December 27, 2017 - 1:06pm EST by
2017 2018
Price: 20.40 EPS 0 0
Shares Out. (in M): 14 P/E 0 0
Market Cap (in $M): 279 P/FCF 0 0
Net Debt (in $M): 5 EBIT 0 0
TEV ($): 284 TEV/EBIT 0 0

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  • Recurring Revenues
  • 6th FC pitch in 2018?
  • up 50% in a month


FC stock price has been stuck in the mud as the business model has gone through a transformation and the stock has been stuck between $15-20 for years, however we expect a significant move higher if FC stays on its current trajectory the stock is worth $35-40+ in 2018. FC’s All Access Pass (AAP) is growing at a very rapid rate; in the 4Q17 AAP had 105% subscriber growth with 172% growth in deferred revenue (and gross AAP revenue totals about 33% of total revenue). AAP revenue has jumped from $23 million to $63 million year over year and should grow at $50 million plus per year.  FC has 218 Client Partners (enterprise sales people) and they are adding net 20-25 per year. The average CP sold 711 seats last year (or about $48 million before add-on services, which is typically an additional 20%). AAP has 90% annual renewal rates and guidance is for 30-40% EBITDA margins at scale. Before we discuss the value of AAP, it is worth lets discuss what the other segments of value are worth: A) The Leader in Me (K-12 education) 2) International Licensee (royalties of 15% of revenue from 100 countries) 3) Direct Offices/AAP (which I will break into: Model A: historical business model people/paper and Model B: AAP a digital subscription). We believe The Leader in Me is worth at least $80 million (which was approximately 2.0x sales, not unreasonable for 17% 5 year CAGR revenue growth with 15%+ EBITDA margins) or about $6.50 per share. International Licensees we value at 10x EBITDA or $80 million as well or $6.50 per share. Direct offices Model A: $110 million and shrinking by about 20-25% as the model is converting to Model B: All Access Pass (AAP). We believe direct offices are worth about .8x sales with 10% EBITDA margins or about $7.00 per share. This gets us to about $19.00 per share in value vs. $19.90. Investors are paying, $1 per share or $13 million for All Access Pass business which we think is worth more like $200-300+ million or $15-21 per share. Currently value FC shares between $35-41 per share.  


Bob Whitman, the CEO is a very straight shooter and steady methodical value creator (we have been an investor to various degrees for about 12 years). Bob and another Director have nearly $70 million investment in FC common stock.  21st century assets in many cases are intangible assets people, ideas, technology, strategy, and culture. This becomes very clear for businesses like Google, Facebook, Apple, Lyft, Uber, Twitter, etc? How much damage has been destroyed through cultural problems? Enough that it inspired Uber director and former founder of Huffington post to found Thrive Global. Companies invest 2-12% of revenue in improving employee productivity. Recently, Linkedin bought for $1.7 billion or about 8x sales. Ariana Huffington Thrive Global was founded in Nov 2016, and in Nov 2017  Thrive Global raised $37 million from lead investor IVP ( additional investors in the recent round included Marc Benioff (Salesforce CEO/Founder), Sean Parker(billionaire from FB), Greycroft, Ray Dalio (Founder of Bridgwater Associates), Andre Iguodala (NBA Warriors). Finally at the end of November 2017, Linkedin and Silver Lake Partners invested $300 million into Cornerstone (CSOD). FC owns some of the best niche brands in organizational performance management (since 2009 generated $1.5 billion in revenue with 67% gross margins). FC is Leadership (7 Habits), Increasing productivity (5 Choices of Extraordinary Productivity), Strategy Execution (4 Disciplines of Execution), Building Trust, Customer Loyalty, Sales Performance, and Education.


CEO Bob Whitman March 30, 2017:

 Utilizing our most recent thinking, as I mentioned, we believe that at our current market capitalization, almost no value is being attributed to our biggest growth engine: our direct office division. We believe that our Education business, including our international Education business, where we recently signed a 10- year license agreement for a minimum required royalty payments payable to the company of $16.3 million over the life of the agreement. We believe that business, with all its components, is worth approximately $80 million, so we think. We believe that our International Licensing Division, which is expected to generate approximately $9 million of EBITDA this year, has contractual minimum royalties, which increase in -- almost every year, is probably worth something like $100 million. So if you do that, the $80 million and the $100 million from the current enterprise value, that leaves only approximately $50 million to $60 million of value that's being attributed to our Direct Office business, a business that is expected to generate approximately $150 million in revenue, which generates significantly more EBITDA contribution than the other divisions combined, and which even if all of the central costs of the company were allocated against that division rather than allocated to others but still generate at least $15 million of adjusted EBITDA. So it's implying, to us at least, that what we consider as our biggest growth engine and the engine is rolling out All Access Pass is effectively being valued at 3x to 3.5x EBITDA. So hopefully, that will help for those who have asked how we're using our cash and why. And so if you have asked this question, how we think of value and how do we make those decisions, that's an attempt to be responsive on that. In conclusion, I'll just say, on the 4 questions. How is All Access Pass going? We believe it's going really well. We believe, as I mentioned, we're likely to exceed $50 million of total revenue* this year, total amounts invoiced this year from All Access Pass and Pass-related amounts. How are the factors going which could drive increased lifetime value? How are they tracking? A little -- I mean, all of them are -- seem to me to be true and each is tracking a little above what we would have thought to expect. When do we expect the success to translate into growth? Now, this quarter and incoming quarters. And how do we expect to utilize our excess cash and credit line capacity? We expect to, after investments in the business, to use it to continue to aggressively repurchase stock.


*FC hit $63 million AAP revenue in 2017.



Why are we confident that the growth of All Access Pass will continue?


FC has 219 Client Partners (enterprise sales people) they are adding net 20-25 per year. Each CP sold 711 seats in 2017 FY. If you assume productivity decreases a couple percent per year (no reason to assume this) FC will add effectively add 165,663 seats per year $30K per 100 seats and 20% of revenue is service and material add ons which comes to $60 million.


FC has 4400 customers. There are 94,000 businesses in US with over 200 people. FC believes that they will eventually get to 600-700 Client Partners over time.


FC is reinvesting heavily for growth: A) will add a new content to their platform, they said they are in discussions with 15-20 thought leaders B) FC will launch internationally AAP in 17 languages in early 2018.


We believe FC is late to the game in terms of a digital subscription offering. In other words, it is not only are the economics FAR more attractive for shareholders BUT also this how customers WANT to buy. One CP in the bay area said when she told her client Salesforce (CRM) that FC was rolling out AAP vs. the old people/paper model, the executive at Salesforce said “finally and it’s about time! We were tired of seeing you guys slaughter trees.” Our thesis, is that customers love AAP (supported by seats sold, and renewal rate) as AAP allows for customized learning paths employees, feedback on engagement use stats, and 100% access to all of FC content library on demand. FC is now accelerating acquiring additional content and investing heavily into AAP development on tech platform.

 Read letter to shareholders from Dec 2017:



 Disclaimer: This does not constitute a recommendation to buy or sell this stock.  We own shares of the company, and we may buy shares or sell shares at any time without updating the board.

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Additional Thought Leaders/content added to platform

Market begins to realize that FC is a high growth high value Annual Recurring Revenue business with substantial incremental margins

CEO annual Letter Dec 2017:

We believe we are now reaching the inflection point where the significant growth rate of our subscription business will increasingly outpace any ongoing declines in our now much smaller legacy onsite and facilitator channels. As a result, we expect to achieve double digit growth in our reported revenue in fiscal 2018, and to have continued strong growth in fiscal 2019 and beyond.

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