Franklin Covey Co.
Q3 2016 Earnings Call Transcript

Published: 1 Jul 2016

[Operator:]

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.

[Derek Hatch:]

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?

[Bob Whitman:]

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.

[Steve Young:]

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?

[Bob Whitman:]

Well, thanks Steve. Thanks. I just want to spend a minute maybe talking about three ways – in addition to the deferred revenue coming in at future periods and the value of that accelerating growth in the future, three things we identified about All Access that we felt would really change the business. The first is the change in the increase in lifetime value of a customer to us of even our existing loyal customers. This is driven by the expectation at least was driven by two things

[Paul Walker:]

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.

[Bob Whitman:]

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.

[Shawn Moon:]

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.

[Bob Whitman:]

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?

[Steve Young:]

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?

[Bob Whitman:]

Thanks, Steve. With that, we will just open it for questions that you may have.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Marco Rodriguez. Please go ahead. Marco Rodriguez Good afternoon, guys. Thank you for taking my questions. I wanted to kind of review some things here. You guys threw a lot of numbers out and I was having a little bit of hard time getting them all down here. But on the revenue side, I know you guys have called out the non-renewal of the government contract, but that was kind of expected, I believe. So, I am just trying to understand what else impacted your top line, because it came up fairly short versus consensus? Bob Whitman Yes. I think as you say Marc, we expected the government. We just re-listed it. We had – the main thing, there were some ups and downs across the rest of the company. And there are 10 or 12 different things, but they netted out net positive with the exception of the U.S. direct offices. The main news in the direct offices was that in last year’s third quarter, we had $20.5 million of revenue that was recognized. This year, we had $18.7 million of revenue that was recognized, but also generated $1.5 million of deferred revenue in the quarter. So, I think the reason we spend some time on that, but obviously maybe not as well described as we should have is that’s really the primary thing. I mean, other than the government contract and for the revenue – the revenue for the quarter, there were some ups and downs, but generally the biggest difference was in this area. Marco Rodriguez Okay. And the education receivable that you wrote off was there an impact there on the top line or is that all in SG&A? Steve Young All SG&A. Marco Rodriguez Okay. And that’s $800,000 roughly? Steve Young Yes. Marco Rodriguez Okay. And then speaking of the SG&A side here, just trying to understand the increased costs that you kind of seem to have call out in the quarter, some marketing and additional promotional activities and then obviously CP new hires. Can you kind of quantify those particular buckets? And again, they kind of came in at least a little bit higher than I was expecting. Bob Whitman Yes, the incremental things as it relates to first of all, the direct offices, so maybe just break it on this way. In addition to the write-off of the receivable, which is SG&A and some increased share based compensation that is below the adjusted EBITDA line, basic things were an extra $0.5 million of marketing spend during the quarter. This was holding an increasing number of events we held plus all of the materials that we send out to our thousands of existing accounts and perspective accounts to introduce All Access Pass to them and we get them energized around it. We had a luncheon program, where people could – we would send them a clever marketing piece that says, let’s do lunch and they could – if they would get their whole executive team together, we would do a webcast for their executive team to take them through All Access Pass, etcetera. It’s done a lot to build our pipeline, but that was the marketing side. We also had some staffing cost. It isn’t huge in an annualized basis. We have this pass holder services team of four people and so that added $150,000 during the quarter. That’s pretty stable. Those are people who get added incrementally as time moves forward. And then relative to last year’s third quarter in the U.S. direct offices, we also have around 20 additional new client partners. I mean, some of that cost was in the second quarter as well. But in terms of year-over-year, we had an increase in the time when they are not generating much revenue, because they are new. You have that cost there. And so with that cost basis in there, all of the marketing costs are of course period expenses. They are charged against that portion of the revenue that we did recognize, which is only about 60% of the revenue of All Access. So, all of the expenses went against that revenue, but about 40% of the revenue was deferred and so which will eventually come back. Is that helpful at all in that? Marco Rodriguez Yes. And how many CPs did you end up with at the end of the quarter? Bob Whitman 192. 192. Marco Rodriguez Okay. And last quick question, I will jump back in the queue. Bob Whitman Excuse me, 194. I apologize. Marco Rodriguez 194, okay. On the guidance, I am just trying to kind of understand here how you guys are going to achieve some of the numbers here. I mean, what you have gone – what you guys have done year-to-date and what you are expecting to do for the full fiscal on your adjusted EBITDA imply some pretty hefty growth rates year-over-year. Can you kind of just help me walk – walk me through just given all the deferral you are having, the negative numbers that we saw here in Q3? I mean, how are we really going to hit those types of numbers? Bob Whitman Yes. So, I think just building this up, maybe go to Slide 6, you can see where we are kind of year-to-date. You know that and that’s why you are asking the question. But if you take the $10.7 million of adjusted EBITDA through the three quarters, our guidance was in the – was pre-foreign exchange. That brings that – with the $1.184 million of the impact, foreign exchange impact that gets you into the $12 million range year-to-date pre-FX. And so that means that to be at the original range, we would have to do somewhere around $22 million of adjusted EBITDA in the fourth quarter to be at the low end of the original pre-FX range. And depending on the deferrals to be, you would have to do $19 million net of deferrals to be in the low end of the new range. And so the major components of that as you know in education, on a quarter – during the first three quarters of the year, net education primarily just kind of covers its costs and given allocations, etcetera, it doesn’t really contribute to the company’s adjusted EBITDA during the first three quarters. There is significant increase there in education. Also, in the U.S. direct offices, historically, if the average quarter during the year is $18 million or $19 million of revenue that last year was $27 million of revenue. We expect growth there even after the deferral. And so there is another significant amount with very high gross margin, not much incremental cost there. Japan is typically – its biggest quarter of the year is typically the fourth quarter. The Sales Performance practices had really good performance for the year, but it had some lumpiness in the third quarter that took its EBITDA contribution down about $700,000. That was a slide of a couple of yields that are now staged for the fourth quarter. We had our public programs area, which in the fourth quarter has a couple of big orders. We have some IP agreements that actually renew in July and August of every year that are more than $1 million. And so the buildup, I mean, we actually have a plan that gets us into our original range and naturally, as Steve mentioned, what everybody’s compensation depends on. So, there is a very detailed plan of getting there. We are – so really, almost all of the – it’s not – well, really, all of the difference in the expansion relates to the fact that for every extra $1 million of All Access Pass contract that we sign, we are adding $400,000 of additional deferred revenue. And so the idea here is, I mean, this allows for us doing – we had said at the end of the second quarter that we thought that at year end, we might have as much as around $3 million of deferred revenue going into next year. We have said here that it could be in the $5 million range. But if – and if it is that will be good for the quarter, but that – it means – it will mean that we are not going to – that wouldn’t accelerate the pass sales as we think we might. And so we are trying to allow for the fact that if you added an extra $4 million or so, that’s another couple of million of deferred revenue, but there – so we can go into more detail if you would like, but those are the major components of it. Marco Rodriguez Thanks a lot guys. I appreciate your time. Bob Whitman Thanks, Marco.

[Operator:]

The next question comes from Alex Paris. Please go ahead. Chris Howe Hi, good afternoon. This is Chris Howe sitting in for Alex Paris. Bob Whitman Hi, Chris. Chris Howe Hi. I just had a few questions here. I am not sure if you mentioned it earlier, but how much adjusted EBITDA contribution from the All Access Pass was recognized in the quarter? And in reference to the $450,000 you had mentioned for the remainder of the year on the last conference call, is this still a good number to use when looking at the fourth quarter and trying to back into that? Bob Whitman It’s – Chris, we just had that – the deferred – we used the center view on that $450,000 number. I was just not picking up on that, sorry. Chris Howe Okay. Bob Whitman From the prior quarter, I apologize, you have to remind me on it, but that didn’t ring. Chris Howe It’s – I have the transcript in front of me. Bob Whitman Yes, sure. Thanks. Chris Howe It says we look forward to recognizing half of that $900,000 amount of benefit in the next two quarters... Bob Whitman Oh, yes. Okay, yes. So, that’s saying the deferred revenue that we had, if you look at slide – let’s see, Slide 3 at the end of the second quarter, the deferred accrual balance turned out to be $1.1 million. I think we were – at the time, I think it was around $900,000, but we were just saying that half of that amount – roughly half of that amount would be received, because it was accretive at the end of the second quarter. Half of that would be recognized in Q3 and half in Q4 with the rest of it going into next year. And so what’s happened is that balance has now grown net of whatever portion came in the third quarter. The balance has grown as you see to $2.7 million as of the end of the third quarter and we are suggesting that, that number could grow further into the $5 million range or even more in this quarter. But I think that’s – so we are using a $900,000 number, which I think related only to the U.S. direct offices that we had some sales there, government – an All Access Pass sales in government and higher education in the UK and Australia offices that moved that from $900,000 to $1.1 million. We were saying that the $900,000 related to the U.S. offices, about half or $450 million or $420 million or whatever the exact number was we would come in. So, thanks for connecting me back to the number. Chris Howe Oh, no worries. And I guess, you had mentioned – I like the words that you used the foundation to engage and the possible up-selling opportunities on top of this foundation. And generally speaking, how high could this expand the potential revenue per contract under the All Access Pass? Bob Whitman The – we hope that, that’s – the answer to that is a lot. But just the early example of it, in last year’s – when we started last year’s fourth quarter, if you look at the number of opportunities in our U.S. direct offices of $50,000 or more, the number was in the range of 20 to 25 opportunities that we had of that size or greater. The number that were over $100,000, we had some. We had 7 or 8 opportunities north of that. Today, those numbers are dramatically different. When we look at north of $50,000, I mean, it’s literally hundreds of opportunities now are north of $50,000 and north of $0.5 million. I mean, we have, pardon… Paul Walker Yes, north of $0.5 million, yes. Bob Whitman Yes, well – yes, so north of $0.5 million, we have 20 or so. And so I think what’s happening is that we have been for years doing a good job at launching these new products and these products of course establish the foundation for what we are doing in All Access Pass, because it’s these branded content areas that are really the core of what people are wanting to buy. But at the same time, the way of going to market by launching those offerings in a way reduce – we were selling a product instead of getting in there and having a solution. We know – we already – All Access Pass was designed to go big, because we know that the people who are in charge of learning and development in these organizations, almost all of them have three responsibilities. One is to support some kind of a major strategic initiative inside their organization. If we are just selling facilitator manuals to a frontline person or trainer, we don’t get a discussion on that one, even though a lot of our offerings, Sales Performance, Customer Loyalty and Execution were already built for that. And independently, we are out selling those. But it didn’t get a natural way of going there. So, that’s at the top. The second is leadership development. That one, we have done a lot in. But what we recognize that leadership development, they have a lot of different needs and this All Access Pass is targeted exactly on that job to be. And then of course there is always just the normal development of the workforce, which we have always done a lot of. But All Access Pass provides an affordable kind of a flexible way for them to do it. So, I think what we are finding is the indication Chris for us is again we are into this a half a year and hardly that, but really, the big 80% of the pass sales have occurred in the last probably 9 weeks. But what we are finding is those discussions that we are having with people about the All Access Pass those discovery days are identifying all sorts of new opportunities. We also have a number of large organizations that have their own learning and development people, their own instructional design staffs, who historically they don’t want to just buy off the shelf. And so now with the All Access Pass, they can integrate our content and other things they are doing, because we have a number of those people who are saying, wow, I never – I loved your content, but I would never have bought from you before, because I have my own people. I just want to integrate this into the things we already teach and they are able to do that. We have some really large clients that Shawn Moon and his teams are working on. They are exactly that where they are integrating our content. And so I think the idea is the largest opportunity we are talking about right now is probably 7,000... Shawn Moon Broad users. Bob Whitman Yes, 7,000 users. Well, you have got one bigger than that. So, we haven’t won one of those yet, by the way. But I am just saying the idea that we are winning once – I mean, in this morning’s report, we have lots of them in the multiple hundreds of users, put it that way and some strategic ones that are thousand – in the thousands. And I think that’s the kind of the path we think we are headed to. Yes, so... Chris Howe Okay, thank you. That’s very helpful. And one last one for me and how many contracts were sold in the quarter? Bob Whitman We track this two ways. Actual contract’s time, but they are a bunch of different sizes, and so it kind of can skew what it sounds like. So, we convert these into pass equivalents, which is a $20,000 sale is a pass equivalent. In those terms, we actually contracted and closed 278 of those pass equivalents during last quarter. Already in June, we have got another 160, expect in the next actually week to 10 days, we would probably expect another 100 or so to come in. And so that’s – but that’s the order of magnitude. In actual passes, when you don’t convert to equivalents, I think our total now is like 420 total passes. Chris Howe Okay, thank you. I will jump back in the queue. Bob Whitman Thanks very much, Chris.

[Operator:]

And our next question comes from Kevin Liu. Please go ahead. Kevin Liu Hi, good afternoon. Bob Whitman Hi, Kevin. Kevin Liu Your fiscal fourth quarter tends to be a strong period due to promotions to your facilitators. How do you expect that those promotions to go this time around with the increased focus on All Access Pass? And will you be running kind of similar levels of discounts for the All Access Pass? Bob Whitman That’s a great – Paul, why don’t you just talk to it? Paul Walker Sure, yes. So, we are doing two things. Right now, we have got our sales force heavily focused, as you might imagine, on the large All Access Pass pipeline. We don’t typically start our promotions to what we call our client facilitators, the Buy 10 promotions, what we referred to it as, until August. And so right now we are spending the entire month of June and July really focused on converting and closing as many of the All Access Pass sales as we can for obvious reasons. That’s a larger transaction size. It’s got all the benefits to go along with it for us and for our clients. We will run, as we get to the midway point in the quarter concurrently alongside that the promotion we typically do run. And it will be – it will have all the same fanfare and all of the same things that go along with it to entice our clients to purchase. The idea being that we like to create a way for every one of our clients to participate with us in the fourth quarter either by purchasing the All Access Pass or purchasing through the traditional facilitator channel via our Buy 10 promotion. Bob Whitman Is that helpful, Kevin? Kevin Liu Yes, it was. And then just one other quick one, when you look at FX rates today, what sort of impact would it have on your year-over-year growth of both revenues and EBITDA just for Q4 specifically? Bob Whitman Yes. The foreign exchange right now for us, because the yen is up even though the pound is down, the yen for us is a more important currency than the pound in terms of the relative size. Our UK revenues in the fourth quarter would be in the range of $3 million or so versus $8 million or something for the – for Japan. And so right now the exchange rate – I am looking at Scott Sumsion, who calculates it daily is about neutral, I think, across most of our operations right now. Last quarter, it was – we have $20,000 of total for the company net and of course, it’s up and down by country. But that’s – we are not expecting right now. At current exchange rates, we don’t think FX would be much of a factor in the fourth quarter. So….. Kevin Liu Yes, that’s helpful. Bob Whitman Yes. In fact, Kevin, just as of today here we have now got the – it could be as much as $400,000 on the revenue line, which would mean $130 million on the bottom line. It would be the risk right now at exactly today’s rates. Kevin Liu Alright. Appreciate you taking the questions. Bob Whitman Thank you, Kevin. Let me just say one other thing. This question of yours, Kevin, about what happens to your existing facilitators is an important one, because on one hand – and it’s one that we are dealing with everyday. Paul gave the answer of what we are actually doing, but that’s important because we have hundreds of our existing facilitators who are in the pipeline for All Access Pass. And one of the risks you have is that they are excited about All Access Pass, but they can’t make the decision in the quarter, where they could have made the decision to buy some manuals. That happened to us a little bit at the end of last quarter and while it delayed things a few weeks, those sales are coming in, in June. But that’s a risk that we have and that’s the reason we are organizing around it. Last year in the fourth quarter, we had about 625 organizations participate in the promotion and so we want to make sure about a third of those people right now are actually in the All Access Pass pipeline at some advanced stage. And so it’s not a huge disruption even if they were all to buy. That will be a good thing for us if they bought, because they are buying more, but we want to make sure those other 400 aren’t frozen in the headlights. And so we are running a side-by-side play. The moment that, that person is saying I can’t make the decision on All Access this quarter, it might make sense for me later on, we are immediately providing – instead of waiting to – instead of waiting until August, which we normally do for promotion. We have actually made that promotion available to our client partners right now so they can say, well, hey, we get it. That’s great. And we have got a special thing for you, so you can keep training and doing what you are doing in the meantime. And that’s the important thing for us on the transition. So, I think it was really insightful question.

[Operator:]

And the next question comes from Samir Patel. Please go ahead. Samir Patel Howdy, guys. Thank you for all the color. That was really helpful. I guess most of it’s been covered pretty well, but going back to Marco’s question earlier, I am sitting here and I am trying to add up looking to the various impacts on your top line from the government contract and currency and All Access deferral. And I am still – like I guess I am still just not seeing very much growth in the business out even once you kind of add those things back. I mean, it still looks flattish to me. It doesn’t look like there is a lot of growth outside of the education practice. And I guess, I am just – sorry, just quickly to finish. I guess what I am just trying to ask is like this is now I guess a couple years now where you have been well off your targeted growth rate. So, I mean is there anything that concerns you? Is there – like, I mean can you just explain that a little bit better I guess? Bob Whitman Sure. So, let’s talk about what it isn’t. I mean, we have had – I mean, aside from the two – there are two things that have affected us a lot in terms of the reported growth rate. You know those. The U.S. – the government contract, this year, is $6.5 million. We started the year off knowing that wasn’t going to renew in the foreign exchange impact. But as you say and as we show on Slide 6, year-to-date, even absent those things, we have only grown $775,000 net across those things. And so it hasn’t been robust growth and I mean, it hasn’t – it’s hardly any growth at all. So, let’s talk about what it isn’t. As you heard from Sean Covey, it’s not that the education, even those education revenues have been small in these off – the relatively small $6 million, $7 million a quarter. They have been growing at a good pace. We have had good growth in our government business, excluding the big contract. The licensee business, pre-FX, has been growing well, but it’s been muted by that. And Japan has been growing well, but been muted by FX. We are now entering a quarter where we don’t have the government contract. They varied much to a couple hundred thousand dollars, Steve? Steve Young $100,000. Bob Whitman $100,000 of revenue or EBITDA? Steve Young EBITDA. Bob Whitman EBITDA. And it was…. Steve Young But it’s about the same. Bob Whitman Yes, about the same, yes. So, there is about only – so the headwinds that we have had in the rest of business, we don’t think we will have much FX or government, but – so the concern has been that the main engine that we have, which is our – I mean, we have lots of good engines. The licensee is a big engine. Fourth quarter education is a big engine. These strategic markets practices are now gaining traction of being engines. But the big engine that does $130 million of the revenue are our direct offices in the U.S. and in Japan, Australia and the UK. And we – it’s not that some of those haven’t been growing, but on a net basis, per Paul’s discussion, that’s what hasn’t been growing. The shift a couple of years ago when we launched three new products all sequentially moved us into a bunch of really small sales, which is good establishing the products, but as Paul mentioned, they were average sales size went down and the sales cycle shortened, because it was easier for people just to order those. That helped us through a few quarters to kind of hold even and up. And really, we still held even in the U.S. offices, except for this deferred revenue, in pretty much for the year, but it hasn’t been real growth. And so I think that is the concern. We – it’s not that we – All Access Pass per se is trying to address that concern, but we think it does address that concern. Education is on a good track. If you think of the division, education is on a good track. The licensees have grown 10% a year pre-FX. They will grow that again. And the strategic markets, absent these big – the government contract, will, we think, be on track for that kind of growth here by the second quarter of next year. And so really for us, it’s the U.S. direct offices, why we – and so I think that’s where the concern is and has been. That’s also where the opportunity is. It’s also where almost all the sales of All Access Pass are today and we believe that’s going to – this is now – like as Paul said, in June – last quarter, we contracted similar amount for them as we did last year but recognized $18.7 million versus $20.5 million. In June, we did $6.2 million last year. We will likely be north of that by a few hundred thousand in recognized revenue and add another $700,000 of deferred revenue in the U.S. direct offices. We think July and August are lining up to be similarly patterned where they will grow some, we hope in recognized revenue this quarter in the U.S. direct offices, but then add a bunch of deferred revenue, which will then start next year out to grow. So, I think it’s something that took about eight quarters to get us into in terms of selling different way with all these product launches. We are glad we did it, because they also established the foundation for growth around the world, because our licensee partners are doing this. But now all Access, as you can kind of see on Slides 4 and 5 – but Slide 4, as you now accelerate the sales start to get some of the deferrals and expand these passes within people, we believe this is the best way to grow and go to market. And so, that’s been one where we felt that way for a couple of quarters. In the third quarter, I would have thought honestly that we might have had a few more passes actually closed in the quarter, I mean, on the margin, but at the end, you just – you have to sign a contract and our salespeople we are getting trained and so forth. And I was probably a little optimistic although the number of passes was right. In my own mind, I was hoping we would sell maybe 30 or 40 more in the quarter. On the other hand, I wouldn’t have expected we would sell anywhere near this in June and the fact – so I think it was just it was a few weeks late. But I think you are on the target. If we don’t – if we continue to be flat in the U.S. direct offices, then the rest of the business – the whole business will be growing at 3% or 4% a year generating a lot of cash. But if we can get the U.S. direct offices back into the high single-digits, then it moves the whole company toward that 6%, 7% growth and of course, we expect that maybe we can do a little better than that once we start getting some of the benefit of this deferred revenue. Samir Patel Okay. So wait a couple of follow-ups. The first is just are there any other major contracts like the government contract that you see as being any risk of non-renewal of the next few years? Bob Whitman In the – we don’t have any in the government. The only place where we have any large contracts is in education and that for this year is down – there are some charitable foundations who fund some number of schools each year in total around $4 million. But otherwise, we don’t have any large contracts. For us a large contract, the largest would be like $1 million in a year is the normal – is the largest contract outside this educational foundation. Samir Patel Okay. But nothing that would materially impact your revenue growth like this one did or your EBITDA for that matter? Bob Whitman No. And then in fact it’s affected us for 5 years, because when we first won this contract, they – this agency had – it was $16 million the first year. This was 5 years ago. And it’s declined every single year, although it still drove a lot of revenue every single year for 5 years, except for the decline in the government contract. And so while we hate to have lost that, we also will never have that one to anniversary again. That will help us some. FX has also taken out millions of EBITDA, $4 million last year, $3 million in the prior year and a lot of top line growth. And so those are the two – outside the U.S. direct offices, that’s been our challenge, but we got there. Samir Patel Okay, okay. And then the bigger, higher level question is, I guess, my impression from a few quarters ago or I guess last quarter when you first really started talking about All Access is that you expected to be able to hit your targeted growth rates, kind of that high single-digit growth rate, independent, like All Access would be incremental to that, like any up sell from that. And I guess if I am interpreting correctly, what I am hearing now is that All Access is how you get back to that growth rate? So, is that – has there been a shift in that, like is All Access kind of now the thing that’s going to get you to that growth rate as opposed to something incremental to it? Bob Whitman Well, [indiscernible] I think that’s a good way… Samir Patel And sorry, just to clarify, I am talking about like fundamentally, like I am not talking about the deferral, like I understand the deferral aspect to that. I mean, just like your – like, I guess, a better way to put it would be like the actual dollar value of contracts you are signing in any given year? Bob Whitman Yes. So I think just that All Access, if we – like on Slide 4, if we were to do the revenue, let’s say – sorry, is it Slide 3? If we were to do $35 million of revenue next year in All Access that we would still be doing $90 million of other revenue – I mean other things. So, it’s not the whole company isn’t or even the whole direct office divisions aren’t just focused on All Access. So, we think that these kinds of discussions that we are having with these strategic discussions is starting to increase our onsite revenues. We have had that – those have been down for four quarters. This is the first quarter in many quarters where we started off the quarter with more days to be delivered in our normal channels. And so this isn’t the only answer. We just think it will generate – it’s having the discussions – the kind of discussions we are having will generate other things, but it’s not the majority of the revenue and won’t be for perhaps 2 or 3 years. So, even then it will be 50%. So, this is in – the real driver isn’t so much what you are selling, although this helps us. It’s really the ramp up of hiring and ramp up of new salespeople, because we know how much revenue they should do when they ramp up. The new people are on track. And so the things happened in the last 2 years is the new people we have hired have ramped up according to plan, but because of the change in average order size for sort of our large, big hitter client partners, they have kind of flat-lined. And so for them, these All Access Pass discussions, along with the additional services and such that go with it, are in fact a way of rekindling their growth, but that – the key unit of measurement is the revenue and productivity of the sales force, which has stalled amongst some of our largest client partners. Samir Patel Okay. So I mean, the initial concern around All Access was there might be cannibalization and you are still – that’s just not happening. Bob Whitman Well, yes, let me say this. We wanted to – we actually wanted cannibalization to happen in the sense that because the lifetime value, the average – the initial sale and the recurring revenue from the All Access Pass sale, we think is much better. And so the example I gave you, an 8,000 – a person who buys $8,000 of the training materials and then, over 3 years, buys $20,000 worth, if we can convert them to All Access, they will spend $20,000 the first year and $50,000 of those in 3 years. So, I think it is a vehicle where – for getting growth in that respect, because it will increase the average revenue per client that we do convert. So, we hope we will cannibalize a lot of our existing customers and convert them to All Access who then will not only buy All Access Pass, but other services as well. So, the combination of All Access converting existing clients, adding new and ramping up new salespeople is how we believe we will get back to the high single-digits in the U.S. direct offices. We are happy to – we can go – happy to go through any numbers. If you want to call us individually, we are happy to go through if that wasn’t helpful.

[Operator:]

And our last question comes from Jeff Martin. Please go ahead. Jeff Martin Thanks. Good afternoon, guys. Bob Whitman Hi, Jeff. Jeff Martin Bob, could you just go into a little more detail in terms of how the client partners will allocate their time between All Access Pass and the more traditional side of single-content sales? Bob Whitman Sure. And if you would talk about – Paul, if you want to just drill some there? Paul Walker Sure. Yes. So, a client partner has always had two aspects to what they are focused on one of their prospecting activities and trying to sell new solutions to existing customers and selling new solutions to new customers and then kind of the maintenance of that as well. Those are probably still the two primary buckets. The average client partner works off of a named list of accounts. Some portion of those are existing accounts that are spending money with us and some portion are prospective. And so I think what All Access Pass allows us to do is if we are – as we are successful and a greater percentage of that list becomes pass holders, it allows us to shift to – we now get to spend time with those customers on their side of the table now as owners of our content, talking about how they are going to use this additional population they can address and we get the chance as we mentioned on the call here to expand and grow beyond that. And so I think there will be a little bit of shifting in this. Part of this training Bob mentioned that we are doing right now is helping our client partners understand and he showed that slide a minute ago with all the circles. Client partners, we expect that they are in there with those existing pass holders having those kinds of conversations to both expand and add on additional sales of services to those clients. So, I don’t know that it changes materially. I think we get to go a little bit sharper with our clients because now, as pass holders, it changes the nature of the conversation in, we think a very good way for us and for our clients. Bob Whitman So Jeff, just going further on that what we wanted to do is have a common – one common way of going and talking to a client, it’s to identify what their jobs to be done are, what problems they have, etcetera and try to then connect our solutions. That doesn’t change. It’s just that, with this All Access Pass offering, we are able to meet a lot broader range of those, because in the past when a client partner went in they had to say, wait, now listening to that, do I go ahead and say, well, 7 habits is the answer or trust is the answer or execution. Today, they can say – instead of saying you know what, it sounds like you got a broad range of needs, rather than trying to choose among those needs. With All Access Pass, you actually can address each of them with different populations. And so the go-to-market, we are really trying to not have a product focus when we don’t have – we don’t want to have half of our client partners bringing an All Access Pass and half of them selling onsites and half of them selling execution. We want to have them 100% of their time with their 500 hours of face-to-face meetings a year spent on a certain process that identifies the needs the client has, connects a solution to them. All Access won’t always be the answer. There will be people who have a specific execution need or Sales Performance or Customer Loyalty that will continue, but we want to have a common way and what we think we did a little bit is we pulled people off in these product launches. We really had them going and they are just really talk about how great the upgraded product was, which was good, but this way of going to market is a single way that will be the same across the world. Jeff Martin Okay, that’s helpful. And then, alright, the strategic markets hasn’t been discussed yet, what exactly is that? Is that your international market – your three international markets or is that something else? It was – I feel it was down about 26% year-over-year. I was curious what goes into that number? Shawn Moon So Jeff, the strategic markets – this is Shawn Moon. Strategic markets include the government services group, Sales Performance practice, the Global 50 team and Customer Loyalty. Now, we are actually very, very excited about the momentum there. The big government contract that you see will fall into that category, so you are going to see that impacting the year-over-year. But aside from that, the government team is up 12% for the year and the great momentum the largest deal that we have with All Access Pass are in the strategic markets. We are very excited about the momentum with the government. The Sales Performance practice is on target to hit its number for the year and continues to land very large and significant relationships. It includes the Global 50 team, which is just a handpicked group of accounts that, 9 months ago, we have done no business with. This was a Greenfield initiative for us to go out and really point the bad and go get them. And we are on target for the year on that. We have the three heavy hitter client partners and the pipeline there is very exciting. Our single largest opportunities resides in this team right now. And Bob mentioned, with the Customer Loyalty practice, we have historically done a lot of work gathering customer and employee data, which is actually nice revenue, but a very low margin revenue for us. We are just launching a very, very exciting new offering around what’s called Leading Customer Loyalty, but it’s a world class, very, very powerful training offering that addresses both managers and frontline employees and comes in at our traditional, very high training margins. So, we are excited about the direction and the momentum that’s happening within strategic markets. We feel like aside from the government contract, we are at or above pace. Bob Whitman There is also, I think in that – Jeff, if you look at the decline in revenue year-over-year there, you had growth in – there is a Global 50 team that’s up, small amount of revenue because it’s brand-new team, but it’s up. And government’s down, we mentioned, because of the large contract. In Customer Loyalty, we are down and one of our large customers. Shawn Moon Data clients. Bob Whitman Went – one of our data clients didn’t have much EBITDA impact, filed bankruptcy, a sports retailer that did some business with us. So, they were down as well. And even the Sales Performance practice, because of the kind of the shift to this fourth quarter didn’t do as well. So, I think your conclusion that it wasn’t a great quarter financially is correct, but as Shawn mentioned there, we think Sales Performance is going to be really strong in fourth quarter. Government won’t have the contract to comp against Customer Loyalty. We will still have a little bit of a headwind honestly against the big customer last year, but we will also have this new offering. And Global 50 is gaining. So, I think that one is really going to start to contribute meaningfully in the coming quarters, but it’s right now having a couple of transitions in government and Customer Loyalty. Jeff Martin Got it, got it. Okay. I will follow up with you with my other questions offline. The call is getting late. I want to free it up.

[Bob Whitman:]

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.

[Operator:]

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