Franklin Covey Co (FC) 2019 Q2 法說會逐字稿

Welcome to the Q2 2019 Franklin Covey Earnings Conference Call.

My name is Erin, and I will be your operator for today's call.

(Operator Instructions) Please note, that this conference is being recorded.

I will now turn the call over to Derek Hatch.

Mr. Hatch, you may begin.

Thank you, Erin.

Good afternoon, ladies and gentlemen, on behalf of Franklin Covey, I would like to welcome you to our second quarter earnings presentation this afternoon.

Before we begin, 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 acceptance of and renewal rates of 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 today to Mr. Bob Whitman, our Chairman and Chief Executive Officer.

Well, thanks, Derek.

Good afternoon, everyone.

We really appreciate you joining us today.

As you know, we've crossed the bridge in this transition to our subscription business model, and as we've said before, we expect to now generate high rates of growth and adjusted EBITDA and cash flow going forward.

To remind you on the Slide 3, what our expectations have been, we expect our reported adjusted EBITDA to increase from $11.9 million last year to between $18 million and $22 million this year, represents growth of 50% to 85% in that range.

And then increase to between $26 million and $31 million in fiscal '20, and to between $35 million and $40 million in fiscal '21.

Reported adjusted EBITDA plus the change in deferred revenue, we expect to increase to between $30 million and $34 million this year, and then to between $38 million and $42 million in fiscal '20, and to between $47 million and $52 million in fiscal '21.

And the net cash generated, which is very close to reported adjusted EBITDA, is expected to increase again in the range of 8 to -- $18 million to $22 million this year, to between $26 million and $31 million next year, and between $35 million and $40 million in fiscal '20.

We affirm these expectations and there are 3 things, we hope you will take away from today's call.

You can see in Slide 4. First, that we achieved strong second quarter results, which were ahead of our expectations.

This better-than-expected performance was driven both by higher-than-expected sales and strong gross margins.

The results reflect the growth and impact over high recurring revenue, high margin, high flow through, low capital intensity subscription business model and we're really pleased with how that's moving forward.

We're rapidly climbing up the mountain and are on a strong trajectory to meet our objectives for fiscal '19 and in the coming years.

Second, this growth is being driven by our subscription-based business model.

It's driving the growth, it's also driving attractive subscription metrics and compelling economics.

In the second quarter, All Access Pass and related sales grew 33% year-over-year and the subscribers grew 29%.

For All Access Pass, we are creating high lifetime customer value, really -- significant visibility into future revenue, and strategic and structural durability.

We'll touch on that.

In addition, our key subscription metrics are now putting us in the company of some of the top subscription businesses.

Third takeaway is that we are continuing to aggressively expand our sales force to take advantage of what we believe is an extraordinary sales force unit expansion opportunity.

The economics created by the combination of our high lifetime customer value, the one-year payback period we have for hiring a new salesperson and the relatively low customer acquisition cost we have, relative to initial purchase price, you know, it's less than 1x the original price.

It's really creating compelling sales force unit expansion economics.

We have a lot of headroom for sales force growth and we are executing on that opportunity.

So I'd like to just address each of these takeaways in a little more detail, starting with the takeaway one, our performance.

As noted, we achieved strong second quarter results, which were ahead of our expectations.

This was, as I noted, driven by higher-than-expected sales and gross margins and reflects high flow through, relatively fixed cost, low capital intensity model that we've talked about.

As you can see on the Slide 6, our revenue growth was strong and very broad-based.

Our reported revenue grew 8.2% in the second quarter, 10.3% year-to-date and 11% for the latest 12 months.

Adjusted for changes in foreign exchange rates, our reported revenue grew 9.6% in the second quarter and 11.4% year-to-date with strong growth in both divisions.

Our balance of billed and unbilled deferred revenue, all related to subscription sales, grew 36% in the quarter.

That's an increase of $17 million compared to last year's second quarter.

Billed deferred revenue or invoiced revenue grew 24% or $7.5 million compared to last year's second quarter, and unbilled deferred revenue grew 61% to -- or $9.5 million compared to last year's second quarter.

Total contract signed or contract revenue grew 6.8% in the quarter, 7.4% year-to-date and 4.5% for the latest 12 months, but the subscription portion of that grew 23% in the quarter and 27% year-to-date.

Profitability and cash flow metrics also increased significantly as this increased revenue flowed through as expected.

As you can see on the Slide 7, in addition to the sales information we've talked about, gross profit grew 8% in the quarter, 10% year-to-date and 13% for the latest 12 months.

Our gross margin percent remained strong at 70.2% even with the accelerated growth in All Access Pass related add-on and support services.

We expected operating SG&A as a percentage of sales to improve this year and it has.

Operating SG&A as a percentage of sales improved 346 basis points in the second quarter, coming in at 68.3% compared to 71.8% in last year's second quarter and has improved 423 basis points year-to-date.

Adjusted EBITDA increased $1.6 million to $1 million from a deficit of $700,000 in last year's second quarter.

There's a little rounding here, but we rounded down for your benefit, in some places it shows -- I think that's $1.7 million but rounding makes it really $1.6 million.

Year-to-date through the second quarter adjusted EBITDA increased $4.2 million to $4.1 million and in constant currency has increased $4.8 million year-to-date.

For the latest 12 months' adjusted EBITDA increased 48.6% to 16 -- or to $16.1 million, that's a growth of $5.3 million compared to the $10.8 million in adjusted EBITDA in the same latest 12-month period last year.

And finally, net cash flow provided by operating activities increased 44.7% in the second quarter to $13.6 million.

That's an increase of $4 million compared to $9.4 million in the last year's second quarter.

Now I'll just briefly touch on each of the divisions.

We'll start with a review of the results for the Enterprise Division, which accounted for approximately 80% of our total revenue in the second quarter.

As with the company overall, our revenue in the Enterprise Division was strong and very broad based.

We had strong growth throughout all of the offices in the U.S. and Canada.

We also had strong growth in each of our international direct offices.

And we also had growth in our international licensee operations when adjusted for FX.

As you can see in Slide 8, also our balance of billed and unbilled deferred in -- sorry, reported revenue grew 3.8% in the quarter, 10.3% year-to-date and 13.6% for the latest 12 months.

And adjusted for changes in foreign exchange rates, our reported revenue actually grew 9.7% in the second quarter and has grown 11.6% year-to-date.

Our balance of billed and unbilled deferred revenue in the Enterprise Division grew 36.2% in the second quarter, with billed deferred revenue growing 20.5%, unbilled deferred revenue growing 65.6%, which is building a lot of the contracted but -- revenue that's not yet showing on our balance sheet, but it will help us in the future quarters.

Our contracted revenue grew 9.2% in the second quarter, 10.7% year-to-date and 6.1% for the latest 12 months.

This is driven by contracted All Access Pass and related revenue, which grew 29% in the quarter and 39% year-to-date.

Enterprise Division, as expected, there is a lot flow through of this incremental revenue.

Our gross profit increased 8.3% in the second quarter, 9.5% year-to-date and 16.5%, and of course it grew more rapidly in constant currency.

Our gross margin percentage remained very strong at 75.1%, even with strong growth in All Access Pass add-on support services.

Our operating SG&A as a percentage of sales improved 265 basis points in the second quarter, coming in at 65.5% compared to 68.1% in last year's second quarter and has improved 314 basis points year-to-date.

And finally, adjusted EBITDA increased $3.8 million in the second quarter, which is growth of 50.9% compared to $2.5 million in last year's second quarter.

This reflected flow through of incremental revenue to incremental adjusted EBITDA of 42.3%.

And adjusted for FX, the growth was even stronger, adjusted EBITDA increased to $4.1 million, which is a growth of 64% year-to-date through the second quarter -- sorry, for the quarter, then year-to-date through the second quarter adjusted EBITDA increased $9 million, which is a growth of 43.4%, compared to $6.3 million last year and, again, flow-through of 36%, which is, again, higher in constant currency.

Adjusted EBITDA for the latest 12 months grew 47.1% to $21.1 million.

That's a growth of $6.7 million compared to $14.3 million.

So stepping back from it, the expectation was that once we got through the major investments that we made last year, that we would achieve strong growth in the Enterprise Division, driven by our subscription business that we would have very high gross margins that would flow through to increases in adjusted EBITDA, that we would generate a lot of cash flow, which we were -- and we're pleased that, that was occurring.

We've got strong pipelines of business and of course our largest quarters are still ahead of us, the third and fourth quarter for the Enterprise Division, and we expect to have a very strong back half of the year as well.

The Education Division, maybe we'll turn to that quickly, as you know, the vast majority of the Education Division revenue and adjusted EBITDA is typically recognized in the third and fourth quarters, due to budget cycles and to the availability of professional development days in the summer in North America and you can see that seasonality, there is a Slide 30 in the appendix that gives you an idea what the full year looks like.

However, the second quarter showed real strength and Education's pipeline of advanced sales opportunities is really strong.

We expect to have a very strong year-over-year growth in the late third quarter and particularly in the fourth quarter.

As you see in Slide 10, revenue was -- growth was 7.7% in the quarter and 10.2% year-to-date.

Reported revenue growth for the latest 12 months was 3.1% but excluding the impact of the expiration of this large multiyear education foundation contract in last year's second quarter, which reduced year-over-year revenue, latest 12 months revenue growth for Education Division would've been 11.8%.

And we're now past the impact of that particular contract and won't need to talk about it in future quarters.

Adjusted for changes in foreign exchange, reported revenue grew 9.4% for the Education Division in the second quarter and 11.1% year-to-date.

Balance of billed and unbilled deferred revenue in the Education Division grew 33.5% in the second quarter, with billed deferred revenue growing 37.6% and unbilled growing 17.3%.

Contracted revenue declined due to the usage of deferred revenue and to the repeat of the -- or the non-repeat of the contract, 11% in the second quarter, 14% year-to-date and 1% for the latest 12 months.

Profitability metrics improved.

Gross profit increased 5.2% in the second quarter and 11.6% year-to-date, 2.8% for latest 12 months and excluding the non-repeated contract, gross profit grew 10.6% for the latest 12 months, gross margin was 56%, operating SG&A as a percentage of sales improved 475 basis points in the second quarter, coming in at 65.4% compared to 70.1% in last year's second quarter and has improved 438 basis points year-to-date, so the -- both -- through the whole company, the SG&A as a percentage of sales is staying -- is improving, SG&A is remaining flat except for increases in commissions.

And adjusted EBITDA for education was a deficit of $900,000, that compares to a deficit of $1.2 million in last year's second quarter.

And year-to-date through the second quarter adjusted EBITDA in the Education Division was negative $1.2 million, which is an improvement of $800,000 compared to negative $2 million year-to-date last year.

So again, we expect -- we have a very strong pipeline in Education and expect a strong second half of the year.

Stepping back, for the company overall, we are really pleased with the company's performance for the second quarter and year-to-date.

We are pleased with the momentum that's building for the back half of the year.

And excited that we're -- we've really gotten a good push up the mountain toward our objectives with about -- again, about almost $5 million improvement in adjusted EBITDA year-over-year against our guidance for the year.

Stepping back now and talk about the business, takeaway two.

Our subscription-based business model is driving this overall growth as well as our attractive subscription metrics and compelling economics.

In the second quarter, All Access Pass and related sales grew 33% year-over-year and our number of paid subscribers, All Access Pass subscribers grew 29%.

With All Access Pass, we are creating high lifetime customer value, also visibility into future revenue and what we believe is really increased strategic and structural durability.

In addition, our key subscription metrics are putting us in the company of some of the top subscription businesses.

As you can see in the Slide 13, All Access Pass and related sales growth continued to be very strong in the second quarter and year-to-date.

As shown, All Access Pass and related sales in the second quarter grew 33% to $18.3 million, an increase of $4.5 million compared to $13.7 million in last year's second quarter.

Year-to-date, All Access Pass related sales have grown 42% to $37.5 million, an increase of $11 million compared to $26.5 million last year for the same period.

And for the latest 12 months, All Access Pass related sales have grown 50% to $71.3 million, that's an increase of $24 million compared to $47 million for the same latest 12-month period last year.

The value of All Access Pass related contracts signed in the second quarter also increased 28.5% and the balance of deferred revenue billed grew 21%.

Just -- as you can see on 14, this growth, it reflects the continued significant growth in the number of paid All Access Pass subscribers.

As you can see the number of paid All Access Pass subscribers reached 397,000 at the end of the second quarter, that's an increase of 89,000 or 29% compared to the 308,000 we had a year ago.

And encouraging and exciting for us is the average All Access Pass and related revenue per subscriber also increased 17%.

So we're having both expansion of revenue per paying customer as well as the number of paying customers, that's driven revenue growth that's actually even higher than the subscriber growth.

In terms of quality metrics, All Access Pass is not only growing rapidly but is achieving key subscription metrics consistent with those being achieved by some of the subscription businesses with most compelling economics and valuations.

You see in the Slide 15, these metrics include annual recurring revenue or annual revenue retention of more than 90%.

Add-on services rate of more than 45%, which is highly correlated with high customer retention and expansion.

A total revenue retention rate including year-over-year same-client subscription and services revenue, when you add services in of more than 100%.

Relatively large initial purchase price, which reflects the relatively large size of the populations for which All Access Pass is typically purchased but this relatively large purchase price establishes a foundation for strong unit level economics including reduced customer acquisition cost as a percentage of sales, which is less than 1. Our customer acquisition cost, I mentioned, are attractive, less than 1. And the expectation of achieving $100 million in annual recurring revenue in only approximately 4 years is really quite aggressive growth.

And so we're pleased that the quality metrics are also showing up and staying strong.

So in Slide 16, our lifetime customer value is growing, combination of the high initial purchase price, strong gross margins, good attachment -- services attachment rate, with sticky annual retention is building strong lifetime value.

And this, of course, is being driven by the effectiveness of our solutions at addressing customers most intractable performance challenges.

Challenges such as successfully executing on a major strategic initiative or achieving high levels of Customer Loyalty or building high levels of trust on the team or throughout an entire organization or building leaders at all levels who win with all stakeholders.

These are all challenges, the solution to which requires change in human behavior at scale.

I read the other day a comment by the renowned physicist, Richard Feynman, who was quoted saying, "Physics would be a lot harder if electrons had feelings." And that means a lot to us because electrons don't need to buy into their task or collaborate or communicate clearly or build trust or work together effectively, but people in organizations certainly do.

And so helping organizations successfully address these challenges, which require large-scale change in human behavior, not just skills, but where you get people working together, creates customers for life and builds strategic durability.

We're seeing this time after time as customers repeat, expand and extend their contracts.

To build on customer success and reinforce this, we are committed to consistently adding content and capabilities to the All Access Pass to help clients achieve these desired outcomes.

You can see on Slide 17, since inception we have added, to the original offering: 1,200 micro-learning articles and tools, which came through the acquisition of Jhana and subsequent development; broad coaching capabilities, which we initially achieved with the acquisition of Robert Gregory and have then expanded to provide implementation coaching to drive home the capabilities that we are training people on.

We have 3 new major courses that can be offered in all modalities, live and digital.

We've localized additional content in 18 languages.

At the end of this month, we'll be adding our newest major course offering to the All Access Pass, one on unconscious bias which is receiving a lot of advanced billing and demand from clients.

It's building a culture that recognizes the -- unleashes the capability of all its people, allowing people to recognize that overcoming unconscious bias and leveraging the talents of all people is a big opportunity.

These are some -- there are some big organization-wide contracts that we are discussing right now.

We'll also be updating our on-demand digital library adding another -- and also adding another offering on accountability.

We're also in the documentation phase now of finishing licensing agreements with really -- 2 really significant new thought leaders and authors and we'll announce those when they are completed.

Looking forward, we are also working to increase our assessment capabilities as well as to increase our capabilities in data and analytics, there's a lot going on in our industry and around in pockets in that area and I think there's some great opportunities for partnerships and licensing agreements in that area.

And we are also implementing other technical enhancements to better serve our clients.

So there's a lot of going on there all the time, and the past is getting stronger and stronger, at the same time our clients are getting value from it, a significant value from it, repeating and extending.

Slide 18, you can see that reflective of this lifetime value is that we have a -- in addition to $55.5 million balance of deferred All Access Pass subscription revenue, the expected net present value of future revenue from All Access Pass contracts is growing rapidly from $115 million in 2016, when we introduced All Access Pass, to $355 million at the end of this year's second quarter and we expect to get over the $500 million mark in the next 12 months or so.

In addition to that All Access Pass has 2 elements that provide, what I'd call, structural durability.

One is that All Access Pass purchasers contract for and pay their subscription at least a full year in advance.

And second, an increasing percentage of pass-holders are entering into multiyear contracts.

As you can see in Slide 19, for the latest 12 months, 27% of Pass holding organizations entered into multiyear contracts.

That's up from just 10% a year ago.

It's a trend that'll move forward, we'll expect to move that over 1/3 in the coming quarters, and move toward 50% in the coming years.

Just one last note on All Access Pass, is, is in Slide 20, to simultaneously achieve top-tier growth and subscription-related sales, as we've talked about here, top-tier subscription economics and customer metrics we've talked about.

And at the same time, be in top-tier rates of growth in adjusted EBITDA and cash flow is a rare combination.

And we're grateful for our clients, we're grateful for our team.

For us, achieving the intersection of these 3 factors reinforces the prospect also of creating significant increases and value for our customers and our shareholders.

Final takeaway, number three, is that we are continuing to aggressively expand our sales force to take advantage of an extraordinary sales force unit expansion opportunity.

Just again, bullet points.

The economics created by the combination of, one, this high lifetime customer value.

Two, the fact that we have a one-year payback period for hiring and ramping up a new salesperson.

We get the cost back including marketing and salary, and computers and travel and cover it in the first year.

This relatively low customer acquisition cost relative to the initial purchase price provides compelling unit economics.

Fortunately, we also have compelling headroom for growth.

We have lots of room for growth.

We're executing on this opportunity, over the next 3 years, we expect to add at least 75 net new client partners or salespeople to our existing base of 230.

In addition, we expect to see 70 -- of our existing 230 salespeople, 70 are still well into -- are still ramping up and we expect to see 70 of these client partners complete their accelerated ramp-up over the next few years as well.

The combination of these factors is expected to add tens of millions of dollars in additional growth revenue to that already expected to be generated from ongoing sales growth from our 160 fully ramped client partners.

The combination of these factors is expected to accelerate our revenue, adjusted EBITDA and cash flow growth.

I think there are 3 things that put us in a strong position to execute on this unit expansion opportunity.

First, as you can see on Slide 22, we have a strong track record of successfully hiring and ramping up salespeople.

As you can see, since 2012, we've added 110 net new client partners to our direct sales forces, many of which are still in ramp-up.

As also shown on that slide, the average revenue ramp-up for these new client partners has followed our great trajectory.

New client partners have averaged more than $200,000 in sales in their first year, more than $500,000 in their second, and then typically reach at least $1.3 million in revenue by their 5th year, and they can grow beyond that.

So I mentioned All Access Pass' strong economics are accelerating the ramp rate for new client partners because they're retaining this -- the revenue that they sell, much more than the old model did.

Our already strong ramp rate is improving.

As a result, the ramp rate for new classes of client partners hired since the beginning of fiscal 2016 is approximately 20% ahead of that historical ramp rate of $200,000, $500,000 to $800,000, $1 million, $1.3 million.

And we expect that this will continue to provide us some upside on the ramp-up.

With our relatively low customer acquisition cost as we've noted in All Access Pass' high margins, as I noted, we typically breakeven on our approximately $150,000 total first year investment in a new client partner by the end of the first year.

And the bullet 3, we have a lot of headroom for growth in the number of client partners we can hire.

The addressable market for performance improvement in enterprise side is more than $40 billion in the U.S. alone.

We also have a similar opportunity in Education, as you can see in Slide 23.

Of the 55,000 companies just in the U.S. alone, only 11,000 have even been assigned to our client partners to work with -- to meet with, 4,000 of those are active customers.

There are 7,000 that have been assigned that are not yet customers and we do a lot of things to help those folks become customers.

We still have 44,000 unassigned accounts, giving us headroom to add another 400 salespeople in the U.S. alone.

There are similar -- in the Enterprise business, similar opportunities in the U.K., Japan, Australia, Germany, Austria, Switzerland and now China, of course, with 3 direct offices in China.

We have a similar opportunity in Education, where there are 150,000 K-12 schools in U.S. and Canada, of which 47,000 have been assigned out to salespeople.

We have a remarkable number, 2,700 active schools that leaves a lot of assigned schools that are not yet customers, plus another 103,000 unassigned schools.

So again, we have a big opportunity for growth and we've been building the infrastructure to do that.

To support and accelerate this sales force expansion, we now have 4 recruiters on staff, who review thousands of resumes and LinkedIn profiles and actually conduct more than 3,000 live and video-based interviews each year to find our 20 to 25 new client partners.

In addition, we now have a high-intensity, 5-week sales training school for all new recruits.

We used to -- we have always had some Sales Academy work and a lot of online work, we now have a very rigorous 5-week sales training school for all recruits.

In addition to these recruitment and training efforts over the past year or so, we've also significantly expanded both the volume and breadth of our marketing and global thought leadership efforts, all with the goal of generating or nurturing leads, raising our brand awareness worldwide and softening the beaches for our sales force.

As shown in Slide 24, in addition to our collection of best-selling books, prospective clients can access our brand and thought leadership through webcasts and live events or through a weekly subscription-based digital newsletter that features interviews with renowned authors and experts all on the topic of leadership.

We also host a weekly radio program on iHeartRadio, soon to be a national syndication.

And our practice leaders now author recurring columns in Forbes and in Inc.

magazines as well as generate ongoing strategic articles, interviews and industry-specific trade publications.

We also host multiple weekly podcasts and main stage keynotes at leading conferences, including the World Business Forum.

We have always had a strong lineup of what have become best-selling books and have sold 44 million books worldwide.

This notwithstanding, our current book pipeline is actually the most robust in our history.

Next week, we release our newest book, Leading Loyalty: Cracking the Code to Customer Devotion.

And we are currently creating works aimed at first level and senior leaders as well as specific workplace topics including unconscious bias, strategy execution and accountability.

We expect the combination of these, recruitment, sales training, marketing and thought leadership efforts to help us take advantage of the opportunity to accelerate the hiring and a successful ramp-up of large numbers of new client partners.

So finally in conclusion, these three takeaways you've seen.

We had a strong second quarter, it's indicative of the business model that we have been trying to build over the last few years.

And we expect that growth and impact of this high recurring revenue, high margin, high flow through, low capital intensive subscription business model will help us to continue to meet our objectives in '19 and in the coming years.

Second, the subscription business is driving that.

So we've talked about, All Access Pass and related sales grew 33% year-over-year and subscribers 29%.

And finally, this sales force having strong offerings that are compelling and connecting with customers, we now are focusing an increased effort on our, you know, something that we've done previously, but on this unit expansion.

So with that, I just wanted to step back and say this is an exciting time to be at Franklin Covey.

It is really the -- it's really exciting for all of our people because the nature of our client engagements is just more profound that we've always had this idea of developing customers for life and having deep, pervasive ongoing relationships with clients.

What we're doing now is, our whole customer engagement process is all exactly aligned against that objective.

So we're excited about it, we appreciate your support.

We appreciate the efforts of our nearly 1,000 associates throughout the world.

And are excited about our opportunities for continued growth.

So with that I'll turn the time over to Steve Young for our outlook and guidance.

Thank you, Bob.

We are excited about the future and pleased to be able to share some guidance with you this afternoon.

So as indicated on Slide 26, we have said that over the next 3 years, we expect to achieve significant growth in adjusted EBITDA, net cash generated and adjusted EBITDA plus change in deferred revenue, and we reaffirm those expectations.

As Bob said, and as it also shows on Slide 26, in constant currency, we do expect adjusted EBITDA will increase from $11.9 million to a range of between $18 million and $22 million this year, which is a growth of 50% to 85%.

Two, we expect that the sum of adjusted EBITDA plus the change in deferred revenue on our balance sheet will increase from $23.3 million last year to a range of between $30 million and $34 million this year.

And three, that net cash generated, as we define it in the appendix, will increase from $15 million last year to a range of between $18 million and $22 million this year.

And we think those are pretty good growth expectations, and we affirm this guidance.

With year-over-year growth in adjusted EBITDA of $4.8 million year-to-date, in constant currency, we are pleased to have gotten off to a strong start toward achieving the growth reflected in this full year guidance.

We do expect to retain this $4.8 million of year-to-date adjusted EBITDA growth and add to it in the third quarter.

The third quarter's reported adjusted EBITDA in constant currency is expected to be as much as $500,000 higher than the $588,000 in adjusted EBITDA achieved in last year's third quarter.

This guidance allows for some potential impact of the delay and rescheduling of certain government business in the -- to the fourth quarter, as a result of the federal government shutdown.

It also provides for the fact that substantially all of the growth in sales in the third quarter is expected to be in subscription sales, whereas you know the revenue will be recognized over time, but the increased sequential cost for marketing and for hiring new client partners will be recorded in this quarter.

So we're excited about our start.

We're excited about the year, excited about the third quarter.

So, Bob, that's the official guidance.

Great.

Thanks, Steve.

All right, at this point, thank you so much.

We'll now open the line up, if we could, for some questions.

(Operator Instructions) And your first question comes from Tim McHugh with William Blair.

Can I just first ask on -- dig in the margins a little bit, I guess.

So the improvement this year has been, I guess, mostly SG&A leverage versus kind of the gross margin being more flattish year-over-year, which is kind of opposite of last year, right?

And, I guess, as you talk about the growth of subscription revenue and the high flow through of that, I guess why aren't we seeing that in the gross margin?

And then secondly, as sales force hiring starts to ramp-up here, do we keep seeing SG&A leverage?

Thanks, Tim.

On the two questions, first of all, the principal reason we haven't seen the growth -- same growth in margin percentage this year is our focus.

After we acquired the Robert Gregory company, we recognized that to drive home results, having coaching and other services attached to our training is really a powerful way of driving home change.

We've had an increased mix of services revenue this year that's been quite significant.

I mean, we've grown the add-on services revenue, both in percentage of attach rate and dollars.

And so that's been the primary thing that's just offset what would otherwise have been some additional growth just because of the higher gross margin of the subscription portion.

We think it will be stable in this range and probably increase somewhat going forward now, now that we've made that big push.

It was kind of a big push.

Now it'll level off and we should have some continued growth there.

But that's the primary thing at work on the gross margins.

Again, we feel really good about the level of gross margins.

And particularly on the Enterprise side, we're at 75% blended, so that is good.

In terms of the sales force leverage, yes, we do believe, honestly, Tim, that we'll have the same -- the leverage in the operating model continue, and that's basically because if you look at what will is happening is our adding net 20 to 25 salespeople a year on average, that group will be on the staff for about half the year at $150,000 a person will be adding about $1.5 million of annualized cost on average for the year.

We cover that with revenue and gross margin that's generated from them.

And so it's built into our model.

And so these expectations that we'll have EBITDA growth of these high rates, but with flow-through of 45% to 50% already incorporates the idea.

And so the -- with the high gross margins, generally the addition of salespeople because it's relatively flat each year.

I mean it's the 20 to 25 every year for the next 5 years is what's in our plan.

It should keep the leverage, I think, and flow-through very high.

Is that helpful?

Yes, that's helpful.

And then on a geographic basis, can talk about -- I guess to an extent, it's smaller than the U.S., but U.K. and Europe.

I guess, the U.K., given all the political uncertainty there right now, how are client -- are you seeing the same kind of client engagement?

Is there any impact on decision making and ability for them to think about longer-term subscriptions?

Paul, do you want to respond to that?

Yes, sure.

Hi, Tim.

So, so far, we're not seeing any challenges there.

Of course, there's some FX impact for us as the pound versus the dollar transitions, but we're -- our business is growing in the U.K., has been growing steadily now quarter-over-quarter for quite some time.

And we continue to win new business and expand the work we're doing with current clients.

And then Germany is a new thing for us.

As we talked last quarter, we've just taken that business back in Germany, Switzerland and Austria from our license partner, but it had nice business in -- for the second quarter there in Germany.

And our partners in Europe are also doing well right now.

So we're not seeing anything right now that would indicate there's any kind of a problem there.

Just one more note.

And All Access Pass continues to do well there also.

In the U.K., it's now -- we're up to -- we've converted -- about 70% of our business now overall in the U.K. is now All Access and related.

And so while they launched at the same time as the U.S., being an English-speaking country, they've quickly mirrored what happened in the U.S. with All Access Pass in terms of the percentage of overall business, which I think is helping, too, because we get the same expansion, retention rates.

Everything else that comes along with All Access Pass is playing out in that part of the world as well for us.

Okay, great.

And just want to -- kind of a numbers one in the weeds for Steve, I guess.

As subscription revenue gets more important here, I want to understand it.

So the -- this -- I guess, you said it grew 16% to $23 million.

I think last quarter, you said it will grow 36% to $28 million.

So subscription revenue, I would've thought there would be a steady kind of gradual sequential build to it.

So surprised to see it down that much.

I guess, what -- why is there quarterly volatility in the subscription revenue?

So Tim, in all of our revenue -- as you know, we look at quarter-over-quarter for the prior year just because we think that, that growth is more consistent than the sequential growth.

And we do have quarter-over-quarter of the prior year significant growth in each quarter.

So...

And so, Tim, also just sequentially, and there's an exhibit in the back on Slide 32, if my eyes -- if I can read that number there that shows...

32.

Yes, it shows sequentially subscription sales in the first quarter were $9.7 million.

They grew to $15.9 million in the second quarter.

So I think this -- I think your idea is that we have generally -- last year, we had $7.8 million in the first quarter, $13.9 million in the second, $17.3 million in the third and $30 million in the fourth.

And then our first quarter is always smaller.

But at least, throughout the course of the year, we've had both year-over-year for the quarter and good sequential growth.

That -- Page 32 allows you to compare both.

And so maybe on the...

That's sales, though, right?

That's not revenue, right?

I guess -- if I'm right, I guess.

If it's annual subscriptions and you've got such a high renewal rate, I'm just -- I don't understand why.

It would have been almost $28 million last quarter and $23 million-and-change this quarter.

Is there some -- is services in -- I guess, why would it be down that much sequentially in revenue?

I guess, I understand the sales.

I don't think it was.

Maybe...

Okay.

I can follow up offline.

We can talk later.

We'll try to...

If you -- we'll reconcile it.

I think you're right.

I think you're right.

It shouldn't be.

I don't think it is.

And so maybe we -- maybe I misspoke something last quarter in some way because I think you'll see that we had strong growth in both.

So maybe we can -- thanks for bringing that up.

I'll -- maybe my numbers are off.

I'll follow up and...

No, that's probably -- that's unlikely -- yours.

No, Tim.

As you're saying, this schedule on Page 32 is the invoiced amount, the subscription amount.

And the recorded revenue then, as you know, is -- brings in the change in deferred revenue on the balance sheet.

So we can just go through how that works.

That's a good question.

It will help us to better explain it in the future.

Thanks.

And your next question comes from Jeff Martin with Roth Capital.

Bob, you talked a little bit about the add-on services, Robert Gregory.

Was curious if there are common trends or themes that clients are trending towards in terms of what types of add-on services, on a broad basis, throughout the portfolio that they're using?

There are -- Paul, do you want speak to that?

Sure.

Hey, Jeff.

So a couple of broad trends.

One is an increasing trend, that is coaching as a form of support for reinforcement.

And so whether somebody participates in acquiring the basic knowledge via an instructor-led session or a completely self-paced online session or blend -- a blend of the two, a lot of our clients are increasingly wanting to add coaching on the back of that.

So you, as a participant of that, if you're a leader, you may have individual one-on-one coaching sessions for 6 or 8 weeks to drive home what you've learned and to make sure that you're able to apply it as a leader with your team.

Or there may be a group of leaders that go through cohort coaching, where they're going through this experience together and they're coached for 6 or 8 weeks.

So that's a growing trend we see, and it's one of the reasons that wanted to purchase the Robert Gregory organization when we did was to capitalize on that.

That's a growing one.

And then, we've always had a lot of services that come in the form of delivering -- of actually helping the client install the actual learning.

So for example, our 4 Disciplines of Execution solution, we do some installation upfront there a few days with clients.

Then they may take it themselves from there.

I would say those are probably the 2 biggest for us.

The post-delivery training -- or coaching and then the actual help in training and facilitating during the installation phase.

Okay.

That's helpful.

Bob, I wanted to touch on the multiyear contracts trending to 50% over time.

What gives you comfort that, that is likely to happen?

And what kind of execution is required to make that happen?

Yes, first of all, I think the reason why it's happening is that clients are engaging on challenges they're trying to address or opportunities they're trying to take advantage of that they recognize upfront.

You're not going to change the behavior of your whole organization in one 12-month period.

And so I think the strength -- about the nature of what people are utilizing in the past were the kind of challenges where they're trying to change -- we had a hospital system that recently signed up a 7-year contract.

They said the kind of cultural change we're going to need to drive home, we're going to need to stay on this.

And so the reason people do it is because they've got impact journeys, we call them, or things they're trying to accomplish that are just going to extend beyond a year.

And they recognize that if they -- one, it's good to recognize that and sign up for a contract.

If they'll lock in multiple years, they also get to lock in the price for those subsequent years and actually get a discount on the second year if they do it.

So if they have a problem they're doing to address that they're really serious about addressing or a challenge, and they know it's going to take -- it's going to be an ongoing effort, it makes sense to do it.

I think, for us, having our sales force learn to sell it is one of the big drivers -- is that recognizing that it's -- they really kind of owe our clients that perspective that the challenges are going to be ones that are -- to drive change to an entire organization and sustain it will take a longer time.

Our sales force, historically, in the old model wasn't selling that way in most cases.

And so there's been a transition there.

But the thing that gives us confidence, and Paul, you might want to add to this, is just that the nature -- when we have multiple impact journeys going within an existing client that extend beyond the duration -- almost all of which extend beyond the duration of the contract itself, it makes perfect sense to talk to those clients about it.

And we're just building sales capabilities.

We didn't do it at all 2 years ago.

We did it some last year.

Now an increasing percentage of the sales force has had that basic mindset and skill to do it, and customers are really -- we had a brand new salesperson last year who just decided she wasn't going to sell anything but multiyear contracts and didn't.

And so she met her first year number.

She already had her second year number already.

All of that was going to be retained and had other contracts in place and I think of people are just catching the vision.

So Paul, I don't know what you'd want to add.

No, you said it well, Bob.

That's great.

Your next which comes from Marco Rodriguez with Stonegate Capital.

I was wondering if -- a couple of quick just housekeeping items, on Slide 14, your subscription seats.

The 397,000 for Q2 this fiscal, is that Enterprise or is it total?

Yes.

That's just -- I should've spelled it out there.

I apologize.

This is active All Access -- AAP is All Access Pass subscriptions.

So this is Enterprise only, on Slide 14.

This is the number of paid subscription seats in just the Enterprise Division.

It doesn't include any of the seats in education.

Got you, okay.

And then in terms of the new course that you guys are getting ready to put out here at the end of the month, the Unconscious Bias, was that content that you guys have licensed?

Or is it something you guys created in-house?

Adam, do you want to speak to this?

Adam Merrill, as you know, runs our whole innovations group and has been the lead on this.

Yes.

Hi, Marco.

That is content that we did develop in-house.

It originated with some government work we had done a year ago.

We developed it through that process and kind of a custom work.

And then, last year, we decided to take this mainstream and went through our normal process of testing and development.

And we're really excited about it.

There's been a lot of interest in this.

It's going to be a very powerful course.

Got you.

And are you guys sort of, I guess, surveying, if you will, your customers, to try and get a better feel as far as what sort of content you guys should be creating or licensing going forward?

We are.

Yes.

Yes, we are.

Marco, I mean, last year -- these implementation specialists, the way we engage clients, we had 44,000 hours of face-to-face -- I mean voice-to-voice or one-on-one customer discussions last year with just our implementation specialists, identifying what are the challenges the organization has, matching up our content to solve them.

And in that, we collect that data and serve it up and review it in our monthly product development efforts and understand really what are the challenges they're facing where we might not have everything that would be the full -- the most impactful solution.

And we're utilizing that roadmap, driven by our clients as well as stuff we do in the market, generally, with our 100,000 sales calls we make a year.

We're gathering that data.

And we have a list of the 11 problems we're going trying to get solved.

We have solutions to 8 of them now.

There are 3 others that we're working on that are really -- we know they're significant.

Our clients would like us to help them solve them.

They would hire us to do it if we had them.

And so it gives us a good product development roadmap for the next 2 or 3 years.

Got you.

And then shifting gears here to the education side of the business.

Maybe if you could give us a little bit of an update on the progress that you're making here in terms of sales strategy kind of changes going direct to the school districts?

Great.

Sean, would you like to address that?

Yes, I can.

Yes, well, we feel we're making really good progress on this.

We have -- as you know, there are 15,000 school districts in the U.S. and Canada.

We're in 800.

So we've got a lot of headroom for growth there.

And what we're doing is we're spending a lot of time training our client partners on how to penetrate into districts.

We're putting our focus on -- the best way to expand is if we have 3 schools in a district -- 3 Leader in Me schools in a district that has 50 schools.

Our focus is going on -- going to the next 10 schools in that district instead of going to 10 other schools in new districts.

So our focus is more on districts.

We're training around it.

And then what's helping us most, I believe, is just the research that we have that's come out of the last year showing the impact and the efficacy of Leader in Me on behavior improvements, on academic scores, on attendance and so forth.

And this is allowing us to penetrate districts and get into districts that we couldn't before because we didn't have the data and we didn't have the Castle certification, which we now do.

And so this is helping us penetrate the districts that wouldn't even look at us before because we just didn't have the data.

And the more sophisticated the district, the bigger the district generally, the more data they require.

So I feel like we're making really good progress.

We also have a new model.

Instead of -- traditionally, we've sold to a single leader in these schools.

We have a new model we launched last year called the district model -- Leader in Me district model, where we go to a district and we say, "It's less expensive.

You can get to more schools in a more economic manner, where we'll certify your own people to run this inside of your district." It's higher profits for us.

The ratio -- the margins are better for us.

It's not as much money per school as we're getting now, but we find it's more sticky.

And this new model is going really well.

We have about 50 schools in it right now.

We expect to add another 150 to 200 this year to this model.

So again, this is one of the big ideas we have for the future, and I think it's going to be very key.

I think, the most promising thing is our retention rate, where we have penetration in districts, is much higher.

It's in the mid-90s compared to high 80s elsewhere.

So -- is that helpful?

Absolutely.

I appreciate your guys' time.

That's all I have got.

Your next question comes from Zach Cummins with B. Riley FBR.

Just sticking along that education theme.

So I believe in the last earnings call and a little bit at the Analyst Day you talked about having a little bit more of an elongated business model for the education segment, a little bit of a cheaper upfront cost can maybe attract some more customers to get on to The Leader in Me solution.

Can you talk about the rollout of that and kind of the progress and whether you've seen some increased, I guess, attention or wanting to adopt that solution here in the education segment?

Sure.

Sean, could you...

Yes, sure.

Yes.

Yes, so we started this last year.

And I think one of the reasons our gross contracts are down year-over-year is because some of the schools entered into this last year were -- we basically -- we said over 3 years at $80,000 to implement and install The Leader in Me.

Some of these new models, we have made it less expensive.

It's the same amount, $80,000.

That is over 4 or 5 years.

And also, the district model I just spoke of is also a less expensive way of getting started.

So between the two of them, last year we had -- of our 450 schools that we've brought on, we had probably 200 of them go to this new model.

We feel like over the long term, it's going to be really good for us because we're going to be able to get more schools in.

Our pipeline looks very promising right now.

Last year, we brought on, as I mentioned, 447 new schools.

We're looking at bringing on 500 this year in the U.S. and Canada and many more beyond that in other countries.

So -- and we also think it's going to be stickier down the road because they're paying less up front.

They're -- we explained to them this is a 4-year or 5-year implementation model.

Even though they're not signing contracts for that they're basically agreeing to it.

We find that once they've kind of set their stage for, "We're going do this for 4 years or 5 years," they typically stay.

The retention rate is helpful.

So we feel it's promising.

This is our second year of doing this.

And we think the future -- the key to this is going to be getting more schools.

It's all about net new schools and keeping them -- and keeping that retention rate as high as possible.

So that's the bet we're making.

So we'll continue to have options.

So we still have the traditional recommended model that we've been doing for many years.

And last year, as I just said, we introduced some new models with lower upfront cost.

This year, we'll probably introduce another option as well that's a lower upfront.

Again, with the end in mind of getting several thousand, hopefully, 5,000, 6,000, 7,000, up to 10,000 schools that are paying their annual membership fee, the subscription fee that we have, and then trying to create some more add-ons from there.

Understood.

That's helpful context.

And then on the Enterprise side, I still have 4,000 active customers, but there's still 7,000 that are assigned but not yet customers.

Can you talk about some of the approaches you'd take to really get into the door and drive some interest in the All Access Pass?

Sure.

Paul?

Sure.

Yes.

So those -- so backing up for a second.

We used to assign geographies out to our sales force.

And now, we assign out a list of named accounts within a geography, so they are proximate to where our client partners live.

And as you saw there on that slide, we have about 7,000 of the 11,000 assigned that are on someone's list, on a client partner's list, but we're not yet doing business with them.

And so what we're doing -- I mean that's the primary responsibility of a client partner is to go and prospect and to try to get into those accounts.

So we equip our client partners with sales and marketing tools to that.

And then we're constantly inviting people, decision makers or potential decision makers from those companies to come to our events.

Bob talked about how we're doing increasingly more and more events on key topics like Unconscious Bias or different aspects of leadership.

And so we'll invite people to come to those events.

We will -- through our thought leadership efforts, we're dripping on them with different pieces of thought leadership, from -- whether it be on sales execution or -- strategy execution or leadership development.

And so our salespeople are out every day trying to prospect into those accounts.

That's a primary activity, as I mentioned, of theirs.

And then those same activities that we're doing on the 40,000-or-so unassigned accounts.

We're not just leaving those off to the side and not addressing them at all, we're trying -- we do attempt to market to the entire addressable market for us in the United States and Canada, and then we flow those as leads to our salespeople also.

We're just leaving those off to the side and reserved, and we haven't officially assigned them to our current sales force because we want to use those as we hire these net new client partners every year.

And we'll assign those accounts out at that time.

So we have got a robust marketing team and efforts and a big thought leadership effort that Bob mentioned earlier in his remarks as well.

And your next question comes from Samir Patel.

Hey, Bob, can you talk -- on the two licensing deals, can you talk about how you think about the ROI?

And then related to that, are these going to be part of versus in addition to the typical content development budget?

Yes, it's -- on the second question, it's included in our content development budget.

We, historically, as a company have spent 4%.

We've had a content development and updating budget of 4% of the prior year's revenue.

That -- during the big investment phase in last couple of years where we were adding the new portals, new technological capabilities, we moved that up to north of 7%.

And going forward, we'll have a budget of between 6% and 7%.

And so any of these new content partnerships, et cetera, fall within that budget.

So we don't expect to have a lumpy development budget.

We've got plenty to do.

We've got lots of content now.

That's not -- it's hardly ever the reason why we're not winning a deal is we don't have enough great content.

We're trying to win -- open new avenues.

And so what typically happens is that you're licensing content, you're signing a multiyear license agreement that has a -- some kind of royalty payment that goes with it, that's included in that 6% to 7% of total product development budget as well as whatever we have to do with that content to build it into coursework or vignettes or videos or whatever else.

That all fits within the budget.

And so you can kind of look at the revenue going out a few years and know that we'll be spending about between 6% and 7% of the prior -- of each prior year's revenue the following year.

And about half of that will be expensed and about half will be capitalized and run through our -- it's reflected in our gross margins already.

Steve?

Right.

Some will be in depreciation if it's the -- related to the portal.

Perfect.

Yes, that's what I thought.

I just wanted to make sure.

And I'm 90% sure you're not going to tell me, but is one of these authors from Colorado?

One certainly goes through Colorado frequently.

And your next question comes from Patrick Retzer with Retzer Capital.

Congratulations on an excellent quarter.

You've been conspicuously silent on this call, both in the handout and verbally about stock buybacks.

You've got a long history of doing substantial buybacks.

You're piling up cash on the balance sheet.

Do you think we'll see or hear anything on buybacks over the balance of the fiscal year?

I do, Pat.

Thanks very much.

As you know, we have both cash and availability under our credit facility.

As you know, this season, for us, we've now collected a lot of receivables.

We've had a good quarter in terms of cash flow, beyond the investments we'll make in these normal levels of investment in the business.

That is our #1 outside -- the next thing on the list for investments.

So we tend to do it, it comes sometimes in day-by-day and other times in larger blocks.

And -- but yes, it's on our -- it's still the reason.

We've been building this up.

We believe, honestly -- we said now that we've made the big -- we've had the big investment years that we expect to continue to generate lots of excess cash.

And given our expectations, we can't think of a better use, after investing in the business, to return it to shareholders through repurchases.

So that continues to be our strategy.

And your next question comes from John Lewis.

So just to go to Slide 17, back to the new content coming on the platform, Unconscious Bias.

Will you charge an incremental fee to pass holders for that?

Or how will be price that?

Or is that just an additional piece of value that comes with the pass?

It's an additional piece of value.

We've had good price increases every year in all Access Pass.

We had a 7% price increase in each of the last -- well, we had a 10%, I guess, the first year and then 7% last year.

We'll have another -- we expect to have another price increase this fall.

So part of the value is that just -- we're not trying to do a lot of things outside the pass.

Everything we're doing would be just add value to the pass.

It allows to -- one of the -- we hope to continue to increase both the total revenue per pass and per user in the pass.

Okay, that's helpful.

You said that there's 8 -- or 11 areas of focus ideally for your All Access Pass and your -- it sounds like your content in general.

Can you give a broad area of the 3 areas that you don't have something that you would like to?

Yes, I mean, we have a map, John, and we haven't announced publicly what those are.

But I'd say just generally out in the world, something like change management.

One of the biggest, and most difficult thing is to get a whole organization to make a broad change.

And so that's an example of one of those 3 areas.

That's the kind of thing where we've got plenty of content but organizing it around a framework where we own the entire framework, operating system for doing it, et cetera, that's an area that is challenging for almost every organization.

We have a couple of other big ones that come out.

And it's not like we've never run it into it before, but we're trying to say let's really put the full weight of the organization's capabilities and budget behind solving some of these intractable problems.

And so I suspect we'll always have headlights out ahead of what we have.

There aren't just 11.

That won't end there necessarily.

But on the other hand, I think in those 11, it makes up 83% of the real reasons that people -- where they need scaled change in human behavior.

We can cover a high percentage of all the money being spent in those 11.

I take it the 2 significant authors are probably outside the Covey organization.

Would you -- if you bring these 2 significant authors on to the All Access Pass and into the Covey family, would those be incremental revenue streams?

Or would those be part of -- how would you...

They'll be part of the All Access Pass.

They'll just add value to it.

And yes, we decided not to -- we're not going to do the pass and then have also, "Oh, here's a new course you can buy in addition." You have 3 different levels with the pass.

You can buy a Personal Effectiveness Pass, an All Access Pass or All Access Pass Plus, which includes additional content.

So I mean, some of these might go -- will go into different tiers, adding value to the other tiers.

But we're not intending anything...

I got it.

It'll help in price hikes.

Okay.

A lot -- or just 2 other quick ones on this.

Is this like in the next 1 to 3 months or -- without tipping your hand, or next year?

Or what kind of time frame would you hope to be able to announce these type of deals?

Yes, I think in the next quarter, likely.

We'll at least announce one of them.

When I was growing up, they had these Paul Masson wine commercials, which said, "We sell no wine before it's time." Well, we sign no deal before it's time.

These are finely curated.

They've taken a long time.

But we're now in documentation, and I suspect in the next 90 days, we're likely to have one or both concluded.

And you highlight that you guys have, I think, 44 million books sold on your content today.

Are these large-scale, well-known brands with millions of books sold?

They are.

They are.

Okay, okay.

Great.

Just to jump to Slide 23.

I know -- and not to pick on the slide, but I think we've seen this slide for a number of years, the 4,000 active customers, and you guys have talked about headroom for 900 to 1,000 client partners.

But at 25 a year, it'll take 30 years to get there.

So I guess my question is what is the path to accelerate and be able to bring your solutions to customers that can use them in a more timely manner?

I mean, how do we -- I mean it seems obvious, either you need to do more deals or the size of the deals need to increase.

But I guess the point -- sharper point on the point is it seems like you either need to get higher average selling price in All Access Pass, new tools you can add, and I think we've had some e-mails on Betterworks or Culture Amp, what they're doing, or doing something to create more pull demand from your end customer to really be able to scale it.

I guess, how do we get outside of 4,000 customers?

Well, I mean, first, I'd say geographically, obviously, it's just U.S., we have access to a lot more customers, to start with, and we have more customers than just the U.S. Second, sales force expansion.

I don't think, honestly, that the reduction -- that the lack -- I mean, what we're talking about is trying to grow our EBITDA 45% to 50% a year for the next several years, and so we're not holding back on growth, I think.

For us, our target -- and we hope we can attract shareholders who want, above everything, really high growth in EBITDA and cash flow and a company that will deploy it in a smart way.

We'd like to accelerate the revenue side.

If we just add the 20 to 25 a year, which is not a bad number, we can meet all of these growth objectives and more if we do that.

So to go beyond this, we're building an infrastructure that could allow us to get to 30 to 40, but there are obviously a lot of clients and a lot of other people in the world that you're just not going to reach directly.

And so our thought leadership investments are one of those, where, as Paul mentioned, we're not -- while we may only have 11,000 of the U.S. assigned, we have now started these thought leadership and marketing efforts to reach the other 44,000, so they can raise their hands, so that they have a chance even though a sales person may not otherwise call on them.

Once they raise their hand, they will.

So thought leadership is a way we can do it.

We also have the opportunity to do strategic partnerships with people who have different clients.

They access some of these clients in different ways, and so there are lots of ways to expand distribution.

For us, if we continue to do just what we're doing, we think we can grow EBITDA and cash flow at these high rates of return, if we can do some of these additional things which, of course, we're in discussions about, that could accelerate it further.

So...

And there are no more further questions at this time.

Okay.

Well, thanks to everyone for spending the time with us this afternoon.

Just stepping back, we really are excited about what's happening.

And really, more than excitement is where we're -- there's a sense of satisfaction that comes from seeing the transition worked, seeing our sales force ramp up.

We've got a lot of opportunity for us.

And as John points out, there's a lot going on out in the world, and we hope that we'll be the partner of choice for people who are trying to have an impact, who don't have either the brand, the distribution or the capital that we have.

And so we think there'll be plenty of opportunities if there's one of those things out there that is the key to accelerating revenue we're in a good place to do it.

And so thanks very much.

We look forward to talking to you all individually soon.

Thank you so much.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.