Franklin Covey Company

Welcome to the Q2 2020 FranklinCovey earnings conference call. My name is Adrienne, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then 1 on your touchtone phone. Please note this conference is being recorded. I'll now turn the call over to Derek Hatch. Derek Hatch, you may begin.

Thank you. On behalf of FranklinCovey, we'd like to welcome you to our conference call to discuss our second quarter fiscal 2020 financial results and hope that you are all staying safe and are well at this time. Before we begin, we'd like to remind everybody that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based upon management's current expectations and are subject to various risks and uncertainties including, but not limited to, the ability of the company to stabilize and grow revenues, the acceptance of and renewal rates of the all-access pass, the ability of the company to hire productive sales professionals, general economic conditions, competition in the company's targeted marketplace, market acceptance of new products or services and marketing strategies, changes in the company's market share, changes in the size of the overall market for the company's products, changes in the training and spending policies of the company's clients, and other factors identified and discussed in the company's most recent annual report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission, including the forthcoming 10-Q for the second quarter of fiscal 2020, which is expected to be filed next week. Many of these conditions are beyond our control or influence, any one of which may cause future results to differ materially from the company's current expectations. And there can be no assurance the company's actual future performance will meet management's expectations. These forward-looking statements reflect 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'd like to turn the time over to Mr. Bob Whitman, our Chairman and Chief Executive Officer. Bob? Thanks, Derek.

Good afternoon, everyone. We appreciate you joining us today. In these challenging times, we've been doing a lot lately to help our clients and even non-clients respond to the new changes and challenges they face. For example, as you can see in slide three, Nearly a month ago, we created a special set of digital materials for our All Access Pass holder organizations entitled Leading Through Uncertainty that provides those leaders and organizations with a guide for utilizing various of the All Access Pass resources to help them lead through change or to build the skills of proactivity and resiliency throughout the organization, lead in a remote environment, etc., These resources are providing clients with the ability to engage their workforces, provide team building and development opportunities for the remote workers, and utilize digital assets in training, as well as, you know, the option of having even higher engagement by having Franklin County training consultants facilitate these sessions live online, a capability in which we've invested for more than a decade. Similarly, in the education division, as you can see in slide four, We curated a special collection of family educational resources and provided them to all of our education clients. In addition, given that so many families are now in a homeschooling situation, we've also provided these resources to all access pass holders, organizations, and made them free of charge to the general public on our website, leaderinme.org. These robust resources include hundreds of videos, articles, and tools from families to be used with their children at home, including animated videos which are very popular that teach life skills, coloring pages, in-home activities for families, award-winning videos made by students, student speaking contests, and our Leader in Me weekly newsletter which features relevant tools and articles for schools and families in these challenging times. You might want to check out these resources yourself at leaderinme.org. Also, our employees, many of whom have always worked remotely, are now all working remotely. We are pleased to report that with only a few exceptions, they and their families are safe and healthy. I can't adequately express how much we appreciate the extraordinary lengths to which our employees are going to serve our clients always and now more than ever. You know, we're glad to have the chance to talk with you today. In this uncertain environment, really there are four things we'd like to take away from today's discussion. You can see on slide five. that our results for the second quarter were very strong and even better than we expected. And as a result, we entered the third quarter with real strength, operationally and financially, and with significant liquidity. Our results for the second quarter, as you can see, reflected the compounding power of the same key factors that have driven our accelerated results over the past quarters and years. Second, we're grateful that we also entered this period not only strong strategically, not only strong financially and operationally, but strategically with solutions in the business model that are really valued by our clients. While the coming months will undoubtedly contain a lot of uncertainty and challenges, this strength on all three fronts is allowing us to really provide services to our clients that they value. We've consistently invested in content, technology-based delivery, portals, micro-learning, language availability with 21 languages, a wide variety of delivery modalities, and in our subscription business model. And as a result, we're in a unique position to be able to serve our clients in whatever circumstance they find themselves in today. And whenever this period ends, we expect to come out of it having increased our strategic importance to our clients. Third, we expect that the same three factors that have driven our accelerated growth and adjusted cash flow over the past many quarters will continue to do so as we come out of this downturn. We expect, we don't know when that exactly will be obviously, but we expect that these three factors, namely our strong subscription offerings, the fact that we have very high lifetime customer value and retention, and the high flow through of incremental to incremental EBITDA and cash flow, which our business model has driven, will continue to drive very high rates of growth and adjusted EBITDA and cash flow again in the future once we get past this period. And then fourth, we really are grateful to be in a position to provide our clients with the kinds of solutions, modalities, and assistance they need during these times. And as a result, we expect to exit this period with an even deeper, more enduring relationship with our clients. So I'd like to just briefly address each of these. I think they're all relevant to the current situation, even going over the financial results here, is because it shows the patterns which we expect both made us strong going into this period as well as will make us strong coming out. As noted in slide six, our results for the second quarter were very strong. And as I mentioned, as a result, we entered the third quarter with strength operationally, financially, and with significant liquidity. Our strong second quarter performance reflected the strength of the same key factors that have driven our accelerated results over the past quarters and years, namely strong high single-digit revenue growth, Second, accelerated growth in subscription sales. Third, increasing gross margins. And fourth, declining operating SG&A as a percentage of sales. This has resulted in a high flow-through of incremental revenue to increases in adjusted EBITDA and cash flow. As you know from reading our earnings release, and it's shown in slide seven, we had a very strong second quarter results on all four of those key metrics. despite the fact that our operations in China and Japan were closed or restricted for a portion of the quarter. As you can see, revenue grew 3.4 million or 6.7% in the second quarter. This also grew 8.2 million or 7.8% year-to-date, and 14 million or 6.4% for the latest 12 months. Not shown on this. JustD, but I increased $3.1 million. That's obviously a big percentage, 321% in the second quarter. increased 4.9 million or 118% year-to-date, and 9.4 million or 58.6% for the latest 12 months. The flow-through continued to be high. Incremental revenue to incremental adjusted EBITDA, 91% flowed through for the second quarter, 60% year-to-date, and 67% for the latest 12 months. So that trend has continued. And our cash flow from operating activities continued to be strong through the second quarter, increasing again 30% or $4 million to $17.4 million. And as strong as these reported metrics were, excluding China and Japan, which as I noted were closed down for summer most of the quarter, the country's performance was even stronger. As you can see on the right-hand side, Excluding the offices in China and Japan, revenue grew 4.9 million or 11.2% in the second quarter, 9 million or 9.9% year-to-date, and 14.7 million or 7.6% for the latest 12 months. And also adjusted EBITDA grew 4 million in the second quarter and would have grown 5.7 year-to-date and 10.8. So just stepping back from it, it's a very strong quarter. It showed resiliency in the face of some challenges in Asia, and we're really happy with it and pleased to enter this new period with that kind of strength. I'd like to briefly touch on a couple of metrics. First, as you show in slide six, we had really strong revenue growth on all metrics. Our revenue, as reported, grew 3.4 million, or 6.7 percent in the second quarter. 7.8 percent year-to-date and 6.4 percent for the latest 12 months. Our total subscription and related revenue grew 24 percent or 6.1 million in the second quarter to 31.4 million, grew 21 percent or 11 million year-to-date and 22 percent or 24 million latest 12 months for a total of 133.7 million. OLX's past and related revenue grew 28 percent, or 5.1 million in the second quarter, to 23.4 million. It's grown 25 percent year-to-date and 27 percent, or 19.6 million, for the latest 12 months. Our total invoiced revenue, some of which, of course, goes on the balance sheet, grew 9.2 percent, or 4.5 million, in the second quarter to 53 million. This was led by the U.S. and Canada whose invoice revenue grew 15.1% or 3.7 million. So the U.S. and Canada has been getting stronger and stronger. DrivenBiolix has passed and grew 15% or 3.7 million during the quarter. Year-to-date invoice revenue has grown 8.8% or 8.3 million. In the latest 12 months, 7.3 or 16.4 million to 242 million. Our balance of billed and unbilled deferred subscription revenue grew a very strong 18.2 million or 28% in the second quarter to 82.7 million compared to a balance of 64.5 million at the end of last year's second quarter. And finally, in addition, our total value of contracts signed in the second quarter grew 9.7% or 4.8 million to 53.8 million and has grown 13% to $107 million for the latest 12 months. And the buildup of that contracted revenue is very helpful to us as we move into this period. So, we felt very good about our revenue growth for the quarter. As we noted, we had very high flow through of incremental revenue to incremental adjusted EBITDA. As you can see in slide nine, 91 percent or 3.1 million of our increase in revenue in the second quarter flowed through to increases in adjusted EBITDA. This resulted in adjusted EBITDA increasing to $4.1 million from $1 million in the second quarter of fiscal 2019. And excluding our offices in China and Japan, adjusted EBITDA actually grew faster. It grew $4 million during the second quarter. Year-to-date, adjusted EBITDA has increased $4.9 million or 118%. The flow-through has been 60%. And In the latest 12 months, adjusted EBITDA increased $9.4 million, or 59% to $25.5 million, despite a more than $1 million negative impact from Japan and China in the second quarter. And that's up $16 million for the same 12-month period last year, showing a 67% flow-through. This flow-through obviously is very high, and again, it reflects the four factors. Obviously, the high single-digit revenue growth, which has been increased, but with the exception of China and Japan increasing, our increase in gross margin percentage, where gross margin percentage increased 171 basis points in the second quarter, 257 basis points year-to-date, and 130 basis points for the latest 12 months. Third, the fact that operating SG&A as a percentage of sales has declined during the second quarter, It declined to 64.4% of revenue, which is a 392 basis point improvement compared to 68.3% in last year's second quarter. And as you can see in the appendix in slides 23 and 28, we also achieved strong revenue growth and very high EBITDA growth in the enterprise division in the second quarter and had strong growth in the education division. So we were really pleased with the strength of the second quarter and year-to-date performance. We were pleased that for the latest 12 months, adjusted EBITDA had reached $25.5 million with the third and fourth quarters to go. And, of course, we're pleased with the momentum. As we said, we entered the third quarter as a consequence with a robust third quarter pipeline, almost $25 million of cash on the balance sheet, and all $15 million available under our revolving fund. credit line. Importantly, once this current period of uncertainty is over, whenever that is, we expect that these same factors that have driven our past performance will drive accelerated growth in adjusted EBITDA and cash flow again in the future. So, that's just a quick review of our results. Going on to slide 10, we want to talk about the current environment. So, we're pleased that not only did we enter the third quarter with strong momentum and strong financially, But, you know, really as important as we enter the period of strong strategically, meaning our relationships with our customers, the value they place in our solutions. And, you know, as you all know, for more than a decade, really, we have invested in creating digital courses and content, content that can be delivered live online, blended impact journeys. Five years ago, we added microlearning. And much of our innovations budget in the last few years has been around on-demand and blended delivery offerings, portals, and other things. As a consequence, we expect that we will not only retain a very high percentage of our clients during this time, but also increase our value to them as they try new methods of delivery they might not otherwise have tried. And we expect to exit this period really with even deeper, stronger, and more pervasive client engagements and relationships. As to the current situation, obviously it's a difficult one just generally. All of you are living in it and hopefully getting through it. We're all living in it and so are all of our clients. In our experience, during times of significant uncertainty, of course it's natural for there to be a period of time in which for both individuals and organizations, focus, energy, and bandwidth is directed to getting their bearings and adapting just to the immediate circumstances. During such times, Normal business and decision-making processes are often interrupted, and the past few weeks has seen exactly this. The first time also, of course, organizations must also adapt to having the vast majority of their employees working remotely. In the context of this environment, I'd like to address the areas of greater and lesser uncertainty for FranklinCovey. I'll first start with the areas in which we have a lot of confidence. The areas which historically have been very predictable, which we expect to continue to be predictable, include the following. First, our deferred revenue. As shown in slide 11, we had $47.9 million of billed deferred revenue on the books at the end of the second quarter. Substantially, all of this highly profitable revenue will be recognized over the next four quarters. Second, our unbilled deferred revenue. As you can also see in slide 11, In addition to the deferred revenue, we also had $34.8 million of unbilled deferred revenue in the second quarter, primarily related to multi-year All Access Pass contracts. All of this revenue is under contract, and the vast majority of this unbilled deferred revenue will be invoiced over the next six quarters, so we don't see a risk to that. Third, our All Access Pass subscription renewals, as illustrated in slide 12, Historically, our annual revenue retention of All Access Pass subscription revenue has been very high, exceeding 90 percent in each of the last nine quarters. As we'll address in a minute, we believe that most of our clients intend to renew their passes still. Four is All Access Pass add-on services revenue. All Access Pass related services totals about $33 million a year, spread throughout the year. Historically, these services on a same-store basis have also repeated year-over-year at a high rate of more than 90%. And fifth, Leader in Me memberships, historically between 87% and 91% of the more than 2,700 Leader in Me schools in the U.S. and Canada have renewed their subscription memberships in a given year. Now, as to the areas of uncertainty, the areas of greater uncertainty for us over this period are not, therefore, about the strength of our solutions. or about our client impact, or about client's commitment, fundamental commitment, or about the strength of our business model. Rather, the uncertainty primarily relates to three things. First, to the potential impact which delays in decision-making caused by current circumstances could impact the timing of renewals and new sales from companies, and particularly in the education division. where both the annual membership renewal of the majority of Leader in Me schools and the addition of new Leader in Me schools normally takes place between May and August. We'll address this more. Second, in fact, so the first is just delayed decision-making. People not able, they don't have their normal processes. The school district isn't getting together. If they are, they're doing it by video conference, et cetera, and it just has changed the decision-making. Second, The concern is the potential impact which the fact that people are working from home could have on planned training and coaching engagements which organizations have typically scheduled to take place on-site at their offices, even though they've been available live online or digitally. It now means that people's sequestration means that these training engagements now need to be done live online or digitally, both of which are available online. and very capably delivered through All Access Pass and Leader and Me, or they need to be rescheduled. Many of these have already been rescheduled or are in the process of being rescheduled live online. We believe that people do not intend to cancel. A very small minority are really going to be canceled, and that even those who want to continue to have on-site days are rebooking them, postponing it with the hope that that will be done later on this summer. However, the shift in the timing of delivery will cause revenue to move from one quarter into another and create revenue gaps and uncertainty. And then the third major area of concern is as to the time required to ramp up our recently reopened offices in China and Japan, following their operations having been closed or restricted for a portion of the second quarter. They're back in operation. The teams are generally back in the office making calls. they're going to need to rebuild their pipelines. So the impact of these factors is not expected to be long-lasting. However, it does create gaps, and the uncertainties, their timing and magnitude, makes it difficult to provide accurate quarterly guidance or to update our annual guidance today. Nothing would please us more than to be able to tell you, as we have done each quarter, that our guidance for the next quarter is X, and for the year it's Y, and then go back and hope to exceed those numbers. However, in this environment and with education's biggest quarters coming up, really coming up at the end of the third quarter in May and in our fourth quarter, we can't be confident in our guidance, so we're not providing any at this time. We expect that in 60 to 90 days when we report on our third quarter performance, we should be in a much better position to provide more guidance, and we look forward to doing that at that time. Now, moving forward, I'd like to ask Paul Walker to talk about what's happening with our clients in this environment in both divisions. Paul?

Thanks, Bob, and good afternoon to everyone on the call. It's good to be with you today. Despite the current uncertainty, we're pleased that in the enterprise division, many organizations have now begun to get their bearings and move forward. And for these organizations, their focus is now shifting to critical priorities, which you might expect, like sharpening their organization's focus and execution, building the capabilities of their sales forces, establishing or increasing trust with their stakeholders. Each of these areas and others are areas where we're really, we have expertise, and these solutions are found and available to our LX's pass holders. And our strategic relevance and importance to our customers is being demonstrated and reinforced every day. In our discussions with a significant portion of our pass holders over the past 30 days, they've continued to express how important and impactful our solutions are to them, particularly in this current business environment. And just to give you a glimpse into what we're seeing, while a few are requesting changes, for example, to their pass holder populations upon renewal or flexibility in the timing of payments, almost all have reaffirmed their commitment to the All Access Passed. And because of the relevance of our solutions, new clients are also purchasing new all-access passes, even in the month of March during the middle of the storm, this current environment that we're in, to help address their organization's needs. And we're grateful to be in a position to be serving both existing and new and potential customers. If I may, I'd just like to give you just a little bit of color on what we're seeing in both the enterprise and education divisions. And you can see on slide 13, Some examples of these. Earlier this week, a new client who is seeking to proactively work on strengthening their culture of trust and inclusion, and they want to do it right now and not delay, because they believe that having a strong culture will be an even bigger asset to them during these times of uncertainty. And so they moved forward with a purchase of a two-year term all-access pass for approximately 4,000 people, which for us is a very nice-sized pass. One of our largest execution clients, here's a second example, called us last week to let us know that they needed the four disciplines of execution now more than ever and expressed that they're 100% committed to the four disciplines process and to their ongoing subscription with us. Another, one of our large multi-year pass holders, a major airline, is facing a great deal of uncertainty right now. And while they're not in a position to expand their path... The fact that they're in the middle of a multi-year pass with us gives them tremendous capacity to utilize the all-access pass and cut back on investments that they may have made with other providers. And we're currently engaged with them to transition live on-site training to live online training and are introducing a significant number of our digital offerings to their employees so that they can make a big push on leader and employee development while their associates have the increased time to focus on their development. Just a couple of more here. Another seeking to expand our solutions to a large group of employees. And they're doing this because these employees are now working remotely. And so they're considering expanding their already significant paths with us to an additional population of about 800 people to meet the needs of this new remote working workforce. And then finally, the leader of our sales performance practice, is receiving regular calls from senior sales leaders who want help as they try to stabilize revenue with existing customers and look for ways to grow sales in the current environment. As a result, for the month of March that just ended, our all-access pass revenue, which is a combination of new passes plus renewals, actually grew over March of last year in the U.S. and Canada. If I may just for a minute, similarly in education, in the education division, at a very difficult time for schools, And in a month with unprecedented disruption, including school closings, schools scrambling to deliver lunches, providing packets of homework, teaching lessons digitally, et cetera, you know, we all know what it's like in that environment. As Bob noted earlier, our education division has done a great job providing clients and non-clients with – not in schools – with free access to LeaderME student and family resources. They also continue to stay close to these schools. with new and existing schools to help them maintain and expand their commitment to their students. And as a result, even in a very difficult month, we're seeing school commitment to the Leader in Me process continue. And just a couple of examples of that you can see on slide 14. During the month of March, 248 Leader in Me schools renewed their subscriptions. Thirty-eight new schools entered into contracts to provide the Leader in Me to their students and faculty. Last week, a district entered into a contract that's designed to train 8,400 high school students in leadership skills, and they'll all be delivered via the Zoom platform. Another large district called this week to schedule final conversations for onboarding their 20 schools in the Leader in Me this summer. And finally, one of our client partners has 10 new school districts. You know, we've put a lot of focus on districts, but 10 new school districts who are planning to start Leader in Me this year. And so while the coming months, we expect, will undoubtedly contain plenty of uncertainty and challenges, we're grateful that we entered this period, as Bob mentioned, not only strong financially but with a lot of momentum, best-in-class offerings, and a business model that are really valued by our clients. And as a result, when this period does end, we expect to exit it having increased our strategic importance to our clients and hopefully have been a great help and a great partner to them throughout this entire time. So, Bob, I'll turn it back to you.

Thanks. Thanks very much, Paul. We'll just quickly hit a couple of other points and then open it for questions. Just metaphorically, for those who have been mountain climbers, you feel like you're making great progress up the mountain. Then there's a massive snowstorm or an avalanche. Your strength isn't less. Your capability as a climber isn't less. But you're in deep snow and your progress is less. But the fact that you can make progress at all through the deep snow is a testament to the strength, not an indictment of the lack of strength. And I think that's how we felt the last few weeks is that we're in deep snow right now, but we're moving forward. The examples that Paul has talked about in the enterprise and education division actually suggested in some areas the snow is getting more firm. In others, it depends on individual clients. Their circumstance may mean that we're in deeper snow, and that will continue for a while. We don't know when we'll be out of the deeper snow, but we are moving forward. Our clients are moving forward, and we expect that as we go forward, as kind of identified in slide 15, that the same three factors that have helped move us up the mountain so rapidly in the last few years are will also be the things that allow us both to power through the deep snow and accelerate it as we get under more firm footing. And so while the timing and trajectory will likely be uncertain, the three ideas, the power of our subscription model, our high lifetime customer value, and a business model that generates high flow through will really be very powerful assets to have. You can just, you know, just touching one slide on each of those points, the power of our subscription business model on slide 16. And you can see in slide 17 that we've grown rapidly. Our total subscription-related revenue in the second quarter grew 24 percent, has grown 21 percent year-to-date and 22 percent for the latest 12 months. All excess past portion of that has grown more rapidly at 28 percent in the quarter. A significant 34% of our all-access passes are now multi-year passes, up from 27% at the end of last year's second quarter. That's providing a lot of structural strength here. All-access pass and related sales have grown from just $47 million for the latest 12 months in fiscal 2018, two years ago, the second quarter, to $91 million for the latest 12 months of 2020. And during this same period of time, all excess pass and related sales have increased from 32% of our total enterprise division sales to now 52%. And we expect that over the next three years or so, that will increase to around 75%. With this strong growth in all excess pass and related sales and leader in these subscription sales has also come, as we've noted, a significant increase in the amount of our deferred revenue balances, billed and unbilled, which got to $82.7 million. That's up from just $18 million at the end of 2017 second quarter. The second driver of our growth, so the first is, you know, the subscription model. The second is the high lifetime customer value. And the next slide, if I can read it here, 18, you know, annual revenue return, you know, high relative average price, high good gross margin, a services attachment rate that's now increased to just over 50% and more than 90% annual revenue retention. And this has created a virtuous cycle, which is establishing, you know, what we believe is a high expected lifetime customer value. That's, of course, being tested in these times, but as Paul said, having had discussions with the, you know, huge percentage of our total all-access pass holders, they remain, you know, almost... almost entirely committed. There will be some, of course, who aren't able to continue because of their circumstance, but we believe the retention rate will end up being very high. Some may ask to renew a month later or something, but generally it's going to be extremely high. We feel good about that. The third driver, as we said, is just the high flow-through created by the high single-digit revenue growth, which adds around $20 million or More than a little over $20 million of revenue a year has been adding. Strong increase in gross margins, which has increased our gross margins by several hundred basis points. And a declining operating SG&A as a percentage of sales, which has allowed that increased gross margin to flow through. Final point is that we really are grateful to be in a position to provide our clients with the kinds of solutions they need during these times. As a result, we really do expect that this period will be one that allows us to deepen and strengthen and create enduring, you know, deeper, more pervasive, ongoing clients for life type relationships. I think it's also, you know, for our employees who are extremely mission oriented, you know, this is a time when the value of what they do is brought to the fore and they're I don't know. I report from the field that they've never been more engaged. We've always had highly engaged employees, but they're with our clients daily by video conference or phone, making a difference. And to our shareholders, to you, our shareholders, we appreciate the trust and confidence you've extended to us, and we begin and end each day committed to ensuring that that trust is well-placed. With that, we'll now open this for questions and be delighted to take any questions.

Thank you. We'll now begin the question-answer session. If you have a question, please press star, then 1 on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have an audio question, please press star and one on your touchtone phone. And our first question comes from Alex Perez from Barrington Research. Your line is open.

Hi, Alex. Good afternoon, everyone. This is Chris Howe sitting in for Alex. I hope everyone is safe and healthy.

Thank you. We hope you are as well.

I guess just starting off with these two questions that I had top of mind, can you provide some more color on the typical sales cycle for all-access pass and for education, and how does that sales cycle currently look? And then my follow-up question to that is in relation to contracts of different lengths, whether they be multi-year or other contracts. Do these contracts renew automatically, these multi-year contracts?

Okay, great. Paul and Sean, do you want to address those questions? Paul, do you want to start?

Sure. Sure, I'll start. Hey, Chris, I'll start with the sales cycle and how contracts work in the enterprise division for All Access Pass. So the sales cycle, there are two different sales we make, right? One is a sale to a new logo, a new All Access Pass, and that sales cycle can be varying lengths, but on average it's 100 to 120 days or so on average. And as far as what we're seeing, we don't know exactly what that's going to look like in the coming couple of months. As I mentioned a minute ago in March, we were happy to see all access pass sales continue to stay strong. The renewal is the other sale that we make, of course, when we go for renewal. And that sale cycle is from the day we set the pass, we're doing everything we can over the next year to set up that renewal. And so there's a whole process that we engage around with our clients, our passholder engagement process, we call it, that ensures we're doing all the steps necessary to ensure that that pass does renew on time a year later. Hopefully it expands and they add more seats, etc., In terms of any contract, multi-year or otherwise, clients do sign. When the contract term is over, they do sign for another contract term. And so while there's language in the contract that says that it's going to renew, we keep that language in there because that makes the contracting process easier, but the clients do commit and re-up, so to speak. If we're in a multi-year agreement... then, of course, that discussion doesn't need to happen until the end of that multi-year agreement. So if a client signs for three years, to give the example a minute ago of the airline, they're in the middle of a three-year deal. We're not talking about whether they will or won't renew because we're a year and a half away from that conversation because they're in the middle of that multi-year contract. That's great. Is that healthy there? Okay.

Yeah, and as we look at these multi-year contracts, people within these contracts – And we take into consideration this uncertain environment and the difficulty in placing a timeline against this environment. What portion, or how should I think of this, what portion of multi-year contracts extend beyond this uncertain environment? In other words, which ones are up for renewal or what portion is up for renewal this calendar year?

So, We're signing these contracts all the time, and so the exact portion that's up for renewal in the next, do you say in the fiscal year or the calendar year? Calendar year. In the calendar year, Bob and Steve, I would say maybe a third. They stretch out over one to two to three years.

Yeah, there's $36 million of revenue, and I think the actual contracts, as you say, extend out over several years. The renewal dates, I mean, not renewal, but when they'll actually be invoiced, the majority will be invoiced over the next 18 months or so, but the contracts extend much longer. And that's important, I think, because what tends to happen, no one knows what the pattern of this is, of this recovery will be. But if history serves, you know, you look at things, absence, sequestration, when do organizations resume spending and so forth and making decisions? And historically, after a couple of months, organizations are back making decisions. And so even in the great financial crisis, about four months later, you know, the booking pace and everything was still back to basically the normal pace. booking pays, but you lost that three or four month period. Here, we have the advantage that the deferred revenue and the multi-year contracts bridge over that period largely, even single year contracts, which we have a huge number of those, really don't all, they come up, the renewals come up pretty evenly throughout the year, and so we're not facing an extraordinary number of of renewals. For example, in this quarter, our third quarter, we have around 13 million of passes up for renewal this quarter. Paul, I think we've got somewhere close to half of those done now. Is that true?

Yeah, that's right. We're about seven of the 13, yeah.

Yeah, so it isn't a huge portion that's exposed to any particular period of time, which is helpful.

Would you like me to comment, Bob, on the education side?

Yeah, please, Sean.

Sure, Chris, just to address your questions on the education side. Yes, please. Sure. Yeah, so the self-cycle in education typically is a pretty long self-cycle, and it starts usually in the fall. Schools start to investigate, you know, whether or not they're interested in our Leader in Me whole school improvement system. And they typically will make decisions starting in January. Most schools will usually by May. They've kind of made up their mind if they're going to go or not. And between May and August, they're starting and implementing. um and then because of that the retention cycle is on the same as bob mentioned we have about 2700 schools that we're trying to keep in the in the system and you know keep their subscriptions going and our retention rate has been really high historically around last year was 88 it's always been around that and that also starts in may and runs through august and um So that's coming up, and we've had a lot of conversations with schools already, and indications are really good that people intend to stay with us. But that's basically how the renewal cycle works with us. With multi-year contracts, go ahead, Bob.

No, I just can mention that you noted earlier, or Paul noted earlier, that there were 225 schools, even in March, that did We normally wouldn't have a high percentage of schools in March, but 225 or so did renew in the middle of the storm, recognizing they were still committed and needed what we're doing in education.

Yeah. Which was a little slower than last year, but not too far behind, which was encouraging to see. And some schools we found just aren't. They just say, well, please call us back in two or three weeks. when we can get our bearings a little bit more. So that's kind of how the cell cycle works on the education side, Chris. That's great.

I appreciate all the color, and that's all I have for now, and I'll hop back into the queue. Thanks, everyone.

Thanks, Chris.

Andrew, your next question comes to me. Andrew Nichols from William Blair. Your line is open.

Hi, good afternoon. Hi, Andrew. I realize the current environment makes any sort of outlook for the remainder of the year difficult, so I totally understand the hesitancy to provide updated guidance and make sense to me. I'm thinking that investors will typically point to 2009 for some sort of proxy on how the business could behave in a more cyclical environment, and I think in 2009, if you account for the sale of the consumer solutions business, you were down roughly 15% or so on the top line. So I was just kind of wondering with that as context, if you could talk a little bit about the differences in the business between then and now and in what ways you'd expect the business to be more or less resilient versus 2009. Obviously all that has passed is a key difference, but any color around that would be helpful.

That's a great question. In 2009 period on a which, of course, started the Lehman bankruptcy started right at the start of our first quarter. And so that year, our revenue, as you said, went from about $133,000 the previous year down to $124,000. So it was a little less than a total, I guess, 8.5% decline, if that's what the math is exactly, but you're directionally correct. And almost all of that decline for us occurred in that first four-month period when organizations were wondering. We had part of that, which is the Christmas period anyway, which tends not to have a lot of new sales, but it bridged over that. But those four months included a period where people just weren't sure they were going to survive. And what happened was, at least back then, we didn't have all access pass. We didn't have contractual revenue, multi-year contracts or anything. But But even then, people were committed to what they were doing, and most of the business, a lot of our business then was in terms of these on-site days. We didn't have live online or digital delivery or those kinds of things. But what people did is postpone them. And so it turned out that we lost very little of the business, but because it postponed a few months until they said, look, we'd like to schedule this. in February. We rescheduled it from October and November. We're going to see if we're around. If we are, we're so committed. And people did pick it back up. And so we really held our own really well year over year from March through the second six months of that period. Interesting during that period is we actually, the decline of 8% or so is a mix of two things. we actually grew our execution business, our sales performance and custom loyalty business that year, and our trust business, and that was offset by some declines in the more traditional, you know, back then, time management training and things like that. So how we're different now, I think, we don't know, of course, what the pattern will be this time. Every pattern is different. We all wish we knew, but I think the things going into it We have much of our business on contracts, multi-year contracts that obviously bridge over that. If the period were four months, we'd have all of our multi-years that bridge that and a significant portion of just the one-year contracts that bridge it. The services, rather than being one-off, are really tied to initiatives. We have a bigger percentage of our business today than it is in things like execution and sales performances. So that's, you know, it's a place where people in these times, historically at least, really doubled down and said, that's what I need, and we're seeing that now with our head of our sales performance practice getting a number of unsolicited calls from sales leaders at major companies. And so I think, you know, those are some differences. We don't know what the pattern will be, but the idea of where we are now is – you know, I think a much more solid place, even though it turned out that last time wasn't horrible after those first few months.

That's really helpful. Thank you. And then just one more on the cost structure. Could you give us kind of a high-level view of how much of your cost base today is fixed versus variable, and then what type of opportunities you might have to pull back on spending if the economy remains challenged for a longer period of time.

Yes, thanks. Great.

First of all, we have our cost structure by design flexes quite significantly. I mean, if you first start with our sales force, our client partners, which are a major part of our total investment and cost structure structure, they're all on commission. So while they get a draw that's equal to between 50% and 70% of their target, there's a lot of flex that's just natural there. We hope that they won't have to flex. But, I mean, there's a natural flex in there also with the delivery consultants who are paid on a per-day basis. Also, many years ago, we decided to structure all of our major manager compensation and, of course, senior leader compensation so that that a very significant portion of that is based on it's all paid for performance. And so there's a natural flex in that just, you know, I mean, if, you know, where there's like a 30% flex in the total cost structure just as a consequence of the way in which it's structured at the executive team level, it's even more extreme where compared, you know, in a targeted compensation scenario, you know, the base salaries and so forth or represent depending which individual. You know, for me, roughly, you know, 27% or something is base salary. And, you know, and so I think that part of it is helpful because, you know, it flexes on its own. Beyond that, the majority of our costs are related to people. We don't have a lot of And our central costs haven't increased for years. So we've had ongoing projects and have ones underway now unrelated to this time where we're trying to take out costs all the time. We've done that. You see our SG&A as a percentage of revenue having been declining for like eight or nine quarters. It's not just because revenue has been increasing, but it's also because of cost initiatives. And we have those are ongoing, which we think can save millions more. And so I think we've, you know, we have, you know, I think a lot that can be done in the cost side, it's just natural given what we've done. And so we feel like that will be, you know, hopefully plenty to flex.

If, you know, if not, then, you know, obviously we have historically been willing to do what was necessary, particularly starting with the executive team to do what's necessary if that became the issue. But is that responsive?

Very. Thank you.

Okay, thanks, Simone.

And our next question comes to Marco Rodriguez from Stonegate Capital. Your line is open.

Hey, Marco. Good afternoon. Hi, guys. Thanks for taking my questions here.

Thanks for your questions.

I was wondering, you spoke a little bit about the impact you guys saw in Asia, China, and Japan. And I believe you gave some revenue figures there. Maybe you could give us a little bit more information, a little bit more color in regard of the cadence, kind of how you saw the revenue unfold as many parts started to go through lockdown. And then if you can maybe also talk about what you're currently seeing in terms of the cadence of revenues and how that's kind of coming back to give us some sort of a framework to look at here.

You bet.

Paul, do you want to address that? Sure, sure. Hi, Marco.

So China and Japan, they were both impacted a little bit differently. So China, of course, they, you know, the country took dramatic action and did so quite early, right, you know, at the time of the Chinese New Year, which was so very, they were impacted throughout the majority, almost all of our second quarter. And for them, it was culturally even an interesting and challenging thing is people had to go work from home, which is an uncommon thing over there, not just in our company, but generally in China. And so we saw a big fall off in revenue, I mean, nearly completely in China. Just staying on China for a minute, what we've seen as they've come back is we're pleased with how quickly clients have moved begun engaging in conversations again. Of course, in China now, the law is such that you can't have all of your workforce in the office at the same time. So we have people work from home a part of the day, come in the office for a part of the day, and then flip with the other half of the office. But we're engaged with customers. They're engaged with us. A lot of selling activity has started again. They're not quite yet to the point where they want to have necessarily training programs unless they're done virtually, but the conversations have ramped up quite quickly after what was a pretty dramatic shutdown there in that country. Japan was a little bit different. We had activity that happened well into the quarter. It was kind of a normal selling quarter up until kind of the final month of the quarter in February. And of course, they locked down as well, but their lockdown was a bit different. And so we didn't see a complete fall off of revenue like we did in China. And we've been able to maintain revenue there. Conversations with clients have continued throughout the process, probably a bit more like the U.S. right now where there are still conversations going and they're able to still drive business there. And they're kind of now also coming back out the other side a little bit in terms of clients expressing willingness to begin talking about getting things back on the books, et cetera.

I don't know if that's completely wrong. The pattern we expect to be a little different here only because China was not yet selling. They just started to sell the All-X Pass in the fall because we had to build a separate portal behind their firewall, the Chinese firewall, and Japan had just started. They don't have the same base of subscription revenue or in-place impact journeys, contracted services, but nevertheless the business activity is, you know, starting to show. You look at hotel occupancy rates, and they're edging up. It's not fast. It's going from 18 to 22 to, you know, this week I saw the day was around 25. And so, you know, the business environment is starting to edge back up. and even in the absence of contractual revenue like we have in the U.S.

Understood. Helpful. And then shifting gears a little bit here and following up on a prior question on the sales process or the sales cycle, just trying to better understand here in North America, the importance level of your client partner is actually getting on a plane and going to meet their clients for the new logos or for the renewals.

Bob, I can address that if you want. Yeah, so our client partners, first, they are almost 100% of them are geographically proximate to the territories in which their clients reside. So they're scattered throughout the country, throughout North America, and most of them live within a, well, they all live within an easy drive to their clients. Obviously, they're not driving to the clients right now to go see clients face-to-face, and so They're doing that via video conference. That's a pretty common thing for us, though. Our sales force spends, even in the non-current pandemic environment, they spend their time meeting with clients either via platforms like Zoom or face-to-face. And so it's a pretty easy transition for them to do that. They all work from home anyway, and they're accustomed to spending a lot of time with clients on the phone, on Zoom, etc., And so they're doing that. Interestingly, clients have, in our space, they have a good deal of time to talk to us, too. So right now they're available, and we're spending a lot of time with our existing clients and prospective clients. I'm sure the decision-making process will go a little bit slower, not because of our inability to engage with them via Zoom or video conference, but for them to go and get approvals from other people in their organization before they sign off. the fact that they're all not working in the same office, that requires some extra hoops for them to jump through on the client side. But in terms of our selling ability, it doesn't really diminish what we can do right now in terms of selling.

Got it. And last but question, if you can just kind of update your thoughts in how you think this impact will play into your hiring targets for additional CPs.

I'll just stay on that one, Bob, if it's okay. So we are committed, as you know, we're very committed to hiring, and we have hired throughout this year already. We are 255 client partners in the sales force now. And what we've decided to do is just shift by a couple of months the next two classes of client partner hiring. And we're doing that primarily because we want these new client partners to come in and be successful, and we just don't think maybe exactly right now is the environment to bring them in. And so we're just going to take everything we were planning on doing and just shift it back a couple of months.

Thanks a lot, guys. Appreciate your time.

No, thank you.

And the next question comes from Samir Patel from Franklin Coffee. Your line is open.

Samir, how are you? Pretty good. Thanks for taking my questions. Paul, can you repeat – I think you said, if I heard you correctly, that bookings for both renewals and new sales were actually up in March. Did I hear that correctly in our enterprise segment? If you could just go over that again.

Yep, they were. In the U.S. and Canada, the revenue from new passes and renewals grew over March a year ago.

Okay. Okay. That's good to hear. And so that's interesting kind of given the disruption.

The point on that would be also, though, part of that would be because we had a strong pipeline and some clients really positioned to making a decision, and they did so. But as Paul said earlier, starting with a new client now, the sales process may be longer than it would have been. So we closed business. Thankfully, we closed business that was already positioned. We also closed. But because of the sales cycle, this is stuff that we were talking about beforehand that completed. This will be, you know, we expect this will be a little deeper snow and harder to, you know, we're having lots of those conversations. But there'll be some gap likely in the sales cycle as you're, you know, we have things in all stages of it. But I'm saying that the front end of it is going to be a little harder, I think.

Right. I mean, that's understandable given the disruption over the last few weeks. I was just impressed that you actually managed to close the deals that were already in process. So that's good. The related question, Paul, I think you mentioned something about renewals. Some of the renewals may be happening a month later or something about payment terms. I was curious if you could delve into that a little bit with maybe an eye for, you know, I understand a great portion of your client base is probably doing fairly well. But then you may have the companies like Marriott, right, where, you know, obviously they're probably very committed to your four disciplines of execution, but if there's no one, you know, staying in hotels, then, you know, they're going to have near-term challenges and they're laying off, you know, a significant portion of the workforce. So if you could maybe talk to kind of where you see that in your client base and what exactly it is that you're seeing with regards to some of those challenge clients.

Sure. And you just expressed it well. So there are clients are across a spectrum right now from they're in industries that are doing very, very well and they're looking to expand right now. And we've had a number of those conversations, interestingly enough, even in these times where they're sending employees to work from home and the original path, they need access. They hadn't even considered those populations as potential. They hadn't yet considered it. We'd hope they would, but hadn't considered them yet as potential past holding employees. But now that they're working remotely and, And they want to find ways to engage them and set them up to work successfully from home there in conversations with us about expanding. So you kind of have that end of the spectrum. And then you have the complete other end. I mentioned a minute ago, you know, an airline example where they're not looking to expand. And in their case, they're in a multi-year, so that's great for them. And we have some where I'm sure we will expand. because we want to be good partners, we'll want to and be asked to extend maybe some preferential payment terms or differential payment terms to them just to get, you know, they'll renew on time, but we might, you know, collect the cash just a little bit later to help them out. And there might be a few that'll say, you know, we've just asked some of our employees to take some extended time off. We may not be able to use the past fully for the next couple of months? Could we get a month or two on the back end? We want to stay with the past. And those are things that we'll take one off to try to do right by our clients. We think of our clients as clients for life, and that's an important thing for us. Anytime we lose a client, we're like, dang, what did we not do that we maybe should have done that we could have retained that client? And so we approach every one of these discussions that way. Thankfully, right now we're seeing most of them are planning on, you know, they're utilizing the path as we had hoped. They're even utilizing it in differential ways today than they might have a month ago. They are aggressively talking to us about how do they convert what they used to do in person to live online. And thankfully for them and for us, we have all of that capability in the All Access Path. And so it's a client-by-client conversation. It's what our client partners and our implementation specialists are doing every day right now. and we've been able to have contact with nearly every pass holder in the last 30 days just to check and see where they are and get a good sense for how we can be most helpful.

Understood. Thanks. And do you have – I don't know if you have this off the top of your head, but do you have any sort of analysis around what percentage of your all-access pass base is related to industries like, you know, say apparel retail or hotels or airlines or, you know, those sorts of particularly challenged industries at the moment?

I don't have the exact number, I would tell you. Our clients are kind of a good cross-section, a representative sample, if you will, of the Fortune kind of 5,000 companies. So they span all of those from technology. But we don't have a particularly heavy concentration in any industry, really. It is an interesting cross-section. from healthcare to, yeah. So we're not, we won't have a massive problem because we're all loaded up in one industry that's really struggling. And at the same time, we won't also have an easy time because all of our clients are, you know, companies that are thriving right now. So it's a good cross-section.

Sure. No, that's helpful. Thank you so much. Thanks.

Our next question comes from Zach Cummings from B Riley. Your line is open.

Hi, good afternoon. Thanks for taking my question.

Thank you.

Yeah, I guess there's been a lot of questions on the enterprise side of it, but I guess just over on the education portion of this, it sounds like a lot of your renewals typically come during this kind of, say, May through August timeframe. Can you talk a little bit more about how you're trying to navigate that renewal cycle given the current climate, and is there potential that you could be extending some of these renewal windows beyond that August timeframe?

Sean, would you like to introduce?

Sure, yeah. Yeah, well, most of the renewals, again, as was shared, we have about 2,700 trying to get renewed. And they start – I mean, they started here in March, and they just accelerate through the rest of the year. And so – and we – in the month of April, increases a little bit over March, and then May it starts to hit really hard through July and some into August. So what we're doing is we've been – diligently making lots of phone calls. In many cases, some of the schools have said, you know what, we love you guys, wait two or three weeks, give us a call back. So we've tried to be sensitive to certain states and districts where they're not really ready to talk with us. A lot are, and that's why we had a lot of renewals in the month of March. We're finding that the more urban districts, the larger districts, are more prepared for this kind of downturn. and to go digitally, and so they're quicker to get back to us. The more rural areas are a little bit slower. We feel like because Leader in Me is a thing, it's an implementation process. It's not just like a one and done. And when we sell it up front, we sell a process that's three to five years long, and most of them are in that three to five year window right now. So we feel pretty good about our ability to retain our retention rate comparable to what it's been in the past. And thus far, we're not hearing people say, you know, we're not going to renew. It's primarily been call us back in a few weeks. So we feel pretty confident. We have coaching relationships with all these schools. These are coaches that go to the schools every year, and we're – We're still doing a lot of coaching right now. We've converted to a live online over Zoom coaching process, and we've been doing this for a long time already, so the schools are comfortable with it and we're comfortable with it, so that's going along pretty well. So our process is all hands on deck. We have client partners that have contacts with the schools. We have what we call education quality partners. There's another key role that we utilize that has... a really good relationship with each of their schools, and we have coaches. So we have got like three touch points with each school. And we feel, you know, we're just going as fast as we can, trying to balance kind of consideration for their situations with, you know, our desire to try to get them committed for next year. And, yeah, so there's some possibilities that things will get pushed. I'm sure there's going to be some of that. And there'll be maybe some extensions that we'll give people. But in most part, the schools have a budget. Most of their budgets turn over in July and August. They want to spend the money when they have it. They've got long-term relationships with us. And we feel pretty confident. And, you know, it's a lot of unpredictable things right now, but we feel pretty confident that most will renew on time. And I think, you know, we're starting to get a lot of calls right now back around, you know, people calling us back. We called a couple weeks ago saying, hey, I'm ready to talk now. Just this week, we're starting to hear a lot of that. So I hope that adds a little bit of color.

No, absolutely. And I think you briefly mentioned some of the coaching services you do. I know that in your fiscal 3Q and 4Q, you tend to have more services related to the education segment. I mean, can you describe what portion of these can be done remotely or in online format, and I guess what portion of those require somebody to be onsite at these schools?

Well, all of them can be done either we can do them live, we can do them live online, which is like over Zoom, and we can do them on demand. And we've developed the on-demand capability just like in the last few weeks. We've been working on this for some time. We just kind of accelerated once it's hit. So I think in most cases, they can all be delivered either live online or on demand as well as live. And the on demand is where the school will go in and do their own training on a computer, right? And then afterward, they have discussions, virtual discussions with everybody else in the community they're doing the training with. around what they learn. So it's kind of the flipped classroom approach. So there will be some schools that will prefer live and will say, you know, we want to wait until things have cleared up and we'd like to do live training when, you know, maybe in the fall. It normally would have been in the summer. Some of that will happen for sure. But in general, our approach is, hey, you have a live day in July. We're planning on doing it live online. We also have an on-demand option if you'd like to go that route. So that's That's kind of how we're approaching it.

Got it. That's helpful. And just a final question for me, Bob, just going back to the flexibility of your cost structure. I mean, it sounds like many of your expenses are kind of naturally flexible in a sense. But when I'm thinking about gross margins here in the coming quarters, it sounds like you still have your strong base of growing recurring revenue that carries a higher margin. So would it be fair to assume that as that portion of the business becomes a bigger portion of the overall mix, that we could still see some pretty strong gross margins here in the upcoming quarters?

Steve, I don't know if you want to address that directly.

So Bob China, too, yes. So the light there is that if the recurring revenue and the subscription revenue becomes a higher percentage of our overall revenue, will that automatically, will that mix cause our gross margin to go up? And I would say that yes, it would. There are also other factors that play into gross margin, like our amortization expense, et cetera, that would become a a larger portion of our sales. So there are some fixed components to gross margin and variable components and mix. And all of those combined, I don't see a significant impact on gross margin percentage overall.

Got it. That's helpful. Well, thanks again for taking my questions, and best of luck here in the upcoming quarters.

Thank you, Zach, very much.

And the next question comes from Jeff Martin from Roth Capital. Your line is open.

Hi, Jeff. Good afternoon. Hi, Bob.

Good afternoon. I hope you're doing well. Hi, Jeff. Yeah, great. I hope you are, too.

I was curious if, and I've had a lot of distractions during this call, so I apologize if questions have already been asked, but in terms of your on-site delivery, and the conversion of that to online. Are you able to give us an idea of how much you're effectively transitioning the onsite to an online delivery format currently?

Sure. Paul, do you want to take that? Sure.

Hi, Jeff. So we, as Sean mentioned about education, the same thing is true in enterprise, that everything we do can be delivered live online. We actually have two different platforms we use with our clients. One is an Adobe Connect platform. The other is Zoom, which we're all becoming very familiar with. And so we can deliver all of the normal training we would have done, everything from a four-disciplines track to a sales performance initiative to leadership development and traditional time management training. All that can be done live online. And so – For us, it's not a problem at all. In fact, our net promoter scores when we deliver that way are really every bit as high as they are when we deliver live in person. And so it's really getting our customers comfortable with that. For many of them, this is a new thing for them. And so we're finding that we're spending a lot of time educating them and giving them demos and helping them see and visualize how this could be a really good alternative. Some, of course, are much more adept at that and are already there, and others. And so that's where our sales force is spending a lot of time right now. We, as you would expect in March, have seen a number of the live on-site programs not really cancel, just delay. The clients call and say, hey, we just can't do this on the day we had it scheduled. And so we are in conversations about rescheduling. What we've seen in the last, really particularly the last six or seven business days, is that a number of those clients now are saying, okay, it looks like this is going to be maybe the new normal for longer. You know, this isn't going to pass over in a couple of weeks. And so they're now back talking about, okay, let's really look at that live online thing, help me get comfortable with that. And we're starting to rebook some of the days that it canceled. And so, you know, percentage-wise, you know, we're probably – right now we've probably rebooked 20, 25% or so of those that had canceled, but it kind of delayed. We haven't actually had, as I said before, I haven't had that many that actually outright said, we're done, we're not doing this. Most are in kind of a, we got to re-educate them on the live online idea. Or they're saying, you know what, maybe we'll do that in June or July when this passes. And so those are the conversations we're in right now.

Okay, that's very helpful. Thank you for that. And then Bob, just wanted to get a sense of how you're thinking about the existing infrastructure within FranklinCovey. If you've had to make any changes to this point, if you're thinking that you might get to a place, you know, if we're in this situation for another two months, would that force you to look at your cost structure? How are you thinking about that?

Jeff, we have one Monday a month, the afternoon, is focused on business model. We've been dedicated to say, hey, look, by the time we get to $300 million of revenue, which one month ago we thought would be three years from now, and maybe it still will be, but you'd have to catch up a little if this affects the economy and us for the next quarter or two, but it could still be fundamentally the same trajectory. be at $100 million, that you'd be at 20% EBITDA margins. And so independent, you know, so kind of independent of this situation, we have for years tried to take that. And so to your question, years ago, some of you took out all the infrastructure, the physical infrastructure in the U.S. of offices and so forth. It hasn't affected our revenue. Our client partners were already working primarily for their homes. And so that structure has been taken out. The practice structure we had, we recognized with all access pass, you were much better off having a broader mandate. And so we've eliminated that. And so I think most of the structure in the field, we still have, you know, physical offices in the UK, in Germany, Japan, China, in Japan and China. But really, otherwise, there's not infrastructure to take out there. So I think there, you're not there. I think, sure, going forward, in the past, we've taken on what we needed to, and those kinds of things where you could have the people who can generate revenue continue to generate that, but take on costs, IT costs, and those are all on our list every month. But I think, yeah, there could be a time where several of those infrastructure, IT, et cetera, could be challenged. What you've seen is that our central costs, despite having added a lot to revenue over the past decade, our central costs really, because of these initiatives, we haven't allowed that to grow much. And that's declining as a percentage of sales. So we have a list of projects we're already on, some of which are accelerating growth. Now, just naturally, you can just say, well, this is something we can take on. But I think largely, you know, I mean, it's not that there aren't millions of dollars there still because we know what those numbers are because they're on our list anyway.

But we anticipate being able to do most of that without affecting people directly other than in the flex of their compensation.

That's great to hear. Great. Well, thank you and good luck with everything.

All right. Thanks so much, Jeff. Thank you.

Thank you. I'll now turn the call back over to Bob for final remarks.

All right. Well, thank you very much for everyone's great questions for your thinking on this. We'll look forward to any questions anybody else has. I'll just step back and say that it is really great to be involved with clients in a way that they really value and where they're talking about the importance of things. We've talked about that for several quarters. The the strategic durability of actually working on problems. Every organization has problems, the solution to which require large-scale change of human behavior, whether that's improving sales or customer loyalty or trust or whatever it is. I think in these times, once people settle out, and I think that everybody's settling at a different level and it will affect people differently, this is the most enduring thing is the combination of solving problems they really need to get solved and doing it through a business model they really value, we think we're glad to be in this position, although we don't like being in this position. If you're in this position, you're glad to have that set of assets. So thanks very much. We'll look forward to talking further and answering questions as those come up. Thanks so much.

Stay safe.