Q1 2022 Franklin Covey Co Earnings Call

January 6, 2022

Yeah.

Welcome to the Q1 2022 Franklin Covey earnings Conference call. My name is Adrian and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we'll conduct a question answer session.

The question and answer session. If you have a question. Please press Star then one on your Touchtone phone I'll now turn the call over Derek Hatch Derek Hatch you may begin.

Thanks Adrian.

Afternoon, ladies and gentlemen, and happy new year on behalf of Franklin Covey, It's my pleasure to welcome you to our earnings call. This afternoon to discuss the first quarter of fiscal 2022.

Before we begin I'd like to remind everybody 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 management's current expectations that are subject to various risks and uncertainties, including but not limited to the ability of the company to stabilize and grow revenues the acceptance of and renewal rates for our subscription offerings, including the all access pass and leader in me memberships, the duration and recovery from the COVID-19 pandemic the ability of the <unk>.

The highest productive sales professionals general economic conditions competition in the Companys targeted marketplace market acceptance of new offerings or services and marketing strategies changes in the companys market share changes in the size of the overall market for the company's product.

Changes in the company and the training and spending policies of the Companys 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 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 expectations and we undertake no obligation to update or revise these forward looking statements.

To reflect events or circumstances after the date of todays presentation, except as required by law.

With that out of the way, we'd like to turn the time over to Mr. Paul Walker, Our Chief Executive Officer, Paul. Thank you Derek Good afternoon, everyone. I'm joined here also by Steve Young and Bob Whitman, We're happy to have the opportunity to talk with you today and we just we're grateful that you joined us.

We're very pleased to report that our first quarter results were very strong as you can see as shown in slide three total revenue in the first quarter grew 27% or $12 9 million to $61 3 million and for the latest 12 month period revenue grew 26% or $48 9 million to two <unk>.

Hundred $37 1 million.

Adjusted EBITDA for the first quarter increased to $9 9 million, an increase of $6 2 million or 167% compared to the $3 7 million of adjusted EBITDA in the fourth.

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The operator.

Hello, operator.

Stephanie's line is still connected let me see if I can.

Sure one second.

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Okay.

So for him.

Probably we'll be right back.

Okay.

If anyone on the line can hear me this is Steve young.

<unk>, the operator working to reconnect Paul.

So sorry for the delay.

Yes.

We are getting the line back when women.

Yeah.

Okay.

Mark.

Well Hello, everyone, Steve Steve and Bob can you hear us.

You can hear you Paul Yes, alright, alright.

Our phone line cut out in here, so well on a different line.

Let me, we'll just pick right back up where we were.

Why don't we start back on slide four and talk about the strong growth on each key metric.

As you can see as I mentioned, there in the first quarter subscription revenue grew 31% or $6 7 million to $28 4 million and for the latest 12 months, it grew 22% or $19 1 million to $106 2 million.

As you can see total subscription in subscription and services revenue in the first quarter grew 32% or $10 8 million to $43 9 million and for the latest 12 months grew 31% or $39 4 million to $168 million.

And in the first quarter, the sum of billed and Unbilled deferred revenue grew 24% or $23 7 million to $121 1 million.

So.

The first point here is we we really continue to be really pleased with the strong results, we're achieving in our subscription business and in the company overall.

Today, there are four key things that we'd like you to take away from our discussion and I will summarize. These are shown on slide five and then we'll go into a bit of depth on each.

The first is that our results in the first quarter as we've just previewed were exceptionally strong.

This strength is reflected in every key P&L category, including revenue growth gross margin improvement adjusted EBITDA and also in cash flow.

Second that we'll talk about today is that the strong performance was driven by the strength of our rapidly growing subscription business model.

The third is that we expect that the entire business to become increasingly subscription and subscription services over the coming years.

And finally, we'll talk about that point number four that we're really excited about the size of the market opportunity before us and we're doing a lot to ensure that we continue to execute on it at scale.

I would now like to ask Steve Young to address takeaway number one the strength of our first quarter and latest 12 months results Steve.

Thank you Paul and it's nice to have you back.

Okay.

Nice to be with everyone to.

Today to report this good quarter, and just give us a little bit.

Is it a little bit more in depth look at the highlights that Paul mentioned.

As you can see on slide seven some of the key highlights for the quarter include the following.

Revenue as mentioned in the first quarter grew 27% or $12 9 million to $61 3 million.

Revenue for the latest 12 month period through the first quarter grew 26% or $48 9 million to $237 1 million.

Benefited partially from the fact that last year's first quarter was impacted by the pandemic.

This strong first quarter revenue growth was broad based across.

Growth across both the enterprise and education divisions.

In the Enterprise Division revenue grew 22% or $8 8 million to $48 1 million, reflecting both the strength of our performance in North America, where sales grew 22%.

In our international direct offices, where sales grew 27%.

Growth in both of these areas was driven by our strong subscription and subscription services sales, which increased 27% in the first quarter.

The Education Division also had a very strong first quarter with revenue growing 56% or $4 2 million.

Our gross margin percentage in the quarter increased 240 basis points to $77 7 million.

From $75 3 million in last year's first quarter.

Gross margin percentages remain very strong across every operating unit with a significant portion of this first quarter increase in gross margin percentage, resulting from.

The fact that we have achieved more normalized margins in the education Division.

This resulted from better absorption of certain fixed coaching costs compared to last year when schools, who are struggling to adapt to the pandemic environment and utilized fewer coaching days during the first and second quarters.

Our overall company gross margin percentage for the latest 12 month period increased 339 basis points to 77, 7%.

So.

Operating SG&A as a percentage of sales.

Proved 200, or 600 612 basis points in the quarter to 61, 5% of sales compared to 67, 6% of sales in last year's first quarter.

And improved 490 basis points to 63, 2% for the latest 12 month period.

As shown in slide eight adjusted EBITDA for the first quarter increased $6 2 million.

167% to $9 9 million.

<unk> to $3 7 million in the first quarter of FY 'twenty one.

This strong result, also represents an increase of almost $5 million compared to the pre pandemic first quarter of FY 'twenty.

For the latest 12 month period, adjusted EBITDA increased $21 1 million or 162% to $34 2 million.

Finally, as shown on slide eight.

Our cash flow and liquidity positions are also very strong.

Our cash flows from operating activities remained very strong at more than $10 million for the quarter.

As shown in slide nine our free cash flow for Q1 of FY 'twenty two is 9.4.

4 million versus $10 four in Q1 of last year.

Both we think good good strong numbers the strong cash flow metrics reflect an additional benefit of our subscription model, specifically that we invoice upfront and collect cash from these invoiced amounts even faster than we recognize all of the subscription revenue associated with a subscription cause.

Tracks.

As noted with the strong cash flow.

We ended the quarter with $66 million of total liquidity made up of $51 million in cash plus $15 million in credit facility remaining undrawn and available.

We are pleased with the result of the first quarter and the trailing four quarter. So back to you Paul.

Thank you Steve.

Just to add that this strong performance reflects the continuation and acceleration of three key trends that we've discussed with you all in past quarters.

As you can see on slide 10. These trends our first enterprise Division sales in North America continues to be very strong driven by the growth in all access pass subscription and subscription services sales in the first quarter as you can see their revenue in North America grew 22% or $6 million to $33 4 million.

And for the latest 12 month period enterprise revenue in North America grew 23% or $23 8 million to $125 6 million.

Up from $101 8 million last year.

Second as you can see there in the middle column sales in our international operations continued to strengthen.

While the pandemic related challenges continue in Japan and in certain licensee locations.

Resulting in our total international direct office and licensee revenue as still being somewhat below that those that we achieved in fiscal 2000 Twenty's first quarter.

We're pleased that overall revenue in our international direct offices in the first quarter grew 24% compared to the first quarter of fiscal 2021 and grew 36% for the latest 12 month period.

In addition, the strong focus on all access pass in these international operations has resulted in significant increases in our balance at all access pass deferred revenue internationally, which is establishing a foundation for strong future international sales growth.

The third performance third the performance and <unk>.

Trends in our education division have strengthened substantially.

This strength is reflected in one the increase in the number of leader in me schools that are contracted to renew their leader in me membership.

706 schools in the first quarter of fiscal 2022.

From 560 in the first quarter of fiscal 2021.

And second the significant 80 school increase in the number of new leader in me schools contracted during the first quarter of fiscal 2022, where we added 129, new leader in these schools up from 49, new schools in the first quarter of fiscal 'twenty one.

This increase in new and retain schools together with an increase in the number of coaching and training days delivered compared to last year's first quarter drove strong performance in the education Division, where revenues grew $44 2 million revenue grew $4 2 million or 56% in the first quarter.

To $11 7 million compared to $7 5 million in the first quarter of fiscal 2021.

Adjusted EBITDA in the Education Division in the first quarter increased $2 5 million to $200000 compared to an adjusted EBITDA loss of $2 3 million in last year's first quarter.

The second takeaway as you can see shown on slide 11.

We'd like to talk about is that this strong performance was driven by the continued and accelerating strength of our rapidly growing subscription business model.

As shown on slide 12.

Total subscription and subscription services sales grew 32% in the first quarter to $43 9 million, an increase of $10 8 million compared to $33 2 million in subscription and subscription and services revenue in the first quarter of fiscal 2021.

For the latest 12 months through the first quarter subscription and subscription services sales grew 31% or $39 4 million to $168 million.

The sum of our billed and Unbilled deferred revenue also grew substantially in the first quarter, increasing 24% or $23 7 million to $121 1 million compared to $97 4 million at the end of the first quarter of fiscal 2021.

This large and rapidly growing balance of billed and Unbilled deferred revenue provides significant stability of and.

And visibility into our future revenue growth.

The breakout between billed deferred and Unbilled deferred revenue is also shown on slide 12.

Our balance of deferred subscription revenue grew 19% or $10 8 million to $67 8 million in the first quarter compared to $56 9 million last year's first quarter and our Unbilled deferred revenue grew 32% or $12 9 million to $53 4 million compared to a balance of $40 5 million.

In last year's first quarter.

Reflecting the significant ongoing increase in the percent of our all access pass contracts and contract value now represented by multiyear contracts.

An example of that in North America at the end of our first quarter fiscal 'twenty, 242% of all access pass contracts, representing 55% of total all access pass contract value, we're under multi year contracts.

Important to note that we achieved strong subscription and subscription and services growth in both the enterprise and education divisions.

As shown in slide 13 in the Enterprise Division all access pass subscription and subscription services sales in the first quarter grew 27% or $7 1 million to $33 1 million.

Compared to 26 million in the first quarter of fiscal 'twenty one.

And for the latest 12 months period through the first quarter.

Access pass subscription and subscription services sales grew 29% or $26 7 million to $119 7 million compared to $93 million for the same latest 12 month period last year.

The number of all access pass new logos in North America in the first quarter remained strong our annual revenue retention continued to exceed 90% and as I noted a minute ago. The sale of multi year contracts also continued strong.

As shown on slide 14 in the Education Division.

In the first quarter leader in need subscription and subscription services sales grew 51% or $3 6 million to $10 8 million.

Compared to $7 1 million in the first quarter of fiscal 'twenty one.

For the latest 12 month period through this year's first quarter subscription and subscription services sales in the enterprise Division grew 36% or $12 7 million to $48 3 million up from $35 6 million for the same latest 12 month period last year.

We feel great about our subscription business as shown in slide.

Remember 15, the third takeaway that we'd like to discuss with you. This afternoon is that we expect our entire business.

Become increasingly subscription and subscription services in the coming years.

As shown in slide 16 for the <unk>.

Latest 12 month period through this year's first quarter subscription and subscription services sales grew 31% to $168 million, representing $79 million total latest 12 months sales up $237 1 million.

Given this continued rapid growth, we expect our entire business to become increasingly subscription and subscription services over the coming years.

For example in North America for the latest 12 months through this year's first quarter.

Access pass subscription and subscription services accounted for 84% of sales.

And this is expected to increase to approximately 90% of sales over the next three years.

As shown in slide 17.

All access pass subscription in subscription and services sales represented only 13% or $13 7 million of total sales in North America in 2016, when we first introduced all access pass.

This dramatic sustained compounded growth. Since then has resulted in all access pass subscription and subscription service sales for the latest 12 months through this year's first quarter growing to $104 9 million in North America.

With annual all access pass subscription and subscription services sales expected to continue to grow rapidly.

And with legacy sales in North America, now at very low levels and expected to run off further.

As I mentioned, we expect that all access pass subscription and subscription services sales to increase to approximately 90% of total North America enterprise sales in the next over the next three years.

All access pass subscription and subscription services sales are also expected to make up the vast majority of our sales in our international enterprise operations in the coming years.

The growth in penetration of all access pass subscription in subscription services has also progressed rapidly in our English speaking direct offices as you can see there on the right side of slide 17 from having no subscription sales at all in these offices just five years ago.

All access pass subscription in subscription service sales for the latest 12 month period through this year's first quarter now account for 83% of total sales in the U K and 72% in Australia.

Both offices are well on their way towards sustained 90% penetration, we expect to achieve in North America.

And as you know our largest international direct offices in China, and Japan and both of them are in the relative early stages of conversion to all access pass that are making great progress.

Having made the conversion in the U S, Canada, UK and Australia, we're confident that China, and Japan will also convert the vast majority of their revenue and in fact in fiscal 'twenty, one all access pass subscription and subscription services.

A third of Japan's total sales just in there just in the early days there for them. So we feel great about that progress.

Because of our because of our compelling leader in me subscription model.

More than 90% of sales in the Education Division are in fact already subscription and subscription services.

As this almost complete conversion to subscription and subscription services occurs we expect virtually the entire company to be able to generate the same kind of strong growth in revenue gross margin revenue retention and customer impact that we've seen in our subscription business over the last five years.

The final takeaway.

We'd like to talk about today number four as shown on slide 18.

It's really about the market and a significant market opportunity that we serve there.

There are four reasons that we're excited about the market opportunity before us and that we have the ability to execute in those markets at scale.

First the markets, we target are very large and they're growing rapidly as you can see on slide 19, our focus is on three primary market first the enterprise learning market.

Second the education market and third of this market where business leaders themselves are investing to improve performance and theyre doing it out of their operating budgets.

The overall global enterprise learning space is about $381 billion market and approximately 99 billion of that is spent with external providers.

This entire market is growing by approximately 3% or $11 billion per year.

The second market you see the education market. It's also very large.

$726 billion spent annually just in the U S by K 12 schools.

$59 billion of that is spent on instructional resources and services that are beyond faculty salaries and benefits.

And this market is growing at just over 2% or by about $16 billion per year.

And then the third market where business leaders themselves are investing to improve performance. It makes up trillions of dollars in expenditures and is generally growing at at least the pace of GDP say, 3% or that would equate to one hundreds of billions of dollars per year.

Each of these markets is highly fragmented the largest players account for only approximately 1% to 2% of any of the market.

And we believe that this plus strong growth in these markets provides a lot of headroom for us and the opportunity for us to significantly increase our market share.

The second thing that we're excited about it.

We're the leader and one of the most important and lucrative positions in each of these market spin.

Specifically that are helping organizations achieve result that.

It required the collective action of large numbers of leaders and individuals.

As you can see as shown in slide 20, while while lots of things, including providing people with useful information, helping them learn new skills et cetera that can add value to an organization.

For an organization to move aggressively forward to achieving its most important objective that requires collective action.

Everybody moving together in offering their collective best country contributions toward the achievement of the organization's highest priority.

And the.

The third point I think to make here is that helping.

<unk> do that to achieve that kind of size mix collective action thats, so important to them that collective progress, that's where where Franklin covey.

Most excited and where we really shine.

As indicated in slide 21.

We bring truly differentiated strength to helping organizations address challenges the achievement of which require sustained collective action. Our differentiated strengths include the following first.

And this is represented in the top left that green puzzle piece Theyre, having some of the world's best content for addressing the big organizational opportunities and challenges.

Our content is principle based it's durable it's recognized market leading.

With our content, we sold billions of dollars of solutions over time, and built very strong durable and growing purpose brand.

Our second strategic strength is our ability to offer clients tremendous flexibility in delivering our content and services through all modalities on all devices in almost any segment of time and in more than 21 languages worldwide.

Capability has been further enhanced by selective acquisition, we've talked on previous calls.

For example, about the strive platform.

State of the art behavior change platform that will create a powerful and seamless experience for end users as well as for those who deploy our solutions within their organizations.

Our third strength.

As our global reach.

Our global sales and delivery network include the direct sales force of more than 271 client partners across our direct offices, a number which we expect to grow by at least net 30, each year and.

And more than 60 licensee partners operating in more than 150 countries.

Allowing us to serve global clients with one of the largest global footprint in our industry and truly unique ways.

And fourth as you can see in the bottom right.

Our fourth strategic strength is our world class.

<unk> leadership.

A position of strategic strength, which includes our best selling book.

Which we have sold more than $50 million a number we believe dwarfs that of any other player in our space. Our weekly leadership podcast, we have a weekly leadership podcast called on leadership and it's now the world's most followed leadership gap.

Our team of best selling thought leaders. These thought leaders speak in some of the most sought after venues, including places like the world business form and others.

And.

We published article monthly increase.

Recently, you can find Franklin Covey thought leadership in Forbes Dot Com Fast Company, Inc magazine, and dozens of other industry publication.

These strengths are the reason why even throughout the consistent the constantly changing pandemic environment thousands of organizations and schools to purchase expanded and renewed their all access pass and leader in the subscriptions and.

And a purchase support services from Franklin Covey to help them achieve their most important objective.

These strengths are also behind the fact that as shown in slide 22, and you've seen us before the lifetime value of our customers.

<unk> to be both large and growing.

While we already have significant and differentiated strength in each of those four key areas I talked about again as shown in slide 23, we continue to make significant ongoing investments in each of these areas.

These include creating new and expanded content and content areas.

Pending our technology platforms, and our delivery modality capabilities and the associated flexibility.

Growing our direct sales forces in our international licensee partner channels, and finally, creating new content and channels to continue to build our industry leading thought leadership.

Given the large given the large and growing and fragmented markets that we serve the strength of our leadership positions in these markets and the continued investments we're making.

We believe that we have a unique opportunity to cement our position as the leader in these targeted markets.

So we're very excited.

Both about the results and also.

Just about what's happening with the subscription business and our ability to continue to add meaningful resources in pieces to that that are showing up at differential and very helpful to our clients and so with that with that portion out of the way there I'd like to now turn some time to Steve to discuss our outlook and our guidance.

Thank you Paul.

So let's have a look at our <unk>.

Guidance.

Our guidance for FY 'twenty two is that we expect to generate adjusted EBITDA between.

34 and $36 million.

The midpoint of this range would reflect an approximately 25% increase in adjusted EBITDA.

Impaired to the $28 million achieved in FY 'twenty one.

Underpinning this guidance are the expectations that our consistent primarily it's what we've had in the past.

First the recognition.

During FY 'twenty two of a large portion of the $67 8 million of deferred revenue currently on the balance sheet.

And the billing of a large portion of the $53 4 million of Unbilled deferred revenue, which has been contracted.

This provides significant visibility into our revenue for the balance of the year.

Second in addition to the recognition of deferred revenue.

The factor, which is expected to have the greatest impact on FY 'twenty. Two results is also one in which we have high confidence.

That is the strength of our all access pass and related sales.

Third we expect that our revenue in Japan, China, and among our licensees will continue to strengthen.

The increase in all access pass sales, which we expect to achieve in this country's will as you understand result, and a portion of the new sales.

Revenue being added to the balance sheet as deferred revenue.

Fourth.

The Education Division, we expect to continue to achieve strong.

Retention of both schools and revenue among existing later in these schools and expect to grow the number of new leader in me schools to a level, even higher than we achieved last year.

So now Q2.

In Q2 in the second quarter, we expect that adjusted EBITDA will be between five eight and $6 8 million.

Compared to $5 1 million in the second quarter of FY 'twenty one.

Obviously, we recognize that with our strong first quarter performance, our latest 12 months adjusted EBITDA.

Of $34 2 million would already put us within our full year guidance range, even without any further year over year improvement in adjusted EBITDA for the rest of the year.

Our expectation of achieving further year over year growth in adjusted EBITDA in Q2 would put us even higher in that range.

Recognizing this.

We will consider our guidance range when we report our physical Q2 quarter performance.

And and make adjustments at that time.

So now with with that guidance, let's look at our targets for the coming years.

And slide 24 building on the 34% to $36 million of adjusted EBITDA, We expect to achieve this year and driven substantially by the expected continued growth of all access pass.

Target to have adjusted EBITDA increased by around $10 million per year thereafter to be around $45 million in FY 'twenty three in around $55 million in FY 'twenty four.

This represents an expected adjusted EBITDA.

EBITDA compounded annual growth rate of approximately 25% per year over over the coming years.

These targets reflect achieving low double digit revenue growth and approximately 40% of that growth in revenue will flow through to increases in adjusted EBITDA and cash flow.

Even after significant growth investments in marketing or sales force technology and expansion in some new content areas.

While dramatic changes in the world environment and other factors could impact our expectations, we want to share that these are our current targets.

I wanted to point out once again that only not only are these are targets, but when you read our proxy statement and you'll see that the executive team.

Our long term incentive pay awards depend on achieving these strong multiyear growth targets.

So Paul back to you.

Thank you Steve.

So we feel great about our momentum and we look forward to reviewing and updating as Steve mentioned, our guidance range at the end of our second quarter. This year and with that we'll now ask Adrian to open up the line for questions.

Thank you we will now begin the question and answer session.

I think you have a question. Please press star one on your Touchtone phone.

If you wish.

In the queue. Please press the pound sign or they ask.

If you're using a speakerphone you may need to pick up the handset.

And the numbers.

Once again you have a question. Please press star one on your question.

And our first question comes from Marco Rodriguez with Stonegate capital. Your line is open.

Good afternoon, everyone. Thank you for taking my questions.

Hi, Marco.

Okay.

Hey, guys I was wondering if maybe you could talk a little bit more about the performance in the quarter, obviously really strong well ahead of guidance.

What were sort of the big surprises for you guys.

Yes, great.

Great question so.

First of all as it relates to to EBITDA growth.

We've mentioned this in his comments we were benefited.

Maybe a bit more than we thought by.

The number of education coaching sessions that we were able to deliver in the first quarter and so those coaches theres a fixed cost component there and we delivered a number of sessions as schools got back in into session and so that helped.

On the.

On the margin side, which flowed through to the bottom line and so that was that was definitely a positive but I think generally speaking.

It's what we've been seeing revenue retention was great.

New logos added was great we had a great services quarter in the enterprise division as well.

In fact, it was it was record setting.

Delivery of services to all access pass clients in North America in the Enterprise Division. So I think those are probably the two biggest things was the amount of coaching we're able to delivered schools services and enterprise in the first quarter.

We're doing great with live online and as we move to to delivering more and more of that way, where we're just seeing that services continues to grow.

Those are probably the two or three points Marco.

Got it very helpful and I know you touched on it are Steve touched on on the guidance and you guys are obviously cognizant of.

The annual EBITDA guidance, what you've done in Q1, and what you're expecting for Q2.

And you made some comments, which are helpful. But I'm just trying to kind of dive a little bit deeper if you can kind of walk us through the decision making process there to not update the guidance higher are there any sort of things that you are trying to be little more conservative on anything that is maybe a bit more of an unknown today.

At before.

Before the call.

No I think we've talked.

As you can imagine quite a bit about this very topic.

Feel great about where the business is and where it's headed and just made the decision that will we'll get through our second quarter and then we'll come back in and take a look at.

Reconsider guidance in any revision around guidance.

Hi.

Nothing other than that just picking when we wanted to do that picked in the second quarter at the time. It would do that for you I don't know if you have any other thoughts you'd want to add to that.

Hello, Paul.

I would add is that.

As you know Marco <unk>, our fourth quarter.

It's a very large quarter for adjusted EBITDA because of all the things that go on in that quarter in education, and otherwise and it gives us an opportunity to be.

Closer to that very important quarter just have.

A little a little better visibility maybe into that into that quarter.

After another quarter goes by.

Got it understood and then if I could sneak one more in here.

You discussed a little bit here in your prepared remarks, the market opportunity that is.

<unk>.

And I know that you guys are always taking.

A great deal of investments, we're making a great deal of investment into your client partners.

Business development efforts I was wondering if maybe you can discuss any sort of initiative or additional investments that you might be making into your overall marketing efforts.

Whether that's additional client partners on your business development or online events and you see here that we should be looking at for calendar year 'twenty two.

Yes, that's a great question, that's a great question Mark.

These are very very large market. So a couple of thoughts there.

First youll recall, we reported at.

At the end of.

The end of fiscal 'twenty, one so back in November that we.

We added 19, new client partners last year, we said, we would add 20, we added 19.

One came in after the end of the year.

We felt great about that we're going to add net 30 this year and I think that's the number we're looking at how do we accelerate that maybe I.

I don't know that well accelerate beyond 30, this year, but it wasn't that long ago that we were adding.

Five or six and then it went to 10 or 12, and then 10 or 12 moved up to two <unk> and now 2030, and I think 30, I'll move to 40, and so on and so I think there will be more.

Invested there.

And salespeople to more quickly penetrate and take advantage of the market opportunity before us that speaks to the sales side of that.

On the marketing side.

Similar story, we're actually in the middle right now of what we've been.

In the middle of a large branding project.

New messaging branding preparing to get our word out there.

Even more aggressively than we have and we've been doing great with as we move to online events. We've talked in the past about significantly more people and that continues to be the case or being exposed to Franklin covey into our content into how we can help them quarter by quarter. Those numbers continue to climate, we put more into marketing and I think theres an opportunity for us to do that as well and that's that.

Part of the discussions that we're we're definitely having right now.

We see great opportunity ahead of us and tons of headroom.

Got it very helpful. I appreciate it guys. Thank you.

And our next question comes from Jeff Martin from Roth Capital Partners. Your line is open.

Thanks, Good afternoon, and great to see the strong results in the quarter.

Paul wanted to get an update on the <unk> platform launch I believe that was slated for the beginning of this year is that the timing on that and then also wanted to understand what you think the near term and longer term benefits are from that platform.

Okay. Thanks.

Jeff Happy new year.

So.

Thrive is right on track in fact.

Today.

Earlier today at about two o'clock.

So.

Phase one was an initial group of pilot customers that we've been working with all through the fall.

<unk> brought them onto the <unk> platform that has given us a chance to strive was already a going concern and both drive was able to run their content on strive we needed to run Franklin Covey content and so we did that throughout the fall had tremendous feedback from our clients and saw Sadat only high NPS and great usage scores that clients buying more server.

And those pilot clients now we are in discussions about them expanding the size of their path because of whats driving us for them today, we moved into phase III and phase II is where we moved to a larger group of our client partners and we kind of phase two is really about how do we how do we prepare to do that and math and so we are now kicking off what will be a couple of month period.

When we go out to a larger group of customers and potential customers with a larger group of our salespeople to do the same thing. We've just done in the pilot phase and then phase III will be the complete full launch a little bit later this year.

<unk> will become the default platform for all of our clients. So we're right where we want it to be as we laid out our project plan that the strike team is doing great work and to.

Your second the second part of your question just benefit that customers will see and therefore, how that might benefit our business.

The primary benefit.

Benefit to a customer it.

Is that a strive.

<unk> I would like to equate strive to peloton to a peloton bike I have a peloton I like my peloton prior to peloton bike.

You could go bye bye.

Bicycle put it in your basement, you could pull a TV over in front of you and go on Youtube and try to find an exercise instructor that you liked and you could get people on your smartphone and have a virtual experience with a cohort of people. If you wanted to do that and you could have metrics over on a whiteboard on your wall. I mean, you could do all of that but it was.

Disconnected not is seamless and not nearly as powerful as the experienced that at peloton is today, where it's all integrated into one system and there's this great technology platform that powers the content.

The cohort experienced the metrics et cetera.

Strive.

Has that organizing effects for us it'll it'll take all of our great content and allow us to provide.

Cohort based learning experience and over time individual experiences where strive willpower them through those experiences.

But in a very interactive way and it has all of those pieces built into it that are critical to driving behavior change we.

Don't want to just be in the business of having people watch content that doesn't necessarily do much more than provide some <unk> insight we need to take people and not just individuals but entire teams and organizations all the way through too.

The point, where theyre behavior have changed and it can be sustained and so let's drive as the tech platform. If you will.

That.

It will enable that for our clients.

Obviously, the benefit to us it's sorry last point.

We will be.

Even more compelling value proposition that would help us on the win rate on new logos.

We believe it will lead to greater expansions as stripe takes some of the workload off of the learning and development administrator.

Bit of a chokepoint, sometimes there where they are responsible for the masses and strive will help the technology that will help them deploy and greater quantities in that larger scale.

And then of course.

So bigger populations and then finally, we think will sell and we're seeing that with some more services.

Delivery services and coaching services.

Great Great. That's very helpful. Thanks, I wanted to get a sense for.

Hiring in the quarter of new client partners and I asked the question is from the perspective of trying to understand that sales and marketing expense. If there werent a lot of hires in Q1, what are you expecting.

Groups to be hired and in order to help us better model out SG&A for the balance of the year on a quarterly basis.

No.

Great question, So as I mentioned a minute ago. We we hired 19, new last year Q1 is never our large hiring quarter. It's the it's the time when we kick off the new year. We are deeply involved in those activities. So you can expect that the net 30 ad.

Fairly evenly spread across Q2, Q3, Q4, maybe weighted a little bit more towards Q3 and Q4.

Okay, Great and then last question could you.

Parse out.

Growth between new logos and pass expansion.

My understanding is new logos have been strong and based on your commentary it seems like they continue to be strong but.

Help us understand kind of from a big picture standpoint, how much of the revenue growth is coming from from pass expansion and how much is coming from new logos.

Yes.

Another great question. So we.

We commented in education that new schools, which is also new logos for them those were up.

Up substantially and in the Enterprise Division.

North America, all access pass on on a latest 12 month basis, new logos are up 23%.

And until that.

And that continued in Q1, so new logos are making up a <unk>.

Significant portion of the growth and then obviously the other the other two pieces of the growth that we see come from expansion of existing customers.

And that that half of that is happening as well.

Retention is greater than 90%.

And then of course, we saw nice services growth in the first quarter as well as I mentioned the record services growth, but really it really is the growth is coming.

From a nice spread across all three of those those important metrics new logo.

Spansion of existing all access pass seats and services growth.

With new logo being up 23% on a latest 12 month basis.

Great. Thank you Paul.

Thanks, Jeff.

And our next question comes from Alexander Paris, with Barrington Research. Your line is open.

And Alexander again.

Uh huh.

Yep, sorry, guys I was on mute thanks for taking my questions.

Many of which were asked and answered, but I have a couple of follow ups.

Given the strength of the first quarter.

Sure.

On both revenues and adjusted EBITDA.

And the adjusted EBIT, driven in part by coaching and services and that sort of thing.

And then your guidance for second quarter, adjusted EBITDA, which is a little bit below my estimate and the consensus estimate.

I'm wondering.

Either.

It's quite.

Quite likely that we were a little too aggressive on Q2, but did Q1 borrow from Q2 at all in terms of your thought process.

Forward.

Yes.

So in a word no.

Al.

Ill.

Steve to chime in here as well.

So of.

Of course, you know this from following us.

<unk> businesses somewhat it's not so much helpful to compare sequential quarters as it is year over year.

Our second quarter tends to be it tends to be our smaller.

Adjusted EBITDA quarter in the primary reason for that is because we deliver fewer services second quarter happens to be used as usually even a larger subscription quarter all subscription pass subscription quarter.

And a smaller services quarter, because we have the holidays, where we don't do our clients don't want services delivery during an extended period of time during the quarter.

So the quarters are a little bit different Q1 tends to have a lot of services, which of course, we recognize that revenue at.

At the time, we deliver.

And in a nice services or subscription quarter, Q2 tends to be a little bit lower services, and a higher subscription quarter, where that revenue goes on and we defer it over time and so I think it's.

Not a borrowing thing its just the timing of how these quarters come in would be my response to that would you would you add anything to that.

The only thing I'd add Paul is it the.

There'll be a little bit of change.

At least in that guidance, we are anticipating a little bit of change in our SG&A I mean, we'll hire a few people here and there.

Don't know exactly how travel will go based upon the new pandemic.

No.

Some additional investments in growth here and there, but primarily related so there'll be a little impact of that compared to Q1.

But the but the services as the main is the main point.

Got you.

Very helpful. So like you said, Steve earlier to another question. The reason for waiting to Q2 is just to be a little bit closer to Q4, the all important Q4.

Yes.

Alright, it makes sense.

And then.

Let me see.

I guess the last question I'll ask is.

What are you seeing in terms of inflationary cost pressures and then your ability to pass it on and it is part of that question.

I'm just wondering about.

Our strategy with regard to price increases on both AAP and leader in me.

Yes.

So we.

Where we see.

Inflationary pressures would be probably in some of our labor costs.

Attracting talent and talent into the organization.

Turning to your second question. So we are seeing a bit of that to your second question. We have had Eddie practice.

Annual price increases.

Since the inception of all access pass will continue that this year and had already planned to do something a little bit larger than <unk>.

Last year, we didn't do as much at all because when they were in the middle of the pandemic, we had planned to do something a bit larger this year.

Not so much as a response.

Our costs going up although although there is a little bit of that but really because.

The value of the all access pass.

As you.

Taking another huge leap forward with the addition of strife.

With some of the content that we have added recently and we will be adding this year and so we think there is there is an opportunity to do that and we plan to do that.

Similarly in education, Sean do you want to comment on pricing.

Price increase strategy and education.

Yes sure.

Yes, hi.

It's very similar to what we're doing in the enterprise, we've got a strategy of incremental.

3% to 5% price increases each year, we did last year.

Undergo a rather significant increase in services our prices for services because we.

Our coaching for US is a very good and very valuable and we're finding the market could bear it. So we did that but we so that's the plan is just ongoing.

3% to 5% increases over the foreseeable future.

And out like in like manner to the all access pass we keep we keep adding.

Adding really valuable.

New content pieces.

And it's like new rides.

Our rides in the same park, some really valuable ones that we think will give us pricing.

Pricing leverage in the future.

For example, we're adding a new curriculum.

We are generally about whole school.

Social emotional learning that we're going to add a new component curriculum component, which you don't have right now which will be I think a substantial upgrade which I think will help support price increases next year and for many years to come.

Great. That's helpful and then I guess, the very last and associate.

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