Franklin Covey provides training and consulting services for businesses and individuals.
They famously published “The Seven Habits of Highly Effective People” and their product offerings and curriculum are based upon those principles.
I’m interested in this business as it’s been going through a transformation into a subscription based model. Instead of offering its information products on an as-needed basis, they now offer a subscription “All Access Pass “that gives you access to all of their products for a flat fee.
This transition has made the business revenue much more profitable and resilient. A typical contract with a business is 2 years and renewal rates are consistently above 90%… that’s great!
EBITDA margins were 8% in 2019 and are set to more than double to 16% in 2023.
This kind of business has huge gross margins, about 85%, which means that every incremental dollar they make has an outsized impact on their earnings. For example, from 2022 - 2023 revenue is projected to grow about 12% which is solid, but at the same time, earnings will grow by about 41%! That's what high gross margins can do!
So the business is growing revenue and earnings at a healthy rate, and management clearly sees this continuing into the future as evidenced by their guidance. They’re guiding to $67 million in earnings by 2025 which means today Franklin Covey is trading at about 9x’s 2025 earnings.
As of now AAP and subscription services make up a little bit over 50% of total company revenue. As time goes on and subscription services make up more and more of company revenue it will continue to become more clear how quality this business truly is. I wouldn’t be surprised if it experienced a substantial multiple re-rating in the near-ish future.
With a market cap of just $650 million today, there is a high likelihood of this business transformation remaining below the radar for now.
With renewal rates above 90% and gross margins at 85% high insider ownership, share buybacks, quality management and a very large total addressable market, this is a business that could definitely garner a very high multiple once discovered.
I will come out with more clear cut projections and valuations in my follow up tomorrow !
I hope everyone has been doing well and didn’t miss my absolute gems too much!!