Derek Hatch – Corporate Controller Bob Whitman – Chairman and Chief Executive Officer Paul Walker – Executive Vice President, Global Sales and Delivery Shawn Moon – Leadership Consultant, Sales and Marketing Expert, and Speaker.

Marco Rodriguez – Stonegate Capital Jeff Martin – ROTH Capital Partners Kevin Liu – B Riley and Company.

Welcome to the Franklin Covey’s Q2 2016 Franklin Covey Earnings Call. My name is Sherry and I’ll 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. Please note that this conference is begin recorded.

I would now turn the call over to Derek Hatch, Corporate Controller. Derek, you may begin..

Thank you, Sherry. On behalf of Franklin Covey, I’d like to welcome everyone to our conference call to discuss the second quarter of fiscal 2016 financial results. And I hope you’ll enjoy today’s presentation.

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 policy with the company’s clients and other factors identified and discussed in the company’s most recent annual report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.

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

These forward-looking statements are based upon management’s current expectations and we undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of today’s presentation except as required by law. With that out of the way, I’d like to turn and sign over to Mr.

Bob Whitman, our Chairman and Chief Executive Officer..

first, that we were able to generate $4.98 million of adjusted EBITDA in the quarter before the impact of foreign exchange. This represents pre-FX growth in adjusted EBITDA of 29.3% compared with last year.

And this despite the fact that as expected and as we report last quarter a major government contract which provided $1.7 million in revenue and $800,000 EBITDA in last year’s second quarter hasn’t been out for bid this year and therefore did not repeat in this year’s second.

In addition to the $4.98 million adjusted EBITDA pre-FX we were also really delighted to generate an additional $900,000 in adjusted EBITDA contribution during the quarter from that portion of All Access Pass revenue, which was contracted during the quarter, but which was deferred into future quarters.

That means they – actually but they are generated from sales completing the quarter was $900,000 higher than the reported now and we look forward to recognizing half of that $900,000 amount to benefit in the next two quarters and the balance in next year’s first and second quarters.

Second takeaway for the quarter is the introduction of our new All Access Pass offering got after a very strong start. The All Access Pass is new offering, which we’ll discuss in a moment, which provides a new way in which our clients and customers can access a wide range of our world class content.

Given the magnitude of our All Access pipeline for the third quarter, we’re confident, we’ll continue to drive significant new revenue in the quarter, for the quarter in the third and fourth quarters. We’re also creating a bank account of millions of dollars and deferred contract revenue, which will benefit future periods. We’ll talk more about that.

And third, over the years we’ve been trying to increase the amount of recurring revenue and contractual revenue. We want to just know, and I’ll give some more detail in this.

We had more than 20% year-over-year increase and what we refer to as our contract value during the second quarter, it will be generating more and more contracts that will be of contractual revenue item being otherwise.

And we also had a 35% increase in our deferred contract revenue balance related to these offerings that these revenues were recognized overtime. These two things we believe have established the foundation for what we expect to be accelerated growth during the balance of the year and beyond. So now I just like to briefly address each of these areas.

First the $4.98 million of adjusted EBITDA, pre-foreign exchange in the second quarter. Adjusted EBITDA as reported for the quarter is $4.4 million reflecting growth of $600,000 or 14.5%, compared to last year’s second quarter even after absorbing a foreign exchange impact of $571,000.

Excluding the impact of the $571,000 changes in foreign exchange, adjusted EBITDA was $4.98 million, which represent an increase of $1.12 million or 29.4% compared to last year’s second quarter.

Despite the fact that is expected and is noted, a major government contract which provided $1.7 million in revenue and $800,000 in EBITDA in last year’s second quarter, did not repeat in this year’s second quarter.

In addition to the adjusted EBITDA of $4.9 million pre-FX that I mentioned, we generated an additional $900,000 in adjusted EBITDA contribution from All Access Pass revenue which was contracts during the quarter that portion of the contract – the revenue which was contracted for during the quarter which will be defer into future quarters.

And we’ll be excited that approximately $450,000 of this deferred EBITDA contribution will be recognized in each of the third and fourth quarters with the balance being recognized in next year’s first and second quarters.

Finally, as shown on Slide 6, large government agency contracts which grew $1.7 million in revenue and $800,000 of EBITDA in last year’s second quarter didn’t repeat in this year’s second quarter hasn’t yet got up a for bid. Don’t know this will this year.

Excluding the impact this contract adjusted EBITDA in last year’s second quarter would have been $3.05 million. So the $3.8 million minus the $808,000 you see on the screen. And so compared to that number this year’s adjusted EBITDA of $4.98 million with the same and the constant FX would reflect growth of $1.9 million.

The impact of the non-repeated sub-contract was lower obviously a lot lower in the second quarter than in the first quarter.

You can see $800,000 versus the $2 million in the first quarter and will be much lower in the third quarter and will have no year-over-year impact on the fourth quarter as the contract ended at the end of last year’s third quarter.

Through operating income – income from operations for the quarter actually showed a loss of $300,000 that was after absorbing several things.

First, the $1.2 million charge to reflect the fact that the sales performance practices continued revenue and EBITDA growth has increased likelihood of our needing to make a second earn out payment with the acquisition of NinetyFive 5 several year’s ago.

That for us – we’ll talk about that as good news for us which shows that performance of that practice is improving and doing well now. We also had $600,000 negative foreign exchange impact and $400,000 charges relating to eliminating small sales offices in various cities around Australia.

As I mentioned we’re very happy about the charge to provide for making another earn out payment related to our acquisition NinetyFive 5 and our sales performance practice several years ago as it reflects the sales from abstract is now in a very good trajectory.

You may recall with a year so ago we actually had a benefit that came into the operating income for the quarter because we had anticipated earn out payment being made given that the performance at that time was unlikely that would be made.

Now it’s back on track and the way that is moving in the right direction also eliminating small losses in various cities around Australia and instead of having client partners there where globally as due to the vast majority of our client partners in the U.S.

and elsewhere, who had hundreds of thousands of dollars of incremental EBITDA in their direct office in Australia each here without any expected negative impact on revenues.

Excluding these items income from operations during the quarter would have been $1.35 million, representing $300,000 15% year-over-year increase, two other items on financial results revenue, first revenue after absorbing a $0.5 million of negative foreign exchange impact and the $1.7 million reduction due to the non-repeated government contract.

Revenue for this year’s second quarter was – reported was $45.3 million, compared to $46.3 million in last year’s second quarter.

In addition to these factors as we mentioned $1 million of the $2.8 million of All Access Pass revenue contracted during second quarter will be deferred into future quarters half of which will be recognized during the third and fourth quarter.

So excluding the impact of all those factors revenue growth in the quarter would have been just over 5% is what contracted net of foreign exchange. Finally cash flow and liquidity position, our cash flow liquidity balance sheet position all remain stronger in the second quarter.

Cash derived by operating to these for the first two quarters was $16.8 million representing a 38% increase compared with the $12.2 million in cash from operating activities generated in the first six months of last year.

After investing $35.3 million to complete the Dutch auction tender offer, which we purchased 1.97 million shares, we still ended the quarter with $5.3 million in cash and with $10.1 million in borrowings under our credit facility.

We were pleased that as result of our strong ongoing cash flow, we were able to complete the tender offer utilizing rest of our credit facility and cash than we had anticipated. So that’s just a quick review of the overall financial results. Second, I want to introduce you to the new All Access Pass.

I mentioned in the introduction this new All Access Pass offering got off to very strong start in the second quarter. We introduced just in the last five weeks of the quarter and let me just give you some background on its purpose and what it is.

This context, the biggest share of corporate university and corporate training budget is focused on leadership development and performance improvement, that’s the big area, that’s the big target and our big opportunity.

We’ve been working in this space for more than 25 years and a lot of our current revenue of course comes from these areas and continues to represent a big area of opportunity for us. We are pleased that last month we were again named as the top 20 leadership development companies, they don’t rank them per se, but we’re obviously one of the largest.

And that’s among thousands of small and medium sized companies in the space. Over the years we’ve met directly with hundreds and even thousands of those with direct responsibility for leadership development and performance improvement in their organizations.

We’ve learned that their needs are bit like blocks of Swiss cheese, we think that are made in different factories. Each organization has a lot of common holds or needs. However, a lot of other holds are quite specific to their own organization circumstances.

So related to the holds or needs that are common we have really focused on that a lot over the years and those include developing leaders of high character with real power and guts to make the right decisions, developing leaders who engage their employees to consistently achieve superior results, developing first time and high potential leaders and developing leaders that can earn the trust of key stakeholders.

Over the last few years and many years we focused substantial portion of our research and product development budgets on addressing these common leadership development holds, the one that everybody has.

And our efforts have yielded important and powerful new content including the four disciplines of execution, leading at speed and trust, the four imperatives of great leaders, seven habits for managers and the recreated seven habits of highly effective people all of which were targeted to meet specific needs that we know what most of these buyers have.

These investments have helped us to achieve strong growth in our organization and development suite and execution business over the past five years.

On the other hand the holds aren’t the same in every organization because every organization is unique, every organization also has unique holds that those tests of performance improvement in leadership development find difficult to address.

These include the helping teams to get aligned around their critical goals, helping a distributed workforce to develop more impactful collaboration and communication skill, be able to access the right content with which to create their own in-house training, if they have their own learning and development departments and providing individuals throughout the organization with the ability to pick and choose their own development paths as the millennial generation wants to be able do that.

So to address this need for flexible resources with which to address the various performance improvement leadership development challenges the organization has had, as it facedfrom the year.

We have over the last year created new course content, built our extensive digital learning library and developed integrated outcomes oriented offerings and execution sales performance and customer loyalty. Each of these offerings and practices has been, will continue to be successful on its own.

But we also knew [indiscernible]wheneach of the pieces was sufficiently strong, we would want to try to find a way to combine these solution elements to create a unique, broad-based, flexible resource oriented offering that these buyers and these organizations could – where they could buy all of the content, and [indiscernible]percentage of their total needs.

This offering is now in reality and we call it the Franklin Covey All Access Pass.

The breadth of content and tools including the All Access Pass related to the organization is a simple, scalable way of addressing both those holes that all organizations have in common that includes all of the contents from our historically strong courses, as well as those that are unique to teach organizations that like to be briefly addressed.

First of all, what the All Access Pass is. And some of the results we’ve achieved and feedback we received to-date. Let me just suggest you turn to slide 3. If you see in slide 3, the All Access Pass is an annual renewable pass which packages under one banner, three offerings which we have here before have sold only separately.

First, as you can see an intellectual property license to our content. We’ve sold single content IP licenses, intellectual property licenses for several years. An organization with a particular development need will sometimes purchase an IP license to achieve a specific development objective for a designated portion of their employee population.

But with the All Access Pass rather than an in organization purchasing an IP license for just one of two of these content areas that organization for roughly a similar investment can now purchase a pass which gives their entire population or any portion thereof access to as you see on Slide 3 up to 26 of our world-class courses and content areas for the entire population within their pass has purchased.

These content categories include certain [indiscernible]effective people to be trust for discipline of execution. Five choices, four imperatives great leaders, and an additional 21 around most widely used content areas. It also includes 35 a online webinars that are free recorded webinars which are called LiveClicks.

Digital participant materials reach content area, which allow them to train people on an iPad or laptop, as well as like. Unlimited facilitator certification which means they can get as many teachers certified to teach our content in the organization as they want.

So they can expand the number of the instructors, teaching across the organization, impact more people. They get these work session PowerPoints and other tools. And then in addition, pass holding organizations can leave this content into their existing training programs that they already have that are specific to their business.

They can create derivative works or they can focus on very specific jobs be done or they take our content and apply it in the circumstance.

This helps to embed our content in their normal work processes training of vocabulary, because the purchasing organization has unlimited access to this content for the entire population during the passes purchased.

The organization has the flexibility to take each learners through multiple training programs in a year and where they can take – a bunch of people through different programs in addition an organization to create jobs specific training using the content from this pass.

The pass can be purchased for populations as small as a hundred people or as large as thousands or even tens of thousands of people. So that’s what it is.

Second, the second thing in the second column, middle column on Slide 3 is all of the All Access Pass was also received, access to our entire digital content library which includes 130 Franklin Covey single point lessons, we call InSights which can be facilitated at the start of the staff or a pre-shift meeting, can be used to provide on-demand training and development for the entire population, so it is going to give the people the ability to teach people, who want just in time training.

Five or ten minutes at a time we also have 25 Excelerators a product that gives one hour on-demand learning sessions around specific topics. So it’s a new way to access the content.

Its includes also more than a 100 award winning videos each of which teaches the principal framed to change in paradigm or outlines a process for increase of effectiveness.

Now in the third column every member also –each pass will also be at a special pricing if they want to buy pre-packaged participant manuals materials, pre-packaged facilitator manuals and materials they want to hire one of our consoles throughout deliver and do custom design or help get out of learning management system integration services.

With this flexibility an organization can address a broad range of unique development needs. And so this is – this at least what the pass is and it’s been getting a really good reception in our short six week, really. Just going to ask Paul Walker who as you know heads our direct office division to where this was first launched and first introduced.

So just share a couple of thoughts about it progress to date, some of the reactions from clients and non-client partners..

Great. Thanks Bob, hello everyone, you are doing well today.

So during the last two weeks of November we invited a small group of 20 client partners to sell the All Access Pass on a limited test basis, to a limited number of clients and during that final two week period of November, 13 of the 20 client partners who were invited to participate closed a total of 19 All Access Pass sale.

And that represented $381,000 in gross revenue. We’re pleased with those results early on, so we decided to continue with that small group into the month of December. And while every one was still very new at this we are still trying to figure out exactly how to position it, we sold an additional 23 passes.

And those sales represented $509,000 in gross revenue. One of the things that we expected to see and we were happy to see was that the average transaction size when somebody bought the pass was two to three if not more times larger than what a typical transaction would be for us.

Our thought at the time was to continue to keep the group of test client partners and test target clients relatively small, but because of the feedback we were receiving from the client partners and from the clients we purchased, we decided to open it up more broadly to our client partners and to our clients.

And so we ask client partners to go out and start talking to clients more generally about it. And so from the period of the late – the last week of January through the end of February, we sold an additional 91 passes.

And [indiscernible] numbers that we sold 114 passes in the second quarter and 133 dated back to that last couple of weeks of November through the end of our second quarter. So it’s 133 sales that represent $3.2 million in revenue.

As Bob mentioned, we now have hundreds of opportunities in the pipeline, we’re seeing good progression of those opportunities.

Just if I may just two quick pieces of feedback, one of our client partners said, he called me one day and said Paul, when I tell clients about the All Access Pass, I can’t tell who’s more jazzed, me telling them or them after I tell them. This is really a joy. That was the front comment received.

I’ve been out with a lot of clients recently, about 20 of the last two or three months. And one large perspective client we’ve been trying to get into for a long time said, we would not have traditionally thought of doing business with Franklin Covey. We love your content, but we don’t need to purchase courses, what we need is access to great content.

We’ve always known you have that and now it sounds like you have a way for us to access the kind of content that we need that truly matches the way we need to deploy it. And so it’s been fun, it’s been exciting for our sales force and for our clients and, so thanks, Bob..

Thanks, Paul. And anybody who wants to ask Paul questions, we will have Q&A here with the whole team. I just like to note three ways we expect All Access Pass to accelerate our business. First, it will leverage our significant investments in content development.

For the past 10 years or so we’ve invested more than $150 million in content development, in content applications, including millions of dollars for content area developing courses, customized dorm, libraries and tools, creating portals tools and process to support to same lasting changes and performance improvement.

As a result, we believe that we are better positioned anywhere in our space providing offering such as the All Access Pass. Recently some clients have purchased All Access Pass tools, but whereas in the past they had many different content suppliers.

Now first the All Access Pass with its extraordinary quality, flexibility and reach, they’re dropping the rest of their content suppliers and using the All Access Pass for the foundation for their people development performance improvement ways and that will happen obviously in every case, but it has a powerful impact.

Second, All Access Pass also leverages our significant investment in practices, and in building integrated solutions with premium services.

Well, so many will find – many customers will find that all significant portions are needs to be met with All Access Pass content alone, others will find that purchasing additional services coaching [indiscernible] will help them to achieve their objectives in certain areas.

Perhaps a little bit like Gartner Group on top of the platform of intellectual property sales where they add another third of their revenue comes from premium services. We have built a strong capability around these services for our execution, sales performance, customer royalty, et cetera.

And we believe that this All Access Pass at the center of the circle, we can add pieces around the circle where it will be a natural way to go bigger and broader InSights companies. Third, we expect that All Access Pass will allow us to better leverage our broad reach and strong go-to-market approaches.

It creates one compelling offering, which can be sold by all of our sales forces worldwide in addition to the individual offers that they sale that it gives one consistent offerings that can be sold that we think it has the potential to help our sales force to ramp even more quickly to create larger and more pervasive client engagements and sell additional services.

We have operations in more than 100 countries either directly as – primarily through our licensee network.

And having one offering to sale across the world in multiple languages create a big competitive advantage to win global deals and really establishes given the costs and difficulty of getting the content and [indiscernible] establishes a large barrier to entry for others and these global deals are becoming an increasing portion of our revenues.

So well this will be just one of the offering – just added – this is just added to our array of existing offerings that it provides a particularly strong value proposition for those in the circumstance of having lots of different jobs to be done and not having the resources to really do or having to work with 30 different suppliers to meet those.

Finally, in terms of way that will impact as we expect it will create increased recurring revenue.

We expect the smaller clients All Access Pass to increase our average revenue from transaction even after deferring approximately what was in this last quarter 37% of the revenue from each All Access Pass sale due to the value of social access to our digital content library. I think it will also increase our renewal rate for these smaller customers.

It also increases our deferred contract values. We mentioned that and I’ll give you an idea of that in a minute, but with this deferred revenues in million dollars in this quarter, we expect that to be many millions by the end of this year.

If you have interest in learning anything more about the All Access Pass, we thought we might invite you to an analyst and investor only webcast next Wednesday afternoon, we schedule a team that 2 o’clock at Mountain Time on April 6th.

So if you’re interested in learning more about this particular offering and way of – way of growing the market, please send an e-mail to Stephanie King, the world’s best assistant at stephanie.king@franklincovey.com, that’s stephanie.king@franklincovey.com, that will be Wednesday afternoon April 6 at 2:00 p.m. Mountain.

We’re obviously also happy to answer any questions if I have directly.

And final thing I just note is that as you can see in the slide 4 with more than – we have more than 30% year-over-year increase in our contract value during the second quarter, I will define that in a minute that 31% increase in our deferred contract revenue during the quarter and a pipeline that is significantly larger at the same time last year because of those factors and the momentum we’re feeling we believe the foundation for accelerated growth has been laid for the balance of the year and behind – and beyond I should say.

Let me just do quickly say, over the past five years we’ve significantly increased a portion of our revenue in one year that repeats in the next from 69% in fiscal 2009 to just over 86% in fiscal 2015.

Over the last few years, we’ve also increased the amount of our contract value of revenue, which we defined as the 12-month value of revenue under contracts of at least 12 months in duration – and so obviously again, 12 months value of revenue contracts in these 12 months duration.

And more recently the amount of our deferred contract revenue was also increasing representing revenue and EBITDA, which will fall into future periods.

These efforts are bearing fruits and as you can see in the slide 4, our contract value of revenue increased $7.6 million or 30% in the second quarter of this year compared to the – reaching $33 million compared to $25.4 million at the end of last year’s second quarter.

The amount of deferred contract revenue, so this is revenue received over time increased $3.1 million or 31% during the second quarter to $12.8 million from $9.7 million at the end of last year’s second quarter with second quarter All Access Pass sales contributing $1.1 million of this increase in deferred revenue and the balance of the increase is coming from education.

Finally, the size of our perspective business pipelines for the third and fourth quarter is significantly higher than at the same time last year, including what is now 100s of All Access Pass opportunities of showing the continued interest among a portion of our customer base.

So we believe the foundation for accelerated growth has been laid for the balance of the year and beyond. As we mentioned the effect of the government contract will be much less in the third quarter and non-existing in the fourth quarter than it’s been in the first two quarters also as you can see on one of the slides.

Slide 5 constant currency the impact of FX on our operations is expect to be a lot of – was less in this quarter than in the first quarter. The revenue line is actually about the same on the EBITDA line because we had – we held – cash encountered when the exchange rate changed, it got revalued.

We also – the effect of our – as shown on Slide 3 in the future quarters – the slide, sorry. Slide 6, the effect of non-repeat of the government contract was much less in the second quarter than in the first and will be less in the third quarter still and non-exists in the fourth.

So with this big base of contractual revenue, our momentum on the pipeline reduced impact, these are the factors at constant currency and with government. We believed we’re – we have the foundations set for accelerated growth and for the balance of the year and beyond.

So even with a significant portion of All Access Pass revenue and the related contribution to EBITDA being deferred in the future periods 37% as I mentioned was deferred in Q2.

We expect that that portion of revenue, which will be recognized in the next few quarters, will allow us to meet our original adjusted EBITDA guidance range, while at the same time building a deferred EBITDA bank related to All Access Pass deferred revenue of more than $3 million at least which will flow into in benefits in fiscal 2017.

So if we can continue to – if we can see our expectations, recognizing two-thirds of that revenue plus all the rest of the revenue from the company and also build up a bank for next year that starts – that continues to do what we’ve been trying to increase the predictability of our revenues.

So we reaffirm our original adjusted EBITDA guidance range of $34 million to $36 million at constant year-end fiscal 2015 foreign exchange rate levels. And at this point I just like to open it up and respond to any questions..

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] Our first question comes from Marco Rodriguez with Stonegate Capital..

Hi, Marco..

Hi, guys. Thanks for taking my questions here..

You bet. Thank you..

I was wondering if maybe you can talk a little more about the All Access Pass here. I’m just trying to get some clarification on the product itself. It sounded like instead of just selling one module or one practice for example, you have access to multiple practices.

And so I’m just trying to figure out here if the – but at the same time you did say also that the size of the transaction was two to three times. So I’m just trying to understand how the revenue aspect is flowing because it would seem to me that perhaps revenue might be somewhat cannibalized..

Yes that’s a big question. First of all, just say this, when we engage with the client we’ll often send one of our consultants, one of client, senior clients partners and they’ll offer to spend a day during stakeholder interviews with the population various people who have various people development leaders in the organization.

80% or 90% of the time what happens is you get through those stakeholder interviews you try to identify common needs that those people have leaving out all the individual needs that are common.

And you try to get that group to agree on a course of action maybe a focus on execution to get certain goals done and or a speed of trust or whatever to address a problem. And so we’ll continue to be doing that. So typically they’ll buy one of the content areas and take a long journey.

What we’ve normally done is in that same process though the other 20 things we heard about we just said, well look, we can’t get them doing, we got them to make a decision and do something with one population and we kind of leave those other problems unsolved.

Now when we go through – and that will still be the case where there are many organizations that have a very specific need, they attend an event and will continue doing exactly what they do now.

But this is a way of also doing that in an organization saying in addition to that one thing by the way, you can also buy the rest of the content because this is intellectual property rights, we don’t have really additional cost on our side related to them buying an intellectual property, we’ve already – we already have that cost on our balance sheet.

And so by simply – by going to these street folks and saying, hey, listen, you may have been buying Speed of Trust Transformational Process for 50 managers. Here’s what that will cost and you have to do that.

But we also identified in talking with your stakeholders that there’s a need for another couple of hundred people to develop these new managers, you’ve got people into with customer loyalty need, et cetera. For a relatively modest increased investment, you could have access to all the content and actually solve a lot more of these problems.

And so the increase in revenue comes that they would still finance, still going to do the Speed of Trust implementation. But hey, since I’ll get so much more value, first I’ll step up the average order size.

And so many of our client facilitators who are buying just simple course, you’ve already been doing anything that like a big trust transformation. They’re buying 30 manuals or 50 manuals which were to train a specific group in a specific content area. All of a sudden they’re saying gosh, they’re not that much more in terms of total dollars.

I mean today their average sale for some of those folks maybe $7,000 for $18,000 which is still a manageable amount of investment for their budget, they can get access to a lot – instead of 30 people taking a course, they can get 50 to 100 people for a set up of $10,000 or $15,000 and be able to access a lot of them.

So the increase in revenue per client goes up. The revenue for some training might go down a little bit, but again for us it’s just intellectual property. And so the cannibalization, these people were already buying content probably. They were just buying in a form it was denominated in the manual.

Now they’re buying content in the form of pass and in expanded pass and so one that has responsive market with really for us, it does a couple of things. One, I mean again we’re still selling everything that the normal way and there are a lot of people who that’s just how they purchase and that meet their needs.

For those who have multiple needs, we say oh gosh, we really have a lot of these related to get done. This give them a chance to step up the average price per customer for us, it increases the renewal rate because they’ll end up with needs that will plan that how to solve. It will take them beyond the boundaries of the one-year contract.

And they’re automatically renewable unless they don’t go for. So it creates a bigger initial sale. We think a higher repeat rate.

Maybe more importantly, it allows them to be inside that client helping them to solve a broader array of problems, which one increases our importance to them and also likely increase the amount of services and those things will sell to them ultimately. Keep going in a new question if I didn’t respond well..

No, no, that’s understandable. I appreciate the additional color there. Are there any sort of sales centers or any sort of structure that you’re putting in place for the All Access Pass to incentive CP’s pass pushed us a little bit further than they were normally..

No, in fact, almost the opposite. We’re basically saying we don’t want, we want this to be an add-on sale. We wanted to be in the value-added category if you didn’t understand your client’s needs. And so well oftentimes at the end of the quarter whatever will provide special incentives.

Really as it in part time early recognition and putting people’s names on the scoreboard for getting things done.

This is just one other array of offerings I mean there are big recognition comes to me in their sales growth for their quarter for which they get paid extra commission, they get a bonus commission on all revenue for the quarter and they meet their goals, that’s a primary incentive. We don’t want to make this just a product push.

We want this to be just another alternative when they reach into an organization and see the need. But in the past, we’ve just left the rest of those needs untouched, but there will maybe someday we’ll be able to go bigger in this client.

Now, we can say hey by the way, we’ve heard these 20 things and now hey, if you want to step up the All Access Pass, you can solve a much broader array of needs. Somehow, okay, that’s really that sounds awesome. But I just have this one thing I need to get done.

But today what we’ve found is the average revenue has been of this pass that purchased is significantly large they’re not huge in terms of total dollars, larger in this $23,000 instead of $7,500. And so that when they sell one, it’s a good thing for them. They have a bigger sale for the sales person.

It’s a great value to the customer even though this isn’t a subscription, it might – it might be similar to Apple music versus buying songs for $0.99, hey, it’s not that $0.99 is a good deal. And many of us still are buying $0.99 songs every day, so that just meets our needs.

That in that same way, clients will continue to buy manuals and buy training one off. But when you have a need of this broader or aspirations that are broader, the idea of spending $10 a month to Apple music even though the price per song might go down, then you have this similar situation we have.

They have library of content they’ve already paid for or licensed. And so it’s kind of similar to us. So we think the average revenue per client increases, the lifetime value of a client probably increases at least at these lower levels.

Our big clients tend to stay with us anyway, but some of these smaller clients they tend to churn a little bit more because they had one specific need. And so we think it benefits us in both ways..

Got you. And last question, I’ll jump back in the queue.

Can you provide us with an update on where the strategic markets group is right now in terms of expectations?.

Yes. I’d be happy to. Shawn Moon is traveling today. So I think he probably wouldn’t trust me to tell you how excellent. The government business absents the one contract that didn’t repeat doing well. It grew about 10% this last quarter. We had a good quarter other than the big $1.7 million it didn’t repeat.

And they move into the third and fourth quarters, third quarter still was up against that contract with a smaller amount in the fourth quarter will grow. So that part of the story, the global 50 team, we’d actually not expect to have any revenue during the second quarter and they had some. And that’s good and they have a big pipeline.

There are selling a lot of specific solutions, but this All Access Pass is also been helpful to them. The sales performance practice also grew during the quarter which is one of range fiber now, meaning to recruit for positive earn out payment.

And in customer loyalty we’re actually down year-over-year, related to one contract and the rest of the business is doing well. It’s a small business as you know. But we have a large retail contract that expired in September. And the fact, they haven’t been able to replace that into the contract came, they delivered the value.

But it was a contract that they’re trying to replace. They have a new offering coming out this – their offerings always been lower margin data collection – customer data collection services.

And they have anew offering called leading customers loyalty which was actually part of this All Access Pass and we’re accessible, but they’re sold by their own sales forces. So hopefully that’s helps a little. Journal is going well. Shawn Moon is doing a fantastic job leading it. This is a lot of big deals.

He’s the big deal – one of the best people at big deals and strategic things, and he’s got his teams focused on that actually. So we feel great about it and it’s on a good trajectory..

Great. Thanks a lot, Bob. I appreciate it..

Thanks..

Our next question comes from Jeff Martin of ROTH Capital Partners..

Hi, Jeff..

Good afternoon. Hi, Bob..

How are you?.

Good.

How are you?.

Good. Thanks..

Could you touch on the practices by practice leadership education, I don’t think you covered yet..

Yes. Let me just also apologies. I didn’t include the practice chart just because with All Access Pass, it’s a little hard to know exactly your kids got all different content. It will start over time. It’ll be harder to track the revenue. But let me just give a quick update.

We talk about the sales performance practice in customer loyalty and their response to Marco has been going into more detail on that. If that’s helpful those two practice – execution practice last quarter, it’s now building a good pipeline. Its revenue is up a little bit, but not strongly yet last quarter.

But it’s on the right track and it was a good pipeline. We’re selling in a little bit like All Access Pass. One of the things we’re doing in all our practices which is I think will be a good thing for building recurring revenue.

And also recurring revenue and also the margins is in the execution and sales performance historically when we’ve done a big installation called installation, somebody hires to do a big transformational sales engagement.

We will tend to sell – we will just price the whole engagement, which is kind of denominated more in services some of the consulting contracts where they also get IT and things.

And we’re now splitting that so that each of the practices will sell intellectual property contract to the core content some cases to the operating system whether it’s a portal of something. And then on top of that adding these services what makes clear that there’s an ongoing intellectual property relationship with that.

So we’ve got – that’s in our growing an execution practice. We think it will really build the recurring revenue stream there. In terms of the organizational development suite which includes the normal productivity leadership and trust, I think the – because the focus on All Access, it’s little hard to divide out the exact revenue.

And so I actually – I mean, we can happily find that of the exhibits – because we haven’t allocated out the $3 million of All Access Pass revenue probably won’t in the future. We’re now seeing that much more as one thing kind of the organizational development or learning development suite.

And in the past we can’t go – we referral a little and trusted that because we launch that down to the other place. This is all in the same suite sold to the same buyer.

And so overall our revenue as I mentioned besides from these ways of these ups and downs of FX and government, would have been about 5%, including the revenue from All Access, it was differed. And so anyhow practice revenue in the OD suite will pretty much follow that..

Okay.

Thus so we anticipate you won’t break it out by curriculum from this point on?.

Yes. I think it’s probably right, it just won’t mean very much. I mean, I would say, I was just going to just assume the time to shine. Have you talked about the education practice specifically? I just taken the OD suite. And so, Shawn, you may speak to the education status..

Sure. Yes. So, hi, Jeff. So education, we had a good quarter. We grew – so, first quarter was the 35% growth. A lot of that came from deferred revenue from year before which was nice to have. This quarter we grew at 30%, so it’s healthy. And I don’t think we’ll grow that same rate going forward.

Last year we had a lot of our events in the third quarter, this year came at the second quarter. So I think our third quarter won’t be as nearly as high as the education, year-to-date is growing at 32%. And we expect – looking to the future, expect to bring on about 500 new schools this summer. So that’s really nice.

We also have a lot of new partners globally that we’re signing up to run our education business, license business in different countries. There a lot of – we focusing in on just the same one. So, once the school starts, we want to keep them as long as we can. And then we’re also – just sort of we’re just trying to get more schools in.

We’re looking at innovative ways to lower our costs, and keep the quality as high as possible, but all things considered, I think things are going really well..

Okay. And then. I know you’re looking at taking that to higher education.

Where does your strategic initiative on that?.

Sure. Well, with higher education we’ve got – this got good solid growth. There’s a small group right now is we’re expecting them to come in at just about $3 million for the year, growing for about $1.5 million. So we feel good about the progress we’re making. The strategy we’re using right now, we’re selling a lot of – called success.

These are of course students take help and succeed in college and in life. And we’re – that’s one of our new offerings, it’s doing really well. We have a lot of new contracts, and some big ones that are in the pipeline. We’re also doing All Access Pass in higher education.

We think this is going to be a great opportunity with staff development inside universities and colleges to also sale [indiscernible] staff, the few of them already. [indiscernible] is the exact level with our client partners is very good, and leading us great opportunity as well..

Okay. Thank you. Thanks, Shawn. Bob, can you touch on the – an update on the client partner initiative..

Yes, on the hiring and ramping plan progress?.

Yes..

Yes. So we’re sitting at 198 client partners that to the – end of the second quarter. The big additions will come in the U.S. direct offices in the November time period, as notable. We will add client partners this summer in education. We’ll be adding several in the direct offices still. In June and adding some also for our customer loyalty.

And government for the state municipal government category, you’ve got a couple of other slated also in government. So we expect that as we said last time that we’ll end up by the time we reported in November. We’ll end up with about 208, 210 client partners by the time.

So I think we’re – we feel like we’re on track there, everybody is now fully committed or fully staffed on our managing director or sales manager positions. And so we’ve grown some from August, we had a 180. We had 194 at the end of the first quarter, I think and 198 now.

And with [indiscernible] sales performance, I think we’ll add another 10 to 12 net between now and the fall and then we’ll have a big group in added on schedule four – the four persons..

Got it. Thanks for taking my question..

Thank you, so much..

We have our next question from Kevin Liu of B Riley and Company..

Hi, good afternoon..

Hi, Kevin..

First question, just wanted to clarify something on your adjusted EBITDA guidance, it sounds like it’s based on the fiscal 2015 exchange rates. If I look at the slide, it looks like about a $2 million impact year-over-year.

Does that mean for [indiscernible] as reported basis that we should be looking more or like 32 to 34 in terms of what we model in?.

Yes. We are going to given in constant currency – that we at least we’re dealing with the common currency way to think about it. To date, the EBITDA impact year-to-date has been a $1.2 million for the first two quarters. At current exchange rates, we’d only be another couple of hundred thousand in this year. And so if you – nothing went our way.

The end is going to little bit our ways of recently, we would probably expect about $1.4 million, I mean the midpoint of our guidance would be a $1.4 million higher than post FX..

Got it, right. And then just a couple more follow-on where the All Access Pass, if you look at your existing base – customer base today as well as what you have in the pipeline.

What percentage of those customers do you think that the profile for one that you would sell in All Access Pass to might be receptive to that offering?.

Most of the – I mean probably what to say, in two-thirds of the organizations to probably qualified because they’ve got somebody who’s task with people development in their organization.

Some small organizations actually – you wouldn’t think would be customers or potential because they don’t have that position actually have been – have raised your hands. I’ve never thought I could access Franklin Covey’s content from my calculation, I don’t have ahead of learning development, but now I can buy this pass.

And I can assign my assistant with everyone else to coordinate the same because you get all the content. But I think the big idea for us is that in market raise the prices of cannibalized, I think for the group – the group is buying 30 manual bigger than continue to buy 30 manuals.

But mostly the organizations do in fact have much bigger needs and bigger opportunities than we’ve historically been able to service. So we think they will probably – I mean if our existing customers, we have 1,500 customers who are small customers who are buying just less than 10,000 year of materials and so forth.

Most of the organizations and they work to be potential, I mean we won’t penetrate in all that. If we got 15% or 20% of those people in the first 12 months and that probably continue for the next three years or four years, we’re just people learn about it and as their needs change, there is our client partners stay close to them.

They’ll find opportunities to expand. In addition though I think we have about 12,000 accounts assigned to our client partners just in the U.S. of which only about 3,500 are actually clients they – as I mentioned, 1,500 of those are small clients.

And so the real opportunity and what we’ve been really excited about in this really – we have six weeks into think, but we have lots of examples that because we have 100 now – 138 at end of the quarter, 135 sale.

What we’re excited about is that many of those who have purchased or people who are assigned our client partner, they’ve never done business with us. They always had this bigger need. And since we didn’t exactly fit it, and they’re not getting the problem solved with others. They just said having to kind of cobbled together solutions.

When they’ve heard about it, we’ve had really very good response from many clients when they push throughout the flyer about it or kept telling you about it. We’d immediately send e-mail to their client partners sitting at the meeting.

So we think that probably the biggest thing as we’ve got growth in terms of average revenue size from our existing small customers. Some of our biggest customer who typically done business with us in one content area. This allows the likelihood is there will be a much bigger as a lot of those.

And third we’ll be able to now reach a whole group of people already assigned to client partners with whom they’re not doing business because of this. In addition, we’ll be doing some just – we’re doing some just general marketing, because the other 85,000 companies in U.S.

that already have been assigned the sales people yet, we are also good prospects for this. And so we have been historic, we are primarily just invited customers and perspective customers.

We’re now making a clear outreach recognizing that this is a niche that everybody has needs to be stretched and we’re getting some good hand raised for the conservatives.

So [indiscernible] again – in addition to all the other things we’re doing this is a nice add-on that can have those benefits and I think we accelerated growth on top of everything we’re going to do. .

Got it. And just lastly, in terms of the current debt balance, which anticipates allocating [indiscernible] cash go to pay that down as quickly as possible.

Are you comfortable carrying that on the balance sheet for this ending?.

So it dependent on what the future brings as far as we’ve seen as opportunities used cash we’re not on comfortable was having a little bit or debt. But we do expect to generate cash as we’ve talked about for an either use that cash to pay off the $10 million of debt or maybe opportunistically still like some shares or do something else.

So we’re not totally opposed to $10 million, outstanding on our revolving line. But if not other opportunities come out will generate that cash paid off. .

[indiscernible] at our intent, we have an open authorizations of purchase tend to would be the continue to take advantage of that through the combination or cash in. And if the opportunity came, we probably even still have $20 million undrawn almost on their credit facility we could use that as well by most stocks.

So we feel like we’ve got good flexibility and the ability for wanted to increase our credit facility. .

Okay. Thanks for taking the questions. .

Thank you, Jeff. .

And at this time I’ll turn the call back to Bob for closing remarks..

Thanks everyone for joining today. We delighted to invite you again next Wednesday, if anything would like to know more about All Access, Wednesday, 6, 2:00 PM Mountain Time just to e-mail stephanie.king@franklincovey.com. And for those of you would like to join, we’re look forward to talking to you.

Then thank you so much for your great questions today and for your attendance and we’ll look forward to seeing each of you soon. And thanks very much..

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