if get in And folks client, seat on them per revenue to client we

beyond by increases there mix but gross primarily a all continues But new think you of those of for price that increase shift upward sales. sales the sort I take of to nudge that is combination some in through partially that, advantage internally margin doesn’t the offset service it’s and

you any on don’t to be And whatever go so expect flat or might this. quarter, given in we backwards

Trevor Romeo

I have all Okay. That’s now. Great. for

much you guys thank very So detail. the for

Bob Whitman

Great much. questions. so Thanks Great.

Operator

next Jeff our Jeff, your with And question. Martin. ahead you comes question from can go

Jeff Martin

guys. afternoon, Good Thanks.

Bob Whitman

Hi, Jeff.

Jeff Martin

the on also and touch partners international the to international wanted offices. I license

I where selling China on the Specifically, specifically license growth how they wondered side, are and international that’s And has then, office fared acceleration all nicely. process there? in some direct Pass expect are if the do that you all growing Access they in

Bob Whitman

you do Right. to that. respond Paul,

Paul Walker

Hi, Sure. Jeff.

QX, start to international mentioned a for are the we quarter. third really well year as opportunity every ago, minutes well I few and They the quarter, the of all had, fourth So offices. in in offices with the do nice direct will Bob office the a was doing expect up the

Access they All metrics, is U.K. their in Australia, selling Pass business As add-on All in English Pass know, offices and here we et U.S. as as metrics, in cetera. similar metrics, you the long of have essentially services and very are have the been our Access now the multi-year seeing retention speaking now majority

China -- start Pass. very fall. they All in great doing the well, not China will selling actually Access had is so are yet quarter. a They They

been inside working has been great up job working, our doing portal team China. have a getting technology -- We stood

everything we global All people provide to Access our China for clients some China, in in to to but are access China this and in service need so a way sell able do have there. deals China, we do consistent portal in in and good clients service to We Pass big steady really

is is and Pass doing Access China So All fall. starting well to

in our so All have similar just has trajectory that expect countries. few grow months we last and speaking come business English to with online starting some They follow a they Japan Pass. will Access that for the we as in have is now them sold and

earlier managed leader a year Access year license Austria, partners business the assume had got the All did it’s by are They a and as and ago led board U.K. Switzerland there. that quarter, Germany, as as being you our on also Pass now we well. out this they And little and then nice know, in and of over a a licensee selling

on So we are international coming online. Japan feel the other and offices good exclusively selling All really those half almost direct hand China, Pass Access about are

as well. you of were are and primarily the their are and licenses and conversion -- a actually well Pass, off, bit a we year. due They there up done. in Bob of will pretty the all them little exchange third the a themselves, And Germany the becoming mentioned They is They it’s up still for when Access The direct as will conversion the down quarter, said first of so doing so year and it. supporting -- about in little were they full year were late year with they middle are be kind if foreign this bit the this a office. up for All to

well. a quite sales, past into growth higher the it will course for in driver have They -- still us business us. that more just help will should but it think this We of good they Actually just royalties translate is should and royalties us them. pay theoretically for them their of for be on they this their are drive like quickly doing than

Just about got renewal pass have we last note our they partners week. just of time the person last X,XXX on it one late this year of full and

kind of the exciting see our we same way exact in our as that’s well. to operations and the out and and happening get better and play licensee in will thing just better, translating better And operations so an happening continue direct same to that’s

Jeff Martin

additions, mix of ads terms in it That’s balance markets? Okay. the helpful. I North international America to client ask what’s partner of in to Thanks. wanted as the pertains versus

Bob Whitman

outside It’s XX U.S. of XX about the U.S., XX/XX,

think I where and that’s offices. will International will an in our more aggressive we get should opportunity

are having Germany in now of now Germany of the the China world we our how get where well years that now part are we other parts in that running direct there and businesses of operations recently run few that them we we has got some now got in them and that China as are just economies been have in We for have they those and direct. part exactly been we big have got

a a year There’s will an this is probably quite XX/XX add while. and be and about XX/XX headcount lot the for opportunity expect and but there to will, I of upcoming for think higher mix we we a what

have We of got a lot headroom everywhere.

Paul Walker

one we the had assets this we have the parts company And at direct point, and particularly is the these in leadership our have world think areas also, as -- real Jeff, offices offices. of strongest the the of one important of group who a those and we company, most of XX or

XX million a two weeks this us with who is quarterly our on responsibility $XX in million group this to manage the seasoned and been world and is their who great average ago had people group. an impressive We of $XX years, meeting leadership

of When to teams able added noticed add minimum be living they partners metrics obtain where them four or group people the you responsible, of others the level, every a high within have is we will at run this But they the and are now. to is are on which are being specialties end. for client those we to new these look acceptable one

which are do helping wrote other but are some kind carrying put that quota of also a to have player this. coaches We also new roles,

better able partners a of that years, that you allows about the one now new lot two of or take client rapidly. to grow can each quite we think So have been them a coming in than to adding ever I because feel confident to we positioned are year and really be

a that’s So big real a importance. -- that’s

Jeff Martin

a as ramp as of model? had becomes of old on and model. to content old you under makes more Okay. bundling have see lot than a more it I is into kind content Great. pass that under new everything just value versus last then historically of that that my out bring new what was are content, question one the driver additional around what you have And going lot you how a sense the quickly curious, quickly and to is growth expect revenue do you

Bob Whitman

the course, exactly know old we content because model, look and Yeah. Under of you generated, sold piece them revenue able of it we to as a to know. specifically the separately were

enters value of have. All Now we the Pass, is proposition the ecosystem that as total when Access the it part that it’s really

we I high impact, we may retention. so, have retention, one, primary had ways do which have And mean, see we the high already already -- in high

us there go have, up done, went are So allow lot. But journey organization. this say that where it’s it into to comes new is, hard it jobs impact a new be allows us to deeper an to to

we have so, it we and pick can that is of the when example, content usage that pick All and seen, -- we areas, -- And for Jhana, our mostly right right across the so they two-thirds of if Jhana utilize problems pervasive it the they we we usage. system, the it’s it, Access see really Pass frequently, about utilize see holders they

from Our and gone this Wiseman. partnership a lot has business up content we new coaching had like with something Liz

high rates to maybe expect will reflected, and stay expand. retention one, We our be

able do to that allow be things. to to do price us will continue We will increases

solutions impact that’s and content to because agreements to multi-year more things will do behind want on sign be one that them know we have will people of the Third, they XX% toward an moving the journeys there we be it. is

economics Is don’t on will that precise very whole that need than add factors, specifically we But helpful? we So, that’s within a the ecosystem. of thinking new jobs be it but a of other about we done that are know spend budget, to our X% content. doing those of look to do combination part specific the affect so we to

Jeff Martin

That’s helpful. guys. I Thanks appreciate it.

Bob Whitman

Thanks, Jeff.

Operator

question. And you go our with next ahead question Rodriguez. Marco can Marco, from comes your

Bob Whitman

Marco. Hi,

Marco Rodriguez

Good taking questions. afternoon, Hey. my guys. Thanks for

Bob Whitman

you. Thank

Marco Rodriguez

questions I real housekeeping a asked been quick, Most guess, so my answered, and of couple I have just items. have

bit for like your just here specifically talk those the and Looks the come you fiscal Cat D CapEx ‘XX. of last down guidance, on numbers of terms Can In [ph] little that? a spend about since kind guidance.

Steve Young

projects certain is D on of down have Cat been completed. just in and quarter have and year-to-date, representing completed and this lot CapEx capitalized when CapEx one spend A our projects Yeah. been

So that the we in plan the is change spend areas. those fundamental to in we, that and amount Marco, that

which will -- we have, That’s just in year a down. that less we means reason to make we fourth up and than quarter that perhaps have year. are spending little we is had one year-to-date bit going in We next this would of the thought

doing then, ERP portal we as past And are second and project in reason, the the large mentioned initial the of were a which Bob both is, doing capitalized. development our of

items. had we past the on spending higher So those in

that amount just the little that an this rate. going year than plan have be a so bit a year we spend run timing projects of and lower our to happens would forward makes each standard We year-to-date it

Marco Rodriguez

Okay.

of down have the the referring you guidance think to I but are year. beginning fiscal fact the and what mostly the that there, the I the prior in was for seemed saying full understand range guidance I QX in year to versus come

timing? just that’s So

Steve Young

Yes. Yes.

those we that on on swings development. case plan capitalized a -- capitalization what of talked are spend or on monies that to don’t are spending, cetera, and view swings capitalized when the going the portal. fundamental about. to how are obviously, those in D et Our development development point you spend as and the this CapEx unchanged large there we we which is these are when have at we But we from But much project, don’t Cat know, is have in represent the capitalized what in capitalized change spending in

Marco Rodriguez

guys then, that year-to-date from what flat flow cash the look cash there Cat you balance cash Got what a here here is of terms reported the the have CapEx it. right and taken spent just had of on from for And D, for in sheet, ops pretty year. you you at just and have the beginning now

Has else am is down cash your flow kept there? I happening that anything assuming that of other that things financing to are on So from there been down pay kind even are per agreements. level paying the expenditures or accelerated credit

Bob Whitman

tied that on have some cash we have reduce line. activities, can sheet even repatriate are farther than and looking to it that used operations things have to we otherwise our of line to quickly can the borrow things paid of so up credit amount we to repatriate always to use interest expense foreign or in we -- use and to is down and our investing stuff refinancing cash fair don’t A our balance necessarily. Not we for No. as put against would we as activities

and flat But a even really term why can’t reason pay is of made things tax cash the of is with since simply income local loan laws and beginning that. have line our repatriate their down year significantly lot of cash paid the though payments payments means and and just our our kind because to we fast annual local the we enough like

Marco Rodriguez

last interesting of specialized that going content Got can M&A it. might talk just then, somewhat little in sort terms an things think bit or of be about maybe, landscape you looking be quick a you Bob, that And might question, you at things forward? if any

Bob Whitman

Marco. Yeah. Thanks,

what business lot had in we we put the of initiatives. a us, have For development always

or are kind as are John it acquisition of things Jhana add with Gregory Robert what content fewer of either and micro acquisitions are For did capabilities them thing, that. the looking know with a us, like be of a we of of assessments most and they branded will or we some just of is capability like the or new some capability that a in you companies big expanding -- cases won’t at learning parts more

the Pass. in of the are or many Access which of All All that at can value the so people Pass will the And from expand ways usage we Access things are things looking increase get

on of things But something with. of just out do And license. a agreements turn big Wiseman. effort where Liz a be we in that probably we so on M&A have to number it That’s those working Occasionally the the it like real a those major are of will license will content of couple be be form our not in activity, area will kinds we won’t product. with

the X% spend, capabilities, that development are responsive. looking he’s usage got our year and we X% Boyd allow have effort heads More of we of the on business normal in that but things a plate these really who’s lot usage, his But a and to room and our do and things Roberts he think that’s will we to revenue are increase spend each fall at. we again organized things most how of that do are within here

Marco Rodriguez

time. Yeah. appreciate lot it. guys. Understood. I a your Got Thanks

Bob Whitman

Marco. you, Thank

Operator

your Zach, Cummins. go can from question our question. comes And Zach you ahead next with

Zach Cummins

afternoon. Good Thanks. Great.

Bob Whitman

Hi, Zach.

Zach Cummins

Hi.

segment, So beyond? in the expectations drove in for FYXX are terms about as the the strength growth QX and of education move segment can of talk in into really really that what you here and we kind what then

Bob Whitman

will over I turn let Yeah. him and respond. Covey this one Sean to

Sean Covey

How Hi. you Zach? Sure. are Yeah. Yeah. doing,

to are schools. quarter, schools new This year. good of So had about third lot because was we over fourth we a that going last third had a new year of quarter, we are some to XX signed we contract strong really about confident bring we in we quarter, with XXX feel feel our we like

third show we quarter, these got that up new school third. shows up in some that in that the So -- of signed are the

also in this X We like quarter been has percentage think retention pretty showed about as range better points XX% in the if last well. year and XX% least always will feel year. than not third X the that stronger be percentage Our high we -- to point is at retention to our up that good

of also a material we sales, -- was lot it So did okay.

the that extremely like and well high Me are materials helped in third margin sign really they margin the of job as on, quarter. and leadership were can we guides buy the we have did good they quarter. and students Leader gross in when third So additional in These for that school a

at and and have we So last that put on out focus year lot. these came we real a in a we stronger are that like over find schools updated we the than least expected finding and these that

of helped in a So things the those combination third.

$X.X final pretty And were schools stage about The year, revenue so the XXX, then, got about we fourth pipeline the far. over then invoice and new because last far good for same a and over feel fourth, we XX pipeline last million about are revenue again, XX so and up Again, the the we already. to year by point then quarter retention. it, have stronger

have year which didn’t year. this lot late We close or still have last will big or feel into this a a lot year. next we opportunities also We we have there we go of year help good could as either out well, next or because deals that of have some that close not year,

Yeah.

next we year is to it. feel district big areas to one fourth, districts schools. the feel prospects, a really focus our direct about for and is, good more sell the few about good because for reasons. our of opportunity we to that’s selling, So, Long-term less One of

In and more of more the only of are the it’s eight U.S., districts. XX,XXX XXX XX,XXX the districts the But are with we districts been in getting opposite. of good districts -- we in the, past

So feel that’s opportunity. like we big a

The month. international opportunity continues to I in up China. opened there do really was last well. just We

nine partners. have We

much pretty licensed country. the have We whole

Leader get We us That’s couple of next help lot. could year. we a think Me to a have to XX in hundred schools. going We

strong. opportunity international the is So really

higher the is to opportunity continues that a gross the really as We our there so total margins sales of it good. opportunity education is higher growth margin. Higher helped well, becomes feel grow percentage

I we most -- the And the making. is just impact in find our guess, I are about that’s, compelling finally, we education future just thing the think, opportunity

behavior that’s Leader and increasing great increase decreasing in helps how of helping different it’s the key mouth test scores of of so well, districts forth. research attendance We areas. spreads and have Me and problems and the penetration got in showing And really that and -- efficacy area that’s the word our

are a your question how to feeling long but right answer So we kind of now. that’s

Zach Cummins

for you really I No. that. the color. all appreciate Thank

Sean Covey

Yeah.

Zach Cummins

basis? recurring or in Do four something buying these sustainable in are All question Bob, year I rates add-on to Access go one on attachment that for three, that be services of that can going guess, services two, more will this just the customers contracts? your Pass these for me. Are you terms and And add-on annual as consider to of with offering. is anticipate be an that something something their start in clients nature

Bob Whitman

Yeah.

factors is. the been that’s I enough probably most one important I think emphasize of didn’t

most that. of retaining encouraging client were retention their that over One our is including past their same the things and of of just services XXX% rate revenue,

are the is, important change road need so I so, really they with challenging to that? the know, -- for down if And I services entrusting to us -- on add one you because behavior Paul, content we think, are recognize and this, anything people as and increase get happen more do problems, want to their they get they don’t people and they actually as with what’s

Paul Walker

don’t are we should be third years the least at into think their maintain levels high rolling XX know are at because very and years, and it’s to don’t important. doing are clients we the are able up they as -- that working what on But how we things and current fourth is, fifth know believe we get durable. on years -- services I a month basis we but that

train the but process. coaching M&A And and to when through pipeline, a the it’s they the go M&A, new adding bunch so in services so services think some I new to meet about the are are asked, build that an is to things we earlier of managers of question not people, that of Marco doing needs exactly and designing

extent it it and continue So be I good And to very servicing durable right think will so. at we expanded, has the and selling strong are been now expanding. think clients, and to we

Zach Cummins

Great. of That’s thanks Well, into that really helpful. best as QX. for you again head and luck

Bob Whitman

very Thanks much, Zach.

Bob Whitman

questions? Other

Operator

questions And this at we time. have no more

Bob Whitman

new by look days And are you that in Covey. It’s Okay. of will very today. impact conclude of Well, just part I joining It’s for mentioned, we when thank really it forward of time see really and time recognition the Franklin is revenue exciting weeks. to many Great. to coming each the as and we Again, be you having retention, and the to of we in clients that talking with see et sales, cetera. encouraging.

we so fourth have questions, If quarter strong you to November. this to discussion have additional respond look a getting happy and forward a you and much. chance in formal to to Thank

Operator

gentlemen. concludes you conference. and participating. ladies today’s for And thank Thank you, This

You may now disconnect.

Franklin Covey (FC) 27 Jun 192019 Q3 Earnings call transcript