Franklin Covey Co. (NYSE:FC) Q1 2024 Earnings Call Transcript

Franklin Covey Co. (NYSE:FC) Q1 2024 Earnings Call Transcript January 4, 2024

Franklin Covey Co. beats earnings expectations. Reported EPS is $0.36, expectations were $0.19. FC isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and thank you for standing by. Welcome to Franklin Covey Q1 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Derek Hatch. Sir, you may begin.

Derek Hatch: Thank you. Hello everyone. On behalf of Franklin Covey, I would like to wish everyone a Happy New Year and hope for a peaceful and prosperous 2024. Before we begin today’s call festivities, I would like to remind everybody that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon management’s current expectations and are subject to various risks and uncertainties, including but not limited to the ability of the company to grow revenues, the acceptance of and renewal rates for our subscription offerings, including the All Access Pass and Leader In Me memberships, the ability of the company to hire productive sales and other client-facing professionals, general economic conditions, competition in the company’s targeted marketplace, market acceptance of new offerings or services and marketing strategies, changes in the company’s market share, changes in the size of the overall market for the company’s products, changes in the training and spending policies of the company’s clients and other factors identified and discussed in the company’s most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.

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. These forward-looking statements are based on management’s current expectations and we undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of today’s presentation except as required by law. With that out of the way, we’d like to turn the time over to Mr. Paul Walker, our CEO and President.

Paul Walker: Thank you, Derek. Hello, everyone. Happy New Year. Thanks for joining us today. We’re glad to have the opportunity to talk to you and we just want to start out by expressing our appreciation to you and we’re grateful to be with you today. Joining me on the call are Steve Young, our CFO; Jennifer Colosimo, President of the Enterprise Division; Sean Covey, President of the Education Division; as well as other members of our executive team. We’re pleased that though the results in the first quarter were essentially even with last year’s first quarter, both revenue and adjusted EBITDA came in stronger than forecasted. Even though we also expect the second quarter revenue to again be about even with or slightly above prior year, we expect to achieve a significant growth in revenue in the back half of the year with a high flow-through of this revenue driving growth in adjusted EBITDA to our target of between $54.5 million and $58 million.

We expect this growth in the back half to be driven by several key factors including the following: First, we’re entering the back half of the year with a lot more billed and unbilled deferred revenue on our balance sheet than a year before. At the end of the first quarter, the sum of our billed and unbilled deferred revenue was $169.7 million, a level $18 million higher than at the same time last year. A meaningful portion of this will flow through into revenue in the back half of fiscal ’24 and into fiscal ’25. Second is that our invoice subscription revenue is increasing. After flattish All Access Pass invoiced subscription growth in the second and third quarters last year, which is I remind you was flattish on top of significant double-digit growth the prior year, our invoiced All Access Pass subscription revenue grew significantly in the fourth quarter and again in Q1 this year.

We expect this growth will continue in Q2 and for the remainder of this year and beyond, resulting in additional amounts of deferred revenue going on to the balance sheet and flowing through to revenue in fiscal ’24 and beyond. Third is that we expect our subscription services attach rate to improve. We expect our subscription services attach rate, which declined from 66.5% to 61.5% in the back half of last year and through the first quarter of this year, we expect that it will return to its historic rate of around 66.5% in Q3 and Q4 of this year, driven by a combination of services delivered to new schools that were brought on late in last year’s fourth quarter and by the impact of the launch of the 3.0 and 5.0 versions of the Speed of Trust and 7 Habits, two of our historic blockbuster solutions, as well as the launch of our new solution on Difficult Conversations.

I’d like to now provide a little bit of additional context about the first quarter itself. As shown on Slide 4, our total revenue for the quarter came in at a higher-than-expected $68.4 million. Revenue for the latest 12 months grew $8.6 million or 3% to $279.6 million, and our rolling two-year growth is a very strong $42.4 million or 18%. Adjusted EBITDA also came in at a higher-than-expected $11 million. With this, adjusted EBITDA for the latest 12 months through this year’s first quarter grew $3.8 million or 9% to $47.6 million. And again our rolling two-year growth in adjusted EBITDA is $13.4 million or 39%. Our subscription and subscription services sales in the first quarter reached $54.8 million, a level 4% higher than prior year. Subscription and subscription services sales were $224.7 million for the latest 12 months ended Q1, which is $13.6 million or 6% higher than the same period of the prior year.

And again, our rolling two-year growth was an extraordinarily strong $56.7 million or 34%. And finally, our balance of billed and unbilled deferred revenue increased $18 million or 12% to $169.7 million from the end of the first quarter last year, and grew $48.5 million or 40% over the last two-year period. Stepping up a level, our results in the first quarter put an exclamation point on three key strengths we’ve been building for years. As you can see shown on Slide 5, the first of these is the strength of our unique strategic position in the marketplace. We focus on the most important strategic and durable position in our space, specifically that of helping organizations achieve results that require the collective action of their people. And we help organizations achieve these results with a combination of best-in-class content delivered through a broad range of delivery modalities and world-class coaching and facilitation that’s very difficult to replicate.

The most important thing on the minds and priority list of CEOs is achieving the type of results that require the collective action of their entire organization. It’s a point I’d like to come back to in just a minute. Our second key strength [Technical Difficulty] as you can see shown there on the slide is the power of our revenue-generating engine. As previously noted, despite being up against some extremely strong post-pandemic accelerated comps over the past four quarters, which have impacted our reported year-over-year percentage growth in those quarters, the continued strength of our underlying revenue-generating engine is reflected in the following four key metrics: first, growth in revenue on a rolling two-year basis, again to normalize; second, growth of revenue compared to our pre-pandemic high; third, growth of our strategically important subscription and subscription services revenue; and fourth, growth in our balances of deferred subscription revenue both billed and unbilled.

The third key strength is that of our powerful business model, a model where a combination of increasing revenue per client, high revenue and client retention, high contribution margins, upfront invoicing, low capital intensity, and disciplined reinvestment for growth, all combined to drive significant growth in both adjusted EBITDA and free cash. I’d like to address each of these three key strengths in just a bit more detail and with some data. The first is shown on Slide 6, the strength of our strategic position. As I just noted, the most important strategic and durable position in our space is that of helping organizations achieve the kind of seismic results, that can result from mobilizing the large-scale collective action of their people.

Why is this so strategically powerful? Because almost all of the key strategic and operational results on which CEOs are focused require just that kind of collective action. As shown on Slide 7, each year the Conference Board, the Advisory Board McKenzie and others conduct surveys to identify the most important things on CEOs’ minds and priority lists. Excluding macroeconomic and geopolitical issues, the vast majority of CEOs’ top priorities are those areas that require the collective action of the entire organization. I’d like to give you just three examples of this where we’re working with clients to support them today. The first is we’re working with the CEO of a large and rapidly growing manufacturing company to develop their top 500 global leaders.

They’re partnering with us to help them build a high trust and agile culture that can support the rapid growth they’ve achieved in which they expect to continue to achieve in the future. They recognize that culture is established by the collective behavior of leaders and they’ve chosen Franklin Covey as their sole leadership development partner. They’ve done this in large part due to the impact of our powerful principle-based content, its direct relevance to building the type of winning culture they desire, and our ability to scale our solutions across their global population. The second example is where we’re partnering with the Chief Human Resource Officer of a large 100,000-person firm to deploy multiple Franklin Covey solutions across the entire organization.

They’ve chosen us as their partner because of the powerful way in which our content shifts mindsets and behaviors versus simply teaching people to check off to-dos from a checklist. They want us to develop common — they want to develop with our help common mindset, skillsets, and a consistent language across the entire organization or what we refer to as “collective action” and we’re their partner in doing this. And the third example is where we’re partnering with a large transportation company that has a very clear strategy for winning in their chosen market. However, like so many organizations, they’ve had a difficult time translating that strategy from the boardroom to the actions of those in the front line of the organization. This client is engaging us to equip their leaders with the skills and tools to create a culture of execution where people at the front line are engaged to execute the critical priorities that will translate strategy into results.

As shown on Slide 8, being our clients’ partner of choice for addressing opportunities and challenges like those just noted, translates into a number of powerful outcomes for Franklin Covey, including consistently winning new logos or new clients, achieving a strong attachment of subscription services to help clients achieve performance breakthroughs, retaining substantially all of our subscription revenue, increasing our average contract size, increasing the percentage of logos and revenue under multiyear contracts, and achieving a high and growing lifetime customer value. For the latest 12-month period through this year’s first quarter, we’re really pleased to have continued to achieve strong results on each of these key outcomes. In the sales of All Access Pass to new logos in the Enterprise Division and Leader in Me subscriptions to new schools in the Education Division remained strong in the first quarter and for the latest 12-month period.

Our revenue retention levels remained very high in the first quarter and for the latest 12 months. In the Enterprise Division in North America in the first quarter, we achieved All Access Pass subscription revenue retention levels greater than 90%. And in the Education Division, we continue to achieve high levels of school retention. An increasing percentage of clients are also entering into multiyear contracts. As you can see shown on Slide 9, the percentage of clients — All Access Pass clients entering into multiyear contracts increased even further from its already high levels. In the first quarter, 54% of All Access Pass clients entered into multiyear contracts of at least two years, up from 48% at the end of Q1 fiscal ’23. Importantly, an even higher 60% of All Access Pass subscription revenue is now under multiyear contracts of at least two years, up from 55% at the end of the first quarter last year.

Our clients commit to these multiyear agreements because of the importance and the ongoing nature of the opportunities and challenges they face that require the collective action of their people, and because of the value they’re receiving from a long-term partnership with Franklin Covey. These long-term contracts provide a tremendous foundation for both the predictability and acceleration of future revenue growth. As shown on Slide 10, the second key strength I’d like to focus on today is the power of our revenue-generating engine. As noted, the strength of our underlying revenue-generating engine is reflected in four key metrics, which we’ve summarized on Slide 11. First, the tremendous growth in revenue achieved over the past two years. This two-year look helps to normalize for periods which benefited from comping to pandemic-impacted quarters.

As shown over the past two years, our latest 12 months revenue has grown a very strong $42.4 million or 18%. Second is the significant growth of our revenue compared to our pre-pandemic high. Our latest 12-months revenue through this year’s first quarter increased to $279.6 million, which represents growth of $54.2 million or 24% compared to our pre-pandemic high in fiscal 2019. Third is the even more rapid growth of our strategically important subscription and subscription services revenue. For the latest 12-month period through this year’s first quarter, our subscription and subscription services revenue grew $13.6 million or 6%, and importantly, our two-year growth was $56.7 million or 34%. And subscription and subscription services growth remarkably is more than $100 million or 81% compared to our pre-pandemic high.

And fourth is the tremendous growth in our balances of deferred subscription revenue both billed and unbilled. In this year’s first quarter, our balance of deferred subscription revenue billed and unbilled increased to $169.7 million, reflecting year-over-year growth of $18 million or 12%. Our two-year growth of $48.5 million was 40% and our balance of deferred subscription revenue billed and unbilled has grown by $81.5 million or 92.5% compared to our pre-pandemic level. This dramatic growth in deferred subscription revenue on both a dollar and percentage basis establishes a very strong foundation for continued strong revenue growth in the coming quarters and years. And finally, the third point, you can see as shown on Slide 12, the third key strength is the strength of our business model.

As you know, our business model results in a significant portion of incremental revenue flowing through to increases in adjusted EBITDA and free cash flow. I’d like to briefly review the key elements of our business model to drive this. As shown on Slide 13, these factors include increasing revenue per client, high revenue retention, high contribution margins, upfront invoicing, low capital intensity, and disciplined reinvestment for growth. I’ll briefly touch on each of these drivers to show how their interplay drives high and increasing adjusted EBITDA and cash flow. First, as it relates to increasing revenue per client. As shown on Slide 14, our revenue per All Access Pass client has grown from $54,000 in fiscal 2018 to more than $83,000 in fiscal ’23, compounded growth of 9%.

This strong increase in average revenue per client results from a combination of continuing to increase the percent of total populations through which we serve inside a typical client and the pricing power we gain as a result of the impact our solutions provide to our clients. The second point is our high revenue retention and client retention. In the Enterprise Division in North America, in Q1, All Access Pass subscription revenue, as I mentioned, exceeded 90%. In the Education Division, as we reported, at the end of Q4 fiscal ’23, Leader in Me retention remains at a remarkably high level of greater than 85%. The third key element of our business model is our increasing adjusted EBITDA margins. As shown in Slide 15, the combination of strong gross margins and declining operating SG&A as a percent of sales has resulted in steadily increasing adjusted EBITDA margins, reaching 17% for the latest 12-month period.

Fourth, is our upfront invoicing. With upfront invoicing, working capital is actually a source of cash for us. Subscription contracts are billed at the start of the contract term and cash is collected long before the subscription contract’s full revenue is realized. Multiyear contracts are generally billed one year in advance and are non-cancelable, and the timing of collections and cash outflows is a durable aspect of our business model. Fifth is our low capital intensity. Historically, as you know, our CapEx spending is a small percentage of our overall revenue and is primarily related to technology infrastructure and a small amount for real estate improvements. And finally, the sixth key element of our business model is disciplined reinvestment for growth.

Our largest growth investments are in our sales force in order to capture our vast under-penetrated addressable market, all of which by the way is fully funded through our P&L, and investments in content and innovations, which is amortized and flows through the P&L in the form of cost of goods sold. We managed sales cost to grow about in-line with revenue over time, offsetting wage inflation with pricing. As a result of this business model, we’ve generated significant growth in adjusted EBITDA and free cash flow. In fact, as shown on Slide 16, in the eight years since the beginning of our conversion to subscription in fiscal 2016 through this year’s first quarter, we’ve generated cumulative adjusted EBITDA of $210.6 million and cumulative free cash flow of $204.3 million.

As also shown on Slide 16, we’ve invested approximately $32.7 million of this free cash flow for tuck-in acquisitions, such as Jhana and Strive, which have broadened our ability to deliver our solutions flexibly and at scale and have returned a substantial amount of the remaining free cash flow to shareholders. Specifically during this eight-year period, we have returned more than $143.5 million or just over 70% of the free cash flow we generated. We’ve returned this to shareholders in the form — through the repurchase of more than 5.3 million shares of common stock, including more than $51 million over the past 12 months and $72 million over the past 24 month. Importantly, this is on top of the $102.9 million we utilized to purchase shares prior to fiscal 2016.

In total, since 2002, we’ve invested more than $246 million in purchasing shares and reduced the company’s net share count outstanding net of stock-based compensation by more than 14.1 million shares. This reduction in shares is more than the number of shares we currently have outstanding today. These shares have been purchased at a weighted average price per share of $17.43. We’re really pleased that so many of you have been purchasing shares right along with the company and have achieved similarly attractive returns. As we noted in last quarter’s report, we expect to achieve continued growth in adjusted EBITDA and free cash flow in the years to come. In fact, in the coming years alone, we expect to generate in the neighborhood of approximately an additional $150 million of free cash flow after making our normal ongoing growth investments in the business, and we would expect to be able to return substantial portions of this cash flow in continued stock repurchases.

Why do we have such high conviction in repurchasing our stock, something we know is shared by many of you as well. Two simple reasons: first, because we have high confidence in the market opportunity before us and our ability to execute it; and second, because we believe repurchasing our stock even as significantly higher than current prices has a very compelling investment thesis. That being first that we believe that we are and would be purchasing shares at a significant discount relative to the net present value of our expected cash flows. As just noted, we believe that both our recent purchases and our purchases over the years reflect this. And because we believe that a much smaller than typical percent of the net present value of our company’s cash flows is attributable to reliance on the residual exit value of these cash flows, because, one purchasing shares at or near our current market cap provides a high free cash flow yield and we expect free cash flow to grow substantially in the coming years.

The combination of these factors gives us confidence in investing excess cash flow in the business and in share repurchases can generate significant additional value for shareholders in the coming years. In conclusion, I would just say that we expect the combined power of these three key strengths, the strength of our strategic position, the strength of our revenue-generating engine, and the strength of our business model to continue to generate strong and accelerating growth in revenue, adjusted EBITDA and free cash flow. And specifically, as noted previously, we believe that the combination of having a lot more billed and unbilled revenue on our balance sheet than ever before, achieving accelerated growth in our subscription revenue, and returning our subscription services attach rate to its historic average will result in adjusted EBITDA increasing to between $54.5 million and $58 million in fiscal ’24.

I’d now like to turn some time over to Steve to discuss our results for the first quarter and the latest 12 months in a bit more detail and Steve will also review our guidance. Steve?

Steve Young: Thank you, Paul. Good afternoon, everyone. It’s a pleasure to be with you today. I would like to briefly provide more detail on the factors underlying this performance, focusing on results in three key areas of the company, specifically our Enterprise business in North America, the Enterprise business internationally in both our direct offices and licensees, and our Education business, which is also primarily in North America. As shown on Slide 17, results in our Enterprise business in North America continued to be strong in the first quarter and the latest 12-month periods. Reported sales in North America, which account for 43% of total Enterprise Division sales were $38.4 million in the first quarter, a level almost equal to the prior year, and this on top of a strong 16% growth achieved in the first quarter of FY ’23.

For the latest 12 months, revenue grew 2% on top of 17% growth in the prior year and we are pleased with the result we have achieved in the Enterprise business in North America over the past two years. We expect the beginning in Q3 of FY ’24, our year-over-year comparisons will normalize. Subscription and subscription services sales in North America are even with prior year in the quarter on top of the 20% growth achieved in last year’s first quarter. For the latest 12-month, growth was 4% on top of 24% in the prior year. And we are pleased with these growth rates. Our balance of deferred revenue billed and unbilled in North America continued to be strong, growing 7% in the quarter on top of 25% in last year’s first quarter, establishing, as Paul said, a strong foundation for next year’s growth.

And the percentage of North America’s All Access Pass clients that were for multiyear periods increased to 54% from 48% in the first quarter last year. And the percentage of invoice sales represented by multiyear contracts increased to 60% from 55% in the first quarter last year. As shown in Slide 18, revenue from our international operations, which account for approximately 17% of our total Enterprise Division revenue, decreased by $0.6 million or 7% in the quarter primarily due to declining legacy which is non-All Access Pass-related sales. Sales in these offices have grown 4% or $1.3 million in the latest 12 months. Also, on Slide 18, our international licensee partner sales increased 3% in the quarter on top of 9% in last year’s first quarter.

And for the latest 12 month, sales were up 8% on top of the 15% in the prior year. Finally, as shown in Slide 19, the results in our Education business, which accounts for approximately 25% of the total company sales, grew 3% for the quarter on top of the 23% growth achieved in the first quarter last year. Sales grew 9% for the latest 12 months on top of 21% latest 12-month growth in the previous year. Education subscription and subscription services sales were flat in the quarter but strong in the latest 12 months, growing $4.6 million or 8% on top of $11.8 million or 25% last year. Education’s balance of deferred subscription revenue billed and unbilled increased 29% in the quarter. Now, just a little bit more about Education. As you — the Education Division.

As you recall, not many years ago, the Education Division was small and had a traditional service and materials business model. We are pleased that, as shown on Slide 20, since the launch of the Leader in Me subscription in Education Division, revenue has grown substantially from just over $3 million in its first year to more than $70 million over the latest 12 months. And the business model has transformed to closely mirror that of Enterprise with approximately 90% of Education revenue now represented by subscription and subscription services revenue, a level that is very similar to that of Enterprise Division. We also expect that after years of accelerated investment, the Education Division’s adjusted EBITDA margins will also expand in FY ’24 and beyond.

Now a little bit about our cash flows and — more about cash flows and balance sheet. As shown on Slide 21, our cash flows from operating activities was $17.4 million at the end of the first quarter compared to $3 million in Q1 last year. Our free cash flow in the first quarter increased to $13.7 million compared with $0.8 million for the prior year, reflecting the changes in the elements of working capital were very favorable in Q1 this year compared to Q1 last year, particularly referring to accounts receivable, accounts payable, accrued liabilities in deferred revenue. In Q1, we invested $16.3 million to purchase 409,000 shares. Over the past four quarters, as Paul said, we’ve invested $51 million to purchase shares. We ended the quarter still with $96.5 million of total liquidity, including $34 million in cash and $62.5 million available under the revolving credit facility even after investing $16.3 million in stock purchases this quarter.

Compared to Q1 of FY ’23, the sum of billed and unbilled deferred subscription revenue increased 12% to almost $170 million, giving us increased visibility into future sales results. The deferred subscription revenue increased 14% to $87 million, while the unbilled deferred revenue increased 10% to $82.5 million. Adjusted EBITDA in the quarter, as already said, was a strong $11 million. Now guidance. As you know, Franklin Covey’s financial strategy is to consistently grow revenue and at the same time experience a high flow-through of that increased revenue to increased adjusted EBITDA and free cash flow. Consistent with that strategy, we affirm our previously issued guidance for FY ’24, that adjusted EBITDA will increase by approximately 17% at the midpoint of the range to between $54.5 and $58 million in constant currency compared to the $48.1 million achieved in FY ’23.

This guidance reflects our expectation of achieving low double-digit net sales growth in the back half of the year, stable or improving world economic conditions, strengthening results in our international operations, particularly strong financial results in Q4 in our Education Division, and increased subscription add-on services. This FY ’24 guidance reflects our expectation that we will achieve particularly strong results in Q3 and Q4 of FY ’24. Our second quarter guidance is that adjusted EBITDA will be between $6.2 million and $7.2 million; strong, but lower than last year’s very strong adjusted EBITDA of $8.2 million, particularly reflecting a lower service attach rate during the second quarter that is expected to increase during the third and fourth quarters.

In as much as we expect to achieve strong revenue and gross margin, the expectation that the second quarter’s adjusted EBITDA performance will be slightly lower than last year is due primarily to our investment in growth this year and benefits in certain accruals last year, like accounts receivable provision. We expect our second-quarter revenue to be at least even with or to increase slightly over the prior year and could be our highest second-quarter revenue ever achieved. As discussed, this guidance obviously reflects the fact that we expect net sales growth rate to accelerate significantly in Q3 and Q4, as I mentioned. While many economic and other factors could impact these expectations, we’re excited about our future financial position.

So, back to Paul.

Paul Walker: Thank you, Steve. Thanks for going through that. And again, we feel quite good about the first quarter and about what we see out ahead. And with that, we’d like to open — ask the operator to open up the line for your questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Dave Storms with Stonegate. Your line is open.

Dave Storms: Good afternoon. Happy New Year everyone.

Paul Walker: Yeah, you too. Thanks, Dave.

Dave Storms: Appreciate it. So, looks like calendar year 2023 turned out to be the year without a recession. But just curious how you see clients reacting after a lot of aggressive belt-tightening the majority of 2023, and if you see any additional bump in demand during calendar ’24?

Paul Walker: Yeah, it’s a great question. I would say, it did turn out to be the year without a recession, it’s interesting times for sure. I would say that what we’re seeing right now is it’s been pretty consistent for the last number of months and that our clients, they — their budget — they have their budgets, they know their budgets, they’re moving forward, they’ve got their plans. And we feel relatively good about the environment that we’re selling into right now. I think there’s — I feel like there is more certainty in the fact that clients do have budgets and are — and do have plans they’re moving forward with, which you recall we reported in Q2 last year, there was — some of our clients were a little bit more uncertain at that time, and that seems to have subsided for the most part.

And I think behind all of that though is a driver that in all times particularly times that are may be uncertain or where there is — where growth is more difficult for companies, they’re looking for solutions like those that we provide, right? Right now, people are very focused on, do I have the leadership capability inside of my organization to execute what it is we’re trying to execute? Is our culture such that we can attract and retain in a tighter labor market the kind of talent we’re going to need? Do we know how to engage people? And can we — is our organization adaptable and change-ready and can it thrive? And so, those types of challenges that are on the minds of CEOs and leaders inside our clients. And so, we’re fortunate to have the kinds of solutions to those problems.

I think that gives us confidence as we move forward here.

Dave Storms: Understood. Very helpful. And then just one more, and this might be more for Sean. If I remember correctly, there was some funding that needed to be renewed at the end of 2023 for the Education business. Just wondering if we could get a quick status update on how that all shook out.

Sean Covey: Yeah. Can you — I’m not exactly sure what funding you’re referring to.

Dave Storms: I believe it was ESSER funding that you mentioned needed to be renewed.

Sean Covey: Oh, the ESSER funding. Sure. Okay. Sure. Yeah, well, the ESSER funding, which is the emergency relief funding the government gave out during COVID, that is — that’s been out since COVID began and that’s been out — and it goes until the end of this year. And about two-thirds of it has been spent. So, about a third is remaining. So, still a lot of spending going on right now, it will be for this year. We have a lot of our schools and districts that have signed up with multi-year contracts using some of this funding. But as we look to next year and when this funding runs out, we fall back on Title I and Title II grants, which had been there for decades and will remain. And we also, as I shared before, we have a large foundation that’s dedicated to starting up Leader in Me districts and schools.

That’s actually funding and helping schools get started with millions of dollars, and there will be hundreds of schools that will be funded through them. So, yes, so that’s where that stands. Is that responsive to your question?

Dave Storms: Absolutely. No, that’s very helpful. I appreciate you shedding some light on that. Okay. Thank you very much, and good luck in the next quarter.

Paul Walker: Thanks, Dave.

Sean Covey: Yeah, thank you.

Operator: Thank you. Please standby for our next question. Our next question comes from the line of Nehal Chokshi with Northland Capital Markets. Your line is open.

Nehal Chokshi: Yeah, thank you for the question.

Paul Walker: Hi, Nehal.

Nehal Chokshi: Hey. And good to hear that you’re seeing an inflection, I believe you talked about in, what was it, subscription and invoice bookings, I think. But look, the key thing that I want to key on here is free cash flow. So, in the quarter, you had a — it looks like a pretty strong cash from operations. But I just want to make sure that how did that actually perform relative to the expectations at the prior earnings call that you had for this same quarter here — for the November quarter, I’m sorry?

Paul Walker: Steve, you want to…

Steve Young: Yeah. So, Nehal, as you know, our free cash flow in the first quarter last year was a lot lower than it was this year. During the first part, we did talk in prior quarters about the fact that we expected our free cash flow to rebound significantly, and it did. And the areas where free cash flow improved was not only related to operations, but also in the working capital balances, accounts receivable, accounts payable, accrued liabilities and deferred revenue had a very positive change in this year’s first quarter compared to last year’s first quarter. So, we were very pleased with our free cash flow in the first quarter, and it was good, and it was even more than we expected, because all of those working capital elements that impact cash flow at the end of Q1 were positive in our direction, and all went positive quite a bit. So, we thought it was a very good free cash flow quarter.