Q1 2025 Franklin Covey Co Earnings Call
Maybe share. An example of this transition is what's happening with a new statewide contract in the southeastern United States for many years, we brought on numerous single schools in this state after partnering with these schools to achieve strong results in our first quarter, we signed a contract at the state level that will include more than 100 initial schools to come.
Throughout this year with many more schools to follow.
The second thing I'd like to provide a deeper dive into is our progress on the investments to accelerate our go to market efforts.
Specifically I'll identify the key leverage points on which the realignment of our sales force is focused.
In our earnings call in November we shared that we were pleased to have substantially achieved the three big strategic initiatives, we've undertaken in the previous years.
Specifically first that we've transitioned our entire business model to subscription.
Second we've invested heavily in the technology enablement of all of our solutions. So that they can be delivered seamlessly across entire organizations in a variety of modalities and are more than 25 languages worldwide as well as institutionalizing, our significant ongoing investments in technology.
The third is that we've made significant investments to ensure that our content and solutions represent the gold standard in our space have also institutionalized our processes and ongoing investments in content. So that our solutions will continue to define this gold standard.
In addition, we have some exciting new additions to our content lineup, which we'll be launching in the coming periods in which we expect will help to further penetrate existing clients and accelerate winning new clients. These include a new communications suite of offerings, which is one of our most requested new solution areas as well as additional leadership solution.
To fill out the leadership map to help support leaders.
On the journey from being a new leader all the way to being a leader of an enterprise.
Having completed the heaviest lifting involved in each of these important strategic initiatives.
We're now positioned to leverage the collective impact of these initiatives by accelerating our go to market efforts to capture capture an even greater share of our very large tam.
The two key areas of focus and investment in this go to market acceleration are first to focus a large number of our client partners solely on increasing client penetration and retention and to provide them with the additional client support resources necessary to achieve this expansion within our clients.
The second area is to build a large and growing specially trained team of new logo hunting client partners, who will have the sole responsibility to win a significantly increasing number of new logos.
As previously mentioned, we expect the combined impact of these focused initiatives to result in a significant increase in our sustainable ongoing revenue growth rate from single digits to consistently achieving double digit growth and also generate accelerated levels of adjusted EBITDA and cash flow.
Importantly, <unk>.
Almost all of our investment dollars are going into client facing people and activities. The impact of these investments can be very direct.
Over the coming quarters will be reporting our progress against the key leading and lagging indicators that will track our progress toward achieving consistent double digit revenue and adjusted EBITDA growth.
The path of impact from these investments will be seen first and increases in the size of our pipelines of opportunities than in the magnitude of our growth in invoice sales.
And finally in our reported revenues as the Invoiced sales that have gone onto our books as deferred revenue are recognized over the ensuing 12 or more months.
Given this cycle, we expect that our increased investments will begin to result in an increase in our volume of invoice sales in the back half of fiscal 'twenty five.
Followed by the beginning of a fundamental shift in our growth curve our reported sales in the quarters thereafter.
I'd like to provide some additional detail on the key points of leverage for each of these efforts.
As noted the first of our new go to market investments is focused on achieving even further penetration within our existing clients. We call. This project expand.
As we've previously reported since our conversion to subscription our average annual revenue per client has expanded from approximately $39000 to $85000.
This 218% increase results from the efficacy of our solutions and consistently helping clients achieve their desired results.
This expansion occurs when organizations, who have been utilizing one or more of our solutions for a portion of their overall population not only renews for that portion.
But expand their subscription to make the same or additional solutions available to an even broader portion of their overall organization.
Where in the past several client partners, who may have been working with different operating units at the same company, but with none of those client partners, having responsibility for achieving an overall penetration level throughout the client's entire organization.
Under our new go to market structure single client partner on the expand side of our sales force is now responsible for expanding the use of our solutions across the client's entire organization.
We're already experiencing the power of this new high focus penetration model.
An example is our work with one of the world's largest food and beverage companies, where we've been working with one of the company's operating units over the last five years generating around $500000 a year annually.
However, as significant as the work within this unit has been under our prior organizational structure. The assigned client partner had little to no visibility into the broader needs of the parent company.
Under our new project expand structure, a single client partners now responsible not only for penetrating the operating unit to which they had traditionally been assigned but for understanding and meeting the needs of the company's entire global organization.
Over the past 18 months or so as part of our project expand pilot. This client partner took on the expanded responsibility and in so doing identified a large global leadership development initiative being driven by the CEO and most of the senior leaders in the organization.
Having developed broad relationships within the client's overall organization our client partner was able to demonstrate how all access passes collection of best in class leadership solutions offered at more than 25 languages could meet their needs globally.
This resulted in our being selected as their partner of choice for their global leadership development rollout and this is now shaping up to be a three year $5 million opportunity and partnership.
This is a great example of the significant white space for expansion, we have across the majority of our client base, where as significant as our expansion of revenue per client has been over the years, we're still reaching only approximately 10% of these clients addressable populations.
Achieving the magnitude of client penetration achieved in just this specific client is exactly the focus of project expand.
By reducing the number of client accounts for which each of our expansion client partners is responsible and providing these expansion client partners with access to a larger pool of implementation strategist consultant and practice leader resources we.
We expect to unleash the same kinds of breakthroughs in client penetration just discussed across a significant number of our clients.
Our second area of focus is on winning a significantly increased number of new logos, what we're calling project land or in other words for landing new logos.
Our conversion to subscription we've one thousands of new logos. However, even with this success, we're only scratching the surface of the potential that exists for winning new clients and partnering with them to address their big opportunities and challenges within the large markets we serve.
As shown on slide five we've organized the market into four segments based on organization employee size and have assigned our hunting client partner teams accordingly.
Here you can see the number of clients in each segment that are not yet Franklin covey clients into which we have massive headroom for growth and for hiring many many more hunting client partners.
We're significantly increasing our investment in both marketing and sales closing support resources to help our significant group of client partners, who is an entire focus is now solely on winning new logos.
We're also making investments into central sales leadership and sales operations functions to allow us to scale, our sales force even more rapidly in the future.
We fully transitioned our sales force approximately five weeks ago and are really encouraged by the tremendous energy. They are bringing to these focused roles as it relates to winning new logos. We set an initial target to have 100% of our new logo hunting client partners in place by March one of this year.
I am pleased to report that as of today, 95% of these hunting client partners are already in place.
Being months ahead and filling these key roles will help us ensure that we achieve and possibly exceed our new logo targets in fiscal 'twenty five and we're already realizing some important new logo wins. For example, we recently won as a new logo one of the five largest banks in America.
We're partnering with this bank and the development of 2000 of their leaders. This is an initial portion of their many thousands of leaders in our old selling model. This prospect would've been assigned to several client partners because there are multiple buyers distributed across the country.
And in our old model, we would have likely one business, but initially for only a portion of the 2000 meters.
And our new selling model. This opportunity was owned by a single account executive focused solely on winning new logos and with the scale and expertise aligned to the needs of our large enterprise segment clients.
This new alignment resulted in this $350000 new logo win which is approximately eight to nine times the size of our historical average.
We supported the sale with new closing resources, who partnered with our client partners to determine the right solution to deploy to this client.
This is just one of the many deals we are developing in our pipeline, which are benefiting from the focused attention of our new logo hunting team and the investment in our new closing resources.
In conclusion.
Our target was to begin the second quarter on December 1st fully transitioned into our new go to market structure.
I am pleased to report that we hit that target.
Today, an enterprise North America every salesperson is focused 100% on expanding and retaining existing clients or theyre focused 100% on winning brand new clients.
As we shared fiscal 'twenty five will be an investment year in which we expect to generate a significant amount of new pipeline and had a lot of new invoiced revenue to our balance sheet, which will then be recognized as reported sales in subsequent periods ultimately shifting our growth from single digits to consistent double digit growth.
We're really excited about our accelerated go to market focus and look forward to reporting our progress.
And now with those remarks out of the way I'd like to turn the time over to Steve to discuss our specific results for Q1, it a bit more detail and also share our guidance.
Steve: Thank you Paul.
Steve: In Q1 revenue adjusted EBITDA cash flows from operating activities and free cash flow continued to be strong and essentially in line with expectations.
Steve: Specifically as shown on slide six.
Steve: In Q1 revenue was $69 1 million up 1% compared to Q1 last year.
Steve: In Q1, due primarily to growth investments we have discussed.
Steve: And which came in essentially right in line with our expectations.
Steve: Adjusted EBITDA was seven 7 million.
Steve: Compared with the $11 million generated last year.
Steve: In constant currency adjusted EBITDA was $8 1 million.
Steve: Cash flows from operating activities remained strong at $14 1 million compared to $17 4 million last year.
Steve: The difference was also primarily due to our growth investments.
Steve: Free cash flow for the first quarter was also strong at $11 4 million compared to $13 7 million generated in the first quarter of FY 'twenty four.
Steve: The foundation for increased future growth is being established by the increase in our balance of deferred subscription revenue, which increased 10% from Q1 last year to $95.7 million.
Steve: We are encouraged by the double digit increase in our service booking rate in Q4 and enterprise in North America.
Steve: And importantly that the strong momentum has continued in this year's first quarter.
Now I would like to.
Steve: <unk> provide more detail.
Steve: On the factors underlying our performance in three key areas of our company specifically, our enterprise business in North America, Our enterprise enterprise business internationally in both our direct offices and Internet International licensee operations.
Steve: Our education business.
Steve: I'll start with our enterprise Division.
Steve: In FY 'twenty for our enterprise Division generated 73% of the company's overall revenue with the education division generating 26% of the company's revenue.
Steve: In Q1 revenue in our Enterprise Division was down 2%, primarily due to the difficult business environment in Asia.
Steve: Slide seven shows results in our enterprise business in North America.
Steve: Which represented 75% of our total enterprise division revenue in FY 'twenty four.
Steve: Revenue in North America for Q1, FY 'twenty five was $41 million.
Steve: Compared to $40 3 million last year.
Steve: Subscription revenue in North America for Q1 was $21 8 million compared to $22 5 million last year.
Steve: The combination of subscription and subscription services revenue in North America was.
Steve: $34 3 million, which is down 2% compared to the first quarter of last year.
Steve: Our balance of billed deferred subscription revenue in North America was $41 8 million, which is down 7% from last year and our balance of Unbilled deferred revenue was $66 5 million, which is down 13% from last year.
Steve: The percentage of North America's all access passes contracted for a multi year period increased to 55%.
Steve: From 54% in the first quarter last year.
Steve: And the percentage of Invoiced revenue represented by multiyear contracts remained consistent with the first quarter last year at 60%.
Steve: As shown on slide eight revenue from our international direct operations, which account for approximately 16%.
Total enterprise Division revenue in FY 'twenty four.
Steve: Was $8 2 million.
Steve: Decrease of <unk> 5 million, primarily as a result of our business in Asia decreasing due to challenging business conditions.
Also salon inside eight our international licensee revenue was $3 2 million a decrease of 200000 from Q1 last year.
Steve: Finally, as shown on slide nine revenue in our education business.
Steve: Grew 11% to $16 5 million for the quarter.
Steve: And grew 8% for the latest 12 months.
Steve: Education Invoiced amounts grew to $12 2 million in Q1, which represents 40, 43% growth over the prior year.
Steve: The invoiced amounts for the last 12 months grew 9%.
Speaker Change: This significant growth over last year is due in part to our contract with the state Board of education that Paul referenced in his remarks.
Speaker Change: Education subscription and subscription services.
Speaker Change: Revenue grew 12% to $14 9 million for the quarter.
Speaker Change: It was up 6% for the last 12 months.
Speaker Change: Education's balance of billed deferred subscription revenue increased 29% or $10 million to $44 2 million, establishing a strong foundation for continued growth in future years.
Speaker Change: Now a little bit about cash flows and the balance sheet as shown on slide 10.
Speaker Change: Cash flows from operating activities for Q1 was a strong $14 1 million.
Speaker Change: Paired to the $17 4 million generated in the first quarter.
Speaker Change: Last year, reflecting a decrease in our net income due to the first quarter's share of this years $16 million growth investment.
Speaker Change: Our free cash flow is $11 4 million for the quarter compared to $13 7 million in the prior year.
Speaker Change: In Q1, FY 'twenty five we purchased 146000 shares of Franklin Covey stock at a cost of $6 million.
Since 2021, we have invested approximately $96 million in stock repurchases.
Speaker Change: We have approximately $116 million in total liquidity at the end of FY <unk>.
Speaker Change: The end of Q1, FY 'twenty five even after his purchases of stock.
Speaker Change: Including $53 3 million in cash and $62 5 million available under our revolving credit agreement.
Speaker Change: The company remains in a strong position to continue to execute on our key objectives.
Speaker Change: Now, let me turn to guidance.
Speaker Change: We are affirming the guidance provided at year end that we expect revenue in the range of $295 million to $305 million.
Speaker Change: In constant currency.
Speaker Change: Reflecting the expectation that growth will accelerate in the back half of this year as our investments continue to take effect.
Speaker Change: We also note that a significant portion of that growth will be reported on the balance sheet as deferred subscription revenue and then be recognized in future quarters as reported revenue.
Also consistent with the guidance provided at year end.
Which reflected a 16 16 million.
Speaker Change: Growth investments, we're making this year.
Speaker Change: We expect to achieve adjusted EBITDA in the range of $40 million to $44 million in constant currency.
Speaker Change: For the second quarter of FY 'twenty five.
Speaker Change: Expect revenue to be higher than last year or between 61.5 and $63 million in constant currency.
Speaker Change: We expect adjusted EBITDA to be between one five and $2 5 million.
Speaker Change: Again in constant currency compared to the $7 4 million last year.
Speaker Change: With the vast majority of the difference coming from the impact of the second quarter's portion of the $16 million and incremental growth investments that we've been talking about.
Speaker Change: We recognize that in order to achieve our full year guidance will need to achieve accelerated revenue growth in the back half of the year and we expect this to happen.
Speaker Change: To give some additional context to some areas of strength, we are seeing in the business that support our confidence in.
Speaker Change: And in enterprise in North America in Q1, our subscription Invoiced amounts declined from the prior year more than 100% of this decline was due to five contracts.
Speaker Change: Of which four were timing related and we expect to renew all for this year.
Speaker Change: Additionally, we are pleased with our Q2 forecast for invoice growth in enterprise in North America, and expect to achieve meaningful growth in this important metric in the quarter.
Speaker Change: We are pleased with the tremendous progress being made in North America enterprise growth initiatives.
While it is of course very difficult to forecast long term results, we remain optimistic about our ability to generate increasing revenue and adjusted EBITDA growth in coming years.
Speaker Change: Ultimately moving from single digit to consistent double digit growth rates now I'll turn the time back to Paul Thank.
Paul: Thank you Steve.
Speaker Change: Maybe just a final comment here before we open the line to questions. We feel very good about our progress on the path that we're pursuing to accelerate our growth in revenue and adjusted EBITDA and cash flow.
And to do this in the coming quarters and as we move into next year and beyond and also at the same time feel great about just our continued increase in our ability to partner with our clients and to deliver extraordinary impact as our partners grateful to all of our associates around the world for all that they're doing as well and grateful to each of you so with that wed now like to.
Speaker Change: Invite the operator to open the line for your questions.
Speaker Change: Thank you.
Mind, you if you would like to ask a question. Please press star one one of your telephone.
Speaker Change: To remove yourself from the queue. Please star one again, we also asked you. Please wait for your name and company to be announced before you proceed with your question.
Speaker Change: Today, our first question will come from the line.
Speaker Change: Alex.
Alex Paris: Paris of Barrington Research your line is open.
Speaker Change: Hi, guys.
Speaker Change: How are you.
Speaker Change: Good How're you doing.
Speaker Change: Good thanks.
Speaker Change: Thanks for taking my questions.
Speaker Change: The first one would be.
Speaker Change: A little bit more discussion on <unk>.
Speaker Change: Growth investments.
Speaker Change: In Q1.
Speaker Change: Revenues were essentially in line with your constant currency guidance for the quarter and adjusted EBITDA on a constant currency basis was right in the middle of that.
Speaker Change: Casted range.
Speaker Change: Looking at your guidance for Q2, it looks like adjusted EBITDA will be.
Speaker Change: More significantly below my expectation of $5 9 million and Factset consensus of 5.0 million you were guiding to one five to two and a half.
Speaker Change: Is that attributable to increased growth investments versus the first quarter. So I.
Speaker Change: I guess the question is two parts of.
Speaker Change: Of the $16 million, how much was expended in Q1 and how much do you expect to expand on these growth investments in Q2.
Speaker Change: Steve you want to take that Alex So we spent a little bit under $3 million in Q1, we expect to spend a little bit over $4 million in Q2, and then probably.
Speaker Change: Pretty even like $4 5 million.
Speaker Change: In each of Q3 and Q4.
Speaker Change: Adding up to the $16 million.
Speaker Change: So there was.
Speaker Change: $1 million plus million.
Speaker Change: Couple of hundred thousand additional spending in Q2 versus Q1.
Speaker Change: Got you.
Speaker Change: Then.
Speaker Change: I think you called out some of the early returns.
Speaker Change: From these initiatives in Q1, when you gave the new logo example, and the increased in in.
Speaker Change: Deferred subscription revenue I think.
Speaker Change: What else can you share with us in terms of early return Kpis.
Speaker Change: Realizing that that we're going to see this more substantially in the second half and beyond.
Speaker Change: Great. Thanks, and thanks for that caveat as well so just from a timing standpoint so.
Speaker Change: Back everybody up for a second.
Little over 18 months ago, we initiated some pilot to test. This out we were we liked what we saw in those pilots and that is what gave us the conviction to actually move forward with with.
Speaker Change: The transition to go to market that we've been talking about the last two quarters.
Speaker Change: Q1 was a quarter of preparation and we actually it wasn't until the first day of Q2. So December one that we are now fully in the new structure.
Speaker Change: And so a couple of those examples we shared our people who had transitioned earlier as part of the pilot and are now in those same roles moving forward there either expanders or are there new logo hunters and so we really expect Alex. This is Kai. This is really the first quarter. So we had two weeks before the holidays or so and now and then the holidays and now we're back and everybody is in their role.
Speaker Change: And so as far as Kpis go what we expect and what we'll be reporting.
Speaker Change: And our sub and are following reports here will be kind of a walk from.
Speaker Change: By the way everybody is in place, we mentioned that a minute ago as well and so we've got everybody here. They are all in place Theyre all firing now in their new roles and what we expect to see is increased marketing and lead generation from marketing investments that we've been that we will be making throughout the increased marketing investments throughout the year, we expect larger new logo.
Speaker Change: Pipelines, we expect.
Speaker Change: Yeah.
Good good like we've had an even better retention of clients and other revenue associated with that but the leading indicators would be lead flow would be pipeline sales activity that would then turn into more invoiced revenue to growth in the back half of the year, which then of course will come off the balance sheet and be reported as revenue in future periods. So.
Speaker Change: In terms of early returns I would point to.
Speaker Change: The quality of the hires that we've been able to bring in.
Speaker Change: Hi.
And in fact, maybe on that one and just as a second half Holly Proctor, who is on talk about some of the great New logo hunting folks we brought in that would be an indicator of success and then we'll be looking closely at the growing in building pipelines.
Speaker Change: As we as we move forward, but this is where just a couple of weeks into this this whole new structure now.
Speaker Change: Any any thought on the you want to offer on the people we've been able to attract yes.
Speaker Change: Sure Neal.
Speaker Change: Can you share a little bit on the speed and quality of the hires we've made so far.
Speaker Change: Paul alluded to we've been able to fill the new logo hunting org well ahead of schedule. So we're excited about the speed. In addition to the speed, though probably the thing I'm. Most excited about is the quality of the candidates we've been able to attract now we've pulled over our sales talent from new linked end user needs Skillsoft Eli.
Speaker Change: <unk> brand and we're eager to bring their skills into Franklin Covey.
Certainly excited to hit the ground running and eager to get in their territory.
Speaker Change: Thrilled not just about the speed the offer the quality.
Speaker Change: That's great.
Speaker Change: In terms of quantity.
Speaker Change: The Hunter side.
Speaker Change: The target was just to be clear 44, or so and then on the on the farmer side of the expand side 88 client facing Cps.
Speaker Change: Yes, and just a quick note on that to follow up on that so.
Speaker Change: The great thing is the 88.
Speaker Change: They are expanding side, we don't want to call. It we don't.
Nobody has a farmer here because you've got to expand what you have and grow it but those are all incumbent so we went through those are the best of the best that we've had at client retention and expansion. That's the group that's been responsible for the 218% expansion in revenue per client we've achieved over the last few years and now that's all we've asked them to focus on.
Speaker Change: And so yes. They are all in place and that was not a lot of new hiring those people are in here and theyre doing the job that they've been doing even more focus now in this new structure on the other side the 44.
Speaker Change: 42 of the 44 here today.
Speaker Change: Yes.
Speaker Change: And those are the quality hires that hollie you were referring to coming from you to me and Linkedin in Skillsoft et cetera.
Speaker Change: Correct.
Great. Thank you and then just a quick maybe.
Speaker Change: Jen question, but.
Speaker Change: On our last call, we had talked about launching seven habits five point now it had been done in the weeks prior to that call maybe a week prior to that call. What are the early read throughs of that product launch or relaunch.
Speaker Change: Thanks, Alex.
Speaker Change: Well as you know we did quite a bit of marketing in Q1, and we had very significant growth in registrations and our marketing events.
Speaker Change: We grew about 15% one of the great indicators is that we had over 2000 people come alive to seven habits event in the U S and Canada and in fact, they took place all over the world and.
Over 4000 people for webcast. So we really believe in the strength of the solution.
Speaker Change: We've alluded to are.
Speaker Change: Excitement about our booking pace and we've definitely seen that impacted.
Speaker Change: The seven habits timeless principles, but as we've upgraded some of the practices. Our clients are very excited about it. It's also gotten us into some new prospects.
Speaker Change: That's great. Thank you Jen and thank you everybody I'll get back into the queue. Thanks.
Speaker Change: Thanks, Alex.
Speaker Change: Thank you one moment for the next question.
Speaker Change: And our next question will be coming from the line of Dave storms of Stonegate. Your line is open.
Dave Storms: Good morning, Hi, David Good afternoon, everyone.
Speaker Change: I kind of wanted to start on the first one around your Tam and how you see it.
Dave Storms: Client and just bear with me on the math here.
Dave Storms: The rough math is 85000 per client that's about 10%.
Speaker Change: On average does that then full 100% penetration rate factor in only the current offerings offerings that you guys have in place or does that factor in.
Speaker Change: Any offerings that you may be able to add on down the line.
Speaker Change: If I didn't ask that question quite right.
Speaker Change: I think no I think I think I understand the question and so so.
Speaker Change: Dave I think the answer to if you're if I understand the question right to moving from the 10 two.
Speaker Change: So yes, your math is right that on average across our client base, we are generating $85000 a year in revenue per client.
Speaker Change: And obviously that number looks a little bit different depending on the segment.
Speaker Change: <unk> of the organization that we're in but that is the average and that's we're achieving that average today with about 10% average penetration into those organizations in terms of number of seats that we could be selling all access pass into.
Speaker Change: In terms of your question about where do we go from here and what are the drivers of moving that 10% penetration to 15 2025 30.
Driving a higher there are a couple of drivers of that you asked about the content parts. Let me answer that first and then I'll come back to the second driver so on the content side.
Speaker Change: We have we have been working hard over the last couple of years to build solutions.
Speaker Change: That naturally should radiate further into our client organizations I'll give you an example.
Speaker Change: Prior to the most recent launch of the speed of trust. So in the prior version of speed of Trust going back now a year ago. We really have a version of that solution that was geared only to leaders.
Speaker Change: So that right there meant that if there are about.
Speaker Change: 10, or 10 or 15% of your company as leaders in that kind of define the population of that solution could be utilized by when we launched the new version of trust. This past year, we created a working at the speed of trust companion offering two to the traditional leading at the speed of trust offering.
Speaker Change: That right. There is built to scale to the rest of our broad organization and so we've taken that approach across a number of our different solutions such that even with the current set of offerings. We believe that that they can scale and we should be able to scale the business to more users inside organizations. A second example of that was the.
Speaker Change: And the impact platform right. We bought we bought strive a few years ago. We rebranded that is our impact platform again to give us the technology backbone and the ability to support a variety of delivery modalities. So that we can address larger portions of organizations. So and then the third part of the content, we are building and launching more.
<unk>, you'll recall there was a time when we invested $4 four 5% a year in new solution development, that's about double that amount now and that as a percent of revenue.
Speaker Change: So on our product roadmap this year and in the coming years are more solutions that are built with scale in mind and the reason that that was important to get that in place first is that now that we've transitioned our sales force. We now have a group of expanding client partners on that side of the sales force at that their entire job their entire job is to take these organizations that.
Now all access pass holders and focus intently on moving us from 10% penetration to something much more significant and the good news is that's all they're focused on and they have an increasingly will have a product set that's built to support that kind of expansion.
Speaker Change: That's incredibly helpful. Thank you.
Speaker Change: And then just one more for me with the expanded capability of the landing team I guess, what kind of early.
Speaker Change: Early profile. So it's a slight use of target that maybe you couldn't before are you going to be able to maybe go up in size because.
Speaker Change: Landing team will have more ability to be more focused or are you going to be able to go down in size. Because you just can have more eyes.
Speaker Change: On a type of logo just trying to get a sense of maybe where your focus there or is it all for you Bob I'm, just trying to get a sense of where your focus shifts on the lending side going forward.
Speaker Change: Dave just to be clear it I'll turn it over to haul. Your question is about the target companies, we're selling to and what happens to kind of the average deal size. There. It's not about who we go higher in as new landing hunting client partners right Youre asking you about the clients that we focus.
Speaker Change: Correct you about.
Speaker Change: Yes, great wins on the credit side, yes.
Speaker Change: Yes, great holiday do you want to.
Speaker Change: Fine on that.
Speaker Change: Yes, no problem.
Speaker Change: First just take a step back on how we were organized prior to the transformation. We had client partners who are set up in all major geos across the U S and Canada.
Speaker Change: So they were very much still gets in their local geography, and this new model, we've adjusted being organized by and those segments. Our F&B major account enterprise and key account and those are organized by two things. The first is the size of the company. So the FTE count of the company and then on the customer spending.
Speaker Change: The house.
Speaker Change: The inclusion of how much they spend and so now that we have them organized by the size of the company will not just organized the sales team, but then theyre associated team members across the company in other continents like product and marketing.
Speaker Change: We still support to go after.
Speaker Change: Thank you.
Speaker Change: <unk> customers. So to your point there is likely a very different solution that will get into our F&B audience at the high velocity sale very large volume and.
A lower price point, and then I think all the way up the stack to our key account audiencia. It's the largest brands in the world. The company's over 25000 employees, where our key differentiator is that we're offering them a global solution at scale.
Speaker Change: Okay.
Speaker Change: Understood. Thank you very much.
Speaker Change: Thanks, Dave Happy New year.
Speaker Change: Thank you one moment to the next question.
Speaker Change: And our next question will be coming from the line of Niihau Kochi.
Speaker Change: Northland Capital markets. Your line is open.
Speaker Change: Yeah. Thank you Hey, Paul how are you guys doing.
Steve: Steve Thank you for that detail.
Speaker Change: The driver of the invoice subscription and voice decline.
Speaker Change: Do you guys believe that there's any way.
Speaker Change: Timing because they were largely related to timing is that in any way related to the transition to the hunter farmer sales model here.
Speaker Change: Yes.
Speaker Change: Steve Let me take that one yes.
Speaker Change: Actually no not on not on those deals also.
Speaker Change: Where the timing is on those one is a large.
Speaker Change: Government contract and the timing on that is actually.
Speaker Change: To the election and potential government shutdown, which has now been resolved and so that just moved it out of the first quarter. The renewal of that all access pass subscription out of the quarter.
In fact that the salesperson that's assigned to that account was assigned to us still assigned to it we're not we're not moving away from the great successful client partner I've had attached to that another example of a client that we actually it was quite a large client we won in the first quarter last year and.
Speaker Change: The renewal of that contract was always going to be a Q2 renewal to get it into tied to their calendar year.
Speaker Change: I'm, sorry to their fiscal year, which is the calendar year and so that shifted it from our Q1 to our Q2. So it's examples of some things like that.
Speaker Change: And therefore for the five we expect.
Speaker Change: I expect we will get back in this year that will help our invoiced.
Speaker Change: It's here over the coming three quarters.
Great Okay fantastic.
Speaker Change: Let's see.
Speaker Change: Steve did you disclose how much shares you bought back in the quarter.
146000 shares.
Speaker Change: Good to talk with you.
Yes.
Speaker Change: Let's see so that translates to about.
Speaker Change: $4 5 million.
Speaker Change: $6 million.
Speaker Change: Okay Alright.
Speaker Change: That's a nice healthy pace expect to continued at a healthy pace going forward here.
Speaker Change: Well, especially even accelerated.
Speaker Change: And as you know, we don't project, where we're going to do well.
Speaker Change: We see the same things that you see and we have a history of buying back shares so.
Speaker Change: We'll definitely be looking at it.
Speaker Change: Okay Alright.
Speaker Change: Alright.
Speaker Change: Look we.
Speaker Change: We are big believers ship to a hunter farmer model will drive the key metrics and churns and expansion positively.
Speaker Change: Of these three metrics.
Speaker Change: One do you think it's going to have the biggest impact as you make this transition here.
Speaker Change: The three metrics.
Speaker Change: <unk>.
Speaker Change: The three churn.
Speaker Change: Churn.
Speaker Change: Hunting or landing and then the expansion or farming basically D. These are.
Speaker Change: Three key metrics with one hundreds of course yeah.
Speaker Change: Yeah, Okay, Yeah, I think I think I think the.
Speaker Change: Where this new.
Speaker Change: This new go to market.
Speaker Change: Engine will benefit us I think will be across those and what we should see what we expect to see and we're seeing early green shoots of this and a number of different places across company is to your point.
Speaker Change: This will include improved client and revenue churn.
Speaker Change: Alright. So no question that that we expect that that will be the case. It will also equally should improve.
Speaker Change: New client acquisition.
Speaker Change: Right and both of those then ladder up to the ever important metric, which is invoice subscription growth right and as that starts to grow at a pace ahead of reported revenue growth.
Speaker Change: That's obviously, a leading indicator that those sales, which initially and up deferred on the balance sheet, we will come back over into reported sales. So there's a bit of a lag there before the reported revenue starts to grow and Thats why our guidance for the midpoint of our guidance for this year is around four 5% revenue growth and then we expect it to meaningfully accelerate from there as we're building up those.
Speaker Change: Balances of differed sales, but I think I think they all it is a.
Speaker Change: I think it's.
We will get better retention.
Speaker Change: And more.
Speaker Change: Expansion within our existing customers and we will get more new logo sales and then all we have to do with maintain if we even maintain anywhere near the same services attach rate, we've had which has been.
50%, 60% ish service attach rate if that remain the same on those larger balances of invoice sales that would be a meaningful growth in services as well and so those are the three legs of the stool that we're focused on with this transformation.
Okay great.
Speaker Change: Has the level of confidence of being able to achieve fiscal year 'twenty guidance.
Speaker Change: Change relative to the quarter, if you'll call.
Speaker Change: I'd say, we still see it the same way.
Speaker Change: Yep Okay.
Speaker Change: And then the service attach rate does look like it ticked down year over year in enterprise, it and any thoughts on why.
Why that was.
Speaker Change: Yes.
Speaker Change: Boyd you have that.
Speaker Change: Alright.
Speaker Change: Just one second here.
Speaker Change: Service attach rate for the quarter was 55% compared to 55% last last quarter same quarter.
Speaker Change: Now we show it being Fame Q1 last year to Q1 this year, 55%.
Speaker Change: Okay, Alright, I must've had that wrong, sorry about that.
Speaker Change: And then you did mentioned that you can achieve and exceed new logo targets for fiscal year 'twenty five.
Speaker Change: Willing to share what is the actual.
Speaker Change: New logo targets for how much of a year over year increase youre looking for here.
Speaker Change: Sure.
Speaker Change: So I mentioned that we that that comment was.
Specifically tied to the fact that we were we wanted to have all of our new hunters in place by the first of March and they are in place now.
Speaker Change: We still need to get to but they are essentially all in place that extra couple of months makes a difference and so that as we ramp them. That's the thing that might allow us to exceed the targets. We are not ready to share the target yet, but I think that's something that as we go into future quarters will be will be sharing more kind of a little more detail into some of those metrics.
Speaker Change: To both paint a picture for people and also there's a few metrics here that we haven't disclosed in the past that we're working on.
Speaker Change: And like we will disclose in the future.
Speaker Change: Got it okay. Thank you for taking all my questions. Thanks.
Neil: Thanks Neil.
Neil: Thank you one moment for the next question. Please.
Speaker Change: And our next question will be coming from the line of Jeff Martin of capital Excuse Me Roth capital markets. Your line is open.
Jeff: Hi, Jeff Hi, Paul and Steve how are you doing.
Speaker Change: Great good.
Speaker Change: Excellent.
Speaker Change: Paul I wanted to just understand a little more about the lessons and experience of doing.
Speaker Change: The pilot project for the past 18 months under this new model what are some of the most important or more important lessons that you've learned along the way and what are you. Most optimistic about that you learned during that pilot process.
Speaker Change: Yes, a couple a couple of things as it relates to the pilot.
Speaker Change: First of all.
Speaker Change: We recognized.
Speaker Change: Before 18 months ago.
Speaker Change: This was a transformation that we needed to make right we'd grown the invoiced.
Speaker Change: We've grown our subscription business nicely from its conversion now spend about nine years ago.
Speaker Change: We've seen good growth on that year on year, and then we saw that start to flatten out and as we looked at what we could do to accelerate that.
Speaker Change: We recognize that we.
Speaker Change: Have a good product there's big demand for what we are doing in the market in fact, I would say that the need for what we're doing actually is growing day by day and not getting less and yet we were a little bit kind of a victim of the success that got us to where we were and that structure was not going to get us to where we needed to go and what I mean by that is that I think going through the conversion to <unk>.
Speaker Change: Subscription nine years ago, and not disrupting the sales force, while we disrupted just about everything else. We're doing I think that was a good decision.
Speaker Change: However, as we built the subscription business up to be as large as it is the task of maintaining and expanding.
Speaker Change: All of the existing clients, we have built up and then also going out and finding new became just too big of a job for the same salesperson to come in everyday and do and not just a salesperson, but their managers and the people that surround them with everybody coming in everyday thinking having be responsible for everything from finding a new client all the way to retaining and expanding in.
Speaker Change: So we became aware of that and it became a question of when when should we move in this direction. So that led to the pilot and we entered the pilot kind of already thinking we're piloting this to test the idea not to and to kind of prove it. So a couple of things. We learned one we did learn that bye bye focusing people on each.
Speaker Change: Landing or expanding and then by special a making sure that they had the specialized resources around them to help them land and to help them expand we saw good results from there and some returns from those pilots. Another thing. We learned is and this was a challenging lesson, but there were a number of salespeople.
Speaker Change: Who were.
Speaker Change: Great people and who were good at doing both but not exceptional.
Speaker Change: At either landing or expanding and so that led to we turned some salespeople over as you know starting in Q3 last year and then in the first quarter of this year as we really refine that profile and said now you either need to be a world class Hunter.
Speaker Change: Or do you need to be a world class expander and that was another key learning is that actually by separating those two kind of open the aperture up and kind of when we flip it on our side, we said well now the profile looks different we're not trying to look for this needle in a haystack person that could do both of those things, we really just need to find the people who are exceptional at one of those two job in that.
Speaker Change: That's made a big impact in terms of hiring and recruiting I think a third lesson is.
Speaker Change: And then I'll, just maybe maybe stop and let you jump back in if you have another question about more detailed third lesson as we.
Speaker Change: We were compensating in terms of sales compensation on.
Speaker Change: Kind of maintaining.
Speaker Change: And retaining the overall book of business.
Speaker Change: And that didn't put enough compensation leverage on the new logo side, nor did it put enough compensation leverage on the you got to go expand and grow your business. If you have these existing clients and so I think we learned that there was some tweaks that we could and should make there as well. So those are those are few of the lessons learned throughout the 18 months that we've been Ben.
Speaker Change: Applying maybe just the last Jeff would be the point, while I mentioned that we were going to market and.
Every client partners book of business had some very large customers to medium size and some smaller size and.
Speaker Change: And we recognize that actually by having people assigned to a segment you are either signed only two large companies are only the medium size or only to SMB that we could actually get a lot more velocity and focus and specialization there as well so those would be for lessons. We learned that we have been now applying in this new structure.
Speaker Change: Got it okay.
Speaker Change: With a lot of the initial.
Speaker Change: Investment in personnel happening pretty much.
Speaker Change: Up to this point already just curious.
Speaker Change: How the residual or the remaining part of that $16 million growth investment plan. This year is going to be allocated youre going to do some brand tree repositioning or youre doing specifically marketing is it more.
Speaker Change: Driving marketing events, where youre doing seminars and sales meetings those sorts of things to help us to understand.
Speaker Change: What what's been remaining this year, how that's going to be allocated.
Speaker Change: Yeah, Great question, so largely the people are in place as you said.
There is.
Speaker Change: Okay.
Speaker Change: There are there are two more two more areas of people related investments to bring to bring in one.
Speaker Change: Is the group that precedes the hunters, which is kind of the SDR function were.
Speaker Change: Augmenting the team that we had with a few more people. We just made a great new leader higher there and Thats. The team responsible that kind of sits between marketing and the salespeople to gin up lots of client meetings for our new Hunter salespeople. So that's that's an area of people and then we have a few more people to go on kind of the.
Speaker Change: As we as the invoice subscription growth in the back half of the year will need more implementation strategies, we've talked about that and thats. Our CSM function. So there's a few more people there, but then to your point.
There will be some investment increased investment in marketing as we sharpen the brand up and but that marketing is really focused on lead generation to feed the new logo.
Speaker Change: Sales people and also lead generation into our existing customers as we expand from our current approximately 10% penetration to larger populations. So marketing and then a few additional roles that are part of this transformation.
Speaker Change: That's it for me thank you.
Dave Storms: Thanks, Jeff.
Thank you that does conclude today's Q&A session I would now like to turn the call back over to Paul Walker for closing remarks. Please go ahead.
Paul Walker: Wonderful. Thank you just want to say happy new year to everyone. Thanks for joining us today. Thanks for your great questions and for the work that you do to understand Franklin Covey, our business and where we're trying to go here Phil.
Paul Walker: Feel really good about the speed at which we're executing on this new set of initiatives feel great about where Sean the education team came in in the first quarter and the trajectory and the momentum in that business and look forward to reporting again at the end of our second quarter and hope you all have a wonderful rest of your day.
Paul Walker: This does conclude today's conference call you may all disconnect.
Paul Walker: Okay.
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Paul Walker: Yes.
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Paul Walker: So.
Paul Walker: Hum.
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