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. During the question and answer session, if you have a question, please press star then one on your touch-tone phone. 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 product, 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 expectations 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. 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.
As shown on slide three, 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. Grew a similar percentage, 55% or $8 million for the latest 12 months. Actually, a little faster, $8.8 million for the latest 12 months in constant currency.
These results have gotten 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 fiscal 2020, which represents growth of between 31% and 55%. We expect to build on this momentum over the balance of fiscal 2020 and beyond. Specifically, as we discussed in our year-end conference call, as shown in slide four, over the next three years, we expect to grow adjusted EBITDA in constant currency from the $20.6 million we achieved in fiscal 2019 to between $27 million and $32 million in fiscal 2020. As noted, a growth of between 31% and 55%. Then to between $36 million and $41 million in fiscal 2021, and to between $45 million and $50 million in fiscal 2022.
We also expect to increase our net cash generated to between $25 million and $30 million in fiscal 2020, and then to between $35 million and $39 million in fiscal 2021, and to between $44 million and $49 million in fiscal 2022. Today, we'd like to briefly review our financial results and then address four key topics which underlie our expectation of continuing to achieve this very rapid growth in adjusted EBITDA and cash flow in fiscal 2020, 2021, 2022, and for the foreseeable future thereafter. I'd like to dig a little deeper into our financial results for the first quarter and for the latest 12 months. Revenue. Our revenue, as you can see in slide five, grew 8.9% or $4.8 million in the first quarter, and grew $14 and a half million or 6.7% for the latest 12 months.
Our total subscription-related revenue grew 21% or $5.8 million for the quarter to $33.6 million, and grew 23.3% or $24.2 million- $128 million for the latest 12 months. Our invoice revenues grew 8.4%, or $3.8 million in Q1. This was led by U.S. and Canada, where invoice revenue grew a little over 10% for the second straight quarter. Our balance of billed and unbilled deferred subscription revenue grew $16.8 million, or 26% in the first quarter to $82.7 million, compared to a balance of $65.9 million at the end of last year's first quarter, and compared to a $47.7 million balance into the first quarter of fiscal 2018. In addition, our total value of contracts signed in the quarter grew 17.5%, or $7.9 million, our strongest contracting quarter in the last several years. Very strong contracting quarter. That increased to $53.1 million.
As shown in slide six, the high flow-through of this revenue growth drove a 56.5%, or $1.8 million increase in adjusted EBITDA in the first quarter, with adjusted EBITDA increasing to $5 million from $3.2 million in the first quarter of fiscal 2019. For the latest 12 months, 55% of the $14.4 million of revenue growth we generated flowed through to increased adjusted EBITDA. This resulted in adjusted EBITDA increasing $8 million, or 55%, to $22.4 million for the latest 12 months, up from $14.4 million for the same 12-month period a year ago. In constant currency, adjusted EBITDA grew an even greater 61%, or $8.8 million, to $23.3 million for the latest 12 months.
This high flow-through of increases in revenue to increase in adjusted EBITDA again demonstrates the combined power of our strong high single-digit revenue growth, our increasing gross margin percentage, and the fact that SG&A has been declining as a percentage of sales. Both the enterprise and education divisions achieved strong revenue growth in the first quarter. As you can see in slide seven, in the enterprise division, which accounted for 78% of total company revenue in the quarter, revenue grew 8.7%, invoice sales grew 7.8%, the value of contracts signed grew 18.2%, All Access Pass and related sales grew 22%, and deferred revenue, billed and unbilled, all related to the All Access Pass invoice sales grew 31%. A very strong revenue momentum in the enterprise division.
As you can see in slide eight, in addition to achieving strong revenue growth, the enterprise division's gross margin dollars increased an even more significant 15.4% in the first quarter. This reflected the combined impact of strong revenue growth and a 433 basis point increase in gross margin percentage. In addition, operating SG&A as a percentage of sales declined slightly for the quarter, even after covering the cost of adding 23 new client partners in the enterprise division in fiscal 2019, and also the cost associated with the conversion of the German office to a direct office this year. For the latest 12 months, SG&A as a percentage of sales declined a significant 241 basis points.
The combination of these factors, improving revenue, improving gross margins, improving SG&A as a percentage of revenue, drove a 47% or $2.5 million increase in adjusted EBITDA in the enterprise division for the quarter, with adjusted EBITDA increasing to $7.7 million from $5.3 million in last year's first quarter. For the latest 12 months, adjusted EBITDA increased 41.4% in the enterprise division, or $8.2 million- $28 million. As shown in slide nine, strong quarterly and latest 12 months performance reflects continuation of the strong growth in revenue and adjusted EBITDA in the enterprise division over many quarters. As you can see in slide nine, the last 10 quarters, enterprise division's latest 12 months revenue has grown from $135.9 million to $174.3 million, growth of $38.5 million. During the same period, latest 12 months adjusted EBITDA increased from $10.7 million to $28 million, growth of $17.3 million.
This represents a 45% flow-through of increases in revenue over that period to increases in adjusted EBITDA. This model is continuing to drive strong revenue growth, high gross margins, declining revenue, and accelerated growth in adjusted EBITDA. As shown in slide 11, in the education division, the majority of whose revenue and profitability occurs in the fourth quarter, as you know, when schools are out, and teachers and administrators are available to go through training, revenue grew 7.1% in the first quarter. Education's gross margin percentage declined 172 basis in this year's first quarter, due primarily to an increase in the mix of services they sold relative to intellectual property licenses.
This is expected to reverse in the second half of the year when price increases kick in in the fourth quarter, and when we have a very high absorption of our coaches in the third and fourth quarters. The SG&A also increased in the quarter. As you know, education invests early on to make sure we're ready to service all the revenue later on. It reflected increased commissions on increased revenues. The SG&A increase also reflected investments in new client partners, the addition of symposium marketing events in this year's first quarter, and an increase in the amortization of deferred commissions. Education's pipeline of opportunities is strong, and we expect significant growth in its revenue and EBITDA in fiscal 2020 as a whole. Again, we're really pleased with the strength of our first quarter and for the latest 12 months.
This momentum has gotten us off to a strong start toward our growth objectives for the year, and we expect this momentum to further accelerate in the coming years, as we'll discuss later. I'd like to address four key topics which underline our expectation of achieving this very rapid growth in adjusted EBITDA and cash flow in 2021, 2022, and for the foreseeable future thereafter. As shown in slide 12, these topics include, number one, just touching on the greatest points of leverage in our business model, those points of leverage that are driving the high flow-through of increases in revenue to increases in adjusted EBITDA. Topic two is really addressing why the strategic space in which we play is so attractive and why we are winning in that space.
Topic three, which I'll ask Paul Walker to cover, is where we see opportunities to accelerate revenue growth in the future. Topic four, which we'll ask Steve Young to address, is how we plan to utilize the significant amount of excess cash we expect to generate over the next three years. Turning to topic one, the points of greatest leverage in our business model. There are three that I'd like to address. The first point of leverage is that because All Access Pass is generating high gross margins, our gross margin dollars are growing even faster than our revenue. As you can see in slide 14, over the last two years, the enterprise division's gross margin percentage has increased 156 basis points from 73.9% for the latest 12 months, ending Q1 fiscal 2019, to 75.5% for the latest 12 months in the quarter just ended.
As a result, as noted, the enterprise division's gross margin dollars have grown even faster than its revenues. The second point of leverage is that with this increase in gross margin, a higher and higher percentage of our revenues are also All Access Pass revenues that have this high gross margin. As you can see in slide 15, there's quite a bit of information on this table, but in the upper portion of the table, you'll see that All Access Pass and related sales in the enterprise division have grown from $41.2 million at the end of the latest 12 months for Q1 fiscal 2018 to $85.8 million for the latest 12 month period.
As also shown with this strong growth, All Access Pass and related sales have increased from 29% of our total enterprise division sales two years ago to 49% of total enterprise division sales here for the latest 12-month period through this year's first quarter. We expect All Access Pass and related sales to continue to grow as a percentage of sales, increasing to more than 75% of total enterprise division sales over the next few years, with the balance being made up of licensee royalties, which will also be related to All Access Pass, and then some of our legacy on-site and facilitator revenue and miscellaneous revenue would make up the difference. With this strong growth in All Access Pass and related sales has also come a significant increase in the amount of our deferred revenue balances.
As you can see in slide 16, our balance of deferred revenue, billed and unbilled, has increased from $18.1 million at the end of fiscal 2017's first quarter to more than $82.7 million at the end of this year's first quarter. With this has come significantly increased visibility into what we expect to be our future growth. We already know it's on our balance sheet, a significant amount of what we're expecting and forecasting in the future is already on our balance sheet. The third and final point of leverage is that All Access Pass' high revenue retention rate is creating high lifetime customer value, this is allowing SG&A to decline as a percentage of sales.
It was illustrated in slide 17, the combination of All Access Pass' attractive gross margins and high revenue retention, as well as high add-on services attachment and the fact that it's sticky and we're retaining this, is creating very high lifetime customer value. This high retention is allowing operating SG&A to decline as a percentage of sales in the enterprise division because we're retaining substantially all the revenue that we're selling. The combination of these three points of leverage, again, strong and growing gross margins, the increasing share of our revenue that's being generated that is subscription related, and the high retention of that revenue, is really creating very strong operating leverage in the income statement. Topic two is merely address quickly why the strategic space in which we play is so attractive and why we're winning.
We often get questions on trying to get a little better understanding of the strategic space in which we play and why it is that we're winning and retaining the revenue that we are and our passes are being renewed. We wanted to address that. Just to say that first, the market for organizational performance in which we play is huge and expanding. When you think about it, almost every organization's largest investment is in its people, its collective investment in its people. Therefore, its biggest opportunity for organizational performance improvement most often lies in increasing the collective performance of its people. In pursuit of this improvement, it's estimated that organizations globally spend more than $90 billion on outsourced learning and development solutions and services. They spend an additional approximately $220 billion for their learning and development staffs and for internal content development.
In addition to the learning and development budgets, there are countless additional billions spent on consulting and other performance initiatives outside learning and development spend. There's a lot of money, effort, and time spent on this topic. Second, we are playing in what we believe is the largest and most strategic and most lucrative space in this market, and we're winning. In slide 19, just the organizational performance market can generally be captured as shown in that slide. At the bottom of the pyramid is the job of developing skills and capabilities in individual learners. On the left-hand side of the bottom row is developing personal and interpersonal skills, and on the right-hand side, you have technical skills. Currently, the vast majority of training at the bottom of the pyramid, so to speak, is focused on the bottom right-hand side on developing technical skills.
Increasingly, enterprises are turning to online and do-it-yourself video content to provide this kind of training, and they should. It's an economically smart way to leverage new technology while engaging individual learners online, especially with an increasingly dispersed workforce. As you move to the left-hand side of the bottom of the pyramid, beyond technical skills into the terrain of personal and interpersonal skills, and even more importantly, as you go up the pyramid to developing leaders who can achieve results and engage their people and even higher to the top to help organizations achieve major strategic initiatives that require large-scale change in human behavior, you'll find the very challenges that line leaders and C-level executives value most and have the budgets to address. These are organizations must-win challenges.
Challenges such as closing an operational gap, improving sales performance, measurably increasing trust throughout an organization, or improving an organization's key customer loyalty metrics. Leaders not only invest a significant portion of their outsourced learning and development budgets to address these challenges, but also a disproportionate share of their internal learning and development budgets, as well as portions of their operating budgets, are focused on addressing these problems. We are winning and retaining and expanding our business with organizational customers seeking to address just these kinds of challenges. In doing so, we're gaining access not only to the large outsourced learning and development budgets, the $90 billion piece, but also to the internal learning and development spend, the $220 billion piece, as well as to portions of organizations' operating budgets. Just three quick notes on that.
As to winning a bigger portion of clients' outsourced learning and development budgets, there's a large financial service firm which has now been an All Access Pass holder for nearly three years, who during this period has expanded their pass from 100 users to more than 8,000 users. Additionally, they are contracting for many dozens of training days, what we refer to as add-on services each year. This client has expanded its pass holder population rapidly in three short years because of the depth and breadth of content in the All Access Pass. Each time they encounter a new need in the organization, they consult with their Franklin Covey implementation specialist to determine how that need might best be met through the content and tools in the All Access Pass. Most often it can be.
As this process has played out again and again, their commitment to All Access Pass has increased significantly. It's important to note that this client's not investing more money in addressing their needs than they did previously. In fact, they're spending a little bit less than they did traditionally, but they've shifted almost all of their spend away from their other historical providers and toward Franklin Covey and their All Access Pass. Similar things are happening with internal learning and development spend, where people are recognizing they can take the content in All Access Pass and weave that content and the tools in All Access Pass throughout their leadership development frameworks. In so doing, again, they're displacing a number of their former internal and external offerings.
We have one example of a multinational Fortune 100 company who purchased an All Access Pass three years ago as a pilot with a relatively small population of 200 leaders who recently increased their pass to cover all 30,000 leaders in their organization and signed a three-year contract. Accessing not only the outsource spend but also their internal. Finally, we're also winning, as I noted, a portion of clients' operating budgets. For example, the CEO of a large retail organization you'd know made the decision to implement our Four Disciplines of Execution solution systematically throughout their hundreds of stores using All Access Pass. Their revenue and profits are at historic highs. They give credit to this whole process to Four Disciplines, and the organization has gained an increase in capability and toolset to execute strategy. We're winning in all three budgets.
The reason we're winning, finally, is first because our well-known, best-in-class branded solutions are focused on and known for their track record in delivering measurable outcomes on exactly these critical challenges that we talked about. Due to the importance of the challenges just outlined, organizations seek out best-in-class solutions that have a track record and credibility for delivering outcomes. This is absolutely where Franklin Covey shines. Franklin Covey is known and trusted for being the partner of choice for organizations facing challenges, the solution to which require behavioral change at scale. Whereas most content in the learning and development space is unbranded and relatively undifferentiated, Franklin Covey's solutions and insights are well-known, best-selling, branded, and trusted. They receive nines and 10s NPS scores from participants and buyers, and have a great track record and reputation for delivering desired outcomes.
With this branded content on important problems, that's the first reason we're winning, and the second is because the All Access Pass structure has an extremely compelling value proposition. With All Access Pass, the clients receive unlimited access to all of our well-known and trusted solutions, many of which are shown in slide 20, and they get that for their entire passholder population. Finally, as shown in slide 21, with All Access Pass, these solutions are available in an almost limitless combination of delivery modalities. They're available in 21 languages worldwide, so people can implement these solutions worldwide. They get the services of an implementation specialist who can help to curate and design impact journeys to meet specific needs the client has, as noted in this one client who's gone to pretty much every leader in their organization.
The solutions can be purchased with add-on coaching and delivery services to help a client to achieve its desired outcomes. All this is available at a price per population trained that's less than or equivalent to that typically charged for a single course in a single modality. For clients who are already purchasing access to video libraries that help individuals develop technical skills or personal skills, All Access Pass is extremely additive because it allows organizations to transcend these basic skills and also address their more pressing 80/20 challenges. Delivering on this compelling value proposition is a key reason why the sales of All Access Pass are growing rapidly, why we are retaining substantially all of the All Access Pass and related revenue we sell, and why passholder organizations are not only renewing their passes, but are doing so for multiple years.
We have a similar value proposition in education, where educational institutions, again, are buying a subscription to The Leader in Me, finding enormous value in it, and expanding within districts. Of course, we retain these schools, and they're expanding within districts. With that, I'm going to ask Paul Walker, our President and Chief Operating Officer, to address topic three, which is where we see opportunities for even more accelerated revenue growth in the future.
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%-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. 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 200-300 users, and then in one case, have expanded now to 8,000, in another case, expanded to 30,000 users. Important to note, even in those companies, we still see expansion opportunity up and above those numbers.
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's 5x or more the All Access Pass seat potential inside our client base. We know that those examples, that's a lot bigger growth than 5x, going from 200 or 300 to 8,000 or even 30,000. 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. That implementation specialist, along with their client partner, are in there immediately and engaged with the client formally at least quarterly. 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 do. Our process is set up to uncover additional jobs we can help that client with and additional populations which we can serve. Each of those additional populations represents expansion within that logo. Lots of opportunity there. We're on that. We feel good about the momentum and the trajectory there. The second way in which we see revenue growth accelerating in the future is to land more new logos, to bring on more new All Access Pass clients. We're really pleased with the tremendous growth that we've achieved with the All Access Pass to date. As you'll know, All Access Pass and related sales have grown from a significant $15.7 million in their first year to $85.8 million in the last 12 months.
Even with this success, we're just scratching the surface. As we've talked about in previous quarters, even excluding the small business market, which we in the future see as a potential market for us, there are more than 50,000 accounts in the U.S. alone in our addressable market, which are not yet All Access Pass holders. To take advantage of this opportunity, we're adding a significant number of new client partners every year, and we're seeing these client partners ramp up on or ahead of expectation. Over the past two years, we've refined our recruiting process and profile. We now have five full-time recruiters. We've created a new, more immersive sales school, and we've invested significantly in sales leadership.
With these investments, we expect to continue to add at least 25 net new client partners a year and have a lot of headroom there in the years to come to add those client partners. The third point I would touch on where we see the opportunity for accelerated revenue growth would be in our international operations. We now have direct offices in five of the seven largest economies in the world: the U.S., China, Japan, Germany, and the U.K. These are in addition to our operations in Canada and Australia.
It's important to note that in each of these countries, we have the same or maybe even greater potential for growth as we do in the U.S. It's same strategy, we'll achieve that growth through the expansion from existing All Access Pass-holding clients and through winning new logos through our sales force expansion efforts, which are the same there as they are in the U.S. Just using our same land and expand and our hire and ramp processes that we've identified and been executing for the last few years. We feel really good about the momentum we have today, and we see opportunity to only accelerate that in the future.
Thanks so much, Paul. Now I'd like to ask 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. 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 passholder customers. We would, of course, expect to earn high rates of return on these types of investments. A 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 more than $167 million at a weighted average purchase price of $13.86 per share. 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. We believe we can still increase the value of the company and the value to shareholders. 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-$32 million this year. Anywhere in that range, of course, represents really strong growth in adjusted EBITDA, growth that we've talked about between 31% and 55%. 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. Just in conclusion, we are pleased with our strong results and the trajectory of our expected results. Pleased with 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 and growing position of what we believe is the most attractive and lucrative part of the performance improvement market. We believe that we have several great opportunities to further accelerate our revenue growth in the coming years while retaining a high flow-through of this revenue. We expect to utilize excess cash to add shareholder value. We appreciate your support and look forward to taking advantage of this tremendous growth ahead of us. Now I'll turn the time over to you all for questions. We'll ask our operator to open the line.
Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch-tone phone. Our first question comes from Andrew Nicholas. You may begin.
Hi, everyone. Good afternoon.
Hi, Andrew. How are you?
Great. First question, I just 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 it. I was hoping you could flesh 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 special one-time items. I think the primary thing at work here is the increasing mix of All Access Pass and related sales. They just have very high gross margins. What we've said is that over time, we believe that from time to time, we'll have big jumps like this in a quarter. In the longer term, we expect the gross margin percentage will increase some each year, but it'll edge up because on one hand, the positive thing that'll be pulling it upward is the increasing mix of All Access Pass and Leader in Me subscription sales. We also believe that the strength of those offerings is really made more strategic by the addition of services. As services continue to get added to the subscription revenue, they're a little bit lower margin.
The combined margins will still really be good, and will balance together. There could be some shift depending if we develop all the content ourselves, it's all capitalized in capitalized development cost. Sometimes we license content also. It has a little different accounting treatment and may shift the mix between gross margin and SG&A. I think long-term, as we've said in the past, that we would think that gross margins will edge up, not by hundreds 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. Some quarters will be bigger than others. That's the general trend.
Great. Thank you. Then, another one on tuck-in M&A. Obviously, one area of focus would be adding content. 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 make sense to be more aggressive there, or is that outside of the strategic direction of where you're trying to serve clients?
Right. First of all, I'll say that, in terms of acquisitions, most content acquisitions, because the thought leaders typically don't have a company. They are thought leaders. They might be professors, they might be authors. Oftentimes, acquiring the content is 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. 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. They're not really acquisition targets for content, generally. More like with Liz Wiseman's content, licensing or with Clayton Christensen in recent years, you have the ability to license the content. The tuck-in acquisitions we're talking about fit. For example, Jhana gave us new capabilities.
It gave an ability to deliver microlearning in a whole different delivery method with the Jhana Weekly and accessing this library of best-in-class articles and content that can be navigated by an individual user. I think it's probably those kinds of areas, to your point, strategically, where 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's going to be well-served with probably another dozen people who come up with their own libraries of technical content, et cetera. 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 10 key jobs to be done on which we're focused, these critical must-win games that organizations have, that we can get that content to them in unique and interesting ways that they can access it. It's that kind of thing, assessment engines, different things like that'll probably be on our M&A targets to fill in capabilities more than content, if that's responsive.
It is. Thanks a lot.
Thanks very much.
Our next question comes from Jeff Martin. You may begin.
Thanks. Good afternoon, guys.
Hey, Jeff.
Hey, Bob. How are you?
Great. How are you?
Good. We covered gross margin. I was curious if we could go through the same walk for an 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. Should we expect a couple of hundred basis points leverage on SG&A for the next several years?
Yeah. Why don't you, Steve, address?
Hi, Jeff. 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 or remain fixed or semi-fixed. That would leave areas where SG&A will increase, primarily for additional salespeople and commissions paid to salespeople, implementation specialists, content development, and those types of things. In general, not audit quality, but we talk about SG&A increasing at a rate may be half the rate that sales increases. A way to test if all this is working out is the targets 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, even though 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. I wanted to say congratulations on the large client wins and expansions. That's really good to hear. I was just curious if there's anything different in the sales process or the delivery process that's helping that effort.
Paul, do you want to address that?
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 salespeople and our sales leaders great props for how they've helped us transition this business. Just every month that goes by, the salespeople become more comfortable. We've become better at positioning this. We're getting better at entering higher-end organizations, where you naturally can address these larger populations. I think it's just the continued turns of the flywheel there on how we go to market, and then the market's receptivity to what we're doing. Nothing unusual or extraordinary, which is good, I think.
Okay, great. Last question on the international direct effort. I was just curious if you could give an update on some of the recent offices you've taken from a licensed 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 the last point, as I mentioned, we're now direct in the largest economies, the U.S., China, Japan, Germany, and the U.K. Of course, we're direct in Canada and Australia. I think we're not necessarily on a quest to convert licenses back to direct operations. There's been some opportunities that have come up. We did that most recently in Germany, as you know. 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. Of course, it was really Germany, Switzerland, and Austria is what we picked up when we converted. When we say we converted 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 U.K. operation, which has been growing nicely for the past few years. In Germany, we're running the same play, All Access Pass related, everything Bob talked about on the call here. For us, it's the same strategy everywhere in the world. It's hire 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 directs as well. We're just getting to China now, and 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. We expect to see continued momentum there as well.
Great. Thanks for that, Paul.
You bet. Thanks, Jeff. Okay, great.
Sorry, our next question comes from Marco Rodriguez. You may begin.
Hi, Marco.
Hey, Bob. 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? Has things sort of changed? Is there more competition for talent out there?
Sure. Hey, Marco, I'll take that. This is Paul. I talked a minute ago about our hiring process. We feel great about it. We added a significant number of new client partners last year. We continue to add this year. As we've refined our profile of client partner, we're 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. I would say, we're really pleased with the people we're able to attract. I think one of the biggest contributing factors to why we're able to attract who we're 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 then that's paying off and people are attracted to us. We feel great about the candidates we're getting. We feel really good about what our team's 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. Sean can comment on that.
Sean, why don't you
Yeah, sure.
talk about that too?
Yeah. Hi, Marco.
Hey, Sean.
Yeah, on the education front, we feel similar. It's a really attractive time to get people right now. I think a lot of it is the education industry is being disrupted quite a bit. A lot of these big companies are just being shaken right now. We're picking up a lot of really good client partners from former companies like Pearson Education and so forth. 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 it. They just need to have good sales experience.
I feel really good about our processes and feel, over the last many years, we've improved every year in our hiring capabilities.
Got it. Then in terms of the implementation specialists, 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 work on to accelerate that increase in wallet share?
This is Paul. I'll respond to that as well. We do feel great about them, and thanks for acknowledging them. They're doing a wonderful job. What we do, we have a formula. We add them formulaically, and they're added as a % of All Access Pass sales. We have a model for how many clients and how much revenue an implementation specialist can work with and do a really good job with. Then as sales grow, we add more. It's a variable model that way. Yeah, they are. They're 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.
To retain the logo, they've got to ensure that we do a really good job serving the client around the thing they initially purchased the All Access Pass to accomplish. The revenue growth, of course, comes as they develop more relationships. I would say the client partner stays very involved as well. The two of them together develop additional relationships, look for additional populations, and that's what drives the other portion of their compensation is the expansion of revenue and the addition of add-on services. They're a great team. It's a team we didn't even have four years ago. They're doing wonderful work.
Last quick question, maybe if you can talk a little bit about the international licensees, just where they are in terms of their implementation of the All Access Pass and their sales cycle.
All Access Pass is now available in 21 languages. Right, Adam? Yep, 21 languages. Continues to grow there. All of our licensee partners, they've been trained on it. They're 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 growth sales. 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 in Q1, near the end of the quarter, close a very large All Access Pass. In fact, one of the biggest ones we had in the company. It was really a thrilling thing for that to come from one of our licensee partners.
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 hire and ramp processes really everywhere in the world. It does not make much of a difference, if any difference at all, whether it's a direct operation country or a licensee country.
Marco, I'd just add to that in many of these countries, our local license partners, and licenses, that happens to be the legal way we do business. We view them as direct, really as full-out 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. As a consequence, in many of these countries, they are really looked to as the person, the company or their organization or the individual is the one who's asked to speak on issues relating to leadership, who's interviewed on television if there's a leadership issue in the country or whatever. We have a tremendous group of partners that have invested their own capital alongside us to build these operations.
We feel really great about having this network. Now, outside approximately 10 countries in Central Africa and those under U.S. embargo, we really have a licensee network that 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.
Our next question comes from Zachary Cummins. You may begin.
Hey, Zach.
Hey, Bob. How's it going?
Great.
Congrats on the strong start to the year.
Thanks.
Yeah, just 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? Is it typically the displacement of an existing vendor is how you get into the door? Or is it trying to focus on maybe a leadership area that hasn't been addressed before at the company?
Yeah. Paul, you can address first, if you'd like, so I can.
Sure. Yeah. Hey, Zach. I won't be too long with this answer here, but there are two primary entry points for us inside a new customer. Bob mentioned these earlier, he outlined kind of that strategic pyramid, I think, in the slide, I don't remember. 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're primarily purchasing capability development, either leadership development or development for individuals across the organization. They might be thinking about things like culture, et cetera. We sell to the second entry point is to the line organization itself, the CXO level person, Chief Sales Officer, Chief Executive Officer, Chief Operating Officer, et cetera. Our salespeople are out every day.
They each have 100 accounts assigned to them, some of those accounts are existing and some are prospective. They're calling on those accounts and using our marketing collateral. What usually happens is that they identify a need a client has. Whether we end up displacing another competitor or not, sometimes we do, sometimes we don't. A lot of our clients purchase at the bottom part of that pyramid, the technical skills. We're working alongside another organization. They're addressing the technical side, and we're addressing more of the performance enablement or the business outcome side. It's the salespeople 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.
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 be sort of their own general contractor with formats that don't exactly match, the quality doesn't match, it's not implementable across the world. That 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 saying, "Gosh, if I can get the world's best content on these topics I'm trying to get solved, services to help me get them done in all the languages across the world," et cetera. That whole value proposition, we're winning an increasing share of the dollars that these clients have.
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're coming to us and saying, "Look, we're not going to be spending as much, but we got to make darn sure the money we are spending is having the greatest impact it can have." As 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. It's a combination of those things. When we talk about the big wins this last, 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. Just over on the education side of it, any sort of update on the rollout of the district model that you were talking about on the Q4 earnings call? Have you seen any sort of uptick in interested buyers or more any sort of receptiveness to this new model?
Yeah, sure. Yes, 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're having a lot more discussions at higher levels. The sales force is very excited about where this is headed. We're having a lot of the district discussions are leading to big community discussions with multi-district, sometimes state-level discussions. Initially, we've only been doing this for a few months. We feel really good about it so far, and the pipeline of districts we have right now compared to last year is we have manyfold more, which is really encouraging. It's also a new type of sell, so we're having to learn how to sell to districts. About maybe a third of our client partners are pretty experienced with districts, and the rest aren't.
There's some learning curve here for sure, and I think it's going to take us a good year to really get really good at it. It's definitely the right direction. Early results are good. My guess is in the past, whereas last year we brought on 30 new districts, we could bring up to 100 new districts this year, and the pipeline looks really strong. It's going to take some time to really get it across to all the client partners, the capability.
Got it. That's helpful. Appreciate the color. Well, I think that's all the questions I had for now, but congrats on the strong start to the year and best of luck with Q2.
Well, thanks very much, Zach.
Our next question comes from Patrick Retzer. You may begin
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 Capital 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're saving a lot of dry powder to essentially put a floor under the stock here. If you bought it at $35.14, I would think here in the $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. 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. 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.
While the shares have been distributed to institutions who we've known for 30 years, I've known for 30 years and have been shareholders for 20, and we believe, based on their discussions with them, they'll be very disciplined holders. They've been investors, they're 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, as we've noted, we have an 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. Obviously, we get the point that if we thought it was good at $35.50, it's also attractive at $35.54.
Again, I think hopefully the chart and the discussion that Steve had, we've shown a willingness and certainly purchase of basically over 14 million shares in total, Steve?
$167 million, 12 million shares.
12 million shares over time. Yeah. 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. I think you're right that rather than saying let's try to buy all of it at one time, the people who receive those shares aren't necessarily sellers today. 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.
Our last question comes from Alex Paris. You may begin.
Hey, 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 year.
Thank you.
All of my questions have been asked. 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. In addition, 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?
Yeah. 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 paying them $100,000 or $120,000 a year. For the first three years, even though they're on commission, there's a guarantee that they're getting. 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 million, $1 million, three goal.
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, the overall ramp rate has been a little bit ahead of that. To your point, there's leverage on a given fixed cost for those new people. There's leverage on the cost there. You're getting more revenue out of the same cost, point one. Point two is that also, because you're retaining substantially all the revenue from these passes and people are expanding, adding on services, et cetera, you're not spending new marketing dollars to do that, and you're using a largely fixed investment in implementation specialists in the sales force and getting more out of that without having to spend new money.
The things behind that are these strategic things that as we're in there with a client, we're identifying one task that they're trying, one problem they're trying to solve or opportunity they're trying to take advantage of. Within that same client, they've got 10 others. They're either not doing anything about them today, or they've hired others to do them. That search that Paul talked about is when you're in there and able to find additional opportunities and you're not selling, you're really there servicing and people are saying, "Gosh, could you help me solve this one, too? The first thing's been so successful. Hey, would you give me help on this, too?" It's just an organic process that is driving this.
In the past, a salesperson 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. Is that responsive?
That was responsive, yes. Thank you for the color. That seems to be all I have for now. I did have 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. 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 began our international partner network, there were a lot of international companies, of course, but they didn't approach this concept of building their whole workforces on a global basis. It was delegated to each country to figure out kind of how they were going to do leadership development or how they were going to do cultural improvement. Today, that's not really an option. If you're a global company, your culture is your competitive advantage. This is creating a beachhead in many, many countries because wherever the client might be, whether they're in Germany when they buy the pass, they have 10 other countries in which they operate, or if they're in the U.S., they have 20 others, whatever.
It's 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 the global clients are operating in all of those economies. That's providing a good foundation. In terms of penetration, just generally though, when you look at across Japan, China, the U.K., Australia, Germany, et cetera, we have around $40 million of revenue. You look at that and say 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, with all the headroom we have in the U.S., we're much less penetrated outside the U.S. 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 help us grow in those areas. We've got great client partner hiring things going. We think, as Paul said, that this is a tremendous opportunity. They're both so big that we're not going to get there anytime soon. 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. We've got a lot to do. Paul.
That's very helpful. I appreciate the color. Thank you, Dan.
Thanks, Chris. Okay. If there are no more questions, operator.
We have no further questions at this time.
Great.
I will now turn the call back over to Bob for final remarks.
Great. Well, 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. 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.