Q3 2020 Franklin Covey Co Earnings Call

Sure.

[music].

At this time all participants for any listen only mode. Later, we will conduct a question and answer session and during the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.

Please note that this conference is being recorded.

I'll now turn the call over to the corporate controller Derek catch Sir you may begin.

Thanks, Michelle on.

On behalf of Franklin Covey, I would like to welcome everyone to our conference call. This afternoon to discuss our third quarter fiscal 2020 results before we get started I would like to remind everyone that this presentation contains forward looking statements.

Within the meaning of the private Securities Litigation Reform Act of 1995.

Forward looking statements are based upon managements current expectations and are not subject and are subject to various risks and uncertainties, including but not limited to the ability of the company to stabilize and grow revenue the duration in the intensity of the co. Good 19 pandemic and the corresponding recovery from the pandemic.

The acceptance of in renewal rates for the all access pass the ability of the company to higher sales professionals general economic conditions competition in the company's targeted marketplace market acceptance of new products or services and marketing strategies changes in the company's market share changes in the size of the overall market for the company's products.

Changes in the training and spending policies of the company's clients and other factors identified and discussed in the company's most recent annual report on form 10-K, and other periodic reports filed with the Securities and Exchange Commission.

Many of these conditions, including the effects of the Cobot 19 pandemic are beyond our control or influence any one of which may cause future results to differ materially from the company's current expectations and there can be no assurance the company's actual future performance will meet management's expectations. These forward looking statements are based on management's current expectation to undertake.

No obligation to update or revise these forward looking statements to reflect events or circumstances. After the date of today's presentation, except as required by law.

With that out of the way, we'd like to turn the time over to Mr., Bob within our chairman and Chief Executive Officer Bob.

Derek Thanks, so much.

Thanks, everyone for joining us today really happy to have a chip talked compete.

We'll be each of use doing well in the distribution is well.

Obviously, the 90 or so days since we last reported in some of the most noteworthy in recent history.

Both nationally and globally.

And then from many of us within through a walk in the past none of US lived through time quite like this.

As a result, all of us where their individual schools, where companies are doing so uncertainties reasonable place before.

Despite these challenges however were great who actually that I read in progress has strengthened.

As we've talked about today that many areas of didn't acts through quite a lot stronger that stronger than we might have guessed.

We believe this reflects our compelling strategy, our strong operations and in some cases eroded firming up of the snow that we talked about using less coal in a number variance.

As will address later the rate of our progress leads us to expect that we will resume being a very high growth high EBITDA growth high cash flow group subsidy.

As we have been in the past quarters as we move beyond just curious.

I'd like to jump right in start out by reviewing.

Results for the third quarter.

We entered distinct context, we entered fiscal 2020 with strong momentum.

Having seen revenue grew 15.6 million or southern and a half percent.

In 2019, and having seen adjusted EBITDA increased 8.7 million or 73%.

We expect to this momentum to continue is being driven by the things that we knew it was should be driven by and even accelerate in 2020.

As a result, we expected revenue growth in the high single digits meeting $18 million to $20 million with adjusted EBITDA and cash flow expected to increase between 30, and 35 and 50%.

For the year to between 2700 32 million.

Consistent with this plan and the expectation for 2020.

Just as reference point as slide three through the second quarter ended February we had.

We had very strong year to date result.

Year to date revenue.

28% subscription and related revenue has grown 22% to all exes past and related revenues have grown 25.

Adjusted EBITDA had already increased 4.9 billion EUR, 180% than cash flow from appreciate communities increased 4 million or 30% to 17.4 million that meant that we just 12 months solution to the second quarter adjusted EBIT EBITDA had increased 9.4 million.

Were 59%, reaching 25.5 million.

The latest 12 months really almost getting some new lower into the range expected by our full year fiscal 2020 guidance from 27 to 32 million and that with our two historically stronger quarters to ahead of us.

With that performance, we entered the third quarter with the expectation of achieving actually the high end of this years adjusted you've done that cash generated range I give you that background only to say we were grateful to start you know that we were on track it didn't on track. The we entered the this time those strong strategic we operation.

And financially with significant liquidity.

However in April we reported on our strong secular on these results the external environment, obviously is one of significant and constantly changing and certainty.

How would just how we'd cogan.

Iverson, probably 19 virus and its related stay at home restrictions impact society at large how would it affect individuals' businesses in schools.

And obviously really much of this uncertainty remains.

These factors had a significant impact on our business in the third quarter.

As you can see in slide four.

Our revenue for the third quarter was 37.1 million.

That was down 18.9 million compared to 56 million in last year's third quarter.

As we will discuss in further detail more than 100% of this decline in revenue resulted from the need to reschedule coaching and training engagements that had been schedule onsite at client locations, which said, we're not possible to deliver due to stay at home restrictions.

Actually the majority of this decline occurred in our international operations.

Our offices in China, and Japan and in many of our licensees were closed due to strict stay at home orders for much quarter.

As we will discuss in a minute.

We have been able to rebook many of these gate engagements live online.

Ultimately, we expect to retain and really not lose the vast majority of revenue that required rebooking.

On the other hands will discuss more due to tail in a minute also our subscription revenue proved to be extremely durable even in the middle of the pandemic come. So I think you are you taking those two points almost all of more than 100%. The impact was as a result would not be able to carry out like a training and consulting.

Vince.

Which thankfully we've been able to reschedule the bulk of live online and thankfully the other part of our business the subscription side with doesn't the.

Activities, which really don't affect the quarter.

Because they're just put on the balance sheet for subscription accounting actually retained strength will talk about that more in a minute.

Our gross margin remained strong even increased 246 basis points to 72.3% in the quarter.

Also as you can see increased 214 basis points year to date and 131 basis points from the latest 12 months and these increases reflect view increased share of revenue related to high margin subscription sales.

A third SGN aim.

We have a highly variable and performance tighten cost structure that was designed to flex meaningfully to provided significant offset if there were any at any time as an offset to revenue and gross margin in a downturn.

It did as shown operating asked you need declined 6.1 million in the quarter.

Offsetting 48% of the 12.8 million declining gross profit in the corner you quarter related to the need to reschedule These onsite engagements.

For us to adjusted EBITDA declined 6.7 million third quarter.

Reflecting that the 12.8 million declining gross profit was meaningfully offset by that decline in operating as Tonight.

Finally cash flow from operating activities.

Remains strong through the quarter at 18.7 million.

Stepping back from his I'd like to.

Address for key takeaways that I hope, you'll find useful as we unpack these members and provide some important insights.

Take away one noted has more than 100% of the decline in revenue.

And adjusted EBITDA in the third quarter.

Resulted from this need to reschedule revenue due to the worldwide stay at home restrictions.

As noted the majority of this.

Really dettori international operations, whose offs through close during much of the quarter.

And who do not yet have substantial substrate subscription businesses Christian them.

Thanks to our immediate shift to delivering coaching and training live online.

Capability, we developed over the past 10 years, we schedule a significant portion of the engagement from 70 rescheduled.

And actually are booking pace for coaching and training services gain very strong traction and accelerated since early early millions. We believed that the area of biggest impact in the quarter that I'm happy to be schedule.

Is it was role on the way to being addressed.

Our booking pace.

We'll talk about more in the last.

Six weeks eight weeks has now regained the same levels, we had last year in the U.S. in Canada.

And so we believe in coming quarters.

You know those you know that impactful will address itself. We continue to have weakness in China and Japan, Although both are are increasing or improving for Q4 as well as and when you're licensee partners.

So the biggest challenge we believe it's on the way to getting address second.

Is that our subscription business has been strong durable.

Even in the middle of the pandemic.

The rapid growth where subscription business, obviously has driven our accelerated growth in adjusted EBITDA.

Cash flow over the past several years.

And even in the third quarter subscription revenue grew significantly.

And contractor invoice subscription revenue also continued very strong throughout the third quarter and has accelerated further in June.

Third took the takeaway is that this strength in the middle of the storm is not just by happenstance that is based on deep strategic and operational routes, including the importance of the challenges which were helping our clients address.

Those haven't gone away in these times the flexibility of our offerings across a wide range of modalities levels to shift immediately.

Two were more than 80% of our new bookings are live online now and we're converting a bunch deal the there.

And third the strength of our business model, which flexed on the downside and which has high flow through on the upside.

Finally, I will give them the some.

Outlook has.

We expect going forward.

We do expect to emerge from this period, then be able to resume our aggressive March mountain of being a high achieving high rates of growth in adjusted EBITDA and cash flow.

And we believe we're establishing now the foundation for doing that.

So I'd like to just address each of these key takeaway. So you have some more contracts.

First the idea that more than all of the decline related to these or need to rebook more than 10 years ago, just after Sars actually.

We were concerned about it we met and allocated significant resources developing very strong live online coaching and training delivery capabilities.

Not many other people worry you had pure digital yet pure live on onsite.

We feel like you know really you need to be able to deliver this content, we need to be able to do it gets the same net promoter scores that we were getting and so we've tested this a lot and done a lot of this training.

More than 190 of our consultants across both divisions have the capability to deliver coaching training and impact journeys on both our own proprietary Adobe supported platform called like click.

As well as on all the other major life platforms like.

Like online platforms, including zoom, Microsoft teams Webex and go to meeting.

Our consultants were expert at facilitating and delivering life on line and actually they are in the same high seventys net promoter scores with their live online deliveries that they achieved when delivering.

Live on site at client locations.

And actually have a little higher rating on the on the question how likely is it that you would recommend you're in structure.

You know it's in the eighties height in mid eighties anyway, but it's actually a point higher with the with like online.

For years, we believe that with the quality of our content and our consultants and their digital support tools. This live online capability will ultimately become a unique competitive advantage both relative to traditional life onsite only providers and actually also to two digital only providers.

Despite our vision of this though.

And despite our capabilities clients execute typically continued to choose to have these coaching and consulting engagements done live on side of their business or school locations.

Lester this is the didn't the U.S. in Canada in last year's third third quarter, we started the quarter. The 659 and just this in the enterprise business 659 coaching and training engagements already on the books.

And added an additional 920 engagements for delivery in the third quarter, ending the quarter with almost 1600 coaching and training agents.

Thanks to all of them, we're we're for life onsite delivery and client locations.

Similarly, we began this year third quarter with eight 884 coaching and training engagements on books, which was 34% higher.

And last year's third quarter and again almost all of these engagements reschedule leg onsite at Klejna school locations.

However, as we talked yet as we all know pandemic related concerns and stay at home restrictions made this onsite delivery virtually impossible during most of the third quarter.

This meant that you know substantially all of this third quarter revenue had either be rescheduled live online and typically not into the same quarter since.

Many countries in schools were just trying to get their bearings during the third quarter.

In addition, given the uncertainty as to when offices might reopened and uncertainty, which obviously continues the pace of new bookings of coaching and training agents was also much slower throughout March and April as many organizations triggered they'd be back in their offices by May or June and that just go ahead and do it live on site, Dan but has that started.

And to become more clear they've converted a substantial number those to to live online.

These same factors had actually an outsized impact on our offices in China, and Japan to close for long periods of time Green. These countries multiple locked down since he's there is traditionally had done very little live online or digital trading and Didnt have a large baseball exes past subscription revenue to provide revenue stability.

We knew that our international licensee partners has experienced similar challenges and they have.

So the amount of revenue that was involved in these onsite engagements they had to be rescheduled was very substantial totaling approximately $30 million across the company.

Latin last year.

30 would've been 30 million plus this year.

As I mentioned because of our investments in developing strong live online delivery capability, we moved immediately to provide.

Many live online client demos daily all day long teams were showing clients how good work they were surprised by how engaging it was.

Many of our training agents, therefore that we lost have already been rescheduled and we're in the process of being reschedule.

And we expect the significant majority of these onsite you gave you had been postponed what will hopefully be scheduled and not lost and not displace other revenue.

However, finally, even without a rapid response more than 20 million of the revenue of that over 30 million had to be a rescheduled just wasn't possible to deliberate and a that represented more than 100% of the company's total decline in revenue in the quarter.

And as significant as mentioned, notably this unusual amount of that occurred in our international offices.

If you look at.

Sorry go to as shown in slide eight.

You get an idea is a mix of this.

Whereas our international operations, you can see their account it accounted for 29% of our revenue in the third quarter fiscal 2019.

These operations accounted for 5.3 million of lost contribution in this years third quarter's this is kind of looking at the EBITDA impact by contrast, our U.S. Canadian operations, which accounted for 56% of our total enterprise is the revenue in last year's third quarter accounted for only 1.4 million over.

Just contribution.

And this again is a reflection of the strong subscription orientation in the us in Canada and among our English speaking.

International offices.

And the earlier stages of subscription development and in China and Japan.

We're pleased that I mentioned at the booking momentum for new coaching and training engagements. However.

Has increased significantly and 80% of those new bookings are now live online.

And it's really accelerated over the past two months and is surprisingly now tracking ahead of our booking pace at the same time last year.

As you can see in slide nine just to give you some visibility on this.

You can see the pickup of the booking of new coaching and training delivery engagements beginning in mid April.

As shown since then bookings were accelerated.

As a result in the U.S. in Canada, we are now back to booking levels nearly equal to those being achieved last year at this time.

Also on the same slide nine you can see that our mix of delivery on new bookings has shifted to a approximately 80% live online now and so we're getting the same pace of bookings almost as we had last year at this time, despite ongoing uncertainty and people are very willing we doing like online and we think this is important.

In addition to an improving coaching and training he booking pace at booking pace.

As you can see on slide 10, we're also very encouraged by the pace of additions to our overall advanced stage pipelines and this consists of both invoiced revenue and deals which are in our calculations very very high like highly likely to close either 90, 585% to 95%, depending if it's a or b step.

Yes.

This this.

Trend began pacing ahead of prior year starting in mid May.

And is accelerated pace has continued through July today, and so so the things that are not recognized in our third quarter and things that I recognize really didnt have very much to do as the quarter itself for what was generated in the quarter. We had deferred revenue already on the on the balance sheet that was coming in we knew and we had all these bookings.

Then couldn't be delivered on site and that's really the story of the third quarter. However, the important thing for us looking forward.

The activities and booking pace on things that when booked really going the balance sheet and don't have an impact match in the third or fourth quarters that build the foundation for for next year.

Fleet have been strong.

Second major take away.

It is related to the subscription business.

Which again didn't have much impact at all in the quarter, except for the deferred revenue piece.

But has important impact on the future.

This is area in which we expect the field the least impact from the current pandemic you have an 84 million dollar pure subscription business, excluding add on services.

And as you can see in slide 12.

Our subscription revenue has grown from just 19 point Sixmillion 2016 to 18.9 million for the latest 12 months to this years second quarter.

With all access pass centric than ever growing from 11.9 pay 58 million.

And leader in me subscription revenue growing from 7.6 million in 16 to 22 and a half million.

This was a subscription business has been characterized by rapid growth strong gross margins high revenue retention rates are very strong lifetime customer value.

And there's been a key driver behind the accelerated growth in adjusted EBITDA and cash flow, we have achieved over the past several years.

This strong growth and strong economics, together with a low customer acquisition costs. The lifetime customer value has caused some of you to let us know.

You believe that this part of the business alone.

Which represents about 40% of our revenue and that has been increasing by about 800 basis points year, It's worth at least five times its revenue.

There are greater than 400 million just this portion of the business alone, which has been durable and we're not making in stating opinion on it but we believe the is a very robust business.

Importantly, as shown.

Our total subscription revenue as well as both leader me revenue continue to grow in the third quarter.

And you can see increased to 84 million for the trailing 12 month to latest 12 months through the third quarter.

And so this was strong 18% growth.

In the quarter itself.

I'll just give you some quick a bullet point to data on the subscription business.

First.

Our billed and Unbilled deferred revenue.

We expect to that 100% of the 22 plus million deferred revenue was scheduled to be recognized in the third quarter wouldn't be recognized and all of it was.

You can see that's broken into billed deferred revenue as slow as shown in slide 13, we had 47.9 million of billed deferred revenue on the books at the end of the second quarter.

Which is a 8.4 million or 21% higher than at the end of the second quarter a year ago.

As of this meant we expect can you get the full 22.3 million that was scheduled to be recognized and as we did as result.

Our revenue in the third quarter increased 18% subscription revenue. It's always has passed subscription revenue growing slightly higher 90% and leader in need growing 14%.

You see the Unbilled deferred revenue also in slide 13.

Where we had a balance of 34.8 million of Unbilled deferred revenue. The ended the second your related primarily to multi year contracts.

And that number was 39% or 9.8 million higher than the 25 million dollar balance we had the same time last year again, we expected the substantially.

All of this would be in <unk> that was supposed to be invoice nucor wouldn't be invoiced and all of it was.

We had concerns the in the case the pace of decision making.

In the midst of all this would be would be held up that that would affect potentially renewals and new pass sales.

As you can see <unk> in slide 14, our renewals historically been very strong ever you know and in every case over the last nine quarters for latest 12 months of revenue retention percentage has exceeded 90%.

We'd expect to their revenue retention rate during the third quarter, however would likely be lower.

Due to.

It's all the disruption.

And while we weren't sure what to expect we're very pleased that despite the difficult and unusual business environment are all access past revenue retention rate.

It was actually higher than 80% for the third quarter and with this strong performance. Our latest 12 months revenue retention actually exceeded 90% again for the 10 straight quarter.

Subsequent to the ended the quarter, we've actually had a couple of other accounts come in that were delayed and weren't counted in the quarter that actually boost that revenue retention a bit higher.

Second we were concerned that the invoice sales of all access passes to new organizations are new logos.

It would be impacted but again it has continued to be strong.

As you can see in slide 15.

The sale of all access passes to new logos continued strong during the quarter coming in at 92% of level Achee have achieved in last years Q3, and U.S. in Canada.

And the sale of all access pass pass this new logos was even stronger in June and has resolved as you can see also on on slide 15.

As a result, the sale access pass its new logo companies for the four months March through June came in right at 100% of the level achieved for the same period last year.

Third.

The pace at which is all access pass holders entered into multi year contracts has also been strong.

Well it might have been reasonable to expect the pure all access pass holders would entry into or the new multiyear contracts during the third quarter with all the uncertainty.

As you can see in slide 16.

The dollar amount of multi year, all access past contracts.

Actually increased a little bit to 3.9 million.

From three and a half million last year's third quarter, and our balance of Unbilled deferred revenue increased to 33.4 million from 23.7 million at the end of last year.

As a result.

The combination of maintaining high revenue retention and entering into new logo sales are Arab era invoice subscription revenue.

Was 80 in total was 86% of the amount we invoice in the prior year is 11.8 million versus three points 13.7 last year and again, if you look through June on things that renewed or just a little late.

That that gap poses even further.

In Education Division.

Approximately historically, 88%.

Of leader in these schools and U.S. and candidate who renewed their leader me subscription membership and they given year.

The vast majority of these renewals have occurred during our fiscal third and fourth quarters matching schools budget cycles and so this year, it's right in the middle of the storm.

With more than 2700 leader in the schools to remove.

It might not have been unreasonable again to assumes the renewal rate would drop substantially.

As you can see in slide 17, the true tremendous disruption in schools in March.

When schools and their administrators are scrambling to teach light online and ensure.

Those who depended on school meals could still pick them up set for Brazil, and that's starting April with 967 leader leader me schools have been renewed we're committed to renew their subscription membership and that number was 434 or 31% fewer than at the same time until.

Total 2019.

However, our education team has been working around the clock and they've really made up very substantial ground. Since then.

As of yesterday. This July eight this number had increased to 1900 94 retained schools that have either already signed contracts or we're awaiting <unk> return of a contract which they've committed.

Let's now just a 141 schools worse or 8% behind.

Where we were this time last year at present, we expect the school renewal rate will again end up at greater than 80%.

Flicking these schools strong commitment to the leader in the program.

Finally, as expected sales leader didn't need memberships to new schools.

So expect that would be impacted by the very challenging current environment has been.

As shown in slide 18.

To July July eight 280, new schools had purchased or awaiting sign contracts on purchases of New leader me memberships. This represents approximately 65% of the number of new leader in these schools. We had contracted at the same time last year.

However, based on our current pipeline and taking into account the initial significant disruption marks and the fact that kind of move everything back about six weeks.

We expect a taste of sale of New school memberships will increase and reach approximately 400 by the ended the fourth quarter. That's a number that 75% that number achieved last year. The number we would show very good about.

Factory views are very strong indication of the significant value schools place on the leader me that during the difficult periods. Since March one more than 1200 schools have renewed their leader in the memberships with all they had going on and 113 new of these new schools had become leader in me schools.

So I'm really pleased their subscription business remain so durable even in these times.

The primary impact on our business.

Which has been the inability to deliver training and coaching is is on the way to being addressed which is a very significant success with.

With a live online training.

So just quickly turn the time over to pull Walker to discuss our third takeaways that related to the factors, which are underpinning the strategic durability of the subscription business Paul.

Thanks, Bob and good afternoon, everyone.

The third important takeaway I want to talk about is that the strength and durability of our durability of our subscription business really does have deep operational and strategic routes.

There are three areas in which it's rooted first is the importance of the challenges that we help clients address and the strength of our solutions and addressing them.

Second being the flexibility and accessibility of our offerings across a wide range of modalities.

And the third the strength of our business model.

As you are familiar.

Five years ago, we made the decision to move to a subscription model because we believed it would be the best way for us to fulfill our mission and to serve and build a lifetime value of our client.

We felt that if we made the move nollywood, we'd be better a better and more strategic partner to our clients, but also created more profitable enduring and high growth business.

And while we've enjoyed high subscriber satisfaction and renewal rates from the beginning some of asks how resilient, we thought or subscription business would be in a downturn.

And you know as you know we've had a front row seat watching the answer that question play out over the past few months and we're very encouraged as Bob mentioned.

About how resilient are all access path and leader in me subscription businesses have been even in the middle of this pandemic.

Well I'd just like tougher meant about why this resiliency why in the middle of this this current started the enterprise division contract nearly the same amount of new logo sale.

She's more than 80% revenue retention and have even more clients entering the multiyear contract in last year's third quarter and similarly during the massively disruptive time for schools fly is education Division had more than 280, new schools purchase leader and me and nearly 2000 1900, 94 leader and me schools redo their contract.

Thanks.

We believe there are three key reasons that our revenue retention remains high and our lifetime customer value is also high growth.

First among those is that we're helping our clients to successfully addressed some of their most important and intractable organizational challenges.

During the third quarter, our clients rattled through the same historic challenges that each of US here on this call the experience.

They moved large populations of employees from their office or school to remote work environments. They narrowed focus to the few critical must do activities.

Often with fewer resources than they had pre pandemic.

I would add to figure out how to generate sales and retain customers an extremely difficult selling environments. They had to address culture and to the extent bad deficiencies in their culture those get amplified in times like these and most recently most everyone of our clients is very proactively focused and thoughtfully addressing diversity inclusion and by.

Yes, I within their organization and through all of this all of this change in disruption the need for more capable leaders those leaders who can execute build trafton establish effective cultures has never been more important.

And you know these are challenges that are very important for all organization companies schools et cetera, and they view these as must win games.

And these are exactly the challenges, which we have focused and against which we've allocated in all of our R&D in and innovations investments over the past many years, our clients needed solutions to these challenges, especially during these times and because they had their all access past subscription or their leader and me membership they had the tools and resources that they needed.

So that first point, you know where on the the key must win games and we feel like we had the best in class content and tools to help because the second is that our decision to offer and supports the accessibility of our content solutions and multiple deliver modality is a unique and tremendous asset for our clients.

When the pandemic hit the need to address these must win games didn't go away in fact in many cases, it became more acute but overnight our clients need it entirely new inflexible ways in which to deploy solutions to address their challenges.

And they often needed to be able to do so globally and at scale our ability to offer everything we do live online digitally self paced and be a micro pushes not only a benefit to our clients, but it's also a significant competitive advantage for a company.

Our clients routinely tell us that we have the most robust and effective live online delivery capability of any of the providers with whom they work.

As Bob addressed this strength allowed us to pivot literally overnight and reschedule a significant portion of our canceled onsite delivery days and Additionally, as you stated in the Enterprise Division. The U.S., we're seeing new booking in June and July return to nearly the same pace, we experienced a year ago and as you would expect as we've talked about the mix has shifted almost completely to live on.

Line.

The third point in final point here would be that.

Our value proposition is extremely compelling to our clients each client and we talked about this in the past receives complete access to our best in class solution.

There are available on all modalities in a more than 19 languages around the world.

Each also received the expert services of an implementation specialist for a leader in me coach.

It was dedicated to ensuring that they receive and realize the behavior change and outcomes that they're seeking and all of this has offered to each client at a price per person train that is equal to or less than the typical cost of training one person in one content area and just a single modality.

The strength of this value proposition, including the fact that the price per user decreases as the path holding population increases.

It's causing many of our clients right now to make the decision to consolidate providers double down the Franklin Covey.

I'd like to just share briefly for examples recent examples of client to and how they're benefiting from this value proposition.

The first a major airline in the middle of this massively disruptive time felt that vital to train and retrained significant portions of their liter population.

They believed and bleed now that the capability of their leaders to engage employees lead through change and create a culture of high performance is going to be extremely important as they work for the most challenging environment they've ever faced and have to find new ways of succeeding.

Second example, we have a large consulting firm, we work with who double down on their commitment to achieve on time project delivery to free up and create more bandwidth to take on the addition of many new projects that are servicing because of covered my team.

And rather than pausing, therefore disciplines of execution initiative, which they were using to create this bandwidth and improve their efficiency. They didn't want to positive until they could bring everybody back live in person and they went ahead and aggressively move forward and are using our life online capability and we're engaged with multiple teams doing dozens of delivery.

Dave and coaching sessions right now.

For example, as CEO of midsize healthcare company chose in the middle of a highly disruptive time to continue with plans to reinvent their culture to make it more collaborative more innovative more inclusive and rather than pause there accelerating this initiative to to emerge even stronger and finally, one of our great New school districts in Newark, New.

Jersey, just recently made the decision to implement leader in me district wide signing a six year contract and they are using leader immediate immediately and proactively address the impact of coal bed that it is having on their school community to address uncertainty and to help with mental wellness and social emotional challenges among both our students and their staff and so.

For these reasons and others as Bob as mentioned, we believe that will emerge.

From this period stronger with a deeper and more enduring relationships and that will count even more clients as clients for life.

Bob I'll turn it back to you.

Oh, Thanks, Paul and very much Steve I'd like to the tourist Steve Young now just to address so kind of put our general view of the immediate and longer term future looks like premier vendors.

[music].

Thank you Bob and Paul.

So our fourth point.

In this presentation is it we expect to emerge from this period and resume our March up the mountain.

Being a company with high rates of growth in adjusted EBITDA and cash flow as we've talked about.

In April as you remember, we felt the circumstances or so uncertain and there were so many questions that we couldn't answer.

That we couldn't with confidence give guidance for the quarter or the year.

We also in that time said that we hope to have a better sense of where things were heading by this time by the time report Theres core.

We still don't know what will happen in the world in the coming months and year, whether world was shut down again et cetera, et cetera, and there's still much uncertainty about our expectations going forward recognizing the disruptions there may still be caused by.

But 19.

Therefore, well we're about to say is not guidance per se and includes many assumptions.

That said if the same trends that we're seeing in our business and what Bob and Paul I've talked about already today, if those trends continue.

Then in our fourth quarter.

We would expect adjusted EBITDA to be in the range of approximately $4 million.

This number reflects our belief that the enterprise divisions, all access pass subscription business will continue to do well on revenue retention and new pass sales.

But that due to subscription accounting most of that contracted and Invoiced revenue will not benefit the fourth quarter, but.

But will be placed on the balance sheet of deferred racking revenue to be recognized over time.

This estimate also assumes that the leader in me membership renewals will be relatively relative or a.

Well a temporary stop strong.

But like all access past subscription revenue most of this contracted subscription revenue will be recognized over time.

And that due to ongoing uncertainties in education related to school openings and budgets the number of new schools entered into and going through the live online onboarding process will be less than than what we'd expect next year.

Finally, this this number.

Adjusted EBITDA reflects that we expect the results in China, Japan, and our license.

In that work will continue to improve.

But to a level, which in the fourth quarter would still be significantly below the revenue and profitability levels that they achieved in fiscal 2019.

So that's how I look at the fourth quarter.

Second second if the current trends and progress were to continue.

Then we would expect that our adjusted EBITDA results in fiscal 2021.

With maybe a quarter or so of cushion would be directionally similar to the results we achieved in.

Fiscal 2019.

Switching to year in which we are adjusted EBITDA was 20 point Sixmillion.

And that our fiscal result in 2022, with maybe a quarter or so of cushion would be similar to the result that we expected to achieve this year with adjusted EBITDA of around 30 million.

So achieving such results, we believe would signal that we have resumed our accelerated climb up the mountain toward being a consistently high adjusted EBITDA growth high cash flow growth company.

So Bob that's.

What a look going forward.

Yeah, Thanks, real well now get ready to turn the time over to question, but just say in conclusion that.

No. It wasn't really express admiration and appreciation first to the all of the Franklin Covey associates in the middle of the storm the.

They're making more sales calls, albeit live online than ever before our implementation specialists are spending more hours our consultants have all.

Refine their skills that are teaching.

Or facilitating huge numbers of of of the engagement. So every week.

They've done it was tremendous X, one entire technology and and marketing and product teams have supported this are drawn a team it with the weekly micro push learning is has been able to adjust on the dying and keep relevant topics.

Front and center, we have launched new offerings.

And are about to launch some news that are really relevant including the unconscious vias offering that we launched year or so ago accelerating with a new best we expect to bestselling book based on preorders.

Lives Wiseman mobile players and so we're we're in a position where relative to customers there they're in a time.

In a position where many of them are looking for test fewer suppliers and getting more value from those who they do partner with and we think we're in a good position for that we also appreciate each of you and.

Recognize that to.

We all I mean really if we're able to accomplish what we're talking about now.

You know the net present value of the change impact of ideas.

Compared to where we were six months ago, when we purchased stock at $36, a share and and thinking it was worth more than that or you know really the net present value in our minds is a few dollars less but it hasn't fundamentally changed this and so I'm you know if I in April if I had thought we'd be in a position.

But the thing is today I would have been thrilled.

But still recognizing it's difficult circumstances I just want to thank everybody for put us in this position with that let's open it for questions.

Thank you Sir we will not begin to question answer session. If you have a question. Please press Star then one on your Touchtone phone.

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The first question the Q comes from Andrew Nicolas with William Blair. Please proceed.

Hi, good afternoon.

And that I just first first question just want to make sure I understood.

Comments correctly I think you said, yes, maybe.

About $20 million of what was previously estimated to be $30 million in revenue tied to onsite training coaching days that sort of thing what's postponing the quarter I just want to make sure that that I understood that correctly and then related Lee yes, if you could give any color on and how you'd expect that 20 million ourselves revenue.

Cash flow into the next several quarters.

Yeah. So first of all under yes that was that was right. If you look at 56 million. If we did last in last year's third quarter.

And subtracting, let's say the 22 million of a subscription revenue that we had this year that leaves you with little over 30 million.

Of the revenue that's not related to subscription, which it was subject to being impacted because it related to in one form or another two online coaching or delivery, except for that small portion that didn't so so if you net down the portion that was already going to be live online.

You know that brings it down to about 30 million.

And and.

Once you know at the time in April you know there was some some people were still in the office their offices, others expected to be back into their offices, but essentially all of that you know that $20 million just had to get moved that included both what was on the books and what was.

Alright within the pipeline about to go on the books in terms of the positioning of that.

No. We don't know exactly the percentage that will be kept we believe about 70% of those engagements will actually still be because they were tied to something important because the organization is going to try to get done will ultimately come in we will lose the difference that.

That won't I mean, we've named pick it up on new booking pace, but it won't be those same engagements being rescheduled. The majority of that has already been rescheduled and the rest of that is we're working to reschedule and so I think we'll end up.

You know with of that 20 will end up with say 14 million of that but ultimately it will come in.

In the combination of probably the for some in the fourth quarter and and the rest in the first quarter. Paul I don't know if you want to add any other.

Insight to that.

I think thats good Bob I don't have anything else health to add.

In some of it later, Sean and Education also where normally we would all happened in the summer, but with all the disruption.

So on some of that will now be in the first quarter.

Yeah.

Yes, some will be.

Scheduled in the fourth quarter, some that spend with schedule in the first.

And a little bit into the second and some that hasn't is still floating.

So trying to decide based upon school opening times.

Right got it.

Makes sense. Thank you.

Thanks, and then maybe bigger picture.

How do you think the current environment is maybe permanently affected clients preference between consuming content virtually as compared to onsite and then.

Tied up with that is there any way that we should think about the difference in revenue and profitability between in person in online delivery method.

Sure. Thanks, Paul do you want to dress.

Sure.

Sure.

In terms of the the permanency of maybe you know overall I think I think things are have shifted for sure and some of it will go back, but I think the amount that goes back it won't get back to where it was I think we'll see virtual delivery, what we call live online delivery will be something that will be here to stay.

One of the things that we're seeing right now and as Bob mentioned earlier in his remarks that we've had the capability to deliver that way for more than a decade by client appetite and interest in that just wasn't there if push came to shop they'd rather just you know just do it the way they've always done which is live in person on site.

And that was one of the things frankly that plagued us a bit in in March April early may is that our clients were thinking well if all things are equal we'll just wait until this pandemics gone and we'll get back together and in the summer early fall and that's looking maybe less likely they are now coming back, saying, Hey, we don't want to delay these important initiatives. So let.

Let's really take a look at doing them live online I think what they'll see is that that's a very effective way.

For us the net promoter scores as we mentioned are equally high actually slightly higher when we deliver live online live online and so I think we'll see more and more of our clients even post pandemic. When we're all hopefully back in our offices going about our normal business that clients will will prefer that in terms of if that happens and as that happens that doesn't.

That doesn't negatively impact us at all in fact.

Our revenue and margins are just as good on that business, it's actually a real win for the clients not paying any travel costs for us or for their own people and so there might be a chance for them to do even more training and more delivery and stretch their training dollars further either in the form of more delivery or in more all access pass subscriptions.

[music].

Because some of those budget dollars aren't going to words training.

One other point I, just make sorry, sorry, Bob and I'll stop as that.

Because it's convenient and people don't have to leave their office than we typically deliberate in chunks throughout the day for they might do two or three couple of our chunks and there's time to get worked on in between there is a scenario to where clients will do more of this kind of training and actually the volume of training might be higher.

In that environment than it would have been when we all have to travel somewhere and invest the time to travel and be there for a whole day and then go back to the job and so we don't know yet what the long term consequences will be but we see there could be a lot of positive there.

Yeah, Paul if I could that Sean.

Similar on the education side, I think there's going to be a significant chest.

And continuing wants to get back to normal and doing a lot more live online on demand training.

Occasion space was not.

As it das at the enterprise space.

And yet and the use of technology. So it's been a big come up and for them and they've.

I've been a lot of shifting a lot of investment in the technology.

And so I think on a net net net I think it's going to be real positive things for us because.

We believe a 5000 touching day the year a lot of these I think we'll go live online slas wear and tear on our people forget the scores are just as high Theres a lot less travel.

And leader me membership travels included so this would be a savings for us not to have to travel.

Right I think it's going to be a significant shifts and education will be tour I think it'd be helpful thing for us and our clients.

Great. Thanks very much.

Okay.

Great. Thanks, Andrea just one note that our margins would increase a little bit because we build through to the clients is travel revenue at no. Our reported margins. It doesn't change the dollars we reported margins would be affected positively a little bit because we get no margin on the trouble.

Otherwise it should be.

The same.

Got it thanks.

Thanks, so much.

Okay and the next question in the queue comes from Jeff Martin with Roth Capital Partners. Your line is open.

And Jeff Good afternoon, guys up there probably are doing system and wealth.

We are pure as well.

Thank you wanting to get a sense for me Bob what what the impact on add on services to the all access pass subscription impact has been have you seen.

And you see not.

And be weighed on like the like the live events have been impacted.

Yeah because.

Yes, a good chunk of what got you got moved out of the third quarter was actually add on services for a related to all access pass engagements just because again a lot of times, though invite you know they want somebody on site to facilitate a major.

Initiative with their senior leaders or whatever it is what's happened I think though is that you know you always thought you couldn't do stuff like online now lot of that shifting we hardly ever did any execution engagement. For example on big execution is initiatives like online and we're now doing those daily and the recognizing Wow. This is.

Is actually can be can happen just fine, but I think it's had the same short term impact, but again because the the service revenue that's attached all access past historically on the same store basis. So to speak same client basis, we were retaining 100%.

Of the almost 100% of the service revenue every year, that's been dented this quarter, but as we're now rebooking a significant portion of what we're rebooking is actually add on services for all access past that being done like online. So Paul if you want to add anything to them.

Oh, that's exactly right Bob.

Okay, and then with respect to their scheduling I'm curious to know little bit if.

And that transgression throughout the quarter did well you're doing any rescheduling of ER in person live events. We had a subsequently we book and then as online and then so just curious to know.

How that transpired.

Paul and Sean do you will address.

Sure I'll take a enterprise.

So yeah. Initially we as we mentioned we entered the quarter with about 34% more engagements on the books than we had a year ago. All of the vast majority of those were all live in person at the client location and.

Those all needed to be rescheduled and they're worth there were a few clients.

Early on we're saying, let's go ahead reschedule into Q4 and they went back on the books has live on site the client location, but we we.

In earnest started to try to work with each client to say you know why don't we did just just do this live online and so that's so so there are some that have gone out on the books and you know into later Q4. It into Q1 that are just the clients. It lets just pause and we'll do it live on sites, but the vast majority are back on the books now is actually live online and the mode. We've adopted is to try.

Hi, its to say the clients, let's get on schedule that way and then if conditions are such that we can't come on site you want that at the time lots of needed change for us to make so that we don't go through another raft of cancellations because we have all of these live on site days on the books that if cobot stays like it looks like it might for the longer.

We don't want to relive that experience again, so the vast majority they're out there are live online now.

Yes, Jeff and this is Sean and in our World It's about.

About two thirds.

Of the days, there, but going forward a live online it was more than that now line is starting to pick up in certain pockets certain states and some districts.

We expect that to continue.

That direction.

And as I shared before.

The majority of these days, but we booked in the fourth quarter.

Some went into the first and some are still pending decisions on the schools and districts.

Yes.

Okay, and then or is this at the same project like versus live online at the same arrangement in terms of terms and.

Revenue and margin impact or is there are there any differences.

It's the same it's essentially the same arrangement clients signed the contract has got the same cancellation terms to it be there's a slight difference they could they can bucket to be a day or they can do segments over the day, but once we're done delivering the engagement whether with a day of time our segments over a key.

Today's it's the same revenue and profitability to us as a company.

So at the client you experienced a slightly different but the economics are the same for us.

Great. Thanks, that's all for me.

Thanks, Jeff.

Thank you and then next question comes from Marco Rodriguez with Stonegate Capital. Your line is open. Please proceed.

Hi, Good afternoon, guys. Thank you hey, thanks for taking my question.

I'm wondering if yeah wondering if maybe you could talk a little bit more about the pipeline here, you've got kind of highlight at your back up to where your bookings in your pipeline was was I think at this time of last year can you maybe talk about what you're seeing aside that pipeline is there any sort of pressure from a pricing aspect or different.

The terms that are that are necessary.

To basically in Saxenda customers.

But Paul you want to just doesn't show sure.

Sure.

So what were as <unk> as we showed in that chart earlier on I.

Hi, Carolyn slide number now, it's probably around 15 or so but.

What we're seeing right now that the actual pipeline for Q4. The overall pipeline is not as full as it was at this point in Q4 last year, because we went through Q3.

And you know not as much was going in.

What were what we're showing in that that slide is that beginning in about may the amount that was now moving in though to the advanced stages of the pipeline is actually started to pace. Even with an is now ahead of what it was last year. So so if you take out the fact that there was less that went into the Q4 pipeline during Q3.

However, starting in about mid May and continuing all the way through June and July the rate, that's now going in and advancing its greater than it was last year. So so that's that's one of the you know we won't have sales is high in Q4. This year as we had in Q4 last year for that reason, but what's encouraging is that it seems like now and starting in may as our.

Sales people out there working with clients clients are moving decisions again more quickly than they were in March and April and things are moving into that advanced stage in closing actually for us at a little bit of at the pricing rates to the second point of your question.

We're not we're not in a we're not having to discount really much and certainly not anymore than we have historically as we get into a unique client situation depending on the deal where there are some situations, where we're choosing to extend some terms.

You know, we categorized all of our clients into kind of those that are in industries and situations whether a thriving.

Those that are disrupted and those that are kind of devastated and and so when we have a devastated clients like we have with clients that are in industries that are related to travel right now that's really hard for them. They need the tools, we have right now maybe more than ever and so we're trying to be as flexible as we cannot be a good partner because we're taking the view with all of these cloud.

Instead look work.

It's not just the statement that we want to be your partner for life, we really mean that and so we work very carefully with Stephen and.

Think about terms, we can extend and also look at our cash flow situation tied to do the best we can for each client. So we're we're making some of those decisions, but I would say that that's that's not what's driving our pipeline I think the pipeline is just the result of clients getting back in realizing that hey, we need to move these things forward, let's talk again, it looks like we might be in an.

Unsettled environment for awhile, but that's not have that slowdown what we're doing and so we're pleased by that pipeline momentum.

Thanks, that's very helpful.

In regards to the client partners, maybe update us on on the hiring plans for the remainder of this year and then possibly into an X. and if you could also maybe just talk little bit about the fact that obviously everyone is going through these.

Social distancing efforts I mean have you had to change your hiring practices and it's still kind of walk us through how that's working.

Sure Bobby on they'll take that one.

Sure Yeah. So so as you yeah. We're right now we're at 252 client partners and actually were up 25 from where we were in Q3 last year. So we've had meaningful addition over the past year and that's having not made any hires during during Q3. This quarter that just ended and we chose we chose.

The pause or hiring.

In Q3, Q4, and actually we're going to continue to keep that paused into the first quarter of this next year.

For one simple reason and that is that if we want to give these people that join US every advantage. They can and this is a difficult environment to get started in.

And so our plan right now is that will resume we're recruiting.

All resumed really recruiting in earnest in the fall and will prepare to have our next big crop of client partner start up and go through our sales Academy kind of our sales school in early January and then we'll be back toward normal cadence, where quarterly we're bringing in a good cohort of client partners. In Q2, Q3, Q4 next year and get back on that.

Pace of adding roughly net 30 client partners a year.

So we have popped it just primarily for that reason to give people the best chance. They can in terms of social distancing.

It was it was it just I'm sorry that was your question. It's also different thing on what that looks like from a sales person with their clients are inside our own company just good just restate that again.

Yeah, not just from the hiring aspects I mean, I would assume that most a at least prior the hiring was off face to face.

Yeah, Yeah create a few wells, so how that sort of changing.

Okay. Great question. So yes, we have hired a few people during this period and when we do a where I'd like you were on zoom 13 hours a day and so that as all moved to that environment and we've actually had a few replacements interestingly enough right now this at a time for us to be we're doing we're somewhat aggressive on the recruit.

Side at the moment, because a number of our traditional competitors are not fairing as well as we are we don't we don't wish them mail at all but that's just kind of.

The statement, a fact and so.

There's a number of people interested in joining Franklin Covey, and we have replaced where we've had a book of business that we felt really could help that would come they needed to tend to write away even in this environment and so we've done all that virtually we've actually adapted our sale school process and done that completely virtually as well and it's working really well in fact its informing some.

Changes, we think we'll make to that sale school when we resumed again in January in earnest. We think there's some things that will do more live online.

And because that will be beneficial.

Got it.

And then last question for me just circling back on later and me I'm just kind of help us think through I'm wondering about that program and its benefits.

So a score a school system, if if students are actually in the classroom.

Yeah sure.

Well, we think and what positioning it this way that is more beneficial than ever before.

We can we have a lot of digital materials and tools for example, their leadership guides.

Ask what all the students a different age groups right. That's been Albi for example.

Teachers could give assignments that could be the leadership guides online.

Digitally a lot of schools are wanting to buy physical materials and have them complete them at home as well like me down that way. We also have a lot of.

Digital tools for pads to support students at home.

So we you know everything we have it's been a life setting is now.

Available in live online or.

And on demand digitally so all the other materials are really in a good spot to do that we also feel.

One of the key things, we teach and leader me as a.

We empower students to lead their own learning that's really why the core paradigms that we haven't made or me.

So we feel that that will be.

Advantageous at a time like that's why we're going to be working with schools to say here are some ways in which you can further in power school students that home to take responsible if they're on learning.

And.

So that's going to be a big benefit as well the.

We've got this tool called leader Me weekly, which is a micro push tool.

And it has kept some suggestions every week, we're coming out with new ideas on how to virtually implant a leader in may for teachers for parents for students at home and entire <unk> entire focus of that team has gone to virtual implementation.

And so every week is that these bite sized videos applications suggestions.

Best Best case, examples et cetera.

Coming.

Relative to the to the schools so.

Anyway, I don't know if that answers your question, but that's how we think ran a good listening so did as well.

Hi, Thanks very helpful. Thank you guys are appreciate the time.

Thanks, Mark appreciate you.

Okay and the next question into Q comes from Samir Patel with Gladden capital. Your line is open. Please proceed.

Hi, there.

Hey, So first first question is for Paul on your slides eight and nine her nine and 10, I guess, it as where you're talking about the bookings and the pipeline. It just to be clear when you're talking about those bookings that's not including the rescheduling of previous a you know the previous onsite days right you're talking about axis.

New business I am I understanding that correctly.

Yeah. This is new business there might be a few reschedules in there depending on.

The client the client may have cancelled the previous.

Engagement and now they're booking something different with us.

But it's primarily but it's not but that's not halt not wholesale lets say this isn't counting like the stuff, where you had stuff in Q3 and went back to client and said, Okay. We'll do it Q4 and stat.

That's right.

Okay. Okay, just wanted to make sure I understood that thanks, and and Bob I guess, a higher level question.

Is he brought up the share repurchase and when I'm looking at you know where the stock price as well when I'm looking at kind of the things, you're saying about the ability to take even more share from competitors with regards to having a great online solution already with regards to the breadth and depth content in the modalities I mean, how do you guys think about capital allocation going forward right. I mean do you do you invest.

More on share repurchases do you actually kind of coming out of this accelerate your ramp up of new client partners to continue to take share I mean, just talk through that side of things like that I think you regret and great discussing the operational side, but like but I'd be interested in sort of the investment side of things.

Thanks first of all we're grateful that we have cash we Uh huh.

We reported we had drawn on our credit line just out of the.

Early on.

15 million and therefore, we kind of had around 38 million of cash in April and we still have approximately that amount today Oh, we have a new bank credit agreement that we have entered into yesterday and that will give us plenty of we'll we'll end up a retail.

There are not not paying interest from the extra 50 million, we don't need to be can draw. It anytime that we need to so we think we'll have plenty of capital for us the investments.

We'll be we tend to use capital during three quarters of the year just for working capital and so as we.

As we believe that sales will start to ramp back up and we'll need some of that for working capital, but beyond that I think it using they noted that we have a brand new offering coming out.

Here in July.

Well the players content from was why isn't the same coming on for several years. That's in there too we have significant investments, we're making on the technology said not because of this circumstance but were.

What were you know obviously continuing to do that in into the portal investments.

We are hiring salespeople that we've gotten.

As Paul mentioned there or.

Even though the big just recruitment hires will be a in Jane.

Just started in January.

Thinking you we are picking up people opportunistically.

And we think they're going to be some good opportunities true to gain some additional content and tools and things from people, who just are not able to scale.

In this environment. They may have thought they can work their way through so I think in the intermediate term you were going to preserve cash but in that would make those kind of investments otherwise.

The preserving cash to make sure that we whatever the opportunities looks like in the future or whatever the uncertainties are that we'll be able to continue to plough ahead, and we've been able to keep older people busy in employed throughout the <unk>.

Understood and on the content side I mean, you guys mentioned for example, diversity and then some of your clients shifting to.

You know having to have that remote work environment. I mean has that impacted your new content development in the sense of are you focusing more on maybe some of those areas take or clients are valuing right now.

You know, we already thankfully had and so no upcoming beyond there were two things the two things that I'd say that weve doubled down on one is the the.

On Gianna, we're working on it you know some enhancements to John that that will connect the weekly newsletter to all of our digital libraries that said it was always the plan and that might be a thing that we're accelerating because of this the other thing that we did accelerate we spend a little money on is saying gosh with all of our great consultants and labeling fighting.

During the thing and us being good at it really good at you know we're going to we've made some you know not I mean hundreds of thousands those investments and making sure. We have professional backgrounds. The right you know power in the in their laptops et cetera, but otherwise I think we always have a technology math and this is just reinforced our.

<unk> commitment to something we already which are there as to what your plans.

Gotcha. Thanks appreciate it.

Thanks sooner.

And we do have one last question into Q from Dot com.

He is with B. Riley your line is open. Please proceed.

That carry yeah, yeah, great Bob how are you.

Great. Thanks, Yep Yep, just medications segment with the retention rate expected to be around 80% for for the ended the year.

I was curious are the lots clients are they completely going away or could we see some of these renewals just being pushing completed in early part of that by 21.

Great question, Sean do you want to address your perspective.

Sure.

Yeah, I think that.

The loss clients are all many of them are reclaim mobile.

We're really pleased that we're going to come in over 80%.

Many of them the aren't are saying, we love you guys.

We're not sure what's going to happen with their budgets are one we're gonna start apple or how we're going to start up so can we pushed pause.

So we've got we've developed.

A little package of pause.

County, anything, but we're not pushing them outside of the community either they've got a big group of schools in that bucket.

So.

That's that's the primary thing we're seeing is just.

You know the.

Many of these schools just have this uncertainty and volatility it's changing week to week right not sure if they're going to open and then it's going to be it kind of a chaired schedule are going to come every other day part of the day.

And they're dealing with so much of those that so many of those things, including things like busing.

How they're going to handle by saying that a lot of them of just said you know what we really like this way and that's where the long haul we want to push by push pause or wait until the first quarter.

I expect that this year's renewal rate after factoring in next the first quarter will be very comparable to the 88% we've been at historically.

Give or take a couple percentage points.

Got it kinda that's very helpful. And then just one question very pristine really appreciate.

I guess, the general direction area expectations for both the longer term in terms of 521 enough by 22.

I guess for those adjusted EBITDA targets that you laid out there today, how should we be thinking about the revenue line I know your prior adjusted EBITDA targets were assuming kind of a high single digit growth.

Just kind of curious as to how you're thinking about revenues in order to achieve.

Adjusted EBITDA targets.

Well exactly I'm not prepared exact a forecast if you will related to revenue, but but as you know when there's a recession or pandemic impacting revenue goes down then you normally accelerate that at a higher rate of growth. Then then what is normal or typical so.

So we would it we would expect for example, Q3 of next year to be more than eight or 9% revenue increased compared to Q3. This year or Q4, but then when we get back to comparing to 19 and.

21, 22, where we're growing EBITDA at about that 10 million range clip then that would be based upon an organic growth rate still have around high single.

Jet growth.

I'd be able to create that type of a flow through to adjusted EBITDA and cash.

Got it that's helpful. Appreciate that well. Thank you that just one other thought on Oh, sorry that nothing here I just.

One of the thought as you know that if you just think of the eat the EBITDA target and then assume that that's going to be a as.

<unk> business model and EBITDA margin that will be increasing by 300 basis points year.

I would say, we'll find by the time it hit to 30 million, we would have thought.

You know this year. It was a 30 as reported would be on somewhere around 245, so little bit about 12% EBITDA margins, increasing by 300 basis points year. If that's helpful. So you can kind of back into the revenue from the EBITDA, but that's probably about what it would relate to by the time to get to 22.

20 to 30 million to be but the it'd probably be a 14% from 15% EBITDA margin.

Got it that's really helpful well, thanks for taking my questions and a best Elektron part.

Thanks, so much that thank you.

We have no further questions at this time, so I will now turn the call over to Mr., Bob Whitman for closing remarks.

Thanks, again, just want to express our appreciation to each of you you've been great partners for all these years, we we hope we've been great partners and we are excited to continue the journey together, but would for to answer any questions. He has individually and then thanks again for joining today stay safe and well thanks.

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

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Hello, and welcome to the third quarter Twentytwenty Franklin Covey Earnings Conference call. My name is Michelle and I would be the operator for today's call right.

At this time all participants are any listen only mode. Later, we will conduct a question and answer session and during the question answer session. If you have a question. Please press Star then one on your Touchtone phone.

Please note that this conference is being recorded.

I will turn the call over to the corporate controller dairy catch Sir you may begin.

Thanks Michelle.

On behalf of Franklin Covey, I would like to welcome everyone to our conference call. This afternoon to discuss our third quarter fiscal 2020 results before we get started I would like to remind everyone that this presentation contains forward looking statements.

Within the meaning of the private Securities Litigation Reform Act of 1995.

Forward looking statements are based upon managements current expectations and are not subject and are subject to various risks and uncertainties, including but not limited to.

The ability of the company to stabilize and grow revenue the duration in the intensity of the cobot 19 pandemic candidate.

Corresponding recovery from the pandemic.

The acceptance of in renewal rates for the all access pass the ability of the company to higher sales professionals general economic conditions competition, and the company's targeted marketplace market acceptance of new products or services and marketing strategies changed in the company's market share changes in the size of the overall market for the company's products.

Changes in the training and spending policies of the company's clients or other factors identified and discussion the company's most recent annual report on form 10-K, and other periodic reports filed with Securities and Exchange Commission.

Many of these conditions, including the effects of the covert 19 pandemic are beyond our control or influence any one of which may cause future results to differ materially from the company's current expectations. There can be no assurance the company's actual future performance will need management's expectations.

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

With that out of the way, we'd like to turn the time over to Mr., Bob within our chairman and Chief Executive Officer Bob.

The Derek Thanks, so much.

Thanks to everyone for joining us today, we're really happy to have a chip talked with you.

Well beach of use doing well and that each of you is well.

Through the 90 or so days since we last reported in some of the most noteworthy in recent history.

Nationally and globally.

Well. Many this had been through a lot in the past none of US lived through time quite like this.

As a result, all of us whether individual schools, where companies are doing some uncertainties, we've never faced before.

Despite these challenges however were great well actually did I read in progress has strengthened.

As we're talking about today that many areas of didn't actually quite a lot Spartans a bit stronger than we might have guessed.

We believe this reflects our compelling strategy, our strong operations and in some cases, the relative firming up of the snow that we talked about.

And last call a in a number very is.

That's where we address later the rate of our progress leads us to expect that we will resume being a very high growth high EBITDA growth high cash flow growth company.

As we have been in the past quarters as we move beyond this period.

I want to jump probably didn't start out by reviewing a results for the third quarter.

We entered or just see context, we entered fiscal 2020 with it was strong momentum.

Having seen revenue grew 15.6 million are suddenly they have for said.

In 2019, and having seen adjusted EBITDA increased 8.7 million or 73%.

Expected this momentum to continue is being driven by the things that we knew it was should be driven by and even accelerate in 2020 <unk>.

As a result, we expected revenue growth in the high single digits meeting $18 million to $20 million with adjusted EBITDA and cash flow expects to increase between 30 and 35, 50%.

The year to between 27 and 32 million.

Consistent with this plan and the expectation for 2020.

Just as reference point slide three through the second quarter ended February we had.

We had very strong year to date result.

To date revenues ended up 7.8% subscription and related revenue has grown 22% to all exes past.

<unk> revenue has grown 25.

Adjusted EBITDA had already increased 4.9 million or 180%.

Cash flow.

I appreciate give you just increased 4 million or 30% to 17.4 million that meant that we just 12 months tradition for the second quarter.

Steve ahead, EBITDA had increased 9.4 million were 59%.

Reaching 25.5 million.

We just 12 months really almost getting its in the lower end of the range expect buyer for your initial 2020 guidance from 27 to 32 million and that with our two historically strongest quarters, Joe ahead of us.

With that performance, we ended the third quarter with the expectation that you'd be actually the high end.

Have a this years adjusted.

Cash generated range.

Give me that background only to say we were grateful to start you know that we were on track had been on track. We entered the this time as strong strategic we operationally and financially with significant liquidity.

[noise]. However in April we reported on our strong second on these results the external environment. Obviously is one of the significant and constantly changing in certain <unk>.

How would just how we'd cogan.

Vivus, probably my team virus and its related stayed home restrictions impacts society at large.

It's like individuals businesses in schools.

And obviously really much of this uncertainty remains.

These factors had a significant impact on our business the third quarter as you can see in slide four.

Our revenue for the third quarter was 37.1 million.

That was down 18.9 million compared to 56 million in last year's third quarter.

As we will discuss in further detail.

More than 100% this decline in revenue, resulting from the need to reschedule coaching and training gauge it'd been schedule alongside a client locations. We said, we're not possible to deliver do stay at home restrictions.

Actually the majority of this decline occurred in our international operations, where our offices in China, and Japan and in many of our licensees were closed due to strict stay at home orders for much quarter.

As we will discuss in a minute.

We have been able to <unk> many of these gate engagements live online.

We only expect to retain and really not lose the vast majority of revenue that required rebooking.

On the other has who will discuss more due to pale in the minute also our subscription revenue proved to be extremely durable even in the middle of the pandemic concern I think you know you taking those two points almost all the more than 100%. The impact was as a result would not be able to carry out like trading.

And consulting events.

Which thankfully we've been able to reschedule the bulk of live online and thankfully the other part of our business and subscription side what doesn't the.

Activities, which really don't affect the quarter.

Because they're just put on the balance sheet for subscription accounting actually would change straight we'll talk about that more in a minute.

Our gross margin remained strong even increased 246 basis points to 72.3% in the quarter.

Also as you can see increased 214 basis points year to date, and 131 basis points for the ways 12 months and they these increases reflect the increase share of revenue related to high margin subscription sales.

A third SGN aim.

We have a highly variable in performance tighten cost structure.

It was designed to flex meaningfully to provide a significant offset if there were any at any time, an offset to revenue gross margin in a downturn.

Did as shown up pretty S.J. declined 6.1 million in the quarter offsetting 48% of the 12.8 million declining gross profit the corner you quarter related to the need to reschedule These onsite engagements.

Forced adjusted EBITDA declined 6.7 million third quarter.

One thing that the 12.8 million declining gross profit was meaningfully offset by that decline in operating as Tonight, and finally cash flow from operating activities remain strong through the quarter at 18.7 million.

Stepping back from his I'd like to.

Address for key takeaways that I hope, you'll find useful as we unpack these members and provide some important insights.

Takeaway one noted is more than 100% of the decline in revenue.

And adjusted EBITDA in the third quarter.

Resulted from this need to reschedule revenue due to the worldwide stay at home restrictions.

As noted the majority of this.

Related to our international operations, whose offs, you're close to remote she's a quarter and who do not yet have substantial substrate subscription businesses Christian.

Thanks to our immediate shifted delivering coaching and training live online.

The capability, we developed over the past 10 years.

Schedule, a significant portion of the engagement from sadly rescheduled.

Share booking pace for coaching and training services gain very strong traction and accelerated since early early millions we believed that the area the biggest impact in the quarter that I'm happy to reschedule.

Is it was role on the way to being addressed.

Booking pace is we'll talk about more in the last.

Six weeks eight weeks as now regained the same levels, we had last year in the U.S. in Canada.

And so we believe that in coming quarters.

You know those.

That impactful will address itself, we continue to have weakness in China, and Japan, Although both are are increasing or improving for Q4 as well as and when you're licensee partners.

So the biggest challenge we believe is on the way to getting address second.

Is that our subscription business has been strong durable.

Even in the middle of the pandemic.

The rapid growth where subscription business, obviously has driven our accelerated growth in adjusted EBITDA and cash flow over the past several years.

And even in the third quarter subscription revenue grew significantly in.

And contractor invoice subscription revenue also continued very strong throughout the third quarter and has accelerated further in June.

Third <unk> takeaway is that this strength in the middle of the storm is not just by happenstance that is based on deep strategic and operational routes, including the importance of the challenges which were helping our clients address.

Those haven't gone away in these times the flexibility of our offerings across a wide range of modalities loves to shift immediately.

Two were more than 80% of our new bookings are live online now and we're converting a bunch of deal the there.

And third the strength of our business model, which reflects on the downside, which has high flow through on the upside.

Finally, I will give the some.

Outlook has.

We expect going forward.

We do expect to emerge from this period, then be able to resume our aggressive march or no.

Being a high achieving high rates of growth in adjusted EBITDA and cash flow.

We believe we're establishing now that foundation for doing that.

So I'd like to just address each of these key takeaway. So you have some more context.

First the idea that more than all of the decline related to these or need to rebook more than 10 years ago, just after Sars actually.

We were concerned about it we met and allocated significant resources to developing very strong live online coaching and training delivery capabilities.

Not many other people were you had pure digital yet pure live on onsite.

We feel like you're really you need to be able to deliver this content, we need to be able to do it gets the same net promoter scores that we were getting and so we've tested this a lot and done a lot of this training.

More than 190 of our consultants across both divisions have the capability to deliver coaching training and impact journeys on both our own proprietary Adobe supported platform called like quick.

As well as on all the other major life platforms.

Like online platforms, including zone, Microsoft teams Webex and go to meeting.

Our consultants or expert at facilitating and delivering like online and actually they are in the same high seventys net promoter scores with or live online delivery that they achieved when delivering.

Live on site at client locations.

And actually have a little higher rating on the on the under question how likely is that you would recommend you're in structure.

Yeah, it's in the eighties height mid eighties anyway, but it's actually a point higher with it looks like online.

For years, we believe with the quality of our content and our consultants and their digital support tools. This live online capability will ultimately become a unique competitive advantage both relative to traditional like on site only providers and actually also too to digital only providers.

Despite that.

Vision at this though.

And despite our capabilities clients actually you typically continued to choose to have these coaching consulting engagements done lives on side of their business or school location.

Lester this is within the U.S. in Canada in last year's third third quarter, we started the quarter. The 659 and just this is an enterprise business 659 coaching and training engagements already on the books.

And added an additional 920 engagements for delivery in the third quarter, ending the quarter with almost 6000 coaching and training agents.

Thanks to all of them, we're we're for life onsite delivery and client locations.

Similarly, we began this year third quarter with 884 coaching and training agents on the books, which was 34% higher.

Last year's third quarter and again, almost all of these engagements reschedule leg onsite quieter school locations.

However, as we talked yet as we all know pandemic related concerns and stay at home restrictions made this onsite delivery virtually impossible during most of the third quarter.

This amended.

Substantially all of this third quarter revenue had either be rescheduled live online and typically not into the same quarter since.

Many countries in schools were just trying to get their bearings during the third quarter.

Addition, given the uncertainty as to when offices might reopened and uncertainty, which obviously continues the pace of new bookings of coaching and training agents was also much slower throughout March and April as many organizations triggered they'd be back in their offices by May or June and that just go ahead and do it live on site, Dan but has that started.

To.

Become more clear they've converters substantial number those to to live online.

These same factors had actually an outsized impact on our offices in China, and Japan, which were close for long periods of time Greens country multiple lockdown since he's there is traditionally had done very little live online or digital trading and Didnt have a large base, while it's just past subscription revenue to provide revenue stability.

We knew that our international licensee partners was experienced similar challenges in the house.

The amount of revenue that was involved in these onsite engagements. They had to be rescheduled was very substantial totaling approximately $30 million across the company Lat am it last year.

It would have been 30 million plus this year.

As I mentioned because of our investments in developing strong live online delivery capability, we moved immediately to provide.

Many live online client demos daily all day long teams were showing clients how good work they were surprised by how engaged unit was.

Many of our training agents, therefore that we lost have already been rescheduled we're in the process of being reschedule.

And we expect that a significant majority of these onsite occasions, which had been postponed what was only be scheduled and not lost and not displace other revenue.

However, finally, even without a rapid response more than 20 million of the revenue of that over 30 million had to be a reschedule just wasn't possible deliberate.

And that represented more than 100% of the company's totaled declining revenue in the quarter.

And as significant as mentioned notable.

Unusual amount of that occurred in our international offices.

If you look at.

[music].

Sorry go to as shown in slide eight.

You get an idea the mix of this.

Whereas our international operations, you can see their account it accounted for 29% of our revenue during the third quarter fiscal 2019.

These operations accounted for 5.3 million of lost contribution in this years third quarters. This is kind of looking at the EBITDA impact by contrast, our U.S. Canadian operations, which accounted for 56% of our total enterprise is the revenue in last year's third quarter accounted for only 1.4 million over.

Juice contribution.

And this again as a reflection of the strong subscription orientation in the U.S. in Canada.

Our English speaking.

International offices.

And the earlier stages of subscription development in China and Japan.

We're pleased that I mentioned at the booking momentum for new coaching and training engagements. However.

Has increased significantly and 80% of those new bookings are now live online.

And it's really accelerated over the past two months and is surprisingly now tracking ahead of our booking pace at the same time last year.

As you can see in slide nine just to give you some visibility on this.

You can see the pickup of the booking of new coaching and training delivery engagements beginning in mid April.

As shown since then bookings have accelerated.

As a result in the U.S. in Canada, we are now back to booking levels nearly equal so those being achieved last year at this time.

Also on the same slide nine you can see that our mix of delivery on new bookings has shifted to a approximately 80% live online now and so we're getting the same pace.

Bookings almost as we had last year at this time, despite ongoing uncertainty and people are very willing we doing like online and we think this is important.

In addition to an improving coaching and training he booking pace at booking pace.

As you can see on slide 10, we're also very encouraged by the pace of additions to our overall advanced stage pipelines and this consists of both invoiced revenue and deals which are in our calculations very very highly highly likely to close either 90, 585% to 95%, depending if it's a or b step.

Yes.

This this.

Trend began pacing ahead of prior year starting in mid May.

And as accelerated pace has continued through July today, and so so the things that are not recognizing their third quarter and things that I recognize really didnt have very much to do as the quarter itself or what was generated in the quarter. We had deferred revenue already on the on the balance sheet that was coming in we knew we had all these bookings.

I couldn't be delivered on site and that's really the story of the third quarter. However, the important thing for us looking forward.

The activities and booking pace on things that when booked really go on the balance sheet and don't have an impact much in the third or fourth quarters that build the foundation for for next year.

We have been strong.

Second major takeaway.

It is related to this subscription business.

Which again didn't have much impact at all in the quarter, except for the deferred revenue piece.

But has important impact on the future.

This is area in which we expect the field the least impact from the current pandemic you have an 84 million dollar pure subscription business, excluding add on services.

And as you can see in slide 12.

Our subscription revenue has grown from just 19.6 million 2016 to 18.9 million for the latest 12 months to this years second quarter.

With all access pass through tricks that ever growing from 11.9.

58 million and leader in me subscription revenue growing from 70.6 million 16 to 22 and a half million.

Subscription business has been characterized by rapid growth strong gross margins high revenue retention rates are very strong lifetime customer value.

And there's been a key driver behind the accelerated growth in adjusted EBITDA and cash flow, we have achieved over the past several years.

This strong growth and strong economics, together with a low customer acquisition costs, the lifetime customer value.

Has caused some of you to let us know.

That you believe that this part of the business alone, which represents about 40% of our revenue and that has been increasing by about 800 basis points a year.

It's worth at least five times its revenue we're.

Greater than 400 million just this portion of the business alone, which has been durable and we're not making stating opinion, but we believe that is a very robust business.

Importantly, as shown.

Total subscription revenue.

Well as both leader in the revenue continue to grow in the third quarter.

Can you could see increased to 84 million for the trailing 12 month, the latest 12 months through the third quarter.

And so this was strong 18% growth.

In the quarter itself.

I'll just give you some quick bullet point to data on the subscription business first are billed and unbilled deferred revenue.

We expect to that 100% of the 22 plus million deferred revenue was scheduled to be recognized in the third quarter wouldn't be recognized and all of it was you.

You can see that's broken into billed deferred revenue as slow as shown in slide 13, we had 47.9 million of billed deferred revenue on the books at the ended the second quarter.

Which is a 8.4 million or 21% higher than at the end of the second quarter a year ago.

As of this meant we expect can you get the full 22.3 million to the scheduled to be recognized that as we did as result.

Revenue in the third quarter increased 18% subscription revenue with all access past subscription revenue growing slightly higher 19% and leader in me growing 14%.

You see the Unbilled deferred revenue also on slide 13.

Where we had a balance of 34.8 million of Unbilled deferred revenue. The ended the second your related primarily to multi year contracts.

And that number was 39% or 9.8 million higher than the 25 million dollar balance we had at the same time last year again, we expected it substantially.

All of this would be in <unk> that was supposed to be invoice nucor wouldn't be invoiced and all of it was.

We had concerns the in the case the pace of decision making.

In the midst of all this would be would be held up now that would affect potentially renewals and new pass sales.

As you can see over into in slide 14.

Our renewals historically been very strong.

And in every case over the last night towards the latest 12 months.

Revenue retention percentage has exceeded 90%.

We had expected revenue retention rate during the third quarter ever would likely be lower.

Due to.

Just all the disruption.

Well, we weren't sure what to expect we're very pleased that despite the difficult and unusual business environment are all exes past revenue retention rate.

Was actually higher than 80% for the third quarter and with this strong performance. Our latest 12 months revenue retention actually exceeded 90% again for the 10 straight quarter.

Subsequent to the ended the quarter, we've actually had a couple of other accounts come in that were delayed and weren't counted in the quarter. Good actually boost that revenue retention a bit higher.

Second we were concerned that the invoice sales of all access passes to new organizations are new logos.

The Asia Pac kit, but again it has continued to be strong.

As you can see in slide 15.

The sale of all access passes to new logos continued strong during the quarter coming in at 92% of level. It. She have achieved in last year's Q3.

And USA and Canada.

And the sale of all access pass pass this new logos was even stronger in June and as a result as you can see also on on slide 15.

As a result, the sale access passage new logo companies for the four months March through June came in right at 100% of the level achieved for the same period last year.

Third.

The pace at which is all access pass holders entered into multi year contracts has also been strong.

Well it might have been reasonable to expect the pure all access pass holders would entry into or the new multi year contracts during the third quarter with all the uncertainty.

As you can see in slide 16.

The dollar amount as multi year, all access past contracts actually increased a little bit to 3.9 million.

From three and a half million last year's third quarter, and our balance of Unbilled deferred revenue increased 33.4 million from 23.7 million at the end of last year.

As a result.

The combination of maintaining high revenue retention and entering into new logo sales.

Our our invoice subscription revenue.

As a total was 86% of the amount we invoice in the prior year is 11.8 million versus three points 13.7 last year and again, if you look through June on things that renewed just a little late.

That that gap close even further.

In Education Division.

Approximately historically, 88%.

A leader in these schools and U.S. in Canada renewed their leader me subscription membership in any given year.

The vast majority of these renewals have occurred during our fiscal third and fourth quarter's matching schools budget cycles and so this year, it's right in the middle of the storm.

With more than 2700 leader in these schools to remove.

It might not have been unreasonably interest into the renewal rate would drop substantially.

As you can see in slide 17, the true tremendous disruption in schools in March when when schools and their administrators are scrambling to teach light online and ensure.

Those who depended on school meals could still pick them up set.

So in that starting April with 967 leader leader in these schools had been renewed or committed to renew their subscription membership that number was 434 or 31% fewer than at the same time in fiscal 2019.

However, our education team has been working around the clock and they've really made up very substantial ground. Since then.

As of yesterday. This July eight this number had increased to 1900 94 retains schools that have either already signed contracts or we're awaiting <unk> return of a contract which they've committed.

That's now just 141 schools worse or 8% behind.

Where we were at this time last year at present, we expect the school renewal rate will again end up at greater than 80%.

Flicking these schools strong commitment through leader in the program.

Finally, as expected sale of leader Didnt need memberships to new schools.

So I expect that would be impacted by the very challenging current environment has been.

As shown in slide 18.

Through July July eight 280, new schools had purchased or awaiting sign contracts on purchases New leader me memberships. This represents approximately 65% of the number of new leader and these schools. We had contracted at the same time last year.

Based on our current pipeline and taking into account the initial significant disruption marks and the fact that kind of move everything back about six weeks.

We expect it was a taste of sale of New school membership will increase and reach approximately 400 by the end of the fourth quarter. That's a number that 75% that number achieved last year. The number we would show very good about.

Factory views are very strong indication of the significant value schools place on the leader me that during the difficult periods. Since March one more than 1200 schools have renewed their leader in the memberships with all they had going on and 113, new as these new schools had become leader in me schools.

So I'm really pleased their subscription business remains to durable even in these times.

The primary impact on our business.

Which has been the inability to deliver training and coaching is is on the way to being addressed which is a very significant success with with a live online training.

Just quickly turn the time over to pull Walker to discuss our third takeaways that related to the factors, which are underpinning the strategic durability of the subscription business Paul.

Thanks, Bob and good afternoon, everyone.

Third important takeaway I want to talk about is that the strength and durability of our display of our subscription business really does have deep operational and strategic route.

There are three areas in which it's rooted first is the importance of the challenges that we help clients address and the strength of our solutions and addressing them.

Second being the flexibility and accessibility of our offerings across a wide range of modalities and a third the strength of our business model.

As you are familiar five years ago, we made the decision to move to subscription model because we believed it would be the best way for us to fulfill our mission and to serve and build the lifetime value of our client.

We felt that if we made the move dollywood, we'd be better a better and more strategic partner to our clients, but also created more profitable enduring in high growth business.

And while we've enjoyed high subscriber satisfaction and renewal rates from the beginning some have asked how resilient, we thought or subscription business would be in a downturn.

And as you know we've had a front row seat watching the answer that question play out over the past few months and we're very encouraged as Bob mentioned.

About how resilient are all access path and leader and me subscription businesses have been even in the middle of this pandemic.

I just like talk for a minute about why this resiliency why in the middle of this this current store into the enterprise Division contract nearly the same amount of new logo sale.

Chief more than 80% revenue retention and have even more clients entering the multiyear contract than last year's third quarter and similarly during the massively disruptive time for schools fly is education Division had more than 280, new schools purchase leader and me and nearly 2000 1900 94 later in the schools renew their contract.

Thanks.

We believe there are three key reasons that our revenue retention remains high at our lifetime customer value is also high in girl.

First among those is that we're helping our clients to successfully addressed some of their most important and intractable organizational challenges.

During the third quarter, our clients wrestled through the same historic challenges that each of US here on this call is experience.

They moved large populations of employees from their office or school to remote work environments. They narrowed focus to the few critical must do activities.

Often with fewer resources than they had pre pandemic.

I would add to figure out how to generate sales and retain customers in an extremely difficult selling environments.

It had to address culture and to the extent they had deficiencies in their culture those get amplified in times like these and most recently most everyone of our clients is very proactively focused and thoughtfully addressing diversity inclusion in bias within their organization into all of this all of this change in disruption the need.

For more capable leaders those leaders, who can execute build trafton established effective cultures has never been more important.

And these are challenges that are very important for all organization companies schools et cetera, and they view these as must win games.

And these are exactly the challenges, which we have focused and against which we've allocated all of our R&D and innovations investments over the past many years, our clients needed solutions to these challenges, especially during these times and because they had their all access pass subscription or their leader in the membership they had the tools and resources that they needed.

So that first point, where on B, the key must win games and we feel like we had the best in class content and tools to help hotels the second.

Is that our decision to offer and supports the accessibility of our content solutions and multiple delivery modality is a unique and tremendous asset for our clients.

When the pandemic hit the need to address these must win games didn't go away in fact in many cases, it became more acute but overnight our clients needed entirely new and flexible ways in which to deploy solutions to address their challenges.

And they often needed to be able to do so globally and at scale our ability to offer everything we do live online digitally self paced and via micro pushes not only a benefit to our clients, but it's also a significant competitive advantage for a company.

Our clients routinely tell us that we have the most robust and effective live online delivery capability of any of that providers with whom they work.

As Bob addressed this strength allowed us to pivot literally overnight reschedule a significant portion of our canceled onsite delivery days and Additionally, as you stated in the Enterprise Division. The U.S., we're seeing new booking in June and July returned to nearly the same pace, we experienced a year ago and as you would expect as we've talked about the mix has shifted almost completely to live on.

Line.

The third point and final point here would be that.

Our value proposition is extremely compelling to our clients each client and we've talked about this in the past receives complete access to our best in class solution.

There are available in all modalities in a more than 19 languages around the world.

Each also received the expert services of an implementation specialist for a leader in me coach.

It was dedicated to ensuring that they receive and realize the behavior change and outcomes that they're seeking and all of this is offered to each client at a price per person trained that is equal to or less than the typical cost of training one person in one content area and just a single modality.

The strength of this value proposition, including the fact that the price per user decreases as the path holding population increases.

It's causing many of our clients right now to make the decision to consolidate providers and double down with Franklin Covey.

Back I'd like to just share briefly for examples recent examples of client to and how they're benefiting from this value proposition.

First a major airline in the middle of this massively disruptive time fell that vital to train and retrained significant portions of their leader population.

They believed and bleed now that the capability of their leaders to engage employees lead through change and create a culture of high performance is going to be extremely important as they work for the most challenging environment theyve ever faced and have to find new ways succeeding.

A second example, we have a large consulting firm, we work with who double down on their commitment to achieve on time project delivery to free up and create more bandwidth.

To take on the addition of many new projects that are servicing because of covered my team.

And rather than pausing, therefore disciplines of execution initiative, which they were using to create this bandwidth and improve their efficiency. They didn't want to positive until they could bring everybody back live in person and they went ahead and aggressively move forward and are using our life online capability and we're engaged with multiple teams doing dozens of delivery date.

Phase and coaching sessions right now.

Third example, as CEO of a mid size healthcare company chose in the middle of a highly disruptive time to continue with plans to reinvent their culture to make it more collaborative more innovative more inclusive and rather than pause there accelerating this initiative to to emerge even stronger and finally, one of our great New school districts in Newark, New.

Jersey, just recently made the decision to implement leader and me district wide signing a six year contract and they're using leader immediate immediately and proactively address the impact of co bid that it is having on their school community to address uncertainty and to help with mental wellness and social emotional challenges among both our students and their staff and so.

For these reasons and others as Bob as mentioned, we believe that will emerge.

From this period stronger with a deeper and more enduring relationships and that will help even more clients as clients for life.

Bob I'll turn it back to you.

Oh, Thanks, Paul and that very much Steve I'd like to that sort of Steve Young now just to address so kind of put our general view of the immediate and longer term future looks like premier vendors.

[music].

Hi, Thank you Bob and Paul.

So our four point.

In this presentation is it we expect to emerge from this period and resume our March up the mountain.

Being a company with high rates of growth in adjusted EBITDA and cash flow as we've talked about.

In April as you remember, we felt that circumstances, where so uncertain and there were so many questions that we couldn't answer.

But we couldn't with confidence give guidance for the quarter or the year.

We also that time said that we hope to have a better sense of where things were heading up by this time by the time report this core.

We still don't know what will happen in the world in the coming months and year, whether world was shut down again et cetera, et cetera, and there's still much uncertainty about our expectations going forward recognizing the disruptions there may still be caused by.

But 19.

Therefore, well we're about to say is not guidance per se and includes many assumptions.

That said if the same trends that we're seeing in our business and what Bob and Paul I've talked about already today, if those trends continue.

Then in our fourth quarter.

We would expect adjusted EBITDA to be in the range of approximately $4 million.

This number reflects our belief that the enterprise divisions, all access pass subscription business will continue to do well on revenue retention and new pass sales.

But that due to subscription accounting most of that contracted and Invoiced revenue will not benefit the fourth quarter, but.

But we placed on the balance sheet of deferred racking revenue to be recognized over time.

This estimate also assumes the leader in me membership renewals will be relative rate relative or a.

Well a temporary stop strong.

But like all access past subscription revenue most of this contracted subscription revenue will be recognized over time.

And that due to ongoing uncertainties in education related to school openings and budgets the number of new schools entered into and going through the live online onboarding process will be less than than what we'd expect next year.

Finally, this this number.

Adjusted EBITDA reflects that we expect the results in China, Japan, and our license.

In that work will continue to improve.

But to a level, which in the fourth quarter would still be significantly below the revenue and profitability levels that they achieved in fiscal 2019.

So that's how I look at the fourth quarter.

Second second if the current trends and progress were to continue.

Then we would expect that are adjusted EBITDA results in fiscal 2021.

With maybe a quarter or so of cushion would be directionally similar to the results we achieved in.

ASCO 2019.

Switching to year in which we are adjusted EBITDA was 20.6 million.

And that our fiscal result in 2022.

Maybe a quarter or so of cushion would be similar to the result that we expected to achieve this year with adjusted EBITDA of around 30 million.

Consistently high adjusted EBITDA growth high cash flow growth company.

So Bob that's.

Well.

Look going forward.

Thanks, real well now get ready to turn the time over to questions, Let's just say conclusion that.

No it wasn't really express admiration and appreciation.

First of all of the Franklin Covey associates in the middle of the storm.

They're making more sales calls, albeit live online than ever before our implementation specialists are spending more hours are consult football.

Refine their skills that are teaching.

Or facilitating huge numbers of of.

The engagement of every week.

They've done it was tremendous excellence our technology and.

And marketing and product teams have supported this or John a team it with the weekly micro push learning is has been able to adjust on the dime.

<unk> sheep relevant topics.

Front and center, we have launched new offerings.

And are about to watch some news that are really relevant including the unconscious vias offering that we launched year or so ago decelerating with a new best we expect your best selling book based on Preorders.

Lives Wiseman mobile players and say, we're we're in a position where relative to customers there and they're in a time.

Yeah position, where many of them are looking for test fewer suppliers and getting or value from those who they do partner with and we think we're in a good position for that we also appreciate each of you and.

Recognize that to.

We all I mean really if we're able to accomplish what we're talking about now.

You know the net present value of the change impact of ideas.

Compared to where we were six months ago, when we purchased stock at $36, a share and and thinking it was worth more than that or you know really the net present value in our minds is a few dollars less but it hasn't fundamentally changed this and so I'm you know if I in April if I had thought we'd be in a position.

But the thing is today I would have been thrilled.

But still recognizing it's difficult circumstances I just wanted to thank everybody for put us in this position with that let's open it for questions.

Thank you Sir we will not begin to question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the Q you May press, the pound side or the husky.

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The first question into Q comes from Andrew Nicolas with William Blair. Please proceed.

Hi, good afternoon.

And I just first the first question just want to make sure I understood.

Comments correctly I think you said, yes, maybe.

About $20 million of what was previously estimated to be $30 million in revenue tied to I'm tight training coaching days that sort of thing was postponed in a quarter I just want to make sure that that I understood that correctly and then related Lee yes, if you could give any color on and how you'd expect that 20 million ourselves revenue.

Cash flow into the next several quarters.

Yes, so first of all under yes that was that was right. If you look at 56 million. We did last in last year's third quarter.

And subtracting, let's say the 22 million of subscription revenue that we had this year that leaves you with little over 30 million.

Of the revenue that's not related to subscription, which it was subject to being impacted because it related to in one form or another two online coaching or delivery, except for that small portion that didn't so so if you net down the portion that was already going to be live online.

That brings it down to about 30 million.

And and.

Once the time in April there was some you know some people were still in the office their offices, others expected they'd be back into their offices, but essentially all of that you know that $20 million just had to get moved that included both what was on the books and what was.

Alright within the pipeline about two on the books in terms of the positioning of that.

We don't know exactly the percentage that will be kept we believe about 70% of those engagements will actually still be because they were tied to something important. The organization is going to try to get done will ultimately come in we will lose the difference that you know.

That won't I mean, weve big ticket up on new booking pace, but it won't be those same engagements being rescheduled. The majority of that has already been rescheduled and the rest of that is we're working to reschedule and so I think we'll end up.

With that 20 will end up with they'll say 14 million of that that ultimately will come in.

In the combination of probably the for some in the fourth quarter and and the rest in the first quarter. Paul I don't know if you want to add any other.

Insight to that.

I think Thats got Bob I don't have anything else health to add.

In some of it relate to Sean and Education also where normally we would all happened in the summer, but with all the disruption.

On some of that well be in the first quarter.

Yeah, Yes, some will be.

Scheduled in the fourth quarter, some that's been reschedule the first.

And little bit into the second and some that hasn't is still floating and so trying to decide based upon school opening times.

Got it.

Makes sense. Thank you.

Thanks, and then maybe bigger picture.

How do you think the current environment is maybe permanently affected claims preference between consuming content virtually as compared to onsite and then.

Tied up with that is there any way that we should think about the difference in revenue and profitability between in person in online delivery method.

Sure. Thanks, Paul do you want to just sure.

Sure.

In terms of the the permanency of maybe overall I think I think things are have shifted for sure and some of it will go back, but I think the amount that goes back.

I'll get back to where it was I think we'll see virtual delivery, what we call live online delivery will be something that will be here to stay.

One of the things that we're seeing right now and as Bob mentioned earlier in his remarks that we've had the capability to deliver that way for more than a decade, but client appetite and interest in that just wasn't there push came to shop they'd rather just you know just do it the way they've always done it which is live in person on site.

And that was one of the things frankly that plagued us a bit and in March April early may is that our clients were thinking well if all things are equal we'll just wait until that's pandemics gone on we'll get back together and in the summer early fall and that's looking maybe less likely they are now coming back, saying, Hey, we don't want to delay these important initiatives. So let.

Let's really take a look at doing them live online I think what they'll see is that that's a very effective way.

For us the net promoter scores as we mentioned are equally high actually slightly higher when we deliver live online live online and so I think we'll see more and more of our clients even post pandemic. When we're all hopefully back in our offices going about our normal business that clients will prefer will prefer that in terms of if that happens and as that happens that doesn't.

That doesn't negatively impact us at all in fact.

Our revenue and margins are just as good on that business, it's actually a real win for the clients not paying any travel costs for us or for their own people and so there might be a chance for them to do even more training and more delivery and stretch their training dollars further either in the form of more delivery or in more all access pass subscriptions.

[music].

Because some of those budget dollars aren't going to words training.

One other point I, just make sorry, sorry, Bob and I'll stop is that.

Because it's convenient and people don't have to leave their office than we typically deliberate in chunks throughout the day. So they might do two or three couple of our chunks and there's time to get worked on in between there is a scenario to where clients will do more of this kind of training and actually the volume of training might be higher in that environment than what a band when we all have to travel somewhere in.

Invest the time to travel and be there for a whole day and then go back to the job and so we don't know yet what the long term consequences will be but we see there could be a lot of positive there.

Yeah, Paul I'd that Sean.

Just.

Similar on the education side, I think there's going to be a significant share.

And continuing once we get back to normal and doing a lot more live online on demand training education space with not.

As it das as the enterprise space.

And yet and the use of technology and so it's been a big come up as for them and they.

The been a lot of shifting a lot of investment technology.

And so I think on a net net net I think it's going to be real positive thing for us because.

We deliver 5000 touching Dave.