Q4 2020 Franklin Covey Co Earnings Call
Thank you for your patience.
[music].
In the company's most recent annual report on form 10-K and.
But first maybe provide some context.
At the onset of the 10 dynamic we communicated that although everything was in flux and was uncertain. We believe as shown in slide three as you can see there that that all access pass subscription and related revenue, we continue to be strong and durable.
Through due to the strength of our offerings in those countries and quality of our teams.
Their ability also to pivot to live online delivery.
We expect their growth would strengthen further.
As they accelerate their conversion to selling all access pass.
And then finally in Education Division, we believe which accounts for approximately 22% of total sales. We expect that we would achieve strong retention of existing leader in me schools and even the middle of the storm the existing schools would be committed and retain their subscriptions.
And hopefully we will find a way to add several hundred new leader in the school. Despite the huge disruption of the school environment.
So while they.
External environment has continued to be challenging.
We're pleased that as indicated on slide four.
As a result of turned out to be a stronger stronger than expected.
What we'd call a lead or predictive measure the lag measure which is actual invoice sales of service has also rebounded significantly significantly as you can see in the lower right hand corner of slide six.
Initially in the third quarter is 10, Demicks started bookings were reduced and the year over year dollar volume of services followed.
Recurring subscription.
As you can also see in slide seven which works on slide five.
This combination of strong all access pass subscription sales.
And the strong rebound in all access pass add on services has kept the performance of our core North American business strong.
With essentially all of the relatives relatively small decline in revenue in the fourth quarter being attributable to declines in our legacy facilitator materials order business.
Sales in these countries increased 70% to 7 million.
From 4.1 million in the third quarter.
Andrew expect to increase further to approximately 9 million.
In the first quarter and then we expect to continue to build that through the year back toward this $10 million to $11 million a quarter pace.
Finally, as you can see and slight eight.
In the Education Division.
Despite the extreme difficulty there environmental environment.
[noise] approximately 2200 existing leader in the schools.
<unk> their subscriptions and fiscal 2020.
Last year than last year's $30.5 million.
The SGN a cost related to.
Reduced sales volume.
A lot of it also reflected cost initiatives that we have been taking it that we've been implementing throughout the year.
Not specifically related to covert just didnt and implemented.
In the spring.
As part of our annual planning and Thats starting to flow through in the fourth quarter. Finally, the combination of these factors resulted in adjusted EBITDA coming in as we said at 8.9 for the quarter and $14.3 million for the full year.
I mentioned that we had very strong invoice and multiyear sales in the fourth quarter all access pass.
And renewals of subscriptions as the leader in the membership.
Around 40 million.
In fiscal 2023.
There is an illustration of that slide slide 14.
These targets reflect our expectation that we will achieve high single digit revenue growth, which is growth of approximately $20 million a year and.
And then on average approximately 50% of that growth in revenue will flow through to increases in adjusted EBITDA and cash flow.
So therefore, the growth of $10 million, a year or so and EBITDA with this high flow through we also expect to be moving toward and ultimately achieve an adjusted EBITDA to sales margin percentage margin of 20%.
In the coming years.
Of that.
So why is access all access pass the most important driver of growth in adjusted EBITDA and cash flow going for three reasons. The first reason is.
Is that it's the engine that has driven the vast majority of our growth in revenue and adjusted EBITDA over the past several years.
As you can see in slide 16.
And the left side issue.
All access pass related sales have grown from zero.
To $90 million.
Since 2016, I'm, a huge compounded average growth rate, obviously and absolute revenue growth of between 10 and $20 million of growth each year.
This growth in all access pass related revenue has generated the vast majority of our net revenue growth for the company overall and in almost every year and it's more than offset the runoff run off their legacy facilitator and onsite business, replacing that business with higher revenue per client much more much higher revenue per.
Client a much more resilient and retained revenue as we as you know.
All access pass related revenue has also been the primary driver of the significant increase in our gross margin from 67.4% in 2017, two overall, 73.3% in fiscal 2020.
And it's also accounted for substantially all of our growth in gross margin dollars. During these years, so that and so the first reason is it's been the growth engine.
The second reason, we think all access pass expect their most important driver of growth.
Is that all access pass is continued to be strong in good times and bad throughout this pandemic as we as we mentioned that you can see on slide 17.
Can related coaching subscription accounts for approximately 80% of revenue Ineducation division. So it's already substantial but it'll continue to increase in those operations put you've already made the conversion. The other reason why we believe a pay is the most important driver because in the parts of the world that aren't yet.
Primarily subscription all access password later me, we expect that they will become so we expect that the approximately 36 million of annual revenue that's done in our international direct cough schism among our international licensee partners for today, all access passes just nation and.
Is just beginning.
We'll know accelerated quite rapidly and over the next year, you'll see the majority of that 36 million add to the growth of their subscription revenue and then and it'll then we expect have the same durable recently and properties that we have elsewhere.
In terms of the the second question then if you look at the slide 20th May I ask Paul Walker to address this is what's behind this resiliency in both all access pass and leader in me Paul Let me just turn the time to your apology noise or present, and she tried putting off soon and they call on.
Sean Covey and Gen Colosseum also to William.
Thank you Bob and good afternoon, everyone. So yeah to the question you know what is behind all access passes strong resiliency in it's in its durability and our experienced that there are three key reasons why all like this passage both growing rapidly and at the same time proving to be quite resilient.
During the pandemic our clients are wrestling through the same store challenges that each of us is experiencing.
They moved large populations of employees to remote work environments, they're attempting to get their remote teams to focus efforts on the most important must do activities.
They're working hard to increase revenue and retain customers and they're rapidly trying to enhance our culture, including thoughtfully addressing topics such as diversity equity inclusion and bias and in this environment of course, the need for more capable leaders has never been more important.
And these among many others are are what our clients see is really must win games for them, they're very important challenges that they're trying to address and helping our clients successfully address challenges like these and doing it at scale is exactly where Franklin Covey shines.
Anyone is just a simple graphical representation of these three but the first is a financial services firm.
And they saw their sale fall swiftly and dramatically in the early stages of the pandemic dita.
Deterrent they determined that one of the most important priorities had to be equipping their large sales organization with skills and tools necessary to increase conversion rates and shortened sales cycles.
As a result at the same time, they were cutting costs everywhere they could.
They not only expanded their all access pass, but they chose to extend it for three additional years, knowing that they were going to need access to that content not just for one year, but for for a number of years to complete the transformation they were they.
Thereafter, the second is a hospital system.
And experiencing like many hospital systems have a significant decrease in revenue due to a pause in elective surgeries. They tripled the size of their population covered by the all access pass and they extended their path for an additional three years.
They are they recognize that there is no time when strong leadership is more important than in times of serious challenge and they felt it was essential to equip their frontline leaders with the tools they were going to need to respond.
And then for Margaret Education Division, we had a large school district in Texas. This is a cool story they implemented leader in me and two of their 20 schools and initially thought they would need to put leader in me on hold to that they could direct.
Resources toward technology to prepare to deliver school virtually.
However, the superintendent who had some children and a leader in me school in the district and was had a front row seat to how leader IMMU was helping not only the students but also the faculty in the school that were using its decided he needed to find a way to keep leader in me in there and they were able to get creative and and allocate funds differently and they freed up enough funds to now.
Not only continue with those two schools, but they actually expanded leader in me to all 20 schools in the district and we're now engaged in the implementation of those with them.
And so these examples highlight the important challenges that our clients face and their commitment to utilizing Franklin covey solutions to address them.
Hundreds of organizations have sought out renewed expanded and extended their all access pass and leader in me memberships during the pandemic today and while I wont take the time to review them. All here you might find it enlightening to read some of the additional examples related all access pass on slide 22.
And then some of the leader in me examples on slide 23.
The second.
Contributing factor we believe.
The reason why all access pass and leader May continue to be strong and resilient and durable is the fact that our customers can use these services and solutions.
To to the credit Thats very flexible for our clients to deploy them and they also have a very strong value proposition.
Just to speak to a minute about flexibility.
This is offered at a price per person trained that is equal to or less than the typical cost of training one person and one content area and just a single modality. So the strength of the value proposition and the flexibility I. It's it's resulting in many of our clients, making the decision to consolidate providers.
And significantly increase their business with Franklin Covey.
It's driving deeper stronger more pervasive and enduring relationships with our clients and as as you see on slide 25.
This competitive advantage enables us to significantly increase the average lifetime value of a customer.
Finally, I'd like to to you know as it relates to what's behind the strength and resiliency I'd like to speak to just the business model itself and white create so much durability for Franklin Covey structural durability for Franklin Covey.
Of course, the most important source of durability and resilience comes from meeting clients needs in a way that allows them to make the progress they're seeking and when this happens we create clients for life and that that's really our mantra, we want to maintain these clients for life or content solutions, our value proposition and client engagement processes are all for.
<unk> and point at that primary objective.
And our subscription model also creates a more profitable durable and high growth business for Franklin Covey.
In addition to the all access pass subscription our business model provides clients with easy to access coaching and training facilitation services now as Bob mentioned earlier. These are delivered almost entirely digitally or live online.
The model also encourages multiyear contracts, which established both greater visibility and increase structural durability is shown I'll also on slide 25. The average all access pass holding organization purchases approximately 44 cents of add on services.
For every dollar a subscription revenue.
Indicative of the value, which clients place on these services is that our annual same client service Street revenue retention rate as Bob mentioned to mitigate a minute ago was exceeded 90% of very high retention rate for services, which also is consistent with the very high retention rate, we have for all access pass subscription revenue.
And and more than one third of all access passes they are for multiyear periods and he's multiyear contracts or firm there and unbilled deferred revenue associated with these contracts now totals $38.5 million.
And as with our one year all access pass contracts the contractual amounts of Unbilled deferred revenue or build one year in advance and so as you can see and hopefully get a feel for for this that the all access passes it's really proving to be.
Strong and resilient and durable and a real asset for our clients and bobble turn that back over to you.
Thanks, Paul very much so I'll just now turn the time to Steve at two review our guidance networks Steve.
Okay. Thank you Bob and pollen good afternoon, everyone. It's nice to.
Be with you today.
As you recall when we reported our third quarter results. We said there because there was so much uncertainty.
And the external environment, our outlook would not constitute guidance.
The external environment continues to have substantial uncertainty.
However, given the four quarters of additional.
Four months of additional.
History that we have and the fact that we continue to see positive trends in the business driven by the strength of the all access pass.
We now feel that we can provide guidance for F y 21.
Guidance for F. Y 21 is that we expect to generate adjusted EBITDA between 20 and 22 million.
This result would reflect in approximately 50% increase and adjusted EBITDA next year compared to the 14.3 million of adjusted EBITDA achieved in F y 20.
This expected grow three fix the continued strong performance.
A R North America operations.
Who are all access past unrelated sales account for approximately 80% of sales.
Underpinning this guidance are the following expectations.
First the recognition during FY 21 of more than six to 8.6 million of deferred revenue already on the balance sheet.
And a portion of the 39.6 million of unbuilt differ for revenue, which has been contracted.
This provides significant visibility into our revenue and gross margin for F y 21.
Second in addition to the recognition of the deferred revenue the factor, which is expected to have the greatest impact and R. F. Y 20 run result is also one in which we have high confidence and that is the strength of the all access pass and related sales.
We expect that all that all access pass will continue it to achieve one strong growth in both sales and invoice sales.
Two high river revenue retention rate.
Three strong sales of new logos.
And fourth continued growth and growth in past expansion.
And multiyear contracts.
We also expect that all access pass add on sales will continue to be strong.
Driven by this N F Y 21, we expect our operations in North America to achieve an adjusted EBITDA level higher than in F y 19.
And even somewhat higher than what we had originally expected to achieve in F y 20.
Third underpinning of guidance as we expect a revenue in Japan, China and among our licensees another international will continue to strengthen.
The increase in all access pass, which we expect to achieve in these countries will of course result in a portion of those new sales being added to the balance sheet is deferred revenue.
And our for Thunder opinion of guidance as the Ineducation, we expect to continue to achieve strong retention of both schools and revenue among existing later than me schools.
In addition, despite what we expect will continue to be a challenging and budget constrained environment for education in F y 21.
We still expect to receive growth in the number of new leader in many schools beyond the 320, new schools achieved in F y 20.
So we feel comfortable with our this guidance for F Y 21, now a little bit about the first quarter of this year F Y 21, well.
We expect that adjusted EBITDA in the quarter will be between 2 million and two and a half million compared to 5 million last year.
<unk>, reflecting what Bob and Paul talked about.
Which is the strong performance mm bye.
By all access pass in North America.
Offset by the same general expectations, just outline for the international operations in education.
So we expect adjusted EBITDA in Q1, and Q2 to be less than last year.
And adjusted EBITDA in Q3, and Q4 to be significantly higher than last year.
Please remember that a big reason for this.
Is that.
Q1, and Q2 of this year will be compared to the very strong pre pandemic Q1, and Q2 quarters of last year.
While Q3 and Q4 of this year will be compared to the pandemic impacted Q3, and Q4 of last year.
So since last year was a tale of two halves. The first have been and I'm in my words extremely strong and then the second half of the year being pandemic impacted that's primarily the reason the while we succeed continued prov.
Strengthening of our results of this year still we expect to be down in Q1, and Q2 and up significantly in Q3 and in queue for.
So so that's how it guidance.
Just a little bit about comments about the internal targets beyond F Y 21 that that Bob also mentioned a little bit. So so as Bob mentioned and and as we just said we expect our we expect this year to follow.
Two between 20 and 22 million.
And due to the fact that we have extra extremely high flow through of incremental sales too incremental adjusted EBITDA.
And high single digit revenue growth, we expect their adjusted EBITDA would be around 30 million in F Y 22, and around $40 million in FY 23.
<unk> and his high acceleration to continue until we get to approximately at 28% adjusted EBITDA to sales margin that we often talk about.
What part of the reason I repeated as because it's important and and partly.
For you to know that.
Well, the while dramatic changes in the world environment could impact our expectations.
We wanted to share these as our internal targets and assumptions and also wanted to share that not only are these are targets, but when you read our proxy you'll see that full vesting over executive teams longterm and sensitive pay a.
Wards depending.
Depend on achieving these strong multiyear growth goals.
Uhm so.
Discussion on on guidance, Bob turn it back to you or open up for questions.
I think that's it. Thank you so much Steve why don't we just open it now thanks, everyone will open for your questions at this point.
Thank you will not be getting the question and answer session if.
If you have a question please crestar and one on your Touchtone phone.
He wished opinion this really cute please pass the town site or the <unk>.
If you use the speaker phone you may need to pick up the handset first before pressing the numbers.
Again, you have a question. Please press star one on your Touchtone phone and the first question custom answer Nicholas familiar Blurry line is open.
Hi, Thank you Andrea actually it's actually cover Romeo and for Andrew Hi, Trevor how it is taking the questions doing what you guys are doing well too.
Just ask you questions here I think first one I think last quarter, you had mentioned about $20 million worth of training engagements that was.
Either postponed or delayed from third quarter, just wondering if if any of that was was recognized in the fourth quarter and what are you still expect about 70 per cent of that the ultimate maybe realized overtime.
Yep. It yes, I think the it's a little hard to track because we've found because the same clients that had things <unk> from the third quarter and canceled.
Sometimes it was a rescheduling of their exact thing they had another cases. They just went ahead with a different initiative or they did they do that was a new booking in so I think dividing exactly what it is.
We tend to do to kind of parse that but certainly the same clients that that.
Routine who are they renewed their all access pass.
And who did have the service in place are the same client sure now booking two services. So I think what's recognized the first little while we were able to track that they were in fact rescheduled engagements and we mentioned that we thought that about 70% of those engagements would reschedule because they were attached to it all exits past that.
The existing initiatives going and think that's really probably still right, but we're not able to exactly reconcile whether the whether it was exactly that group in that location or not and so I think the main thing is that our booking pace in an initial two weeks.
Weeks and maybe in the first month or so we could we could track. It now didn't didn't believe that now almost all of the the new bookings that we're having our in fact, all new ones. So it's hard to kind of parse that that too, but thankfully. It's the same customers and same clients moving forward and booking.
I had a pace higher now than even in last year. It was time.
Okay understood. Thanks.
And then just I guess, a follow up on the cost side, the bargains and a quarter. We're we're pretty solid despite the revenue decline over a year.
He pointed out of that number of expenses that were reduced some of which I assume are probably temporary some of what she said or you know already in the plan prior to pick Covid just wanted to ask how quickly you'd see where you would expect to see I guess some of those expenses come back online to the extent some of them are temporary and how much.
If you'd see any of those as as permanent savings going forward.
<unk>. Thanks, Great question I'd say the majority of these we think will be permanent here's the reason we every year had been pushing we have the school that Steve spoke about that is to get through EBIT margin of 20% <unk>.
And so every year, we well we don't expect to get there an ear every year, we take on projects and this year. We re did a lot of our I T infrastructure, some supply chain infrastructure, we redid part of or innovation.
Alignment and technology groups. We'd go challenged you know it as part of the normal business planning process in February and March a lot of those costs and there were millions have been taken out of that a million and a half ineducation just and permanent cost structure that part that will.
Come back.
Is that around 10% of error.
Got a commission I mean, if the commission expense, let's say is 15% about 10% of its truly variable the rest being yo drawers and so forth and so it was as revenue comes back in with that if this of this of the five plus million of costs that were lower than fourthquarter that related to a 15 million dollar decline in revenue.
You know a million and a half that would come back will come back in the form of commissions.
And our travel expenses, we think won't.
Need to recover you know to the same level they were before but because our sales forces actually doing very well that making lots and lots of sales calls, but that'll come back so I'm too and so if you think of it as the $7 million for the year was taken out a little less than half, but we'd probably two two and a half million will come back in and.
The rest are good would be a permanent reduction.
Steve I don't know if you wanted to add to that.
Or fix that [laughter] no no no fix it and I I think that's exactly exactly right uhm.
Okay.
Okay, great well. Thank you. Thanks for your great questions to thank you very much.
And your next question comes <unk> Rodriguez tell me capsule your line or something.
My Marco.
Yep Yep, sorry can you hear me.
Yes, and that we can set you hi, Margaret <unk>, Hi, guys, sorry, sorry about that.
I was wondering if maybe you can talk a little bit more Bob on this transition for the online delivery for on your training coaching maybe if he can talk to the the feedback you may receive from customers. You know what was it an easy transition there was some difficulties and then did you ever get any kind of sense that.
You guys could possibly transition that business to more of a permanent nature online when things return to normal or is this just sort of kind of a temporary solution to get in particular problem that everyone's operating under now.
Yeah, I'll, just get a little color and then ask Paul maybe give a little bit more but I think this is a capability that we've had for more than a decade.
And whenever we've implemented which is often in a circumstance where a team is a remote team or it's a team that doesn't work at all in the same location or it might include international teams whenever we'd done it over the years, our feedback, which we we we quit net promoter scores from the participants and about about <unk>.
<unk> about the material they went through empty and structure and it's always been very high but nevertheless people have just been you know had been used to doing everything on site I think people have recognized that actually we're getting the same net promoter scores on both of the <unk>.
<unk> and <unk>.
And on the content and maybe even a little higher because of the flexibility actually is good and so I think the fact that probably more groups will be working remotely in the future will mean that probably there's a permanent piece that will be for this will just be the way people do it I think also the flexibility where you're not paying the <unk>.
Travel costs, and having to get a conference room and people missing the whole day you can do these things break them up into three segments. During the day, giving a half hour in between these it gives people flexibility where they can actually we think more people are actually at a higher level in the organization were also attending the training. So I <unk> I guess is this will.
Be a permanent shift.
Of course people you know somebody will come back on site, but we think there's a permanent shift and this capability that we developed right. After actually the mirrors forget like we thought we'd need to really be good at this we have our own platform called light clicks that actually many clients prefer.
But all of our consultants and coaches uhm have always been able to do this on multiple platforms gonna become experts are doing it here. So Paul I don't know what color you to add to that.
You know I I I don't think I would've thought that was really complete maybe one one thing Marco is.
This has shifted permanently not not not all of it I'm sure some of I'll come back as Bob said back to live in person, but I think a substantial amount of this will be deliver in the future like it's being delivered today live online.
That we think that actually could be a driver of it.
More services for us in the future than what we saw in the past because will now have this blended mix of clients delivering live online and then so I'm still going back to the old way of life in person, but the net we think there's a net gain for us here and more services days in the future because of the new flexibility and the the way that clients can utilize these days and and and.
Why is it frankly, you couldn't up when it was in person. So we can proceed with a very positive trend.
Maybe alphabet, Marco just what's happening in their marketing event.
And also sales calls with salespeople so [laughter].
Yeah sure. So of course, the same thing is happening in the delivery for which we charge clients. We've also made the same shifted our marketing events and you'll know from past calls we've talked about the the hundreds of marketing events, we hold where people traditionally would gather in a hotel ballroom in and get an executive overview of one of our solutions and how can address the channel.
Ange they have we've converted all of those to live online and and the number of registrations in the attendance rate is is not a little bit more it's many multiples more than what we used to to drive to our live in person advances so from a lead flow standpoint, and an opportunity standpoint, there's there's a lot more discussions happening that is one thing.
That even as the when the world gets back to quote normal we're gonna want to continue to do I think we're gonna want them submit that shift to live online marketing events, because we can get to so many people more easily and then the same thing sure with our with our client partners Bob mentioned a minute ago the activity level to the client partners have not gone down in fact in many cases.
They've increased we we can get access to our buyers and potential buyers and our clients and they are increasingly becoming more and more comfortable engaging with us on zoom or whichever platform and and our people are quite good at that as well and so that's proving to be really really helpful or implementation specialists. There you know just all day every day on with clients on zoo.
Whom coaching and advising them and so this is one of the silver linings. Here is is it's it's we're developing new capability or finally getting to use capability that we've had latent that our clients weren't taking advantage of and I, it's accelerating the level of activity inside the organization.
Got it very very helpful. And then I'm not I'm not sure if I Miss Smith, what I'm I'm booking strength you guys saw on the enterprise side of the business can you maybe talk a little bit more about the drivers behind that is that just sort of a function of clients.
Like you had you had pointed out when the pandemic of kind of started that you know.
Kind of seeing some volatility in the password clients will just kind of press pause and try to figure workings are and then kind of resume on their normal way once they've kind of got it got in Atlanta land. So I'm wondering if that that is basically kind of helping that snap back into boogie shrink to use our or if maybe there are some other items some other sales and marketing items that.
Maybe you're you've been pushing here in the in the last few months it kind of bring that back up.
Paul.
Sure I think it's a combination of the two things you said in the early days back in March very early part of April there was a lot of uncertainty and people were spending their time getting their employees out of the office and home to work and so they're just was not capacity your bandwidth on the client side to do to do they they.
They put on hold from the training things of that plan as that has settled down as people have become.
Accustomed to uncomfortable working at home because the things we were trying to address with them were important and they you know they they did not want to cancel those forever. They they needed to get them back on the calendar and so that's certainly driving some of it is while the world's not normal for many of our clients there now and a more normalised mode working from home and they want they need.
Need to make progress they they they some of the challenges they were facing before only more acutely felt now and so they they kind of need to get on with solving those does that's driving I would say the the lion's share of it is just the importance of the problem. They they need our help they want our help and they're comfortable now doing it live online we have done some things marketing and sales wise.
To tout, what we think is some differential capability to deliver these services live online whether it be coaching or training and we've equipped are salespeople with that we've done quite a bit on the marketing France out there on social media et cetera, having some of our clients share their experiences and that that's helped as well, especially those client too.
You know maybe aren't quite as technically savvy trying to understand well how would this work in a live online environment and once we get in there and do the first session. They they routinely say that was that was fantastic, let's keep doing this and so.
We think and Bob mentioned earlier in the prepared remarks that if the strength of that that that kind of whatever hat whatever twists and turns might come next pandemic wise. We we've now transitioned almost all of the delivery to live online. We don't have a lot of obsessions booked out there that are scheduled to be alive in person and so you know we don't see really susceptibility to.
<unk> in the future now that these clients are comfortable and we're very comfortable delivering that way.
Got it and we'll ask a question just wondering if he can maybe talk up and give us a little update on the claim partner hiring expectations for for this fiscal year I noticed this last one.
Some some challenges there, but any or any sort of update there.
All you wanted <unk>, Bob you want me to check that sure sure you'll see in the slides, where it where we're at 254 Ah client partners currently and as we mentioned in our July call. We're exactly on track with what we what we shared with you than that we were going to intentionally pause in in in Q3 and Q4.
Last year, we resumed we're recruiting and we have our our next batch of sales Academy with this we call. Our sales school is is scheduled for early in January will recruit through the fall here fill that up and then we expect to be back on the same quarterly cadence that was getting us to approximately that 30 client partners a year and.
So that that'll begin again in January so we're recruiting right now we have hired a couple of folks over the last month or two when we've seen somebody we just had to get we don't want to lose him now all the efforts going into that January kind of fire the engine back up.
Got it thanks, a lot guys really appreciate the time.
<unk>, maybe it was just on this general topic of changes in the delivery one thing it might be interesting is that actually we believe we've always had these tremendous.
Coaches and and facilitators that are just some of the best people in the world at facilitating content.
What's happened is you know I think there's a lot of people, who might've said well gosh I'll have my employees just do live on <unk> I mean, just online training are now recognize it when you have an option of having really a real class facilitator and that you can still do it remotely they can do it from their home, but it actually is giving us a big way.
<unk> versus those who just have these online subscriptions you get the benefit of the online subscription, which we have two I'll be content.
You know digitally but with somebody who can come in and coach for an hour can teach for a half day, whatever it's really the great cause it so.
So.
Okay.
Okay.
[laughter].
And your next question comes from Jeff Martin Fan Roth Captain on your line is open.
I do have a good afternoon.
Hi, Bob how you doin'.
Great how are you doing.
Well. Thank you what is curious to get your perspective on the potential shifting the value proposition that as a result of you know working under these conditions and that the the issues that are there new issues with new opportunities.
Yeah to use your content in different ways and how do you see you know that continuing to shift over time.
<unk>, maybe Paul insurance can address with one of the things I think it's happened Jeffy show. They most people just like they thought they needed to be in the office all the time and just like he thought you know that if you went to training that was okay. I'm Gonna go off site, and therefore, something I'll do once or twice a year. Thank people.
Rising that Wow <unk>, there's a lot. They can do we we implemented a big execution engagement with her it was most senior consultant, there's a major company who at first were thinking gosh I don't know that I can really do it this way and now they can see how flexible it isn't how many more of their leaders that you can involve how are you.
How the levels they can take it to yeah with for you know some additional budget, but not much more it, particularly if they expand the past and I think that's what I think it's changing the value proposition I think it's changing the paradigm of how many people in the organization might be going through regular training is change the paradigm.
The time segments in which that training can occur that hey, you don't have to do it all day training. There's a couple of hours in the morning that can happen. The the level of people that can be involved and benefit from it because lettuce to have a lot of past has expanded where people say gosh I can see taking this now do a lot more people.
And they think finally, the Brett to the content. So for the people would recognize the past has has resolved and the number of the value proposition that says hey, I'm gonna consolidate my spend that might be spending less but I'm gonna consolidate my spend and fewer suppliers and use I'll ask.
This past as the foundation for we've had a number of clients in this environment, who have maybe you know they've all been budget go on some sort of course, but they've they've increased their budget with so I don't know if that's responsive Jeff but those are some ways, which I think there's the value proposition probably has changed.
Awesome.
Yep, that's exactly what I was looking for.
And I wanted to touch on sales effectiveness and efficiency I don't know if you have looked at your client partners versus your traditional matrix of what you expect them to contribute in years 125. It is there any shift and that as a result of selling from so.
Remotely environment.
Calling Sean John Jones.
Sure I'll I'll respond for for Enterprise, and then shall I can't for education. So [noise] from an expectation of the you know the five year ramp we talk about that.
That a client partner as they work their way up to being fully ramped up <unk>, we're not seeing the need to change those expectations. At all you know I I think what what will be interesting to see play out over time, not because of the the current pandemic situation, but just as we have these new client partners are only selling all access pass.
And building up this this base of subscription revenue that that <unk> repeat that such a high rate and those future years. Your 345, we may see that client partners can do more revenue than they used to do under the old model and that's something we continue to look at carefully, but we wouldn't certainly bring the ramp rates down at all or the expectations down in terms.
I've just the overall effectiveness of the sales force as I mentioned with Mark was question a minute ago, where we're seeing and we have such a great salesforce. There. They are they are incredibly effective they work tirelessly.
And there that the the rates the level of the things we look at the indicators both of activity and output R as high or higher right now as they were pre pandemic, they've been very creative at and and focused on improving skills to to hold meetings live online and and it is.
A little bit more difficult to get to customers, we have to be more creative to get to a brand new customer in this environment than than we did before but you know through social media and I mentioned all of the the people coming to marketing events significantly more coming that way creates a lot of inbound flow to them. So we're really pleased with what they're doing and and thank the ramp rates are still.
<unk>.
So I don't know if anything different for education.
Just echo pretty much what you said, Paul I think we expect around price to be the same in many ways doing everything virtually create some more efficiency and less wear and tear Ah client partners.
With education, you've got a lot of every client partner is a lot of school and there's a lot of travel involved.
So in many ways, it's been it's been a nice break from all the travel. We are we are right now finding it it has been hard the first couple of months the fiscal year to get a hold of schools because of you know so many changes in so much chaos at the school level trying to figure everything out we found the last few weeks that started.
Open up more people are kind of settled into learning how to do lie.
Lyla online learning and so it's it's kind of smoothing out now.
Great. That's helpful. And then last question on the you know the slowly down in the international business was curious what.
What kind of level you think it gets back to you by the end of fiscal 21 relative to a pre pandemic levels.
Called you on the spot.
Yeah. So you you you.
First of all you saw the the the silly.
Really.
Pretty significant improvement from two three to queue for we shared earlier and <unk> into our queue. One that continues to be the case that the the business is strengthening and rebounding and those international off so there's a little bit different by office. So in the U K for example, there they they will mirror the.
The North American operations, very very closely and they are mirroring hopefully and the reason for that is they have so much of their businesses subscription. Similarly, Australia will follow up while you're while Australia is not a big operation for US it'll fall with similar curve as North America, China, and Japan are the two places where it fell off the most it's coming back nice.
<unk>, we we won't be all the way back certainly to fiscal 20 leveled by the end of the year, but we believe by the end of the year will be back up to where we were physical 19.
Back up to those levels that but the the good news is that the business as it comes back where we're significantly making sure that it comes back as all access pass business and so you know that that will while the business is down and you start to build it back up I don't want to build it back up with the old traditional business you want to build it back up with the new all access.
Past subscription business, we can do that now because our portals are up and running in China, and and and the folks are they're actually having a nice Q1, all access pass quarter in Japan, right now and so so back up to 2019 levels by the end of 21 with a with a much greater mix of all access pass subscription business in those offices, what should really help us in the years and two.
22 and beyond.
And do you have to just wanted addition, we think will be at the booking paid and we will be at the run rate.
If you can if you can look at slides seven you're seeing the even the expectation of Q1 is back to almost 9 million versus a normal 12. So we think in the next few quarters, you'll get back to that normal pace in the quarter, but just not for the year.
So the run ragged Yep, yeah, okay.
Thanks for <unk>, Thanks for your time guidance.
Thanks, so much <unk>.
And your next question comes have severe potassium.
Was cleaning capital your line or something.
Hey.
Hi Smith.
I know, it's a cliche, but great quarter guys. So three questions. The first one to review you maintained guidance for 21 at 20 million or so even though you help performed last quarter's expectations for Q4, and you have continuing momentum into Q1. So are there are negative all set so I'm missing or are you just being <unk>.
Conservative and then also C D of guidance for deferred revenue build.
Yeah, I think that's the tech that last half of the question is probably the reason for being a little more conservative visited we we feel really good about you said North America, which is the main engine, we think will get back and even be above where it was targeted to be originally and 20 B L.
The because of the slower build an international N because it will be all access pass that helps.
It is and when it rebounds, we want it to rebound with subscription revenue not the old traditional revenue that revenue won't show up in the year as much and so so there'll be more deferred revenue put on the books and therefore less recognized for being concerned we hope start with it but part of it is just because.
As this rebounds, we wanted to use this time to transition those international operations over and Steve done the deferred revenue.
The question.
We do have some air had broken.
So as.
As your call or deferred revenue added to the balance sheet last year was more than 8 million. The ear before it was like 11 million and this year. It was just over 2 million added to the balance sheet. So we think in the coming years that the amount we added the balance sheet as Bob was talking about what would be more.
Like the the eight to 11, and we're not given specific guidance on that little but it will be significantly more.
We think then it was this year, reflecting everything that that Bob and Paul just talked about and and the other thing we related to this guidance, whether it's conservative or not one of the things might not be able to emphasize enough is that Q1 of cute too of last year F y 20.
We're very very strong corridors. We were on we were on a path that we thought we were going to have an extremely good year and so far first two quarters were comping against those two corridors and then well so we'll be ooh, we expect to be behind.
Last year halfway through the year and the fact that we then still have significant growth in the year shows that everything we're talking about what will pop out and be more visible in the third and fourth quarters.
Perfect. Okay Cool second question, Paul with regards to the international business you seem to have a pretty confident recovery outlook you know despite the new wave of Lockdowns in Europe. For example, you've talked about it a few times, but maybe go over it again, what's changed for those customer sent to March until now where the Covid spikes.
And restrictions and whatnot don't actually impact the sales or that essentially just been being comfortable with live online now and also having to lay of the land and not deferring decisions.
Yeah, I think I think that's part of it and so you know take your up for example, Europe and Germany is is where I direct operation, Germany, and the UK. We've got the live online capability is there it's primarily what we sell is all access pass and so the uncertainty.
They solve are there and we solve or here I think is they go back into lockdown it'll be it remains to be seen exactly what happens but.
Where where they're more comfortable and accustomed delivering and what we don't have this time.
One of the pandemic back in March and into Lockdowns everything we had on the books was was substantially everything we had the books was live in person delivery.
So the the choice to clients had was convert to live online, which they weren't sure about weren't sure. If that was gonna work and also how they were trying to make that decision, while sending everybody home or just cancel the session and so many at that point chose to cancel the.
The different circumstance now where a lot of these employees hadn't even returned to the office, they're accustomed to working from home and the sessions. We have on the books aren't book live in person, they're both live online all ready to begin with.
And so we we expect that they'll continue with those and we won't see anywhere near the kind of disruption.
Now that we saw then.
Remain all remains to be seen what happened throughout Asia, where we don't have that you know, it's China, Japan and I hope they don't go back into the same kinds of locked down as I had before because our business. There is and is not as live online delivery friendly yet not so much arcade building, we have the capability to do it but in places like China. It's just that's not how.
They are accustomed culturally to receiving training in their homes, they're not set up for it as well and so but would you speak to Europe, specifically, we don't think it'll be just as disruptive and right now we're not seeing the lockdowns in China, and Japan Uhm like we are on your own.
Okay, and what about the license plate network.
Yeah, it's kind of it's kind of a similar story. So the licensee network will continue to have their their we don't expect that their rebounding as much this year and built into the guidance that we've given is that that business will.
<unk> their first two quarters will look more like Q3, and Q4 last year for US and then it'll start to rebound somewhat later in the year, but for many of them it'll continue to be a slower build back and the licensee business.
And where you know aggressively working to try to continue to convert them to all access pass as well. It's it's it's country dependent in those places where the the local governments have the ability to pour in quite a bit of stimulus, they're faring better right now and and some of the some of the countries where that's not the case, it's a it's a more difficult road and we don't we don't quite see them tracking.
At the same rate as our international direct offices, but.
But we do expect them to strengthen from where they were at the worst parts of the pandemic.
Okay, Perfect third and final question for Sean or Bob You know education margins are still a bit of a drag I know you guys did that sales rework awhile back any comments on how that's going with or without selling process has improved and efficiency.
On your address yeah sure sure highest.
Yeah. So we feel really good about it you know we we reorganize went to one sales team one sells later and.
So far it's been really good we feel like the communication has been better uhm.
The person that is leading Meg Thompson is leading ourselves team now is kind of our expert on district focus selling to districts and I.
I think that is a very important part of our future. We find there are districts are that's where we get the highest retention rate.
And so we're really using that advantage in training everybody on how to get the district. Some this is why it is one of the reasons why we felt like this year, we can bring on more schools. Even in this tough environment. We can bring up more schools and last year is is throw in our district focus so.
That is off to a really good start.
We're glad we get it feel like it's the right decision and I think it's gonna show up down the road.
Sooner there's been about as I said, you've got a million and a half dollars of just permanent costs taken out of that infrastructure independent advil sales levels that will at least improve you know prove the margins by a few hundred base point, we think the main thing would be to show.
<unk> the ramp up with salespeople, we've already hired under this new structure in with the new models, we expect to to improve this your although I'd say as I did say I think until the environment won't be friendly, but our efforts will be good.
Efforts and and capabilities are stronger in an environment is probably not that much more friendly.
Yeah.
Yeah, just to add to them upset on the retention side, just retaining all the membership. So we have this subscription business that that came in pretty solid last year.
We expect that to continue this year.
You know the.
A more challenging thing will just be bringing on new schools and districts.
Yeah that.
[noise], we will have that in the last few weeks that things are opening up some a lot more willingness to talk and explore with us which is great.
Understood. Thanks appreciate the color.
Thank you Sir.
And your next question comes fantastic that Sir for venture capital Your line is happening.
Good afternoon and gentlemen.
Okay.
I don't have any questions every sentence has been cover it I just wanted to compliment you guys Uhm, a effective reaction and I just went out of the business to the pandemic and let you know I I love the guidance for the current here so.
So congratulations and keep up the good work.
Thanks, very much pet that's very nice thank you.
And we have no further questions I'll turn the call back <unk> that appointment for final remarks. Thanks.
Thanks, very much so I just want to express to each of you I'm actually we appreciate you through this whole period, we've had many discussions with both her great analysts, yeah, who would spend enormous amounts of effort to really understand and model. This and I want to thank each of you for <unk> really remarkable efforts into detail and do what you've gone truly understood.
And the business also for our shareholders. We have so many sophisticated investors as our shareholders, which we're grateful for and we admire your questions have been great and also I think just the recognition that you know what this may be a good time to be you know <unk>.
<unk> none of you have expressed that to you know.
You see this is an opportunity and and we do too, but we appreciate you and thanks for making the time to join US today would be.
Delighted to answer any individual questions off one thank you very much.
And we'll talk soon thank you.
Thank you ladies and gentlemen, this concludes today's conference.
Thank you for participating and you may now disconnect.
[music].
Okay.