Franklin Covey: Strong Growth in Recurring Revenue

This article by John Lewis is excerpted from a letter of Osmium Partners.

Franklin Covey Co. (FC; $26.35)¹ provides training and consulting services in the areas of leadership, productivity, strategic execution, trust, sales force performance, customer loyalty, and communication effectiveness skills worldwide. Franklin Covey operates multiple billion-dollar brands, including “The 7 Habits” and “Leader in Me.” Franklin Covey’s market capitalization is currently $365 million. (FC is a holding across all funds.)

Franklin Covey annual recurring (contractually obligated annual contracts) revenue grew +59% on a trailing basis. FC should approach $210 million+ in GAAP revenue for August 2018 year end. FC has a Netflix like rental model whereby the company has decreased its per subscriber selling price to use all of FC content library for $25 a month per employee which has substantially increased the size of their addressable market by at least 3x in dollar terms. Not only has the market opportunity expanded, the business is sold in highly predictable annual contracts, and management has guided to 30% EBITDA margins at scale vs. 13-15% in their previous model. In April, FC will release All Access Pass in 16 international languages.

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Certain factual and statistical (both historical and projected) industry and market data and other information contained herein was obtained by Osmium Partners from independent, third-party sources that it deems to be reliable. However, Osmium Partners has not independently verified any of such data or other information, or the reasonableness of the assumptions upon which such data and other information was based, and there can be no assurance as to the accuracy of such data and other information. Further, many of the statements and assertions contained herein reflect the belief of Osmium Partners, which belief may be based in whole or in part on such data and other information. The analyses provided may include certain statements, assumptions, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies. Such statements, assumptions, estimates, and projections reflect various assumptions by Osmium Partners concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, assumptions, estimates or projections or with respect to any materials herein. Actual results may vary materially from the estimates and projected results contained herein. Past Osmium performance is not indicative of future results. Osmium Partners disclaims any obligation to update this letter. A portion of the Partnership’s assets may from time to time be invested in securities that have limited liquidity. The Partnership’s investment strategy is to make concentrated investments in what it views as its best ideas. The Offering Memorandum and Limited Partnership Agreement offers a comprehensive overview of the risk factors involved in investing with Osmium Partners. The information contained herein is provided for informational purposes only. This is not an offer to sell, or a solicitation to buy, limited partnership interests in Osmium. An investment in Osmium is not suitable for all investors. Stocks mentioned in the newsletter do not constitute a recommendation to buy or sell the individual securities.