Welcome to the Q1 2020 Franklin Covey Earnings Conference Call. My name is Cynthia and I will be your operator for today's call. 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 Derek Hatch. Derek, you may begin.

Thank you, Cynthia. Hello everyone and happy New Year. On behalf of Franklin Covey, we'd like to welcome you to our first quarter of fiscal 2020 conference call to discuss our earnings this day. Before we begin, we'd like to remind everybody 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 acceptance and renewal rates for the All Access Pass; the ability of the company to hire productive 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 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 our Chief Executive Officer, Mr. Bob Whitman.

Thanks, Derek. Good afternoon and Happy New Year. We hope all of you had a great holiday. We really appreciate you joining us today. We're really pleased to report that our strategic and financial momentum continued to be very strong in the first quarter. As you know our goals and expectation for fiscal 2020 and for years to come are really twofold. First, to continue to be the leader in what we view as the most strategically important and lucrative segments of the performance improvement industry. And second to consistently generate extremely high rates of growth in adjusted EBITDA and cash flow. Our first quarter and latest 12 months results were very strong actually on both of these objectives. Strategically, we had a significant number of large All Access Pass client wins and expansions in the first quarter. And as shown on slide 3, our All Access Pass, and related sales grew 22%. We retained more than 90% of our All Access Pass subscription revenue for the 16th straight quarter and a significant 32% of our All Access Passes are now multi-year passes, up from 22% at the end of last year's first quarter. Driven by this, we had very strong financial results in the quarter. Our revenue grew 8.9%. Our gross margin percent increased by 337 basis points to 71.7%. As a result our adjusted EBITDA increased 56.5% or $1.8 million to $5 million for the quarter and grew a similar percentage to 55% or $8 million for the latest 12 months, and actually a little faster $8.8 million for the latest 12 months in constant currency. These results have got us off to a strong start toward our expectation and guidance of increasing adjusted EBITDA from $20.6 million in 2019 to between $27 million and $32 million in…

Thanks, Bob. While our high flow-through of incremental revenue to incremental adjusted EBITDA and cash flow means that we can hit our targets for growing EBITDA, 30% to 40% compounded, even at just high-single digit revenue growth we have a number of opportunities we're working on for accelerating that growth into the future, And I'd like to share three of those here today. The first is to further penetrate the existing All Access Pass holding clients that we have. Bob shared a minute ago three examples of clients where they started out with an initial population of 200 to 300 users, and then in one case, have expanded now to 8,000, and another case expanded to 30,000 users. And important to note, even in those companies we still see expansion opportunity up and above those numbers. And that same opportunity that exists in those organizations exists across our entire All Access Pass client base today. To try to quantify that, obviously those are big numbers, but if we did that just even a modest amount, across our current All Access Pass holding base there is 5x or more the All Access Pass fee potential inside our client base. And we know that those examples, that's a lot bigger growth than 5x, going from to 200 or 300 to 8,000 or even 30,000. So lots of headroom there. The way that we do that is the moment a client becomes an All Access Pass holder they are assigned an implementation specialist. And that implementation specialist, along with our client partner are in their immediately and engage with the client formally, at least quarterly and it's very much a land and expand model for us. We make sure that we're doing a good job with the first job they hired us to…

Thank you so much, Paul. Now I would like to have Steve Young to address topic four, how we plan to use the excess cash we expect to generate over the next three years and also review our guidance.

Okay. Thanks, Bob. Good afternoon, everyone. And happy New Year from me also. As Bob mentioned over the next three years, we do expect to generate a very significant amount of excess cash. We expect to utilize this cash to create additional shareholder value in at least two primary ways. First, by continuing to make value creating investments in the company. The large amount of excess cash flow we expect to generate in the coming three years is already after allocating large amounts for innovations and new content and continuing to make ongoing investments in technology and portal capabilities. So as we've always said, we intend to run the business in a way that it can grow. In addition to our investments in new content, and what we've talked about, from time to time there may be opportunities to invest in tuck-in acquisitions, such as our acquisition of Jhana that can add new capabilities that will add value to our pass holder customers. We would, of course, expect to earn high rates of return on these types of investments. So the second thing, we plan to do is by continuing to return capital to our shareholders. As you know, Franklin Covey has a history of returning capital to our shareholders. As you can see on slide 24, over the years we have invested more than $150 million in stock repurchases and retired more than 11 million shares. Last month, we repurchased an additional 13.8 million of stock, bringing our total investment over these years in stock repurchases to greater -- to more than $167 million at a weighted average purchase price of $13.86 per share. So the return on these stock repurchases has been very attractive to our shareholders. The expected trajectory of our growth in net cash generated in coming years, that we've talked about, makes it attractive we believe under almost any discounted cash flow analysis to continue to opportunistically repurchase shares. So we believe we can still increase the value of the company and the value of the shareholders. So our guidance, we expect net sales to grow as we've talked about at a rate of high single digits in fiscal 2020, and expect that a significant portion of these sales increases will flow through to increases in adjusted EBITDA. Our fiscal 2020 guidance remains therefore that in constant currency, adjusted EBITDA will increase from $20.6 million last year to a range of $27 million to $32 million this year. And if we are in that range of course represents really strong growth in adjusted EBITDA growth that we've talked about between 31% and 55%. So now Q2, despite the investments that we're still making in sales, associates, new content et cetera, we expect adjusted EBITDA in Q2 to grow by approximately $1.5 million compared to last year, to approximately $2.5 million. Bob?

Thanks, Steve and Paul. So just in conclusion, we are pleased that our strong results in the trajectory of our expected results, pleased that our strong business model, which we expect to continue to generate very high rates of growth in adjusted EBITDA and cash flow, we feel good about the strong growing position in what we believe is the most attractive and lucrative part of the performance improvement market. And we believe that we have several great opportunities to further accelerate our revenue growth in the coming years while retaining high flow-through of this revenue and we expect to utilize excess cash to add shareholder value. So we appreciate your support and look forward to taking advantage of this tremendous growth ahead of us. Now I will turn the time over to you all for questions. So I ask our operator to open the line.

Thank you. We will now begin the question-answer session [Operator Instructions]. And our first question comes from Andrew Nicholas. You may begin.

Hi, everyone, good afternoon.

Hi Andrew. How are you?

Great, great. First question, I just kind of want to touch on gross margins a little bit, obviously a really strong quarter, up, I think 340 basis points compared to last year. You talked a bit about -- I was hoping you could flush out the primary drivers there a bit more, speak to whether or not there were any unique items in the quarter to call out, and then how we should think about gross margin progressing throughout the remainder of the year?

Great, thanks. I think there weren't any specific, you know, special one-time items. I think the primary thing at work here is the increasing mix of All Access Pass and related sales, and they just have very high gross margins. What we said is that over time we believe that from time to time, we'll have big jumps like this in a quarter, but in the longer term we expect the gross margin percentage will increase some each year, but it will edge up because the company -- on one hand, the positive thing that will be pulling it upward is the increasing mix of All Access Pass sales and the Leader in Me subscription sales, but we also believe that the strength of those offerings is really made more strategic by the addition of services. And so as services continue to get added to the subscription revenue, they are little bit lower margin. The combined margins will still really be good and will come -- will balance together. Also there could be some shift depending how we -- if we develop all the content ourselves, it's all capitalized in the development capitalized development cost. Sometimes we license content also. It has little different accounting treatment and they shift the mix between gross margin and SG&A. But I think long term we would think, as we've said in the past, we think that gross margins will edge up not by 100 of basis points a year or anything like that, but adding somewhere around maybe 100 basis points a year of gross margin for the foreseeable future and some quarters will be bigger than others, but that's the general trend.

Great, thank you. And then another one on tuck-in M&A, obviously one area of focus would be content, adding content, but just wondering if you could speak maybe a little bit more to the type of content that you'd be focused on. I know on slide 19 you touched a little bit on the technical skills, part of the pyramid where you haven't typically concentrated. Would it ever makes sense to be more aggressive there or is that outside of the strategic direction of where you are trying to serve clients?

Right, we first of all say that in terms of acquisitions, most content acquisitions because the thought leaders typically don't have a company, but they are thought leaders, they might be professors, they might be authors, often times acquiring the content occurs more in the -- it's less capital intensive, because really it's entering into a long-term license to acquire rights and then developing the courseware and content and technology delivery. And so we don't see significant opportunities for acquiring companies that have lots of content just because in our industry it's been a very highly fragmented business with lots of small operators that cannot -- they're just don’t - they're not really acquisition targets for content generally, more like with Liz Wiseman's content, licensing with Clayton Christensen in recent years, you have the ability to license the content. So the tuck-in acquisitions, we're talking about fit, for example Jhana gave us new capabilities, that gave an ability to deliver micro learning in a whole different delivery method with Jhana weekly in accessing this library of best-in-class articles and content that can be navigated by an individual user. And so I think it's probably -- those kinds of areas, to your point, strategically well, we have some technical capabilities in our content libraries there are plenty of people focused on that. It tends to be relatively undifferentiated and we think the world is going to be well served with probably another dozen people who come up with their own libraries of technical content, et cetera. So we think that part of the market will be well served and will give organizations plenty of options for rotating content among providers for us. We want to make sure that the eight or ten key jobs to be done, on which we're focused is critical, must win games that organizations have that we can get that content to them in unique and interesting ways that they can access. So it's that kind of thing, assessment engines different things like that it will probably be on our M&A targets to fill in capabilities more than content, if that's responsive.

Yes, thanks a lot.

Thanks very much.

And our next question comes from Jeff Martin. You may begin.

Thanks. Good afternoon guys.

Hi Jeff.

Hi Bob. How are you?

Great. How are you?

Good. You covered gross margin, but I was curious if we could go through the same mark for SG&A in terms of as a percentage of sales, what kind of trend per year. Last year, I believe it was close to 400 basis points improvement. I mean should we expect a couple of hundred basis points leverage on SG&A for the next several years?

I'll let Steve address that.

Hi, Jeff. So we do expect -- we do expect leverage in SG&A, obviously as a combination of reducing costs in some areas, having fixed costs that we're able to control and remain fixed or semi-fixed. And then also that would leave areas where SG&A will increase primarily for additional sales people and commissions paid to sales people, implementation specialists, content development and those types of things. But in general, not all that quality, but we talked about SG&A increasing at a rate maybe half the rate that sales increases. And a way to test if all this is working out is the targets that we -- that we talked about at the beginning of the presentation and that we've discussed. If you have revenue that's growing let's say 8% for discussion and the adjusted EBITDA is growing at the rates that are indicated on those targets, and most of that in our minds, you know Bob talked about gross margins increasing a little bit over time. Most of that leverage is coming from the reduced percentage of SG&A to sales. Was that responsive enough?

Sure. That's helpful. And then I wanted to say congratulations on the large client wins and expansions, that's really good to hear. Was just curious if there is anything different in the sales process or the delivery process that's helping that effort?

Paul, do you want to address it?

Sure. Hi, Jeff.

Hi, Paul.

I would say nothing substantially different. I think what's happening is we're now more than four years into this. And I would give our sales people and our sales leaders great props for how they've helped us transition this business and just every month that goes by, the sales people become more comfortable, we become better at positioning this. We are getting better at entering higher end organizations. We now truly can address these larger populations. And I think it's just the continued turns of the flywheel there on how we go to market. And then the markets receptivity to what we're doing. So nothing, nothing unusual or extraordinary, which is good I think.

Okay, great. And then last question on the international direct effort. Was just curious if you could give an update on some of the recent offices you've taken from a license model to a direct model how those are performing and what you see as their potential and if you see additional taking licensee markets and making those direct as well?

Sure, to last point, we are now, as I mentioned we're now direct in most of the -- well in the largest economies, the U.S., China, Japan, Germany, and the UK. And then of course we're direct in Canada and Australia. So I think we're not necessarily on a quest to convert licenses back to direct operations. There has been some opportunities that have come up and we did that, most recently in Germany, as you know, but that I think we feel good about the direct operations that we have and in the places where we have them. To the first question you asked, the transition of Germany has gone well. And that it was really Germany, Switzerland, and Austria is what we picked up when we converted when we say we converted Germany. Germany, of course being the biggest economy there. We're significantly growing the number of client partners in Germany. We run that now out of our UK operation, which has been growing nicely for the past few years. And so we see -- and that in Germany we're running the same play All Access Pass related, everything Bob talked about in the call here. And so for us it's the same strategy everywhere in the world. It's higher client partners, it's ramp them successfully. We sell All Access Pass everywhere, we land, we expand, and we're pleased with the momentum in international direct as well. We're just getting to China now. In Japan really this is kind of the year where we start, now that we're fully localized and have our portal up and running in China. So we expect to see continued momentum there as well.

Great, thanks for that Paul.

You bet, thanks Jeff.

Sorry. And our next question comes from Marco Rodriguez. You may begin.

Hi, Marco.

Hey Rob, how are you guys?

Great, thanks. Hope you are too?

Oh, great. Yes, I am. Thank you. Thanks obviously for taking my questions. I wanted to maybe start on the client partner side. Can you maybe describe or discuss what the sort of hiring landscape looks like for you guys as things sort of change, is there more competition for talent out there?

Sure. Hey, Marco I'll take that. This is Paul. So I talked a minute ago about our hiring process. So we feel great about it. We added a significant number of new client partners last year. We're adding -- we continue to add this year and as we've refined our profile of client partner -- we are really pleased with the client partners that we're able to attract in the Enterprise Division and Sean can speak to education as well. It is a good tight labor market out there. The economy is doing nicely and unemployment's low and I would say we are really pleased with the people we are able to attract. I think I think one of the biggest contributing factors to why we are able to attract, we are attracting today is we are growing and thriving as an organization and that's a compelling thing for somebody, especially somebody who's been in our industry. We've made investments that others have not made and that's paying off and people are attracted to us. And so we feel great about the candidates we're getting, we feel really good about what our team doing to ramp those folks and we feel great about the fact that these new classes of client partners the last couple of years are all at or above the expectations that we had for them in Enterprise. And Sean can comment on Ed.

Sure. Hi, Marco. On the Education front, we feel similar. It's really attractive time to get people right now. I think a lot of it is the education industry has being disrupted quite a bit and a lot of these big companies are just being shaken right now. And so we're picking up a lot of really good client partners from former companies like Pearson Education and so forth. So if I were to look at the last eight client partners we hired this year versus what we hired a year or two ago, I just think we're getting better quality people with more experience. We always try to hire people that have education experience, but they don't necessarily have to have -- they just need to have a good solid experience, but I feel really good about our processes and feel over the last many years we've improved every year our hiring capabilities.

Got it. And then in terms of the implementation specialist, they seem to have been doing a really good job here for you guys in terms of increasing the wallet share you have with your existing clients. I was wondering maybe if you can talk a little bit about them in terms of do you have the right numbers, the right heads and if you can talk a little bit about maybe their targets. Are they kind of hitting them, are there any things that they need to kind of work on to kind of accelerate that increase in wallet share?

This is Paul, I'll respond to that as well. So we do feel great about them and thanks for acknowledging them. They are doing a wonderful job. And what we do, we have the right -- we have a formula we add them formulaically and they are added as a percentage of All Access Pass sales. So we kind of have a model for how many clients and how much revenue and implementation specialist can work with and do a really good job with. And then as sales grow we add more and so it's a variable model in a way. And yet they are, they hitting their targets, their compensation. They're paid a base salary and then they have a variable compensation that's tied to logo retention and revenue growth inside that account. And so there -- to retain the logo they've got to ensure that we do a really good job serving the client around the thing they initially purchase the All Access Pass to accomplish and then the revenue growth of course comes as they develop more relationships. And I would say the client partner stays very involved as well. And so the two of them together develop additional relationships, look for additional population, and that then drives the other portion of their compensation is the expansion of revenue and the addition of add-on services. And they are a great team. you know a team we didn't even have four years ago and they're doing wonderful work.

Excellent. And last quick question. Maybe if you can talk a little bit about the international licensee, just kind of where they are in terms of their implementation of the All Access Pass in their sales cycle?

Sure. So they -- we are, so All Access Pass is now available in 21 languages, yeah 21 languages just continues to grow there. And so all of our licensee partners have been trained on it. They are selling it. We're quite pleased with how that business is building for them. Of course, they continue to pay us 15% of sales of their gross sales. But their businesses are also converting from what was our traditional legacy business to the All Access Pass, which helps them grow more rapidly and they see the kinds of growth that we're seeing here. We had one of our licensee partners lapse in Q1, near the end of the quarter. Closed a very, very large All Access Pass, in fact it is one of the biggest ones we had in the company. And it was just, it was really kind of a thrilling thing for that to come from one of our licensee partners. And so we're -- it's -- they're doing great, they're doing great. I think the important thing to note there is across the Enterprise division, we run the same strategy, the same play, the same recruiting profile, the same hiring processes, really everywhere in the world and it does not make much of a difference if any difference at all, whether it's a direct operation country or licensee country.

Perfect, just add to that, in many of these countries our local license partners and licenses happens to be the legal way we do business, we deal with them as direct [ph] partners. They really have tremendous stature in their countries. These are people who are well known in this learning and development space. They may have been senior leaders in organizations and just have a passion for this. And as a consequence, in many of these countries, they are really looked to as the person, the company where their organization for the individual is the one who is asked to speak on issues relating to leadership, who is interviewed on television, if there is a leadership issue in the country, whatever. And so we have a tremendous group of partners that have invested their own capital alongside us to build these operations. And so we feel really, really great about having this network that now outside approximately 10 countries in Central Africa and those under U.S. embargo, we really have a licensee network which operates, and at least has a footprint in essentially every country in the world.

Got it. Thanks a lot guys. Appreciate your time.

Thank you, Marco.

And our next question comes from Zach Cummins. You may begin.

Hi, Zach.

Hey Bob. How is it going and congrats on a strong start to the year. Just a question around the new client wins in this quarter, I guess, more of the question is really around, is how are you getting into the door at new customers to begin with. And is it typically the displacement of an existing vendor is how you get into the door or is it trying to focus on it maybe a leadership area that hasn't been addressed before at the company?

Yeah, Paul, you can address first.

Sure. Yeah, so. Hey, Zach. So I don't want to be too long with this answer here, but there are two primary entry points for us inside a new customer. And Bob mentioned these earlier, he outlined kind of that strategic pyramid, I think in the slide, I don't remember, but we enter and sell to either senior learning and development leaders, so the Chief Learning Officer, the Head of Talent Development, et cetera. And they are primarily purchasing capability development, either leadership development or development for individuals across the organization. They might be thinking about things like culture et cetera. Or we sell to the second entry point to the line organization itself, the CXO level person, Chief Sales Officer, Chief Executive Officer, Chief Operating Officer, et cetera. And so our sales people are out every day. They each have 100 accounts assigned to them and some of those accounts are existing and some are prospective and they're calling on those accounts and using our marketing collateral. And what usually happens is that they identify a need a client has and whether we end up displacing another competitor or not, sometimes we do, sometimes we don't. A lot of our competitors actually also -- a lot of our clients purchase the bottom part of that pyramid, the technical skills. We're working alongside another organization. They are addressing the technical side and we're addressing more of the performance enabled and the business outcome side. And so we're just the sales people out there with really good marketing behind them. We do a lot of marketing events where we invite people to come and learn more about how we might help them and that's our go-to-market process.

And so in that market, Zach when you've got people who are already purchasing things, a lot of our big wins are coming from organizations deciding that rather than doing business with 20 different suppliers, having to service their own general contractor with formats that don't exactly match, the quality doesn't match. It's not implementable across the world. What's happening is that more and more, some of these larger organizations who either already are customers or are not yet customers are being compelled by the value proposition and say gosh, if I can get the world's best content on these topics I am trying to get solved, services to help me get them done in all the languages across the world, is set to that whole value proposition, we're winning an increasing share of the dollars that these clients have. And in fact even in some cases where the client is in their own mini recession, where they might be cutting back, laying off 10,000 employees, they are coming to us and saying look, we're not going to be spending as much. But we got to make darn sure that money we are spending is having the greatest impact it can have, and having a single focus on a couple of jobs to be done we've won significant increases in revenue to us at the same time that client is spending the same or less. And so it's a combination of those things when we talked about the big wins, and we have big wins thankfully every quarter. But we've had some really good expansions and some big new wins in those areas and also in execution. So…

Got it. That's extremely helpful, and just over on the education side of it, any sort of update on the roll-out of the district model that you were talking about on the Q4 earnings call. I mean, have you seen any sort of uptick in interest by interested buyers or more any sort of receptiveness to this new model?

Yes, sure. Yes, it's, we think it's going really well. We're calling it Leader in Me 4.0 and it's got this district component to it. What we're finding is we've got a lot more, we're having a lot more discussions at higher levels. The sales forces are very excited about where this is headed. So we're having a lot of the district discussions are leading to big community discussions with multi-district, sometimes state level discussions. So I -- we initially we will be doing this for a few months. We feel really good about it so far, and we've got the pipeline of districts we have right now compared to last year is we have many fold more which is really encouraging. It's also a new type of sell. So we're having to learn how to sell the districts. We got maybe a third of our client partners are pretty experienced with districts and the rest aren't. And so there is some learning curve here for sure. And I think it's going to take us a good year to really get good at it. But it's definitely the right direction, early results are good. My guess is in the past, whereas like last year, we brought on 30 new districts we could bring up to 100 new districts this year. And the pipeline looks really strong, but it's going to take some time to really get it across all client partners, the capability.

Got it. That's helpful. I appreciate the color. Well, I think that's all the questions I had for now and congrats on the strong start to the year and best of luck with Q2.

Well thanks very much, Zach.

And our next question comes from Patrick Retzer. You may begin.

Hi, good afternoon, gentlemen. Congratulations on another good quarter.

Thanks very much. Hope you're doing well.

Thank you. I had a question about the Knowledge ventures transaction, you bought $10 million worth of stock. I would have thought your appetite would have been substantially larger than that. I'm wondering if you are saving a lot of dry powder to essentially put a floor under the stack here and if you bought it at $35.14 I would think here in $33 area, you'd be quite aggressive when the restrictions come off.

Thanks, Pat. First of all, we think the Knowledge Capital transaction itself is going to be a great thing for allowing us to expand our shareholder base and we think that's going to be a great thing. Over the years, we've had a number of important potential shareholders who have hoped that someday Knowledge Capital would distribute the shares to the underlying institutions so that at least over some period of time there might be a source of shares. So we think that's a good thing and that balancing the -- purchasing shares ourselves to allowing some other good shareholders to come in that will build our shareholder base and provide ongoing demand and conviction is a good thing. So while these shares have been distributed to institutions, who we've known for 30 years, I've known for 30 years, I've been shareholder for 20, and we believe you know based on their discussions they'll be very disciplined holders over time it will -- and they've been investors. They are excited about what's going on in the company. Over time it will probably provide some opportunities for new shareholders to buy. As to our own purchasing, we, as we've noted, we have authorization of around $40 million. We invested $13.7 million in the last month or so in share repurchases and we believe there will be opportunities to continue to purchase and obviously we get the point that if we thought it was good at $35.50, it's also attractive at $35.54. So I think hopefully the chart and the discussion that Steve had, we've shown our willingness and certainly purchased basically over 14 million shares in total, Steve?

$167 million, 12 million shares.

12 million shares, over time in three quarters. So we see this as an opportunity, but I think moreover we'll be there. We want to be an ongoing purchaser of shares and not just episodic. We've got the capacity and the cash flow and the track record and intent. And so we I think you're right that rather than saying, let's try to buy all of it at one time, we've got -- like the people who receive those shares aren't necessarily sellers today and we also have some people who we think if there are buyers that we might share the purchase with them to get some new large shareholders into the company.

Okay, great. Thank you.

Thank you Pat.

And our last question comes from Alex Paris. You may begin.

Hi Alex.

This is Chris sitting in for Alex.

Hi, Chris. How are you?

I'm doing well. Congrats on the quarter.

Thank you.

Good start to the fiscal year. All of my questions have been asked, so just moving through my list, there are some remaining. As we move back to some of your comments that you made about retention of revenue and how that's creating leverage for the business. Diving deeper into that, I imagine a material driver of that has been your sales force and the performance of it more specifically the retention of your top performing sales force members. And in addition to the new hires as they move through towards their incremental revenue goals, the different cohorts that you're bringing on, can you just perhaps dig more into what you're seeing that's driving the success that you're seeing in retention on a more granular level?

Yes. You make a couple of important points. First of all with a fixed investment in a new client partner and that investment is pretty much flat for the first three or four years, let's say, you're, you're paying them a $100,000 or $120,000 a year for the first three years, even though they're on commission there is a guarantee that they're getting. And so with the more rapid ramp up that we've referred to in previous quarters, we have this $200,000, $500,000 $800,000, $1.1 million, $1.3 million goal, our last -- our last four classes, the ones that have been hired since All Access Pass, in the Enterprise Division and since Leader in Me membership in the Education Division, you know the overall ramp rate has been a little bit ahead of that. And so to your point, there is leverage on a given fixed cost for those new people, there is leverage on the cost there. You're getting more revenue out of the same cost, point one. Point two is that also because you retaining substantially all the revenue from these passes and people are expanding adding on services, et cetera, you are not spending new marketing dollars to do that and you're using a fixed investment, largely fixed investment implementation specialists in the sales force and getting more out of that without having to spend new money. And so the things behind that are these strategic things that as we're in there with the client we are identifying one task that they are trying -- one problem they trying to solve or opportunity they are trying to take advantage of and within that same client, they've got 10 others, they're just either not doing anything about them today or they've hired others to do them and that search that Paul talked about is when you're in there and able to find additional opportunities and you're not selling you really, they're servicing and people are saying gosh, could help me solve this one too. I mean the first thing has been so successful. Hey, would you give me any help on this too. It's just an organic process that is driving this, but in the past you know a sales person had to replace a good share of the revenue they sold in the first year before they started to grow and now they don't. So is that responsive?

That was responsive, yes. Thank you for the color. And that seems to be all I have for now. I did have one overall, one last question to ask you, it's been touched on many times the growth that you're seeing in the international market space, more of a bird's eye view, I know we're getting a little late in the call, but can you talk about just where you are within some of the markets in regard to the market potential that you see, as far as whether you're in the early innings, late innings and some different tailwinds that are benefiting you?

You bet. First of all, just one thought is that the markets are becoming increasingly global. 20 years ago when we had begun our international partner network there were a lot of international companies of course, but they didn't approach this concepts of building their whole workforces on a global basis, it was delegated to each country to figure out kind of how they're going to do leadership development or how they were going to do cultural improvement. Today, that's not really an option, if you are a global company, your culture is your competitive advantage and so this is creating a -- this is creating a beachhead in many, many countries because wherever the client might be, whether they are in Germany when they buy the Pass, they have 10 other countries in which they operate, versus in the U.S. they have 20 others whatever, is creating a beachhead that is helping us seed every country in which we have licensees and also in our direct offices. Now with direct offices in five of the seven largest economies, many of those, many of the global clients who are operating in all of those economies are providing a good foundation. In terms of penetration, just generally, though, when you look at across Japan, China, the UK, Australia, Germany, et cetera, we have around $40 million of revenue and you look at that and say the combined -- if our U.S. revenues are more like $130 million in the Enterprise side. You recognize that to be $40 million in all the other biggest economies there were much -- with all the headroom we have in the U.S. We are much less penetrated outside the U.S. And so I think for us, we see this as an imperative and a huge opportunity. It's needed by our clients. They're seeding us giving us business to get to grow they help us grow in those areas. We've got great client partner hiring things going, but we think as Paul said, that this is a tremendous opportunity that is --they're both so big, that we're not going to get there any time soon. But certainly we're further away from the potential internationally than we are in the U.S. and we're just getting started we think in the U.S. So we've got a lot to do.

That's very helpful. I appreciate the color. Thank you guys.

Thanks Chris. So no more questions, operator?

And we have no further questions at this time. I will now turn the call back over to Bob for final remarks.

Great. We just appreciate each of you. Thank you so much for your great questions, thanks for your support over all these years for helping us think through things as you do and we view you as great partners. We appreciate you and we look forward to a strong second quarter and year. Thanks so much.

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