Franklin Covey Roth Presentation
Disclaimer
2
This investor presentation (“Investor Presentation”) is for informational purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation to purchase any equity, debt, or other financial instruments of Franklin Covey Co. (the “Company”) or any
of the Company’s affiliates’ securities (as such term is defined under the U.S. federal securities laws). This Investor Presentation has been prepared to assist interested parties in making their own evaluation with respect to a potential investment in the Company, and for no other
purpose. The information contained herein does not purport to be all-inclusive. The data contained herein is derived from various internal and external sources. The Company assumes no obligation to update the information in this Investor Presentation. The Company does not accept
any liability whatsoever for any losses arising from the use of this Investor Presentation or reliance on the information contained herein. Nothing herein shall be deemed to constitute investment, legal, tax, financial, accounting, or other advice. This Investor Presentation is being
provided for use only by the intended recipient. The information contained herein may not be reproduced or distributed in any format, in whole or in part, without the prior written consent of the Company.
The distribution of this Investor Presentation may also be restricted by law and persons into whose possession this Investor Presentation comes should inform themselves about and observe any such restrictions. The recipient acknowledges that it is aware that the U.S. securities laws
prohibit any person who has material, nonpublic information concerning a company from purchasing or selling securities of such company or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities.
No representation or warranty (whether expressed or implied) has been made by the Company or any of its affiliates with respect to any of the matters set forth in this Investor Presentation, and the recipient disclaims any such representation or warranty. Only those particular
representations and warranties of the Company or its affiliates made in a definitive written subscription agreement, if any, regarding the matters set forth in this Investor Presentation (which will not contain any representation or warranty relating to this Investor Presentation or
information contained in or omitted from this Investor Presentation) when and if executed, and subject to such limitations and restrictions as specified therein, shall have any legal effect. At any time upon the request of the Company for any reason, recipient shall promptly deliver to the
Company or securely destroy this Investor Presentation and any other documents furnished to recipient by or on behalf of the Company without keeping any copies, in whole or in part, thereof.
Forward-Looking Statements
This Investor Presentation includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The expectations, estimates, and projections of the business of the Company may differ from their actual results
and consequently, you should not rely on these forward-looking statements as predictions of future events. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and
similar expressions, and the negative forms of such, are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, expectations with respect to future performance, including projected financial information (which is not audited or
reviewed by auditors) and anticipated financial impacts of the proposed transaction, the satisfaction of the closing conditions to the proposed transaction, and the timing of the completion of the proposed transaction. These forward-looking statements involve significant risks and
uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside of the control of the Company, and are difficult to predict. These factors include, but are not limited to: the Risk Factors identified in the Company’s filings
with the Securities and Exchange Commission. You should not place undue reliance upon any forward-looking statements, which speak only as of the date made. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statements to reflect any change in their expectations or any change in events, conditions, or circumstances on which any such statement is based.
Industry and Market Data
In this Investor Presentation, the Company relies on and refers to information and statistics regarding market shares in the sectors in which the Company competes and other industry data. The Company obtained this information and statistics from third-party sources believed to be
reliable, including reports by market research firms. The Company has supplemented this information where necessary with information from discussions with its customers and its own internal estimates, taking into account publicly available information about other industry
participants and its management’s best view as to information that is not publicly available. The Company has not independently verified the accuracy or completeness of any such third-party information.
Use of Non-GAAP Financial Measures
This Investor Presentation includes non-GAAP financial measures. Definitions of these non-GAAP measures and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included elsewhere in this presentation. The
Company believes that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends related to the Company’s financial condition and results of operations. Because these non-GAAP financial measures
are not in conformity with GAAP, we urge you to review the Company’s audited financial statements.
Additional Information About The Transaction And Where To Find It
The Company has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the Company has filed with the SEC for
more complete information about the Company and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at https://www.sec.gov/cgi-bin/browse-edgar?company=franklin+covey&owner=exclude&action=getcompany.
Company Overview
Executives
4
Bob Whitman
Chairman
and CEO
◼ Serves as Director, Chairman, and CEO
◼ Former President and Co-CEO of the Hampstead Group from 1992 to 2000
BACKGROUNDTITLE
Steve Young
CFO, EVP and Corporate
Secretary
◼ Joined FC in January 2001 and appointed as the CFO in November 2002
◼ Former SVP, Finance; CFO and Director, International Operations for Weider Nutrition
Sean Covey
President,
Education Division
◼ Leads the Company’s efforts in the K-12, and Higher Education markets
◼ New York Times best selling author
Paul Walker
Chief Operating Officer
and President◼ Previously served as EVP, Global Sales and Delivery until November 2017
◼ Prior to that held various senior positions at the Company’s Chicago office
Source: Company filings and company management. Note: Headcount and country count figures are as of FY’18. Sales as of FY’19
Introduction to Franklin Covey
WINNER OF NUMEROUS AWARDS FOR SUPERIOR CONTENT
FY2019
Revenue:
$225mm
140+
Countries
246
Sales
Associates
5
Franklin Covey helps clients achieve results that require change in human behavior. At scale. To accomplish this,
Franklin Covey creates and/or productizes world class content and solutions focused on increasing customer
loyalty, improving sales performance, building leaders at all levels, achieving high levels of employee
engagement and building a culture of personal and interpersonal effectiveness
The Company helps clients achieve their specific objectives by providing access to content through four scalable modalities in 21
languages through a subscription service and offering add-on implementation and coaching services
Key Investment Highlights
6
Unique competitive strengths in a large and expanding market with substantial white space for future growth
High rates of growth in Adjusted EBITDA and Cash Flow, driven by proven subscription business model, significant market opportunity, and competitive advantages to continue to drive shareholder value
Compelling financial results driven by increasingly high margin, high flow-through subscription business (All Access Pass)
World class branded content that helps clients address critical human organizational performance challenges
Aggressive sales force expansion with strong client partner ramp rate that has historically generated sustained top line growth
1
2
3
4
--
$100
$200
$300
$400
$500
$600
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Company filings and FactSet as of November 15, 2019.
Over the Past 20 Years, Franklin Covey Has Created Sustainable Value
Strong Track Record of Shareholder Value Creation
1984: Franklin
Quest Founded
1992: Franklin
Quest IPO
1997: Franklin Quest
/ Covey Leadership
Center Merger
1999: Knowledge Capital
Purchases Stake in
Franklin Covey
2009-2016: Focus on content
development based on Company’s
experience overcoming hurdles
2016: Introduction of All
Access Pass and transition
to subscription based model
TIMELINE OF KEY EVENTS
7
2016: All Access Pass
launches, providing
subscription for content
2018: M&A acquisitions
to expand
product/content
offerings
2000: Bob Whitman
appointed as CEO
2008: Sold Consumer
Business Solutions Unit
Enterprise Education
FY’19 Financial
Highlights
Revenue: $174.3 million (49.2% subscription and related revenues1)
Gross Profit: $131.6 million (75.5% margin)
Adjusted EBITDA: $28 million (16.1% margin)
Revenue: $49.60 million (86.0% subscription and related revenues1)
Gross Profit: $30.6 million (61.7% margin)
Adjusted EBITDA: $2.7 million (5.5% margin)
Distribution
▪ Direct Sales Force of 190 in U.S, Canada, U.K., Germany, Austria, Switzerland,
China, Japan, Australia and New Zealand
▪ International Licensee network covering >100 countries
▪ Direct Sales Force of 56 in K-12 and higher education
▪ International Licensee Network covering >50 countries
Key
Platforms
▪ Subscription-based accessible through multiple
modalities
▪ 3 Tiers:
▪ Business Outcomes
▪ Customer loyalty, sales performance,
execution of major strategic initiatives
▪ Developing Great Leaders at Every Level
▪ Personal and Interpersonal Effectiveness
▪ Subscription-based, whole school improvement
model designed for K-12
▪ Topics include college, career, life readiness skills,
cultural transformation, personal and interpersonal
effectiveness, and academic achievement
Selected
Solutions
Key
Differentiators
▪ World Class Content: Highly engaging, principle-based, and focused on the critical 80/20 of intractable human and organizational performance challenges
▪ Breadth and Scalability of Delivery Modalities: Live instructor-led, live online, on demand, self-paced, and micro-pushed
▪ Global Capability: Reaching 140+ countries through 800+ associates / trainers, in 21 languages
▪ Renowned Thought Leadership: Publish best-selling books to create thought leadership around our solutions (i.e. – 7 Habits of Highly Effective People, 4 Disciples of
Execution, Speed of Trust, Everyone Deserves a Great Manager)
Source: Company filings and company management. 1 Also includes licensee revenues. Note: Adjusted EBITDA is a non-GAAP financial measure; please see Appendix for additional information.
Providing Industry-Leading Content, Solutions, and Services to Diverse Customer Landscape
Divisional Overviews
8
Business Outcomes:
◼ 4 Disciplines of
Execution
◼ Sales Execution
◼ Leading Customer
Loyalty
Developing Great Leaders
at Every Level:
◼ The Speed of Trust
◼ 6 Critical Practices for
Leading a team
◼ Multipliers
◼ 4 Essential Roles of
Leadership
Personal and
Interpersonal
Effectiveness:
◼ 7 Habits of Highly
Effective People
◼ 5 Choices to
Extraordinary
Productivity
◼ Leader in Me (K-8)
◼ Leader in Me (High School)
◼ The 7 Habits of Highly Effective Teams
◼ Leadership & Organizational Solutions
Continue Strong
Growth of
Subscription Sales
Continue to
Aggressively Expand
Sales Force –
Take Advantage of
Big Expansion
Opportunity
Continued Emphasis
on Client Loyalty and
Expansion
Continued Content
Expansion
▪ Creates resilient lifetime customer value
▪ Strategic and structural durability creates significant visibility and predictability
into revenue and EBITDA
▪ High margin, high recurring revenue, and generates high flow-through of
growth in revenue to growth in EBITDA and cash flow
▪ Large addressable market
▪ Very attractive unit expansion economics
▪ Cover investment on a new client partner within one year
▪ A new client partner, on average, generates $3.9 million over first 5
years
▪ Focus on performance improvement and goal / outcome oriented solutions
▪ World class content and solutions available in four modalities
▪ Awareness of solutions driven by direct sales, marketing, and best-selling
books
▪ Including creation of execution practice, sales performance practice, the
customer loyalty practice
▪ Franklin Covey’s All Access Pass achieves >90% annual revenue retention
▪ Flexible delivery modalities caters to various customer needs
▪ Global and broad distribution and reach
▪ Clients include the vast majority of both Fortune
100 and Fortune 500 companies
▪ 140+ countries
▪ 21 languages
▪ Digitalized content library
Enterprise Division – Client Partner Ramp Execution
Strategic
Initiative
Personal and
Interpersonal Skills
Leadership
Development
Technical
Skills
Franklin Covey
Online, DIY skills training
$ 200 $ 500
$ 800
$ 1,100 $ 1,300
Year 1 Year 2 Year 3 Year 4 Year 5
$m
Defined Strategy to Drive Outstanding Growth and Customer Satisfaction
Our Strategy
9
Source: Company Projections. | Notes: USD in millions, except per share data.
All Access Pass and related revenues exclude Education and represent Enterprise revenues only.
1
2
3
4
Strong Growth in Subscription and Related Sales
10
Notes: USD in millions, except per share data.1 All Access Pass and related revenues exclude Education and represent Enterprise revenues only.
Subscription revenues across the Enterprise, Education and Licensee businesses have been growing rapidly
1
In FY 2016, Franklin Covey introduced its All Access Pass Subscription Offering
11
*Enterprise Division Gross Margin - Blend between Subscription & Services
All Access Pass Creating Lifetime Customer ValueStructurally durable contracts and a sticky offering translate to health customer metrics
Acquisition Costs to initial purchase price of
less than 1:1
12
▪ Subscription revenue is growing rapidly, is sticky and is creating significant
and durable customer value
▪ Retains substantially all of the subscription and related revenue year-over-
year
▪ Proportion of customers with multi-year contracts is increasing, generating
significant backlog of deferred revenues that realize over time
The All Access Pass is Strategically and Structurally Durable
Strategic Durability Structural Durability
▪ Franklin Covey’s programs address the largest intractable performance
challenges our customers face
▪ Clients sign and pay for their subscription upfront, making the All Access
Pass structurally durable
Notes:
▪ A multi-year contract is a single contract with a duration of at least 24 months.
▪ Multiple single-year renewals are not counted as multi-year contracts.
13
AAP CLIENTS (US/CANADA) WITH MULTI-YEAR
CONTRACTS
4%
21%
32%
0%
10%
20%
30%
40%
Q4 FY'17 Q4 FY'18 Q4 FY'19
▪ The Global training industry is a $360+ billion industry
▪ North America represents approximately 45% of the Global training industry
▪ $40 billion market for outsourced content for organizational performance improvement in the U.S., and the approx. $90 billion market worldwide
▪ Competitors are both a) small single-content providers and b) largely undifferentiated solutions
▪ Franklin Covey is well positioned to gain share given unique competitive advantages and compelling subscription value proposition
Source: Training Industry1 Data does not include expenditures related to consumers’ spend for training programs (individuals taking training courses for personal or non-work related development); revenues of educational institutions (universities
and for-profit educational companies) or revenues of community colleges from students paying tuition.
Robust Market Opportunity and Competitive Advantage
Continue to Aggressively Expand Sales Force
1 2
3 4
World Class
Content /
Solutions
Accessible
Through all
Modalities
Broadest and
Deepest
Sales &
Distribution
Most
lmpactful
Thought
Leadership
$110 $112 $129 $131 $142 $150 $160 $162 $161 $167
$244 $271
$286 $292 $307
$322
$356 $359 $362 $366
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
North America Global
14
Global Spend of Training Industry1
2
Significant Global Distribution
15
Franklin Covey is taking advantage of this market opportunity by significantly growing its distribution through both Direct Offices and its International Licensee Partner network
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Direct Offices
International Licensee Partners
Not Assigned
Aggressively Growing Salesforce
16
We cover investment in a new client partner
within:1 Year
$200,000
$500,000
$800,000
$1,100,000
$1,300,000
$0
$300,000
$600,000
$900,000
$1,200,000
$1,500,000
Year 1 Year 2 Year 3 Year 4 Year 5
NUMBER OF CLIENT PARTNERS CLIENT PARTNER RAMP*
*See Client Partner ramp definition in Appendix.
120133
169180
204218 214
245
0
75
150
225
300
FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18 FY'19
21 languages
Desirable delivery
modalities
Implementation
services
Coaching and
delivery services
Best solutions for
institutionalized
behavioral change
17
Digital – On-Demand:
◼ On demand digital content
Microlearning:
◼ Hour long training courses
Live – In-Person:
◼ Conference room training sessions
Live – Virtual:
◼ Video conferencing with instructor
Continued Content Expansion – High Quality Content Across Modalities
3
Unprecedented thought leaderships with industry leading research and exclusive content
Continued Emphasis on Expansion
Access to Franklin Covey’s entire collection of best-in-class content
Incredible flexibility through an almost limitless combination of delivery modalities
Accessed globally in 21 major languages
Includes an implementation specialist and a variety of add-on services to drive impact
All at a price that is equivalent to what is provided by single-modality providers
18
4
Financial Overview
Note: Adjusted EBITDA and Operating SG&A are non-GAAP financial measure; please see Appendix for additional information. Amounts may not total due to rounding.
20
FranklinCovey – Financial Summary(in millions and unaudited)
Q1FY20 Q1FY19 Chg % LTM Q1FY20 LTM Q1FY19 Chg %
Sales 58.6 53.8 4.8 8.9% 230.1 215.7 14.5 6.7%
Cost of Sales 16.6 17.0 (0.5) -2.7% 65.6 63.5 2.1 3.4%
Gross Profit 42.0 36.8 5.2 14.3% 164.6 152.2 12.4 8.1%
Gross Profit % 71.7% 68.3% 337 bps 71.5% 70.6% 93 bps
Operating SG&A 37.1 33.6 3.5 10.3% 142.2 137.8 4.4 3.2%
Operating SG&A % 63.2% 62.4% -80 bps 61.8% 63.9% 211 bps
Adjusted EBITDA 5.0 3.2 1.8 56.5% 22.4 14.4 8.0 55.1%
21
FranklinCovey – High Flow-Through of Revenue Growth(in millions and unaudited)
Note: Adjusted EBITDA and Operating SG&A are non-GAAP financial measure; please see Appendix for additional information. Amounts may not total due to rounding.
22
Enterprise Division – Financial Summary(in millions and unaudited)
Q1FY20 Q1FY19 Chg % LTM Q1FY20 LTM Q1FY19 Chg %
Sales 45.8 42.1 3.7 8.7% 174.3 163.7 10.6 6.5%
Cost of Sales 11.3 12.2 (0.9) -7.5% 42.7 42.7 0.0 0.1%
Gross Profit 34.5 29.9 4.6 15.4% 131.6 121.0 10.5 8.7%
Gross Profit % 75.3% 71.0% 433 bps 75.5% 73.9% 156 bps
Operating SG&A 26.8 24.7 2.1 8.6% 103.6 101.2 2.3 2.3%
Operating SG&A % 58.4% 58.5% 7 bps 59.4% 61.8% 241 bps
Adjusted EBITDA 7.7 5.3 2.5 47.0% 28.0 19.8 8.2 41.4%
23
Enterprise – High Flow-Through of Revenue Growth(in millions and unaudited)
Note: Adjusted EBITDA and Operating SG&A are non-GAAP financial measure; please see Appendix for additional information. Amounts may not total due to rounding.
24
Education Division – Financial Summary(in millions and unaudited)
Q1FY20 Q1FY19 Chg % LTM Q1FY20 LTM Q1FY19 Chg %
Sales 11.1 10.3 0.7 7.1% 49.6 46.4 3.2 6.8%
Cost of Sales 4.4 4.0 0.5 11.9% 19.0 16.8 2.2 12.8%
Gross Profit 6.7 6.4 0.3 4.1% 30.6 29.6 1.0 3.4%
Gross Profit % 60.1% 61.8% -172 bps 61.7% 63.8% -202 bps
Operating SG&A 7.8 6.7 1.1 16.5% 27.9 26.3 1.6 6.0%
Operating SG&A % 70.0% 64.3% -567 bps 56.3% 56.7% 42 bps
Adjusted EBITDA (1.1) (0.3) (0.8) 316.1% 2.7 3.3 (0.6) -17.4%
25
Education – High Flow-Through of Revenue Growth(in millions and unaudited)
Capital AllocationWe expected to utilize excess cash to invest in new content, accelerate sales force growth and return capital to shareholders
26
Appendix
Note: Adjusted EBITDA and Operating SG&A are non-GAAP financial measures. USD in millions, except per share data.
Reconciliation of Net Income (Loss) to Adjusted EBITDA
28
November 30, November 30,
2019 2018
Reconciliation of net loss to Adjusted EBITDA:
Net loss (544)$ (1,357)$
Adjustments:
Interest expense, net 601 604
Income tax provision (benefit) (216) 100
Amortization 1,170 1,238
Depreciation 1,619 1,554
Stock-based compensation 1,851 946
Increase in contingent consideration liabilities 91 24
Knowledge Capital wind down costs 389 -
Licensee transition costs - 60
Adjusted EBITDA 4,961$ 3,169$
Adjusted EBITDA margin 8.5% 5.9%
Quarter Ended
Definitions
▪ “Deferred Revenue” primarily consists of billings or payments received in advance of revenue recognition from subscription services and is recognized as the
revenue recognition criteria are met. The Company generally invoices customers in annual installments upon execution of a contract. The deferred revenue
balance is influenced by several factors, including seasonality, the compounding effects of renewals, contract duration, invoice timing and contract size. When
Management refers to Deferred Revenue or the change in Deferred Revenue it is primarily referring to the subscription related portion and not the customer
deposits and other portions
▪ “Unbilled Deferred Revenue” is an operational measure that represents future billings under our non-cancelable subscription agreements that have not been
invoiced and, accordingly are not recorded in our recognized revenue or deferred revenue
▪ “Operating SG&A” is non-GAAP financial measure. It generally excludes stock-based compensation, changes to contingent earn-out liability and unusual or
one-time charges. See the Reconciliation of Net Income or Loss to Adjusted EBITDA in additional financial information
▪ “Contracted” is the sum of Invoiced Amounts plus the Change in Unbilled Deferred Revenue (not recorded on the balance sheet) and, as the term reflects
represents, the total amount of contracts with customers that were entered into during the period
▪ “Sales Flow-Through” is the year-over-year change in Adjusted EBITDA divided by the year-over-year change in sales
▪ Constant Currency: Franklin Covey presents constant currency information to provide a framework for assessing how our underlying business performed
excluding the effect of foreign currency rate fluctuations. There are several approaches that an entity can take to calculate constant currency information and
Franklin Covey’s method may not be consistent with another entity’s constant currency calculation. To calculate this measure, Franklin Covey converts the
actual monthly results of our foreign operations, including the results of our International Licenses, into $USD at the respective prior year monthly exchange
rate. The non-GAAP measure should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with
generally accepted accounting principles (GAAP)
29
Definitions
▪ “Adjusted EBITDA” (earnings before interest, income taxes, depreciation, amortization, stock-based compensation, and certain other items) is a non-GAAP
financial measure that the Company believes is useful to investors in evaluating its results. A reconciliation of “Adjusted EBITDA,” to consolidated net income
(loss), the most comparable GAAP financial measure is provided within this presentation. The Company references this non-GAAP financial measure in its
decision making because it provides supplemental information that facilitates consistent internal comparisons to the historical operating performance of prior
periods and the Company believes it provides investors with greater transparency to evaluate operational activities and financial results. We are unable to
provide a reconciliation of forward-looking estimates of non-GAAP Adjusted EBITDA to GAAP measures because certain information needed to make a
reasonable forward-looking estimate is difficult to estimate and dependent on future events which may be uncertain or out of our control, including the amount
of AAP contracts invoiced, the number of AAP contracts that are renewed, necessary costs to deliver our offerings such as unanticipated content development
costs, and other potential variables. Accordingly, a reconciliation is not available without unreasonable effort
▪ “Invoiced” is the sum of reported Net Sales plus the change in Deferred Revenue reported on the balance sheet (a portion of which is recorded as a currant
liability and a portion as a long-term liability and represents the amount of billings during the period). We typically invoice our customers annually upon
execution of the contract or subscription renewals. Our clients frequently prepay for products and services, which prepayment is included in amounts invoiced
and corresponding Deferred Revenue
▪ Client Partner Ramp is the expected amount of invoiced amounts the Company expects its client partners to generate based upon the length of time the client
partner has been in a sales role. This metric measures client partners who are currently employed by the Company and does not subtract any accounts that
are transitioned to a client partner from a previous client partner
30