Franklin Covey Co. (NYSE:FC) Q3 2023 Earnings Conference Call June 28, 2023 5:00 PM ET Company Participants Derek Hatch - Corporate Controller Paul Walker - Chief Executive Officer Steve Young - Chief Financial Officer Jennifer Colosimo - President, Enterprise Division Sean Covey - President, Education Division Conference Call Participants Jeff Martin - ROTH Nehal Chokshi - Northland Capital Dave Storms - Stonegate Capital Alex Paris - Barrington Research Operator Good day and thank you for standing by. We ...

FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 2023 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FRANKLIN COVEY CO. (Exact name of registrant as specified in its charter) Utah 87-0401551 (State or other jurisdiction of incorporation or organization) (I.R.S. employer identification ...

Financial Data and Key Metrics Changes - The company reported Q2 2023 revenue of $61.8 million, a 9% increase from the prior year, and 11% growth in constant currency [7][40] - Adjusted EBITDA for Q2 was $8.2 million, with a constant currency figure of $8.4 million, reflecting a strong performance despite challenges [9][46] - The company expects full-year adjusted EBITDA guidance in constant currency to be between $47 million and $49 million [10][80] Business Line Data and Key Metrics Changes - Total subscription and subscription services revenue grew 15% in Q2, 18% year-to-date, and 22% for the latest 12 months [18][41] - The All Access Pass subscription revenue grew 11% in Q2, following a 29% growth in the same quarter last year [18][41] - The Leader in Me subscription revenue increased by 30% in Q2, 27% year-to-date, and 23% for the latest 12 months [18][60] Market Data and Key Metrics Changes - Revenue in North America, which accounts for about 73% of total Enterprise Division revenue, grew 8% in Q2 [52] - International licensee partner revenue increased by 13% in Q2, indicating resilience despite global economic conditions [58] - Revenue in China and Japan declined by 17% in Q2, but improvements are expected in the latter half of the year [57] Company Strategy and Development Direction - The company’s strategy focuses on addressing mission-critical challenges for clients, which remain durable even in tough economic times [12][14] - The business model emphasizes resilience and growth in revenue, adjusted EBITDA, and cash flow, even during economic downturns [12][37] - The company plans to continue investing in client-facing roles and expanding its sales force to drive future growth [70][79] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging economic environment but expressed confidence in the strength of their pipelines and client relationships [9][10] - The company anticipates a recovery in sales in China and Japan in the second half of the year, contributing to future growth [74][82] - Management highlighted the importance of leadership capability and culture in driving financial performance for clients [64][68] Other Important Information - The company ended Q2 with $55.1 million in cash and an undrawn $15 million revolving credit facility, providing flexibility for growth and acquisitions [35][50] - The Board of Directors increased the stock repurchase authorization to $50 million, reflecting confidence in the company’s financial position [36] Q&A Session Summary Question: Clarification on EBITDA guidance - Management confirmed that guidance is typically provided on a constant currency basis and acknowledged a previous oversight in communication [89][90] Question: Deceleration in bookings - Management noted that while bookings were up only 2% year-over-year, the number of clients renewing and expanding their contracts was higher than the previous year [92][94] Question: Industry trends in client renewals - Management indicated that there is no significant trend by industry in client renewals, although some larger clients faced challenges [101][110] Question: Explanation of "deeper snow" - Management explained that "deeper snow" refers to increased challenges faced by clients, impacting their ability to renew contracts [96][97] Question: Unbilled deferred revenue growth - Management clarified that the growth in unbilled deferred revenue suggests that loyal, higher-value clients are opting for multi-year contracts [111][112]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 2022 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-11107 FRANKLIN COVEY CO. (Exact name of registrant as specified in its charter) | Utah | 87-0401551 | ...

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|-------|-------|-------|-------|-------|-------|-------|-------|-------| | | | 53.4 | 141.7 | 177.4 | 199.7 | | | | | 93.0 | 119.7 | | 39.3 | 48.1 | | | | | | 26.0 | 33.1 | 39.6 | | | Q1 FY 21 Q1 FY 22 Q1 FY 23 LTM Q1FY21 LTM Q1FY22 LTM Q1FY23 124.4 97.7 80.0 LTM Q1FY23 LTM Q1FY21 LTM Q1FY22 © FranklinCovey Co. All rights reserved. PROPRIETARY AND CONFIDENTIAL 41 Education Division Financial Summary LTM Q1 LTM ...

Franklin Covey Co (NYSE:FC) Q1 2023 Earnings Conference Call January 5, 2023 5:00 PM ET Company Participants Derek Hatch - Corporate Controller Paul Walker - Chief Executive Officer Steve Young - Chief Financial Officer Jen Colosimo - President, Enterprise Sean Covey - President, Education Conference Call Participants Alex Paris - Barrington Research Nehal Chokshi - Northland Capital Markets Dave Storms - Stonegate Operator Good day and thank you for standing by and welcome to the First Quarter 2023 Frankli ...

Financial Performance - Consolidated net sales for the fiscal year ended August 31, 2022, totaled $262.8 million[13] - Fiscal 2022 consolidated revenue grew 17% to $262.8 million compared to $224.2 million in fiscal 2021, driven by strong subscription sales[175] - Net income for fiscal 2022 was $18.4 million, or $1.27 per diluted share, compared to $13.6 million, or $0.96 per diluted share, in fiscal 2021[182] - Adjusted EBITDA increased 51% to $42.2 million in fiscal 2022, up from $28.0 million in fiscal 2021[182] - Cash flows from operating activities increased 13% to $52.3 million in fiscal 2022 compared to $46.2 million in the prior year[184] Client and Market Growth - The number of client partners increased from 214 on August 31, 2018, to 300 on August 31, 2022, reflecting a growth of approximately 40%[27] - The U.S. training industry is expected to grow by 10% over 2021, reaching an estimated size of $101.6 billion[30] - Education Division revenues rose 26% to $61.9 million, with a record addition of 739 new Leader in Me schools in the U.S. and Canada[172] - The number of new Leader in Me schools added in the U.S. and Canada reached 739, a 29% increase over fiscal 2021[206] Subscription Services - All Access Pass subscription sales increased 28% to $144.5 million in fiscal 2022, up from $112.5 million in fiscal 2021[171] - AAP subscription and related revenues grew 28% to $144.5 million in fiscal 2022, with annual revenue retention remaining above 90%[198] - The company plans to launch the new Impact Platform in October 2022, aiming to enhance its subscription services and technology integration[174] Workforce and Culture - The company has approximately 1,150 associates worldwide, with a focus on diversity, equity, and inclusion in its workforce[29][46] - The associate turnover rate in the United States and Canada was 17% from June 1, 2021, to May 31, 2022, which is considered reasonable for the industry[49] - In the 2022 Culture Survey, 86% of associates reported having at least one meaningful conversation with their manager in the past year[50] - The Mentorship Program has grown from 30 pairs of mentors and mentees to 86 pairs of participants[52] - The company emphasizes a culture of feedback, encouraging ongoing dialogue between leaders and associates[50] Operational Challenges - The company has faced significant volatility and uncertainty due to the ongoing COVID-19 pandemic, impacting operations and financial results[70] - Economic and political conditions significantly impact client budgets for training, with a prolonged downturn potentially reducing demand for services[76] - Global economic instability, including inflation and energy shortages, may continue to pressure the company's operating results and financial condition[75] - The company operates in a highly competitive training industry, which may affect its ability to sell offerings[72] - The training and consulting services industry is highly competitive, with larger competitors having superior resources, which may adversely affect the company's ability to deliver quality services[73] Compliance and Legal Risks - Cybersecurity risks are heightened due to the internet-based nature of subscription services, with potential breaches leading to significant legal and financial exposure[94] - Compliance with evolving data protection laws, such as GDPR, is essential, as non-compliance could result in substantial fines[99] - The PRC Personal Information Protection Law (PIPL) imposes fines up to RMB 50,000,000 or 5% of global annual turnover for noncompliance, which could significantly impact the company's operations in China[102] - The California Consumer Privacy Act (CCPA) and its amendments require companies to disclose data practices and allow consumers to opt out of data sales, with enforcement beginning on July 1, 2023[103] Financial Strategy and Capital - The company may need to raise additional capital through debt or equity offerings to support growth initiatives and respond to competitive pressures[115] - The company did not pay or declare dividends during the fiscal years ended August 31, 2022, or 2021, and anticipates retaining all available funds for liabilities and growth[150] - The company has repurchased 504,411 shares of its common stock for $20.5 million under a Board-approved repurchase plan[154] Global Operations - The company operates globally with sales and support associates in various locations, including wholly owned subsidiaries in multiple countries[21] - The company operates in 150 countries and territories, with a wide range of content delivery options including digital online learning and on-site training[168] - Global operations expose the company to complex risks, including currency exchange fluctuations and political instability, which may affect financial performance[127] - The uncertainty surrounding Brexit may lead to economic and legal challenges, impacting the company's operations and financial condition in the UK and EU markets[128]

Greatness Starts Here © FranklinCovey Co. All rights reserved. PROPRIETARY AND CONFIDENTIAL We transform organizations by building exceptional leaders, teams, and cultures that get results. FranklinCovey* Investor Update Fiscal Year & Q4 2022 Janita Anderson Strategic Partnerships, Education Division © FranklinCovey Co. All rights reserved. PROPRIETARY AND CONFIDENTIAL Forward-Looking Statements/Non-GAAP This presentation contains forward-looking statements within the meaning of the Private Securities Litig ...

Financial Data and Key Metrics - Revenue for fiscal 2022 increased by 17% to $262.8 million, with a 21% growth excluding the impact of China and Japan [7] - Subscription and subscription services revenue grew 29% in fiscal 2022, with All Access Pass revenue growing 28% and Leader in Me revenue growing 29% [8] - Gross margin for fiscal 2022 remained strong at 76.8%, with a gross margin of 75% in Q4 [11] - Adjusted EBITDA increased by 51% to $42.2 million in fiscal 2022, with a 26% increase in Q4 to $13.3 million [13] - Net cash provided by operating activities increased by 13% to $52.3 million for the year [13] Business Line Performance - North America Enterprise revenue grew 19% in fiscal 2022, with subscription revenue increasing 26% [22] - International direct offices in the UK, Ireland, Germany, Austria, Switzerland, and Australia saw revenue growth of 40% in fiscal 2022 [23] - Education division revenue grew 26% in fiscal 2022, with subscription revenue increasing 29% [26] Market Performance - Revenue in China and Japan declined by 16% in fiscal 2022 due to COVID-related lockdowns and restrictions [24] - International licensee partner revenue increased by 17% for the year, despite challenges in Eastern Europe [25] Company Strategy and Industry Competition - The company is focused on large, growing, and fragmented markets, with a total addressable market of $99 billion in Enterprise learning and $59 billion in Education [35] - The subscription business model is driving strong growth, with 77% of total business now coming from subscription and subscription services [48] - The company expects to accelerate revenue growth to mid-teens and high-teens in the coming years, driven by subscription revenue [55] Management Commentary on Operating Environment and Future Outlook - Management highlighted the importance of the subscription model in uncertain economic times, as it provides predictable and durable revenue [34] - The company expects adjusted EBITDA to grow to between $47 million and $49 million in fiscal 2023, with further growth to $57 million in fiscal 2024 and $67 million in fiscal 2025 [16][69] Other Important Information - The company repurchased 585,000 shares for $23.9 million in fiscal 2022 and ended the year with $75.5 million in liquidity [13] - The company launched the Franklin Covey Impact Platform, which combines content, coaching, and technology to drive measurable behavior change [57] Q&A Session Question: Impact Platform Rollout and Client Uptake - The Impact Platform was launched on October 18, 2022, and is receiving positive feedback from clients. It will be localized into core languages and rolled out further in the coming months [78] Question: Pricing Power with All Access Subscription - The company implemented annual price increases effective September 1, 2022, with the Impact Platform supporting the case for continued price increases [79][80] Question: Education Division and Stimulus Funds - The Education division saw strong growth, with 739 new schools added in fiscal 2022. Stimulus funds are helping the market, with less than 20% of the $200 billion allocated having been spent so far [84] Question: Multiyear Contracts for All Access Subscriptions - 46% of All Access Pass contracts are multiyear, representing 61% of subscription revenue. The company expects this trend to continue as clients recognize the long-term nature of the solutions provided [88][89] Question: Hiring Environment for Client Partners - The hiring environment has improved, with the company successfully hiring 30 new client partners in fiscal 2022 and planning to add 40 more in fiscal 2023 [94][95] Question: Capital Allocation and Share Repurchases - The company opportunistically repurchases shares based on market conditions, intrinsic value calculations, and internal factors. Share repurchases are expected to continue in fiscal 2023 [98][99] Question: M&A Strategy - The company is considering M&A opportunities to add capabilities, expand content areas, or accelerate customer growth, with a focus on buy versus build decisions [100][101]

Financial Performance - Consolidated sales for Q3 fiscal 2022 increased 13% or $7.4 million to $66.2 million compared to $58.7 million in the prior year[72] - All Access Pass (AAP) and related sales grew 32% in Q3 fiscal 2022 to $39.1 million[72] - Education Division revenues increased 21% due to higher consulting, coaching, and training days delivered[73] - International licensee revenues rose 9% over the prior year, with three of five international direct offices reporting improved sales[74] - Deferred subscription revenue increased 24% or $13.2 million to $68.5 million compared to the previous year[79] - Gross profit for Q3 fiscal 2022 increased 11% to $51.1 million, with a gross margin of 77.3%[80] - Operating income improved 91% to $5.9 million compared to $3.1 million in Q3 fiscal 2021[83] - Adjusted EBITDA for Q3 fiscal 2022 improved 27% to $10.9 million compared to $8.6 million in the prior year[83] - Cash flows from operating activities increased 28% to $39.5 million compared to $30.9 million in the first three quarters of fiscal 2021[84] Education Division Performance - Education Division sales grew by $2,540,000 (21.4%) to $14,439,000 for the quarter ended May 31, 2022, driven by increased consulting and training services[95] - Adjusted EBITDA for the Education Division increased by $755,000 (66.7%) to $1,887,000 for the quarter ended May 31, 2022[95] - Gross profit for the Education Division increased by $7,239,000 (41.3%) to $24,749,000 for the three quarters ended May 31, 2022[111] Direct Offices Segment - Direct Offices segment sales increased by $18,852,000 (16.4%) to $134,037,000 for the first three quarters of fiscal 2022, with U.S. and Canada offices growing by 19%[102] - SG&A expenses for the Direct Offices segment increased by $8,158,000 (11.4%) to $79,630,000 for the first three quarters of fiscal 2022[102] - Gross margin for the Direct Offices segment remained strong at 80.8%, slightly down from 80.9% in the prior year[104] Tax and Expenses - The effective income tax benefit rate for the quarter ended May 31, 2022, was approximately 29%, compared to 390% in the prior year[100] - Income tax provision for the three quarters ended May 31, 2022, was $0.9 million on pre-tax income of $13.8 million, resulting in an effective tax rate of approximately 7%[117] - SG&A expenses increased due to higher associate costs, additional commission expenses, and increased salaries compared to the prior year[114] - Depreciation expense is expected to total approximately $5.2 million in fiscal 2022, reflecting a decrease from the previous year[98] - Depreciation expense decreased by $1.2 million in the first three quarters of fiscal 2022 due to full depreciation of certain assets and reduced capital expenditures[115] - Amortization expense increased by $0.6 million primarily due to the acquisition of Strive Talent, Inc.[116] Cash and Financing - Cash and cash equivalents totaled $52.1 million as of May 31, 2022, with no borrowings on the $15.0 million revolving credit facility[119] - Cash used for investing activities totaled $3.5 million, primarily for purchases of property and equipment and investments in offerings[124] - Net cash used for financing activities totaled $30.7 million, including $23.9 million for common stock purchases[127] - Anticipated capital spending for curriculum development is expected to total $4.0 million during fiscal 2022[126] - Company expects to maintain operations for at least the upcoming 12 months with existing cash and cash flows from operating activities[131] Interest Rates and Market Risk - The effective interest rate on the company's term loans payable and line of credit facility was 2.7% as of May 31, 2022[141] - A 1% increase in the effective interest rate on term loans outstanding at May 31, 2022 would result in an additional interest expense of $0.1 million over the next 12 months[141] - The financing obligation has a fixed interest rate of 7.7%[141] - The company is prepared for the eventual transition away from LIBOR pricing as outlined in the 2019 Credit Agreement[142] - There have been no material changes in market risk disclosures since the previous annual report[143]