Here just some of our thoughts on Franklin Covey Q2 earnings. We think the numbers really speak for themselves at the moment.
We wrote about FC 2 months ago here:
Even today FC reminds us about Naked Wines at 300, Protector at 38 or GiG at 7,5:
Remember the current H1 (until end of Feb) is 6 months that was heavily impacted by Covid, while the prior year wasn’t impacted (only some small initial China impact). We have heard comments like “the product is not really sticky, its still really cyclical,
subscribers will churn in a recession etc.”. Now the business have been through a perfect storm. Remember the backbone of the company and the “content” around the subscription business was all around filling 200 people into a conference room and having management training etc.
With heavy restrictions on group gatherings, socials distancing etc. at the same time as a lot of businesses is tightening their spending budgets and having layoffs Franklin Covey really have had the hardest test of its business model as can be imagined.
So how have they performed during this crisis?
The first thing people was worried about was retention. But even during the worst of time FC managed to keep their annual revenue retention at +90 %.
We sometime get the comment “but 90 % is okay, its not good”. We agree. But the company have never said it was 90 %. They have just said it has NEVER BEEN BELOW 90 %. The actual figure fluctuate between quarters but we think its averaging more like 95.
FC even had companies in hard-hit industries like Airlines and Hospitality renew and expand passes during Covid. With FC able to show such good retention rates even in a period where a lot of the services couldn’t be delivered really show the durability of the product to us.
Remember it’s not a small investment for companies. The initial AAP purchase is around 40.000 $ + add-on services etc. Some companies were using the AAP mainly for on-site tutorials etc. It would have been easy for those companies to just say
“listen we wont renew the pass now as we cant use the content”. Instead we saw companies renewing and expanding while heavily adopting all the online modalities.
Looking at revenue and bookings the company have kept showing consistently high growth and durability during this crisis. AAP revenue has been growing 15 % YoY even during this time.
And even more remarkable - AAP bookings growth in H1 2021 (in a heavy lockdown period) was 30 % ahead of H1 2020 (pre-covid).
Remember while the business is now 80 % subscription related in US/Canada the international business is still in the early part of that adoption and education is still hit by tightening school budgets (and access to schools):
So even in a period where FC still could see the revenue decline due to education/international they are transforming the business to the higher margin subscription business with EBITDA growing 26 % YoY on lower revenue.
But the underlying progress is even better. Because the company is transforming the business to subscriptions a lot of the bookings are not recognized upfront but instead goes to deferred revenue:
Look above how the company have significantly improved FCF with a delta of around 10 mio. $ YoY (again in a covid period compared to a non-covid period).
FC is on its way to generate 25 mio. $ in free cash flow in FY21 and +30 in FY22
Based on how the business is performing we think its quite crazy this thing is still trading at 1,5x revenue (2-2,5 x recurring revenue) and 20x FY21 FCF and below 10x forward FCF.
We think its really rare to find a high quality subscription business that is also highly cash flow positive and at the same time trading a low multiples.
Disclaimer: Not investment advice. Do your own work. We own shares in FC and have been buying more after the Q2 report. Please read full disclaimer on our website.
DM or email me for feedback, always appreciated.

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More from @Symmetry_Invest

12 Mar
We have increased signifanctly in Cambria Automotive last few weeks. Its our "reopening trade" #1 together with Franklin Covey.
Trading at 4-6x P/E on a normalised P/E multiple with net cash balance sheet
After last opening in 2020 there was big pend-up demand.
Auto Trader says website traffic have soaring ahead of reopening. UK househould savings is at record levels. Consumers says they will prefer cars to public transport
There is a need to get up to schedule on repair and maintaince of cars to keep warranty etc.
Cambria innovate in new leasing and credit products etc.

Brexit solved without tarrif on cars.
GBP is up a lot = lower inport prices for consumers
Read 7 tweets
9 Mar
Protector sets the stage for tomorrow :)

1) Good reinsurance deal = higher solvency
2) Lower CR target (but Protector only sell underpriced insurance? 😉)
3) Amazing start for investment book in Q1 2021
German reinsurer buying 70 % of the reserve in protector WC book in DK and NO. Professionels players want those reserves = not afraid of tail-risks
What do you do when you are allready the cost leader? You set even more agressive targets to strengthen your moat!
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30 Dec 20
Naked Wines grew 80 % YoY in H1. Current guidance and analyst estimates is for around 60 % YoY growth FY or close to 40-45 % in H2. We think its still way to low and think the company will do a reverse profit warning in january or after the new CFO have walked through numbers....
.... Here is why:

1) All the data-sources we track are indicating good or accelerating growth (traffic, credit-card, shipment data etc.)

2) When we talk to people in the industry they all say business is still really good
3) UK website crashed before christmass due to surging demand.

4) Further lockdowns in especially UK. People need to stay home and drink and cant go out.

5) This is a subscription model. Business accelated doing H1 with september up +100 % YoY
Read 5 tweets
28 Dec 20
"Insr are forced to cease their business by Finanstilsynet, the Financial Supervisory Authority of Norway. Problems are partly relating to Danish Workers’ Compensation where several other insurers have suffered as well......
...Insr seem to have remaining exposure on agent agreements and not unlikely on reserves and reinsurance. That is probably why they have not been acquired for the tax deduction opportunity...
...I am sad that a challenger in the consumer segment is forced to cease business. Insr ceasing business is not good for the market where incumbents are milking consumers...
Read 6 tweets
25 Mar 20
Some notes from Piteco conference call:

1) Signed 32, 37 and 40 new costumers in 2017, 2018 and 2019. In jan+feb 2020 alone they signed 14 !!! Even including march+april (corona) they think they will get to 35-40 for full year. Was on track to +50 before Corona.
… They will keep growing in 2020. Revenue is recurring revenue. He says their costumers are +100 mio. EUR costumers. He dont think any would go down due to Corona. Most paid all 2020 fees upfront in jan 2020 so no credit risk for Piteco....
… Myrios growth was 28 % in 2019 with a 70 % EBITDA margin (adjusted). They paid (including all earn out) a 8,1 x multiple for this business. Shows the amazing capital allocation of Marco and the team.

Will due more lucrative M&A in the future....
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