Derek Hatch - Corporate Controller, Central Services, Finance Bob Whitman - Chairman & CEO Shawn Moon - EVP, Global Sales and Delivery, Government Services & Education Paul Walker - GM.

Marco Rodriguez - Stonegate Capital Kevin Liu - B. Riley & Company Jeff Martin - ROTH Capital Partners.

Welcome to the Franklin Covey's Q1 2016 Franklin Covey Earnings Conference Call. My name is Anna and I’ll be your operator for today’s call. [Operator Instructions]. I would now turn the call over to Derek Hatch. Derek, you may begin..

Thank you. Good afternoon and Happy New Year everyone On behalf of Franklin Covey, I'd like to welcome you to our earnings call this afternoon. And before we get started, I'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 ability of the Company to hire productive sales professionals, general economic conditions, competition in the Company’s targeted marketplace, market acceptance of new products or services and marketing strategies, changes in the Company’s market share, changes in the size of the overall market for the Company’s products, changes in the training and spending policies of the Company's clients and other factors identified and discussed in the Company’s most recent annual report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.

Many of these conditions are beyond our control or influence, any one of which may cause future results to differ materially from the Company’s current expectations. And there can be no assurance the Company’s actual future performance will meet management’s expectations. [Technical Difficulty]..

--balance of the government business so we feel good about the government business generally this contract will be a factor here for the first quarter and second quarters as well.

Second item is a $1 million reduction in revenue due to the year over year impact of changes in foreign exchange rate compared with the first quarter of last year because the major changes in foreign exchange rates relative to the dollar occurred primarily during last year's fiscal second third and fourth quarter for us.

At current change rates the impact of foreign exchange on operations in the second, third and fourth fiscal quarters of this year would be much less than in the first quarter as you can see in slide three.

In fact as you can see that some of the impact for the next three quarters would be only approximately the same as $1 million impact in the first quarter. So that's again a constant exchange rate current exchange rate.

From adjusted EBITDA standpoint, adjusted EBITDA for the first quarter was 4.5 million somewhere above our expectation of 4 million and expected this was below the 5.9 million of adjusted EBITDA achieved in last year's first quarter due primarily to the same two factor I just discussed.

The non-repeat of the federal government agency contract and the impact of changes in foreign exchange. As you can see on slide four adjusted for these two factors last year's first quarter revenue would have been 44.1 million and last year's first quarter adjusted EBITDA would have been 3.2 million.

Compared with these adjusted Q1 fiscal 2015 numbers so adjusted for FX in the contract during the first quarter revenue grew 1.1 million to 45.2 million and adjusted EBITDA grew 1.3 million to 4.5 million so that was 2.5% revenue growth and 40% in growth in adjusted EBITDA.

This increase in adjusted EBITDA was primarily attributable to the combination of increasing gross margin percent from 65.2% to 66.5% during the quarter resulting from an increase in the mix of facilitator and intellectual property contracts other than the government from decreased costs and incentives associated with marketing events and from decreased cost associated with the delivery of online and digital content resulting from changes to online program operations during the first quarter of fiscal '16.

Finally our cash flow and liquidity position, our cash flow, liquidity and balance sheet position all remained strong during the first quarter. Cash provided by operating activities increased $9 million during the quarter to 7.1 million compared with net cash used for operating activities of 1.9 million in the first quarter of fiscal 2015.

We ended the quarter with 22.3 million in cash compared to 16.2 million as of the end of our fiscal year in August and had no borrowings under our credit facility. As you know we expect to utilize a significant portion of this liquidity to complete the pending [indiscernible] option tender offered next week.

Slightly quickly address -- touch on fewer of the business about which we're very encouraged. You know I will name five, the first is that after somewhat disappointing fourth quarter the education division revenue grew 2.1 million or 35% during the first quarter.

This growth included 335,000 of revenue from the large contract which had been expected to close in the fourth quarter, 600,000 from the recognition of differed revenue related to our significant coaching and intellectual property sales in the fourth quarter. And 1.3 million from new sales booked and recognized during the quarter.

We expect continued strong growth during the second quarter. There was a growth rate percentage -- the growth rate percentage itself will be less than in the first quarter. We expect good growth for the year.

Second is the continued growth in our international licensee division, licensee division revenue of 4.7 million for the first quarter represented a growth of 3.2% compared with first quarter of fiscal 2015 but better excluding the 366,000 negative foreign exchange impact in the quarter revenue growth would have been 11.3% in constant currency.

We expect continued strong growth in licensee division for the year and at current exchange rates as have noted impact of changes in foreign exchange on the results of future quarters would be significantly less than in the first quarter. Third, importantly the strong momentum in our U.S.

direct offices after having year-over-year revenue be relatively flat for several quarters and down for September and October this year when we reported year end results in November we thought confidently given the size and momentums of the bookings pipeline we would have strong year-over-year revenue growth in November. And these U.S.

reg tops as we get back closer to their historical growth rates over the next couple of quarters. We're very encouraged about the following one that revenue in these offices grew 1.2 million in November or 16.8%. That revenue growth in these offices continued in December with revenue growing 766,000 or 17.4%.

The size of our pipelines both gross of what we call gross pipelines it's what includes every opportunity and probability adjusted for the stage of the pipeline it's in for January and February are substantially larger than at the same time last year supporting our expectation of continued revenue growth for these offices in the balance of the second quarter and third quarter and finally both the number of opportunities they are in the pipelines and the average size of the opportunity are up substantially the size of opportunity than more so than the number but both strong.

This reflecting that we're back to selling larger more pervasive engagements as we've been working toward over the last quarter's.

It's been a few quarters coming but given our strong start, our strong bookings and the size momentum of our pipelines we expect the second, third, fourth quarter to show strong year-over-year growth as we said in a member. Fourth, the positive starting our new strategic markets division.

The strategic markets division includes our government business, Federal, State and Local, our sales performance practice, customer loyalty practice and our new global 50 accounts team.

Excluding 2.7 million revenue impact due to the non-renewal of the large government agency contract in the first quarter, revenue in the strategic markets division would have been up slightly for the quarter 2% for the quarter but some things about which we feel good in the division include that one the government business excluding the non-renewal of the agency contract grew 19.6% for the quarter we feel like we're building a good foundation other than just this one contract.

Second, the sales performance practice continues to grow every quarter, grew well for the trailing 12 months we expect this growth to accelerate in the second and third quarters. Continue to build the sales force and pipeline there while the customer loyalty practice revenue declined during the quarter due to the expiration of one large contract.

We believe we're positioned to replace most of that business this year and higher margins. And finally our global 50 team which is a new special team focused on penetrating 50 largest accounts in the world is off to a strong start.

We expect it would likely take this team several course to build the pipeline and begin to generate revenue and therefore with only minimal revenue for this first year. We now expect much more than that including revenue in the second quarter.

So excited about the prospects for that and finally the five things the prospect of using our strong liquidity and balance sheet to create additional value.

We're grateful that with combination of our 22 million in cash into the first quarter our undrawn $30 million credit line and additional $20 million approved term loan facility which we expect to close in the next couple of weeks.

We will have plenty of liquidity with which to complete the best tender, continue to purchase stock in the market there after and still have liquidity for opportunistic acquisitions as those make sense. So finally I'll just move onto our outlook for the second quarter and the full fiscal year.

Given our somewhat stronger than expected first quarter results and the strength and momentum of our bookings and pipelines we continue feel very good about our full year adjusted EBITDA guidance range of 34 million to 36 million at foreign exchange rates that were in place into fiscal '15 and we reaffirm our guidance and we feel good about the prospect of the second showing good growth in revenue and adjusted EBITDA.

So with that I will now turn over the time for questions and I think maybe just open up for questions to the team and turn it back to our operator..

[Operator Instructions]. And we have Tim McHugh from William Blair online. Please go ahead..

It's actually Sam calling in for Tim. Just that I wanted to touch upon the U.S. direct opposite offices some of the momentum you talked about in November and December including strong growth, and then you also talked about the pipeline for January and the second quarter. Can you just maybe touch on, I know you said you had some a bigger accounts.

But is there anything that changed substantially on your end that’s kind of driven some of that strong growth?.

No, really.

I think this is what we have been anticipating for several quarters you know we had lot of additional events a year ago to start building the pipelines, by summer and early fall we were seeing the average size of the opportunity in the pipeline be bigger but that really isn't because of any particular big contract it's really just more that whereas we've mentioned the past for about a year when we were launching the seven habits 4.0 in some of the other facilitator oriented offerings, our average sale size was smaller because people were buying 30 manuals, no services associated with them and so the average sale dropped for those products down around 6500 or 7000 versus a more normal revenue in the $11,000 or 12,000 per transaction range and of course a lot bigger ones.

We mentioned in the report in November that the size of opportunities in our pipeline had increased which meant it really did moved back more to normal and had increased somewhat beyond that. So there wasn't any particular factor, it's just the ongoing given that now for one year we haven't been launching any of these new products.

We've been building the pipelines that have longer sales cycles.

This is just starting to now the maturation of the pipeline is now starting to move from D to C to B and now to A which is what we A pipeline is what gets recognized revenues, so it's the natural moving through the system of the [indiscernible] we've been building here for the last year..

And then just for the -- your EBITDA guidance for the rest of the year, for the fiscal year.

Is there a certain growth target that you need to achieve that EBITDA or the midpoint the 35 million?.

Yes I mean there are cost structure and our normal gross margins we would need to have revenue growth in the range of 5% for the year to meet those expectations.

We think we'll do better than that but at the same time you'll have some things you didn't count on so that's why we feel good that you know we think our revenue growth will be stronger through the year as a whole that will give us some cushion so that we can be safe in that range, but that’s really fundamentally.

It takes about 5% revenue growth to deliver the midpoint of the range and that’s excluding foreign exchange impact..

And then just finally on the expense side, you talked about some lower expenses this quarter with more facilitator sales.

Is that something that you kind of see sustainable throughout the rest of the year or was that kind of just like a one off?.

No. I think two, let me just break that question if I can 7 to 2 components. So on one side we had higher gross margins and that related to you know it just had a make shift towards facilitator and smaller intellectual property sales. We think that will continue that's kind of just a general shift in our business mix.

So the gross margins we think will continue to be strong. On the cost side, I think we've mentioned a couple of conference calls that over the last year we had lots of investment for two or three years building up the infrastructure necessary to grow the business and to build in the sales force.

Now that we've completed that phase, we're just saying when we have refined the investments we have made on the margin we think now that we've got a good cost structure that should flow through -- which had good flow through incremental revenue and so I don't think it's not really a one-time thing.

Steve I don’t know if you want to add to that, it just really we've got a cost structure that you know that does not dramatically different than what it's been but the additions to it are dramatically different. We're not adding much to it other than our investments in sales force growth and that's pretty much it..

Our next question is from Marco Rodriguez with Stonegate Capital. Please go ahead. .

Real quick, just kind of housekeeping item I didn't quite catch when you were talking about the education practice, you had outlined certain dollar amount of a contract that I guess was pushed from Q4 into this quarter, what was that dollar amount again?.

Yes, so there was $335,000 related to a specific contract from the fourth quarter that pushed to the first and then the rest was 600,000 from the recognition of deferred revenue which we mentioned in the fourth quarter that the amount of deferred revenue or the amount of intellectual property and coaching contracts that we sold in the fourth quarter was a lot higher than we thought resulting in more deferred revenue that hurt us in the fourth quarter but will benefit us every quarter from here on in..

And then kind of shifting gears here now towards the strategic markets division. You had mentioned on the government business that you had I guess a potential to replace the 2.7 million contract that didn’t repeat with additional type business that was higher margin.

I was wondering if you could talk a little bit about that opportunity or opportunities and how that might play out to the fiscal year..

As it relates to the government contract itself we are not anticipating the replacement of that contract this year, but when I was talking about the customer loyalty business not very clearly I apologize, I was saying there was one large contracts with the major retailer that expired under it's terms this last year, you know they've gone through the whole process now as part of how they do business.

So it's kind of a natural maturation of some of these contracts.

Now saying they -- we’re positioned to replace most of that business this year and higher margins and so we have a pipeline of opportunity of clients in the customer loyalty space where there is way down the road in terms of advanced stages of discussions on the pipeline and the nature of the business being talked about with him is somewhat higher gross margin than the business which we just lost so that is really just a comment.

We’re not related to the government we're not anticipating that that contract will be replaced this year.

We have some hope that it might be but that's really depended on the agencies own administrative schedule but in the customer loyalty space we do expect to replace substantial portion of what we lost on the top line and almost all of what we might have lost at the bottom..

And then in terms of the strategic market division, the sales performance practice area, you had some fairly positive commentary in regard to that in your expectations for this fiscal year.

Can you maybe provide a little more color around what's driving that?.

We’re actually quite bullish about what's happening with the sales performance practice. The first quarter we had a good strong start both in terms of revenue and pipeline. The pipeline is particularly encouraging as we look to our current quarter. We're pleased with the traction that we’re getting.

The new contacts and new opportunities and really it's a function, a little bit bigger team, a little bit more experienced team, a little bit longer time in the saddle with the more exclusive focus than we have had in a past where there's you know we're not -- we're not distracted by some of the organizational issues that had preceded this relative to the acquisition of NinetyFive5 and some of the work that we've done with the field and so that focus is really starting to bear fruit and we're pleased with the direction that we're going there.

We’re encouraged..

And is there anything you're doing from a marketing perspective that might be slightly different or is it kind of just again the experience of the team members there?.

Well it is both we are doing something different from a marketing perspective where we're targeting some specific buyers in specific organizations that is a little bit different than we've done in the past we found in the sales performance practice that some of our traditional marketing approaches that we've done in the field relative to our standard organizational development training suite don't always apply in the sales performance arena.

The buyer there is C suite buyer and very often it's the chief sales leader or sometimes a sales manager and these are folks that don't traditionally take time away from the schedules to go attend an overview session like Head of HR or Training Director might and so we're targeting those people little bit different way, going to them face to face rather than having them come to us in an overview setting and that's been an effort for the last a year or so and it is generating some traction for us.

Social media is a big part of how we access them and particularly LinkedIn and that's been useful..

Also on Marco's question just some of things are happening on the direct office side that actually are supportive of this sales performance..

So we have a good partnership in the divisions between the direct office division and [indiscernible] strategic market division as it relates to the sales performance practice and there are a number of our client partners in the field who have traditionally sold our organizational developments suite of products who are also increasingly becoming adaptive at selling the sales performance practice solutions and so as they're out there calling, even we've talked in the past about having this group of enterprise client partners whose job it is to go after a narrow group of clients and to go broad and deep inside those organizations and as they do that they and they move laterally across an organization they do bump into the sales organization and they are having an opportunity to position those sales performance solutions and then partner up with Sean's team and are experts there and we will be able to drive some nice synergies there and some nice deals over the last quarter or so..

Is there are an updated goal if you will for a client partners for the end of this fiscal year?.

Yes. In November we had said that we expect to be at 203 by the time we started sales academy which starts next week. We're at a 198 today, we had two offers out we're hoping those will get accepted here before we start next week and expecting. So we should be at 200 starting next week, we'll add a few more during the course of this spring.

Some of which will be replacements and others which will happen in the strategic markets division and then some in the summer for education..

Okay, so low 200s for the remainder of fiscal year you’re thinking?.

Well at least for this point I would say probably by the -- we normally measure kind of these training years but we'd expect at net 30 this coming year so by this time next year we would expect to be at 230 net maybe a slightly ahead of that and so the actual timing market might be that we're at 200 now and by March it might be two or three or something and then by the end of the summer more in the 2, 10 or 11 range approximately and we will gear up our hiring in the November period for the sales academy which happens in January..

And last quick question I'll jump back in queue.

Just try to get a little bit better of a handle on what the balance sheet might look like after this tender offer, any kind of a color you can provide there?.

No other than, we’re fully allocated on all the shares come in and I hope we will spend 35 million and we'll use a combination of cash, our evolving line and potential term loan. So we won't have 35 million of cash. So we will have some either revolver or term loan on a balance sheet but we would plan to use a significant portion of our cash first..

I was just going to point out that during the year of course we expect to generate a lot more cash flow this year than -- or reduce the debt if we chose to do that or--.

So I think in the past you guys had talked about a minimum sort of $10 million threshold in cash.

Should that be the way maybe we should think through how much cash you potentially use for the tender and then what comes from the revolver potentially for the term?.

We've talked a lot about a $10 million cash, we also talked about having 10 million of cash plus 10 million of unused revolving line so 20 million of liquidity. So I think that 20 million of liquidity is the concept that we would intend right now not to go below..

Our next question is from Kevin Liu from B. Riley. Please go ahead..

Bob, you addressed the gross margin performance in Q1 and kind of how mix impacted that.

Now with your direct offices picking up some momentum here, do you expect much shift in terms of revenue mix from margin profile perspective?.

We really don't.

I think it really is you know in our fourth quarter we tend to have an even higher mix of facilitator and intellectual property sales in the corporate side than we do in other quarters but in the first, second and third quarters the mix remained very, very similar as you know in our education business the gross margin shift around typically in the first three quarters our gross margins aren't that strong.

We had some strength in the first quarter because we've got this one larger contract in that we met we talked about that was pretty much all an intellectual property sale.

We also have good flow through on this deferred revenue, but otherwise we hired these coaches and then there is first, second and third quarters we tend to have lower gross margin than high gross margin there in the fourth quarter. And then the other units are pretty much the same throughout the year..

And I think you mentioned that large government contract might have a little bit of a headwind to growth in Q2 as well.

Could you just remind us what that number is?.

Yes for the year we had about $5.5 million of revenue from the contract and so where we had 2.7 million of headwind in the first quarter it will be approximately 1.7 million in the second quarter and then couple of million dollars in the third quarter and then the contracts terms ended at the end of our third quarter last year.

We didn't have any flowing into the fourth quarter.

The gross margin on the revenue in the third quarter is nearly as high as it was in the first quarter however we had $2.1 million impact on EBITDA of the decline in revenue in the first quarter from the government contract and for the balance -- because we had the intellectual property component whereas the 1.7 million and 2 million will be closer to a 50% gross margin impact and you know offset that with a little commission savings and so you might be 40% or 50% of that number is the size of the headwinds.

So compared with the $2 million headwind in the first quarter the EBITDA headwind in the second and third quarter is significantly lower in the range of say 600,000 or 700,000 of EBITDA to cover in the second quarter and a little more than that in the third..

And then just lastly it sounds like you're kind of on track with where you want to be from a client partner hiring standpoint. In terms of your marketing events now that you are seeing the momentum building in the pipeline.

Any plan changes in terms of the number that you were planning for this year?.

No real changes in the planned number for the year. We do continue to look at the types of events that we’re holding, we have been holding a number of work that we call internally these culture events which will have 13 of those this year and they're geared at a very senior level C suite type individual in an organization.

We're holding them around the country, those have been great for us so far driving a lot of pipeline so we continue to try to figure out what you know exactly -- we know the events work, we know the events are what drive a lot of our opportunity and we're just looking to make sure that we would put the right kind of events on a drive the size of deals that we want and fully represents all of our product offerings..

And Kevin just for perspective you know the events themselves drive about a 1/3rd of our total pipeline the other 2/3rds is driven by the normal face to face calling efforts so just so that it's in respect we oftentimes talk a lot about the events because it's a way that you can with a constant set of outbound sales calls it's the one thing you can use to -- if you increase those you can boost the pipelines but now that the pipeline is back in the area of where we want it to be then, now we can just stabilize that number of events..

Our next question is from Jeff Martin with ROTH Capital Partners. Please go ahead..

Bob, can you give us an update on all what your content development efforts are going to be focused on this year and then secondly can you give us an update on leadership and how you know the second year of the [indiscernible] is progressing?.

In terms of the product development budget, let me just give context, over the last four or five years we have done a lot of investment in two area one in refreshing all of the content that we historically had our historical core content like for 7 Habits 4.0 and the replacement of our time management suite with the five choices productivity, other productivity offerings like project management and presentation of it.

So it's been very course related. We've also during that same time invested heavily in the execution, on the execution product line which is a process in the leader in me which is a process in the sales performance area which is more process oriented in customer loyalty which is more process oriented.

Going forward, our primary investments over the next not just this year but the following will be less course centric and more will just say resource centric where we're taking the existing content that we have making it accessible in new forms I mean trying to increase the flexibility for a client to disseminate that content throughout an organization.

We’re selling it in some respects in more flexible forms where intellectual property other things where people can get rights to intellectual property in different forms and so getting that offering right is where a lot of our investment is going now so it's taking, so it's less in the big pursuits of reconstruction and redevelopment huge new film libraries then it is a continual invest in the process oriented things of leader in me execution, sales performance and customer loyalty on that side.

And then also at the same time integrating the content so the leadership, product -- sort of leadership offering which includes 4.0 7 Habits can continue to grow as relates specifically to the second year of the leadership.

You know the 7 Habits continues to do well particularly a lot of that is showing up, the increase is showing up in the licensee side now because the roll out of U.S.

happened in '14 and '15 and there a lot of early '15 and the licensees more during the back half in fact Shawn you may just speak to what's happening in the licensee area?.

Sure, yes. Yes so we feel good about the licensees, we had good growth in the first quarter at 11% adjusted taking out FX impact and things are looking really solid we've got in our strategy to continue to run the play meaning just the best practices that we've developed in the U.S.

we continue to run internationally including such things as holding really good events, hiring a lot of CP's and building the practices that's the core. So we continue to see tons of opportunities to continue to grow licensees and again as I've mentioned before most of these partners are pretty small.

And so the opportunity we think that double them in size of the next four to five years is really good..

And then you've mentioned in your discussion on gross margins that there were some online mutual content delivery is that a strategic focus? Is that [indiscernible] in the future looking for a relative perspective there..

I would just say relatively I would say this Jeff, we have invested over the years a lot in the technology base delivery of a lot of what we've done so that people have that option.

What we haven't often done know is give people -- we've kind of had people choose up front more are you going to do it on with us delivering are you going to do a training of facilitators yourself or are you going to do it digital delivery.

And so I think the change is that giving people options to combine those delivery capabilities under a current pricing umbrella where they could buy a particular course and have all the delivery options available in it is perhaps a shift that give us a little bit more value on the intellectual property side on the margin.

And I think --- the reason we're doing it isn't primarily for that because we would be happy to increase our gross margins it's really to recognize that we want to work with our enterprise client partners which we talked about two years ago, that is then focusing on a small number of accounts.

The big objective for them is to find people who want to have greater impact in their organization and provide lots of ways for them to do that and so the reason we're combining these into an offering is to allow people somebody who's in charge of learning in development to look at all the different needs they have and instead of having to pick one task recognized they have the flexibility of a lot of [indiscernible] and so people seem to respond well to that.

And you know it's new it's a new effort it's kind of in the early stages. We’re not fully ruling out across sales force now but it did have a little bit of impact in the first quarter expect to have some going forward..

And just on the product development question you asked before. Just one other thing to consider is we've got in addition to a lot of things we're doing to develop new products and services. We have a lot of new books in development.

And books has been a key part of our product development package in terms of thought leadership and helping to drive marketing and as such.

You know for example the [indiscernible] terms of the execution of 7 Habits feet of trust are all best sellers and we have several books in development for the customer loyalty practice, for the education practice, sales performance practice and the leadership practice. That will all be coming down the route.

We’re not exactly sure when but they are all in development right now and I think will really help us..

And Jeff sorry for the long answer to your short question that one other thing that is maybe one new area of development this year beyond this integration.

Is that we are in fact by the end of the year we'll have ready a customer loyalty training offering for the first time historically our customer loyalty has all been around data collection and metrics.

You know and therefore the margins haven't been strong, a lot of our customers are now have good strong capabilities there and are looking for opportunities to increase the front line performance so that's one new areas.

It's not a massive development area effort, but we're investing in the portal and in the training content for the customer loyalty practice..

And then last question.

You mentioned some intellectual property sales in the quarter, can you quantify that and what was the both the revenue and EBITDA impact of that?.

Yes, it was more what I was talking about just this last thing Jeff is that it's integrating our options for delivery. And so we just call [indiscernible] where people buy rights and intellectual property. And they can then print manuals themselves or buy them from us individually and so the impact during the quarter wasn't huge.

I would say that we had around a $0.5 million of revenue in that particular thing in addition to a couple of couple hundred -- maybe the total was 900,000 and that’s not materially different than it is in most quarters it added a little bit couple of hundred thousand to probably the gross margins to the quarter..

Our next question is from [indiscernible]. Please go ahead..

Just a quick question on your CapEx guidance if I look at your guidance of 7 million for this year how much of that is for the ERP implementation that you guys are currently going through?.

It's a major portion of that approximately 4 million..

And is that implementation something you guys expect to be done by the end of the year or could that feasibly trickle into next year?.

We intend to implement early next year but most of the cost will be incurred this year so it will be ready to go early next year, December one of next year or this year..

Our next question is from [indiscernible] from Wells Capital Management. Please go ahead..

My question pertains to the global 50 team which for some reason I'm just not all that familiar with. But it strikes me if this is a new effort going after the 50 largest accounts in the world and you're already getting traction if you expect revenue in the second quarter.

But on the longer term basis it would seem that larger accounts in the world would connote larger average size contracts and could shift revenue growth rate to a higher trajectory.

Is that one way to look at it?.

Yes.

Let me say that, one of the reason we created this team was that even though we've reduced the scope of our enterprise client partners to 40 to 60 accounts, in some cases, 10 to 20 accounts the idea is that we're still not always entering as high in the organization as we would like and so we have put together a team under Shawn Moon's leadership, I will make Shawn make a couple of points but the idea was exactly what you're suggesting that there are a bunch of accounts we don't penetrate deeply if an idea was if we had the right stature of client partner focused on a very, very small number of accounts meaning 2 to 5 account each that you would by necessity be entering very high and with these sales people who have an ability to discuss things very strategically that in fact is to be a whole new area of growth for us, that plus adding the state municipal government to the government division which we've never really approached were two of the things where we think they are whole new markets for us.

So I think these are things that we'd hoped would in fact ratchet up our growth we would otherwise get for other parts of the businesses should be incremental.

Shawn?.

Yes, Bob I think you said it well. One of the key differentiators here is that the type of client partner that we are targeting in this. It is a very senior level with a lot of experience and so yes we do anticipate that the nature of these deals will be different. They'll be at higher levels and larger contracts..

And this is virgin territory accounts you've never been at before?.

Yes.

Yes, the metaphor is we use is the point of that we’re calling our shot on these accounts and going after organizations where we feel like we should have a presence but we don't currently have a presence and so it is greenfield approach and so that’s why the getting started phase is -- it takes a little bit of time and we're frankly encouraged by the early traction that we're getting.

We are getting some early traction and we're finding access to senior levels. That there is awareness of the brand and an eagerness to talk and so it's working..

It is incremental. These accounts were the ones that were not assigned in almost every case, they were unassigned accounts because we still have with the number of sales people we have and all of them 900 plus that we could have in the U.S.

There are lots of the accounts that aren't assigned any way, but in some cases we may have traded out another account because the current client partner didn't see opportunity there and the global 50 team did see. And so yes this is definitely an incremental effort at our greenfield that we've historically not had much business in..

Just one other comment about that the intent behind that is that we want to make sure we disrupt the field as little as possible so we work very hard to make sure that we didn't do that while also creating a brand new incremental opportunity for us..

What happens if one of these accounts resides in an international licensee territory?.

The plan is to coordinate under our direction coordinate with our licensee partner in the country. So we access the local talent and the local delivery capability and synergize with them while maintaining sort of the global leadership view..

In fact one of these will. That's the hope -- we had a three day meeting here at the start of December where we had their representatives from eight of the largest licensee partners with us.

We already have this issue come up to them frequently with global accounts even though they're not part of this group's, but I think there is real excitement that now with the point of the spear having these few top sales people. This now creates an entry point that will benefit not only this division but also the international licensee.

We’re all working together on these, in fact we need them to be partners and to deliver globally and that's one of our greatest strategic advantages is that we in fact can go and say you know what we can deliver globally so this is a cooperate effort and an exciting effort I think on both sides..

And we have no further questions at this time. I would like to turn the call over to Bob Whitman for closing remarks..

Great thanks very much. We just want to thank everyone for attending today and for your great questions. We’re deep into the second quarter and working hard and feeling very good about the direction and we will certainly be giving everybody an update next week when we close the Dutch auction or we anticipate to close it. All right thanks very much.

Appreciate it..

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