Derek Hatch - Corporate Controller Bob Whitman - Chairman and Chief Executive Officer Steve Young - Chief Financial Officer Paul Walker - Executive Vice President, Global Sales and Delivery Shawn Moon - Leadership Consultant, Sales and Marketing Expert, and Speaker.
Marco Rodriguez - Stonegate Capital Chris Howe - Barrington Research Kevin Liu - B. Riley & Company Samir Patel – Askeladden Capital Management Jeff Martin - ROTH Capital Partners.
Presentation:.
Welcome to the Q3 2016 Franklin Covey Earnings Conference Call. My name is Eric. I will be your operator for today’s call. [Operator Instructions] Please note this conference is being recorded. I will now turn the call over to Derek Hatch, Corporate Controller. Please go ahead..
Thanks, Eric. Good afternoon, ladies and gentlemen. Welcome to our call to discuss the third quarter fiscal 2016 financial results.
Before we begin the call and the webcast this afternoon, we just like to remind everyone that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based upon management’s current expectations and are subject to various risks and uncertainties including, but not limited to, the ability of the company to stabilize and grow revenues, the 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 companies 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 that the company’s actual future performance will meet management’s expectations.
These forward-looking statements are based on management’s current expectations, and we undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of today’s presentation except as required by law. With that out of the way, we would like to turn the time over to Mr.
Bob Whitman, our Chairman and CEO.
Bob?.
Thanks, Derek. Good afternoon, everyone. We are happy to have the chance to talk to you today and really appreciate you all joining the call. Maybe to start out. Last quarter, we introduced you to the All Access Pass and noted that it represents a major strategic shift in the way in which we engage with our clients.
We also said we believe it would significantly increase the average lifetime value of our customers. And in the process, it really changed our whole business. Well, as you probably have got from some of the information you have already read, that change is really accelerating.
As shown in Slide 3, All Access Pass reported income has increased from just $0.25 million in Q1, all of which happened kind of toward the end of November to $1.9 million in Q2 or second quarter and $3.4 million in the third quarter.
If continued into June, we expect All Access Pass revenue in June – recognized revenue in June alone to be nearly $2 million with approximately an additional $4 million All Access Pass revenue likely to be recognized during the balance of the fourth quarter.
In addition to the revenue that we are recognizing, we are also generating substantial amounts of deferred All Access Pass revenue. As you know, when we sell an All Access Pass, we enter into a contract with a client that has two primary components.
One is an IP license for up to 26 of our content areas, which represents approximately 60% of the contract value and the revenue for that portion is recognized immediately. And the second component is the digital library, representing 40% of the contract value, which is put on the balance sheet and recognized over the following 12 months.
As you can see on Slide 3, at the end of the third quarter, we had $2.7 million of deferred All Access Pass revenue on our balance sheet, which is already an amount approaching that which we said we expected to have at year end when we last reported.
Approximately $800,000 of this amount will flow into and contribute to the fourth quarter results with the balance being recognized next year.
We also expect to generate an additional $3 million to $4 million of deferred revenue during the fourth quarter related to All Access Pass suggesting that we may have in the range of $5 million of very high margin deferred All Access Pass revenue on our balance sheet at year end.
Gross margin associated with that deferred revenue is very high, almost – with some intellectual properties, so it’s close to 95% and that will then serve as – we will have a bank of deferred revenue embedded in which is nearly $5 million of also gross margin, most of which is EBITDA contribution moving to next year.
As noted, this amount is a couple million dollars higher than we expected here at – to have at year end when we last reported and we are excited about that. This is also having an impact on the amount of revenue recognized in the quarter versus the amount deferred.
The implications, early success momentum are very exciting for us and for the business and the deferred revenue generated in connection with these sales will help to accelerate revenue and profitability growth in the future and help to somewhat smooth out revenue throughout the year.
Slide 4 gives you an idea and maybe just spend a few minutes on this of how the combination of new All Access Pass sales, the recognition of deferred revenue over time and the renewal of existing All Access Passes when they come up for renewal, which actually is automatic renewal can combine to accelerate revenue, grow – smooth out revenue and mitigate the impact of the deferring 40% of the revenue associated with the new All Access Pass sales.
As you can see on Slide 4, there are just some key assumptions, which aren’t projection per se. They are just model.
But assuming the recognition of $4 million of new All Access Pass revenue each quarter through fiscal 2017 through 2018, the annual renewal of 80% of these All Access Passes, it’s early and as we don’t really know what that number will be, we are targeting at least 90%.
But let’s say for this model’s purposes we are saying 80%, using those two assumptions, you see the total recognized All Access Pass revenue would increase from $11.8 million in fiscal 2016 to nearly $35 million in fiscal ‘17 to then $55 million in 2018.
As you can also see on the row entitled reversal of deferred sales versus new deferred sales, the relationship between the amount of past deferred revenue, which was reversed and recognized as revenue in a given quarter and the amount of new deferred revenue generated in the quarter related to new All Access Pass sales improves from 9% in this year’s second quarter where the amount of deferred revenue from prior periods, which was recognized in the quarter was only 9% of the amount of new deferred revenue generated in the quarter, which of course resulted in a lot of net new deferred revenue.
You can see it moving to more than 80% in fiscal 2018 where the amount of deferred revenue from prior periods recognized in a quarter is more than 80% of the amount of the new deferred revenue generated in a quarter, which results in the creation of relatively small incremental amounts of new and net deferred revenue.
This whole idea is that with a pretty steady growth in All Access Pass sales – I mean, this maybe a little more conservative than our current – at least current pace, but this can really be a very significant impact on the business just in terms of recognized revenue.
Importantly also on Slide 5 is the impact of deferred revenue and what the kind of bank of deferred revenue and growth that’s embedded in it for the next year. As you can see in Slide 5 shows the balance of All Access Pass deferred revenue relative to the previous year sales from all sources for those same offices.
So, it really creates this embedded growth. For example, the assumed deferred All Access Pass sales balance at the end of fiscal 2016 shown on this sheet here is $4.78 million. That’s the amount of net deferred revenue.
That’s equal to 5% of fiscal 2016’s estimated $100 million of total sales from those offices that are selling – currently selling All Access Pass.
And that means that when these offices start fiscal 2017, they will already have embedded growth – or at least already have embedded – revenue grew 5% the prior year and potentially 5% more growth from this deferred All Access Pass revenue, which will be recognized in fiscal ‘17.
As you can see, the amount of year-over-year revenue growth embedded in the deferred revenue at the start of fiscal year increases to 9% by the end of fiscal ‘17 under this model and 12% by the end of fiscal ‘18.
And the main point is that as we build up this deferred revenue, it really helps us to establish the foundation for reigniting growth particularly in our direct offices going forward.
All Access Pass is extremely compelling value proposition for customers and differentiating strategic position in the market together with the potential to provide us with the accelerated, more predictable revenue growth that has given us compelling reasons for our ongoing focus and investment on ensuring the success of All Access Pass.
When we first introduced All Access Pass, our thought was let’s add this to the mix and then let the client partners and salespeople go out and at least have it in the toolkit of things they could talk with customers about.
But as we – but the reaction from customers together with what we knew it could do for the business caused us really starting in the second quarter, but then accelerating in the third quarter. So, we really need to put our full weight behind this initiative. This is a game changer for us.
And one of the things of course that really affected us was the fact that at one point in the third quarter, all of a sudden, most of our client – existing clients who had heard something about it and wanted to talk about it and literally there are thousands of those clients who – the timing may not be now, but who are now interested in that.
So, it really felt like and feels like that what we need to do is really double down, take advantage of this real opportunity to transform the business. So that’s what we have been doing.
With that introduction and obviously we have plenty of time for questions and answers, like to now just have us briefly address the overall results for the quarter and year-to-date, including the impact of the shifts in our business model toward All Access Pass and ask Steve, if you’ll do that, provide some additional detail on three ways in which the All Access Pass is changing our business and business model, discuss what the All Access Pass means for growth in our U.S.
direct office and ask Paul Walker, who has those offices to do that and then have Steve conclude remarks with a discussion of our cash and cash position, liquidity and cash flow and the updated guidance. So with that, Steve, I will turn the time to you..
Thank you, Bob. It’s nice to be with you today to spend a few minutes to overview the results for the third quarter. First of all, let me point out that net income for the third quarter was a loss of $1.1 million compared to net income of $1.2 million in the third quarter last year.
If you look back at Slide #15, you will see the reconciliation of net income to adjusted EBITDA that we are going to talk about for a minute, the adjusted EBITDA. You will see that adjusted EBITDA for the third quarter was $1.8 million compared to $4.9 million last year.
In a summarized view, this decrease reflected the combined impact of three things. First of all, a $1.7 million combined negative impact of a couple of unusual type items; the expected non-repeat of a large government agency contract, which generated $900,000 of adjusted EBITDA last year and an unexpected $800,000 accounts receivable write-off.
So first, we have those two unusual items. Next, if you take all the rest of the business, excluding the U.S. direct offices, the adjusted EBITDA of that remainder of the business increased a little bit in the third quarter compared to last year, a few hundred thousand. And then third is looking at the U.S.
direct offices where we are primarily selling the All Access Pass. So, the decrease relates primarily in those offices so that the change in the business model related to selling the All Access Pass. So, let me go over that just a little bit.
So, the shift in this business model means that we generated $1.6 million of very high growth margin deferred revenue during the quarter. To provide some further context on how this impacted the quarter, in last year’s third quarter and all other quarters, substantially all of the $20.5 million in contracts entered into in the U.S.
direct offices was recognized as revenue in the quarter.
In this year’s third quarter, however, only $18.7 million of the value of contracts entered into in the quarter was recognized as revenue in the quarter with an additional – the additional $1.6 million of net deferred revenue associated with the same All Access Pass sales added to our balance sheet.
And as Bob said, this very high margin deferred revenue will flow through at 95% margin when it comes through next year. A portion of this deferred revenue from Q3 will be recognized in the fourth quarter with the balance recognized in future quarters. Generally, all recognized in four quarters over a year.
So, this deferral in revenue and the related EBITDA together with about $500,000 that we spent in marketing and travel costs incurred in the quarter to ensure a successful launch of the All Access Pass, all of which was charged to the quarter and the cost of the new client partners added this year accounted for substantially all the rest of the difference in adjusted EBITDA for the quarter.
Might just be interested to know that this business model dynamic that’s taken place of the recorded portion and the deferred portion was more acute in March and April than in May.
And in May, the acceleration of the revenue was getting closer to the amount recognized being equal to prior periods and then the amount deferred was just an additional value being put on the balance sheet, but the recorded revenues were coming closer together in May and we are experiencing that in June.
So, I hope that helps to get a little color on the change in adjusted EBITDA in the third quarter from last year to this year. Now, on a year-to-date basis, if you look at Slide 6, revenue year-to-date through the third quarter was $135.2 million compared to $142.5 million for the same period last year, a difference of $7.3 million.
Excluding the $1.5 million year-to-date impact of changes in foreign exchange rates, this difference would be $5.7 million.
As shown on this slide, more than 100% of that decline relates to the non-repeat of the government agency contract that we have talked about several times, which generated more than $6.5 million in revenue during the first three quarters of the year.
Excluding these changes related to FX and the government contract, the remainder of the business was up $775,000 and would be up that much going into the fourth quarter.
Additionally, we keep going back to this, but I think it’s important at the end of May we had – the end of our third quarter, we had built up a balance of $2.7 million in this very high margin deferred revenue.
Approximately $800,000 of that deferred amount will flow through in the fourth – in our fourth quarter results and the remainder will come through in FY ‘17 next year. In adjusted EBITDA, year-to-date through the third quarter was $10.7 million as you can see compared to $14.6 million for the same period last year, a difference of $3.9 million.
Excluding the $1.2 million year-to-date impact to the change in foreign exchange, then the difference is $2.7 million.
As shown kind of like the revenue discussion, more than 100% of this decline is related to the non-repeat of a large government contract agency which generated $3.8 million in EBITDA contribution during the first three quarters of FY ‘14.
Excluding these changes in FX and government contract, adjusted EBITDA would be up a bit $1.1 million for the remainder of the business.
And as previously noted, this $2.7 million, a very high margin deferred revenue will flow through to adjusted EBITDA in the same way it will flow through to revenue in the coming year at a very high flow through rate and that again is $2.7 million at the end of the third quarter.
So just to note, to stand back, due to this increase in deferred All Access Pass revenue in addition to the significant amount of value we think is being created on the income statement, there is also a lot of value that’s being created that’s put on the balance sheet.
And while it wouldn’t be appropriate and we are not trying to add those two things together and change our result, nevertheless, we do feel that there is a good value that’s being created in the third quarter, some that’s on the income statement and some that’s on the balance sheet.
Bob?.
the assumption that you can achieve a higher average spend from these All Access Pass holders and that you would also get a higher percentage of these folks and customers repeating in revenue.
And as the increase in average spend while it’s still early to-date, the All Access Pass holders who are prior customers have in fact been spending more with us this year than they did last year.
For example, 139 pass holders who are active facilitator clients in fiscal 2015 buying training materials from us are now All Access Pass holders as of the end of May. In the full fiscal year 2015, these particular 139 clients spent $3.7 million for the whole year, a median of $17,700 per client based primarily on facilitator materials.
These same clients, who are now All Access Pass holders have already spent $5.2 million this year – year-to-date through the third quarter, a median spend of $25,250 and most of them just became pass holders recently relatively recently. Now, approximately $1.5 million of this spend is being treated as deferred revenue we just keep talking about.
So, a lot of the difference – we haven’t seen much of that difference come through yet, but it will, but the actual spend is higher and so that’s an important thing. We also – in addition to these larger clients who are some of the early targets for All Access Pass, we have thousands of smaller clients.
And for each one of those who makes the trade up for a typical client who might be spending – facilitator who might be spending $8,000 a year or in a year for facilitator materials and just because of the way they are – even though they are active every year, one year they train in November and then next year they train in some other period, about – of that $8,000 – about $6,000 of that comes into the next year and another $4,000 the following year.
So, then over a 3-year period, you have somewhere $18,000 to $20,000 of total revenue that comes in over a 3-year period. With All Access Pass, any one of those who steps up and buys say a $20,000 pass in their first year, they have already spent in their initial year as much as they would spend in three years.
If we are right about the idea that at least – our target is 90%, but if we are right that at least 80% will renew, they would spend $16,000 the next year and so on. And so all of a sudden, you have somewhere close to $50,000 over three years from the same clients.
And so that’s a major focus for us and there are literally hundreds and hundreds of opportunities, which Paul will talk about, that are currently being worked. So this first idea is that increase in the lifetime value of the customer just in terms of the pass itself and the related renewals, etcetera.
The second way in which All Access Pass change our business is the way in which we are engaging clients the way – just that way of engaging clients and providing a clearer path for expanding our reach and influence within these organizations. Often when we sold just a course that was kind of the end of it. There was a certified facilitator.
They bought certain number of manuals. They will then buy those manuals every year and that was a great thing. But again, it didn’t repeat at the same level every year.
But this – with All Access Pass, when they buy this intellectual property license, they are now being engaged in a way where we are identifying the jobs to be done that they have and really trying to find out how to accelerate and impact their organization.
Let me just say that if you look at Slide 8 – no, go back to Slide 7, once a pass is sold, we have a whole team we call pass holder services now that added some to the cost in last quarter, but that team is now in place.
But it’s a group that is focused on ensuring that the customer is delighted and that they are getting full value out of what they bought, [indiscernible] just go back to Slide 7 and just say that this team is tasked with the outcome shown on this Slide 7. We meet every Tuesday morning in early afternoon to review the progress on this.
The first thing we want to make sure, the top of that in the yellow bubble, is that they are – the customers are delighted with what they bought. And we are doing Net Promoter Score surveys after they have been a pass holder for 2 months.
And then again at the sixth month mark, our goal is to have a world class Net Promoter Score where their likelihood, as you all know about Net Promoter Score, on a 0 to 10 scale, how likely is it you recommend this to somebody else, and we want that to be a 9.5 because we know the behavior – if it’s a 9 or 10, the behaviors will be that they will renew, they will expand their relationship with us, they will refer us to others, they will be willing to spend time with us to help us get better.
We want to build our timeline having very strategic relationships, not just a vendor-purchaser relationship that they have a relationship that is strategic.
We want to make – have this so embedded in the major initiatives they are doing that the switching cost would be high to pull us out that we are involved with so many of the important initiatives.
We want to also find ways of expanding the populations that are using – utilizing the pass also, in some cases, upgrade those passes to a higher – and we have different levels of these passes that we all referred to as All Access. We have a personal effectiveness pass and All Access Plus, etcetera. And we also want to add on additional services.
And so turning to Slide 8 maybe see how that plays out. Let’s say in the middle of this blackball, here is the pass itself, it’s the intellectual property license that somebody buys.
Immediately when a purchaser comes on, one of our implementation specialists actually sets up a call within the first week to connect, to orient them to the content, what they bought to start a dialogue about the jobs to be done – they are trying to get done, the impact journey they want to take.
And usually in that first conversation of an hour or so, they have identified some things for which they were buying the pass to start with. They already knew they had some things to get done and they are plotting out those jobs to be done.
But following that, within the first month or so, there will also be an onsite visit by one of our consultants and our salesperson, which we would call a discovery day, where they are going in – and they may have sold the pass to the person who purchased it, may have been the head of people development or whatever it was inside the company, but they will go in and do a day of interviews.
Now, because it’s a different relationship now that their person’s already bought to come in and make sure that they are getting full value from the pass.
And with that, they might talk to 6 or 8 other stakeholders in the process identifying what they are trying to get done at a minimum, just reinforcing the value of what they bought, but oftentimes expanding the population and that’s happening probably about 20% of the conversations to-date is leading to an expanded pass.
As you go through these slides from 8 through 11, after the one with just the black dot, if you go to the next slide, it’s unnumbered here, the other thing they will find is that for certain of the things that, that organization is trying to do, there maybe some advanced tools or services that, that customer needs.
Paul will share an example in a minute, but we now – we have hundreds of thousands of dollars just in June alone from pass holders who bought in May who after this first discussion, even though they might in many cases be certifying their own facilitators, recognize in other areas they like to have a Franklin Covey person come and help them deliver that content and execution or trust or something else.
So, that’s the second idea. The next one, they can also buy additional single content passes, which on the next slide you can see that as you go in an interview somebody may have bought an All Access Pass for 100 of their leaders.
But as that discovery day occurs and they are talking to certain of those leaders, they will find that one of the leaders in charge of sales have a lot of salespeople or somebody else has the frontline customer service organization reporting to them or they have got an execution job.
And so they will identify expanded populations that might have a very specific need who won’t necessarily buy the overall pass but who had buy an intellectual property license to one of those content areas. And then finally, on the next slide, there are services available under each of those.
For example, an execution initiative where they bought the content rights in All Access Pass for say 100 people, they might have 1,000 people who they are trying to get a goal done that requires better execution.
That whole group, they might buy an All Access Pass specific for disciplines pass – content pass for that group and then add on services to help implement it. So, that way of engaging with the customer is a natural way of building strong ongoing relationships, adding on services and building lifetime value.
Finally, as shown on 13, the third way in which we envision and we hope would have an impact is the All Access Pass offering is not only helping us to increase lifetime value of existing customers, but also to win back former customers and to win more new customers.
As you can see on Slide 13, what – we have thousands of active facilitator customers who can upgrade to All Access Pass and I mentioned the economics of that. We can increase their lifetime value. As shown on slide – and as you see in Slide 13, 52% of the customers who bought the passes to-date have been those customers – exactly those customers.
So, it represents today maybe – we have already converted over maybe 7% or 8% of the active population of that group. And so we are just getting started. It’s an exciting prospect.
But at the same time, among our existing pass holders, half – almost half have come from new categories that we wouldn’t normally – we hope for, but wouldn’t normally know that we would get.
We have certain facilitator organizations that really had bought things from us, but didn’t see a strategic path anymore and 13% of our buyers said, wow, with this, I would like to reengage.
We have 18% coming from new clients even though our marketing has not primarily been focused there, just people who – organizations who have been assigned to client partners, but perhaps they have never even met with now raising their hands and saying, well, wow if we can engage that way, that would be a great thing to do.
And then even onsite clients, we call them people who hire us only to deliver a class or two each year, because they are not fully committed to a rule out, but with the All Access Pass providing a way where they can access the content, they are now saying, wait, I will keep doing more onsite days.
But in the areas where I am doing those, I would really like to add this on. So, those are three ways in which we think – I mean, we originally anticipated it would occur. It’s exciting to see that it is occurring and I just wanted to share that with you.
Maybe just turn some time to Paul Walker to talk about how All Access is, how we expect that this is going to affect the U.S.
direct offices?.
Thanks Bob. Hello, everybody. The direct offices historically had very strong growth. In fact, if you look at Slide 14, from 2010 to 2015, compounded annual growth was 10.6%. And you can also see in that chart that growth started to slow in 2015.
And we have spoken about this on previous calls, but the slowdown was driven primarily by reduced average sales size related to success of new product launches.
While this didn’t immediately show up because of the type of sale related to the launch of a new product meaning that it has a shorter sales cycle, as we move back toward a larger average order size and associated slightly longer sales cycle, it’s made it harder to grow the past few quarters.
We think the All Access Pass is really going to change this and is going to drive strong growth for us going forward. As has been previously mentioned, with the All Access Pass we know the average sale size is larger. We also know that the average lifetime value of the client is greater.
And while right now we are not getting much of the benefit of past deferred revenue, the deferral that Bob spoke about on Slide 5 will begin to work on our favor and we expect past deferred revenue to contribute an amount equal to about 5% growth in 2017 and what could be as much as 9% growth by the time we get to fiscal 2018.
As was mentioned, we didn’t have much deferred revenue working in our favor this year in Q3. In last year’s third quarter, substantially all of the $20.5 million in contracts entered into the U.S. direct offices was recognized as revenue in that quarter.
However, in this year’s third quarter, only $18.7 million of the revenue – or the value of contracts entered into in the quarter was recognized as revenue in the quarter, with $1.6 million of net deferred revenue associated with All Access Pass sales added to our balance sheet.
Much of this is related to the fact that we are frankly in Q3 still getting all of our client partners into a position where they could successfully sell this and happy to report that we are now there.
But in Q3, the amount of All Access Pass revenue that was recognized in the quarter was somewhat lower than what we would expect going forward and this is already starting to correct itself in June.
We expect revenue actually recognized in the month of June to be somewhat higher than it was in June last year, while at the same time creating an additional $700,000 of deferred revenue that will benefit us in quarters to come. We are very excited about the momentum.
And in fact, in the last 8 business days, we have closed over $1.1 million worth of All Access Pass contracts. And additionally, we have hundreds of opportunities in advanced stages in our pipeline. I must just share one experience Bob referenced just a minute ago.
We have talked a lot on this call and on the previous calls about the importance of not only selling initial pass, but that, that pass creates a foundation for us to engage with these clients to get the population size right, expand the population and add on additional services.
We had an experience recently where a client purchased a pass for 100 users and in subsequent conversations they decided that with our help that they needed to expand that by an additional 75 people.
There was a sales population drawing on Shawn Moon’s group’s here expertise and our sales performance practice that additional 75 people that needed some sales development work. And so not only did they step up the size of the pass by adding another 75 people, they also came to us and contracted to have Franklin Covey deliver 17 consulting days.
And so it took what was already a very nice transaction to a very, very nice transaction for us and we are seeing this all over. These kinds of conversations are happening all over the country right now with current pass holders and future perspective pass holders.
We are very pleased about the momentum and the high interest on the part of our client partners and also on the part of our clients. And so thanks Bob. And I will turn it back over to you..
Thanks, Paul. Well, maybe just to take a second and say, while this obviously is a developing story in the direct offices there are other parts of the business that are moving really well. And Shawn, you might just know what’s happening in the education business and licensees.
The growth is continuing well there and maybe you could just give a brief update there and then we will conclude there with our cash flow and guidance..
Okay. Sure. Hi, everyone. This is Shawn. Yes, so education division continues to have steady growth. And when we talk about Education division, remember we mean higher education as well as the K-12 education both in the U.S. and internationally. So, it’s all about together.
And on the K-12 side of the house, our primary offering as we have talked about before is The Leader in Me and this is this whole school operating system that basically teaches students 20% through life skills, such as public speaking, goal setting, creativity and communication skills.
During the third quarter, the education division grew by 22% and so far for the year for the first three quarters, the division has grown by 28%. This year we will bring on 550 new Leader in Me schools, which will put us over 3,000 across the world, including about 800 that are outside of the United States.
And we believe that the growth potential of The Leader in Me in both the U.S. and internationally remains very strong. We recently just signed new agreements with Macau, the UK and Cambodia and we have several more right now pending agreements in other countries.
Our focus has always been on helping schools achieve quality outcomes in the areas of student behavior, teacher and parent engagement and student achievement. And we feel very good about the progress we are making here as we continue to focus on quality results for our clients.
And this is evidenced by when we did the Leader in Me, there is an installation piece and then there is the sustainment piece, which is kind of an annual package the schools participate in. And this year, we expect approximately 93% of the schools will renew that sustainment piece.
And so we are not only starting schools, but we are retaining them for long periods of time. So, we are pleased with that and I think the growth prospects are good. On the international partner front, just a couple of words about that, we now have – we continue to sign a few remaining partners.
We have most of the world covered, but we do have recent new partners in France and also the Bahamas, which we need to get to soon and visit. And that now brings us to a total of 55 partners serving about 140 countries.
For the third quarter, we grew revenues by 11% and the negative exchange rates, if you discount – or if you take that out, it would have been 13%, so a 2% difference. And it’s noteworthy that this is the lowest impact we have had on foreign exchange in a long time in about eight quarters at only 2% for the quarter.
So, it’s turning to our – it’s not in our favor quite yet on the international partner front, but it’s – we expect the fourth quarter to be relatively flat or neutral in terms of foreign exchange. And so far this year, we have had strong double-digit growth throughout Europe and in parts of Latin America and Asia.
In particular, we have got really strong growth and strong futures in Mexico, in the Nordic region, in Central and Eastern Europe and Thailand and Malaysia are real stars this year.
So anyhow, because of the size of our network and that they are relatively young and small in terms of penetration levels we still believe that we have got great potential here to continue to grow. The All Access Pass will be a key part. We will start selling All Access Pass in earnest starting next fiscal year.
Right now we are working on securing the intellectual property, safety, making sure that when we get to these – some of these developing countries, we have got that all protected.
And also we are working hard on localization so that we can have one All Access Pass that we sell across the globe to these multinational companies, which is a huge opportunity for us and takes advantage of our global footprint. So that will be coming on next year and we are excited about that as well..
Thanks, Shawn. As we said, there are a lot of exciting things happening out in the strategic markets. We will do maybe a spotlight on that next time, but the new offering in Customer Loyalty, the government business outside of the contract, the non-repeating contract is growing well.
And the sales performance is going to have really a big year, target for the year.
So Steve, why don’t you finish up for us here?.
Okay. Just a little bit on cash and guidance. First of all, cash. Our year-to-date cash flows from operating activities of $21.9 million reflects a $6.5 million or about 42% increase compared to $15.4 million in cash flows from operating activities last year. So we continue to generate cash.
Our liquidity remains strong with $8.9 million in cash at quarter end and $40 million of availability under our revolving credit agreement. This is all after utilizing more than $35 million – $37 million this year to purchase more than 2 million shares and some of that is on our $15 million term loan that you will see. So, finally, guidance.
A couple of thoughts. First, we do expect to achieve strong revenue and adjusted EBITDA growth in the fourth quarter on a reported basis, while also generating a fairly significant amount of All Access Pass related deferred revenue and Education-related deferred revenue.
In November, when we gave our full year guidance initially of $34 million to $36 million of adjusted EBITDA in common currency, we had barely begun to test the concept which we are now talking about as the All Access Pass. In fact, we had only sold a few passes at that time as a test.
Also, when we reported Q2 results, we are also early in the All Access Pass sales process. The point is – of this as it relates to guidance is now – we now expect to have more sales and therefore deferred revenue, more sales in the All Access Pass and therefore more deferred revenue on the balance sheet than what we have previously thought.
So with that said, given this accelerating growth in the All Access Pass and potentially, further acceleration in the fourth quarter and the significant amount of deferred revenue, which could be generated, we are expanding our guidance range pre-FX to between $31 million and $36 million.
It might be interesting for you to note that the entire executive and management team is still intently focused on achieving the original guidance range notwithstanding the headwind of accelerating deferred revenue from the All Access Pass and might just be interesting for you to note that we are still paid on the same numbers that we were targeting at the beginning of the year.
So, Bob?.
Thanks, Steve. With that, we will just open it for questions that you may have..
Thank you. [Operator Instructions] And our first question comes from Marco Rodriguez. Please go ahead..
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The next question comes from Alex Paris. Please go ahead..
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And the next question comes from Samir Patel. Please go ahead..
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And our last question comes from Jeff Martin. Please go ahead..
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Okay, thanks. Alright, well thanks everyone. I know, it’s been – we have overstayed. If there are any other questions, please feel free to give us a call. We look forward to talking to you. Thanks very much. Have a good quarter..
Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect..