FRANKLIN COVEY CO Q4 FY2024 earnings call

• Fourth quarter revenue grew 8% and full year revenue was $287.2 million vs expected $284 million. Fourth quarter adjusted EBITDA grew 39%, and full year adjusted EBITDA was $55.3 million vs $48.1 million in fiscal '23. - The company has completed transition to subscription and is ready to invest for double-digit growth. - Investments in two key areas: further expansion of penetration within existing clients (average revenue per client $39,000 to $85,000, still 10% penetrated) and winning significantly increased numbers of new logos. - Added $16 million in net growth investments: adding client-facing sales and support roles, providing marketing and closing resources, and investing in central sales leadership. - Hired Holly Proctor as Chief Revenue Officer. - Deferred revenue increased 9% to $107.9 million. - Subscription booking rate in North America up double-digit in Q4, continuing in Q1.

The Enterprise division generated $208.8 million, accounting for 73% of the company's overall revenue, with 2% revenue growth for the year and 8% for the quarter. The Education division generated $73.5 million, representing 26% of the company's revenue, with 5% revenue growth for the year and flat for the fourth quarter. Fourth quarter revenue was $84.1 million, up 8%, and full year revenue was $287.2 million compared to the expected $284 million. Fourth quarter adjusted EBITDA was $22.9 million, reflecting 39% growth, and full year adjusted EBITDA was $55.3 million versus $48.1 million in fiscal '23.

• FY '25 revenue range $295 million to $305 million, adjusted EBITDA range $40 million to $44 million. - FY '26 revenue expected to be ~$330 million (10% growth), adjusted EBITDA ~$48 million. - FY '27 revenue expected to be ~$370 million (12% growth), adjusted EBITDA ~$60 million. - FY '28 revenue expected to be ~$420 million (14% growth), adjusted EBITDA ~$75 million.

• Uncertainty in revenue growth, including acceptance and renewal rates of subscription offerings. - General economic conditions, competition in the targeted marketplace, and market acceptance of new offerings. - Changes in clients' training and spending policies.

Q: Timing of hiring and when new teams/sales strategy will be fully in place?

A: Holly Proctor, new Chief Revenue Officer, was hired in early June. The new organizational structure with client partners as expanders or hunters is already stood up and off and running.

Q: Why now and big bullet approach vs traditional?

A: Conversion to subscription complete, need to split sales force for better focus on expanding existing clients and winning new logos. Pilots confirmed the need for this focused approach.

Q: Technology initiatives and impact on growth?

A: 90% clients on Impact Platform, high NPS. AI used for tailoring, and content updates like 7 Habits 5.0 refresh.

Q: Margin outlook and client partner ramp?

A: Margin step back in '25 due to investments, but expect benefits in '26+. Client partner ramp bent down with split roles, reducing ramp time.