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Text: 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, and there can be no assurance the company's actual future performance will meet management's expectations.
With that out of the way, we'd like to turn the time over to Mr. Paul Walker, our Chief Executive Officer.
We're pleased to report that our fourth quarter and full year results were strong, in fact, very strong and stronger than expected.
As you can see shown in Slide three, adjusted EBITDA for fiscal 2021 increased to $28 million, which was up 96% from $14.3 million of adjusted EBITDA in fiscal 2020 and up 36% when compared to fiscal 2019 strong $20.6 million of adjusted EBITDA.
This result was well above our original guidance for the 2021 fiscal year of between 20 and $22 million and also $1.5 million above the high end of our updated guidance range of $24.5 to $26.5 million.
These results reflect the strength and power of Franklin Covey's high-growth and durable subscription business model, which is shown in Slide four, achieved strong growth on every key metric.
Specifically, as you can see on Slide four, first, total revenue grew 40.7% or $20 million in the fourth quarter and grew 13% or $25.7 million for the full fiscal year 2021.
Second, you can see there that total subscription revenue grew 33% or $7.2 million in the fourth quarter and 15% or $13 million for the full fiscal year.
Total subscription and subscription service revenue grew 52% or $17.7 to $52.1 million in the fourth quarter and 21% or $27.5 million for the year.
And finally, as you can see shown there, the sum of billed and unbilled deferred revenue grew 27% or $27.2 million to $127.4 million for the year.
There are five things we'd like to talk about today and have you takeaway from our discussion, and you can see these summarized in Slide five.
The first is that our results for the fourth quarter and full year 2021 were strong and even stronger than expected.
And as you'll hear in a moment, this strength is reflected in every key P&L category, including revenue growth, gross margins, adjusted EBITDA and cash flow.
The second takeaway we'll talk about today is that this strong performance was driven by the strength of our rapidly growing subscription business model.
The third is that also driving our growth is the fundamental importance of challenges, we're helping our clients address.
The fourth is that we expect subscription and subscription services to account for greater than 90% of the company's sales within three years.
And finally, the fifth takeaway is that we expect our almost complete conversion to our subscription and subscription services to also drive significant additional value to our shareholders.
To talk about this first takeaway, I'd like to turn time and ask Steve Young to address this, our performance for the fourth quarter and full fiscal year results.
I'm very pleased to have an opportunity to share some comments about our results for the quarter and for the year.
As you can see in Slide seven and eight, there are some key highlights for the quarter and for the year.
As shown, revenue for FY '21 grew 13% or $25.7 million to $224.2 million.
Our fourth quarter revenue increased 40.7% or $20 million to $68.9 million.
Gross margin for the year increased 388 basis points to 77.1% from 73.3% in FY '20.
The operating SG&A to sales percentage declined to 64.7% from 66.1% in FY '20.
Adjusted EBITDA for the year increased to $28 million, an increase of 96% or $13.7 million compared to $14.3 million in FY '20.
Adjusted EBITDA for the fourth quarter increased 18.5% to $10.6 million.
Cash flow from operating activities for the year increased 68% to $46.2 million, up from $27.6 million in FY '20, and we ended the quarter with $62.4 million in liquidity.
I'd like to provide a little more detail on these key highlights as shown in Slide nine.
Revenue in the fourth quarter, like we said, grew 40.7% to $68.9 million, an increase of $20 million compared to the $49 million of revenue generated in last year's fourth quarter.
This revenue was also $3.8 million higher than the $65.2 million of revenue recorded in the fourth quarter of FY '19.
We're also pleased that revenue for FY '21 came in essentially the same as in FY '19, with strong revenue growth in North America and the Education Division offsetting the fact that despite significant improvement, international revenue did not quite get back to the FY '19 levels.
And as strong as our revenue growth was, the growth in our profitability and cash flow related to this revenue was even more significant.
Our gross margin percentage increased a strong 388 basis points for the year to $77.1 million, up from an already good $73.3 million in FY '20.
The gross margin percentage is 644 basis points higher than the 70.7% gross margin percentage we achieved in FY '19, reflecting the ongoing shift to our high-margin subscription offerings.
Our operating SG&A as a percentage of sales declined 139 basis points to 64.7% for FY '21.
And this improvement despite operating SG&A increasing 287 basis points in the fourth quarter to 62%, primarily reflecting the accelerated commissions associated with FY '21's strong finish compared to those in last year's COVID impacted fourth quarter.
Adjusted EBITDA increased 96% or $13.7 million to $28 million for FY '21 compared to $14.3 million in FY '20.
This $28 million of adjusted EBITDA also represented a 36% increase in adjusted EBITDA compared to the $20.6 million achieved in FY '19.
As noted, this was also significantly higher than our initial guidance in FY '21 of $20 million to $22 million, also higher than our updated full year guidance of 24.5 and $26.5 million of adjusted EBITDA.
This $28 million of adjusted EBITDA also represented a $7.9 million or 36% increase over even the strong $20.6 million in adjusted EBITDA achieved in FY '19.
For the fourth quarter, adjusted EBITDA increased to $10.6 million, an increase of 18.5% compared to $8.9 million in adjusted EBITDA last year.
Our cash flow and liquidity position were also very strong.
As shown in Slide 10, net cash generated for FY '21 was $39.7 million, which is $30.8 million higher than the $8.9 million generated in FY '20 and up 78% compared to the $22.2 million of net cash generated in FY '19.
This increase in net cash generated reflects very strong growth in adjusted EBITDA, a very significant increase in deferred subscription revenue and reduced amounts of capital expenditures and capitalized content development.
Also shown in Slide 11, our cash flow from operating activities for FY '21 increased a very strong $18.6 million or 68% to $46.2 million compared to $27.6 million in FY '20 and $30.5 million in FY '19.
This strong cash flow reflects an additional benefit of our subscription model, specifically that the invoice upfront and collect the cash from invoiced amounts even faster than we recognized all of the subscription revenue.
With this strong cash flow, we ended the fourth quarter with $62.4 million in total liquidity, even after investing $10.6 million in the third quarter related to the acquisition of Strive, extending our management training and learning platform.
Our $62.4 million of liquidity at year-end was comprised of $47.4 million in cash, which means no net debt.
And with our $15 million revolving credit facility remaining fully undrawn.
Importantly, this $26.4 million of liquidity is significantly higher than even the $39.8 million in liquidity we had at the end of our second quarter in February 2020, just before the start of the pandemic.
So we're very pleased with our results.
I'd just like to add that this strong performance reflects the continuation and acceleration of three key trends that we've talked about on the last number of calls with you.
And these are shown on Slide 12.
The first, is the Enterprise Division sales in North America continue to be extremely strong, driven by rapidly accelerating growth in All Access Pass subscription and subscription services sales.
Total revenue in North America grew $16.3 million or 16% from $103.3 million in fiscal '20 million to $119.6 million in fiscal '21.
The second, as you can see there in the middle of that page is that our international operations have continued to strengthen.
While pandemic related challenges continue in Japan and in certain of our licensee partner operations, resulting in our total international revenue still being somewhat below fiscal '19 levels.
We're pleased with the strong ongoing rebound in our international operations, where in the fourth quarter, revenue grew 54% compared to the fourth quarter of fiscal 2020.
In addition, the strong focus on All Access Pass sales in our international operations has resulted in significant increases in All Access Pass deferred revenue, which will establish the foundation for strong sales growth in the future.
And third, as you can see on the right side of Slide 12, the performance of and trends in our Education division have strengthened substantially.
The strengthening is reflected by two things: first, an increase in the number of leader in Me schools that renewed their leader in Me membership to 2,323 schools in fiscal '21, up from 2,193 schools in fiscal '20.
And second, the significant 79% increase in the number of new Leader in Me schools brought on during fiscal '21.
We added 574 new leader in Me schools, up from 320 in fiscal '20.
This increase in New and retained schools drove strong performance in the Education division, with revenue growing $5.5 million or 12.7% compared to fiscal '20 and adjusted EBITDA increasing $4.9 million over fiscal '20 and $1.2 million over fiscal '19.
So that's the first takeaway we want to share relative to our strong fourth quarter and strong full fiscal '21 results.
The second takeaway we'd like to talk about is that this strong performance was driven by the strength of and our rapidly growing subscription business model.
As you can see in Slide 14, our total subscription and subscription services sales grew 21% to $157.2 million in fiscal '21, representing additional growth of $27.5 million compared to $129.7 million in subscription and subscription services revenue in fiscal 2020.
In the fourth quarter, subscription and subscription services sales grew 52% to $52.1 million, which was an increase of $17.7 million compared to the fourth quarter of fiscal 2020.
Importantly, this also represented growth of 29% compared to the $40.3 million in subscription and subscription services sales achieved even in the strong fourth quarter of fiscal 2019.
As you can see the sum of billed and unbilled deferred revenue also grew substantially, growing 27% for the year to $127.4 million.
That was an increase of $27.2 million compared to our sum of $100.2 million of billed and unbilled deferred revenue at the end of last year's fourth quarter.
This provides significant stability of and visibility into our future revenue growth.
The breakout between Billed deferred and unbilled deferred revenue, as you can also see on Slide 14.
As shown, our balance of deferred subscription revenue grew 27% or $16.4 million to $77 million at the end of -- at year-end compared to $60.6 million at year-end fiscal 2020.
And our balance of unbilled deferred revenue grew 27% or $10.8 million to $50.4 million in this year's fourth quarter, reflecting the significant ongoing increase in the percentage of our All Access Pass contracts, which are now multiyear.
An example of this would be North America.
In fiscal 2021, 41% of All Access Pass contracts, representing 53% of total All Access Pass contract value were under multiyear contracts.
Importantly, we achieved this strong subscription growth in both Enterprise and Education divisions.
As shown in Slide 15, in the Enterprise division, All Access Pass subscription and subscription services sales grew 24% or $22 million to $112.5 million in fiscal 2021 compared with $90.5 million in fiscal 2020.
This also reflected growth of 38% or $31 million compared to fiscal 2019.
And in the fourth quarter, All Access Pass subscription and subscription sales grew 41% or $9.3 million to $32 million.
Additionally, the number of All Access Pass new logos in North America increased 39% in the fourth quarter.
Annual revenue retention continue to exceed 90%, and the sale of multiyear contracts, as I mentioned a minute ago continue to be strong with our balance of unbilled deferred revenue increasing 28% to $49.2 million in the Enterprise division, and that compares to $38.5 million in the fourth quarter of fiscal '20 and is up 69% compared to the $29.1 million balance of unbilled deferred revenue we had at the end of the fourth quarter fiscal 2019.
As shown in Slide 16, in the Education division, in fiscal 2021, Leader in Me subscription and subscription services sales grew 14% or $5.4 million to $44.7 million compared with $39.2 million in fiscal '20.
Fiscal 2021's $44.7 million of subscription and subscription services sales reflected growth of 5% or $2.1 million compared to fiscal 2019.
In the fourth quarter, Leader in Me subscription sales and subscription services grew $8.4 million to $20.1 million.
This represented growth of 72% compared to the $11.7 million in the fourth quarter of fiscal '20 and growth of 13% compared to the strong fourth quarter of fiscal '19, which was pre-pandemic.
The third overall takeaway we'd like to talk about today, as shown in Slide 17 is that also driving our strong performance is the importance of the opportunities and the challenges that we help our clients address.
As you can see in Slide 18, while lots of things, including sharing information and helping people learn new skills can add value to an organization.
What it takes to really move any organization aggressively forward is to achieve collective behavioral change on the most important challenges.
In other words, getting everyone moving together and offering their collective best contributions toward the achievement of the organization's highest priorities.
Helping organizations achieve this kind of seismic progress is where Franklin Covey really shines.
This is the reason why in the middle of the pandemic, more than 1,000 organizations purchased, renewed and/or expanded their All Access Pass and purchased support services from Franklin Covey to help them achieve their objectives in an incredibly challenging environment.
It's also the reason why during the last 12 months, in the middle of the pandemic, when schools were scrambling to learn how to teach remotely, connect with kids, provide breakfast and lunches to students who otherwise wouldn't have any and the myriad other challenges they were facing, 2,323 schools renewed their Leader in Me subscription and 574 new schools became Leader in Me schools.
It's also the reason why as shown in Slide 19, the lifetime value of our customers continues to be both large and growing.
As shown in Slide '20, the fourth takeaway that we want to share today is that we expect subscription and subscription services to account for greater than 90% of the company's sales within three years.
As this almost complete conversion to subscription and subscription services occurs, we expect virtually the entire company to be able to generate the same strong growth in revenue, gross margins, revenue retention and customer impact that we've seen in our subscription business over the past five years.
In North America, All Access Pass subscription and subscription services already account for 83% of total sales.
And this is expected to increase to more than 90% within the next couple of years.
As shown in Slide '21, All Access Pass subscription and subscription services sales represented only 13% or $13.7 million of total sales in North America in 2016, when we first introduced the All Access Pass.
The dramatic, sustained, compounded growth since then has resulted in All Access Pass subscription and subscription services sales increasing to $112.5 million in fiscal 2021.
With annual All Access Pass subscription and subscription services sales expected to continue to grow at a more than double-digit pace.
And with legacy sales now at very low levels and expected to remain flat or even decline a bit further, we expect All Access Pass subscription and subscription services sales to increase to more than 90% in North America, as I mentioned over the next couple of years.
All Access Pass subscription and subscription services are also expected to make up the vast majority of our sales internationally in the coming years.
The growth and penetration of All Access Pass subscription and subscription services has also progressed rapidly in our English Seating direct offices.
As you can see also shown on the right side of Slide '21, from having no subscription sales at all of these offices just five years ago, All Access Pass subscription and subscription services sales for the latest 12 months now account for 81% of total sales in the U.K. and 76% in Australia.
Both of these offices are well on their way toward the same 90% penetration we expect to achieve in North America.
As you know, our largest international direct offices are in China and Japan.
Both of which are in the relatively early stages of converting themselves to All Access Path.
But having made the conversion in the U.S., Canada, U.K. and Australia, we're confident that in China and Japan, we too will convert the vast majority of their revenue to All Access Pass subscription and subscription services in the coming years.
In fact, I think it's important to note that in fiscal '21, All Access Pass subscription and subscription services made up a third of Japan's total sales.
So we're pleased with the progress there.
And finally, because of our Leader in Me subscription model, more than 90% of sales in the Education division are already subscription and subscription services.
Another reason we expect that our subscription and subscription services growth will accelerate is that we continue to make significant growth investments.
We've continued to invest in hiring additional salespeople or client partners.
As you can see in Slide 22, we ended fiscal 2021 with 273 client partners.
And as we've discussed in the past, we have many decades of headroom for additional client partner growth.
As we continue to aggressively grow our sales force and our licensee network, the volume of new All Access Pass logos, all with high lifetime value is expected to continue to accelerate.
Additionally, we expect significant growth to come from the approximately 120 existing client partners we've hired over the past few years who are still in the middle of their ramp-up process.
We've also made ongoing in growth investments in new content, technology, and as shown in Slide 23, acquisitions, such as Jhana, Robert Gregory and most recently Strive.
The combination of our powerful content and solutions, Jhana, our vast coaching and training delivery capabilities and key behavior change in performance metrics, all integrated into our new Strive learning platform will create an industry-leading solution for clients who seek to drive collective behavior change to address their most important challenges.
These investments are accelerating our ability to ensure that the All Access Pass users have constant access to the solutions and tools they need to improve performance and increase results on a daily basis.
They're also providing an important foundation for us to address larger and larger populations inside existing and new pass holding clients and are helping us accelerate the growth of All Access Pass sales.
I think it's important to note that we're also making significant investments in marketing and advertising.
The annual global learning and development spend totals nearly $400 billion, with more than $90 billion of that spent externally.
Additionally, billions more spent by business leaders on strategy execution and sales performance and by school superintendents and principles around the world.
These markets are large and growing, and no single provider in the space owns more than 1% or 2% of the market.
We -- the opportunity for us is massive.
And we're focusing heavily on ensuring that Franklin Covey is clearly positioned at the top of the mines for current and future clients around the world.
Finally, the fifth takeaway today is that we expect our almost complete conversion to subscription and subscription services to drive significant additional value to our shareholders.
And to discuss this takeaway, I'd like to turn the time to Bob.
Nice to talk to all of you.
Shareholders, you all have often asked us how we think about the true value of the company.
And while the specific valuation is something we'll leave to you to determine, I would emphasize that we expect the achievement of our multiyear business plan to create significant incremental value for our shareholders.
Just note, we expect the additional value to be created in three key ways: first, just as a natural result of the significant growth in adjusted EBITDA that we expect, with strong continued growth in subscription and subscription services revenue and the expectation of achieving strong gross margins and a high flow-through of these additional sales to incremental adjusted EBITDA and cash flow.
As shown in Slide 25, we expect adjusted EBITDA over the next three years to grow from $28 million in fiscal 2021 to between 34 and $36 million in fiscal 2022 to between 44 and $46 million in fiscal 2023 and between 54 and $56 million in fiscal '24.
Second reason we believe that just the natural result of our growth will drive shareholder value is that we expect to generate a significant amount of cash flow during those same years and to use it to create additional shareholder value.
We expect our growth in cash to meet or even exceed our rapid growth and adjusted EBITDA.
And we believe the expected growth in cash flow is likely to far exceed any reasonable discount rate anyone might apply to it.
As a result, we believe the net present value of our expected cash flow is likely were significantly more than the value implied by applying a -- to a given year's adjusted EBITDA, particularly when adjusted EBITDA is growing at a 25% compounded rate or higher.
As a consequence, we expect we'll be able to create additional shareholder value by investing a portion of more than $100 million of available cash we expect to have over the coming years to make strategic acquisitions to grow the business and also to repurchase substantial number of our shares.
And finally, we expect that our almost complete conversion to being a high revenue growth, high adjusted EBITDA and high cash flow growth, subscription and subscription services business is likely to drive an increasingly SaaS-like valuation.
We're pleased to be achieving metrics at levels very similar to those being achieved by the strongest SaaS companies, which are trading at high multiples of revenue.
However, like Adobe and other companies who during their period of conversion to SaaS created a discount to smaller subscription start-ups.
We expect that as our conversion to subscription and subscription services to SaaS becomes nearly complete, the impressive quality of our subscription metrics is likely to drive a valuation more reflective of the high lifetime customer value we're creating.
And I'd like to turn to Steve to talk about guidance and our outlook.
So outlook and guidance.
Our guidance for FY '22 is that we expect to generate adjusted EBITDA of between 34 and $36 million.
The midpoint of this range would reflect an approximately 25% increase in adjusted EBITDA compared to the $28 million of adjusted EBITDA achieved in FY '21.
Underpinning this guidance are the following expectations.
First, the recognition that during FY '22, of a large portion of the $77 million of deferred revenue already on the balance sheet and the billing of a large portion of the $50 million of unbilled deferred revenue, which has been contracted.
This provides significant visibility into our FY '22 revenue and gross margin.
Second, in addition to the recognition of deferred revenue, the factor which is expected to have the greatest impact on our FY '22 results is also the one in which we have high confidence.
That is the strength of All Access Pass and related sales.
We expect that All Access Pass will continue to achieve one, strong growth in both sales and invoice sales, two, high revenue retention rates; three, strong sales to new logos; and four, continued growth in pass expansions and multiyear contracts.
We also expect that All Access Pass subscription services will continue to be strong.
Third, we expect that our revenue in Japan, China and among our licensees will continue to strengthen.
The increase in All Access Pass, which we expect to achieve in these countries will obviously result in a portion of the new sales being added to the balance sheet as deferred revenue.
And fourth, in Education, we expect to continue to achieve strong retention of both schools and revenue among existing Leader in Me schools.
Me schools beyond that achieved last year.
Now for our first quarter, we expect that adjusted EBITDA will be between 5.5 and $7 million compared to the $3.7 million in the first quarter of fiscal 2021, reflecting strong performance by All Access Pass in the U.S., Canada and government and the same general expectations just outlined for international operations and education.
Now, in addition to our guidance, we'll offer some insight into our targets for FY '22, '23 and '24.
Building on the $34 million to $36 million in adjusted EBITDA, we expect to achieve this year and driven substantially by the expected continued growth of All Access Pass.
Our target is to achieve adjusted EBITDA increase by about $10 million per year, each year thereafter.
To be, as Bob said, around $45 million in FY '23 and around $55 million in FY '24.
These targets reflect our expectation of being able to achieve low double-digit revenue growth and approximately 40% of that growth in revenue to flow through to increase in adjusted EBITDA and cash flow.
Even after significant growth investments, in marketing, our sales force, technology and expansion into new content areas.
All of this, at least until we achieve an adjusted EBITDA to sales percentage margin of approximately 20% or approaching 20%.
While dramatic changes in the world environment could impact these expectations, we want to share that these are our current expectations and assumptions.
We all want to share that not only are these -- our targets and expectations.
But when you read our proxy statement, you'll see that the executive team's LTIP awards still depend on achieving these strong multiyear growth goals.
We feel great about our momentum and are pleased to be in a position to offer this guidance, and are looking forward to a great 2022.

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q4 sales rose 41 percent to $68.9 million.

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