Earnings call transcript Q2 2023

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Operator

Good day and thank you for standing by. Welcome to the Second Quarter 2023 Franklin Covey Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

to Hatch, conference Corporate like speaker to now Derek today, Controller. would hand over the your I

Derek Hatch

Thank you. earnings west nice Good I you Covey, as second I and afternoon, today of spring want everyone. On to quarter are your well. you weather behalf to welcome your hope on to family XXXX, families warm our fiscal call that the want for and of -- Franklin some enjoying

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

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

company's to update may and current future except today’s statements any control the expectations forward-looking these actual are presentation, assurance company's current or circumstances These materially cause to the and obligation as performance conditions from undertake based revise or of upon of which reflect will Many our we statements or can there by no no are management's results date management's to differ events be future of influence, these beyond required one forward-looking expectations expectations. the after law. meet

out that time to turn Walker, our over Officer. Paul Mr. like I'd Executive the way, to Chief of With the Paul?

Paul Walker

Hello, to CFO; for joined us hope Jen Enterprise Derek. Thanks you, Young, joining I'm Steve I President Covey, you're our Division; of too President Thank today everyone. today. Colosimo, well. by several here Chairman, Sean happy doing well. and also. Division our of Education members as Colleen team. our have Dom We're our also executive have to happy here, Operations Whitman, our Bob our We're Head of Executive us of with

after than second environment, our quarter midst income, pleased are of an revenue currency, made grew rental additional report quarter million, $XX.X approximately prior economic that was year. even up $XX.X sales than increasingly anticipated XX% In our combined which in the constant the lower million $X.X In China and to or of we second higher X% impact. uncertain in to revenue million an decrease

even deeper one income. a the companies continues snow In be The million. in days is economic adjusted also and the for environment and the was Everyone to million fourth China current hiking than XX rental EBITDA investors. quarter We're not even now EBITDA if been $X.X the of report obviously $X.X have was challenging and currency, were constant to ago. for that higher pleased adjusted for absence quarter both for would they

guidance $XX year million. of in of the the constant results and on even reiterate $XX strength our in environment, million the to pleased and currency able confidence adjusted of strength quarter to we're between in full pipelines, our this year-to-date be EBITDA Based and our

$X impacted be $X.X an are $XXX than by of at revenue, of now recovery reflect sales Japan, hiking. our million and impact revenue deeper to additional clients million, because to expected the beginning year slower China and in to of to the of FX, million the to approximately compared through we our by million $X.X the due an expected snow estimate As additional which expect of

Importantly, business and and times know, you developed these refined were approach as really Franklin with strategy, Covey's like mind. in model

see five The were us the hand of other strategy and on resilience even Covey to build kinds key continue flow to Specifically, in cash model of and advantage growth and EBITDA adjusted designed hand to allow in challenging revenue, in elements opportunities business opportunities. strong achieve us take of and Franklin to each we one to circumstances. enable to on economic

strength collective in and are reflected five of which year-to-date these being strategic Slide quarter in strategy X and can latest individual five shown and is These second elements results. model our XX-month as you elements our The business follows. of see

critical chosen help that we've address The mission we've of clients -- chosen and to durable. first extremely clients is, are the to help types challenges

critical achieve and durable, know, schools extremely require external the environment the when don't the of difficult, results easier significant important action they of organizations or kinds As are fact less you kinds quite help and challenges the we mission and These collective opposite. of becomes numbers of that in more people. become

and is quarter more latest new our and their logos, revenue new the both very relationships which and pleased win what has key desire for contracted during XX to ongoing in both to of financial remained great strong. metric among As partner, selecting established these immediately trust that clients good now shows ability the logo are result, times. or their the first We're our clients new potential our and client months in a were a after challenging address second A as crisis. number year-to-date us largest challenges in

revenue revenue solutions clients our year levels achieving element multi- of loyalty, retention, key services having contracted amounts which their client of achieving turn and enter clients second to help tremendous and A commitment who This growth objectives. strength results challenges. builds significant strong these is of in in our into clients effectiveness strong subscription purchased of strategic address services the revenue, significant contracts, of a in helping them achieve having in subscription and levels high percent of and

We that current in of latest pleased even second year-to-date periods. strong the for environment are XX the quarter, month economic these the all remained metrics and four in

strong revenue in second remained latest and subscription First quarter year-to-date very months. the for the XX

growth All XX% the shown growth subscription on of X, months, grew the subscription Me Pass XX in and As top quarter of Slide which year-to-date, total in XX% the period. in the XX in grown XX% on XX% XX% grew subscription of XX quarter XX% in quarter, second company and year the services services revenue growing in latest education month and second in and XX% of latest year-to-date XX% for which year-to-date, XX% services And through business revenue top in second with has was the subscription subscription, in was subscription revenue XX% months. year, Leader latest year-to-date XX% our Access last last the second quarter, second and the quarter,

long year's shown significantly. solutions. percent two to contract as address in second commitment North increased second of in clients quarter in to reflects this the multi-year least and Slide of XX% has All utilizing years subscription Second, our our X, opportunities From term quarter. This their America XX% our contracts at last by year's value big Access represented Pass challenges

retention. of achieved we levels the and high of latest quarter levels with that second pleased significant Again, the the we revenue invoice revenue revenue periods. contracted and year-to-date we're strong also in and Third, during XX-month

XX% second deferred or As quarter, million balance increased grew invoice Division $X.X year-to-date revenue to XX and the million. our revenue latest of Slide education XX% shown in in million $X.X months X, XX% in $XX.X the or for Education XX% the and

grew partners to above pre-pandemic China economies As operating invoice levels. revenue were to levels, of shown below year. in in working improve hit pre-pandemic way our XX%, but some with while back revenue others well Slide the and Japan, continued is in back this prior Invoice licensee in harder year, partner be are expected X, half to their international operations to

second second to amount the to comparing quarter Pass result. impacted All or last XX, which new As With shown the Division, high by was Slide a year's total the Enterprise for somewhat $XX.X we amounts prior million, established in XX% of increasing amounts in pandemic watermark $X.X a in year's benefited invoiced for invoiced. quarter, Access million

the for watermark the year-to-date We're more even in All high amount total grew periods. invoiced or $X.X latest and the Pass Invoice difficult $XX.X increase against further for million to and quarter, or pleased XX in second in XX million or and X% this million a of $X.X second amounts and able quarter month environment, XX% million latest that year's we period. Access $X.X were amounts year-to-date this the to X% month

quarter second We're invoiced of quarter two the last pleased that primarily less was with and growth fact second we the strength rate this total than factors. during the amounts year's reflects ongoing the

the by not Pass in offset First, to Pass in this size last somewhat renewed able expanded increased. the These an that second XX% increases second, number clients Access against growth; Access increase Pass their the that in quarter who we were All the quarter. All were average this Access environment year's All of while year's renew second or of of magnitude comping the contracts, in and

been meaningful XXX% million, the million coming visibility growth growth subscription versus the surety year. with deferred as end for company, quarter quarters. XX% last growth in of a deferred has X%, representing unbilled in or yet in This million total with in future revenue tailwind which was $XX.X of not into in but the of Of in our predictability was at invoiced of provides other deferred increases and billed the unbilled $X.X $XX.X increase XX% deferred be revenue, the unbilled growth revenue, will for reflecting Importantly, growth our revenue XX million, the and amounts in entire growth a coming revenue Slide million this and shown in reflecting invoiced balance quarters. $XXX.X deferred $XX.X which invoiced,

against level year's Pass to the total impacted remained subscription increasing XX% again in the subscription in XX% sales increased Fourth, in results in Enterprise fiscal and pandemic high Division services by quarter. as sales of Access it The subscription year's Pass grew XX over it's in comping has quarter. XX% to Access All fiscal fiscal XXXX revenue Slide second which the of prior of grown the subscription this of in XXXX, also then All this services amount shown purchases through somewhat at was years, from benefited significantly XXXX, significantly

of $X.X second significant In sales subscription quarter, quarter services a grew the last in million XX%. or very year's

difficult this year's that ongoing We This commitment solving the purchased even were in even amount of of services comp, in in to achieve pleased X%. of quarter are the against we their this reflects a environment, able have and challenges our more in environment. $XXX,XXX difficult must-win difficult second growth a in or clients

occur. third This of extent particular in in The industry. of than completely more and for the accounts our our no clients diversity Education growth the in on the base Division that concentration impact strategy limit serves see the is diversity X% of element a in you different XX, operate And and storms of market. significant our of industries significant Division of and No foundation as can revenue we Enterprise can individual strong for client we a provides segments economic Slide revenue. have any that concentrated may our in which

adjusted drive strength the factors flow. of and strong business growth strong cash our our and is subscription in and in model driving EBITDA of to growth strength the underly adjusted growth and business revenue, cash Fourth, flow. its key Three EBITDA ability subscription

is the and that customer is subscription contract of large value First, a typical growing. lifetime

revenue shown relatively as gross All showed we margins Access strong with as last recurring subscription ultimately services, and retention, large amount initial typical the asset contract Slide this and example, worth of of of dollars. thousands value, For Access becomes Pass an annual high XX, hundreds All Pass in significant quarter,

further of and duration contracts increases their durability increasing the their value. that is Second, subscription our

allows but factors revenue, Me growth the with increases Access third third than All All Leader that a Access In lifetime achievement in is clients EBITDA -- in -- adjusted only incremental than revenue acquiring less And of to these cost the our our significant flow. value, first flow-through Pass less even year and Access not for of the spend. new The contracts Pass combination high and much point a of Pass All cash of constant is subscription

us the significant take accelerated of liquidity for growth. our to provides flexibility Finally, opportunities advantage

we've years, maintained liquidity significant Over the debt. and have net no up built and

building processes, our to in investment content organic in result, make subject to force, business investments, sales budgeting a areas: able three investing As to through and important consistently client technology. rigorous and growing our investments first, make always ongoing in we've in we've been been facing significant our growing and investments able teams

acquisitions quarters, with make form liquidity years, shareholders that key million Second, of $XXX capabilities. have $XX returned million stock we've at million And in last we've us even tuck-in same full liquidity to $XX.X in stock facility after four excess We approximately We're to second strategic that stock repurchases a in quarter second which of time, the the $XX the provided credit of our investing with and the includes almost our repurchases. in over undrawn. the series $X.X pleased for million utilized cash the with million quarter. revolving of repurchases also ended

quarter, of stock our Directors the Board During increased to our repurchase $XX million. replenished second it and both authorization

amount us new to credit from providing an repurchasing making the the facility, to rate at with both for million, increases credit subsequent million significant stock $XX and our that addition, In end of strategic revolving we attractive into flexibility $XX.X entered quarter, acquisitions. a

and of years over in very in individual periods. strength of our elements our evident in quarter, XX key past collective five month the the these been power and continuing strength year-to-date has the and The latest second business

of $XX in 'XX in million achieve be constant million as a in section As minutes to to adjusted $XX million and currency a $XX in between our our fiscal few this guidance in fiscal targets million expect and ongoing we'll generate in 'XX. $XX EBITDA EBITDA currency and of to in result able discuss we in adjusted constant fiscal 'XX strength,

review some for performance profitability quarter the Steve to I'd to and year-to-date and and us metrics period. headlines now like revenue our to key on ask share

Steve Young

with Good you, nice Paul. you. afternoon, Thank be everyone. to It's

Paul I'd regarding some headlines sharing said, to As like by start our revenue.

mentioned, compared year's Paul $XX.X second last in in with can in you Slide quarter. revenue the quarter to the be million as to increasing $XX.X As see also XX, strong, our X% continued revenue growth second million to

XX%, rental income, $X.X sales grew additional even our up than which impact. million currency, lower and combined even made constant after revenue rapidly an China In more in anticipated decrease in a an

shown, XX%, and growth constant in XX% also XX through of second was for XX% the revenue currency. our quarter, revenue XX% As constant and through second in grew year-to-date quarter grew the growth with the last months currency

even revenue subscription and subscription more grew Our services rapidly.

total And Pass growth XX% year in year-to-date. As period, revenue top also XX, quarter. quarter, services subscription XX% you can growing last the see and second of last second XX% grew subscription top last XX-month year year-to-date with subscription as the on and XX% All the on the in in of Slide and and Access months. XX% subscription XX% Paul growth revenue growing XX% On mentioned, of year-to-date XX% last and XX growing in

in quarter, visibility services subscription in in the also increase Durability to of XX% our year-to-date Leader and and continuing second expand. continued to the revenue Me revenue period. growing revenue and our XX-month subscription XX% into growth And future XX% is latest

XX%, $XX.X subscription As revenue at of also million second deferred increased our the or quarter million. Slide shown balance billed of a to end the unbilled, in XX, and $XXX.X

months America of by of as Pass the in in for our All the up percentage total from last Slide at years, enterprise quarter contracts XX% operations, shown increased XX second And multiyear XX% the to Access XX, last North year. through least revenue invoiced finally, represented also two our

I'd headline also profitability some like to metrics. share

point basis with remained decrease shown a the representing basis several our the and basis XX.X%, decline the percentage, point approximately XX, decrease point percentage primarily gross in points the basis XX is during year-to-date margin XXX an combination margin marketing gross XXX in very overall, conducting of primarily point in the in-person Division gross in Slide increase gross the for quarter margin Enterprise second Education strong quarter decrease basis basis in reflecting decrease in gross Division The XX the at margin quarter. As consistent in margin XXX and of point margin large XXX gross resulting XXX from months. events latest in

for XX period quarter, XX.X% compared improving basis Operating the quarter to month of last basis decreasing second for the SG&A second and year-to-date. points latest XX.X% to And another XX.X% basis year's XXX XXX sales XX.X%. percentage as continued XX to in points improve to in points to a

XX% EBITDA Adjusted last year's million. $X.X or increased record a million to second quarter $X in

in hiring of significant are the our further this Impact expanding completing constant increasing increased EBITDA the quarter last is development million, at and expected in $X in $X.X Platform, year in million our pleased investment which million as $X.X other We teams the that significantly our adjusted year's new investments of second client from facing after and even to end salespeople making currency.

million. million XX% increased or or EBITDA adjusted million X% to Year-to-date, constant currency in and $XX.X $X.X to $XX.X $X.X million increased

the million and to XX in grew $X.X $XX XX% XX% million. months, For to million constant latest adjusted $XX.X currency EBITDA grew or

Our the half in with last was difference primarily during activities attributable The cash compared two of year. the provided this by million to year, growth million capital first the the changes operating $XX.X $XX.X quarters first compared year was to to working plus the prior during of in revenue cash in year. more pay deferred payable and liabilities, related changes accrued accounts used to

the FY receivable critical accounts strong our make and provided of and During cash necessary of two to payer the operations, 'XX, quarters collection investments. obligations our first remained support

of stronger back activities cash than from last our half be year. back of in and even to the expect We the half the operating strong year flow

liquidity for with quarter. million second $XX.X in our $X.X undrawn. As investing Paul cash stock with in the quarter last million facility in $XX and quarters, our $XX million noted, ended credit the full even million repurchases after stock repurchases of We excess four including the revolving in

ways to optionality, increasing to we Franklin to business, further and acquisition our potential enhance in Covey at and adds evaluate strong value. continue liquidity shareholder invest Our look as continue opportunities

of little in specifically our factors underlying strong this company, -- areas of a more focusing our results the a detail on make little provide on performance, the I'll key more Finally, detail in business both and is North America. Enterprise Enterprise business in in and America. education our almost our of business all direct partner licensee in offices operations which North In international internationally our

in in strong as months. X% in XX% revenue period. in year-to-date First, year-to-date and accounts XX, the Enterprise XX in XX% Division XX% quarter Revenue Slide our second the America business about results grew and Enterprise in America, the at in XX-month were second in of latest total shown latest the which for North North quarter,

an business North quarter, Canada months. U.S., tempered by strong quarter, XX% subscription area softening XX% the XX% services government in the and our but revenue year-to-date of the Our in XX at XX% America grew X% in latest was for revenue. grew a Subscription and in

Our balance XX% North before, of balance. grew XX% of quarter, we've -- for year. as compared deferred And XX the second latest North contracts, said increased year's revenue by unbilled Pass invoiced America to XX% in percentage billed Americas. the All Access and represented multiyear quarter last months from up revenue in the to XX last second

XX. growth Austria, of in makes All Slide international Germany, make in strong sales portion and those was Access up countries sales. offices a as XX% Switzerland up and where Second, approximately in total of shown Revenue the Pass substantial Ireland, Australia UK, together our which

offices period. of these grew services year-to-date Pass in All XX% subscription X% subscription the XX% the make and Access in latest these total the period. up X% sales latest in grew year-to-date in approximately Revenue quarter in sales second and for XX-month X% which XX-month the countries, XX% quarter, XX% and and

over FX quarter, revenue second past impacted countries the total in normalcy Japan quarter in the year-to-date approximately in account XX% impact negative months, with and for the as cautious sales, lockdowns the XX% of by a period. results in Japan, XX second and to XX% China offices started international latest the XX% XX-month post together to and two declined which loosen which return our these COVID widespread very In of in related in China and COVID in

we and quarter company the in China Our growth and absorbing results strong were these and overall in are these Japan. appear third after beyond. These pressures impacts countries be expecting in easing to are

international year-to-date XX% second Slide our in the XX quarter, partner in XX% also XX% last licensee As in revenue XX, shown and increased the months.

conditions. strengthen operations to world partners licensee despite Our economic continue

account for were company total in strong. the revenues or approximately XX, With results XX% shown quarter. growing as Education the $X.X second Education Slide our the XX% of of business Finally, revenue million which very in

million low clients XX%. process surrounding revenue clients margin still revenue marketing approximately hear and Excluding to of our the practices gather or where symposium techniques Me Leader grew best $XXX,XXX and In prospective $X.X

and Education growth and Education XX% XX subscription revenue revenue XX% last the was XX% the strong, very last year-to-date, XX% subscription the in quarter, in second increased XX and remained subscription of months. increasing months. year-to-date months. the in services our deferred Me of in retention Educations very second high XX for year-over-year, Leader revenue at XX% the grew XX% in quarter. approximately schools balance And latest XX%

the turn So, Paul, time back you. to I'll

Paul Walker

we us to often just change second, you, are Thanks including minute for taking of whether we're how we're roles Maybe Steve. And generating couple ongoing first, this engaging outlook. on initiatives? revenue us schools growth organizations environment, and Thank for stepping asked, move client behavioral through just In facing questions, that. client and guidance back still partners? before major our of about the a thinking

whether The question still or major change is the on are first behavioral engaging an schools answer initiatives to us yes. emphatic, organizations

their strategic objectives, the during organizations by on time of organizations effectiveness focus others culture, critical strengthen to into it's building every to by increasing priorities. important occurred the more the their major narrow this strength our and that by pandemic, as capability individual most to many true the stages as of extraordinary down focus putting organizational increasing While leaders, the early are hunkering of a see some

areas Covey in Collectively, Officers and and CEOs focused, Last and objectives. are clients most each the are week, their to organizing and entire Resource Officers these action aligning between of discuss the is how country. in of We capability employ Franklin their and our we the the Over leadership than and areas. heard million X convened which improve of the on spent partner culture to they more Learning high and the drive from correlation these focusing Chief important power day over, execution. companies of organizations leaders of people. they trusted collective performance, they a XX Human discussing to we the group importance financial largest most in Chief the

I'd to XX, we're majority type Slide on seeing wins illustrate that positive briefly base right few our like recent of client on shown touch now. across a client the As the momentum of

win on engaging around First sales with a large five transformation than their world. us a more is client All major sales initiative organization will This Access is year a contract. the the Pass recent that of touch new professionals is X,XXX

large A ago, whose what second is Access in uncertain as multinational technology resulting time, All with information was consultancy, the business. client a and Pass economy a might wrestled actually months what expired six their that at mean an that for non-renewal

new second the back won in this subscription services three-year client contract just a we quarter attached. However, for significant with ended

third our and and more food from seven their the company Access Pass my All in organization. global time so renewed X,XXX further one now the leadership the help And management seats, just transportation population they All their expanded seats second leading quarter that quarter, Access their unconscious them scale a can their same Pass Enterprise in so X,XXX that Division, is large globally. from company at (ph) second bias, we beverage the expanded into can entirety habit maybe to project the A of Pass address solutions that their

than and We with closed this states. state has Division, successfully sales contract to at our not the than but second importantly last won have entire in from the only more districts district-wide had in Leader twice pivoting we the where team also our same Education point selling and And year. been year, individual to number districts of Me, funded also schools,

the is to To see our including sales of continue facing revenue answer our how client partners? second the growth The we client answer of as piece this significant strategy. question, generating we roles growth about ongoing are a that thinking overall

who And size fiscal chart by you added in the third end in just a Slide the As of portion from partners. sales that of of we in ’XX, since these XXX stages four of the the additions ramp, can of of have shown of past at early in our are the still many of end fiscal partners force XXX%, a meaning, XXXX least force we've client client whom through the XX, XXX sales to our years, on see grown ramp. significant are

represent dollars revenue These of the of ramping future growth, from the future future revenue partners of these represents tens of client source successful ramp as a partners revenue client growth. significant new millions of embedded

the also While growth been in two partners We've additional client has of important generating revenue occurring. new number this been growing facing roles. client

to Access All Leader add In in our our of renewal and the Me our Me management Pass critical client partner implementation They account a play strategy. All two and with strategists of These groups Access each Our and of part our coaches. expand clients. services partners ensure Pass successful Leader

business steadily, more in to fiscal of end at shown XX 'XX. in can from doubling Slide see subscription chart launch number you our for As XXX the the on fiscal has the of grown than also since hired XXXX the XX, of people these roles

on ramps As making us, match opportunity there aggressively is before the we sure continue to to hiring big people of the each to one these magnitude successfully. focus value of enormous

difficult we're going environment, support the both of particularly amount rather of the evenly, spread more this a hiring's, in little end. all ramp than bunching of hiring them years the thereafter. environment this ensure receives these and up at allow and year generally right people each both future in and to us more to This Therefore, will current

strong model adjusted while clients because we’re compelling able to teams that ongoing appreciation must at possible. our of I impact cash win express people flow. having EBITDA our objectives make in They growth and amazingly our clients, their accelerate investments we're amazing address to and huge business our committed them. our and want pleased accelerating talented to serve strong time same to to who the business in my of solutions for the subscription these our We're to ability and revenue, make and our our growth

I'd turn the now to Steve to like time outlook. guidance multiyear to and Steve? review our

Steve Young

you Thank again, Paul. Hey.

So, to refer Slide to XX. everyone might want

in revenue Leader highly provided customers continued membership and past value to due So, to the year. new high future resulted Me All growth their strategic our they're customer accelerated durability strength, in visibility by lifetime high and attractive Pass the and by being over retention, driven subscriptions, which Access have

driven that will the in announced currency, first are $XX previously and strong two performance affirming million this constant upon million with have also in They fiscal primarily fiscal that increase to achieved between XXXX. adjusted the for $XX in through XXXX we $XX.X year. million quarters guidance of EBITDA adjusted compared our EBITDA Based

will increased begin half the recovery delivery personnel growth QX $X.X and investments and this that also their in even assumes circumstances. achieve and portals post of to tenant in expect loss large does macroeconomic at the year make and campus. approximately adjusted challenging after of investments related partners, the continuing corporate guidance add in This potentially include our China and other to absorbing client to We a content, million to of EBITDA Japan the of COVID-XX loss second new

are of FY growth We Leader and in All drive which membership Access remain 'XX years the continued driven in growth strength Franklin have confident which currency. Pass, be the and in expected Coveys in subscriptions, million recent adjusted in to subsequent the the million in and across the million years. Consistent with $XX $XX.X $X.X EBITDA third to expect to constant between constant our to million currency, we overall quarter and adjusted in guidance EBITDA going of Me $XX

higher EBITDA ever, largest making tenant the adjusted million We result, the given mentioned. loss second we our particularly $XXX,XXX than last even was quarter EBITDA feel QX from year XX% $XX.X year's of itself or QX this the achieving the result good QX EBITDA of absorbing this reduction in that adjusted million very year's $X.X after about that before,

we million million which because of of revenue $XXX beginning recovery impact an FX, be in additional of $X.X of for the at to snow Japan, approximately expected the slower China and are year to by million additional sales revenue of approximately As expect reflect the due million, estimated the $X expected $X.X year to our to than deeper hiking. impacted the clients our by to and an compared the through

EBITDA approximately of constant our with to $XXX reflecting $XX expect in in $XX line mentioned constant revenue the million. of year FY our the million third in currency, line with be $XX 'XX. quarter and adjusted million to factors full In approximately million We in expectation currency in just expectation of revenue

FY remain $XX approximately respectively. unchanged adjusted and million 'XX FY for targets EBITDA at Our 'XX million, and $XX

these in expectations impact changes other the could world our While many current factors our economy targets. are and

you. to back Paul, So

Paul Walker

Thank accelerating feel are you, We forward about and our Great. great to looking momentum continued Steve. growth.

And with ought to up we questions. think that, to I open your

Operator

you. [Operator with Chokshi Nehal from Northland first Our Markets. comes question Thank Capital Instructions]

You may proceed.

Paul Walker

Nehal. Hi,

Nehal Chokshi

Thank Hey. Yeah. you.

constant currency currency a EBITDA classifying the that clarification slides And ago Just guidance. basis. specify on period on quarter a the basis. on are not did little a constant in The

going as we from are outlook here? an a is currency to constant So,

Steve Young

adjusted EBITDA? For

Nehal Chokshi

Yes.

Steve Young

give we've always We to guidance was question. -- our tried that in Fair miss in think Specially, slide always typically the our last quarter. currency. I probably a on part constant

Nehal Chokshi

opposed that an is last Okay. Excellent. to guys headwinds basis you trying absorbing you EBITDA communicate headwinds. incremental quantify those have three to And those on revenue are as I incremental here Can you that and basis headwinds think you're already over what incremental have the a seen to provided? months, exactly EBITDA you

Paul Walker

no, but if So flow-through $X we $X EBITDA, million, to very that is that additional through whatever the EBITDA. your million, revenue headwinds talked -- number at pretty a loan rate adjusted pick to a would would number haven't at related of revenue, it -- really million adjusted change flown the to high $X a Meaning have pretty had be that about a rate. we of high at

Nehal Chokshi

Got it.

questions Great. here. Okay. Two quick other

Pass up was That's quarter. November and versus only quarters year-over-year. So, the the bookings in is the quarter year-over-year, invoicing in prior the X% Access X% mid-teens four although, up All XX%

a deceleration deceleration that narrative the there? what's behind pretty in your So, bookings, significant

Paul Walker

Yeah. It's good question. a

we happened than quarter a to We a clients as talked in in So and there -- the who the as we minute a so positive about second, a just at ago, stepping quarter Pass looked had second I really was just quarter and was renewed are number the year their the for think Access back actual All of things relative greater of number expanded bookings. expanded, it ago.

that, we contracts year ago. So it wasn't than this did signed more year that a clients had multiyear

great about that. felt So we

in year-to-date to and for logo quarter New months. be latest sales continue the XX for strong the the

And positives. those all so were

some point to and in clients about were, same the larger as weighed this on who didn't gains -- percentage who the -- of were that quarter given renew mostly it that we there any in were side. against where didn't other there quarter On clients offset don't renew, the weighing there the almost mentioned, while renew the

win headwinds the what that bit I little in who facing that's renew, So who happened think them some have positive things larger back. hope we are then their clients we'll quarter. It didn't really was own we those a did

the easier which quarter little From then largest in subscription had made the last point year by a was being other over bit was the comp comping what is our the we've growth business, against benefited quarter in COVID impact. little percentage bit year second last a a we our that we're standpoint, itself growth

And were we're clients comping larger is seeing so, of as apart from with there still able that with we the feel what a little generally speaking, we're were a we're bit quite execution, we what against those But seeing and level who year happening up renew ago. our than like well. consistent to

Nehal Chokshi

And what you is, by to question explain last my guys mean deeper me Okay. snow? you can

Paul Walker

Utah in in sounds -- like snow Utah. They is funny. crazy it little sense So, a

year if were like little more we a roses the there more there to that metaphor to is clients ground ago, the But signs, see bit a So, starting of to maybe if our what the some little bit where are that good would economy -- and snow we all by now lot pullback. it year a year a concern ago, -- some snow of and we there wasn't think a and so, was be not ago be a We're of starting was from ground. way, on either. be seeing, a trying the on a of

unit effort clients. of some the same while high our And today for doesn't same the yield of mild

they're about while who snow more clients typical little the have back with a that snow or I little larger them. headwind same headwinds them are a a a quarter, us. saw more percent of those that and deeper they bit And bit think little of in end, for bit on don't we as facing spillover some into for so, does deeper some that, their And reflective them renew

Nehal Chokshi

floor save Okay. the here. I’ll Thank you.

Paul Walker

Thanks, Nehal.

Operator

you. Thank

question next Jeff MKM. with comes Our from Martin ROTH

proceed. may You

Jeffrey Martin

categories, Hi, Paul. for the client Paul, Thanks. from them and industry pie by the service I some Thanks the Good particular bit none of mix little larger even there guys. evening, into dive government, ask the a your wanted large. pieces all to larger to if very trends details, of helpful. you're pattern any overwhelmingly tech is industry in terms renewals, a is -- of though within manufacturing, financial of seeing

Paul Walker

comment short a great a question. Maybe Jen, mute. That's -- vary not Jen that answer, industry. to by into then kind might ask I'll off have just quick really Yes. I'll But team you doesn't in been speak But I'll have and specifically. of -- it's a Colosimo have? you your Jen, has try to much know thoughts digging that. I come make Any

Jen Colosimo

came for There no. mute. that off to is, answer way The I the you Thanks Jeff. go. question, simplest

think it having reinvesting They're leadership those in could the may are best a if are a strategy. force our clients, I with culture, not workforce. if challenges we We remain. have smaller our seeing they address with even way that, on on reinvesting as executing based be smaller industry. explain they even you about is The trend particularly by a that work clients Many that of

decision-making it, in this often up. at expect look we you might economy, as as So, moves

you economic that to -- making it economic case now delaying an are need clients is making we case, some have a Steve that case. we case, make my And more you In and Young, have have to of decision-making. that

that amounts renewing these things we uncertain your but a of and to the that And isn't And within few that even hope just fact, industry we an so we larger environment it's revenue not, where there in percentage Paul win happening. said, and have an all that were them trend. just it's industry, many frankly things just did to of great question, back, the same had

Paul Walker

Yes, was America a down, maybe drug report -- little Jeff, the bit results yes, in to down did just Jeff, North quarter. in we hear good the government that

particular slightly long-term client a agency. due -- trend. to been I one actually expect has softer, of a but one that a just think It's don't I that's kind

So that would be just to thing one note.

Jeffrey Martin

your where to Okay. than to particular something able were wording stands in to I out Is renew? phrase rather clients And the and chose you was there not that led then statement not that intrigued by quote renew way?

Paul Walker

that. said where Speakers] to [Multiple No. remember Trying I

Jeffrey Martin

the longer-term more is past renewing could clients. expansion to maybe contracts. and deferred it's contracts revenue Okay. noticeable longer-term Well, me those levels overwhelmingly are your far to difference loyal, unbilled multi-year that shorter-term says shorter-term are -- me there part clients just shorter-term traditionally, those that between subscription And comment higher-value clients? some in deferred And much outpacing that the that quarter. That subscriptions? second some purchase with let add a your that at the suggests of or the respect your build a question. Maybe that to you more valued growth are the outsized to relative clients to your of of

Paul Walker

Yeah.

great, So maybe I renew. think they're not to able

trying clients the discussion is not We fourth what going quarter achieve. us the for committed long-term -- you'd the in of one the oftentimes, they in did -- and renew was that to they're like that's you came oftentimes one discussions, to very if reason those example and that stay this when very are here. at Oftentimes, the to back but have committed shared not clients and to a -- "hey, were clients, And this not moment, do said, this -- we're able we're permanent we're renewed. hear to just I

company, uncommon goes period just a to QX or not it's not through into where for them. Every not sometimes where company get thing but that's just are go every for the client, a the environment and for they more things that company a difficult happens. So,

we're to guys hey, say, is do kind color able maybe you not this of forever language a this my point, a, hey, bit. so leaving not little that we're And usually at things,

question, typically, continued we've for year in third But add or calls it's where their years two. year the now even growth We've year one years. enter contracts. your steady at second or reported that multiyear the number want the renewal be been into step usually will their they'll after pleased of on to But past a it across multiple year first that those to in of -- and going into clients who really upon

department that's change the and nature a one that happening we're an of is challenges XX of level because productivity issues the longer-term change in of topics in entire months, to are culture solved of quarter problems with think and the and dealing or that team or thing. don't the We're the I get kinds entire even important or And solving. of kind

more see And deciding we that saw the certainly in to multiyear to that generally so and make second the in quarter. more, we think clients and commitment I

been is see your so, there you it's eight all base established, very where mature churn, then where greater like do road these or you with laying that that have cohorts after those extent those transition years little become And get more little there as now those that down very -- cohorts you yeah, that first have the very to more And year. later see clients their churn years. and

their the year then on getting we're that most noise -- and they'll work coming oftentimes, and as still those them know that out chop most have with go them to first multiyear. are actually so of is and And the

Jeffrey Martin

in the Great. talked And to current in pause. going a bit I of about take a then the of acceleration, obviously, past environment, know couple quarters, growth you've that's revenue

economy changed you mode? of Just ultimately it's stable upper targets teens once if some the and of of all in confidence if outlined that or it's kind shifted growth at your back if us to it maybe -- to give previously degree growth the getting a revenue mid-teens of sense is relative the

Paul Walker

Yeah. Great.

that and So and to related, then to EBITDA all built whether that the the way get answer adjusted point -- generates business maybe that's that when is of significant whether model to we've not cash the in and a mid-teens the but flow, high-teens. slightly exactly we independent increases first

-- always there's business a you've is it the So -- what model to it's continues be which recognized be, model. business to great

and current faster high-teens, is more eventually said, -- And specific a powerful when that elongated. business view more its be a on faster the environment growth, then to this also means mid-teens get we've our the and that's way related we growth engines like still have that it's subscription little there to rates, might been timing these we powerful bit that question driving your this and of growth. have two low -- To teens, more absolutely

still in But subscription we're and very way in both seeing with divisions. the -- excited the we still are pleased businesses behaving what we're

As it, I think you alluded to Jeff.

slow I current there but suspect economic suspect, I slightly mid low, then think kind thing of which there's the environment timing high, pace might that strongly given that's where a to we at we're and move headed.

Jeffrey Martin

Okay. Thanks. floor. I’ll leave the

Paul Walker

Jeff. Thanks,

Operator

Thank you.

Stonegate. comes question Storms next from with Dave Our

You may proceed.

David Storms

call. my taking for Thanks Perfect.

Paul Walker

Hi, Dave.

David Storms

question the first that spend from annual what that greater asking will XX. the back $XX,XXX come deeper than a we my mentioned scope My expect guys? of still are you to average Slide Would snow seeing. going or they're the Paul, first -- coming clients be forward is pare from number of clients you client question down had as that lot your

Paul Walker

Yeah. Great question.

And on even comp, second We to detail number think added would still quarter increase. even continue years. multiyear. I And a that number, expect -- has we I in year. quarter, as in that services we are, of prior that significantly minute clients mentioned bit the we the we quite more the is over ago, and we a that think clients for number increased so went a tougher quite that -- reasons one, into a on last -- grew would expanded, the more still this to has the

those with know, whole model expand. point relationship expanding to is us, things you deepening as all and land to I our So their built, clients think

another in of to think $XX,XXXs. have client was vector and on just much long rate that I we wasn't as we're relatively $XX,XXX, doing number occurred And penetration expansion low that that that still great ago the as the has as it is that it

just have of as so clients today, XX% addressable tremendous there's grown, we're we population. still amount of the a in much that where still addressing roughly even headroom the as And has

second we the I saw quarter. that in So expansion think

We continue that will its expect have way a lot of headroom to inch that, to grow up. and would

David Storms

second and slower question a of My what's steadily but Thank very specific That's this, which SG&A sign. this growing anything Is efficiencies? revenue, on general just economies increased is highlight helpful. product touched there than operating driving is to with scales of that and great more or you. Steve

Steve Young

rate are many expected or growth. think I company, a lot are grow efficiencies decrease our can cost but fixed there the hope a fact that costs by in be places revenue at revenue and either growth in we slower that than our significantly the driven of

revenue costs, quite like, a facing we So time. overhead, all -- slower not client of areas those grow types rate of that some to lower central expect at than for are

about. the grow client-facing growth our growth So are we the But we back-end versus revenue will look that and able that similar for on. to talked Paul time rate goes growth lot decrease would just believe, revenue again, to a as costs expect to have percentage a support in accelerating grow as we support operations, at SG&A -- of rate, slower SG&A and pretty we increase the a our that will the at that as of

David Storms

Steve. One more All you, right. ahead. helpful. very -- go That's for Thank me

Steve Young

No.

cost about as the we we future in grow is revenue. that into EBITDA, to In would that targets to we've up say go as talked the primarily fact, growth fixed our -- that of expect the I years adjusted relationship

Paul Walker

that that not first only to but actually also than customer is what here year value Dave lifetime customer, that acquire even than seeing customer. less you're in is a cost our I the think less of the

acquiring And to customers even that we're them. acquire than so, the revenue faster is as growing more cost

question the is levels be and combination year projected while maybe growing end could future. revenue adjusted be at factors think is originally we those I EBITDA in So, all why that the level also still back of -- the one the to Nehal's for at can

David Storms

just a execution. high great. So That's really, [indiscernible] it's strong

if mentioned the year. bringing partners space I could. on more, client you One Paul, know, Okay. now new I that throughout your

end wanting Have like -- give you would us So it's of guys what to the loaded. of client be as year? look on new you back a not would new discussed or partners by the target number

Paul Walker

structure number you for -- got know, we've a we've up of support the hiring could more meaningful management top that still We've as -- and could year were recruiters enablement number client to get We hiring ago our capability people. I -- more bulked -- made So we don't adds be a we more partners. of have to sales to our so more today. don't you on we

over XX from gone year continue XX we've a We're year to a XX year. to expecting So time, to a that. to grow adding

partners We the will some exactly really there's know win opportunity We're number in to But in talent. the what of and think year-end. as well. between to next fiscal don't of make the past, we've We're can salespeople. this that We be sure well. get business. we our think an that We good and great attract doing we really environment want best talent. add investments making end the we're a at said consistent I to year now the into with significant what number going -- client year and we'll in get

next extend of might -- year, year get very that that first gives as very, up we and sure the want we talent, And to want them and over once our little into then system successful of the of chance as the can of really match as we well. ramping the them this that best to make best just supporting back half part bit that next being a and well here

David Storms

That’s very much. perfect. you Thank

Operator

Thank you.

Capital question Samir next Patel comes with Management. from Our Askeladden

may proceed. You

Samir Patel

$XX pretty I cash your the the amount, facility, bit on credit new Hey, million wanted when especially a with little ask to about big is a combined balance sheet.

was to that [indiscernible] to really that facility. I think Your largest wasn't date, which acquisition big compared

there could wondering, next you a nice for? you into facility the was whether have if Paul, that a to in I of case capital use deeper about is dive something few allocation. it kind years, little actually how So think you to if bit over or just or tend there's

Paul Walker

Samir. from to Hey, Good you. Yeah. hear

-- weren't we a of didn't big have all, generate go of there's credit opportunity credit of facility facility to the looking an as Derek to for facility. increase cash, in to just an know, just that thanks of a larger in think to lot credit put and expect larger Hatch We getting just for comfort our be in this a first We to inquisitive. for all you that place. So, having a more potentially environment have

really really at would that there believe the a strategy, require think a course, exciting the organic some and we I lot be of could numbers a believe, we're that talking be what of lot accelerants and opportunities some time, same we of be have -- can M&A. And great could we're achieve do we things growth we story doing. don't could to And to about

And discuss some if -- wanted get and we things place like were things to find so in ready so that and we to are when that.

possible operations make would we that to all fund that, decisions best expect also, to to then our of we for sure Board And and that to to for cash able we're quarters over four we wisely use M&A And as the we're decent also our revenue. last would authorization that a replenish grateful just and well we've the done our to amount to repurchase continue grow shares. were making

about with have glad share in place. to And nothing you So that future. other to have more hopefully we're today the than talk we

Samir Patel

to in I -- Steve, you're disclose don't think the a spread that it have to do you going but SOFR I'm then on sure Okay. And facility? filing,

Steve Young

of will we tomorrow. out But where XXX. like will we And on tomorrow -- plus it coming there, some the -- varying we anticipate on will covenants. from goes The that. X. to on up we're on a But be X-K XXX. our silver leverage the out Those start like X-K That's is XXX. SOFR SOFR going a to It's amount ratio, plus based be like XXX, go It's plus it plus XXX at being. then start depending our it's Yeah. like SOFR

Samir Patel

$XXX that be had That mean back makes I but your (ph) about -- right? your talked do something think financial DCF there's M&A, you're going on on run amount worth much I the tremendous guardrails just you this, to have And sense. about should back you stock. Obviously, or a that capital of think mean buying guys Thanks. Okay. it Paul, a of sort going I accretion comment. stock, be M&A how if you that. to by like spend

how Strive. acquisitions you've kind that But relative rationale to deals the just of understand I credit back your about to rates think aspect financial just of the seems you of are, made like a hurdle size of lot I'm right? of kind what the like of size I that doing returns M&A? like curious sort you how strategic going from the more, Like the or just about of mean, facility think

Paul Walker

Yeah. Great question.

So go some we yeah, or acquisition not my out of response, do the leave to impression major trying that millions if dollars, of sorry earlier that. anything and multi-hundreds like

likely, with clients where others an more Strive and we're or done maybe piece that think see here of things our with there. consistent us do you important adding would what are adding I more capability we've content to or

that, able to we I or of would we it lever and think different and is to that significant. additional get we some gives content, all number that. to shareholders. need we're M&A don't good of us don't I to be we It I -- we don't access expanded intending avenues strategic -- that our could out to in tuck-in also to to were think Even repurchases in thing. and ahead. share to could in But of go that think the intend add do of liquidity, do valuable amount -- quarters up It necessarily form form so We of M&A be the or be anything don't flexibility think the the any acquire necessarily to lot think that maximum use can a license pursue a having of we

Samir Patel

stay covenants the in kind million place and you restrictions $XX as it that long at with them know as the some had just you -- know would I I like that any time, I tomorrow, put sense. restrictions see that to on just and but going makes that EBITDA having facilities that previous come -- shareholders. And of just you going current your are given to that? the returning That authorized out probably capital one details things of see I'm facility to

Steve Young

stock Yeah. purchasing thing of -- cash of This of with the one covenants particular break the of our things we was covenants, $XX one the bank. million shares that old by with actually could in the

that new wanted covenants. breaking we And to a is so going one able out negotiate some deal things our were to flexibility use of the be without we to capital

So this particular -- some have on you're right. you'll This particular credit see. agreement distributions restrictions does that

above it in X.X. ratio we we our part leverage of to flexibility X.X have long purchases a anticipate as is treasury ratio count to don't of of as below leverage However, our getting has X, amount stock great distributions that our distribution. And as don't

the us gives buy our shares see to without that amount huge covenants. fit debt breaking So a flexibility as we

Paul Walker

very So Samir, you’re prospective. always

lot to last this is flexibility answer And able the acquire as a agreement is buy us you agreement we’re shares agreement. larger yes. to more that – So under amounts. – know, of gives The

Steve Young

Yeah.

Samir Patel

Perfect. Thank you, guys.

Paul Walker

Thanks, Samir.

Operator

Thank over you. remarks. to And this like turn closing now to Paul I’d call concludes the any back for the session. Q&A

Paul Walker

to thank tuning good time look questions, appreciate Thanks a in. your we forward to again for Have for everybody, and you today. thanks, evening. We great your for Thanks you. and Well, soon. talking you,

Operator

participating. Thank call. you you. Thank This concludes conference for today's

disconnect. now may You

Franklin Covey (FC) 29 Mar 232023 Q2 Earnings call transcript