SALT LAKE CITY — Jan. 4, 2024 — Franklin Covey Co. (NYSE: FC), a leader in organizational performance improvement that creates, and on a subscription basis, distributes world-class content, training, processes, and tools that organizations and individuals use to achieve systemic changes in human behavior to transform their results, today announced financial results for its first quarter of fiscal 2024, which ended on November 30, 2023.

Introduction

The Company’s consolidated sales for the quarter ended November 30, 2023 exceeded expectations and totaled $68.4 million compared with $69.4 million in the first quarter of fiscal 2023. Revenue for the rolling four quarters ended November 30, 2023 grew $8.6 million, or 3%, to $279.6 million on top of the $33.8 million of revenue growth for the rolling four quarters ended November 30, 2022. Rolling two-year growth was a very strong $42.4 million, or an 18% increase. The Company’s sales and related performance in the first quarter included the following:

Subscription and subscription services sales reached $54.8 million, a 4% increase over the first quarter of fiscal 2023, a quarter which had very strong subscription and subscription services revenue growth. For the rolling four quarters ended November 30, 2023, subscription and subscription service sales reached a record level of $224.7 million, a $13.6 million, or 6%, increase over the prior year, and rolling two-year growth was a strong $56.7 million, or a 34% increase.

All Access Pass (AAP) subscription sales grew 13% compared with the first quarter of fiscal 2023 and AAP subscription and subscription services sales grew 5% on top of the 20% growth achieved in last year’s record first quarter. For the rolling four quarters ended November 30, 2023, AAP subscription and subscription services sales increased 6% to $160.0 million compared with $151.0 million for the rolling four quarters ended November 30, 2022. During the first quarter of fiscal 2024, AAP subscription revenue retention levels in the United States and Canada remained strong and were greater than 90%.

Education Division revenues grew 3% to $14.7 million in the first quarter of fiscal 2024 primarily due to increased international education royalties and increased membership subscription revenues in the quarter. Education membership subscription revenue increased 6% compared with the prior year primarily due to increased annual membership sales recognized and delivery of contracted coaching and training days from new schools engaged in fiscal 2023. During the first quarter of fiscal 2024, the Education Division delivered nearly 200 more training and coaching days than the prior year, which are recognized as they are delivered.

Total Company deferred revenue at November 30, 2023 increased to $103.3 million compared with $90.8 million at November 30, 2022. The sum of billed and unbilled deferred subscription revenue at November 30, 2023 grew 12%, or more than $18 million, to $169.7 million, compared with $151.6 million at November 30, 2022. The Company continues to be pleased with the growth of its multi-year contracts and the overall increase in deferred subscription revenue, which provide a strong base for future sales growth. At November 30, 2023, 54% of the Company’s All Access Pass contracts are for at least two years, compared with 48% at November 30, 2022, and the percentage of contracted amounts represented by multi-year contracts increased to 60% from 55% in the first quarter of the prior year.

Lease revenues on the Company’s corporate campus decreased by $0.5 million as certain tenants’ leases expired in mid-fiscal 2023. The Company is actively seeking new tenants for available space at its corporate campus.

Cash flows from operating activities increased to $17.4 million compared with $3.0 million in the first quarter of fiscal 2023. The increase was primarily due to favorable changes in working capital and featured strong collections of accounts receivable.

Paul Walker, President and Chief Executive Officer, commented, “Although our results were essentially even with last year’s first quarter, we are pleased that both revenue and Adjusted EBITDA came in stronger than forecasted. While we also expect second quarter revenue to be about even with the prior year, there are several key factors we expect will significantly strengthen in the back half of the year. These include a high flow-through of revenue, which will drive the growth in Adjusted EBITDA to our fiscal 2024 target of between $54.5 million and $58 million.”

Walker stated, “The factors that we expect will drive strong growth in the second half of fiscal 2024 include the following: First, the sum of our billed and unbilled deferred subscription revenue on the balance sheet has increased significantly and continues to grow. At the end of our first quarter, the sum of our billed and unbilled subscription revenue was $169.7 million, a level $18 million higher than at the end of the first quarter of fiscal 2023. A meaningful portion of this deferred revenue will flow into revenue during the second half of fiscal 2024. Second, our invoiced subscription revenue is increasing. After essentially flat All Access Pass invoiced subscription growth in the second and third quarters of fiscal 2023, our invoiced subscription revenue grew significantly in the fourth quarter and again in the first quarter of fiscal 2024. We expect this growth will continue in the second quarter and for the remainder of the fiscal year, resulting in additional amounts of deferred revenue going on the balance sheet and being recognized in the remainder of fiscal 2024 and beyond. Third, we expect our subscription services attachment rate, which declined to 61.5% in the back half of last year and through the first quarter of fiscal 2024, to return to our historic rate of 66.5% in the third and fourth quarters of fiscal 2024.”

Walker added, “We expect the improvement in services revenue to be driven by the combination of services delivered to new schools which were contracted late in the fourth quarter of fiscal 2023, by the launches of the refreshed ‘The 7 Habits of Highly Effective People’ and ‘Speed of Trust’ offerings, which are two of our historic blockbuster programs, strengthened further by the launch of our new solution on ‘Difficult Conversations.’ ”

Walker concluded, “Our first quarter results are reflective of the three key strengths we have been building for years. First, is the strength of our strategic position in the marketplace which we believe is unique. We focus on the most important, strategic, and durable position in our industry, specifically, that of helping organizations achieve results that require the collective action of their people, and we do it with a combination of best-in-class content, delivered through a broad range of delivery modalities, and world class coaching and facilitation that is very difficult to replicate. Our second key strength is the power of our revenue generating engine. Our subscription offerings and services continue to show their strength and durability in the marketplace and are key to helping our clients achieve meaningful change within their organizations. The third key strength is that of our powerful business model – a model where the combination of: increasing revenue per client; high revenue and client retention; high operating margins; upfront invoicing; low capital intensity and disciplined reinvestment for growth drives significant amounts of both Adjusted EBITDA and free cash flow. We believe these strengths position us well for a strong fiscal 2024 and for further growth into the future.”