Q4 2023 Franklin Covey Co Earnings Call

Now like to hand, the conference over to your first speaker today Derek catch. Please go ahead.

Thank you.

Good afternoon, everyone on behalf of Franklin Cubby, It's my pleasure to welcome you to our earnings call for the fourth quarter and full fiscal year 2023.

Before we begin today's presentation would like to remind everyone about forward looking statements and at this presentation contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

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 grow revenues the acceptance avid renewal rates for our subscription offerings, including me all access pass later than me memberships the.

The ability of the company to hire productive sales another client facing facing professionals general economic conditions competition and the companies targeted marketplace market acceptance of new offerings, our services and marketing strategies changes in the company's market share changes in the size of the overall market for the company's products changes in the training and spending policies.

The company's clients and other factors identified in discussing the company's most recent annual report on Form 10-K, another periodic report filed with the Securities and Exchange Commission.

Many of these conditions are beyond our control or influence any wonder, which may cause future results to differ materially from the company's current expectations and there can be no assurance that the company's actual future performance will meet management's expectations. These forward looking statements are based on management current expectations and ready to take no obligation to update or revise these forward.

Looking statements to reflect events or circumstances. After the date of today's presentation, except as required by law was that out of the way we'd like to turn the time over to Mister Paul Walker, President and Chief Executive Officer call. Thank you Derek.

Hello, everyone. Thanks, so much for joining us today, we're glad to have the chance to talk with you and we want to let you know how much. We appreciate each of you joining.

Joining me on the call today are Steve Young are CFO, Jennifer call a female president of our Enterprise Division <unk>.

<unk> <unk> president of our Education Division.

And other members of the executive team were also happy to have our chairman Bob Whitman on with us today as well.

I'd like to start out by saying how pleased we are with our results for the fourth quarter and a full fiscal year 2023.

As shown on slide for some highlights include the following.

Revenue grew to $280.5 million, a level 55 million or 25 per cent higher than our pre pandemic revenue high of $225.4 million in fiscal 2019.

Adjusted EBITDA increased significantly to $48.1 million or.

Or 49.5 million in constant currency.

This exceeded the high end of our guidance range of between 47, and 49 million in constant currency and represented a 27.5 million or 133 per cent growth and adjusted EBITDA over our pre pandemic high of $20.6 million in fiscal 19.

Our subscription and subscription services sales reached 222.8 million growth of almost 100 million or 80% compared to our pre pandemic high of $124.1 million in fiscal 19.

And our balance of build an unbilled deferred revenue increased 22% or 33 million to $186.4 million.

Balance of Bill deferred revenue increased 38% to $99 million in fiscal twenty-three.

This significant growth in deferred revenue further elevates the trajectory predictability and visibility into future revenue growth.

As shown on slide five in our education business, an all time high of 791, new schools in the U S and Canada became leader in me schools, bringing the total number of leader of me schools in the U S and Canada to more than 3500, and the total worldwide to more than 6000 schools.

And finally, after making significant growth investments in the business, we used a portion of our excess liquidity to return $35.6 million to shareholders by repurchasing 885000 shares during the year.

In addition over the past eight quarters, we returned 59.4 million to shareholders in the form of share repurchases.

Moving up a level.

These results reflect the tremendous power of our continued focus on three fundamental priorities that if continued to drive our efforts and our results over the years.

You can see these reflected in slide six the.

The first of these priorities of strategic.

It has to be the partner of choice for our clients in addressing the challenges that really matter to them.

The second is to be able to accomplish that first priority, while also having a strong and profitable business model.

And the third is to reinvest our profits and castle high rates of return to create additional value.

We're really pleased to achieve strong progress on each of these fundamental priorities in the fourth quarter and throughout fiscal 2023 as a whole.

To accomplish our first priority being the partner of choice for our clients in addressing the challenges that really matter to them. We've organized the entire company around helping clients successfully address those mission critical opportunities and challenges challenges that required a collective action of their people.

Our first priority is to be so effective at accomplishing this that our clients become clients for life as many of them already have.

Having highly committed and loyal clients translates into a number of powerful outclass outcomes, including those shown on slide seven.

These include outcomes, such as consistently winning new logos or clients having.

Having subscription and subscription services revenue continue to increase as a percent of total company revenue.

Retaining substantially all of our subscription revenue.

Increasing our average subscription contract size.

Increasing the percent of logos under multiyear contracts.

Continuing to have clients purchase a considerable number of services to help them achieve their performance breakthroughs.

And achieving a high and growing lifetime customer value.

As you can see and slide eight we're pleased to have achieved strong results in each of these key outcomes and I'd like to share a few points of detail related to a few of these.

First as to winning new logos.

In fiscal twenty-three or sale to new logos, where the highest in company history.

Sales of all access passes to new logos and the enterprise Division grew 9% to the highest amount in any year since the conversion to all access pass eight years ago.

And as I mentioned previously a record 791, new schools became leader in these schools in our Education Division.

Second we're achieving elevated levels of revenue retention Ah revenue retention levels were high in the fourth quarter and for the year and the Enterprise Division in North America in the fourth quarter are all access pass subscription revenue retention levels return to their high historic levels of greater than 90 per cent.

And the Education Division, we continued to achieve high levels of school retention.

Third and increasing per cent of clients entered into multiyear contracts and.

It's shown on slide nine the percentage of all access pass clients entering into multiyear contracts increase further from its already high levels.

In fiscal 23, 54% of all access pass clients entered into multiyear contracts of at least two years up from 45% at the end of fiscal twenty-two.

Importantly, and even higher 58% of all access pass subscription revenue is now under multiyear contracts of at least two years up.

Up from 53% at the end of fiscal 22.

Why is this it's because of the value of these clients are receiving from a longterm partnership with Franklin Covey.

These long term contracts provide a tremendous foundation for both the predictability and acceleration of future revenue growth.

The fourth thing I'd point too is that are deferred revenue builder number build grew very rapidly or.

Our balance of building I'm, Bill deferred revenue increased 22% or 33 million to $186 4 million and our balance of build deferred revenue increased 13% to $99 million in a year.

It is it's quite remarkable to think back a few years ago. When we had virtually no deferred revenue in when the total revenues of the company, we're less than the deferred revenue we have today.

This significant growth in deferred revenue further elevates the trajectory predictability and visibility in the future revenue growth.

Fifth.

We're achieving strong growth in our average client spent our average all access pass subscription and subscription services revenue per client has also increased significantly over the years growing from an average of approximately $20000 per client when we launched all access pass eight years ago.

To 77000 at the end of fiscal 22.

This average spanned increase further to 83000.

Or eight by 8% per client and fiscal twenty-three.

The six point I would make is that we're achieving strong overall revenue growth and fiscal twenty-three are total revenue grew 17.7 million to $280.5 million.

Establishing this record revenue level was noteworthy for several reasons.

First it represented growth of more than $55.2 million or 25% compared to our pre pandemic Highmark revenue hi, Mark of $225.4 million in fiscal 19.

This growth is on top of a record high $38.7 million revenue growth achieved and fiscal 22.

The magnitude of which benefited from copying to a pandemic impacted period and fiscal 21.

Importantly, as shown in the bottom row, a slide 10.

On a rolling to your basis to normalize for fiscal 20 twos pandemic benefited comparison, our revenue grew 56.4 million or 25%.

Which is compounded at about 12% per year.

This 56.4 million of growth exceeded that of all but one other two year period since our business model conversion.

Which which was that of 21 to 22, another pan pandemic cough period.

And we're pleased to achieve this strong revenue growth in both the enterprise and Education Division is shown on slide 11th the enterprise divisions full year revenue of $205.7 million was its highest ever representing growth of 69.8 million or 51% since our conversion to a subscription model and.

2017.

And with the exception of additional $1 million and FX impact in the back half of the year enterprise revenue came in essentially as we expected.

This result represented growth of $11.3 million or 5.8% for the year. Importantly, this is on top of an extremely strong $25.8 million or 15% pandemic compared growth and fiscal 22.

The Enterprise Division two divisions to your growth of $37 million or 22% represented a strong annual compound growth rate of 10.4%.

The Education Division also achieved its highest revenue you're ever with revenue, increasing $7.9 million or 13% to $69.7 million, representing representing growth of 25.6 million or 58% since 2017.

I'd like to just maybe pause and step back for a second and thank our wonderful Associate Center Education Division you know it wasn't that long ago. When they first launched leader in me that the entire revenue in the division was just over $3 million.

As expected education also had his best you're ever in terms of winning new schools with 791, new schools, becoming leader in many schools.

The only factor not meeting expectations was it because of the extremely high number of new schools added in the year a portion of these new school signed up a month or so later than normal.

As a result, the services of materials that would normally have been delivered in the fourth quarter relating to this new schools were not able to be fully delivered in the fourth quarter.

Largely as a result of this and also reflecting the approximately $1 million of FX impact in the last two quarters in the enterprise Division or total company revenue of 280, <unk> 80, 280.5 million, though a record high came in 1.2% or $3.5 million lower than the.

$284 million, we had expected and we updated our forecast in our second quarter report.

We expect to ship the education division materials and deliver the Onboarding services for these new schools during fiscal 24.

And finally, we achieved even stronger growth in subscription and subscription services revenue. That's shown in 512 subscription subscription services revenue grew $20.7 million in fiscal twenty-three.

Importantly on a two year basis to normalize for last year's pandemic benefited comp subscription and subscription services revenue growth.

$65.6 million, representing annual compounded growth of 19%.

We're pleased to have achieved the strong results in each of these key outcomes.

As I mentioned earlier, our second priority is to be is to be able to accomplish our first priority. While also having a strong and profitable business model a.

A business model that results in a significant percentage of our growth in revenue flowing through to increases in adjusted EBITDA and cash flow.

As shown on slide 13, the continued strength of our business model is reflected in the following general outcomes.

First achieving strong gross margins.

Second having a cost of acquiring a customer that is less than the revenue generated even in the first year of a subscription contract.

Third having operating SG&A decrease as a percent of sales.

And for its continuing to grow our adjusted EBITDA, which significantly increases free cash flow.

As shown on 514, we're pleased that each of these key outcomes again remains strong in the fourth quarter and for fiscal 23.

Specifically is shown at 515 gross margin percent remained a strong 76.1% even after absorbing increased client reimbursed travel related travel related to increases in onsite delivery.

Which flows into revenue, but without any profit attached.

Operating SG&A as a percent of revenue improved a further 179 basis points to 59% in fiscal twenty-three even as a revenue increased.

We're achieving strong growth and adjusted EBITDA with adjusted EBITDA, increasing to 48.1 million or 49.5 million in constant currency Ah level above the highest end of our guidance range and adjusted EBITDA margin continued to increase reaching 17.1% for the year and improvement of 100 basis points.

As to our third priority, we want to we wanted to reinvest our profits and cashflow high rates of return to create even more value.

As indicated on slide 16 successfully achieving this priority is reflected by the following outcomes.

First invest in capital in the business of high rates of return in second returning substantial amounts of excess cash to shareholders in the form of stock buyback.

As shown in flight 17, as I mentioned a minute ago. We're pleased to have met each of these key outcomes again in fiscal twenty-three.

In physical twenty-three I return on net tangible assets from investments in the business continued to be high and as you can see on slide 18, we returned $35.6 million to shareholders through <unk> through purchasing 885000 shares, including returning $5.9 million through the purchase of 125000 shares in the <unk>.

Fourth quarter.

And we've invested $59.4 million repurchase shares over the last two years.

We're pleased to see the continued progress on these three priorities and fiscal twenty-three and how the combination of these has really become a powerful flywheel.

I'd like to briefly share how we see this powerful flywheel accelerating in the coming quarters in years.

First we want to become even more important and trusted to a growing number of clients in schools.

To accomplish this we've accelerated our focus in three key areas.

First ensuring that we maintain and expand our position of leadership and having what is truly the best in class content and solutions to help our clients in schools address their biggest challenges and opportunities.

Second.

You wanted to utilize technology, including AI to expand our reach and impact.

And third we want significantly expand the number and capabilities of our client partners and client engagement teams.

By focusing our efforts on these three areas, we expect as illustrated on slide 19 to be able to do the following.

To accelerate the number of new logos and schools that we acquire.

Further increase both are already very high levels of revenue retention and client retention.

And expand both the size of our average subscription contract and it's average duration, thereby significantly growing are already large and expanding lifetime customer value.

I'd like to spend just a just a minute or two on each of these and what we're in and give a little bit more contact for what we're doing to advance in each of these three areas.

First to be our clients partner of choice for addressing the challenges that really matter to them or content and technology are and must continue to be world class and delivering collective behavior change and measurable outcomes.

Over the past two years, we've made significant investments in content and technology and are pleased that fiscal 24 will be one of our biggest launch ears ever.

Two of our biggest blockbuster solutions the speed of trust in the seven habits of highly effective people have been completely re imagine and refreshed and both have been designed intentionally to better help our clients scale. These solutions throughout their organizations, leading to even more widespread collective behavior change and the opportunity for increased all <unk>.

This past penetration and expansion.

Additionally, we're launching our first ever solution to help leaders and individual contributors have difficult high value conversations a solution to which our clients have been asking us for quite some time.

We've also completely revamped our sales performance solutions and will launch that a little bit later this fall.

We continue to build powerful new technology capabilities into our platform, including enabling the future use of AI to make it easy for our clients to launch manager launched manage and measure Franklin Covey solutions at scale across our organizations.

A similar setup product and technology additions to our leader and me solutions are also being incorporated and launched this year to help schools and districts address the needs of pre K students.

And K 12 students as well as faculty and staff development.

We could not be more pleased with the quality and.

And expected impact these new and re madness solutions will have on our clients and we're just getting started over the next couple of years will continue to make very meaningful and strategic additions to the all access pass and leader in me solutions.

Second.

Since the launch of our subscription business in fiscal 16, we've significantly Grove three important client face a client facing roles.

We've increased the net number of client partners or salespeople by approximately 70% from 180 to 303.

And at the same time, we've launched and grown to new roles implementation strategist and leader and the coaches.

Which over time, we've increased from essentially 021 hundred 50, having.

Having significantly grow on the number of client partners over the past few years and fiscal twenty-three we chose to prioritize their ramp and development, while accelerating the growth of the newer roles of implementation strategist and leader in me coach.

As a result today, we have a client facing feel organization that is not only the largest in our company's history, but one that is among the largest in our industry. Each of these roles is critical to driving new clients subscription retention expansion and the sale of subscription services.

As a movement of fiscal 24, consistent with what we said at the end of our third quarter will not only continue to focus on the development of our existing people, but we will also grow the net new number of professionals in these important roles by adding approximately 40, new people by fiscal year end.

The combination of these factors are investment in building best in class solutions to must win games and the development and growth of our sales and client facing rowles gives us tremendous confidence in our ability to generate significant future revenue growth.

Our secondary of increased focus to even further strengthen our business model is just noted our focus on becoming an even more important partner to our clients and schools is expected to drive accelerated revenue growth. Our business model focuses on ensuring that a sizeable portion of these expected increases in revenues flow through to increases in adjusted.

EBITDA in cash flow.

As shown in 520 key areas of our business model focus or <unk>.

First I'll, ensuring that the tremendous impact our solutions deliver for clients or is this the kind of pricing power that allows us to maintain and even expand our strong gross margins.

Second that the expanding lifetime value of our customers allows us to continue to maintain or reduce our SG&A as a percent of sales.

And third that.

The resulting high flow through of revenue to adjusted EBITDA will increase our adjusted EBITDA margin to 20% in the coming years.

And finally.

Our third area of increased focus is to reinvest the significant amount of cash flow, we expect to generate to create even more value for shareholders.

We expect that expected the successful execution every business plan will generate significant amount the free cash flow over the next few years.

This free cash flow together with nearly $40 million of cash we have on our balance sheet showed in the coming years enable us to generate more than $150 million or around $11 per share to invest to drive organic and inorganic growth or to return to shareholders.

This provide the prospect of shareholders, earning a tremendous cash on cash return on their investment at the same time the value of that investment continues to accelerate.

Advances these priorities places us in a special category of companies is shown in slide 21, we're becoming a company that has consistently and simultaneously strengthening and expanding our strategic moat and the most important and lucrative space in our chosen markets.

Generating high rates of growth and adjusted EBITDA in free cash flow.

And generating outsize cash on cash in long term returns for our shareholders by investing that cash to create additional value.

I'd like to now turn some time over to Steve to discuss a result for the fourth quarter and the year and a little bit more detail and also to review our guidance.

Thank you Paul and good afternoon, everyone is nice to be with you.

I would like to briefly provide more detail on the factors underlying the strong performance.

Focusing on results in the key areas of our company.

Derek Hatch: I would now like to hand the conference over to your first speaker today, Derek Hatch. Please go ahead. Thank you. Good afternoon, everyone. On behalf of Franklin Covey, it's my pleasure to welcome you to our earnings call for the fourth quarter in full fiscal year of 2023.

Specifically, our enterprise business in North America the.

The enterprise business center nationally.

And both are direct offices Internet international licensee partner operation <unk>.

And our education business, which is primarily in North America.

Derek Hatch: Before we begin today's presentation, we'd like to remind everyone about forward-looking statements and 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 and are subject to various risks and uncertainties, including but not limited to the ability of the company to grow revenues, the acceptance of and renewal rates for our subscription offerings, including the all access pass and leader in me memberships, the ability of the company to hire productive sales and other client-facing, facing professionals, general economic conditions, competition in the company's targeted marketplace, market acceptance of new offerings or services and marketing strategies.

Has shown on slide 22.

Results in our enterprise business in North America continued to be strong.

Reported sales in North America.

Which account for 73% of total enterprise Division sales.

Grew 6% in FY twenty-three on top of 19% pandemic comp accelerated sales growth in F y 22.

For the fourth quarter of FY twenty-three sales decreased two per cent <unk>.

After drawing 17% in last year's record fourth quarter.

Derek Hatch: Changes in the company's market share, changes in the size of the overall market for the company's products, changes in the training and spending policies of the company's clients and other factors identified and discussed in the company's most recent annual report on Form 10K, another periodic report 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.

We are pleased with the 26 per cent growth, we have achieved in the enterprise business in North America over the past two years.

The first year of which is Paul noted benefited from coughing to their prior you're covered impacted resolved.

As noted we expect the beginning and Q2 of F Y 24, a year over year comparisons will become easier.

Derek Hatch: And there can be no assurance that the company's actual future performance will meet management's expectations. These forward-looking statements are based on management's current expectations and will later take no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of today's presentation, except is required by law.

Subscription and subscription services sales in North America grew 8% for F Y 23 on top of the 26 per cent growth achieved and the pandemic com painted F Y 22, resulting in two year growth of 37%.

Paul Walker: With that out of the way, we'd like to turn the time over to Mr. Paul Walker, our President and Chief Executive Officer. Thank you, Derek. Hello, everyone. Thanks so much for joining us today. We're glad to have the chance to talk with you, and we want to let you know how much we appreciate each of you. Joining me on the call today are Steve Young, our CFO, Jennifer Colisemo, President of our Enterprise Division, Sean Covey, President of our Education Division, and other members of the Executive Team. We're also happy to have our Chairman Bob Whitman on with us today as well.

We are pleased with the growth right. So we have achieved in the enterprise business in North America.

A balance of deferred sales building unveiled in North America grew 18%.

Compared to last year's fourth quarter balance, establishing a sturdy base for next year's growth.

And the percent of North America's all access pass client agreements that were for a multiyear periods increased to 54% from 45% in FY 22.

Paul Walker: I'd like to start out by saying how pleased we are with our result for the fourth quarter in the full fiscal year 2023. As shown on slide four, some highlights include the following. Revenue grew to $280.5 million, a level 55 million or 25 percent higher than our pre-pandemic revenue high of $225.4 million in fiscal 2019. Adjusted EBITDA increased significantly to $48.1 million or $49.5 million in constant currency. This exceeded the high end of our guidance range of between $47.49 million in constant currency and represented a $27.5 million or $133 percent growth in adjusted EBITDA over our pre-pandemic high of $20.6 million in fiscal 2019.

The percentage of invoice sales representative multiyear contracts as Paul said increased to 58%.

And FYI twenty-three up from 53% last year.

Has shown inside twenty-three revenue from in our international operations, which account for approximately 17% of our total enterprise Division revenue increased 1.9 million or 6% in a year and go 8% in the fourth quarter.

The annual and quarterly growth, we're both primarily driven by improved results in China.

Also inside twenty-three ironer national licensee partner sales grew 10% for the year and the corner.

We're pleased with these results, particularly considering the adverse impact of F X in a challenging geopolitical environment.

Paul Walker: Our subscription and subscription services sales reached $222.8 million, growth of almost $100 million or 80 percent compared to our pre-pandemic high of $124.1 million in fiscal 2019, and our balance of build and unbuild deferred revenue increased 22% or 33 million to 186.4 million. Our balance of build deferred revenue increased 18% to 99 million in fiscal 23. This significant growth in deferred revenue further elevates the trajectory, predictability, and visibility into future revenue growth.

Finally, the results in our education business, which accounts for about 25 per cent of the total company.

13% for the year, but decreased 2% from the record level achieved in the fourth quarter of FY twenty-two, which as we mentioned earlier both that we had a record number of schools <unk>.

And that not all revenue from those schools that we normally get made it into the fourth quarter.

As shown on slide 24 education subscription subscription services sales growth was strong increasing 13% for the year.

Paul Walker: As shown on slide five in our education business, an all-time high of 791 new schools in the US and Canada became leader in eSchools, bringing the total number of leader in eSchools in the US and Canada to more than 3500 and the total worldwide to more than 6,000 schools. And finally after making significant growth investments in the business, we used a portion of our access liquidity to return $35.6 million to shareholders by repurchasing 885,000 shares during the year. In addition over the past eight quarters, we've returned 59.4 million to shareholders in the form of share repurchases.

Decreasing 3% for the fourth quarter.

Education's balance of deferred subscription sales build an unbilled increased 24% in a year.

And year over year attention of later than me schools remain extremely high and nearly 85.

<unk> for FY twenty-three.

I've shown on slide 25 are cash flows from operating activities was $35.7 million for the year.

Paul Walker: Moving up a level, these results reflect the tremendous power of our continued focus on three fundamental priorities that have continued to drive our efforts and our results over the years. You can see these reflected in slide six. The first of these priorities is strategic. It's to be the partner of choice for our clients in addressing the challenges that really matter to them. The second is to be able to accomplish that first priority while also having a strong and profitable business model. And the third is to reinvest our profits and cash flow high rates of return to create additional value.

Consistent with our expectation that cash flows would strengthen in the back half of this fiscal year back.

Back have cash flows were more than doubled those achieved in the first half.

As you recall mid last year, we noted that this year's cash ones would be lower than the past couple of years, primarily reflecting a decrease in accrued liabilities and accounts payable and an increase in accounts receivable from increase sales.

We expect cash flow from operating activities to increase significantly in F. Y 24, we also expect our free cash flow to increase significantly in FY 24.

Paul Walker: We're really pleased to have achieved strong progress on each of these fundamental priorities in the fourth quarter and throughout fiscal 2023 as a whole. To accomplish our first priority of being the partner of choice for our clients and addressing the challenges that really matter to them. We've organized the entire company around helping clients successfully address those mission critical opportunities and challenges that require the collective action of their people. Our first priority is to be so effective at accomplishing this that our clients become clients for life as many of them already have.

Finally, even after investing 59.4 million of excess liquidity for stock purchases in the last two years, including $35.6 million in FY twenty-three.

We ended the fourth quarter with more than 100 million in liquidity.

Including the $38.2 million in cash and with our full 62.5 million revolving credit facility Undrawn. So we're pleased with the performance in our in our divisions.

Paul Walker: Having highly committed and loyal clients translates into a number of powerful outcomes, including those shown on slide seven. These include outcomes such as consistently winning new logos or clients, having subscription and subscription services revenue continued increase as a percent of total company revenue. Retaining substantially all of our subscription revenue, increasing our average subscription contract size, increasing the percent of logos under multi year contracts, continuing to have clients purchase a considerable number of services to help them achieve their performance breakthroughs and achieving a high and growing lifetime customer value.

Now now for guidance.

Franklin Covey is financial strategy is to consistently grow revenue and at the same time experience a high flow through of that increased revenue to adjusted EBITDA in cash.

Our guidance is consistent with that strategy.

Shown on slide 26, the companies reported adjusted EBITDA of $48.1 million in FY twenty-three is an increase of 14% over last year and the highest amount ever for this business.

As Paul noted this record result reflects growth of 27.5 million or 133 per cent compared to our preterm pandemic FY 19 resolve $20.6 million.

Paul Walker: As you can see in slide eight, we're pleased to have achieved strong results in each of these key outcomes. And I'd like to share a few points of detail related to a few of these. First, as to winning new logos. In fiscal 23, our sale to new logos were the highest in company history. Sales of all access passes to new logos in the enterprise division grew 9% to the highest amount in any year since the conversion to all access pass eight years, to go. And as I mentioned previously, a record, 791 new schools became leader in these schools in our education division.

We expect future financial results to continue to show significant increases each year.

Guidance for next year FY 24 shown on slide 27 is that adjusted EBITDA will increase by 17% approximately over the FY twenty-three high watermark.

Two between 54.5 $58 million.

We are pleased that considering constant currency fluctuations of $1.5 million due to F X.

Paul Walker: Second, we're achieving elevated levels of revenue retention. Our revenue retention levels were high in the fourth quarter and for the year. In the enterprise division in North America, in the fourth quarter, our all-access past subscription revenue retention levels returned to their high historic levels of greater than 90 percent. In the education division, we continued to achieve high levels of school retention.

This guidance is actually a bit higher than we have been talking about in past quarters.

Are adjusted you about target for F. Y 25 of 66 million represents an additional increase of 17% over F Y 24, and again considering constant currency also represents a bit better growth trajectory and we've been talking about for some time.

Paul Walker: Third, an increasing percent of clients entered into multi-year contracts. And as shown on slide 9, the percentage of our all-access past clients entering into multi-year contracts increased further from its already high levels. In fiscal 23, 54 percent of all-access past clients entered into multi-year contracts of at least two years, up from 45 percent at the end of fiscal 22. Importantly, an even higher 58 percent of all-access past subscription revenue is now under multi-year contracts of at least two years, up from 53 percent at the end of fiscal 22. And why is this? It's because of the value these clients are receiving from a long-term partnership with Franklin Covey. These long-term contracts provide a tremendous foundation for both the predictability and acceleration of future revenue growth.

And F Y 26, we expected to jump it adjusted EBITDA do well be well into the 70 plus million dollar range.

Our guidance considers among other factors that the following current <unk> world economic and business conditions considers continue recovery of the business in China, Japan and certain licensees.

Consider that a revenue growth rate of at least high signal digit.

And is in constant currency.

This full year guidance is particularly strong considering that we expect first quarter sales and adjusted EBITDA to perhaps be slightly less than last year.

Paul Walker: The fourth thing I'd point to is that our deferred revenue build and build grew very rapidly. Our balance of build and build deferred revenue increased 22 percent or 33 million to 186.4 million. And our balance of build deferred revenue increased 13 percent to 99 million in the year. It's quite remarkable to think back a few years ago when we had virtually no deferred revenue and when the total revenues of the company were less than the deferred revenue we have today. This significant growth in deferred revenue further elevates the trajectory predictability and visibility into future revenue growth.

Our first quarter guidance is that adjusted EBITDA will be between eight and a half and nine and a half million dollars <unk>.

Strong, but still lower than last year's record $11.5 million.

This reflects primarily that our service revenues, while still our second highest dollar amount ever.

Will be lower than last year's record first quarter.

This last year's first quarter, we had a record a piece of prescription services quarter in North America are more than $12 million, reflecting a 61% attachment right.

Paul Walker: Fifth, we're achieving strong growth in our average client spend. Our average all-access past subscription and subscription services revenue per client has also increased significantly over the years. Growing from an average of approximately $20,000 per client when we launched all-access past eight years ago to 77,000 at the end of fiscal 22, this average spend increased further to 83,000 or by 8 percent per client in fiscal 23.

Reflecting a handful of clients who are in their launch phase and therefore purchased extra services two of which made up a significant portion of this difference.

This compares to a normal attachment right in the mid fifties mid fifties fifties, which we expect to exceed this year.

This guidance, obviously signals that we would expect a sales growth rate compared to last year to accelerate throughout this year.

Paul Walker: The sixth point I would make is that we're achieving strong overall revenue growth. In fiscal 23, our total revenue grew 17.7 million to 280.5 million. Establishing this record revenue level was not worthy for several reasons. First, it represented growth of more than 55.2 million or 25 percent compared to our pre-pandemic high mark, revenue high mark of 225.4 million in fiscal 19. This growth was on top of a record high 38.7 million of revenue growth achieved in fiscal 22.

Reversing the quarterly growth rate tin of FY twenty-three, which is notice was up against pandemic impacted comps.

Well, many economic and other factors could impact these expectations.

We're very excited about our financial future now back to Paul.

Thank you Steve.

Before we transitioned to the Q&A portion of our call I thought I would begin by addressing a question that.

Some of you previously indicated an interest in and that that is this how how are we thinking about growth generally and particularly in the current environment.

Paul Walker: The magnitude of which benefited from copying to a pandemic-impacted period in fiscal 21. Importantly, I have shown in the bottom row of slide tests, on a rolling two-year basis, to normalize for fiscal 22's pandemic-benefit in comparison, our revenue grew 56.4 million, or 25 percent, which is compounded at about 12 percent per year. This 56.4 million of growth exceeded that of all but one other two-year periods since our business model conversion, which was that of 21 to 22, another pandemic cost period.

I thought I provide you with a little bit of color about what we're seeing right now and while we're bullish about our ability to continue to grow meaningfully and physical twenty-four beyond.

I'll start by saying, how incredibly grateful I am for our talented associates and partners all over the world for their tremendous efforts to build are rapidly growing subscription business.

As you recall in fiscal 20, our revenue was $195 million Hunter Hunter $95 million in our EBITDA with $14 million.

As we shared the day. Since then revenue is not only return to our pre pandemic high of $224 million.

But has grown by nearly $90 million well past, the pre pandemic, hi to more than $280 million.

Paul Walker: And we're pleased to have achieved this strong revenue growth in both the enterprise and education divisions. As shown on slide 11, the enterprise division's full-year revenue of $205.7 million was its highest ever. Representing growth of $69.8 million, or 51 percent, since our conversion to a subscription model in 2017. And with the exception of additional $1 million in effects impact in the back half of the year, enterprise revenue came in essentially as we expected.

At the same time adjusted EBITDA has grown by more than $34 million from 14 million to $48.1 million.

Additionally over the past two years, we've grown revenue by $56 million or a little over 12% compounded per year, we feel particularly good about this growth and the strength of our growth engine going forward and are grateful to our clients for trusting us to be their partner through both good and challenging times.

Paul Walker: This result represented growth of $11.3 million, or 5.8 percent, for the year. Importantly, this is on top of an extremely strong $25.8 million, or 15 percent pandemic compared growth in fiscal 22. The enterprise division's two-year growth of 37 million, or 22 percent, represented a strong annual compound growth rate of 10.4 percent. The education division also achieved its highest revenue year ever, with revenue increasing $7.9 million, or 13 percent, to $69.7 million. Representing growth of 25.6 million, or 58 percent, since 2017.

Yes, there are thinking about our future growth from here. There are a number of factors that give us confidence related to future revenue growth and upside I'd like to share five of these factors and then we'll open up to Q&A.

First.

We've chosen to focus on the most lucrative indefensible space in our industry. As you know we've chosen to focus our entire organization on solving must win challenges with best in class solutions.

These challenges and solutions include among others equipping leaders with the mindset skill sets and tool sets to generate breakthrough results.

Instilling habits of personal and interpersonal effectiveness and individuals all across organizations.

Creating high trust and inclusive cultures.

And generating collective action and execution on an organization's most important goals.

Paul Walker: I'd like to just maybe pause and step back for a second and thank our wonderful associates in our education division. It wasn't that long ago when they first launched leader in me that the entire revenue in the division was just over $3 million. As expected, education also had its best year ever in terms of winning new schools, with 791 new schools becoming leader in me schools. The only factor not meeting expectations was that because of the extremely high number of new schools added in the year, a portion of these new schools signed up a month or so later than normal. As a result, the services and materials that would normally have been delivered in the fourth quarter, relating to these new schools, were not able to be fully delivered in the fourth quarter.

While others are competing with vast libraries of increasingly undifferentiated content were doubling down on the development of solutions and technologies to truly drive collective action behavior change and breakthrough results.

The second factor I would point too is that a significant portion of our growth will come from our balance sheet are deferred subscription revenue build an unbilled grew by 22% or $33 million in FY 2003 to $186 $4 million and all of this deferred revenue will with certainty convert to revenue.

The third factors that we have a lot of embedded growth in our current and future salesforce.

Paul Walker: Largely as a result of this, and also reflecting the approximately $1 million that affects impacts in the last two quarters in the enterprise division, our total company revenue of $280.5 million, though a record high, came in $1.2 percent or $3.5 million lower than the $284 million we'd expected when we updated our forecast in our second quarter report. We expect to ship the education division materials and deliver the onboarding services for these new schools during fiscal 24.

We have more than 60, new client partners and another 60 or more implementation strategists and leader in me coaches in key client facing roles than we had just a few years ago.

Each of these people are still only partially through their ramp to full revenue present potential representing more than $100 million of future revenue growth already in our field system as these people reach ramp maturity.

Additionally will add approximately 40, new people to these ranks this year, representing tens of millions of dollars of additional revenue over the course of the next five years as this year's fiscal twenty-four cohort ramps and matures.

Paul Walker: And finally, we achieve even stronger growth on subscription and subscription services revenue. Now, shown in slide 12, subscription and subscription services revenue grew $20.7 million in fiscal 23. Importantly on a two-year basis to normalize for last year's pandemic-benefitted comp, subscription and subscription services revenue growth, with $65.6 million representing annual compounded growth of 19 percent. We're pleased to have achieved the strong results in each of these key outcomes.

The fourth factors that we're investing as I mentioned earlier, and new content and technology to help us penetrate and expand our powerful solutions within more organizations and schools all over the world.

And finally, the fifth factor that we retain substantially all of our subscription revenue. This creates a very strong foundation upon which to build and add new growth.

As Steve mentioned and I'll reiterate where can we continue to feel incredibly good about the results from fiscal twenty-three and also good about and have a high level of confidence about the durability and our growth expectations of our all access pass and leader in the subscription business and.

Paul Walker: As I mentioned earlier, our second priority is to be able to accomplish our first priority while also having a strong and profitable business model. A business model that results in a significant percentage of our growth and revenue flowing through to increases in adjusted EBITDA and cash flow. As shown on slide 13, the continued strengths of our business model is reflected in the following general outcomes. First, achieving strong growth margins. Second, having a cost of acquiring a customer that is less than the revenue generated even in the first year of a subscription contract. Third, having operating SGNA decrease as a percent of sales. And fourth, continuing to grow our adjusted EBITDA, which significantly increases free cash flow.

In the months quarters in years to come.

With that we would now like to ask Sean the operator to open the lines and will take some of your questions.

Thank you Paul at this time, we will conduct a question and answer session has a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please stand by while we can pile the Q&A roster.

Our first question comes from the line of Alex Paris with Barrington Research you May go ahead.

Paul Walker: As shown on slide 14, we're pleased that each of these key outcomes again remain strong in the fourth quarter and for fiscal 23. Specifically, as shown on slide 15, growth margin percent remained a strong 76.1% even after absorbing increased client reimbursed travel related, travel related to increases in on-site delivery, which flows into revenue but without any profit attached. Operating SGNA as a percent of revenue improved a further 179 basis points to 59% in fiscal 23, even as our revenue increased.

Hi, Alex.

Oh <unk>.

Alex are you there.

Oh, Alex might be trying to come off mute.

Sean should we yep. Please standby I've begun to look forward to the next question.

Okay great.

Paul Walker: We're achieving strong growth in adjusted EBITDA with adjusted EBITDA increasing to 48.1 million or 49.5 million in constant currency, a level above the highest end of our guidance range. And adjusted EBITDA margin continued to increase reaching 17.1% for the year and improvement of 100 basis points.

Our next question comes from Jeff Martin with Roth M. K M. You May proceed.

Okay. Thanks, good afternoon.

Oh I wanted to get it <unk> hi, how are you.

Good.

I I missed the first 20 minutes the cost of some of these questions are done and I apologize wanted to get a sense of you know kind of trends in the service attachment right in queue for I didn't catch that what was the percentage specifically in queue for I think he gave it for the full year and other things pause.

Paul Walker: As to our third priority, we want to reinvest our profits and cash flow at high rates of return to create even more value. As indicated on slide 16, successfully achieving this priority is reflected by the following outcomes. First, investing capital in the business at high rates of return and second, returning substantial amounts of excess cash to shareholders in the form of stock buybacks.

They are negatively impacting that I know you mentioned Q1 is a tough comp.

But just kind of broadly speaking given the current environment facing any impact on the attach right.

Paul Walker: As shown on slide 17, as I mentioned a minute ago, we're pleased to have met each of these key outcomes again in fiscal 23. In fiscal 23, our return on net tangible assets from investments in the business continued to be high. And as you can see on slide 18, we return $35.6 million to shareholders through purchasing 885,000 shares, including returning $5.9 million through the purchase of 125,000 shares in the fourth quarter. And we've invested 59.4 million to repurchase shares over the last two years.

Q for yeah, so the the attach right.

Paul Walker: We're pleased to see the continued progress on these three priorities in fiscal 23 and how the combination of these has really become a powerful flywheel.

The attach rating Q4 was was was was quite good. So we talked about being kind of at a mid fifties average historically in queue for it was we had detach right with 60%.

So it was one of our stronger attach quarters.

And.

Again that then that's kind of what we're thinking this year will look like that it will be.

Like Q4 was like most of last year was I think our attach rate for the year was throughout 59% for the year, so kind of writing that.

We kind of moved over time, you'll recall back when we started we were talking about attach rates that were in the 30% and it just kind of kept inching up over time.

Paul Walker: I'd like to briefly share how we see this powerful flywheel accelerating in the coming quarters and years. First, we want to become even more important and trusted to a growing number of clients in schools. To accomplish this, we've accelerated our focus in three key areas. First, ensuring that we maintain and expand our position of leadership and having what is truly the best in class content and solutions to help our clients in schools address their biggest challenges and opportunities, to expand our reach and impact, and third, we want to significantly expand the number and capabilities of our client partners and client engagement teams.

Got it and then in terms of sales conversion what kind of trends are you noticing.

Paul Walker: By focusing our efforts on these three areas, we expect, as illustrated on slide 19, to be able to do the following, to accelerate the number of new logos and schools that we acquire, further increase both our already very high levels of revenue retention and client retention, and expand both the size of our average subscription contract and its average duration, thereby significantly growing our already large and expanding lifetime customer value.

Today.

Two and.

The economy, I was a bit stronger perhaps in and.

Now with the client partners that you brought on in queue for what what kind of timeline should we expect before those start contributing.

Contributing to an acceleration of growth here.

Yeah, Great question so.

One thing we did mentioned in the first part of the call that you might not have been on for we were quite pleased fiscal twenty-three with our our best year for a new logo ads both in the Enterprise Division all access pass new clients and in the Education Division New leader in the schools that.

That we've had since we converted to a subscription to the secretion business and so you know in a in the environment that we're in we're really pleased to have our best year ever.

And acquiring new logos.

That's one thing I would point to that we mentioned earlier as it relates to the to the new client partners. We've added we feel great about the people that we've added there right there right in the middle of their ramp right now.

Paul Walker: I'd like to spend just a minute or two on each of these and give a little bit more context for what we're doing to advance in each of these three areas. First, to be our client's partner of choice for addressing the challenges that really matter to them, our content and technology are and must continue to be world-class in delivering collective behavior change and measurable outcomes. Over the past two years, we made significant investments in content and technology and are pleased that fiscal 24 will be one of our biggest launch years ever.

We've added we I think we mentioned maybe in our second quarter call. We talked about the expanded resources that we've added there to ensure that the ongoing continued successful ramp of client partners.

One of the things we pointed to in our third quarter call you recall as it as we've.

So not only did we have the historic ramp rates that went you know 200000 in somebody's first year of net new revenue to 500 800 to one one and then one three by your five as we've track. These cohorts now in our new subscription model.

Paul Walker: Two of our biggest blockbuster solutions, the speed of trust and the seven habits of highly effective people have been completely reimagined and refreshed and both have been designed intentionally to better help our clients scale these solutions throughout their organizations, leading to even more widespread collective behavior change and the opportunity for increased all access past penetration and expansion. Additionally, we're launching our first ever solution to help leaders and individual contributors have difficult high-value conversations, a solution to which our clients have been asking us for quite some time.

Through the years beyond your five we're now seeing these cohorts are moving up towards $2 million and so what what what used to be a revenue story that went from 200000. The first year to 1.3, and then might've drawn by a couple of points.

Each year thereafter, we're now seeing these these cohorts continue to mature because they're these client partners of retaining the vast majority of their subscription revenue and they start without the next year and they can build upon it.

Okay, and then last question for me.

Paul Walker: We've also completely revamped our sales performance solutions and we'll launch that a little bit later this fall. We continue to build powerful new technology capabilities into our platform, including enabling the future use of AI to make it easy for our clients to launch, manage, and measure Franklin Covey solutions at scale across our organizations. A similar set of product and technology additions to our leader and me solutions are also being incorporated and launched this year to help schools and districts address the needs of pre-K students and K-12 students as well as faculty and staff development.

You're adding 40.

Hi, I'm partners and related.

Yeah.

Integration specialists and physical Tony for what what kind of timeline should we expect that to to ramp and I asked the question because modeling that.

From and SG&A standpoint does have an impact.

Sure.

Yeah, I think so they'll they'll be.

A little bit more evenly spread throughout the this year, but they will still be towards you know they won't be out that very very and there'll be kind of midway through the year back half of the year at knowing that we just added a significant number in the back half of this last year that we're ramping right now so I would model it towards the middle and back half of the year.

Paul Walker: We could not be more pleased with the quality and expected impact these new and reimagined solutions we'll have on our clients and we're just getting started. Over the next couple of years, we'll continue to make very meaningful and strategic additions to be all access past and leader and me solutions.

Great. Thanks for your time.

Yeah. Thanks, Jeff.

One moment for our next question.

Paul Walker: Second, since the launch of our subscription business in fiscal 16, we've significantly grown three important client-facing roles. We've increased the net number of client partners or sales people by approximately 70% from 180 to 303. And at the same time, we've launched and grown two new roles, implementation strategists and leader and me coaches, which over time we've increased from essentially zero to 150. Having significantly grown the number of client partners over the past few years, in fiscal 23, we chose to prioritize their ramp in development while accelerating the growth of the newer roles of implementation strategist and leader and me coach.

Our next question comes from Dave storms as Stoney Stonegate capital markets. You May proceed.

Good afternoon.

How's it going.

Great <unk>, sorry, just wanted to kind of start with the education business great to see that you added. So many schools curious as to what you're seeing as you onboard more schools are you still able to generate the same amount of revenues per school or district, and do you see any inflection point as to when you know.

It maybe that environment gets a little more challenging.

Great I'll I'll I'll ask shunk heavy to share a couple of thoughts Sir.

Paul Walker: As a result, today we have a client-facing field organization that is not only the largest in our company's history but one that is among the largest in our industry. Each of these roles is critical to driving new client subscriptions, retention, expansion, and the sale of subscription services.

Sean do you Wanna, you Wanna take those on yeah.

Sure Hi, Dave.

Yeah, So we added.

He added 791, new schools this year, which is the best we've done and we expect to do more next year.

We also one of the reasons. This is happening our school graph Misko Graff is because we're really focusing on districts.

Paul Walker: As we move into fiscal 24, consistent with what we said at the end of our third quarter will not only continue to focus on the development of our existing people but we will also grow the net new number of professionals in these important roles by adding approximately 40 new people by fiscal year end. The combination of these factors, our investment in building best-in-class solutions to must-win games, and the development and growth of our sales and client-facing roles gives us tremendous confidence in our ability to generate significant future revenue growth.

This last year, we brought on 147, new districts compared to 65, a year before and we expect that number to increase substantially this year as well.

And so when you bring on districts, usually bring them on in clumps, sometimes it disrupts their small they have three or four schools, sometimes are huge with 50 to 100 schools.

And so we feel like.

The opportunity for new <unk>, new schools being brought on over the next several years is really good I think that.

Paul Walker: Our secondary have increased focus to even further strength on our business model. As just noted, our focus on becoming an even more important partner to our clients and schools is expected to drive accelerated revenue growth. Our business model focuses on ensuring that a sizable portion of these expected increases in revenues flow through to increases in adjusted EBITDA and cash flow. As shown in slide 20 key areas of our business model focus are first on ensuring that the tremendous impact our solutions deliver for clients earns us the kind of pricing power that allows us to maintain and even expand our strong growth margins.

It's and also the Detrick focus is one reason why another reason why is because we're getting really good client outcomes and word of mouth spreads fast.

Here, we just landed our second state sponsored contract. We did one last year, we have several more in the hopper right now or is it the states are learning about what's happening inside of some of their bigger districts.

Paul Walker: Second, that the expanding lifetime value of our customers allows us to continue to maintain or reduce our SGNA as a percent of sales and third that the resulting high flow through of revenue to adjusted EBITDA will increase our adjusted EBITDA margin to 20% in the coming years.

And coming in to help sponsor schools and get behind them to get you know to accelerate growth.

That is helping a lot that the funding environment very positive right now I think the number one reason why is because we have.

A large foundation.

If you look at our historical number of Laramie schools 6000 or so.

About a third of them have been sponsored.

By companies by organizations by you know foundations and other partners.

Paul Walker: And finally, our third area of increased focus is to reinvest the significant amount of cash flow we expect to generate to create even more value for shareholders. We expect that the successful execution of our business plan will generate significant amounts of free cash flow over the next few years. This free cash flow, together with nearly 40 million of cash we have on our balance sheet, should in the coming years enable us to generate more than $150 million or around $11 per share to invest to drive organic and inorganic growth or to return to shareholders. This provides the prospect of shareholders earning a tremendous cash on cash return on their investment at the same time, the value of that investment continues to accelerate.

They don't pay for all of it they they paid for a good chunk to help the schools get started.

And so we have as I've shared before we have.

A partnership with a large foundation that's committed to sponsoring literally thousands of schools over the next decade to help to help later I may get going in the schools and districts.

After finding is still around for another year. It expires at the end of this year.

We do have a lot of multiyear contracts in place that will help us in the coming years I think we'll see some impact from that next year, but.

We primarily get funding from title one entitled $2 that is not going away and will always be there.

Paul Walker: Advancing these priorities places us in a special category of companies. As shown in slide 21, we're becoming a company that is consistently and simultaneously strengthening and expanding our strategic mode in the most important and lucrative space in our chosen markets. Generating high rates of growth and adjusted EBITDA on free cash flow and generating outsized cash on cash in long-term returns for our shareholders by investing that cash to create additional value.

But yeah.

Yeah, I think for the foreseeable future we see an.

Ongoing increased growth and number new schools will bring on each year in the U S and Canada.

And you know again there'll be some maybe funding impact next year from the extra funds expiring, but we don't think we still think will grow the following year.

And you know those are the primary reasons why I think it's going well.

Does that answer your question David.

<unk>, that's great color incredibly helpful. Thank you Sean.

Steve Young: I'd like to now turn some time over to Steve to discuss our results for the fourth quarter and the year in a little bit more detail and also to review our guidance. Steve. Thank you Paul and good afternoon everyone. It's nice to be with you. I would like to briefly provide more detail on the factors underlying the strong performance focusing on results in the key areas of our company, specifically our enterprise business in North America, the enterprise business internationally in both our direct offices, international licensee partner operations and our education business which is primarily in North America.

Yeah, and then just one more from me if I could you mentioned organic growth being Central Avenue with you know your your anticipated cash generation of it. This next several years hopefully is there anything you're seeing in the market that is attractive or.

How how are you kind of thinking about your capital allocation right now.

I'll speak to the growth side, and then maybe Steve could could you could talk about any other capital allocation.

The point you'd like to make so first.

We we have been and continue and as we reported expect to generate significant amounts of cash we are and we expect that we will and so what to do with that cash is a great question you know the the.

Steve Young: As shown on slide 22, results in our enterprise business in North America continued to be strong. Reported sales in North America which account for 73% of total enterprise division sales grew 6% in FY23 on top of 19% pandemic complex-celerated sales growth in FY22. For the fourth quarter of FY23 sales decreased 2% after growing 17% in last year's record fourth quarter. We are pleased with the 26% growth we have achieved in the enterprise business in North America over the past two years.

Order of priority for us would be the first and best that back in the business in the form of organic growth and we think that there's there's a tremendous opportunity to continue to drive organic growth in.

In our business, we while we're doing great. We had a record number of new logo, the new schools last year.

There are still.

Fortunately a significant number of organizations out there in schools and districts that would benefit from what we have and we just we think that some ways. We're just.

As far as we've come we're still just getting started with the impact that we could have it to grow our sales force we help them more effectively we put money into marketing we put money into content. We can we build solutions like like those were launching this year that are are built to really scale up and down the cross organizations to get out the large.

Steve Young: The first year of which is Paul noted benefited from comping to the prior year COVID impacted result. As noted we expect the beginning in Q2 of FY24 year-over-year comparisons will become easier. Subscription and subscription services sales in North America grew 8% for FY23 on top of the 26% growth achieved in the pandemic-compated FY22 resulting in two-year growth of 37%. We are pleased with the growth rates we have achieved in the enterprise business in North America.

We've talked in the past about client penetration that while we're thrilled that average revenue per client increased again. This year from 77000 to 83000, that's still a fraction of the revenue that we believe is available just inside or average current client today and so we're thinking about about that as we build solutions as we ramp these leader and.

Coaches and these implementation strategist, it's with the the the clear visibility in our minds that we can expand significantly within our current client organizations and there are a lot of clients for us to add so that's first use of cash is to invest in those areas of growth that that we can see that our what we call organic second there are some.

Steve Young: A balance of deferred sales build and unbuild in North America grew 18% compared to last year's fourth quarter balance establishing a sturdy base for next year's growth and the percent of North America's Alex has passed client agreements that were for multi-year periods increased to 54% from 45% in FY22. The percentage of invoice sales represented by multi-year contracts as Paul said increased to 58% in FY23 up from 53% last year. As shown in slide 23 revenue for our international operations which account for approximately 17% of our total enterprise division revenue increased 1.9 million or 6% in the year and go 8% in the fourth quarter.

Interesting and I think going to be some interesting inorganic opportunities for us to explore as we get bigger.

As we continued our focus on really differentiating are solutions around having this best in class content there are <unk>.

Maybe won't get into the exact specifics today, just to not get that out there, but but there are some areas, where we think there are some adjacent <unk> very near in adjacent opportunities that would either add capability or might add additional customers and revenue.

While we're building those same things ourselves quickly and.

And then of course, you know after having done those first two priorities. We we have over the past many years returned a lot of.

Cash to shareholders in the form of share repurchases, Steve I Dunno, if you want to say anything about that no. I mean, we were we do think that that will be able to allocate enough resource to run the business center and to pursue current opportunities to.

Steve Young: The annual and quarterly growth were both primarily driven by improved results in China. Also on slide 23 our international licensee partner sales grew 10% for the year and the quarter. We're pleased with these results particularly considering the adverse impact of FX in a challenging geopolitical environment. Finally the results in our education business which accounts for about 25% of the total company grew 13% for the year but the trees 2% from the record level achieved in the fourth quarter of FY22 which as we mentioned earlier both that we had a record number of schools, and that not all the revenue from those schools that we normally get made it into the fourth quarter.

To do some more tuck in type acquisitions, and as long as the acquisitions that we might do or tuck in time, but not transformative larger than we expect also have available cash we don't mind, having a little bit on the balance sheet and some unused liquidity, but we also see the value is shown in the last couple of years of.

Of repurchasing company stock and think that's a good opportunity to increase the high for shareholders awful.

Thanks, Steve Thanks, Dave.

As a reminder, task question you you'll need to press Star One line on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.

One moment for our possible next question.

Steve Young: Astronaut slide 24, education subscription and subscription services sales growth was strong, increasing 13% for the year but decreasing 3% for the fourth quarter. Education's balance of deferred subscription sales build and unbuild increased 24% in the year and year over year attention of leader in me schools remain extremely high and nearly 85% for FY 23. I shown on slide 25, our cash flows from operating activities was 35.7 million for the year. Consistent with our expectation that cash flows would strengthen in the back half of this fiscal year, our back half cash flows were more than double those achieved in the first half.

I am showing for that no further questions at this time and now like to turn it back to Paul Walker for closing remarks.

Thanks, Sean well just again, thank you for joining us today, thanks for continuing to to partner with US. We appreciate you and appreciate the the great.

Lengths that you go to understand our story and and for the advice and thoughts you have we hope you have a great rest of your evening and have a great week ahead. Thanks.

It does conclude the program you may now disconnect.

Mmm.

[music] [music].

Steve Young: As you recall, mid last year we noted that this year's cash flows would be lower than the past couple of years, primarily reflecting a decrease in accrued liabilities and accounts payable and an increase in accounts receivable from increased sales. We expect cash flows from operating activities to increase significantly in FY 24. We also expect our free cash flow to increase significantly in FY 24. Finally, even after investing 59.4 million of excess liquidity for stock purchases in the last two years, including 35.6 million in FY 23.

Steve Young: We ended the fourth quarter with more than 100 million in liquidity, including the 38.2 million in cash and with our full 62.5 million revolving credit facility on gone. So we're pleased with the performance in our in our divisions.

Steve Young: Now for guidance. Franklin Covey's financial strategy is to consistently grow revenue and at the same time experience a high flow through of that increased revenue to adjusted EBIT on cash. Our guidance is consistent with that strategy.

Steve Young: Showed on slide 26, the company's reported that adjusted EBIT of 48.1 million in FY 23 is an increase of 14% over last year and the highest amount ever for this business. As Paul noted, this record result reflects growth of 27.5 million or 133% compared to our pre-tem pandemic FY 19 result of 20.6 million. We expect future financial results to continue to show significant increases each year. Guidance for next year, FY 24, shown on slide 27, is that adjusted EBIT will increase by 17% approximately over the FY 23 high watermark to between 54.5 and 58 million.

Steve Young: We are pleased that considering constant currency fluctuations of 1.5 million due to FX. This guidance is actually a bit higher than we have been talking about in past quarters. Our adjusted about target for FY 25 of 66 million represents an additional increase of 17% over FY 24, and again considering constant currency also represents a bit better growth trajectory than we have been talking about for some time. In FY 26, we expected the adjusted EBITDA to well be well into the 70 plus million dollar range.

Steve Young: Our guidance considers among other factors that the following. Current world economic and business conditions considers continued recovery of the business in China, Japan, and certain licensees considers a revenue growth rate of at least high single digit and is in constant currency. This full year guidance is particularly strong considering that we expect first quarter sales and adjusted EBITDA to perhaps be slightly less than last year. Our first quarter guidance is that adjusted EBITDA will be between 8.5 and 9.5 million.

Steve Young: Strong but still lower than last year's record 11.5 million. This reflects primarily that our service revenues, while still our second highest dollar amount ever, will be lower than last year's record first quarter. This last year's first quarter we had a record AAP subscription services quarter in North America of more than 12 million dollars reflecting a 61% attachment rate. Reflecting a handful of clients who are in their launch phase and therefore purchased extra services, two of which made up a significant portion of this difference.

Steve Young: This compares to a normal attachment rate in the mid-50s which we expect to exceed this year. This guidance obviously signals that we expect the sales growth rate compared to last year to accelerate throughout this year, reversing the quarterly growth rate 10 of FY23 which as notice was up against pandemic impacted comms. While many economic and other factors could impact these expectations, we're very excited about our financial future.

Paul Walker: Now back to Paul. Thank you, Steve.

Paul Walker: Before we transition to the Q&A portion of our call, I thought I would begin by addressing a question that some of you have previously indicated an interest in and that is this. How are we thinking about growth generally and particularly in the current environment? I thought I'd provide you a little bit of color about what we're seeing right now and why we're bullish about our ability to continue to grow meaningfully in fiscal 24 and beyond.

Paul Walker: I'll start by saying how incredibly grateful I am for our talented associates and partners all over the world. For their tremendous efforts to build our rapidly growing subscription business, as you recall in fiscal 20, our revenue was $195 million and our EBITDA with $14 million. As we shared today since then, revenue has not only returned to our pre-pandemic high of $224 million, but has grown by nearly $90 million, well past the pre-pandemic high to more than $280 million.

Paul Walker: At the same time, adjusted EBITDA has grown by more than $34 million, from $14 million to $48.1 million. Additionally, over the past two years, we've grown revenue by $56 million or a little over 12% compounded per year. We feel particularly good about this growth and the strength of our growth engine going forward and our grateful to our clients for trusting us to be their partner through both good and challenging times. That's where I'm thinking about our future growth from here.

Paul Walker: There are a number of factors that give us confidence related to future revenue growth and upside. I'd like to share five of these factors and then we'll open up to Q&A. First, we've chosen to focus on the most lucrative and defensible space in our industry. As you know, we've chosen to focus our entire organization on solving must-win challenges with best-in-class solutions. These challenges and solutions include, among others, equipping leaders with the mindsets, skill sets, and tool sets to generate breakthrough results, instilling habits of personal and interpersonal effectiveness in individuals all across organizations, creating high trust and inclusive cultures, and generating collective action and execution on an organization's most important goals.

Paul Walker: While others are competing with vast libraries of increasingly undifferentiated content, we're doubling down on the development of solutions and technologies to truly drive collective action, behavior change, and breakthrough results. The second factor I would point to is that a significant portion of our growth will come from our balance sheet. Our deferred subscription revenue bills and unbilled grew by 22% or $33 million in FY23 to 186.4 million, and all of this deferred revenue will, with certainty, convert to revenue.

Paul Walker: The third factor is that we have a lot of embedded growth in our current and future sales force. We have more than 60 new client partners and another 60 or more implementation strategists and leader and me coaches in key client-facing roles than we had just a few years ago. Each of these people are still only partially through their ramp to full revenue potential, representing more than $100 million of future revenue growth, already in our field system, as these people reach ramp maturity.

Paul Walker: Additionally, we'll add approximately 40 new people to these ranks this year, representing tens of millions of dollars of additional revenue over the course of the next five years, as this year's fiscal 24 cohort ramps and matures. The fourth factor is that we're investing, as I mentioned earlier, in new content and technology to help us penetrate and expand our powerful solutions within more organizations and schools all over the world. And finally, the fifth factor is that we retain substantially all of our subscription revenue.

Paul Walker: This creates a very strong foundation upon which to build and add new growth. As Steve mentioned, and I'll reiterate, we continue to feel incredibly good about the results from fiscal 23 and also good about and have a high level of confidence about the durability and our growth expectations of our all access pass and leader in the subscription business in the months, quarters and years to come with that.

Sean: We'd now like to ask Sean the operator to open the lines and we'll take some of your questions. Thank you, Paul. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press star 11 again. Please stand by while we compile the Q&A roster.

Alex Paris: Our first question comes from the line of Alex Paris with Barrington Research.

Sean: You may go ahead. Hi, Alex. Alex, are you there? Oh, Alex might be trying to come off mute. Sean, should we? Yep, please stand by.

Sean: I will move forward to the next question. Okay, great.

Jess Martin: Our next question comes from Jess Martin with Roth MKM. You may proceed. Thanks.

Paul Walker: Good afternoon. Paul wanted to get it. Hi. How are you? Good. I missed the first 20 minutes of the call, so if some of these questions are done, I apologize. I wanted to get a sense of, you know, kind of trends in the service attachment rate in Q4. I didn't catch that. What was the percentage to the Q4? I think he gave it for the full year and other things, you know, positively or negatively impacting that.

Paul Walker: I know you mentioned Q1 is a tough comp, but just kind of broadly speaking, given the current environment. Can you see any impact on the attachment rate? In Q4. Yeah, so the attachment rate. The attachment in Q4 was quite good. So we talked about being kind of at a mid-50s average historically in Q4. It was, we had the attachment rate was 60%. So it was one of our stronger attached quarters. And again, that's kind of what we're thinking this year will look like.

Paul Walker: It'll be like Q4 was, like most of last year was. I think our attachment rate for the year was around 59% for the year. So kind of right in that. Hi, it's kind of moved over time. We'll recall back when we started. We were talking about attachment rates that were in the 30% and it just kind of kept inching up over time. And then in terms of sales conversion, what kind of trends are you noticing today relative to when the economy was a bit stronger perhaps.

Paul Walker: And, you know, with the client partners that you brought on in Q4, what kind of timeline should we expect before those start contributing to a reacfelleration of growth? here. Yeah, great questions. So one thing we did mention in the first part of the call that you might not have been on for, we were quite pleased at fiscal 23 with our best year for a new logo as both in the Enterprise Division, Alexis, past new clients and in the Education Division, new leader in the schools that we've had since we converted to a subscription to the subscription business.

Paul Walker: And so, you know, in the environment that we're in, we're really pleased to have our best year ever in acquiring new logos. So that's one thing I would point to you that we mentioned earlier. As it relates to the, to the new client partners that we've added, we feel great about the people that we've added. They're right, they're right in the middle of their ramp right now. And we've added, I think we mentioned maybe in our second quarter call, we talked about the expanded resources that we've added there to ensure that, you know, the ongoing, continued successful ramp of client partners.

Paul Walker: And one of the things we've pointed to in our third quarter call, your recall is that as we've, so not only did we have the historic ramp rates that went, you know, 200,000 in somebody's first year of net new revenue to 500, 800 to 111 and then 13 by year five. As we've tracked these cohorts now in our new subscription model through the years beyond year five, we're now seeing these cohorts are moving up towards two million dollars.

Paul Walker: And so what, what, what, what used to be a revenue story that went from, you know, 200,000 in the first year to 1.3 and then might have grown by a couple of points each year thereafter. We're now seeing these, these cohorts continue to mature because they're, these client partners are retaining the vast majority of their subscription revenue and they start with that the next year and they can build upon it.

Paul Walker: Great. And then last question for me, you know, you're adding 40 client partners in related, you know, integration specialists in fiscal 24. What kind of timeline should we expect that to ramp? And I asked the question because modeling that from an SG&A standpoint does have an impact? Sure. Yeah, I think, so they'll, they'll be a little bit more evenly spread throughout the year, but they will still be towards, you know, they won't be all at the very, very end.

Paul Walker: They'll be kind of, you know, midway through the year, back half of the year adds, knowing that we just added a significant number in the back half this last year that we're ramping right now. So I would model it towards the middle and back half of the year.

Jess Martin: Great. Thanks for your time. Yeah. Thanks, Jeff.

Dave Storms: One moment for our next question. Our next question comes from Dave Storms, the Stone Gate Capital Markets. You may proceed.

Sean Covey: Good afternoon. How's it going? Great. I'll be here. Sorry.

Dave Storms: I just wanted to kind of start with the education business. You know, great to see that you added so many schools. Curious as to what you're seeing as you onboard more schools? Are you still able to generate the same amount of, you know, revenues per school or district? And do you see any inflection point as to when, you know, maybe that environment gets a little more challenge? Check.

Sean Covey: Great, I'll ask Sean Covey to share a couple of thoughts there. Sean, you want to take those on? Yeah, sure, hi Dave.

Sean Covey: Yeah, so we added we added 791 new schools this year, which is the best we've done and we expect to do more next year. We also, one of the reasons this is happening our school growth, new school growth is because we're really focusing on districts. This last year we brought on 147 new districts compared to 65 the year before and we expect that number to increase substantially this year as well. And so when you bring on districts you usually bring them on in clumps, sometimes the districts are small, they have three or four schools, sometimes they're huge with 50 to 100 schools.

Sean Covey: And so we feel like the opportunity for new schools being brought on over the next several years is really good. I think that it's, you know, so the district focus is one reason why and other reason why is because we're getting really good client outcomes and word of mouth spread fast. This year we just landed our second state sponsored contract we did one last year we have several more in the hopper right now where the states are learning about what's happening inside of some of their bigger districts and coming in to help sponsor schools and get behind them to get, you know, to accelerate growth.

Sean Covey: That's helping a lot. The funding environment is very positive right now. I think the number one reason why is because we have a large foundation. If you look at our historical number of Jeremy schools 6,000 or so, not a third of them have been sponsored by companies, by organizations, by foundations and other partners. They don't pay for all of it. They pay for a good chunk to help schools get started. And so we have, as I've shared before, we have a partnership with a large foundation that's committed to sponsoring literally thousands of schools over the next decade to help to help leader me get going in these schools and districts.

Sean Covey: After funding is still around for another year, it expires at the end of this year. We do have a lot of multi year contracts in place that will help us through the coming years. I think we'll see some impact from that next year, but we primarily get funding from title one and title $2 that is not going away and will always be there. But yeah, I think for the foreseeable future, we see an ongoing increased growth and number of new schools would bring on each year in the US and Canada.

Sean Covey: And again, there will be some maybe funding impact next year from the SRA funds expiring, but we still think we'll grow the following year. And those are the primary reasons why I think it's going well. Does that answer your question Dave? That's great color, incredibly helpful. Thank you, Sean. Yeah.

Paul Walker: And then just one more from me, if I could, you mentioned inorganic growth being potential avenue with, you know, your anticipated cash generation over this next, you know, several years ago. Is there anything you're seeing in the market that is attractive or. How are you kind of thinking about your capital allocation right now? Also, I'll speak to the growth side and then maybe Steve could talk about any other capital allocation points he'd like to make.

Paul Walker: So first, we have been and continue and as we report to expect to generate significant amounts cash, we are and we expect that we will. And so what to do with that cash is a great question. The order of priority for us would be to first invest that back in the business in the form of organic growth. And we think that there's there's a tremendous opportunity to continue to drive organic growth in our business.

Paul Walker: While we're doing great, we had a record number of new logos and new schools last year. There are still fortunately significant number of organizations out there and schools and districts that would benefit from what we have. And we just we think in some ways we're just as far as we've come, we're still just getting started with the impact that we could have as regards sales force. We helped them ramp more effectively.

Paul Walker: We put money into marketing. We put money into content. We can we build solutions like like those were launching this year that are are built to really scale up and down the cross organizations to get at the large. And we've talked in the past about client penetration that while we're thrilled that average revenue per client increased again this year from 77,000 to 83,000, that's still a fraction of the revenue that we believe is available just inside our average current client today.

Paul Walker: And so we're thinking about that as we build solutions as we ramp these leader and me coaches and these implementation strategies. It's with the the clear visibility in our minds that we can expand significantly within our current client organizations and there are a lot of clients for us to add. So that's first use of cash is to invest in those areas of growth that that we can see that are what we call organic.

Paul Walker: Second, there are some interesting and I think going to be some interesting inorganic opportunities for us to explore as we get bigger as we continue to our focus on really differentiating our solutions around having this best in class content. There are I want maybe won't get into the exact specifics today just to not get that out there but there are some areas where we think there are some adjacent operations very near and adjacent opportunities that would either add capability or might add additional customers and revenue while we're building those same things ourselves quickly.

Paul Walker: And then of course after having done those first two priorities we have over the past many years returned a lot of cash to shareholders in the form of Sherry versus Steve I don't know if you want to think about that. No, I mean we do think that we'll be able to allocate enough resource to run the business and to pursue current opportunities to do some more tuck-in type acquisitions and as long as the acquisitions that we might do are tuck-in type but not transformative larger than we expect to also have available cash.

Paul Walker: We don't mind having a little bit on the balance sheet and some unused liquidity but we also see the value as shown in the last couple of years of repurchasing company stock and I think that's a good opportunity to increase value for shareholders also. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again, one moment for our possible next question.

Sean: I am showing no further questions at this time.

Paul Walker: I'd like to turn it back to Paul Walker for closing remarks. Thanks, Sean. Well, just again, thank you for joining us today. Thanks for continuing to partner with us. We appreciate you and appreciate the great lengths that you go to understand our story and for the advice and thoughts you have. We hope you have a great rest of your evening and a great week ahead. Thanks.

Operator: This does conclude the program.

Operator: You may now disconnect.