This article is authored by MOI Global instructor Patrick Retzer, founder, president and chief investment officer of Retzer Capital Management, based in Milwaukee. Patrick is an instructor at Best Ideas 2018, the fully online conference featuring more than one hundred expert instructors from the MOI Global membership community.

Franklin Covey is a global company specializing in organizational performance improvement by providing training and consulting services in seven areas: leadership, execution, productivity, trust, sales performance, customer loyalty and education. They have consistently created shareholder value in a tax efficient manner, having bought back $62 million of stock in the past 11 quarters and carry almost no net debt.

FC is a high gross margin, high free cash flow company that is completing the transition from a traditional sales revenue model to a subscription based revenue model. As typical, that transition was rough on the stock, as formerly one-time sales convert into subscriptions that get recognized over the term of the subscription so GAAP revenue declines and GAAP earnings can go negative as a growing business in this transition will have higher expenses with less revenue. Looking at fiscal 2017 financials, that’s exactly where FC appears to be now, as GAAP revenue is similar to where it was in fiscal 2013 and earnings have gone negative. Consequently, the stock is where it was in late 2013.

However, if you drill down on the 4th quarter results recently released and listen to the 1 hour plus conference call while following along with the 47 slides, you can see that they have clearly turned the corner in the transition and also have four inflection points now working in their favor.

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