Franklin Covey Co. (FC) Q3 2017 Earnings Report, Transcript and Summary

Welcome to the Q3 2017 Franklin Covey Earnings Conference Call. My name is Adrianne and 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. Derek Hatch, you may begin.

Thanks, Adrianne. Good afternoon, ladies and gentlemen. On behalf of Franklin Covey, I would like to welcome you to our third quarter of fiscal 2017 earnings call and discussion this afternoon. Before we begin, I would 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 acceptance of and renewal rates for 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. Many of these conditions are beyond our control or influence, any of which may cause future results to differ materially from the company’s current expectations. And there can be no assurance the company’s actual future performance will meet management’s expectations. These forward-looking statements are based 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’d like to turn the time over to Mr. Bob Whitman, our Chairman and Chief Executive Officer. Bob?

Thanks, Derek. Hello to everyone. We appreciate you joining us today. We are happy to have the chance to talk with you. For the third quarter, we are pleased that the sum of revenue plus the change in deferred revenue for the third quarter was $2.3 million higher than last year’s third quarter and for adjusted EBITDA, the same was true that the sum of adjusted EBITDA plus our change in deferred revenue that we always talk about was $1 million higher. So, we thought it was a good solid quarter. We are particularly pleased by All Access Pass’ continued momentum and by the momentum of the education division and the momentum that’s in the rest of the business going into the fourth quarter. We believe we are well-positioned to accelerate growth in the fourth quarter. We expect very strong fourth quarter and also position for some transitions in fiscal 2018. Inflection points we’ll talk about in future years. Today, I would like to briefly address five questions, which we have been asked in recent investor conferences and visits. So, I will actually address the first three and Paul and Sean Covey will address the fourth and Steve the fifth. But the first is how our sales of All Access Pass going? We’ll give you an update on that. Second, how was the lifetime value of our customers playing out the factors which drive that? Third, how is the transition to the All Access Pass subscription business model progressing? Fourth, how are we organizing people? So tell me how you can organize through and take advantage of the big opportunities in both – with All Access Pass and with education and then again some update on how we have been utilizing our excess cash to hopefully increase – further increase value. So first, I will address on how the All Access Pass is going? We introduced as you can see on Slide 4, we introduced All Access Pass in the first quarter of 2016. As you can see in that quarter, we invoiced $375,000 of All Access Pass. But from that start, All Access Pass and Pass-related sales accelerated rapidly, in fact just passed themselves to $21.5 million by the end of last year. As you also see on that slide, in addition to the $21.5 million invoice for the sale of passes themselves, those pass holders also purchased $1.7 million of add-on training, services and materials during fiscal ‘16. So together, the amounts invoiced for All Access Pass and Pass-related sales reached $23.2 million in fiscal ‘16, an amount equal to 24% of the total amounts invoiced before the full year for all of the offerings – those offices that are selling All Access Pass were also selling. So, you can see on Slide 5 that momentum has continued to accelerate in fiscal 2017. As you can see in Slide 5, the fair amount of data there, you can see the first band is fiscal ‘17, the second band is ‘16 and the third is the change. As you can see there, in the first quarter of fiscal ‘17, All Access Pass and Pass-related amounts invoiced were $7 million, which is a $6.7 million increase compared to the $375,000 invoiced in the first quarter of fiscal ‘16. In the second quarter, as you know, All Access Pass and Pass-related amounts invoiced increased to $11.25 million, which is an $8.2 million increase compared to the $3.1 million done in last year’s second quarter. And then the third quarter where we are up against a larger quarter last year, so increased significantly with Pass and Pass-related amounts increasing to $13 million, which was a $7 million increase compared to the $6 million amount we invoiced in last year’s third quarter. As you can also see there, year-to-date through the third quarter, we have invoiced $31.3 million of All Access Pass and Pass-related amounts. This is a $21.9 million increase compared to the $9.5 million of All Access Pass and Pass-related amounts we had done through the first three quarters of last year. So, it’s a good increase, a strong increase around $22 million. As you can also see in the slides, the momentum continues to build. Year-to-date through the third quarter All Access Pass and the Pass-related amounts accounted for 53% of the total amounts invoiced for those offices that are selling All Access Pass, which includes all of our U.S. direct offices, including government, UK, Australia and all those units accounted for 53% of that. Last year at this time, it accounted for only 14% of those same offices revenue. So, there has been a fundamental transformation in the whole go-to-market approach and in the share of the mind and wallet is coming from that. In this year’s third quarter itself, it was even more significant, where if All Access Pass accounted for 60% of the total amounts invoiced for those same offices in the third quarter compared to only 28% in last year’s third quarter. So, then finally, as you can see from the inception 18 months ago, little more than 18 months ago, we have now reached $54.6 million of cumulative amounts invoiced since that time. So, we feel really good about the momentum of All Access Pass. We feel like it’s we are just getting our legs in terms of being able to sell it really, because it was a brand new thing to all the salespeople just a year ago and now it’s a whole new process still for many of them, but everybody is selling it now and it makes up the majority of our pipeline more than a majority, the vast majority of our pipeline is related, because of the value propositions. I’ll go to the second question in terms of how the factors, which should drive – which we believe should drive increased lifetime value of our customers are tracking. There really isn’t a lot of change directionally which is good from last quarter, which is that all those same factors are still moving forward. As you know, there are three factors which we are increasingly confident are driving significantly increased lifetime value of our customers. These are one, a higher initial sales size; two, a higher revenue renewal rate; and three, meaningful amounts of add-on purchases of services and training materials. First, in terms of All Access Pass increasing revenue sales size, approximately 40% of more than 1,500 All Access Passes purchased to-date have been purchased by customers who previously were active Franklin Covey facilitator customers. Another 10% or so came from previous onsite purchasers and most of the balance has been new customers that were not previously customers. For the vast majority of these customers, their initial Pass spent alone for the All Access Pass was substantially greater than their average total annual spend as a previous Franklin Covey facilitator customer or onsite customer even before considering the additional add-on purchase of services or past expansions. These customers have renewed their passes, the majority have expanded the size of their All Access Pass. Initial purchase size by new customers I mentioned is also substantially larger than for similar new customers before the introduction of All Access Pass. So in our mind, there is no question that All Access Pass is substantially increasing the average purchase amount for the vast majority of our customers. Second as to having a high revenue renewal rate, our target has been to achieve an annual revenue renewal rate of 85% or greater. We are very encouraged that through the third quarter more than 90% of the amount of All Access Pass revenue should have renewed through the third quarter has renewed and we expect that additional passes that were renewable in the third quarter will still renew, but in the fourth quarter. We also expect that more than 90% of the significantly increased amounts of All Access Pass revenue up for renew in the fourth quarter will also renew. We have teams of course working on this and if we are able to continue to achieve this high revenue renewal rate, the combination of a higher initial sales size and a high annual revenue renewal rate will continue to prove up the idea of the increased lifetime value for the vast majority of All Access Pass service. Finally – final component is to adding on of sales and services. As previously noted and as you can see in Slide 5 again, inception to-date All Access Pass holders purchased $11.1 million of add-on sales and services and training materials to add on to their pass, so many of them have increased the size of their pass. And then on top of that they have also added services and training materials. This amount now equals 25.6% of the total 43.45 of the passes themselves sold since inception compared to only approximately 8% of pass revenue a year ago. So the sales process of going in, making a sale of the pass, going ahead and having a discovery date where we identify additional populations, different check, different challenges and additional challenges people are trying to accomplish, some of which they can do on their own and others which they choose us to help them with is adding significant amounts of service as well. At Gartner Group add-on services equaled approximately 50% of intellectual property sales. And we believe this is a stretch objective which it will help our clients to achieve their objectives and which we should only aspire to achieve. It will take us few years to get [ph] them to, but it’s moving that way. So as to the idea of the things that are driving lifetime value to customer, each of those components continues to feel very – both feel and have the data prove up our strong both high initial sales size and expansion of the high renewal rate and add-on sales. Then go to the third question, is just to how All Access Passes business model is progressing, we believe here that we are in a positive inflection point on each of three key business model dimensions. First, we expect to see a very significant increase in reported revenue, adjusted EBITDA and profit in fiscal 2018 as the large amounts of high profit margin deferred revenue, which is expected to be on the balance sheet at the end of this year’s first quarter flips over and becomes recognized as revenue rather than just building up as deferred revenue. Second, we expect that this combination of very high revenue renewal rate on increasing amounts of in place All Access Passes, an increasing amount of add-on sales and service and materials we just discussed will result in more than 85% of the prior year revenue being in place each quarter before making any new All Access Pass sales. So that 85% of the revenue from the prior year will be in place before having to make new sales. This will establish an elevated revenue platform from which to achieve accelerated growth. Then third, element of the business we expect a combination of increasing gross margin percentages whether associated with the pass, lower marketing costs associated with renewal of the pass than our traditional new sales and a new streamlined field cost structure will result in an increase in the amount and percentage of the – any increases in revenue, which will flow through the increases in adjusted EBITDA and cash flow and profit. So we think our flow through will increase a lot. I would like to just briefly address each of the three points, just to give you a little more background. First, we expect to see a very significant increase in reported revenue, adjusted EBITDA and profit in fiscal ‘18 as we mentioned as large amounts of high profit margin, deferred revenue expected to be on the balance sheet at the end of this year’s fourth quarter become recognized as revenue. This year, fiscal ‘17 is the year in which we are transitioning as you know from recognizing most of our revenue immediately in prior years when it’s invoiced to recognizing much of the revenue over 12 months or more months. As a result, our reported revenue for the full year of fiscal ‘17 will be significantly lower than in fiscal 2016, while the net increase in our deferred revenue that could increase by as much as $25 million, because a lot of our expenses are relatively fixed and the period costs associated with generating this deferred revenue is expensed at the time we get it. The impact on our reported profit and adjusted EBITDA in fiscal 2017 is even greater. The inflection point though is in fiscal 2018 will hit this approximately $25 million, a very profitable increase in deferred revenue will be recognized as revenue and without the associated period costs that we have already charged this year. So we expect to achieve very strong reported revenue growth in fiscal 2018 and even more significant growth in our reported adjusted EBITDA and profit. And the second idea that we are going to be able to build higher and higher foundation of in place revenue, it is – let me just give some context. Historically a significant portion of the revenue has come – our sales force identifying a specific client need, recommending a specific content solution area to address that need and then either having our consultants deliver the training which we call on-site delivery, we are having the client purchase training materials and certify their own facilitator or teachers in order to implement the training themselves which we would call facilitator delivery. All Access Pass’ strong value proposition has provided – has really provided such compelling alternatives to our traditional approach, but of course as you can see on Slide 6, the fundamental value proposition points with All Access Pass our client can receive an unlimited access to Franklin Covey’s entire collection of best in class content. They can assemble, integrate and deliver that content through any, but almost limitless combination of delivery modalities live online, online webcast, podcast, integration of the piece of content into existing customer training offers, etcetera. With the pass they get an implementation specialists who helps them identify impact journeys so that they don’t have to go work themselves. They can arrange and understand what the job is that the client is trying to get done and that comes with the pass plus there is an array of affordable add-on services to ensure customers execute on their team jobs to be done. And all of this at a cost per population trained which is less than or equal to of that that’s provided by a single content or single modality provider including us. And soon it will be able to be accessed globally in the 16 major languages throughout the world in our state-of-the-art secured portal. So the strength of this value proposition has made it very compelling for both existing and new clients to purchase their content through the All Access Pass rather than through our traditional approach and then they add-on services later as they implement solutions. So this has resulted in a decline in traditional sales and facilitator and on-site sales that has been offsetting some of the – or most of the significant growth in All Access Pass over this initial year or so period. We have now reached an inflection point where we expect that the combination of two factors will result in All Access Pass significantly overshadowing any ongoing disruption of traditional sales and being strongly accretive to growth. These factors are as follows, first and expect to continue high All Access Pass revenue – renewal rate will mean substantially all of the increasingly large amounts of cumulative All Access Pass revenue is expected to be retained. And despite this increase in the dollar amount of All Access Passes set to renew in the third quarter, we were pleased that again in the third quarter our net revenue renewal rate was more than 90%. Second, as previously shown in the Slide 5, add-on sales and services materials have been increasing on both an absolute basis and as a percentage of total All Access Pass sales. As you can see in Slide 5, from inception of All Access Pass through this year’s third quarter, All Access Pass services materials totaled $11.1 million, an amount equal to now 25.6% of cumulative All Access Pass sales today to 43.4. Year-to-date through the third quarter sales of All Access Pass related services totaled $9.4 million just not equal to 42% of All Access Pass sales from the same period. So this expected continued strong sales of add-on services to high revenue being retained is expected to more than offset declines in the traditional onsite delivery and facilitator sales in the coming quarters. And so the compounded impact of achieving high revenue renewal rate on increasing large amounts of All Access Pass contracts, expanding many of those passes and then adding on increasing large amounts of Pass-related sales and service materials is expected to have a powerful positive impact on the percentage of prior year sales expects to be in place each quarter even prior to making any new All Access Pass sales, which will establish an elevated platform from which to achieve growth – even stronger growth. As you can see in Slide 7 and this year’s first quarter just illustrate this, after deducting the amount of year-over-year revenue decline in our traditional facilitator and onsite delivered channels and adding the small amount of additional revenue from more than 90% renewal of the very small amount of Pass revenue $375,000, in that year, there was about 63% of the prior year’s first quarter revenue that was in place prior to selling new passes. This left the gap equal to approximately 37% of last year’s first quarter revenue that needed to be covered from new All Access Pass revenue in the first quarter. As you can see in the second quarter, where there was significantly increased amount of Pass revenue to renew, again more than 90% renewed. And as a result, because it was a higher amount, it didn’t decline very much. The base of prior year revenue retained even after the decline in the traditional delivery channels increased to 74% the prior year revenue. Last quarter, when we reported, we said that we hope that by this in the third quarter, we would get into the 82% range. And we are pleased that again the base of revenue retained prior to new sales was just a little bit than that at 83%, which was slightly above our expectation. In the fourth quarter, we expect again it will be 83% or greater as the same effect is there. And so the idea that the combination of high revenue renewal plus add-on sales is overcoming the declines in traditional sales as the time passes and more and more of these add-on services are being purchased is a big thing for us. We are now at the point, for example, an onsite sales a year ago when we really started selling All Access Pass. We had a more than $2 million decline in last year’s third quarter in onsite revenue delivered by our consultants. And we weren’t yet at the point in the Pass process where we have gone in and identified jobs to be done in solutions they were trying to solve for a week that didn’t help them deliver them. This year, that’s dropped by more than half. And in fact now, we actually are on the upswing in terms of number of onsite days being delivered is now for the last two quarters ahead of where it was prior to the implementation of All Access Pass. Because Pass holders get a little bit of a discount on the price per day, our total revenue is still slightly below, but it’s not a major drag today. And within the next two quarters, we expect to tip that over. So, there will be no decline from the channel. In a similar way, the facilitator impact is becoming less and less both because of the base of facilitators is much smaller and because of that materials we are ordering. So, really, we believe that the final thing – so the two inflection points we have talked about, one is the accounting transition, the second is the business model transition driven by in-place revenue, the third one it’s briefly noted is in addition to those other two, we believe that the combination of increasing gross margin percentages associated with All Access Pass sales, which again sometimes on the face of the income statement you might not see, because there is this huge amount of deferred revenue today that has essentially 100% gross margin, but is not being factored in yet, plus lower marketing cost associated with renewals. There is a tremendous effort, but it isn’t a marketing effort, it’s a person-to-person effort. And a new streamlined field cost structure, which we will discuss in a moment. We believe that will result in an increase in the amount and percentage of any increases in revenue, which will flow through the increases in adjusted EBITDA, cash flow and profit. So, as the fourth question how are we organizing to take advantage of what appears to be a big growth opportunity for All Access Pass and in Education, number of people have asked us to address that? In Slide 8, this is just an idea of how big the opportunity where we think All Access Pass is just in terms of number of companies. On this slide, you can see, for example in the United States alone, there are 94,000 companies or company units with at least 200 employees. And of that number you see going to the left, it branched out 11,000 of those accounts are assigned to the U.S. and Canadian sales forces, which is roughly 85 accounts per salesperson or so. Of those, 11,000, 4,000 are active accounts with us and 7,000 are assigned to somebody who is going out to sell to them in prospect, but they are not yet clients. And so our opportunity with All Access Pass as we have talked about is to grow the 4,000 active clients, increasing the lifetime value of the customer through increased sales size renewal, add-on sales and increased Pass size. To penetrate in a better way, the 7,000 assigned, but not yet – people are not yet customers as mentioned, approximately 50% of All Access Pass sales to-date, have come from that group. So, some of the 4,000 active used to be hitting a bigger group of assigned, but not yet customers, people who might not want to do business with us under the old business model, which are now open to it. And then we have got of course – so we have got to grow these active wins, convert those wins that are assigned, but are not yet customers and then reach the 83,000 unassigned accounts, which are really Greenfield for us. We have a similar opportunity on the next page in the education business. In the same way on the same chart in the U.S., there are 144,000 – U.S. and Canada, 144,000 K-12 schools in the U.S. and Canada, 45,000 are assigned out in these big pods, 2,500 schools are active existing leader in these schools or other active schools that just continue to grow those, again with more than 90% renewal rate, but there are 42,000 that are assigned that are not yet active schools and another 99,000 unassigned schools. And so for us, we have been of course organizing around this for years, but if you look on Slide 10, we’re really saying that we ought – we have now streamlined our organization with everything that goes on in the organization being involved with 1 of 2 go-to-market approaches, one which I refer to here as All Access Pass Co. and it fits relative size relative to Education Co. and the other is Ed Co. And so the idea is to streamline everything we do. So, there is a similar – a common go-to-market approach, similar post-sales approach, renewing, updating, upgrading, adding services regardless of whether it’s a direct office or a licensee office in All Access Pass Co. And similarly in education, similar structure there, where they have their own version of the – they have their own pods structure to go after on a direct basis schools or on a licensed basis schools. And so we are trying to have just a couple of simple models. What’s happening is with our compelling value proposition of All Access Pass, not only disrupted some of our traditional facilitator and onsite business, but it’s also disrupted some of these practice areas where we had specific offerings – single offerings like in sales performance or customer loyalty, where you are trying to sell like in the old way, sell the single solution to a single customer with a single delivery modality. And so because of lot of this content, we have made the decision to put all the content basically into the All Access Pass. It’s obviously disrupted the sales of those units as well. And so as part of this realignment, in the third quarter, we have pulled all of those units into what the single structure there now not individual, outside sales force. So, you have been part of the corporate sales force and/or you are part of the education sales force. And we believe this is going to be a lot better. And of course, there is a transition involved with that which there was in the third quarter. We had sales, for example, in our sales performance practice and customer loyalty both by the value proposition of All Access Pass and the transition in the third quarter, but we made it across the bridge we think well by the end of March or early April got back on track, so that the running pace was good through the balance of third quarter and so we are very good about this. I am just going to invite Paul Walker to talk about All Access Pass Co. and the reorganization and refining what benefits we expect to get from that and the same from Sean Covey. I might just notice I will note that although this wasn’t the purpose of the alignment in the elimination of functions, which also added complexity and extra marketing, etcetera. The reduction in costs on an annualized basis from this effort have been about $5 million which is a side benefit wasn’t exactly – it wasn’t the point of it which we believe it will help us to have the same go to market approach. Paul, I will turn it to you.

Thanks Bob. Hello everybody, good afternoon. As Bob mentioned in March, we reorganized a significant portion of the organization to match and better drive our All Access Pass go to market strategy. And if you look at Slide 11, this is a simple diagram to explain what this structure looks like. Within our field organization now, nearly all of our employees fall on a team, a market team. And today we have about 14 – we have 14 of those around the world in those countries that where we have historically had our direct offices, so the supplies to the U.S., Canada, the UK, Japan, Australia and China. Each of these teams are similar in size, both in terms of revenue and the number of employees or staff on each of these teams. They are also similarly resourced and that’s important because these teams now become really the primary operating unit of the company and it’s through these teams that we sell, we support, we deliver and ultimately renew our pass holder relationships. So you see there and it turns you might be familiar with our client partners. Each team there in the center is led by Managing Director. We have got our inside sales teams, our client service coordinators, those implementation specialists that we talked on. We talked about on prior calls that are so important in helping us maintain and renew these pass holder relationships. We have got our regional practice leaders that help us preserve our ability to have to go deep with clients on specific topical areas to find some of our solutions. So each team is similarly structured. And as Bob mentioned we have integrated into each of these teams, what we are historically are the sales and marketing delivery efforts from our sales performance practice, customer loyalty practice and our Global 50 sales force. And while we are still very focused on those as verticals and the specific solutions they sold, we want the outcomes just as Bob mentioned to be the same from those teams in those areas that they are with all the rest of our solutions. Larger initial sales size, expansion and add-on with those clients and of course very high renewal rates. So regardless of the solution that we are selling, we want to got to market the exact same way both in terms of how we market and sell and attract clients to us and then how we service, expand and renew and we do that around the world now and exactly the same way. In the grey surrounding that the blue hexagon there are some of our corporate resources like a client partner hiring and on-boarding and our learning and development function and our pass holder services organization. There they are to serve centrally each of these 14 teams around the world. If you go to Slide 12, each of these teams now falls into one of three geographic areas. We have got Pacific area which is essentially everything west of Mississippi in the United States and Canada plus Australia. And Atlantic area, which everything east of Mississippi effectively in the U.S. and Canada plus our UK operation and our federal government team in the U.S. and our state and local government team. And then we have got an Asia area which is China and Japan. We implemented these as Bob just mentioned a minute ago at the start of the third quarter. And these things tend to e a little bit disruptive. And I am sure it was for us and probably cost us a little bit in the quarter, but we are very glad we did it and we feel like it was exactly the right thing to do and there is never a perfect time to do it, but it sure feels good now that we did it then. And just the team has done a great job of executing and reorganizing and we are off and running. Bob?

Thanks, Paul. And Sean?

Hi. You are hearing me okay. Great. Yes. Hi everyone. Yes. So similar to how Paul has organized with brokerage side we have done the same kind of thing with education. As Bob said seeing opportunity in education, 144,000 K-12 schools in U.S. and Canada alone, about 3 million across the world. So we have organized ourselves into market teams as well. We did this many years ago. We just keep refining it. With each market team of about it’s usually four, five, six members. We will take on about 1,500 schools in the area and work with those schools. We will to try to get them onboard and then to keep them strong. And we call these market teams pods. We have 30 of them in total and the pods consists of a client partner that leads the sales efforts, customer service person, one or more coaches, some of these pods are pretty big, might have 200 schools will have four coaches each. Each coach serves about 40 to 50 schools. And their job is to help these schools achieve outcomes that the school desires. And then we have got a person in each pod that is focused just on getting the school to renew, keeping them happy and serving them so that we have a higher renewal rate. So with 30 pods, Bob mentioned that gives us about 45,000 schools that we are kind of looking after even though we haven’t penetrated. We have only penetrated [ph] 2,500 to 4500, but so on average each pod is working with about 100 schools and has approached about another hundred, so there is still a lot of room to grow here. The pod structure works really well, because it’s a team based approach, so a lot of synergy among the team members. The coach talks with the sales person and talks to the renewal person, talks to the customer service person, rally around the school and their needs. This has resulted in a really high renewal rate. Last year we had 94% of the school that were part of the Leader in Me to their school transformation process renew. And this year we will know by the end of the year, but it’s running at about 93%, so about same with last year which we are pleased about. So on a global scale that’s how we are organized with our direct offices. And again much like the corporate side on a global scale, we have both direct offices, as well as license partners. And right now we have across the world, so we are direct in the U.S. and Canada and in Japan and Australia. And then we are licensed everywhere else so far. And right now we have 45 partners, licensee partners. They are covering 71 countries and about 1,000 Leader in Me schools and we think we will sign a number of new partners just in the next few months. So the opportunity for growing outside the U.S. we think is probably even greater than it is in the U.S. and Canada. We are having great success there and refining most in every country. We are able to get there. So the number of new schools that we will bring on this year, new Leader in Me schools will be about 800. And so that will bring us by the end of the fiscal year we should have about 3,800 Leader in Me schools. We think we are working on ways to accelerate this growth while keeping the quality as high as possible. But we are [indiscernible] to help each school, individually grow as well as to try to scale across the globe. There you go Bob.

Thanks Sean very much. For us this is important thing, doing this structure allows each of these pods to take in all the responsibilities of go to market, servicing the customers after, renewals, etcetera so that you at least have the structure where you are not just building a big central team it really it builds around the people we have to deliver on this. Final question then five, how we expect to utilize excess cash and credit line capacity, Steve, if you will just address that will be great. Steve Young?

Okay. So my opportunity to take on what we have done and expect to do with cash, then after that I will mention a few financial facts and then talk about guidance. So first of all what we expect to do with cash. As we discussed last quarter, while our transition to subscription accounting suppresses reported revenue, EBITDA and earnings, it does not suppress cash. So our cash flow is expected to remain strong and predictable. As you know historically, after making the investments we need to grow the business, we have used a significant amount of our excess cash to repurchase shares. Over the past seven quarters, we have repurchased $45 million of shares and over the past ten quarters $59 million of share. So, fairly significant amounts we think for a company our size. And as we said, last quarter it’s easy for us to decide to continue to repurchase shares for several reasons. First, at approximately our current market cap, the after-tax cash yield is around 7%. A second reason since we have grown in the past and we expect to grow in the future, the internal rate of return we can think we can get by repurchasing shares is good and exceeds our cost of capital. And third, we believe the very little value is still being attributed to our potentially largest growth engine, that being the direct offices. So, the value of the company we think is only – is not enough more than the value that we think of the education practice and the licensee practice. So, we expect in the future to continue to use our excess cash to repurchase shares. Now, in the third quarter, however, we didn’t repurchase shares. And the reason for that is our knowledge of three pending acquisitions and transactions, which though small are strategically important and could be considered material nonpublic information. And therefore we are not buying shares even though we have the cash and the willingness. These three transactions are very interesting to us and fall in the category of use of cash and strategic direction for the company. First, the acquisition of Robert Gregory Partners was completed in May and provides us with a platform for adding implementation coaching and executive coaching as add-on services to reinforce the implementation of content and training solutions included in the All Access Pass. In the 6 weeks since the acquisition, we already have literally dozens of new opportunities under discussion, including some large accounts for adding coaching services. Robert Gregory Partners has a great management team and we will look forward very much to working with them. Second, the license of content-based upon Clayton Christensen’s book competing against luck gives us a new course and content centered on the important concept of how deep customer understanding drives innovation and how that is critically important to a high retention rate of customers. The third acquisition, which we can’t talk about, is also small, but one which we believe will give us new capability to deliver learning, which is embedded in content that can be pushed to or easily accessed by managers. This acquisition, which we expect to sign a definitive agreement very soon in which we expect to then close within a couple of weeks is of a small fast growing company that provides insightful articles, practical tools and online support for frontline managers. This approach helps managers who may not want to take the time to go to live training, but who want to learn on the job as the need arises. This kind of flexible micro learning is becoming increasingly important and we expect to be able to infuse elements of our large body of content into their process to further strengthen their already impressive offering. So on Slide 13, which is a visual of the All Access Pass, the Robert Gregory Partners acquisition gives us significant increased coaching capability, while the Clayton Christensen-based content and the other soon-to-be announced acquisition gives us very valuable added content and functionality in the center of the – in the heart of the All Access Pass. So, we are very excited about these acquisitions and the content that we have acquired and the people that we will have an opportunity to work with. So, as we have said in the past, we expect with our cash to drive the business, opportunistically do acquisitions and transactions, and repurchase shares. Few little fun facts, so this is the new subject, financial fun facts and then guidance. Our China direct office is doing very well. Sales were $2.6 million in the quarter compared to last year when royalty revenues were $600,000. Another fun fact is that we are not being clobbered by FX this year, minimal impact year-to-date and expected cumulative minimal impact for the year. Next, our CP count at the end of the – that’s salespersons count at the end of the quarter was 211 CPs. And the fourth is that we expect to begin selling more multi-year agreements. And these sales will have a very positive impact on our company. So now guidance, we expect adjusted EBITDA for the year to be equal to or slightly below the previously released guidance range of $10 million to $14 million. This is based upon the fact that we anticipate an exceptionally good financial result in the fourth quarter. Our original guidance for the fourth quarter was that adjusted EBITDA will be approximately $14 million and that deferred revenue on the balance sheet less 15% for deferred costs would increase by more than $13.5 million in the quarter. That guidance represents what I believe would be a phenomenal fourth quarter result. We do still expect the change in deferred revenue, less 15% for cost to increase by $13.5 million or more and we expect adjusted EBITDA to be close to the guidance of $14 million contingent upon the mix of sales in Q4 between those sales that are deferred and those are recorded upfront. Said another way, we expect our Q4 results of adjusted EBITDA plus the net change in deferred revenue less certain costs to be within our previous guidance range of $27.5 million to $29.5 million, an increase of $3 million to $5 million over that same measure last year. So we are very optimistic and excited about the fourth quarter. Year-to-date through Q3, adjusted EBITDA is one within $300,000 of guidance. The change in deferred revenue on the balance sheet, less the 15% of cost, while significant year-to-date is $3.7 million less than guidance, while we expect this, what I would say is an exceptional result in Q4, it is possible but unlikely we will make up that entire year-to-date difference. So again, we are excited about Q4. We are excited about FY ‘18 and the future. And so, Bob, thank you.

Thanks, Steve. I guess, we should open up for questions. Thanks.

Thank you. [Operator Instructions] And our first question comes from Tim McHugh from William Blair. Please go ahead.

Hi, Tim.

Yes, hi, guys. First, maybe Steve the last comment you made about the deferred revenue growth I guess for the year essentially is a little less than you thought at the start of the year. Is that because of All Access sales have been less than you would have said at the start of the year or is there a bigger drag from the traditional business, essentially more cannibalization that you would have assumed at the start of the year. What’s the difference?

Well, first of all, the amount of increase in deferred revenue that we talked at the beginning of the year was really quite significant. As Bob talked about, it could be as much as $25 million at the end of the year or for the year. So, the shortfall impacting deferred revenue is primarily the subscription type sales that while still as Bob talked about significant increases over last year and growing very, very rapidly are a bit less than…?

One of the – probably the key driver of that maybe a little disruption for future and reorganization, but that wasn’t it. The main driver is in last year’s third and fourth quarters we signed up new All Access Passes. In order to some people say, Oh Gosh, I am not sure I can use it right now and so we gave many, a lot of different people we gave them a pass. It was not just a 12 month pass, we gave them a 14 month pass and so when we look at the anniversary, originally when we kind of forecasted the number. There was kind of assumption that people would just assume that since they bought the pass in the third and fourth quarter they would renew and even though their pass turn went into the following quarters, so if they bought in the third quarter, it might not be renewable till July and if they bought in the fourth quarter for some people it is not renewable till September or October. I think at least in our guidance, my guidance, we assume that just 1% or more of the amounts would actually contract in the quarter. That makes up substantially all of it. Really is just that it pushed some from the third quarter over and in the fourth quarter pushed some into the first. And so we were making some efforts and giving people some offers to get it back into the year and that’s what Steve says. I think there is some efforts as possible, we actually will recover it. The other – and so that’s it for deferred revenue, the only other real impact there was the sales performance practice. Again with the inclusion of its content in the All Access Pass we assumed incorrectly that they can just continue to sell where they had to existing customer, but we really disrupted them in third and fourth quarter, but that’s more on the other side of the income statement. That’s as reported, but that’s the deferrals almost all just as sliding. We haven’t been doing that same thing going forward. By the way I mean now a days we are not doing that we are selling 12 month passes, its rear and we do something else.

Okay. You touched on the sales effectiveness program, I guess that strategic markets business, now that it’s increasingly rolled into the All Access Pass, I guess what’s the rest if that revenue continues to erode on a standalone basis?

We think – what we have done is the roll those sales people into these pods that you see, so each of these salespeople still have the accounts they had before. And now they have the entire resources, before they didn’t have the marketing resources, because they were too small. They didn’t have the pass holder services resources with the sales. So I think the early returns and it is early because two months later is that people are thrilled about this idea that now they are part of the real team pain that had – they have more accounts to handle some of these are most sort of most capable salespeople in the company. But they have had a limited number of accounts to manage. They don’t have a full territory. They have got all the marketing support. So I think the product line itself, we don’t think we will – and we have had some declines this year because we have cannibalized it. We think actually starting from this that the content we have had 7 or 8 people selling that content. Now we have 300 potentially including our licensees that can do it, all of our existing salespeople plus those. So I think the category will grow. It will probably grow at an accelerated rate related to other things. Now the individual salespeople will continue to do well with some of our best and they will get a lot more support in doing it, but not have the cost of trade separate pods around it. So I think it streamlines costs, but we think that for both customer loyalty and the sales performance which should not grow in really in the last couple of years that this is now going to unleash a lot of new sales there.

But just to understand right the roughly called $20 million or so little over of annual revenue in that strategic market that’s going to shift towards an All Access Pass sale, good going forward, I mean you have to do that trade off or those salespeople have sell All Access Passes now and increasingly less like they are selling those on a standalone basis, is that the right way?

Yes. Probably that’s true. They won’t sell on a standalone basis. What will happen is as it is happening now is it’s somebody when they buy the pass they are buying it often times for a specific purpose. So they will still be talking to sales forces who are saying Gosh, I have got all these development needs. And – but rather than buying that content separately just for the sales performance, we will say them, listen you can get all the content that you need for your sales performance solution plus you get everything else from the pass to help elsewhere in the company and it just provides more comprehensive solution. But people can still buy I mean many people are still buying a solution to a specific problem. We want them to do that. It’s just they are delivering through the All Access Pass.

And Steve, do you have the free cash flow or operating cash flow?

I will get Derek to get the exact number of from our Q that’s going to come out as like $11.7 million year-to-date.

$11.7 million is that operating cash or…?

That’s the net cash provided by operations.

So $11.7 million and you have CapEx?

Yes. CapEx for the quarter – for three quarters is $5 million, curriculum development $4 million and then as we said in the press release we did that about $3.5 million for the Robert Gregory acquisition.

Okay, thanks.

And the next question comes from Marco Rodriguez.

Well, we have to thank you. I just interrupted you.

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

Good afternoon guys. Thanks for taking my question. Hi, I wanted to follow-up a little bit on the sales team organization now, I am so just trying to pass through the changes you guys have implemented now and how you used to approach market and if I am not mistaking in prior calls here when you have been transitioning – you been transitioning to the All Access Pass, you have talked about there still being I guess clients or end customers are going to want individual type practice sales and so I am trying to understand this whole move, are we getting away from doing any individual sales and how is that going to kind of work?

Hey Marco, this is Paul. I probably didn’t explain that very clearly, I apologize. So we are actually very much not trying to move away from the individual solution base sale. We want to deliver both individual solutions via the All Access Pass. We still are very interested in doing large scale transformation engagements, large execution engagements, large trust engagements. The benefit to us and we think to our customers if we do that is in the past some of those practice areas got a little bit lumpy where it fell into an organization with a really big initiative, but there was nothing there on the backside that we had to go find and explain. We think the benefit and in still engaging with that client initially what they have for example around the sales transformation solution is that they can get all of the content and tools they need from within the pass. And because they are pass holder we can then work with them to find additional journeys, additional areas of the organization where we can have impact, start to align those up and now that client become much less lumpy with us and they are a client that would renew since they with us year after year after year. So we are trying to get the best of both worlds which is still had to leverage our great expertise in 7 or 8 key areas but to deliver those clients in a way that allows us to go broad once we are in that organization to increase lifetime value of that organization.

Okay. And did you cut heads from the sales force to switch to this?

No.

And really what we would see is for the salesperson, individual salesperson other than that some of them report to a different managing director today it didn’t affect them. So with the exception of the salespeople coming over from the sales performance practice, we would now have more accounts and can sell the full range of our solutions. It really didn’t effect the individual salesperson or his or her job, but what it did is provide them the support structure within their pod or have new protocol for central resources to try to help them close the sale or to have a pass holder services discussion or sales assistant or whatever it is just provided the resources under our MDs, so really all the change happens just at the supervisory level and support level. The job of the client partners stays the same as it was before, their go to market approach is the same as it was before the exception of the sales performance practice it is now part of those eight salespeople are now part of these geographic MD regions.

Got it, okay. And I apologize if this is in the press release I didn’t get a chance to go through the entire thing, but the restructuring charge you had for the sales force realignment, so what is that for then if you didn’t cut heads?

Yes. We didn’t cut salespeople. So it affected three things. One of our more than 130 or 140 salespeople in the U.S., only about 15 were working out of the offices that we had, because we have offices in Atlanta, in Chicago and in Orange County, California, but the salespeople really were out in their territories working and really the only thing that was in the central offices were some administrative functions. So, we consolidated those functions and eliminated offices. And that was one thing. We had duplicate marketing functions in both of the – in offices as well as centrally that’s now been reorganized. We – Paul, you can address some of the other things, but those are the two of the biggest ones. There were some individuals in staff positions which we tried to put into different positions in the company, but there were some staffing reductions of around 14 people or something that in the end either because they couldn’t move or whatever there wasn’t a job for them and they were given severance, as we organized into these geographic areas instead of multiple regions around the world and organizing that way and with around this pod structure, we are able to streamline and get some efficiencies. So from an overall supervisory level, there was a little bit of a reduction there as well.

Got it. Okay. And what are the client partners’ total amount at the end of the quarter?

211.

Got it. Okay. And last quick question, the acquisitions that you have announced here, I am assuming they are not significant enough to change your guidance where they are not really doing much to guidance one way or the other?

Yes, that’s right. As you know during the implementation of an acquisition, you have some additional costs for the first quarter or so. And also the financial impact from the acquisitions would be if our sales, for example, increase because of that content, not because of the acquired EBITDA.

Got it. Thanks a lot. I appreciate it.

Thanks, Marco.

And our next question comes from Kevin Liu from B. Riley & Company. Please go ahead.

Hi, good afternoon. First question just in terms of the All Access Pass sales, I think I heard mentioned of some potential multi-year arrangements coming down the pike. So, just curious if you are planning on extending bigger discounts or what other value-adds you have to convince clients that’s entering to multiyear arrangements?

Yes. Basically, the answer is yes, but I mean, right now, we have had introductory pricing going since the inception of All Access Pass. And that will add about 10% in price of the pass anyway. So, the first thing they get by renewing and doing a multiyear is they get to lock in for the period of time the introductory pass. And then on top of that, there is another 10% cost price break if they will add the extra years. So…

Understood. And then just also with respect to All Access Pass, can you talk a little bit about what sort of impact if any it’s had on your licensee sales today? And at which point, you would expect more of the licensee activity to also shift towards All Access Pass predominantly?

Yes. Sean, do you want to speak?

Yes, sure. Yes. So, we haven’t done that much yet. We have done lot of preparation to get it up and going, but we are – we are working on the portal that’s got 50 new languages. And as soon as that is completed, we will launch it hard across the whole globe. We have sold 25 passes primarily in the Nordic region and in the Netherlands area, little bit in Germany, mainly to English-speaking multinational companies. We think that I think this is going to be extraordinarily a good thing for our partners. I think they are generally more so sophisticated in their sales ability. And I think this is a more complex sell and I think it will match up well with how they sell. They are excited. We are prepared. We are just waiting for the portals. We have the language where we can get going.

You had a question?

I am sorry, Bob.

No, go ahead, Sean, sorry.

As you have said, we have sold about $0.5 million of All Access Pass so far this year.

The thing I was going to say Kevin is that you probably know this, but we don’t have the same accounting issues with the international licensee sales of All Access Pass, because they pay us on invoiced amounts. And so for them, the business model – our business model, which is already just a license fee we get from them will continue as it is, but we think the All Access Pass will love them like us to have bigger initial sales, higher renewals and bigger add-on sales, all of which will benefit their businesses and therefore benefit ours, because they will pay us a royalty as its invoice, but we don’t have the same deferred revenue thing coming up for our licensee partners.

Great. That’s helpful. And then just the last question here, the $5 million in annualized cost savings from all the reorganization, does all of that start to come through here in the fourth quarter or is there anything else that kind of needs to be done that will preclude you from showing all those savings?

We will get about one quarter’s worth of that. We get about $860,000 or something of benefit in the fourth quarter from those, because they have all been implemented at this point. And so, yes, and they will expect to pickup on the same operations that cost saving in next year. Obviously, we will make other investments in new people. So, the net cost savings for the year will be $4 million and $4 million that we are running this year over and it will be $4 million versus what would have been, but of course, we will still have new salespeople and things out of it. But this cost saving is a real, they have been implemented and they are flowing through already in the fourth quarter.

Alright. Thanks for taking the questions.

Thanks, Kevin.

And our next question comes from Samir Patel from Askeladden Capital Management. Please go ahead.

Hey, guys. How is it going?

Hi, good Samir. How are you?

Pretty good. So, I want to drill down on a couple of things. So, I guess the first one is it sounds like, I mean, just apples-to-apples before even any growth in revenue, you are going to have $4 million increase in adjusted EBITDA next year just from the calendarization of the cost savings, right?

Effectively, yes. I mean, that’s the idea if we ran the same revenue again this year as we did last year you would get the costs are down.

So, following up the other thing you mentioned, but I don’t think you really highlighted enough, you said that because of the way you have streamlined the sales organization that your flow-through on incremental revenue to incremental adjusted EBITDA is actually going to exceed your historical range? Can you dimensionalize that any? Can you put a number on that, because I think historically you have guided to 25% to 30% incremental EBITDA margins? What would you expect now?

Yes. I mean, I would say that with a combination of those 3 out of 30% to 35%. I mean, that would increase by – if we ever say 25% to 30%, let’s say we were thinking 28%, this thing would have 300 to 400 basis points change over time as we continue to increase margins, reduce the costs and have lower marketing costs on the renewal revenue.

Got it. Okay. And then putting that all together, I mean, you have talked I think qualitatively about how excited you are about 2018, but if you were to just put a number on it, right, you are starting with 38, your current year 34 plus formulating cost savings, obviously, you are getting a big boost from the deferred revenues. I mean, is it reasonable to think that it’s going to be somewhere in the low 40s at a minimum for adjusted EBITDA next year? And of course, I am referring to invoiced amounts and not those stupid GAAP accountings?

Thanks for the editorial comment about the GAAP accounting. We agree.

Hey, the SEC probably doesn’t lie.

Yes. So, we are not prepared obviously to talk about guidance for next year, but no, I don’t have any argument with your thought process.

Sure. Thanks, guys.

Thanks, Samir.

And our next question comes from Patrick Retzer from Retzer Capital. Please go ahead.

Good afternoon, gentlemen. So, I wanted to talk about your guidance for adjusted EBITDA plus the change in deferred that you had laid out last quarter and the previous quarter. Last quarter, you beat your guidance for the second quarter of the fiscal year. And it sounds like you are confident you will meet your guidance for Q4? Having said that, you fell short a bit here in Q3 and I wanted to clarify it sounds like that’s because to a slight degree from the disruption due to the reorganization and then more largely because last year in Q3 and Q4 you were granting 14-month passes for All Access Pass to get people onboard. So, this year some of those are getting pushed out a quarter.

I believe all of that is accurate.

Yes, that’s accurate. And the other one would be their sales performance practice here as we mentioned, because maybe the disruption in hours and also change was $1 million of EBITDA less than we thought – we would have thought in the third quarter and will also be in the fourth quarter. So we are saying in the fourth quarter we will meet our original guidance, even though as sales performance practice will be less and even though there is some of the revenues that will get renewed, some of their passes will get renewed in Q1 that were for Q4 sales, but the question is as Steve said we think this fourth quarter will shape up very strong. We will be strong enough. We have got some big deals out there, but we are working which we were to hit them could actually make up some of that ground from the third quarter and we would expect that we will make up some of this ground from the third quarter. But it would take winning a couple of the bigger ones to actually make up for the third quarter and that’s the reason why on a reported basis we expect to be on guidance or if missed, missing by hopefully a couple hundred thousand or some thing like that. On the gross basis around the reported plus deferred that number we are just trying to see how much in the third quarter we can make up in the fourth.

Okay. And then Steve had talked about the three acquisitions, the third one, he couldn’t name, but it sounds like it’s imminent, should we be expecting that to be done and announced in July or early August?

We would expect it to be early July.

Okay.

We are very close to signing a definitive agreement, in fact we keep looking around the room to see if we’ve signed yet and then we expect after we sign definitive agreement to close within two weeks.

Okay. And then at what point are you able to start buying stocks?

Well, this will be announced or announceable and so as soon as our acquire period last for 72 hours after we report our numbers, so here in just a little while…

Yes. We are announcing it today for that reason, so we can be back in the market in 72 hours...

Okay. Thanks, guys.

Thanks.

And your next question comes from Samir Patel from Askeladden Capital Markets. Please go ahead.

Hi. I just want the follow-up on two things, the first you talked about the introductory pricing on All Access Pass, can you just explain to me how that’s going to flow through over the next few years in terms of when those clients come up for renewal or they are going to pay for 10% price increase or is it going to be kind of on people who sign after that offer expires or just how does that work?

This is Paul, I will take that. So what we are – we are going to announce the introductory – the phase out of the introductory price increase, so any new clients who sign after that period will pay the new pricing which will be roughly 10% higher. For those clients that got on early with us and have been some of our great active clients will go to them this upcoming fiscal year and invite them to renew on time. And if they do, they won’t be subject to the price increase as a way of keeping them, that’s the hope to sign them for multiple years at that point. And those that don’t renew on-time for that reason would be subject to then the price increase, that’s how we will balance taking care of those who came on early and then the rest of the market which will start selling 10% higher price.

Okay, great. And then the follow-up to that is on your – it sounds like again you got 90% plus net revenue renewal, is that counting up-sell and price increases or is that just literally the percentage of prior year revenue that’s being retained?

It includes its past expansion, so often times expanded populations it does include. But it doesn’t include any of the add-on services or price increase that’s just expansion. It’s either the renewal of the existing or the renew plus expansion which is about two-thirds of those who have renewed, who renew do so, it might be a small additional population that some additional population on two-thirds.

Sure. And I don’t know if this is just a metrics difference in the way that you presented or its actual underlying difference in the business, but you guys talk about copying the Gartner [ph] model a lot, right and Gartner I think typically tends to achieve over 100% dollar retention, although they may measure that differently, do you think that’s a stretch goal for the out years here or do you think it’s going to settle out somewhere in the low to mid-90s in terms of net revenue retention?

I mean we think it will probably settle out in the low-90s. Actually what we have been saying it’s above 90 and it is above 90. But I would say if we look at along there might be quite a bit above 90 right. So we think 90 would be a great thing long-term. Our sales process is different, corporate executive order Gartner who have won now, they just have to just convince Steve to buy the research report every year. And as long as they keep in touch with Steve then it’s fine. We have both the bigger opportunity and because we have past expansions we have got lots of teams we can sell through inside an organization and that’s the upside. On the downside if you somebody leaves who is the head of learning and development and you have to start over, you have some of that. So I think over long-term if we said that their past renewal revenue would be in the low-90s, but there was service add-ons and so forth, the actual retain revenue per client would be 100% or more that would be the way to think about it even though we are getting we are doing more like Gartner revenue retention right now.

Great, okay. And then since you won’t give me 2018 guidance, I am going to be ambitious and ask for 2028 guidance, by which I mean can you put all these numbers together until long-term growth algorithm like you know obviously there is a lot of flux in the financials right now, but kind of when you look out over the next 4 years, 5 years, 6 years, 7 years, 10 years what kind of topline growth rate do you believe is achievable?

For us, I mean what we ought to be able to say is it ought to be double digit. But I think what we are saying is we are pretty sure it can be 6% to 7% every year. And if we can do that on the base of $225 million revenue and flow through something like a third that, that would be a good target given the investments and so forth that we are going to need to make to do this. But at least we think we are now organized so that we can scale the next level so – but that will my...

Sure, it’s a double digit is the target and 6% to 7% is what you’ll want to commit to?

I think that’s we should expect that with a couple of points coming from price increase on average and the rest coming from more – this is kind of organic mostly organic growth.

Good word mostly organic.

Yes. I mean pick up $1.50 from somebody from small acquisitions we’ll pick up small amounts, but most importantly you will pick up capabilities and great people and an expanded offer.

And I am sorry, did you guys say how significant the imminent acquisition is, like the kind of comparable in size to Robert Gregory Partners is it like [indiscernible] or is it something bigger?

Yes. I would think of it like the Robert Gregory.

Okay, cool. Thanks.

Thanks.

This concludes the question-and-answer session. I will now turn the call back over to Bob Whitman for final remarks.

Thanks. We just want to thank everyone for being on today. Thanks for your great questions. If any of you have follow-up questions obviously we are delighted to talk to you. We appreciate your support and are excited to be in this fourth quarter which is very active. So thanks very much. We are excited about it. Thanks very much.

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