Hello and welcome to the Third Quarter 2020 Franklin Covey Earnings Conference Call. My name is Michelle, and I will be the operator for today's conference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to the Corporate Controller, Derek Hatch. Sir, you may begin.

Thanks Michelle. On behalf of Franklin Covey, I would like to welcome everyone to our conference call this afternoon to discuss our third quarter fiscal 2020 results. Before we get started, I would like to remind everyone that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon management's current expectations and are subject to various risks and uncertainties, including, but not limited to, the ability of the Company to stabilize and grow revenues, the duration and the intensity of the COVID-19 pandemic and the corresponding recovery from the pandemic, the acceptance of and renewal rates for the All Access Pass, the ability of the Company to hire sales professionals, general economic conditions, competition in the Company's targeted marketplace, market acceptance of new products or services and marketing strategies, changes in the Company's market share, changes in the size of the overall market for the Company's products, changes in the training and spending policies of the Company's clients and other factors identified and discussed in the Company's most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission, many of these conditions including the effects of the COVID-19 pandemic are beyond our control or influence, any one of which may cause future results to differ materially from the Company's current expectations, and there can be no assurance the Company's actual future performance will meet management's expectations. These forward-looking statements are based on management's current expectations, and we undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of today's presentation except as required by law. With that out of the way, we'd like to turn the time over to Mr. Bob Whitman, our Chairman and Chief Executive Officer. Bob?

Good, Derek. Thanks so much. Thanks to everyone for joining us today. We are really happy to have a chance to talk with you. Hope each of you is doing well and that each of you is well. Obviously, the 90 or so days since we last reported have been some of the most noteworthy in recent history, both nationally and globally, and then for many of us who have been through a lot in the past, none of us has lived through a time quite like this. As a result, all of us whether individuals, schools, or companies, are dealing with uncertainties we have never faced before. Despite these challenges, however, we are grateful actually that our rate of progress has strengthened as we will talk about today that many areas have been actually quite a lot – a bit stronger than we might have guessed, and we believe this reflects our compelling strategy, our strong operations, and in some cases the relative firming up of the snow that we talked about in the last call in a number of areas. As we will address later, the rate of our progress leads us to expect that we will resume being a very high EBITDA growth, high cash flow growth company as we have been in the past quarters as we move beyond this period. I would like to jump right in and start out by reviewing our results for the third quarter. Just as a context, we entered fiscal 2020 with strong momentum having seen revenue grow $15.6 million or 7.5% in 2019, and having seen adjusted EBITDA increase $8.7 million or 73%. We expected this momentum to continue. It’s being driven by the things that we knew it should be driven by and even accelerate in 2020. As…

Thanks, Bob and good afternoon, everyone. The third important takeaway that I want to talk about is that the strength and durability of our subscription business really does have deep operational and strategic roots. There are three areas in which it's rooted. First is the importance of the challenges that we help clients address and the strength of our solutions in addressing them. Second, being the flexibility and accessibility of our offerings across a wide range of modalities. And the third, the strength of our business model. As you're familiar, five years ago, we made the decision to move to a subscription model because we believed it would be the best way for us to fulfill our mission and to serve and build the lifetime value of our client. We felt that if we made the move, not only would we be better, a better and more strategic partner to our clients, we would also create a more profitable enduring and high growth business. And while we've enjoyed high subscriber satisfaction and renewal rates from the beginning, some have asked how resilient we thought our subscription business would be in a downturn. And as you know, we've had a front row seat watching the answer to that question play out over the past few months. And we are very encouraged as Bob mentioned about how resilient our All Access Pass and Leader in Me subscription businesses have been even in the middle of this pandemic. I just like to talk for a minute about why this resiliency, why in the middle of this current storm did the Enterprise Division contract nearly the same amount of new logo sales, achieved more than 80% revenue retention and have even more clients entering the multiyear contract than in last year's third quarter, and…

Thanks Paul very much. I'd like to turn the call over to Steve Young now just to address kind of what our general view of the immediate and longer-term future looks like from our vantage point, Steve?

Thank you, Bob and Paul. So our fourth point in this presentation is that we expect to emerge from this period and resume our march up the mountain of being a company with high rates of growth in adjusted EBITDA and cash flow as we've talked about. In April, as you remember, we felt that circumstances were so uncertain, and there were so many questions that we couldn't answer, that we couldn't with confidence, give guidance for the quarter or the year. We also at that time said that we hope to have a better sense of where things were heading by this time, by the time we report this quarter. We still don't know what will happen in the world in the coming months and year where the world was shutdown again, et cetera, et cetera. And there's still much uncertainty about our expectations going forward recognizing the disruptions that may still be caused by COVID-19. Therefore, what we're about to say is not guidance per se, and includes many assumptions. That said if the same trends that we're seeing in our business and what Bob and Paul have talked about already today, if those trends continue, then in our fourth quarter, we would expect adjusted EBITDA to be in the range of approximately $4 million. This number reflects our belief that the Enterprise Divisions All Access Pass subscription business will continue to do well on revenue retention and new pass sales. But that due to subscription accounting, most of that contracted and invoiced revenue will not benefit the fourth quarter, but will be placed on the balance sheet of deferred revenue to be recognized over time. This estimate also assumes that the Leader in Me membership renewals will be relatively strong. But like All Access Pass subscription revenue,…

Thanks. We will now get ready to turn the time over to questions, but I just say in conclusion that I want to really express admiration and appreciation, first to the all of the Franklin Covey associates. In the middle of the storm, they're making more sales calls albeit Live-Online than ever before. Our implementation specialists are spending more hours. Our consultants have all refined their skills and they're teaching or facilitating huge numbers of engagement every week. They've done it with tremendous excellence. Our technology and marketing and product teams have supported this. Our Jhana team with the weekly micro push learning has been able to adjust on the dime and keep relevant topics at front and center. We have launched new offerings and are about to launch some new that are really relevant, including the unconscious bias offering that we launched a year or so ago. This is accelerating with the new best – what we expect to be a bestselling book based on preorders. Liz Wisemans, multipliers and say we're in a position where relative to customers, they're in a time, in a position where many of them were looking to have fewer suppliers and getting more value from those who they do partner with. And we think we're in a good position for that. We also appreciate each of you and recognize that we all, I mean, really, if we're able to accomplish what we're talking about now, the net present value of the change impacted by this compared to where we were six months ago, when we purchased stock at $36 a share and thinking it was worth more than that. Really the net present value in our minds is a few dollars less, but it hasn't fundamentally changed this. In April, if I had thought we'd be in a position to be saying this today, I would have been thrilled. We are still recognizing its difficult circumstance, but I just want to thank everybody for putting us in this position. With that, let's open it for questions.

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question in the queue comes from Andrew Nicholas with William Blair. Please proceed.

Hi, Andrew. Good afternoon.

Hi, good afternoon. First question, I just want to make sure I understood your comments correctly. I think you said you estimate maybe about $20 million of what was previously estimated to be $30 million in revenue tied to on-site training, coaching days, that sort of thing was postponed in the quarter. I just want to make sure that I understood that correctly. And then relatedly, if you could give any color on how you'd expect that $20 million or so of revenue to kind of flow in through the next several quarters?

So first of all, Andrew, yes, that was right. If you look at $56 million that we did last – in last year's third quarter and subtract, say the $22 million of subscription revenue that we had this year that leaves you with a little over $30 million of revenue that's not related to subscription, which was subject to being impacted because it related to, in one form or another to online coaching or delivery except for that small portion that didn't. So if you net down the portion, it was already going to be Live-Online that brings it down to about $30 million. And once – at the time in April, there were some – some people were still in the office – their offices, others expected they'd be back in their offices, but essentially all of that, that $20 million just had to get moved. That included both what was on the books and what was already within the pipeline about to go on the books. In terms of the positioning of that, we don't know exactly the percentage that will be kept. We believe about 70% of those engagements will actually still be -- because they were tied to something important that the organization is going to try to get done, will ultimately come in, will lose the difference that won't – I mean, we may pick it up on new booking pace, but it won't be those same engagements being rescheduled. The majority of that has already been rescheduled and the rest of that is -- we're working to reschedule. And so, I think we'll end up with – of that $20 million, we’ll end up with, say $14 million of that, that ultimately will come in, in the combination of probably some in the fourth quarter and the rest in the first quarter. Paul, I don't know if you want to add any other insight to that?

I think that's good, Bob. I don't have anything else to add.

And some of it relates to Sean in Education also where normally it would all happen in the summer, but with all the disruption, Sean, some of that will now be in the first quarter.

Yes. Some will be – there are some that's been rescheduled in the fourth quarter. Some that's been rescheduled in the first and a little bit into the second, and some that hasn't is still floating, and they're still trying to decide based upon school opening times.

Got it. Makes sense. Thank you.

Thank you.

And then maybe bigger picture, how do you think the current environment has maybe permanently affected clients' preference between consuming content virtually as compared to on-site? And then tied up with that, is there any way that we should think about the difference in revenue and profitability between in-person and online delivery method?

Sure. Thanks. Paul, do you want to address that?

Sure. In terms of the permanency and maybe overall, I think things have shifted for sure, and some of it will go back, but I think the amount that goes back, it won't get back to where it was. So, I think we'll see virtual delivery, what we call Live-Online delivery will be something that will be here to stay. One of the things that we're seeing right now, and as Bob mentioned earlier in his remarks that we've had the capability to deliver that way for more than a decade, but client appetite and the interest in that just wasn't there. If push came to shove, they'd rather just do it the way they've always done it, which is live in-person on-site. And that was one of the things, frankly, that plagued us a bit in March, April early May, is that our clients were thinking. Well, if all things are equal, we'll just wait until this pandemic’s gone and we'll get back together in the summer or early fall. And as that's looking maybe less likely, they're now coming back saying, “Hey, we don't want to delay these important initiatives, so let's really take a look at doing them Live-Online.” And I think what they'll see is that that's a very effective way. For us, the net promoter scores, as we mentioned are equally high, actually slightly higher when we deliver Live-Online. And so I think we'll see more and more of our clients even post-pandemic when we're all hopefully back in our offices, going about our normal business that clients will prefer that. In terms of if that happens and as that happens, that doesn't negatively impact us at all. In fact, our revenue and margins are just as good on that business. It's actually a real…

Yes, Paul, if I could add, this is Sean. Just similar on the Education side, I think there's going to be a significant shift in continuing once we get back to normal in doing a lot more Live-Online and on-demand training. The Education space was not as advanced as the Enterprise space and the use of technology. And so it's been a big comeuppance for them. And there's been a lot of shifting, a lot of investment in the technology. And so I think on a – net-net, I think it's going to be a real positive thing for us because we deliver 5,000 coaching days a year. A lot of these I think will go Live-Online. It's less wear and tear on our people. We get the scores, are just as high, and there's a lot less travel. And Leader in Me membership travels included. So this would be a savings for us, not to have to travel. So I think it's going to be a significant shift in Education, and it be to. I think it will be a helpful thing for us and our clients.

Great. Thank you very much.

Great. Thanks, Andrew. Just one note that our margins would increase a little bit because we build through to the clients is travel revenue at – our reported margin. It doesn't change the dollars. The reported margins would be affected positively a little bit because we get no margin on the travel revenue, but otherwise it should be the same.

Got it. Thanks.

Thanks so much.

Okay. And the next question in the queue comes from Jeff Martin with ROTH Capital Partners. Your line is open.

Hi, Jeff.

Good afternoon, guys. Hope you are all doing safe and well.

Yes. I hope you are as well.

Fine, thank you. I wanted to get a sense for me, Bob, what the impact on add-on services to the All Access Pass subscriptions impact has been? Have you seen that be weighed on like the live events have been impacted?

Yes. A good chunk of what got moved out of the third quarter was actually add-on services for – related to All Access Pass engagements just because, again, a lot of times they'll invite, they want somebody on-site to facilitate a major initiative with their senior leaders or whatever it is. What's happened, I think though is that, you always thought you couldn't do stuff Live-Online. Now a lot of that shifted. We hardly ever did any execution engagements, for example, big execution initiatives Live-Online and we're now doing those daily, and they are recognizing well, this is actually – it can happen just fine. But I think it had the same short-term impact, but again because the service revenue that's attached to All Access Pass historically on the same-store basis, so to speak, same-client basis, we were retaining a 100% of the – almost a 100% of the service revenue every year, that's been dented this quarter. But as we're now rebooking, a significant portion of what we're rebooking is actually add-on services for All Access Pass that being done Live-Online. I don’t know, Paul, if you want to add anything to that?

I think that's exactly right, Bob.

Okay. And then with respect to the scheduling, I'm curious to know a little bit of the transgression throughout the quarter. Were you doing any rescheduling of in-person live events where you had to subsequently rebook them as online events? Just curious to know how that transpired?

Paul and Sean, do you want to address?

Sure. I'll tell take enterprise. So yes, initially, as we mentioned, we entered the quarter with about 34% more engagements on the books than we had a year ago. Vast majority of those were all live in-person at the client location and those all needed to be rescheduled. And there were a few clients early on who were saying, let's go ahead and reschedule into Q4. And they went back on the books as live on-site at the client location. But we in earnest started to try to work with each client to say, why don't we just do this Live-Online? And so that's – so there are some that have gone out on the books in the later Q4 and into Q1 that are just the clients. So let's just pause and we'll do it live on-site, but the vast majority are back on the books now is actually Live-Online. And the mode we've adopted is to try – is to say to the clients, let's get them scheduled that way. And then if conditions are such that we can come on-site and you want that at the time, that's an easy change for us to make. So that we don't go through another raft of cancellations because we have all these live on-site days on the books that if COVID stays like it might for a while longer. So we don't want to relive that experience again. So the vast majority that are out there are Live-Online now.

Yes, Jeff. This is Sean. And in our world, it's about two-thirds of the days that our book going forward are Live-Online. It was more than that. And now live is starting to pick up in certain pockets, certain states and some districts. We expect that to continue in that direction. And as I shared before, the majority of these days were rebooked in the fourth quarter, some went into the first and some are still pending decisions from the schools and the districts.

Okay. And then for the same project Live versus Live-Online, is it the same arrangement in terms of terms and revenue and margin impact? Or are there any differences?

It's the same – it's essentially the same arrangement. The client signs a contract. It's got the same cancellation terms to it. There's a slight difference. They can book it to be a day or they can do segments over the day, but once we're done delivering the engagement, whether it was a day of time or segments over a couple of days, it's the same revenue and profitability to us as a company. I mean, so as a client, your experience is slightly different, but the economics are the same for us.

Great. Thanks. That's all for me.

Thanks, Jeff.

Thank you. And the next question in the queue comes from Marco Rodriguez with Stonegate Capital. Your line is open. Please proceed.

Hi. Good afternoon, guys. Thank you.

Hi, Marco.

Hey, thank you for taking my questions.

Thank you.

Wondering if maybe you could talk a little bit more about the pipeline. You guys kind of highlighted that your backup to where your bookings and your pipeline was I think at this time of last year. Can you maybe talk about what you're seeing inside that pipeline? Is there any sort of pressure from a pricing aspect or different types of terms that are necessary to basically incent some of the customers?

Paul, do you want to address that?

Sure. So as we showed in that chart earlier on – I can’t remember the slide number now, it's probably around 15 or so. But what we're seeing right now, that the actual pipeline for Q4, the overall pipeline is not as full as it was at this point in Q4 last year because we went through Q3 and not as much was going in. What we're showing in that slide is that beginning in about May, the amount that was now moving in though to the advanced stages of the pipeline is actually started to pace even with and is now ahead of what it was last year. So if you take out the fact that there was less that went into the Q4 pipeline during Q3, however, starting in about mid-May and continuing all the way through June and July, the rate that's now going in and advancing is greater than it was last year. So that's one of the – we won't have sailed as high in Q4 this year as we had in Q4 last year for that reason. But what's encouraging is that it seems like now, and starting in May, as our sales people out there working with clients, the clients are moving decisions again more quickly than they were in March and April and things are moving into that advanced stage in closing, actually for us at a little bit of a surprising rate. To the second point of your question, we're not having to discount really much, and certainly not any more than we have historically as we get into a unique client situation depending on the deal. There are some situations where we're choosing to extend some terms. We've categorized all of our clients into kind of those that are in…

Thanks. That's very helpful. Then in regards to the client partners, can you maybe update us on the hiring plans for the remainder of this year and then possibly into next? And if you could also maybe just talk a little bit about the fact that obviously everyone's going through these social distancing efforts? I mean have you had to change your hiring practices and if so kind of walk us through how that's working?

Sure. Bob, do you want me to take that one?

Sure.

Yes. So yes, right now, we're at 252 client partners. And actually, we're up 25 from where we were in Q3 last year. So we've had a meaningful addition over the past year and that's having not made any hires during Q3 this quarter that just ended. And we chose to pause our hiring in Q3, Q4, and actually we're going to continue to keep it paused into the first quarter of this next year. For one simple reason, and that is that it's – we want to give these people that join us every advantage they can, and this is a difficult environment to get started in. And so our plan right now is that we'll resume – we're recruiting, but we'll resume really recruiting in earnest in the fall, and we'll prepare to have our next big crop of client partners start-up and go through our sales academy, kind of our sales school in early January. And then we'll be back to our normal cadence where quarterly we're bringing in a good cohort of client partners in Q2, Q3, Q4, next year, and get back on that pace of adding roughly net 30 client partners a year. So we have paused it just primarily for that reason to give people the best chance they can. In terms of social distancing, I was just – sorry, remember, is your question is also distancing on what that looks like from a salesperson with their clients or inside our own company. Can you just restate that again?

Yes. Just from the hiring aspects, I mean, I would assume that most – at least prior to the hiring was all face to face meet and greet if you will, so how that's sort of changing?

Okay. Yes. Great question. So yes, we've have hired a few people during this period and when we do it, we're on like you, we’re on Zoom at 13 hours a day. And so that has all moved to that environment. And we've actually had a few replacements, interestingly enough right now. This is a time for us to be. We're somewhat aggressive on the recruiting side at the moment because a number of our traditional competitors are not fairing as well as we are. We don't wish them ill at all, but that's just kind of a statement of fact. And so there's a number of people interested in joining Franklin Covey and we have replaced where we've had a book of business that we felt really could help somebody needed to tend to right away even in this environment. And so we've done all that virtually and we've actually adapted our sales school process and done that completely virtually as well. And it's working really well. In fact, it's informing some changes we think we'll make to that sales school when we resume it again in January in earnest. We think there's some things that we'll do more Live-Online that will be beneficial.

Got it. And then last question for me. Just circling back here on Leader in Me. Just kind of help us think through and wondering about that program and its benefits to a school or a school system if students aren't actually in the classroom?

Yes, sure. Well, we think and we're positioning it this way that it's more beneficial than ever before. We have a lot of digital materials and tools, for example, their leadership guides for all the students at different age groups, right. And these can all be, for example, teachers could give assignments, they could do the leadership guides online digitally. A lot of schools are wanting to buy physical materials and have them complete them at home as well. That can be done that way. We also have a lot of digital tools for parents to support students at home. So everything we have that’s been in a live setting is now available in Live-Online or in on-demand digitally, so all the materials are really in a good spot to do that. We also feel that one of the key things we teach in Leader in Me is we empower students to lead their own learning. That's really one of the core paradigms that we have in Leader in Me. So we feel that that will be advantageous at a time like this, where we're going to be working with schools to say, here are some ways in which you can further empower students at home to take responsibility for their own learning. And so that's going to be a big benefit as well. We've got this tool called Leader in Me Weekly, which is a micro push tool and it has tips and suggestions. Every week, we're coming out with new ideas on how to virtually implement a Leader in Me for teachers, for parents, for students at home. And the entire focus of that team has gone to virtual implementation. And so every week, we've got these bite-sized videos, applications, suggestions, best case examples, et cetera, that are coming to the schools. So anyway, I don't know if that answers your question, but that's – we think we're in a good position to do this well.

Got it. Thanks. Very helpful. Thank you guys.

Thanks Marco. Appreciate you.

Okay. And the next question in the queue comes from Samir Patel with Askeladden Capital. Your line is open. Please proceed.

Hi there.

Hi, Samir.

Hey, so first question is for Paul. Your Slides 8 and 9 or 9 and 10, I guess it is where you're talking about the bookings and the pipeline. Just to be clear when you're talking about those bookings that's not including the rescheduling of previous on-site days, right. You're talking about actual new business. Am I understanding that correctly?

Yes. This is new business. There might be a few reschedules in there, depending on the client. The client may have canceled the previous engagement and now they're booking something different with us. But it's primarily…

Okay. But it's not – but that's not wholesale. This isn't counting like the stuff where you had stuff in Q3 and you went back to the client and said, okay, we'll do it in Q4 instead?

That's right.

Okay. I just want to make sure I understood that. Thanks. And Bob, I guess a higher-level question is, and you brought up the share repurchase and when I'm looking at where the stock prices were, when I'm looking at kind of the things you're saying about the ability to take even more share from competitors with regards to having a great online solution already with regards to the breadth and depth of content and the modalities. I mean, how do you guys think about capital allocation going forward, right? I mean, do you invest more in share repurchases? Do you actually kind of coming out of this accelerate your ramp up of new client partners to continue to take share? I mean, just talk through that side of things a little bit. I think you did a great job discussing the operational side, but I'd be interested in sort of the investment side of things.

Yes. Thanks. First of all, we're grateful that we have cash. We reported we had drawn on our credit line just out of the – early on, with $15 million. And therefore, we kind of had around $38 million of cash in April, and we still have approximately that amount today. We have a new bank credit agreement that we entered into yesterday and that will give us plenty of – we'll end up repaying our – not paying interest on the extra $15 million we don't need because we can draw at anytime, but we need it. So we think we'll have plenty of capital. For us, the investments will be – we tend to use capital during three quarters of the year just for working capital, and so as we believe that sales will start to ramp back up and we'll need some of that for working capital. But beyond that, I think you've noted that we have a brand new offering coming out here in July. The Multipliers content from Liz Wiseman that's been coming on for several years. That's in the queue. We have significant investments we're making on the technology side, not because of this circumstance, but we're obviously continuing to do that and the portal investments. We're hiring sales people. We've gotten – as Paul mentioned, there are – even though the big just recruitment hires will be in January – to start in January is what we're thinking. We are picking up people opportunistically, and we think there are going to be some good opportunities to gain some additional content and tools and things from people who just are not able to scale in this environment. They may have thought they can work their way through. So I think in the intermediate term, we're going to preserve cash, but we'll make those kinds of investments. Otherwise, we'll be preserving cash to make sure that we are – whatever the opportunities look like in the future or whatever the uncertainties are that we'll be able to continue to plow ahead, and we've been able to keep all of our people busy and employed throughout this time.

Understood. And on the content side, I mean, you guys mentioned for example, diversity, and then some of your clients shifting to having to have that remote work environment. I mean has that impacted your new content development in the sense of are you focusing more on maybe some of those areas that your clients are valuing right now?

We already thankfully had, and so no.

Okay.

I mean beyond – there are two things that I'd say that we've doubled down on. One is, on Jhana. We're working on some enhancements to Jhana that will connect the weekly newsletter to all of our digital libraries, et cetera. It was always the plan, and that might be a thing that we're accelerating because of this. The other thing that we did accelerate, we spent a little money on, is saying, gosh, with all of our great consultants and Live-Online now being the thing, and us being good at it, really good at it, we're going to – we've made some not – I mean, hundreds of thousand of dollars investments and making sure we have professional backgrounds, the right power in their laptops, et cetera. But otherwise, I think we always have a technology math, and this has just reinforced our commitment to something we – already was in our three-year plans.

Got it. Thanks. Appreciate it.

Thanks, Samir.

And we do have one last question in the queue from Zach Cummins and he is with B. Riley. Your line is open. Please proceed.

Zach, how are you?

Yes, great Bob. How are you?

Great. Thanks.

Yes, I guess just in the Education segment, with retention rate expected to be around 80% for the end of the year, I was just curious, are – the lost clients, are they completely going away? Or could we see some of these renewals just being pushed and completed in the early part of FY 2021?

Great question. Sean, do you want to address from your perspective?

Sure. Yes, I think that the lost clients are – many of them are reclaimable. We're really pleased that we're going to come in over 80%. Many of them that aren't are saying, we love you guys. We're not sure what's going to happen with our budgets or when we're going to start up or how we're going to start up. And so can we push pause? So we've kind of – we’ve developed a little package of pause. We're not counting anything, but we're not pushing them outside of the community either. So we've got a big group of schools in that bucket. So that's the primary thing we're seeing. It’s just the – many of these schools just have this uncertainty and volatility. It's changing week to week, right? Not sure if they're going to open and then it's going to be kind of a tiered schedule. You're going to come every other day or part of the day. And they're dealing with so much of those that – so many of those things, including things like bussing, how they're going to handle bussing that a lot of them have just said, you know what, we really like this. We're in this for the long haul. And we want to push pause or wait until the first quarter. So I expect that this year's renewal rate after factoring in next – the first quarter, will be very comparable to the 88% that we've been at historically, give or take a couple of percentage points.

Got it. That's really helpful. And then just one question for Steve. I really appreciate, I guess, the general, direction-ary expectations for both the longer term in terms of FY 2021 and FY 2022. I guess for those adjusted EBITDA targets that you laid out there today, how should we be thinking about the revenue line? I know your prior adjusted EBITDA targets we're assuming kind of a high single-digit growth. So I was just kind of curious as to how you're thinking about revenues in order to achieve those adjusted EBITDA targets.

Well, Zach, we haven't prepared exact forecast if you will related to revenue. But as you know, when there's a recession or pandemic impact and revenue goes down, then you normally accelerate that at a higher rate of growth than what is normal or typical. So we would expect, for example, Q3 of next year to be more than 8% or 9% revenue increase compared to Q3 this year or Q4. But then when we get back to comparing to 2019 and 2021, 2022, where we're growing EBITDA at about that $10 million range clip, then that would be based upon an organic growth rate still of around that high single-digit growth would be able to create that type of a flow through to adjusted EBITDA and cash.

Got it. That's helpful. I appreciate that. Well, thank you.

Zach, sorry, just one other thought on – sorry, Zach. I think you were just saying…

No, no. Go ahead.

One other thought is that if you just think of the EBITDA target and then assume that that's going to be as a business model and EBITDA margin that will be increasing by 300 basis points a year. You'd say, we'll find by the time you hit to $30 million, we would have thought this year, the $30 million reported would be on somewhere around 245. So it would have been about 12% EBITDA margins increasing by 300 basis points a year, if that's helpful. So you can kind of back into the revenue from the EBITDA, but that's probably about what it would relate to by the time we get to 2022 at $30 million of EBITDA. It’d probably be in the 14% or 15% EBITDA margin.

Got it. That's really helpful. Well, thanks for taking my questions and best of luck going forward.

Thanks so much, Zach.

Thank you.

We have no further questions at this time. So I will now turn the call over to Mr. Bob Whitman for closing remarks.

Thanks. Again just want to express our appreciation to each of you. You've been great partners for all these years. We hoped we've been great partners and we are very excited to continue the journey together, but look forward to answering any questions that you have individually. And thanks again for joining today. Stay safe and well. Thanks.

Thank you, ladies and gentlemen. This concludes today's teleconference. Thank you for participating. You may now disconnect.