Butler Hall urges Franklin Covey to initiate review of education division

A fund managed by Butler Hall Capital, which owns shares of Franklin Covey, has issued an open letter to FC‘s board of directors regarding opportunities to maximize shareholder value. The letter read, in part, “A fund managed by Butler Hall Capital is a shareholder of Franklin Covey Co. While we commend the Company for its successful transition to a subscription-based revenue model over the past several years, we have been disappointed with the total shareholder return. Despite growing subscription revenue by 86% and EBITDA by 133% from FY’19 to FY’23, the Company’s enterprise value is up approximately 2% as compared to a 53% and 25% return for the S&P Total Return Index and the Russell 2000 Total Return Index, respectively. Given the significant compression in FC’s valuation, as measured by both EV/EBITDA and P/FCF multiples, we believe now is the time for the Board to take the necessary steps to unlock shareholder value. We believe the Board should immediately implement the following actions: 1. Initiate a Strategic Review Focused on the Sale of the Education Division – We believe that the Education Division could be worth $200mm to a strategic acquirer, or nearly 40% of today’s market capitalization, despite making up less than 15% of pre-corporate overhead adjusted EBITDA. Moreover, a sale could trigger a material re-rating of the Company’s shares as FC becomes a pure play enterprise subscription business. 2. Announce a Significant Step-Up in its Share Repurchase Program and Communicate a Cohesive Long-Term Commitment to Return Cash to Shareholders – As it stands today, we believe FC can return nearly 40% of its current market cap to shareholders over the next two and a half years without any corporate divestitures, underpinned by the Company’s significant free cash flow generation and net cash on the balance sheet. Furthermore, we believe the Board should institute a more structured capital return program with the commitment to return 75% of future free cash flow to shareholders.”