Welcome to the Q2 2022 Franklin Covey Earnings Conference Call. My name is Adrianne, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session. I'll now turn the call over to Derek Hatch. Derek, you may begin.

Thanks, Adrianne. Hello, everyone. On behalf of Franklin Covey, I would like to welcome you to our earnings call to discuss our second quarter fiscal 2022 financial results. Before we begin, I would just like to remind everyone that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon management's current expectations and are subject to various risks and uncertainties, including but not limited to the ability of the company to stabilize and grow revenues, the acceptance of and renewal rates of our subscription offerings, including the All Access Pass and Leader in Me memberships; the duration and recovery from the COVID-19 pandemic; the ability of the company to hire sales professionals; general economic conditions; competition in the company's targeted marketplace; market acceptance of new offerings or services and marketing strategies; changes in the company's market share; changes in the size of the overall market for the company's products; changes in the training and spending policies of the company's clients and other factors identified and discussed in the company's most recent annual report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission. Many of these conditions are beyond our control or influence, any one of which may cause future results to differ materially from the company's current expectations. There can be no assurance the company's actual future performance will meet management's expectations. These forward-looking statements are based on management's current expectations and we undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of today's presentation, except as required by law. I think that gets longer every time I read it. With that out of the way, I'd like to turn the time over to Mr. Paul Walker, our Chief Executive Officer. Paul?

Thank you, Derek, and hello, everyone. We're happy to have the opportunity to talk with you today, and we thank you for joining us. I'm joined by Bob, Steve, and the team, and we also have Jen Colosimo and Sean Covey on the line as well. We're really pleased with both our second quarter and year-to-date results. As you can see on slide 4, subscription and subscription services revenue grew 31% in the second quarter and 32% year-to-date. This drove overall company revenue growth of 18% in the second quarter and 22% year-to-date. Our balance of deferred revenue, billed and unbilled, grew 24%. Our gross margin percent reached 77.9% for the quarter, which was an increase of 41 basis points compared to last year's second quarter, and an increase of 140 basis points to 77.8% year-to-date. Operating SG&A as a percent of sales improved 316 basis points for the quarter, going from 66.9% to 63.7%, and improved 468 basis points year-to-date, going from 67.3% to 62.6%. This combination of strong revenue growth, increasing gross margin percentage, and declining operating SG&A as a percent of sales drove a 35% flow-through of incremental revenue to adjusted EBITDA in the second quarter, and a 43% flow-through year-to-date. As a result, adjusted EBITDA for the second quarter increased 57% to $8 million and increased 103% to $18 million year-to-date, and net cash flow from operating activities year-to-date increased to $23.2 million. I'd now like to step back and provide some context and insights on some of the key factors that are driving these results. Our focus and unique expertise is in helping organizations achieve results that require the collective action of large numbers of leaders and individuals. As indicated in Column 1 of Slide number 5, on the left side, there are many in our industry who provide libraries of information, and these can prove to be a useful resource for a company's employees. Similarly, as indicated in the center column, many others offer libraries of content that provide clients' employees the opportunity to develop life and job skills to help them advance in their careers. At Franklin Covey, however, our focus is not just on providing our clients with useful information or content to help people learn skills that can help them advance in their careers, although I think it's important to note that both are available in the All Access Pass. Rather, Franklin Covey has organized and focused our entire organization on helping clients achieve results that require large-scale change in behavior. We help our clients address challenges and successfully pursue opportunities, which, as indicated in that third column on the right, require unleashing the collective power of the entire organization. These opportunities and challenges include things like moving key metrics, such as customer satisfaction or sales performance, measurably increasing the engagement and commitment of employees, or developing leaders who can unleash the capabilities of their people to achieve extraordinary results. Said differently, we're their partner of choice for organizations when winning is a team sport. We've always been viewed as best-in-class at helping organizations achieve these kinds of high-impact results. And when we made the decision to convert to a subscription business model just over six years ago, we already had a number of significant strengths going for us. These included things such as, over the prior five years, we had achieved significant growth in revenue and adjusted EBITDA, created some of the world's most impactful and best-selling content, invested significantly in technology-based delivery capabilities, had a large and growing sales force, a lot of loyal customers, and a tremendous culture. However, despite our successes, we knew our customers had a much broader range of important opportunities and challenges that at the time, a one-off, solution-by-solution, go-to-market approach was allowing us to help them address. To become the true partner of choice for our clients and to help them address their most important opportunities and challenges, we decided we needed to change our business model and the way in which we engage with our clients and, in turn, them with us. To do this, we created our powerful All Access Pass subscription offering. We've reviewed the value proposition for that on previous calls, so I won't do it here today. But for your information, Slides 23 and 24 in the appendix have a detailed overview of the All Access Pass value proposition. By combining the All Access Pass' compelling value proposition and subscription business model with the power of our best-in-class solutions, we expected that we could become a unique company, a company that, as shown in Slide 6, would achieve three things. First, we would occupy the position as the most trusted in the industry. Second, we would earn extraordinarily high levels of client loyalty and commitment, translating into high and growing client lifetime value. And third, we would generate extremely strong and accelerating top-tier financial results. Very few companies become recognized as a leader in their chosen market or earn the top-tier loyalty of their customers. Fewer still achieve and maintain top-tier financial results. We believe that by combining All Access Pass' compelling value proposition and subscription model with our already significant strategic strengths and our new investments in content, technology, and our teams, we could become a unique kind of company, a company that, as indicated, could simultaneously and consistently achieve all three of these objectives. I'd like to provide a bit of commentary on each objective and how our original assumptions and expectations are playing out. First, as illustrated on Slide 7, as to our progress on objective number one, that is cementing our position as the most trusted leadership company. We're pleased that over the past several years, we have expanded our solutions to include new blockbuster offerings, addressing some of the organization's most impactful challenges and opportunities. We've expanded our micro-learning and reinforcement offerings through the acquisition of Jhana, and established through our acquisition of Strive, a state-of-the-art learning delivery platform to generate measurable behavior change at scale. We've published numerous new best-selling books, which expanded market awareness of our solutions and added to our more than 50 million books sold worldwide, and we initiated a brand refresh and a new brand launch. In fact, many of you will notice our new brand reflected in our presentation here today. You'll recall that we indicated in the fourth quarter of last year that we were making significant investments into branding and positioning the company even more clearly and powerfully in the market. I'm pleased to report that these efforts are being received exceptionally well, and we are focused on getting the word out to new potential clients like never before. Second, as illustrated on Slide number eight, as to our progress on objective number two, that of earning extraordinary levels of client loyalty and commitment. We're pleased that, as expected, our customer lifetime value is both high and increasing. As shown on Slide nine, in our US-Canada business, which makes up 71% of total Enterprise Division sales, our average All Access Pass contract value has grown from $31,000 in fiscal 2016 to $46,000 at the end of this year's second quarter. Our annual revenue retention rate has exceeded 90% every quarter since the inception of All Access Pass. Our All Access Pass subscription services revenue has increased as a percent of All Access Pass subscription sales from 15% in fiscal 2016 to 57% for the latest 12 months, while also achieving year-over-year subscription service retention revenue rates of greater than 90%. This reflects the importance of the opportunities we're helping our clients address and their commitment to achieving them. Finally, our gross margin percent has increased steadily, increasing to 77.9% in this year's second quarter, reflecting our pricing power and SaaS-enabled business model. Third, as illustrated in Slide 10, as to the progress on objective number three, that of generating extremely strong and accelerating top-tier financial results. We expected that our combination of best-in-class solutions and extremely high customer loyalty and commitment would establish a powerful flywheel of factors that would drive strong and accelerating increases in financial performance. A flywheel that is shown in Slide 11 would drive very strong growth in subscription and subscription services, which in turn would increase sales growth across the company overall; second, generate large amounts of durable recurring revenue, which would establish high levels of revenue predictability and visibility; third, this flywheel would establish a compelling business model that would generate significant revenue growth while also driving increases in gross margin percentage and reductions in SG&A as a percent of sales with the result that a significant percentage of incremental revenue would flow through to increases in adjusted EBITDA and cash flow; and fourth, achieve accelerated growth in adjusted EBITDA and cash flow, which would in turn allow us to make ongoing investments in the business, allowing us to further accelerate the velocity of this virtuous cycle while also returning capital to shareholders. We're really pleased that each of these expected results is becoming a reality and that the power of our flywheel of performance and results is accelerating more and more quickly. For a moment here, I'd like to provide additional detail on each of these. First, we expected to achieve strong growth in All Access Pass subscriptions and subscription services, and we're pleased that we have. We expected this would, in turn, drive substantial increases in overall company revenue growth, and this is happening. As shown in Slide 12, from the inception of the All Access Pass in fiscal 2016, total All Access Pass subscription and subscription services revenue has grown from $13.7 million to $126.9 million for the latest 12 months ended this year's second quarter. This strong growth continued in this year's Q2 and year-to-date periods, with All Access Pass subscription and subscription services revenue growing 29% to $32 million in the second quarter and 28% to $65.2 million year-to-date. As expected, this strong growth in All Access Pass subscription and subscription services revenue has also driven strong increases in total overall company revenue. While we've said we expect to achieve overall revenue growth in the low double digits, total company revenue grew 18% in the second quarter and 22% year-to-date. This was driven by stronger than expected All Access Pass subscription and subscription services revenue growth. We also benefited from comparisons to last year's second quarter and year-to-date periods that were still somewhat affected by COVID. Second, we also expected that our strong subscription sales would generate large amounts of durable recurring revenue, creating significant predictability and visibility into the future, and we're pleased that it is. As shown on Slide 13, our subscription revenue retention has remained above 90% in every year and in every quarter since the introduction of All Access Pass. Our subscription revenue retention rate remained above 90% again for the second quarter and latest 12-month periods. Our multiyear contract value as a percent of total All Access Pass contract value has continued to increase, growing from 37% in fiscal 2019 to 57% at the end of this year's second quarter. The significantly increasing visibility into and predictability of our future revenue is further indicated in Slide 14. Our balance of deferred revenue, billed and unbilled, has grown from only $17.8 million in fiscal 2016 to $119.3 million at the end of this year's second quarter. In the second quarter, our balance of deferred revenue grew to $70.4 million, an increase of 20% compared to the same period last year, and our balance of unbilled deferred revenue grew 31% to $49 million. Our balance of billed and unbilled deferred revenue as a percent of prior 12-month sales has also increased steadily and significantly, increasing from 39% in fiscal 2019 to 49% for the latest 12 months ended this year's second quarter. The increasing percentage of revenue represented by our deferred revenue balance provides significantly increasing predictability of and visibility into future revenue growth. Third, we expected the economics of our subscription model to create a compelling business model, and we're pleased that this is occurring. As shown on Slide 15, we've achieved strong and increasing gross margins. In the second quarter, our gross margin percent increased to 77.9%, an increase of 41 basis points compared to last year's second quarter, and our gross margin increased 194 basis points to 77.7% for the latest 12-month period. At the same time that our gross margin percent has increased, our operating SG&A sales percentage has also improved. With a 316 basis point improvement in Q2 to 63.7% compared to last year's second quarter, and a 544 basis point improvement to $62.6 million for the latest 12-month period. This reflects the fact that our lifetime customer value far exceeds our cost of acquiring a new customer. This has resulted in a high flow-through of incremental revenue to incremental adjusted EBITDA. In the second quarter, the flow-through of incremental revenue to incremental adjusted EBITDA was 35%, and for the latest 12 months, this flow-through was 37%. We expect the continued strong growth in subscription revenue, together with the continued high flow-through of EBITDA, will result in our adjusted EBITDA to sales margin increasing from 15% for the latest 12-month period to approximately 20% over the next couple of years. The fourth element of the flywheel is that we expected this to drive accelerated growth in adjusted EBITDA and cash flow, and we're pleased with this achievement. As shown in Slide 16, in this year's second quarter, adjusted EBITDA increased 57% to $8 million compared to $5.1 million in adjusted EBITDA in last year's second quarter. Year-to-date through the second quarter, adjusted EBITDA increased 103% to $18 million compared to adjusted EBITDA of $8.8 million for the same period last year. For the latest 12 months, adjusted EBITDA increased $23 million or 163% to $37.1 million compared to $14.1 million for the same period last year. As shown on Slide 17, our net cash flows provided by operating activities increased to $23.2 million at the end of this year's second quarter. We ended the second quarter with $76.1 million in liquidity, comprised of $61.1 million in cash and with our $15 million revolving credit line fully undrawn and available. We have no net debt. Fifth and finally, relating to the flywheel, as illustrated in Slide 18, we've consistently invested a portion of our cash flow and strong liquidity to make a series of tuck-in acquisitions, like Strive and Jhana, that have established a strong technology-based delivery platform and increased our micro learning capabilities. We've also utilized our excess liquidity to return capital to shareholders by repurchasing and retiring more than six million shares net over the years. We expect to continue to utilize our excess liquidity to create value in these same ways. We're thrilled that our Education Division, with its strong Leader in Me subscription offering in more than 3,100 schools in the U.S. and Canada and more than 5,000 schools now worldwide, is also achieving greater than 90% Leader in Me subscription revenue retention, while at the same time benefiting from a flywheel of factors very similar to those we've just outlined, which is driving strong increases in its financial performance. In conclusion, in the year since our introduction of All Access Pass, our position of leadership in the market has strengthened even further, and our subscription flywheel has proven to be increasingly strong and powerful. As exciting as the past six years have been since we began All Access Pass, we're even more excited about what lies ahead. As we continue to invest in world-class solutions, technology, and the teams to help our clients win, we expect virtually all of our sales to become subscription and subscription services within the next three years or so. As we've previously noted, we expect to be a unique company, a company which, as a reminder, as shown on slide 19, will achieve three really important objectives. First, we'll further strengthen and expand our position of leadership as the most trusted leadership company. Second, we'll earn extraordinary levels of client loyalty and commitment. And third, we'll generate extremely strong and accelerating financial results driven by the powerful flywheel of factors we've just discussed. I think it's important to note that as this nearly complete transition to subscription and subscription services occurs, we expect revenue growth, which not that long ago was in the high single digits, to move into the low double digits, especially as we move out of the pandemic around the world and then into the mid-teens and, eventually, we think onwards towards 20%. We look forward to having you with us as investors and partners in this exciting next phase of our growth, and we're grateful that you're here today. With that, I'd like to turn the time over to Steve Young to provide an update on guidance and our outlook.

Thank you, Paul, and good afternoon, everyone. I'm pleased to be with you today to talk a little bit about our guidance and our targets. So in our initial guidance for FY 2022 in November, we said that we expected to generate adjusted EBITDA for the year of between $34 million and $36 million. With our strong year-to-date performance through the first half of this year, we're pleased that our adjusted EBITDA of $37.1 million for the last 12-month period is already above the high end of that original guidance range. As a result, we are raising our full year guidance range; our new guidance, which you can see on Slide 20, is that we expect adjusted EBITDA for FY 2022 to be between $38 million and $39 million. The midpoint of this new range will reflect an approximately 38% increase in adjusted EBITDA in FY 2022 compared to the $28 million of adjusted EBITDA achieved last year. The factors that underpin our guidance are: first, the expected recognition during the balance of FY 2022 of a meaningful portion of the $70.4 million of deferred revenue currently on the balance sheet, and the billing of a significant portion of the $39 million of unbilled deferred revenue, which is primarily related to multi-year contracts. This deferred revenue provides significant visibility into our revenue for the balance of this year and beyond. Second, in addition to the recognition of our deferred revenue, the factor which is expected to have the greatest impact on our FY 2022 results is also the one in which we have high confidence; that is the continued strength of the All Access Pass subscription and subscription services sales. Third, over the past year, we achieved growth in the contracted All Access Pass subscription and subscription services sales in both China and Japan. The All Access Pass sales which we achieved in these countries will result in a portion of the sales not being recognized immediately but rather being added to the balance sheet as deferred revenue. Additionally, despite these offices’ progress over the past years, we expect that China's continued lockdown of certain cities and parts of the country related to the pandemic and Japan's slower than expected rebound will result in lower than originally expected sales in China and Japan during the back half of this year. For context, in FY 2021, China accounted for approximately 5% of total sales, and Japan accounted for approximately 4% of total sales. So then fourth factor, in Education, we expect to continue to achieve strong retention of both schools and revenue among existing Leader in Me schools, and we also expect to grow our number of new Leader in Me schools to a level even higher than we achieved in our strong FY 2021. Now a little bit about Q3. In the third quarter, we expect that adjusted EBITDA will be between $8.6 million and $9.6 million compared to the very strong $8.6 million in the third quarter last year, which, as you might recall, was up more than $5 million compared to the $3.1 million in the pre-pandemic third quarter of FY 2019. This third quarter strength reflects strong growth in North America, and our English-speaking direct offices in the UK and Australia, and in Education, partially offset by the expected impact of a combination of a few things. Number one is the pandemic-related challenges in China and Japan that we just talked about. And also, we just talked about the fact that some of the contracted revenue in these countries will result from sales of the All Access Pass, a large portion of which will go to the balance sheet as deferred revenue this year, which will benefit future periods more than it does the current year. Third, war-related factors in our licensee offices in Eastern Europe, which is small, but it's still an impact. And fourth, some increases in growth investments in the third quarter. While the fourth quarter could also be impacted by these same factors, we expect that the tremendous ongoing strength of the All Access Pass in the US, Canada, and the expected strength of the Education Division will result in strong results in the fourth quarter and beyond. So your guidance, quarterly guidance now targets for FY 2023 and FY 2024 as shown in Slide 21. You'll recall, at the end of the first quarter, we increased our original targets of achieving $40 million in adjusted EBITDA in 2023 and $50 million of adjusted EBITDA in 2024. We increased those targets by $5 million to our new targets, which were discussed as achieving $45 million of adjusted EBITDA in 2023 and $55 million in FY 2024. Given our strong year-to-date performance, we still feel good about these increased targets. As always, we will update our targets when we give our first quarter and full-year guidance in November. So while dramatic changes in the world environment and other factors could impact our expectations, as we've seen in the last couple of years, we want to share that these are current targets and expectations. I also want to remind everyone again, as you look at our proxy, you'll see that the executive team's LTIP awards depend on achieving these strong multi-year goals.

Thank you, Steve. Again, we are grateful you're here today. We feel great about our momentum, and we look forward to accelerating growth. And with that, Adrianne, we'd like to turn to you and to open up the line for questions.

We will now start the question-and-answer session. Our first question comes from Alex Paris from Barrington Research. Your line is open.

Hi, everybody. Thanks for taking my questions and congratulations on the recent raise.

Thanks, Alex. How are you doing?

Good, good, good. Thanks. So I'll start first with guidance. Nice increase to the guidance. No surprise, given where you stood at the end of the first quarter, but great to see anyway. And just to kind of go over the moving parts. The comps are tough in the third and fourth quarters, obviously, as COVID begins to wane, and those quarters a year ago were less impacted. But you have planned investments also in the second half, including hiring new client partners. So that's where I wanted to start. Where do we stand with client partner hiring year-to-date and what are your plans for the third and fourth quarters in that regard?

Yes, that’s a great question. You're correct that our focus on increasing growth investments includes hiring client partners and enhancing our marketing efforts to attract more new clients. Client partners are a crucial metric for us and a significant driver of growth. Most of our hiring takes place in the second quarter, and we are prepared to ramp up our efforts. For context, before the pandemic, we added 31 new client partners, a record for us. Our goal has been to maintain that momentum. In the early months of the pandemic, we brought on nine new hires, but then we paused our hiring due to the circumstances. Last year, we aimed to hire 20 and ended up hiring 19, with one new hire coming just after we reached that target. Now, we are focused on hiring 30 this year. So far, we're slightly behind at eight hires, which is not unusual for the beginning of the year. Given the current market environment, we have significantly increased our recruiting team size over the past few months. In addition to having more than double the number of recruiters, we've established a sourcing team to help identify strong candidates. Our team is fully engaged in bringing in as many new client partners as possible to reach our goal of 30 hires this year.

Would you think it would be 15 and 15, or would it be a fewer number in Q3 and a greater number in Q4?

I mean, roughly that, but probably the way it ends up working out is probably like 10 and 20. It probably skews a little bit to Q4. Not quite evenly split.

Okay. Good. And then you also mentioned other growth investments, including sales support personnel. How should we think about sales support personnel? What's the ratio of incremental sales support personnel to client partners?

If I said that, I misspoke. The other two areas of investment would be in marketing to expand our message and attract more new clients. The third area would involve ongoing investments in content and technology as we introduce Strive to the market. So, when considering our investments, they focus on three areas: hiring and growth of client partners, increasing our outreach more than ever before because of the significant growth opportunity we see, as we are still underrepresented in this large market, and ensuring that our solution is as excellent as possible for our clients.

Thank you. Steve, regarding the outlook for fiscal '23 and fiscal '24, I appreciate that you increased those targets earlier this year to $45 million and $55 million. However, I'm curious if those targets remain conservative considering your heightened expectations for fiscal '22.

Achieving $45 million and then $55 million would be a very good result. An increase of $10 million between 2023 and 2024 would also be promising. We remain optimistic about those years and are eager to see how the rest of this year unfolds, especially since our fourth quarter is always significant. Every year, we adjust our targets at the beginning of the year based on the best information available at that time. We are excited about reaching those numbers, but I prefer not to raise or change them until we assess how this year concludes and the performance of our new clients and investments, which we will know in November after our fourth quarter results.

So once we have the fourth quarter result, we'll expect formal adjusted EBITDA guidance for fiscal '23 and then a revision of the outlook for fiscal '24 and maybe fiscal '25 at that point? In terms of target?

A good way to say it. Real guidance for FY '23, a revised outlook for '24 and maybe some talk about '25.

Okay. Fair enough. And then, Steve, what did you say that the incremental contribution margin was on revenue to adjusted EBITDA in the second quarter and year-to-date?

We just said it was 37%. So it's about 35%, Alex. And of course, the flow-through is impacted by the gross margin, which we think will hold in there at a good gross margin. And then the SG&A, having the increases that Paul talked about, salespeople, content development, marketing, to have what we still think is a decent flow-through, especially in the short-term remainder of this year and even into next year of, say, 30% to 40%, about in the middle of that right now.

Got you. Okay. Perfect. Thank you so much, and again congratulations on the quarter.

Thanks, Alex.

Thanks. Good afternoon, everyone. How are you doing, Paul?

Great.

I was wondering if you could give us an update on the planned rollout of Strive. I know that’s an exciting proposition for you, should increase lifetime value to the customer base with the automated capabilities of it. But where are we at in terms of getting it ready to launch here?

Thank you for the question. We are very excited about Strive. To clarify, we believe Strive will enable us to grow in three ways. First, it will provide learners with easier access to our content, allowing us to guide them through impactful journeys that can effectively change behaviors. This should lead to the expansion of our All Access Pass, as we still see significant growth potential within our existing clients. Second, Strive will simplify the deployment of our content for clients utilizing a Franklin Covey delivery consultant for training and coaching. This will happen through the tech platform, which we believe can enhance our services, currently accounting for 57% of subscription revenue. Lastly, the technology and platform are impressive, and we anticipate showcasing this to potential customers will improve our new customer acquisition rate. Regarding our current status, we are in a strong position. We planned to launch by year-end and conducted a successful pilot launch last December, which received positive feedback. We have now migrated all of our content to Strive and are conducting a limited rollout to a significant portion of our salesforce and clients this May and June. We aim to fully launch for all clients at the start of our new fiscal year. Overall, we feel we are on track and pleased with the progress, including feedback from the clients we are engaging with. Additionally, the team that was working on Strive is still successfully selling the original Strive product, and these deals are being transitioned to All Access Pass. Everything is progressing smoothly, and we feel optimistic about the initiative.

Great. Look forward to seeing the platform launch here. Could you go into a little bit more with respect to the investments in marketing and content development? What particular initiatives are in place under those two steps up in investment?

Thank you. Over the latter half of last year and significantly during our fourth quarter into the first quarter of this year, we focused on rebranding the company, which included a refreshed look and feel. If you visit our website, you'll notice the changes. This refreshed brand will be activated across all our properties, materials, and websites globally. While modernizing our brand is exciting, the real progress lies in clarifying our messaging about who we are and the value we provide to our clients. We are only beginning to ensure that everyone who should understand our message does understand it. Recently, after a call with a potential client, they expressed surprise at what Franklin Covey actually offers, highlighting the need for us to convey our message more effectively. Therefore, we are increasing our efforts in this area. We feel we have much more potential to grow, having seen solid new logo growth in the second quarter. Our marketing efforts are focused on spreading awareness through better public relations. We don’t engage in large advertising campaigns, as it's unnecessary; rather, it's important that key industry figures, such as Chief Learning Officers and heads of learning and development, clearly understand our identity and value proposition. On the content side, we are making progress with new offerings. We launched a change management solution last fall, which has been very well received. We're continuing to develop our offerings on unconscious bias, with three new modules in the pipeline. Additionally, we're updating our content on the four disciplines of execution and project management. As we approach the end of this year and into next, we plan to refresh foundational materials like the 7 Habits and the Speed of Trust. We have an ambitious content roadmap, reimagining some of our historical solutions to meet the needs of clients in 2022 and beyond, ensuring they integrate well into Strive. There's a lot happening in our content development, and we feel positive about it. Our clients have responded well, reflected in our high Net Promoter Scores. We're also exploring new categories of offerings that could significantly enhance the All Access Pass and strengthen client relationships in the coming years.

Okay, great. One more, if I could; on the Service Attach Rate to All Access Pass, I was curious, if running in the high-50s now, I think that's higher than what most people thought it would be. What's the sustainability of that? And what's really been driving that to the level that it is? Thanks.

Great question. In some locations worldwide where the business model has historically focused heavily on services, there is a one-to-one attach rate for services. For every dollar of subscription, there's an equal dollar of services. With one of our licensee partners, that ratio exceeds one-to-one, indicating potential for further service growth. Several factors contribute to this. Firstly, the nature of the challenges we help clients address often requires our assistance. When engaging with senior leaders, they prefer a trusted Franklin Covey consultant to help at the executive level, especially on sensitive cultural issues. Another factor benefiting us is the shift caused by the pandemic. Initially, service sales plummeted as live in-person events were canceled. Although we had the capacity for live online services, clients were hesitant to transition, leading to a pause in bookings. However, as we've adapted clients to live online formats, we've observed an increase in service sales. This shift allows for shorter training sessions that fit into busy schedules, making it easier for organizations to maintain team interaction and culture, especially in remote or hybrid settings. Live online services appear to be a lasting trend, positively impacting our business. Additionally, clients are also requesting in-person engagements, reflecting our adaptable business model. Although the pandemic brought challenges, it has ultimately ushered in some beneficial outcomes for our services.

Thanks, Paul.

Good afternoon, everybody. Hi. Thanks for taking my questions. Just wondering if maybe you could talk a little bit about the cash buildup on the balance sheet. I know you've obviously discussed some additional investments you're making during the back half of this year. Can you maybe just talk a little bit more about what you're thinking about with that cash, because it's a pretty substantially high level in comparison to historically?

Steve, do you want to take that one?

Yes, it is a good problem to have, Marco. Our approach to using cash and considering alternative uses remains consistent with our previous strategies. The primary alternatives we are considering include using cash to grow the business and to make necessary investments. We have sufficient cash and generate enough to support the initiatives Paul mentioned, such as developing content and adding client partners. This growth will always be our top priority. In addition to this, we are exploring alternative cash uses, which include acquisitions and share buybacks. As Paul pointed out, we have reduced our outstanding shares by 6 million during our time here, demonstrating our willingness to repurchase shares and recognize their value. We understand that acquisitions, like those highlighted in Paul's presentation, have been very advantageous for us, and we will continue to seek acquisitions that enhance our platform or accelerate revenue. We anticipate that in the future, we will likely engage in a mix of acquisitions and share repurchases, utilizing our excess liquidity to create value in these ways.

Got it. Yes, very well understood. Just out of curiosity, have any one-time distributions come up regarding the use of that cash?

Well, we've done a couple of tender offers, if that's what you are talking about, repurchases. We haven't had any dividend-type distributions, but we've done, as you know, over the years while we've been here, a couple of tender offers and then have done a lot of open market repurchases.

Got it. And then I was wondering if you could then also circle back around just on the client partners. I believe it was in the last call or maybe it was the prior call. We were talking about there's a potential or you're thinking about different ways in which you can maybe accelerate the amount of client partners that you can bring in per year. I'm wondering if there's been any updates in regard to that, if there's been any other thought processes around that, that we can maybe see a spike in the client partner hiring after this fiscal year and beyond?

Yeah. That's a great question. You can imagine that topic is an important topic, and we talk about a lot. How do we ramp the existing ones more quickly and how do we create a system where we can bring people on more effectively? And so I think the short answer is yes. I think, over time, you could expect to see that what used to be, hey, let's organize at 10 a year, and we kind of got to where we were able to add 20. We added 31 right before the pandemic hit. We were fortunate to add 20 last year. We're working at 30 this year. That's kind of the new floor and then we build from there. To answer your question about what does it take. So for us, it's finding the talent. It's making sure we have the management and coaching infrastructure internally to support increasing new hires and a kind of a sales enablement function. So that's what we're working to build out. We know what we have is – we have the right product and we have the right market, and it's a really exciting market. Our plans are consistent with kind of what your ask is there and we'll be prepared to talk more about that as we get into the beginning of next year when Steve updates targets.

Understood. Well, thanks, guys. I really appreciate your time.

Thank you.

Hey, guys. Congrats on a great quarter. So the first thing I wanted to talk about was, you mentioned, Paul, almost offhand. I'm surprised it hasn't gotten any attention yet. But you mentioned that your long-term revenue growth targets are increasing from that kind of high single-digit level towards, you said, teens in the near term and then towards 15% or 20% in the longer term. I mean, obviously, you have that momentum in your business now. I know it's something we've talked about, why not grow faster? Maybe you could spend a little time, just open-ended question, maybe you could flesh out why you aren't being more, I guess, aggressive sort of about making that a public target of company 15% to 20% a year?

Yeah. Great. It's a great question. So…

You're already doing that, right? I mean, I recognize that there – I recognize there's some benefit right now because you're kind of rebounding from COVID and Leader in Me and all that, but…

I appreciate your question. There are a couple of points I'd like to address. First, Franklin Covey is currently a $250 million to $260 million company that, before the introduction of the All Access Pass, was seeing modest growth in the mid to high single digits. Over the past six years, we've been experiencing a significant increase in our SaaS-like business, which includes both the All Access Pass and our Leader in Me subscription. As these areas expand to eventually represent a large portion of our revenue, the company's growth rate should naturally increase. In the short term, however, there are factors that are slightly holding back that growth. One mentioned by Steve is that some regions have not yet fully transitioned to a subscription model, which impacts our sales. Additionally, we are still facing some pandemic-related challenges in China and Japan, with China currently managing the pandemic and Japan slowly recovering from its aftermath. These issues explain why we are seeing significant year-over-year comparisons in the first half of the year, but not as much growth in the second half, even though we are optimistic about our growth rates. Ultimately, what you're hinting at aligns with our expectations for the future. As we progress through this year, we will consider how to frame our public messaging for next year concerning our growth targets.

Okay, that makes sense. I understand that you always adhere to your guidance, but it seems a bit excessive at this point considering the momentum in your business. I'm not even focusing on the 22% because I recognize the impacts of the pandemic. I'm just saying that $45 million of EBITDA for next year appears to be an easy target unless you plan to invest heavily in growth, which doesn’t seem to be the case anyway. That was my first question. For my second question, regarding cash, I want to clarify that you will be at negative three times net debt to EBITDA by the end of this year, which is far from an optimized balance sheet for a business with highly recurring and predictable revenue. As a significant shareholder, I support having cash available, but this seems excessive. Paul, why not establish a more programmatic return of capital? Instead of just accumulating cash, historically, you have engaged in a lot of tenders. Why not commit to something like dedicating 20% to 30% of annual free cash flow to share repurchases and setting a dividend at 15% to 20% of free cash flow, while reserving the remaining 50% for potential M&A? Why not adopt that kind of structured approach that many companies implement?

I'll provide a brief response, then hand it over to Steve. I believe that's an excellent suggestion regarding cash management, as we are aware that we will continue to generate substantial cash in the future. Additionally, the pace at which we anticipate growth will increase is also a crucial topic. Your suggestion regarding cash handling is sound. Steve, what are your thoughts on this?

Agreed, Samir, to have a more formalized and discussed plan that we could let the street know what we're thinking on those specific targets. When we get conclusions drawn, just exactly what you're saying, how much of free cash flow are we going to spend on this and on that, I think, is a really good recommendation and something that we're looking at and that we will do.

Okay, that makes sense. I have one final question regarding the client partners. It's a very challenging environment for talent right now. Could you elaborate on why you believe Franklin Covey can attract talent? I understand we've discussed the sales compensation model being appealing, but I have to admit I'm a bit surprised that you are currently down eight client partners.

To provide some context, at the same time last year, we were down about five, which is not unusual due to seasonal factors. However, we've significantly increased the size of our recruiting team, more than doubling it, which is a substantial enhancement in the number of recruiters we have. We believe we can excel in this area because we are offering something quite unique in the industry. What we're developing is resonating well with our clients. For salespeople, this is the type of product they want to sell—backed by a strong brand and reputation. We enjoy high levels of client loyalty and retention. Our sales structure incentivizes our salespeople to not only acquire new clients but also to retain them, which makes the compensation appealing. We're putting considerable effort into ensuring our overall offering is exceptional and essential for our clients. Many of our recent clients are transitioning from other EdTech companies that have struggled to grow both revenue and EBITDA and are now cutting back on expenses like customer acquisition. They see Franklin Covey as an attractive place to work. Our company culture is excellent, and we offer a compelling value proposition for new salespeople, which we are keen to emphasize.

Thanks. I appreciate that. My final comment is that operationally, you are doing incredibly well. I don't think anyone could criticize your efforts. However, from a stock valuation perspective, based on intrinsic DCF analysis, it’s worth between $70 and $90 a share. Forget about comparisons to other companies; just keep focusing on improving that aspect, and I believe everything will be great. Thanks, Paul. I appreciate it.

Thank you, Samir. That’s great.

And this concludes the question-and-answer session. I'll now turn the call back over to Paul Walker for final remarks.

Well, thanks, everyone, for joining today. Thanks for your great questions, and thanks for your continued interest and support. We really appreciate you and hope you have a wonderful rest of your day and your week.

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