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Franklin Covey (NYSE:FC)
Q4 2019 Earnings Call
Nov 07, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to the Q4 2019 Franklin Covey earnings conference call. My name is Adrienne, and I will be your operator for today's call. [Operator instructions] Please note this conference is being recorded. I'll now turn the call over to corporate controller, Derek Hatch.

Derek Hatch, you may begin.

Derek Hatch -- Corporate Controller of Central Services Finance

Thank you, Adrienne. Good afternoon, everyone. On behalf of Franklin Covey, I would like to welcome you to our investor call for the fourth quarter and fiscal year ended August 31, 2019. Before we begin, we'd 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 they 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 one of which may cause future results to differ materially from the company's current expectations. And there can be no assurance the company's actual future performance will meet management's expectations.

These forward-looking statements are based 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.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Thanks so much, Derek. Good afternoon, everyone. We really appreciate you joining today. We're really pleased to report that our Q4 and full fiscal-year 2019 results were strong -- really, very strong and even better than expected.

We have strong momentum in our business and we fully expect to build on that momentum going forward. The results for the fourth quarter and for the year are really what we expected when we made the business model change several years ago -- high-single-digit revenue growth in constant currency; high gross margins; high revenue retention; SG&A that was reduced for high flow-through; and really accelerated growth in adjusted EBITDA and cash flow. As you know, our goal and expectation is to consistently achieve these very high rates of growth in adjusted EBITDA and cash flow and to do it for years to come. Consistent with this objective, we had very high expectations for growth and adjusted EBITDA and cash flow in fiscal '19, specifically as you can see in Slide 3.

We expected that in fiscal 2019 in constant currency our reported adjusted EBITDA would increase from $11.9 million in fiscal '18 to between $18 million and $22 million in '19. We also expect that our adjusted EBITDA plus the change in our deferred revenue balance would increase to between $30 million and $34 million in constant currency and that our net cash generated would increase between $18 million and $22 million. We're pleased that the strength of our results in fiscal '19 allowed us to meet or exceed each of these expectations. Again, as you can see in slide 3, in constant currency which was the basis for our guidance, our adjusted EBITDA increased from $11.9 million in fiscal '18 to $21.6 million in fiscal '19, a growth of $9.7 million or 82%.

Before adjusting for changes in foreign exchange and as reported, adjusted EBITDA increased from $11.9 million to $20.6 million, a growth of $8.7 million or 73%. You can also see the combination of adjusted EBITDA plus the change in deferred revenue in constant currency increased to $31.3 million, and importantly, our net cash generated increased to $22.2 million. In addition, our cash flow from operating activities increased 81% or $13.6 million from $16.9 million in fiscal '18 to $30.5 million in fiscal '19. So we're pleased with the performance.

It was strong on all the fronts that we expected it to be strong on, and feel that we're really well-positioned to continue this kind of growth moving forward. As we'll discuss in more detail in a moment, this was also -- we're really pleased that this great performance was broad-based across both the enterprise and education divisions. As you can see in Slide 4, the high growth in adjusted EBITDA and cash flow is being driven by the combined impact of three factors that we've talked about for the last several many quarters. Factor one is that a high percentage of every dollar of sales is flowing through to increases in adjusted EBITDA and cash flow.

We'll talk about the reasons for that. Factor two is that our high gross margin subscription revenue is growing rapidly, is sticky, and we're retaining substantially all of it, and it's creating high lifetime customer value. It's also establishing strategic and structural durability which we'll talk about, and increasing the trajectory, predictability, and visibility of our future revenue. The third factor is that we are aggressively taking advantage of a compelling sales force expansion opportunity which is expected to further accelerate our growth, and we'll detail how that can work.

The combination of these factors is driving high rates of growth as we said in adjusted EBITDA and cash flow. It has put us on a great trajectory, we think, for an accelerated march up the mountain to achieving significant continued growth in adjusted EBITDA and cash flow in fiscal '20, '21, '22 and beyond. As indicated in Slide 5, and as we'll discuss in more detail in the guidance section, in fiscal 2020 again in constant currency, we expect to grow adjusted EBITDA from $20.6 million in fiscal '19 which was what we achieved before adjustment for FX, to between $27 million and $32 million in fiscal 2020. So we've raised that a bit from what we said last year.

That represents growth between 31% and 55%. We also, as shown, expect to increase our net cash generated between $25 million and $30 million. As also shown, our target and expectation thereafter is to grow adjusted EBITDA to between $36 million and $41 million in fiscal '21, again, an increase over what we said last year and to between $45 million and $50 million in fiscal 2022, also a bit of an increase from what we thought last year. Also to grow net cash generated to between $35 million and $39 million in fiscal '21 and then to between $44 million and $49 million fiscal '22.

These expected and targeted results represent very strong growth, as you would note, in adjusted EBITDA and cash flow, and as a team, we are all both committed to and aligned to achieve it. I'd now like to provide you a more detailed look at how these factors, these three factors I just talked about, combine to generate high growth in adjusted EBITDA and cash flow in '19 and why we expect them to continue to do so in the future. So the bullet point on Slide 6 just shows that the thing that's driving this high flow-through of incremental revenue to incremental EBITDA is the combination of high-single-digit revenue growth, high gross margins, SG&A that is declining as a percentage of sales reflecting the stickiness of our revenue, and driving this accelerated growth in adjusted EBITDA. More detail that you can see on Slide 7, our revenue before adjustment for changes in foreign exchange grew $15.6 million or 7.4% from $209.8 million in fiscal 2018 to $225.4 million in fiscal '19.

In constant currency, our revenue grew $17.6 million or 8.4% to $227.3 million which really just slightly exceeded the 8% in constant currency that we expected. This growth was broad-based across both divisions, with the enterprise division's revenue growing 8.2%, or 8.4% in constant currency, and the education division's revenue growing 8%, also 8.4% in constant currency. As you see here, our subscription and related revenue grew 23.1% or $22.4 million for the year, from $96.9 million the previous year to $119.2 million in '19. Our invoice sales grew $12.5 million to $233.7 million.

In the fourth quarter invoiced revenue grew 5.9% or $6.3 million in constant currency. And because the subscription revenue made up substantially all of that increase and hardly any of that was recognized in the quarter because it's subscription sales, almost all of that was added to the balance sheet. So the actual reported growth was small because it was all subscription, but we added a lot to the balance sheet. Our balance of billed and unbilled deferred all related to subscription sales, grew 21% or $15.1 million to $88.1 million at the end of fiscal '19 up from $73 million last year.

And just breaking this out, the deferred revenue broken out between two groups -- the billed deferred revenue and unbilled. Our balance of billed deferred revenue increased 20% to $58.2 million, an increase of $11.6 million. And our balance of unbilled deferred revenue increased 22% to $29.9 million, an increase of $5.4 million. Importantly, substantially all of this very high margin deferred revenue will be recognized evenly throughout fiscal 2020.

That'll help smooth out increases in revenue and profit throughout the year. In addition to this large and increasing balance of deferred revenue, the contractual annual minimum royalty payments from our significant licensee business now totaled -- the minimum royalty payments total $11.6 million. The actual royalty payments were more in the range of $15 million to $16 million, but $11.6 million of that is contractual, adding further to our large and growing balance of annually recurring revenue. Our total contracted revenue grew 4.6% during fiscal '19.

We had a high flow-through of revenue to adjusted EBITDA. As you can see in Slide 8, the business model we have now resulted in approximately 56% of every dollar of increased revenue to flow through to increases in adjusted EBITDA. This resulted in $8.7 million or 73% growth in adjusted EBITDA as reported and $9.7 million or 82% growth in adjusted EBITDA in constant currency which was the basis for our guidance. There were a couple of things that drove that.

First, our gross margin percentage remained at the high level we achieved last year of 70.7% and this despite the fact that we continued to grow our All Access Pass add-on services which have a little lower margin but the blend still allowed us to maintain the 70.7%. Gross margin dollars increased $11 million or 7.4% for the year and in constant currency was even higher. In the fourth quarter again because substantially all of the growth in invoiced revenue was in subscription sales, almost none of that was recognized in the fourth quarter but is on the balance sheet and will be recognized. The second thing driving it, besides high gross margin, was that our relatively fixed operating SG&A expenses again helped drive the decline in operating SG&A as a percentage of sales in fiscal '19.

For the year, operating SG&A as a percentage of sales was 61.6%. That's a level 348 basis points lower than last year's 65% of sales. And in the fourth quarter, that figure improved 384 basis points, coming in at 52.3%, compared to 56.2% in last year's fourth quarter. So the combination of strong revenue growth, high gross margins, reduced operating expense, resulted in as you can see, very strong growth in adjusted EBITDA.

As noted previously, the adjusted EBITDA before adjustments for foreign exchange increased $8.7 million or 73% to $20.6 million with 56% of the increase in revenue flowing through to EBITDA. And in common currency, it was even higher. Adjusted EBITDA grew $9.7 million or 82% to $21.6 million, close to the top of our range. In the fourth quarter, adjusted EBITDA increased 18% to $13.4 million.

Finally, our growth in cash flow was also very significant. Our net cash generated increased $7.2 million or 48% to $22.2 million. As you can see in Slide 31 in the appendix, you're going to see the detail which exceeded the high end of our expected range. And net cash flow provided by operating activities, which you can see in Slide 36 in the appendix, increased $13.6 million or 81% to $30.5 million, compared to $16.9 million last year.

So we were very pleased with the strength of the country's performance overall, and for the fourth quarter, and especially pleased that the performance was broad-based with strong results in both the enterprise and education divisions which had that same strong result of strong revenue growth, high gross margins, high flow-through, declining SG&A as a percentage of sales. So we expect to be able to continue to achieve strong revenue growth in the future, and expect that again a high percentage of this revenue for the same reasons will flow through to increases in adjusted EBITDA and cash flow resulting in very high rates of growth in adjusted EBITDA and cash flow in fiscal 2020 and beyond. Here, I could just say -- and probably mercifully to you -- it would be good if I said, just said the same strong results occurred in enterprise and education and just move on. But inasmuch as we have taken you through the detail in each of the prior three quarters this year and because some of you have let us know that you appreciated this detail we'd like to just take a few minutes to walk through the detailed results from enterprise and education, highlight some nuances in a couple of those things, and then in the future I think we can just go ahead and put these results in the back in future quarters and you'll be able to track them yourselves.

So I hope you'll be OK that we go through the detail. In the enterprise division, which accounted for 76% of the company's total revenue in fiscal '19, adjusted EBITDA grew 39% or $7.2 million to $25.5 million. Again, represents the combination of the same factors, high-single-digit revenue growth, very high flow-through of this incremental revenue to adjusted EBITDA driven by high gross margins and lowering SG&A as a percentage of revenue. As you can see in Slide 9, the enterprise division's revenue for the year as reported grew 7.2% or $11.5 million to $170.6 million, compared to $159 million last year.

In constant currency, the enterprise division's revenue grew $13.3 million or 8.4% to $172.4, meeting or just a little exceeding our expectation. All Access Pass and related sales grew 29.4% for the year and 20% in the fourth quarter. Invoiced sales pre-adjustment for FX increased 6.5% for the year and again, as already noted, the increases in invoiced sales in the fourth quarter almost all went onto the balance sheet as reflected in the -- because they were subscription sales and they'll be recognized throughout the year. So that meant the reported revenue grew only 1% in the fourth quarter, but that's because it all went onto the balance sheet.

Our balance of billed and unbilled deferred revenue grew 23% or $12.7 million to $68.5 million at year end from $55.7 million at the end of '18. That was broken down between billed deferred increasing 19.1% to $39.3 million and the unbilled deferred increasing 28% to $29.1 million. So the combination of these provides a really strong foundation for our future growth, and contract revenue again grew 5.8% but declined a little in the fourth quarter, reflecting that whereas in the last few years multi-year sales have occurred primarily in the fourth quarter we now have a process where multi-year sales are spread pretty much evenly throughout the year. As to the flow-through to adjusted EBITDA as you can see in Slide 10, approximately 62% of this increase in revenue in the enterprise division flowed through to adjusted EBITDA resulting in adjusted EBITDA growth of $7.2 million or 39% for the year, or $8 million and 44% in constant currency.

The same two factors were behind this high flow-through. Strong gross margins, these enterprise division stayed at the high level of 74.4% that it achieved last year despite growing its service revenues. And as a result, gross margin dollars increased $8.8 million or 7.5% pre-FX adjustment, a little over 8% adjusted for that. The second operating SG&A as a percentage of sales also continued to improve.

You can see that operating SG&A as a percentage of sales was 59.5% this year. That was 329 basis points lower than last year's 62.7%, and improved actually significantly in the fourth quarter again. So as noted, adjusted EBITDA as you can see was for the enterprise increase 39.2% or $7.2 million to $25.5 million before adjusting for changes in foreign exchange, with 62% of increased sales flowing through to increase in EBITDA. And in constant currency, the growth was 44% or $8 million to $26.3 million.

In the fourth quarter, adjusted EBITDA increased 31% or $2.5 million to $10.7 million from $8.2 in last year's fourth quarter. So the momentum in the enterprise division continues to be very strong. It's across all the parts of the operation, international direct offices, international operations generally, as well as domestic. If you'll have patience we'll just go through quickly also, so you get the detail of the education division.

Same idea. These same factors were at play in the education division, which accounted for approximately 22% of our total revenue in fiscal '19. Education division's adjusted EBITDA grew 31.1% or $800,000 to $3.6 million, and in constant currency grew even faster, 37% or $1 million, again, reflecting those same factors. As you can see in Slide 11, education division's revenue grew 8% to $48.9 million in constant currency grew 8.4%.

As with enterprise, reported education division revenues in the fourth quarter were flat to last year as strong growth in subscription sales put more deferred revenue on the balance sheet and the transition to 606 accounting which benefited the education division's top and bottom lines in the first quarter, reduced top and bottom lines by approximately the same amounts in the fourth quarter. Under last year's accounting standard, revenue in the education division would have grown 7% in the fourth quarter. And just of note, the education division's deferred revenue balance increased 22% at year-end to $19.7 million and grew $11.3 million or 149% over the balance of the end of the third quarter, reflecting the large amount of sales and subscription sales which the education division makes in the last quarter. There was a high flow-through with high gross margins of 62%, again, really good improvement in the operating SG&A as a percentage of sales which came in 244 basis points better than last year.

And in the fourth quarter, came in 465 basis points better. This again resulted in 31% growth in adjusted EBITDA and 37% growth in the fourth quarter. So again we're really excited about the breadth, the strength of both operations and the ability that was broad-based within each of the divisions. So now, having gone through the financials, let me just touch on the other two points.

Factor two, which you're going to see in Slide 13, indicates -- is that our high margin subscription-related sales are driving the strength of our results. This revenue is growing rapidly, it's very sticky. We're retaining substantially all of it and it's creating significant and durable lifetime customer value in both the enterprise and education divisions. As you can see in Slide 14, the company's total subscription and related revenue grew 23% for the year.

All Access Pass and related sales grew 29.4% and our number of paying All Access Pass subscribers grew more than 20% compared to last year. As we reported in the past, All Access Pass is not only growing rapidly but it's achieving key subscription metrics that are putting us in the company of some of the top subscription companies. As shown in slide 15, these metrics include an annual revenue retention rate which again exceeded 90%, an add-on services rate that increased to 45% -- this is highly correlated with high customer retention because they're hiring us to do things that really -- that are must-win games for them and they're willing to hire services to help make sure they get done. They're building new leaders, driving high levels of guest satisfaction or sales performance, building trust throughout a whole organization.

We also have a relatively large initial purchase price which reflects the relatively large size of the population for which All Access Pass is typically purchased. It also establishes the foundation for strong unit-level economics, and we have a customer acquisition cost which is less than one to one. We are also with All Access Pass, as you can see on the next slide, 16, creating high lifetime customer value. This combination of a strong purchase price, high gross margins, add-on services and sticky annual revenue retention on all of the revenue, both subscription and services, is giving -- is really creating a high lifetime customer value and is really being driven by the effectiveness of our solutions at addressing our customers' most intractable performance challenges, challenges which require significant and lasting change in human behavior at scale.

Where they want it across their entire organization. Helping organizations successfully address these important challenges creates strategic durability and means they're with us. They're on problems that are worth solving. That's why they're increasingly entering into multi-year contracts and adding services.

As indicated in Slide 17, just one example, a large financial services company partners with us to provide leadership development to their leaders all over the world. In 2019 they expanded their All Access Pass to a 1,000-leader, multi-year pass and also purchased more than $100,000 in additional add-on services. Recently we launched our new Unconscious Bias offering and while that was something they wanted not only for their leaders, but they wanted to add to pretty much their whole population. And so in addition to their All Access Pass 1,000-leader pass, they added a special single content pass called the Unconscious Bias offering which they can add onto an All Access Pass to go to over 10,000 employees.

They also extended the term of both their All Access Pass and their Unconscious Bias pass for another three years. Maybe I'd just make a note that because there are a number of All Access Pass holders who are considering significant single-content additions to their passes to reach their front-line employees, and this happens let's say where they're training all the leaders in sales performance but they want to take the solution to every salesperson, or they're training all their leaders with an All Access Pass to drive customer loyalty but they decide they want to take our leading customer loyalty pass to every front line employee our Unconscious Bias, our clients are increasingly adding on populations in specific content areas. Because of this, it will tend over time to skew the year-over-year comparability of our number of paid subscribers because you'll have some of these people who are buying large populations for a specific content area at a relatively lower price. And so for that reason in the future we will continue to report our total All Access Pass and related revenues but will not be giving it the exact number of add-ons, of subscribers, just because it's going to skew it and make it look like we're doing better than we -- you know, I mean, we think we're doing great on All Access Pass but it will skew that number.

We want to keep it clean on what we're really selling which is the All Access Pass. In addition to generating highlights on customer value, All Access Pass has two elements that create structural durability. First, All Access Pass purchasers contract and pay for their subscription at least a full year in advance. And second, as you can see on slide 18, an increasing percentage of passholders are entering into multi-year contracts.

For fiscal 2019, 32% of passholder organizations entered into multi-year contracts up from 21% a year ago. There is an even larger number that has some extended-term contract that might be 18 months or whatever, but we're just going to be reporting here on actual multi-year contracts. Just one last thing, the education division enjoys a similar virtuous cycle of lifetime customer value, and is achieving similar quality metrics with our Leader in Me subscription model which is our primary K through 12 offering in our education division. In fiscal '19, our number of paid Leader in Me schools around the globe increased 20% from 3,500 last year to 4,200 this year.

And we enjoy a very high retention rate of our Leader in Me schools. For fiscal 2019 we finished the year with a retention rate of 88% on a global basis, up from 86% last year. Our licensee partners also enjoy a high retention rate of their Leader in Me schools and finished the school with a retention rate of 91%. Similar to how the All Access Pass is able to continue to expand within an enterprise, Leader in Me is able to expand within a school district.

Even with the strong growth we've had in education, Leader in Me is only in 850 of the approximately 15,000 school districts in North America and given that on average where we are in a district we only had two Leader in Me schools per district, it provides a really great beachhead but a tremendous upside in headroom for growth. The example that we share how the district can handle this, in Slide 19, you can just see in Lehigh Valley, Pennsylvania, in an effort to reinvent the former steel-based economy, the business community and the United Way partnered together with the school district to bring Leader in Me to all of its schools for workforce development and even to improve literacy. It began with a single Leader in Me school with 450 students eight years ago. Over the past eight years, it has expanded to 33 schools with 24,600 students, with a stated plan to bring the Leader in Me to all 50 of its schools with 74,000 schools.

When they get that done they then plan to expand it to other neighboring districts. The community is thrilled with the results, as are the parents, the teachers, and they are achieving -- what they are achieving is evidenced by their desire to bring Leader in Me to all of the schools and the expand it to other districts. Slide 20 is just illustrative of the idea that bringing a combination of top-tier growth in subscription-related sales with top-tier subscription economics and customer metrics and at the same time generating high rates of growth in adjusted EBITDA and cash flow is really rare to get all three. For us achieving the intersection of these three factors accelerates our opportunity to create significant increases in value for our shareholders.

Finally, factor number three is that we're aggressively taking advantage of the compelling sales force expansion opportunity which is created by the enormous size of our total addressable market and by the strong unit expansion economics that are created by our business model. So as you can see in slide 21 as we've discussed in prior quarters, we have a lot of headroom for growth with an approximately one-year payback period on our investment in new client partner. Our sales force growth economics are very compelling. As you can see, in Slide 22, we have been and are aggressively taking advantage of this opportunity.

Last year at this time we said that we expect to add at least 20 new client partners in fiscal '19 and the total of 75 net new client partners by the end of fiscal 2021. That would bring our total base of client partners from 214 at the start of fiscal '19 to 234 by the end of fiscal '19 and to 289 by the end of fiscal '21. We made a lot of progress toward these objectives in fiscal '19 where we added 31 net new client partners and at the end of the year, a bit ahead of where we thought with 245. Importantly our various cohorts of sales hires are also benefiting from the high lifetime customer value being generated by our subscription offerings and we're achieving a ramp rate above that shown in Slide 22 also on the right-hand side.

So in conclusion, Slide 23, three factors are driving our accelerated growth. Again, the idea of very high flow-through; rapidly growing subscription revenue that's sticky, and strategically and structurally durable; and third, that we're taking advantage of the ability to grow our sales force very rapidly going forward. So we believe that the combination of these factors has put us on a great trajectory for achieving significant continued high growth of adjusted EBITDA and cash flow in fiscal '20, '21, '22 and beyond, and that these three key factors will continue to drive significant shareholder value. Before I turn the time over to Steve to talk about our guidance, I just want to mention that both the enterprise division and education divisions have achieved and are expected to continue to achieve significant growth.

And they're becoming more and more like each other. Both have subscription business models with add-on services. Both have similar key performance indicators including generating new subscription sales, adding new logos in schools, achieving high annual recurring subscription revenue and successfully hiring and ramping up new client partners. Both divisions also have direct office and licensee operations, both are making significant technology investments in portals, and otherwise, both draw on our strong central services operations, IT, human resources and other capabilities.

And again, both are doing really well. As well as they're doing, we believe that there are some exciting opportunities to further accelerate the growth of both divisions by establishing more uniform best practices across divisions and by better leveraging our central innovations, IT and support functions. We believe that this kind of coordination can both accelerate growth and further increase profitability for both divisions and for the company overall. To facilitate this progress in addition to Paul Walker's responsibilities as president of the enterprise division, we've asked him to serve as president and chief operating officer for the company overall to help us take advantage of these opportunities for leveraging capabilities and resources across divisions.

As you know, the enterprise division accounts for approximately 80% of Franklin Covey's overall revenues and also utilizes the vast majority of the company's innovation and central services. Paul will continue to serve as president of the enterprise division and Sean Covey, who's done a phenomenal job rebuilding our education division, will continue to serve as president of the education division and is the key member of our innovations and book strategy committees where he has made huge contributions over many years. Both Paul and Sean will continue to serve as key members of our executive team. I want to recognize the tremendous job both Sean and Paul have done and are doing in running their respective divisions and congratulate Paul on his appointment as president and chief operating officer for the company overall.

So we appreciate your support and the efforts of our approximately 1,000 associates and 80 licensee partners throughout the world and are really excited about our opportunities and the trajectory we're on. We had our kickoff meeting not long ago and everybody agreed that this is a great time to be at Franklin Covey. And we really feel that. Steve, I'll turn it to you for guidance.

Thank you very much.

Steve Young -- Chief Financial Officer

OK. Thank you, Bob. Good afternoon, everyone. So, guidance.

As Bob discussed, we expect net sales to grow at a rate of high single digits in fiscal 2020 and expect that a significant portion of this increase in revenue will flow through to increases in adjusted EBITDA. Our fiscal 2020 guidance therefore in common currency is that adjusted EBITDA will increase from $20.6 million in FY '19 to a range of between $27 million and $32 million in fiscal 2020. Anywhere in that range we think represents really strong growth in adjusted EBITDA, with growth rates from between 30% and 55%. So we're pleased that we continue to have high flow-through and growing rapidly.

Now to our first quarter. Despite the significant investments in our 31 new client partners and other investments, we still expect adjusted EBITDA to grow in Q1 by up to $1 million, compared to last year, to approximately $4.2 million in the quarter. So that's our guidance. Now, let me also touch on a couple of other matters before I turn it back to Bob.

A little bit about liquidity. We also have significant liquidity and tend to use it to create additional shareholder value. So four points related to liquidity. First, we generated significant cash flow in fiscal 2019.

As already discussed our net cash generated as we define it, increased to $22.2 million in FY '19 and our cash flows from operating activities increased 81% or $13.6 million from $16.9 million last year to $30.5 million this year, even after making substantial growth investments in new content, increased portal functionality and adding a significant number of new client partners. So second point, we expect to generate significant additional cash flows in the future in the coming year. As discussed, our target is for net cash generated after ongoing investments in new content, portals, etc., is still to increase by more than $25 million next year. Third point, we have substantial liquidity.

You probably noticed that we ended the year with almost $28 million of cash on the balance sheet and have significant availability under our credit facility. And the fourth point is, we recently expanded our stock repurchase authorization to $40 million. Our first priority has always been to make investments in new content, sales force growth, and enhancements to our customer portals which can accelerate that growth and increase our strategic modes and we have made significant investments in the business each year. And we've earned a very strong return on these investments in the business and we'll continue to make those investments in the business.

Even with these investments, we still expect to generate substantial excess liquidity and still plan to utilize a meaningful portion of this excess liquidity to repurchase stock. So we have liquidity. One additional point, just for your interest. Ten years ago, Bob Whitman and I received a one-time grant of stock options, the only options which the company has outstanding.

Almost all of these options remain unexercised. While we would both love to continue to hold these options, most of them expire in January. As a consequence, Bob and I will need to exercise these options in the next three-week open period. Neither of us plans to sell any of these shares.

We just wanted to let you know that while neither of us is planning to sell any of these shares, as you know, when we exercise these options it will show as both a purchase and a sale, the sale reflecting the net exercised by the company to pay taxes. Also, please be aware that a member of our board of directors for the past 27 years will reach mandatory retirement age next year and retire from the board. As part of that retirement planning, this director intends to put in place a 10b5-1 stock sale program, put that in place, and will be selling some shares. So I didn't want you to be surprised by that.

After holding these options for 10 years, etc., etc., we just need to do something with them.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Thank you, Steve. With that, we'll open it to questions. Thank you very much, everyone.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Jeff Martin from ROTH Capital. Your line is open.

Jeff Martin -- ROTH Capital Partners -- Analyst

Thanks. Good afternoon, guys. How are you?

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Yeah. How are you?

Jeff Martin -- ROTH Capital Partners -- Analyst

I'm doing well. Thanks a lot. Wanted to just touch on your content development and your investment in content, what -- you bought some items in the past year or so, and some of those have become pretty sticky. I was wondering if you could give us an update on the uptake on some of those, and if those are helping drive new sales, and then what your plan is for additional either content investment or content creation in 2020.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

You bet. Historically, we've invested about 4% in new content development every year. With the introduction of All Access Pass and Leader in Me, we increased that budget for a couple years to 7% or 8% and think it'll kind of settle in at around 5% or 6% a year. So we have ongoing investments that are really substantial and these include some things as mundane as customer functionality and user access and the way that the portals work, etc., but very necessary to on the other end, acquisition or licensing or development of new content.

In the last year and a half, we've had three really important additions to our content, to your point. One is new content that's associated with the acquisition of Jhana called, Everyone Deserves a Great Manager, or Six Critical Practices for Leading a Team. We have a new best-selling book that supports that solution but it's focused on one of our key jobs to be done, which is helping develop unit-level leaders. And so that's been a really good hit.

The second is this Unconscious Bias offering, which is noted, it has been out about 6 months. But really the number of -- we had landed some that are really quite large populations inside an All Access Pass holder, as I mentioned, where they're going to all 10,000 of their employees in addition to having a pass for 1,000. So that's a great thing. The joint acquisition itself has made the content very sticky, because they get the Jhana weekly.

We've added, in the education division we've added Leader in Me. We've gone to Leader in Me 4.0 and the whole new versioning of this that comes out every year. But this has been a massive effort and significant investment, as well as our new district model which allows us to make it more scalable as we see this big opportunity. These districts love what's happening in the one or two schools, want to take it to their district.

Had to rearchitect that. And then we acquired rights to all of Liz Wiseman's content on multipliers. And so those are some of the important pieces of content. The last one is you know, in development now with Liz, and we'll be coming out later this year.

But I think that's -- if that's -- hopefully, that's responsive, that we're making investments across a wide range of things. We also have refreshing of existing content, but is that helpful, Jeff?

Jeff Martin -- ROTH Capital Partners -- Analyst

Definitely, I appreciate that. And then I got on the call a little bit late, but I was wondering if you could -- I'm referring to Slide 28, the contracts signed slide. I was wondering if you could just kind of put into perspective the change in deferred revenue and change in billed deferred revenue. In the fourth quarter, there were some things that -- because you would think that would grow quite a bit in the fourth quarter.

I think last year's fourth quarter you had a pretty significant period for All Access Pass, so maybe give some perspective on that?

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Yes. I think on the contracts signed page, one of the things that get reflected in this too, is unbilled deferred revenue. And so in prior years, the fourth quarter, we did all of our multi-year, essentially all of our multi-year sales in the fourth quarter. And so that was really helpful on the unbilled deferred edition.

We have good unbilled deferred edition this year but we -- now this is just a way of selling. I don't know, Paul, if you want to add to that. This is what we do day in, day out, and these sales are now more evenly spread throughout the year. And so rather than making a big effort to get everybody to sign up for multi-year in the fourth quarter, we just said, let's settle into a process.

And so it'll hit this first fourth quarter a little bit because that's historically we had a bunch of -- a big press at the end. We decided not to have any big presses at the end anymore and just to run it similarly throughout the whole year. So I think that's the primary factor, Jeff. Otherwise, it was pretty steady with what we normally would do.

Jeff Martin -- ROTH Capital Partners -- Analyst

OK. And then was wondering how your recent class of new salespeople last year have progressed. Are you seeing them hit their marks? Are they hitting them earlier than what you hypothesize with your model? I know it's --

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Let me ask Paul and Sean to respond to that.

Jeff Martin -- ROTH Capital Partners -- Analyst

Your experience with that. Yes, thanks.

Paul Walker -- Executive Vice President, Global Sales and Delivery

I'll respond for enterprise, this is Paul. We're really pleased with not only this last year but the last couple of years. One of the things that we hoped would happen when we -- Bob mentioned earlier a number of things we hoped would happen as we moved to this subscription model with All Access Pass. One of those would be that we would see a faster ramp of client partners because they would start each year with all of that subscription revenue from the prior year in place, or substantially all of it in place.

And that is proving to be the case for all of our client partners. But it has a particular impact on those that are new as they're trying to hit these ramp rates that we talk about. And so we saw that again in fiscal '19. It was a great year for the new client partners.

Just another point on that, one of the other things we've done, I think we talked about this a call or two ago. We've really reworked our onboarding process for our client partners, as well. And so where we used to put quite a bit into them, now it's -- we're spending five times the amount of time with them to make sure that they have everything they need to really hit the ground running and to be successful. And that's paying off for us also, so we're -- we're pleased with what we saw in fiscal '19 from the new client partners for sure.

Sean Covey -- President of FranklinCovey Education

I'll just add -- this is Sean. So we've been pleased also with the client partners and their growth, their ramp rates in education. And what we've done historically, we haven't had that much sales management. We've been putting that in place the last couple of years.

And so we have several regional managers, district managers now, that are helping to oversee and ramp client partners, which has been a very positive thing. So we've got, since in the last two months we've hired eight new client partners in education over the last year, net new. And we're continuing to hire, because we're getting good returns and we feel like our onboarding process is getting better all the time. And so we're very gung-ho about the future.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

And Jeff, overall between the -- thanks, Paul and Sean. Overall if you look at the ramp, the expected ramp, which you know the 200, 500, it's on Slide 22. The 200, 500, 800, million, 1 million, three, the cohorts that we've hired since 2015 -- so '16 on, when All Access Pass has been in place and Leader in Me, we were about 20% ahead for each cohort. And it kind of seems to be about the same for each cohort.

And what's happening is of course, they're retaining substantially all the revenue they generate the first year rather than losing a bunch of it. And that puts them on a higher trajectory. We're keeping the goals the same. So we're at about 20% ahead of those numbers.

Jeff Martin -- ROTH Capital Partners -- Analyst

That's great to hear. Thanks, guys.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Thanks, Jeff.

Operator

Your next question comes from Marco Rodriguez with Stonegate Capital Markets. Your line is open.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Good afternoon, guys. Hey. Thanks for taking my questions. I'm sorry if I missed this on the call, but I was wondering if you could talk a little bit more about the gross margin in the quarter that you guys saw, kind of flattish revenue growth year over year and the gross margins went down a few basis points here year over year as well.

So I'm presuming that obviously you have higher revenue, higher-margin revenue in the mix versus last year. I'm just kind of trying to figure out some of the drivers there.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

What we talked about is that because -- for the year as a whole we maintained the gross margin percentage, that really right-on 70.7% both years. And what we mentioned earlier was that this was despite the fact that we increased our services revenue some, the add-on services grew quite a bit during the year even though they're a little over margin. You kept the overall margins the same, so that's reflected that more subscription sales, higher margins, increase by -- impacted for the company overall by some services. But they retained that.

In the fourth quarter we had a little less in terms of percentage overall as a company, but it's primarily related -- almost all of it's related to the education division where we made some additional investments in the portal, as well as launched a new service that's a derivative of Jhana. But it's called -- it's the Leader in Me -- it's Leader in Me Weekly that goes out to faculty and administrators every week. And so those two investments, we won't be increasing -- those were kind of not one-time but they won't increase like this again. And that affected the margin a little bit in the education division.

And then most of this high-margin subscription revenue that we saw in the fourth quarter, none of it showed up in this quarter. It's all on the balance sheet. So that's really all that happened is the combination of some more services that kept it flattish, the decline in education which we won't -- we don't expect to see it decline again, but you know, to swallow these investments that increased quite a bit this year, and the fact that this high margin revenue that we signed in the fourth quarter, all of it's on the balance sheet, not -- didn't flow through the income statement yet.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Very helpful. Then in terms of the education division, you spent some time in the past talking about the under-penetration and the market opportunity that you guys have available to you with that line or that service. Can you maybe just talk a little bit more about what sort of initiatives or drivers you might be looking at within the next couple years, that might try to increase that overall market penetration for the education division?

Sean Covey -- President of FranklinCovey Education

Sure. Well, the biggest opportunity we feel and the lowest-hanging fruit is in the district penetration. And this has kind of taken us some time to see the opportunity, because we had to kind of get penetrated first of all, inside of some of these districts. And increasingly what's happened is we start with a school or two instead of a district.

They like it, and they want to take it further and expand it across the district. And as we shared, there are about 15,000 districts in North America, in the U.S. and Canada. And we're in about 850 of them.

And so this year and the next year, the next foreseeable future, we've adjusted our offering to make it more district-friendly so it's easier to expand. We give districts many opportunities or ways of implementing, so if they decide to do Leader in Me inside of a district, we say, OK, we can do it with you, we can certify you to do it, you can self-implement. Made it very easy and affordable and flexible for them. So that's been the big focus just in the last few months, and we're right now selling Leader in Me 4.0 with this new district focus.

So that's probably the first opportunity is penetration in districts. On average we're only in about two schools per district and most districts have between 10 and 20. They vary by size. Some are 5 and some are 250, right.

And so that's the number one focus is to get big into the districts. Yeah. This year, this past year, we've started this district focus. We grew our new schools well from 447 to 522 new schools.

So that's about 20% growth year-over-year. And we're happy with that, and feel like it's only going to accelerate in the upcoming years with additional focus on districts. Internationally, we've brought on about 700 new schools, and so we're really happy with what's happening internationally as well. So I think it's a combination of penetration's going to be district-focused, and also the new 4.0 model is, one part of it is the district focus and one part of it is a more flexible, up-front, Leader in Me.

Because our biggest complaint has been, you're too expensive the first year. So we've made a new offering that's less expensive the first year. It's still about the same amount over time, but it spreads it out over time. It's easier to get in.

Just in the last two months with this new offering we've heard several customers come to us and districts come to us and say, hey, I think you've solved the cost issue. This is a lot more affordable and flexible, and we're really happy with what we're seeing. And so we're seeing big opportunities in districts. So that's the plan.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

And then lastly I was just wondering if maybe you could talk a little bit more about the client partner ramp, if you could just perhaps talk about the cadence, or expected cadence, of hires as you kind of progress through the year. And then maybe if you can address your ability to find additional client partners.

Paul Walker -- Executive Vice President, Global Sales and Delivery

So client partners, as we mentioned, we added 31 net new client partners last year which we feel great about. They're ramping well, very excited about them. We'll add at least 20 additional client partners this year. Again, we tend to try to hire them in cohorts or in classes quarterly.

The last two weeks of every quarter for us is new client partners, the kickoff of their 5-week orientation, we call it sales academy. And so actually starting here soon, we have another batch of client partners coming in. So we try to space them throughout the year, as equally as we can. And we feel -- we do.

As we mentioned a minute ago we feel great about that, and their ramp and their development. As far as sourcing client partners, we have a recruiting team here at our headquarters in Salt Lake. We have five people who are full-time recruiters. And their job is to find client partners and we're increasingly, we think, between both divisions.

Sean, I think you'd say this too, zeroing in on who we think the right profile is, the right candidate, and increasingly getting more and more confident. We love all of our client partners, and those we've hired recently in the last couple of years are coming. And they're very, very strong with great backgrounds and hitting the ground running very quickly.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

And you know this, Marco, but just adding -- if you add 20 net new salespeople a year for five years, by the fifth year, in the fifth year the first classes is doing $26 million of additional revenue. You're adding almost $100 million of additional revenue and only the first two classes are close to ramp. So this is an important thing in getting it right. We've invested heavily, as Paul said, in the sales school, in the whole process.

Now it used to be a few days, now it's months. And this is -- we've invested heavily behind this for a decade. Now we feel like we're in a position where we can really add this -- at least $20 million net but $25 million to $30 million like we did this last year. And that really makes a big difference to the growth rates a couple years out.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Thanks a lot, guys. Appreciate your time. Thank you so much.

Operator

And our next question comes from Samir Patel from Askeladden Capital. Your line is open.

Samir Patel -- Askeladden Capital -- Analyst

Paul, actually I want to ask you a question, which is a couple years ago Bob talked about this campfire metaphor, you know, how there's these wonderful campfires of top performance in client organizations, really Franklin Covey can help those client organizations move brighter and tighter, right. So that more people are sitting around those campfires. With regards to your new role, could you maybe talk about some of those best practices or campfires that you see, and how you plan to replicate those across the organization? Thanks.

Paul Walker -- Executive Vice President, Global Sales and Delivery

Good question. Inside our company. Good question. So you can imagine, working for Bob all these years, that that is not just a metaphor that we talk about as it relates to our clients.

It's a metaphor that is alive and well inside Franklin Covey as well. But it really is, I think it's the story for us as a company. We made a big transition a number of years ago. Sean started it before enterprise with his move to Leader in Me, and that being a subscription business.

Then enterprise did this four years ago and we now have, we think, the right strategy. We think we have the right pieces in place. We have the right content acquisition development strategy, the right funding behind that. All of those pieces, kind of those strokes of the pen if you will, the things that you can decide to do.

We have those all in place and now it really is an execution play for us. And the better we can execute, the righter, tighter so to speak that we can get, moving our little campfires to become bonfires and our bonfires to become something bigger than bonfires, is really what we talk about every day around here. And we're starting to see examples of that. The U.K.

for example, the great -- a great example of this, where it had been a nice business for a long time but now it's really growing and thriving and doing well, culturally with the All Access Pass hitting all of these key metrics that we talk about. And so I would say for us, specifically to answer your question, what are some of those for us, it would be righter and tighter, staying on higher and ramp of client partners. That's one big -- that's a major piece of our strategy that if we get that right and we continue to do that, it almost takes care of everything else for us. The growth will be there and we'll continue to accelerate.

Second one for us is then as we hire those client partners and we sell to new clients, it's continuing what we're doing today which is maintaining and retaining those relationships with our clients. So we have a process for what we do with clients once they become an All Access Pass holder, and the better we get at that -- and we have pockets of excellence, and we have other places where we need to move more toward excellence. But that's an example of that. And we know when we do that process right, not only do we retain that customer, that customer grows.

They add more seats. They add services. All the things that we want. So hiring and ramp, it would be retaining those clients.

The great things we do around the content side. And so I would say those probably would be the three, three big ones. They're all things we know how to do.

Samir Patel -- Askeladden Capital -- Analyst

And so if I'm understanding this correctly --

Paul Walker -- Executive Vice President, Global Sales and Delivery

Thank you. Go ahead.

Samir Patel -- Askeladden Capital -- Analyst

Go ahead. Finish.

Paul Walker -- Executive Vice President, Global Sales and Delivery

As we say, they're all things we know how to do. That's the whole point of it. Right? We know how to get the fire started and we just need to get it going, you know, more places, more frequently.

Samir Patel -- Askeladden Capital -- Analyst

So is it, would you say it's kind of like the sales school in that it's just kind of institutionalizing best practices that you already know how to do? It's nothing revolutionary, or finding OK, how are [Audio gap] cohort of clients, a cohort of clients, or how is this cohort or client partner selling better than this other cohort, and just standardizing that across the organization?

Paul Walker -- Executive Vice President, Global Sales and Delivery

That's exactly what it is. In fact, you're kind of giving Bob's speech here. But that's the thing for most organizations. They have pockets of excellence.

They institutionally, somewhere in the organization, they know where -- they know how to do this. They have pockets of excellence where it's happening. It just doesn't become uniform and widespread. And that's really what Shawn and I are focused on every day, is how do we -- how do we make those great things more uniform and widespread.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

There's a scoreboard, Samir, on each of the 20 managing directors. They have these four outcomes and every month there's a metric to see how right and tight they are in each of the key four metrics. And so we're nudging it a little at a time and trying to nudge it faster.

Samir Patel -- Askeladden Capital -- Analyst

Thanks.

Operator

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

Zach Cummins -- B. Riley FBR -- Analyst

Hi. Good afternoon, everyone. Thanks for taking my questions. Hi, Bob.

I was just going to ask you, just with the flat revenue growth here in Q4, a lot of that having to do with subscription revenue going straight onto the balance sheet, should we expect this revenue growth to smooth out over time from quarter to quarter? Or is it going to be kind of this fluctuation from quarter to quarter, just --

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

I think what you're saying is exactly it. It would -- this year we were glad that in the first three quarters, you know, I mean, 90% of the growth in EBITDA for the year occurred pretty much in the first three quarters. And that didn't use to be the case. And so I think that trend will continue.

The bigger our growth -- I mean, the more subscription revenue we put on the books in the fourth quarter, the less we'll recognize in that quarter. But it helps every other quarter. So we -- our forecasts would show that we'll keep nudging the percentage of the total EBITDA for a year that occurs in each quarter. It'll get increasing -- there'll be increasing amounts every year in the first, second and third quarters, and a decreasing amount as a percentage in the fourth.

So I think it's exactly what will happen and is happening.

Zach Cummins -- B. Riley FBR -- Analyst

Got it. And then in terms of the SG&A line especially with all the client partners that you brought on, I was surprised to see it was down sequential on a year-over-year basis. Can you talk about the drivers of kind of the lower SG&A here that we saw in Q4?

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

You bet. Steve?

Steve Young -- Chief Financial Officer

So the simple answer is that a good portion of our SG&A is either fixed or semi-fixed. So as we're going through the transition to the All Access Pass and transitioning the business, we added costs. The implementation specialist department, as an example. We added those costs and a good portion of those adds then become a fixed amount that we can essentially grow revenue for a year, maybe two years, maybe three years in some areas, without having a proportional increase in the cost.

So what's going on is a couple of things. We are -- well, three things. We are investing in new client partners. We're adding money there.

We're adding money in innovations. We're adding money in implementation specialists. A good portion of our costs is fixed like I talked about. And then in other areas, we're finding that as we've gone through the transition, now that we're on the other side we can actually find efficiencies and effectiveness to reduce some costs.

So we have cost increasing, costs that are fixed, and costs that are decreasing. And so overall we expect a good portion of our accelerated flow-through to EBITDA to come from a repeat of this same scenario that we have revenue growth. Our gross margin stays good and our SG&A becomes a smaller and smaller percentage of revenue.

Zach Cummins -- B. Riley FBR -- Analyst

And then just one final question around potential uses of cash. It sounds like with all the cash that's being generated and expected to be generated here in the coming years, that potentially using that to buy back some of your own stock. Have you still explored a potential M&A at this point, or what's really the approach there?

Steve Young -- Chief Financial Officer

Pretty much the same as we've talked about. As we said here, we will always first run the business, because adding salespeople and investing in the business will provide the best return to shareholders. And then if we could -- this is my view. If we could find acquisitions that fit into what we're doing and are incremental to the business, and add an acceleration to the growth or fill in holes in the content or anything like that that we could see beneficial, then I believe we would use cash to do acquisitions.

And I think that that would be very valuable to the company. And then to the extent that we have excess -- well, as an example, Jhana and Robert Gregory were both great small acquisitions done over the past couple of years. So we'll continue to do that. And then we still expect to have incremental cash, and we've shown a willingness to return that cash to shareholders through buying back stock.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

There are a lot of -- you won't see us making, like, transformative acquisitions or anything like that, big, big bets. But we think that in our space right now, there are lots and lots -- there's lots going on, and things like Jhana and Robert Gregory and such, that really can add tremendous capabilities. We are on people's radar, with Boyd Roberts, who's on our executive team, is in charge of all our business development. And between content acquisitions, license deals for content, small acquisitions otherwise, and we've also boosted our investment and content as we mentioned from 4% to 6%.

Those are kind of the uses. We've been able to generate kind of a net tangible assets, very high rates of return of what we invest in the business, the cash flow relative to the net tangible asset. So that'd be a good thing if we can do it. We have -- like I say, we have our feelers out all the time.

But even with that, we suspect that we'll have quite a lot of excess cash being generated beyond what we can conceive, and we're likely to do, and that will be applied to continuing to do. As you know, we've reduced the total shareholder base by more than 10 million shares over a long period of time. It's continued. And we like the idea of having our existing shareholders own more and more of the business that we think is on a really great trajectory of high EBITDA and cash flow growth.

Zach Cummins -- B. Riley FBR -- Analyst

Great. Thanks for taking my questions, and best of luck as we head into '20.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Thanks so much.

Operator

Our next question comes from Samir Patel from Askeladden Capital. Your line is open.

Samir Patel -- Askeladden Capital -- Analyst

Hey. You talked about the one-year payback period on new client partners, and obviously the 90% revenue retention and the high incremental margin. Have you guys put that together into an LTV-to-CAC type of metric? It seems like it'd be best-in-class, but you haven't actually disclosed it.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

We have. We said it's less than one to one but I think -- but your point is exactly right. I think it's really the unit economics, are really so compelling that that's why we built this whole infrastructure. It's taken years to build but the sales school is the easier part even though that's not easy.

But I mean, building the infrastructure of all these managing directors who can mentor and ramp up these people. But yeah, it's exactly it. And so that ratio of lifetime customer value to the customer acquisition cost. For us, the combination of the fact that as you say, first our initial sale price is a pretty substantial amount because of the size of the population, and our costs of acquisition are well less than one to one.

So we think that's a compelling metric.

Samir Patel -- Askeladden Capital -- Analyst

Thanks.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Thanks.

Operator

Our next question comes from Andrew Nicholas from William Blair. Your line is open.

Andrew Nicholas -- William Blair & Company -- Analyst

Hi. Good afternoon.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

There you go. How are you?

Andrew Nicholas -- William Blair & Company -- Analyst

Great. So a lot of my questions have been asked, but I appreciate you squeezing me in. Just one, I was hoping you could maybe talk a little bit about performance in the quarter across the different geographies. Are there any regions that are growing particularly well right now? Where do you think you have the most opportunity going forward? And then maybe any color on client engagement in the U.K.

and Europe given some of the uncertainty in those regions.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Thanks. Paul, you might want to go.

Paul Walker -- Executive Vice President, Global Sales and Delivery

So we're pleased, and Bob mentioned earlier, all year and even in the fourth quarter, quite broad-based result -- success and results from all of our different operations. And so that's one point. Very broad-based. Everybody had a really strong year, good growth.

Areas where we expect to see great growth in the future, one would be China. We think there's a lot of headroom there for us. The reason that we converted that from a license to a direct operation a few years ago. We did the same thing earlier this fiscal year, really in December, with our Germany, Switzerland and Austria operations.

So that was formerly a license operation of ours, is now direct, being managed and run out of the U.K. for us. So we see that as potential -- a good potential growth opportunity also. So we now kind of have the major economies in the world that are direct, and then this great licensee network that helps us cover everywhere else in the world.

Specifically the U.K. and in Europe, we actually -- we had a great year in the U.K. despite Brexit and all the questions there on what's going to happen. That business is growing really well.

One of the things, I think, that benefits us is in a place like the U.K., and this is probably true of anywhere we operate, while we're growing nicely we're still very underpenetrated in most of the markets in which we serve. And so the headroom for us to grow is there even if there's choppiness going on as well. We're just not that big. And so that allows us to continue to chug along and to grow.

We saw that this year in the U.K. and we think that'll happen in Germany, Switzerland, and Austria as well now that it's being run the way we run all of our direct operations.

Andrew Nicholas -- William Blair & Company -- Analyst

Great. Thank you. That's all I had.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Thank you so much.

Operator

And this concludes the question-and-answer session. I'll turn the call back over to Bob Whitman for final remarks.

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Great. Well, we just want to thank each of you for being on the call with us today. More importantly, we thank you for your support and guidance and coaching and so forth over the years. We feel like we have a tremendous team of premium people throughout the company.

We have kind of a -- we have a scoreboard, where we say, do we have the right person on the right seat on the bus and all the key -- the critical positions. And the answer, today, is we are green on every major position in the company that is one of those critical positions. Occasionally we'll have one or two yellows and work with them, but that's a big thing. Second, we're at a time where the $40 billion that's spent in outsourced content and services and so forth for performance improvement is primarily a fragmented business, and we -- with our value proposition and All Access Pass we're in an increasing position to win more and more of that, and a greater and greater share of that.

And we've got many clients who have decided to take their 30 suppliers and narrow it down to us alone, or us and one other supplier. And so we think it's a great opportunity. We're grateful to have the chance to have you as our partners in this and feel great about where we are, about the prospects for 2020 and beyond. So thanks very much for joining us today.

Operator

[Operator signoff]

Duration: 78 minutes

Call participants:

Derek Hatch -- Corporate Controller of Central Services Finance

Bob Whitman -- Chairman of the Board of Directors and Chief Executive Officer

Steve Young -- Chief Financial Officer

Jeff Martin -- ROTH Capital Partners -- Analyst

Paul Walker -- Executive Vice President, Global Sales and Delivery

Sean Covey -- President of FranklinCovey Education

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Samir Patel -- Askeladden Capital -- Analyst

Zach Cummins -- B. Riley FBR -- Analyst

Andrew Nicholas -- William Blair & Company -- Analyst

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