Welcome to the Q2 2019 Franklin Covey earnings conference call. My name is Erin, 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. 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'd 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. 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, 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.
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. As we've said before, we expect to now generate high rates of growth in adjusted EBITDA and cash flow going forward. To remind you on Slide three what our expectations have been, we expect to report adjusted EBITDA to increase from $11.9 million last year to between $18 million and $22 million this year. It represents growth of 50%-85% in that range. Then increase to between $26 million and $31 million in fiscal 2020, and to between $35 million and $40 million in fiscal 2021.
Reported adjusted EBITDA plus the change in deferred revenue, we expect to increase to between $30 million and $34 million this year. Then to between $38 million and $42 million in fiscal 2020, and to between $47 million and $52 million in fiscal 2021. Then net cash generated, which is very close to reported adjusted EBITDA, is expected to increase again in the range of $18 million to $22 million this year, to between $26 million and $31 million next year, and to between $35 million and $40 million in fiscal 2020. We affirm these expectations. There are three things that we hope you'll take away from today's call. You can see in Slide four. 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 of our high recurring revenue, high margin, high flow through, low capital intensity subscription business model. 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 2019 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 subscribers grew 29%. With 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're 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, it's less than 1 at one times the original purchase price, is really creating compelling sales force unit expansion economics. We have a lot of headroom for sales force growth. We are executing on that opportunity. I'd like to just address each of these takeaways in a little more detail, starting with 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 the high flow through relatively fixed cost, low capital intensity model that we've talked about. As you can see in Slide six, our revenue growth was strong and very broad-based. 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 seven and a half million compared to last year's second quarter, and unbilled deferred revenue grew 61% to $9.5 million compared to last year's second quarter. Total contracts signed or contracted revenue grew 6.8% in the quarter, 7.4% year-to-date, and 4.5% for the latest 12 months. 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 Slide seven, 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 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 you would think that's $1.7 million, but rounding makes it really $1.6 million. Year-to-date for 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 $16.1 million.
That's growth of $5.3 million compared to the $10.8 million in adjusted EBITDA in the same latest 12-month period last year. 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 last year's second quarter. I'll just briefly touch on each of the divisions. I'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 eight, our balance of billed and unbilled deferred. Reported revenue grew 8.3% in the quarter, 10.3% year-to-date, and 13.6% for the latest 12 months. Adjusted for changes in foreign exchange rates, 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 that 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.
The enterprise division, as expected, there's a lot of flow-through of this incremental revenue. 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. Finally, adjusted EBITDA increased $3.8 million in the second quarter. That was 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%. Adjusted for FX, the growth was even stronger.
Adjusted EBITDA increased to $4.1 million, which was growth of 64%. Year-to-date for the second quarter. Sorry, for the quarter. Year-to-date for the second quarter, adjusted EBITDA increased $9 million, which is growth of 43.4%, compared to $6.3 million last year. 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 growth of $6.7 million compared to $14.3 million. 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, and we're pleased that that was occurring.
We've got a strong pipeline of business, of course, our largest quarters are still ahead of us in 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 just 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 the budget cycles and to the availability of professional development days in the summer in North America. You can see that seasonality and there's a slide 30 in the appendix that gives you an idea of 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 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 multi-year education foundation contract in last year's second quarter, which reduced year-over-year revenue, latest 12 months revenue growth for the 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%, unbilled growing 17.3%.
Contracted revenue declined due to the usage of deferred revenue into 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. The gross profit increased 5.2% in the second quarter and 11.6% year-to-date, 2.8% for the latest 12 months. Excluding the non-repeat of the 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. Through the whole company, the SG&A as a percentage of sales is improving. SG&A's remaining flat except for increases in commissions. 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.
Year-to-date through the second quarter, adjusted EBITDA on 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. Again, we have a very strong pipeline in education and expect a strong second half of the year. Stepping back for the company overall, we're 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 we're excited that we've really gotten a good push up the mountain toward our objectives with about, again, about almost a $5 million improvement in adjusted EBITDA year-over-year against our guidance for the year. Stepping back now, 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 has 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 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 and 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. For the latest 12 months, All Access Pass and 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 and 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 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. Encouraging and exciting for us is that the average All Access Pass and related revenue per subscriber also increased 17%. We're having both expansion of revenue per paying customer as well as the number of paying customers. That's driven revenue growth. It's actually even higher than the subscriber growth. In terms of quality metrics, All Access Pass is not only growing rapidly, but it's achieving key subscription metrics consistent with those being achieved by some of the subscription businesses with the most compelling economics and valuations.
You see on slide 15, these metrics include annual recurring revenue, 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 at more than 100%. A relatively large initial purchase price, which reflects the relatively large size of the populations for which All Access Pass is typically purchased. This relatively large purchase price establishes the foundation for strong unit level economics, including reduced customer acquisition costs as a percentage of sales, which is less than one. Our customer acquisition costs I mentioned are attractive at less than one, and the expectation of achieving $100 million in annually recurring revenue in only approximately four years is really quite aggressive growth.
We're pleased that the quality metrics are also showing up and staying strong. As shown on slide 16, our lifetime customer value is growing. Combination of the high initial purchase price, strong gross margins, good attachment, service attachment rate with sticky annual retention is building strong lifetime value. 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 a 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 as saying, "Physics would be a lot harder if electrons had feelings." 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. 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.
As you can see in slide 17, since inception, we've 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 been expanded to provide implementation coaching to drive home the capabilities that we're training people on. We have three 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. There are some big organization-wide contracts that we're discussing right now. We'll also be updating our on-demand digital library, and also adding another offering on accountability. We're also in the documentation phase now of finishing licensing agreements with two 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. We're also implementing other technical enhancements to better serve our clients.
There's a lot going on there all the time, the path is getting stronger and stronger. At the same time, our clients are getting significant value from it and repeating and extending. Slide 18, you can see that reflective of this lifetime value is that we have, in addition to the $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. We expect to get over the $500 million mark in the next 12 months or so. In addition to that, All Access Pass has two elements that provides 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. Second, an increasing percentage of pass holders are entering into multi-year contracts. As you can see in Slide 19, for the latest 12 months, 27% of pass holder organizations entered into multi-year 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 a third in the coming quarters and move toward 50% in the coming years. Just one last note on All Access Pass is in Slide 20. To simultaneously achieve top-tier growth in subscription-related sales, as we've talked about here, the top-tier subscription economic and customer metrics we've talked about, at the same time, being top-tier rates of growth in adjusted EBITDA and cash flow is a rare combination.
We're grateful for our clients, we're grateful for our team. For us, achieving the intersection of these three factors reinforces the prospect also of creating significant increases in 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 three 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 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 three things that put us in a strong position to execute on this unit expansion opportunity.
First, as you can see in 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 a 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 fifth year, and then grow beyond that. As I mentioned, All Access Pass' strong economics are accelerating the ramp rate for new client partners. Because they're retaining 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, $800, $1 million, $1.3 million. 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, and All Access Pass' high margins, as I noted, we typically break even on our approximately $150,000 total first-year investment in a new client partner by the end of the first year. In the bullet three, we have a lot of headroom for growth in the number of client partners we can hire. The addressable market for performance improvement in the 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 three direct offices in China. We have a similar opportunity in education, where there are 150,000 K through 12 schools in the 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. 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 four 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, five-week sales training school for all new recruits. We've always had some sales academy work and a lot of online work. We now have a very rigorous five-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 in national syndication. Our practice leaders now author recurring columns in Forbes and in Inc. magazines, as well as generate ongoing strategic articles and interviews in industry-specific trade publications.
We also host multiple weekly podcasts and main stage keynotes at leading conferences, including the World Business Forum. We've always had a strong lineup of what have become best-selling books and have sold more than 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 successful ramp-up of large numbers of new client partners. 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 the growth and impact of this high-recurring revenue, high margin, high flow through, low capital intensives subscription business model will help us to continue to meet our objectives in 2019 and in the coming years. Second, that the subscription business is driving that. As we've talked about, All Access Pass and related sales grew 33% year-over-year, and subscribers 29. Finally, the sales force having strong offerings that are compelling and connecting with customers. We now are focusing an increased effort on something we've done for years, but on this unit expansion. With that, just wanted to step back and say this is an exciting time to be at Franklin Covey.
It's really exciting for all of our people because the nature of our client engagements is just more profound. 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. 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. With that, I'll turn the time over to Steve Young for our outlook and guidance.
Hey, thank you, Bob. We are excited about the future and pleased to be able to share some guidance with you this afternoon. As indicated on slide 26, we have said that over the next three 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%-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.
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. 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're 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 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, where, as 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. We're excited about our start, we're excited about the year, excited about the third quarter. Bob, that's the official guidance.
Great. Thanks, Steve. All right. At this point, thanks so much. We'll now open the line up, if we could, for some questions.
Thank you. 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. Your first question comes from Tim McHugh with William Blair.
Tim, it's you.
Hi, Tim.
Hey. How are you guys doing?
Good. How are you?
Good. Can I just first ask on digging the margins a little bit, I guess. The improvement this year has been, I guess, mostly SG&A leverage versus the gross margin being more flat-ish year-over-year, which is kind of opposite of last year, right? 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? Secondly, as sales force hiring starts to ramp up here, do we keep seeing SG&A leverage?
Yeah. Thanks, Tim. On the two questions. First of all, the principal reason we haven't seen the same growth in margin percentage this year is our focus. After we acquired the Robert Gregory Partners, 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. We've grown the add-on services revenue, both in percentage of attached rate and dollars. 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'll be stable in this range and probably increase somewhat going forward now that we've made that big push.
There was kind of a big push, and that will level off, and we should have some continued growth there. That's the primary thing at work on the gross margins. Again, we feel really good about the level of gross margins, and particularly, in the enterprise side, we're at 75% blended or so. That is good. In terms of the sales force leverage, yeah, we do believe, honestly, Tim, that we'll have the same leverage in the operating model will continue, and that's basically because if you look at what will happen is our adding net 20 to 25 salespeople a year. On average, that group will be on staff for about half the year. At $150,000 a person, we'll be adding about a million and a half dollars of annualized cost on average for the year.
We cover that with revenue and gross margin that's generated from them. It's built into our model. These expectations that we'll have EBITDA growth of these high rates, but with flow-through of 45%-50% already incorporates the idea. With the high gross margins, generally, the addition of salespeople, because it's relatively flat each year, it's 20 to 25 every year for the next five years is what's in our plan. It should keep the leverage, I think, and flow through very high. Is that helpful?
Yeah, that's helpful. On a geographic basis, can you talk about, I guess, to the extent, I know it's smaller than the U.S., but U.K. and Europe? Certainly, I guess U.K., given all the political uncertainty there right now, 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?
Good question. Paul, do you want to respond to that?
Yeah, sure. Hi, Tim. 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 our business is growing in the U.K., has been growing steadily now quarter-over-quarter for quite some time. We continue to win new business and expand the work we're doing with current clients. 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 licensed partner. Had nice business in the second quarter there in Germany. Our partners in Europe are also doing well right now. We're not seeing anything right now that would indicate there's any kind of a problem there.
Okay, great.
Just one more note. All Access Pass continues to do well there also. In the U.K., we've converted about 70% of our business now overall in the U.K. is now All Access Pass and related. While they launched at the same time as the U.S., being an English-speaking country, they've kind of quickly mirrored what's happened in the U.S. with All Access Pass in terms of 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. 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. I guess you said it grew 16% to $23 million. I think last quarter you had said it grew 36% to $28 million. Subscription revenue, I thought there would be a steady kind of gradual sequential build to it. Surprised to see it down that much. I guess, why is there quarterly volatility in the subscription revenue?
Tim, in all of our revenue, as you know, we look at it quarter-over-quarter for the prior year, just because we think that growth is more consistent than the sequential growth. We do have quarter-over-quarter of the prior year significant growth in each quarter.
Tim, also just sequentially, there's an exhibit in the back on slide 32, if my eyes can read the number there.
It's 32.
Yeah. It shows sequentially subscription sales in the first quarter were $9.7, and they grew to $15.9 in the second quarter. I think your idea is that we have generally last year, we had $7.8 in the first quarter, $13.9 in the second, $17.3 in the third, and $30 million in the fourth. Our first quarter's always smaller. 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. Maybe I missed something there.
That's sales, though, right? That's not revenue, right? I guess, if it's annual subscriptions and you've got such a high renewal rate, I don't understand why it would've been almost $28 million last quarter and $23 and change this quarter. Is services I guess, why would it be down that much sequentially in revenue? I guess I understand the sales.
Yeah, I don't think it was. Maybe
Okay. I'll follow up on that.
We could reconcile. I think you're right. It shouldn't be, and I don't think it is. Maybe I misspoke something last quarter in some way, because I think you'll see that we had strong growth in both.
Okay.
Maybe thanks for bringing that up.
Maybe my numbers are off. I'll follow up.
That's unlikely.
No.
Yours.
No, Tim, as you're saying, this schedule on Page 32 is the invoiced amount, the subscription amount. The recorded revenue then, as you know, brings in the change in deferred revenue on the balance sheet. We can just go through how that-
Okay
how that works.
All right. Fair enough. Thank you.
Thanks for the question. It'll help us to better explain it in the future. Thanks.
Your next question comes from Jeff Martin with Roth Capital. Jeff, your line is open.
Thanks. Good afternoon, guys.
Hi, Jeff.
Bob, you talked a little bit about the add-on services, the Robert Gregory. I 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?
Yeah. Paul, do you want to speak to that?
Sure. Hey, Jeff. A couple of broad trends. One is an increasing trend, that is coaching as a form of support for reinforcement. Whether somebody participates in acquiring the basic knowledge via an instructor-led session or a completely self-paced online session or a blend of the two, a lot of our clients are increasingly wanting to add coaching on the back of that. You, as a participant of that, if you're a leader, you may have individual one-on-one coaching sessions for six or eight 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. 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 six or eight weeks.
That's a growing trend we see, and it's one of the reasons that we wanted to purchase the Robert Gregory Partners when we did was to capitalize on that. That's a growing one. We've always had a lot of services that come in the form of actually helping the client install the actual learning. For example, our The 4 Disciplines of Execution solution, we do some installation up front there, a few days with clients, and then they take it themselves from there. I would say those are probably the two 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. Thanks, Paul. Bob, why don't they touch on the multi-year 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?
Yeah. 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, or just they're not going to change the behavior of their whole organization in one 12-month period. I think both 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 seven-year contract because they said the kind of cultural change we're going to need to drive home, we're going to need to stay on this.
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. If they have a problem they're trying to address, that they're really serious about addressing or a challenge, and they know 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 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. There's been a transition there. The thing that gives us confidence, and Paul, you may want to add to this, is just that the nature of 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 two 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. We had a brand-new salesperson last year who just decided she wasn't going to sell anything but multi-year contracts, and didn't. 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 people are just catching the vision. Paul, I don't know what you'd want to add.
You said it well, Bob. That's great.
Great.
Your next question comes from.
Thanks, Jeff.
Marco Rodriguez with Stonegate Capital.
Hi, Marco.
Good afternoon, guys. Hey, thanks for taking my questions.
Thank you.
Okay, I was wondering. A couple quick, I guess, housekeeping items. On slide 14, your subscription seats, the 397 for Q2 of this fiscal, is that enterprise, or is it total?
Yeah. I should have spelled it out there, I apologize. It says AAP is All Access Pass subscription seats, 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. 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 something you guys created in-house?
Adam, do you want to speak to this?
Yeah.
Adam Merrill runs our whole innovations group and has been the lead on this.
Yeah. Hi, Marco.
Hey, Adam.
That is content that we did develop in-house. It originated with some government work we had done a year ago. We've developed it through that process in kind of a custom work. 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.
Gotcha. Are you guys, 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.
Yeah, we are, Marco. These implementation specialists and the way we engage clients, we had 44,000 hours of 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. 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 most impactful solution. 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 11 problems we're trying to get solved. We have solutions to eight of them now.
There are three others that we're working on that 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. It gives us a good product development roadmap for the next two or three years.
Gotcha. 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 the sales strategy changes, going direct to the school districts.
Great. Sean, would you like to address that?
Yes, I can. 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. 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 three Leader in Me schools in a district that has 50 schools, our focus is going to the next 10 schools in that district instead of going to 10 other schools in new districts. Our focus is more on districts. We're training around it.
What's helping us most, I believe, is just the research that we have that's come out over the last year showing the impact and the efficacy of Leader in Me on behavior improvements, on academic scores, on attendance, and so forth. 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 CASEL certification, which we now do. This is helping us penetrate into districts that wouldn't even look at us before because we just didn't have the data. The more sophisticated the district and the bigger the district, generally the more data they require. I feel like we're making really good progress. We also have a new model. Traditionally, we've sold to single Leader in Me 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 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 and we expect to add another 150 to 200 this year in this model. 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. Is that helpful?
Absolutely. Got it. Appreciate your guys' time. That's all I've got.
Thanks so much, Marco.
Your next question comes from Zach Cummins with B. Riley FBR. Zach, your line is open.
Hi, good afternoon.
Hey, Zach.
Thanks for taking my questions. Just sticking along that education theme. 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 to maybe attract some more customers to get onto the Leader in Me solution. Can you talk about the rollout of that and the progress and whether you've seen some increased attention or wanting to adopt that solution here in the education segment?
Sure. Sean, could you do it?
Sure. 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 where we basically said over three years it's $80,000 to implement and install the Leader in Me. With some of these new models we have made it less expensive. It's the same amount, $80,000, but it's over four or five years. Also the Leader in Me District Model I just spoke of is also a less expensive way of getting started. Between the two of them last year we had of our 450 schools that we 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 over 500 this year in the U.S. and Canada, and many more beyond that in other countries. We also think it's going to be stickier down the road. Because they're paying less upfront, we explain to them this is a four-year or a five-year implementation model. Even though they're not signing contracts for that, they're basically agreeing to it. We find that once they've set the stage for, we're going to do this for four years or five years, they typically stay. The retention rate is helpful. 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. That's the bet we're making. We'll continue to have options. 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 costs. This year, we'll probably introduce another option as well that's lower upfront, again, with the end in mind of getting several thousand, hopefully five, six, seven, 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. 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 take to really get into the door and drive some interest in the All Access Pass?
This is Paul.
Sure. Yeah. 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're proximate to where our client partners live. 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. What we're doing, that's the primary responsibility of a client partner, is to go and prospect and to try to get into those accounts. We equip our client partners with sales and marketing tools to do 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. We'll invite people to come to those events. Through our thought leadership efforts, we're dripping on them with different pieces of thought leadership, whether it be on sales execution or strategy execution or leadership development. Our salespeople are out every day trying to prospect into those accounts. That's a primary activity, as I mentioned, that's theirs. Those same activities, though, 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 do attempt to market to the entire addressable market for us in the United States and Canada. We flow those as leads to our salespeople also.
We're just leaving those off to the side in reserve, 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. We've got a robust marketing team and efforts and a big thought leadership effort, as Bob mentioned earlier in his remarks as well.
Great. Appreciate the additional insight. Best of luck here in the second half of the year.
Great. Thank you very much.
Thanks.
Your next question comes from Samir Patel. Samir, your line is open.
Hey, Bob.
Hey, Samir.
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?
Yeah. 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. During the big investment phase of the last couple of years, we were adding the new portals, new technological capabilities, we moved that up to north of 7%. Going forward, we'll have a budget of between 6%-7%. Any of these new content partnerships, et cetera, fall within that budget. We don't expect to have a lumpy development budget. We've got plenty to do. We've got lots of content now. 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 open new avenues.
What typically happens is that you're licensing content, you're signing a multi-year license agreement that has some kind of a royalty payment that goes with it. That's included in that 6%-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. You can look at the revenue going out a few years and know that we'll be spending about between 6%-7% of each prior year's revenue the following year. About half of that will be expensed.
About half will be capitalized and run through it's reflected in our gross margins already, Steve.
Right. Some will be in depreciation if it's related to the portal.
Portal. Yep.
Perfect. Yes, that's what I thought. I just wanted to make sure. 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.
Thanks, guys.
Thanks.
Your next question comes from Patrick Retzer with Retzer Capital.
Good afternoon, gentlemen.
Hi, Patrick.
Congratulations-
Hey, Pat.
...on an excellent quarter.
Thank you.
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 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 number one. That's the next thing on the list for investments. We tend to do it, accommodate sometimes in day by day and other times in larger blocks. Yes, Steve, go on.
Yeah.
It's still the reason we've been building this up. We believe, honestly, as we said, now that we've had the big investment years, that we expect to continue to generate lots of excess cash. Given our expectations, we can't think of a better use after investing in the business to return it to shareholders through repurchases. That continues to be our strategy.
Your next question-
Thanks, Pat.
comes from John Lewis. John, your line is open.
Good afternoon, guys.
Hey, John.
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 you price that, or is that just an additional piece of value that comes with a pass?
It's additional piece of value. We've had good price increases every year in All Access Pass. We had 7% price increase. We had a 10%, I guess, the first year and then 7% last year. We expect to have another price increase this fall. Part of the value is that 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. 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 eight 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 three areas that you don't have something that you would like to?
Yeah. We have a map, John, We haven't announced publicly on what those are, I'll say just generally out in the world, something like change management. One of the biggest, most difficult things is to get a whole organization to make a broad change, That's an example of one of those three areas.
Okay.
That's the kind of thing where.
Okay
We've got plenty of content, 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 into. It's not like we've never run into it before, 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. I suspect we'll always have headlights out ahead of what we have. There aren't just 11. That won't end there necessarily. 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 two significant authors are probably outside the Covey organization. If you bring these two significant authors onto the All Access Pass and into the Covey family, would those be incremental revenue streams, or what would be the revenue model?
They'll be part of the All Access Pass. They'll just add value to it, and yeah, we've decided 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 three different levels of the pass. You can buy a Personal Effectiveness Pass, an All Access Pass, or All Access Pass Plus, which includes additional content. Some of these will go into different tiers, adding value to the other tiers. We're not intending to do anything.
I got it
separate out from them.
It'll help in price hikes. Okay.
Yeah.
Just two other quick ones on this. Is this like in the next one to three months or without tipping your hand or next year, or what kind of timeframe would you hope to be able to announce these type of deals?
Yeah, 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 that said, "We sell no wine before its time." Well, we sign no deal before its time. These are finely curated. They've taken a long time. We're now in documentation, and I suspect in the next 90 days, we're likely to have one or both concluded.
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-
They are
of books sold? Okay.
They are.
Okay.
Yep.
Great. Just to jump to slide 23. Not to pick on this slide, but I think we've seen this slide for a number of years, the 4,000 active customers. 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. 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? It seems obvious either you need to do more deals, or the size of the deals need to increase.
I guess, to point a sharper point on the point is it seems like you either need to get a higher average selling price in All Access Pass, new tools you can add, and I think we've had some emails 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, first I'd say, geographically, obviously, it's just the U.S., so we have access to a lot more customers to start with, and we have more customers, and this is just the U.S. Second, Salesforce expansion. I don't think, honestly. What we're talking about is trying to grow our EBITDA 45%-50% a year for the next several years. 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 20-25 a year, which is not a bad number, we can meet all of these growth objectives and more if we do that.
To go beyond this, we're building infrastructure that could allow us to get to 30-40, 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. Our thought leadership investments are one of those, where, as Paul mentioned, 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 salesperson may not otherwise have called on them. Once they raise their hand, they will. 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.
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.
Okay. Well, guys, I appreciate it. Nice work on Q2. Thanks for your time today.
Thanks, John.
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. Really, more than excitement is there's a sense of satisfaction that comes from seeing the transition work, seeing our sales force ramp up. We've got a lot of opportunity for us. 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. 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. Thanks very much. We look forward to talking to you all individually soon.
Thanks so much.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.