Earnings Call
Franklin Covey Co (FC)
Earnings Call Transcript - FC Q2 2024
Operator, Operator
Good day, and thank you for standing by. Welcome to the Second Quarter 2024 Franklin Covey Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Derek Hatch. Please go ahead. Thank you. Hello, everyone. On behalf of Franklin Covey it’s my pleasure to welcome you to our conference call to discuss our second quarter fiscal 2024 financial results. We hope that you're enjoying good weather wherever you are in the world this spring or fall if you're in the Southern Hemisphere. Before we begin this presentation, we’d like to remind everybody that the 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 grow revenues, the acceptance of and renewal rates for our subscription offerings, including the All Access Pass and Leader In Me memberships, the ability of the company to hire productive sales and other client-facing professionals, general economic conditions, competition in the company's targeted marketplace, market acceptance of new offerings 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. Paul Walker, our President and Chief Executive Officer. Paul?
Paul Walker, CEO
Thank you, Derek. Hello, everyone. Thanks so much for joining us today. We're glad to have the opportunity to talk with you. Joining me today are Steve Young, our CFO; Jennifer Colosimo, the President of the Enterprise Division; Sean Covey, the President of the Enterprise Division; and other members of our executive team. Our results for the second quarter came in right in line with our expectations with revenue of $61.3 million and adjusted EBITDA of $7.4 million, which was slightly stronger than expected. And our free cash flow was stronger than expected, $24.7 million in the first two quarters of this fiscal year. In addressing our performance for the quarter and year-to-date, I thought I'd start out by organizing my comments into three categories. First, there have been challenges in which we're not particularly pleased. Second, the areas that are going well and that we're encouraged by. And then third, three areas of focus that we're really excited about and that we believe are going to accelerate our growth. First, let's talk about the areas that have been a challenge in which we're not particularly pleased. Our services sales didn't rebound as rapidly as we thought, and as a consequence, reported revenue for both the third and fourth quarters and for the year are going to come in lighter than we expected when we reported our Q1 results. As a result, rather than achieving low double-digit revenue growth in the back half of this year, as we had expected, we now expect reported revenue to grow approximately 1% in Q3 and 6% in Q4. I'm also not pleased that since last fall, there's been an environment in which companies' decision-making has been extended longer than normal. During the late summer and early fall, as interest rates spiked, many organizations either eliminated costs or delayed decision-making. This impacted 2024 budgets and created a more difficult selling environment for us in the first half of fiscal 2024. Finally, I'm not happy that even though we expect adjusted EBITDA to increase significantly this year to $54.5 million in constant currency, that result will only be within the low end of our guidance range of between $54.5 million and $58 million. Second, I would like to share a few things that are going well and which we are excited about. First, as I said a moment ago, we're now expecting reported revenue to grow approximately 1% in Q3 and 6% in Q4, which is accelerating from the first half of the year. I just want to point out that this 1% and 6% reported revenue is largely revenue that's converting from prior period sales activities and is also muted somewhat by lower-than-anticipated services sales, which are recognized in the period that they are sold and delivered. In our subscription model, the majority of what we'll actually sell between now and the end of the year will not be recognized this year but would be deferred and add to our growing deferred build and unbilled subscription balances to come into revenue next year. The number of subscription sales we're selling today and that we expect to sell in Q3 and Q4 is actually growing at a rate faster than the 1% and 6% reported growth that we're expecting in this year. This will put more deferred build and unbilled revenue on the balance sheet to come into revenue next year, and that's happening at the same time we're beginning to see our services sales, our booking pace, and our services sales accelerate. The second thing that I'm pleased about is that despite the economic environment and revenue being lower than expected, we expect that the company's overall revenue and the revenue in both the enterprise and education divisions will still reach all-time highs in the third and fourth quarters. I'm pleased that revenue in the overall business has grown significantly over the past four years to more than $280 million. Third, I'm pleased that in addition to generating record levels of revenue due to the strength of our business model with its high recurring revenue, strong gross margins, SG&A that declines as a percentage of revenue, and low capital intensity, we expect both adjusted EBITDA and cash flow to come in strong for the year. We expect adjusted EBITDA for the year to increase to approximately $54.5 million in constant currency, up from $48.1 million last year. We also expect to generate a significant amount of free cash flow for the year. Year-to-date, through this year's second quarter, free cash flow has been $24.7 million compared to $3.3 million through the second quarter of last year. I'm really pleased with the resilience we've been seeing in the enterprise and education businesses and with the positive direction of some of the recent trends across key parts of the business. In the Enterprise division, each of our six key indicators remain strong and resilient in the second quarter and year-to-date. First, we had very strong logo retention, with the second quarter being one of the best in terms of logo retention. Second, our revenue retention for the quarter and year-to-date was also very strong, continuing to be higher than 90%, with the pattern of client renewals being consistent with historical patterns. Third, our subscription revenue also grew to an all-time high for the second quarter, year-to-date, and the latest 12-month periods, reaching $26.3 million in the quarter, up 9%; $53.1 million year-to-date, up 11%; and $104.5 million for the latest 12-month period, up 9%. The fourth point about Enterprise is that the percentage of total All Access Pass contract value for multiyear periods increased to a historic high of 62% compared to 57% at the end of Q2 last year. Additionally, the percent of total All Access Pass contracts for multiyear periods also increased to a historic high of 56%, up from 50% at the end of Q2 last year. The fifth point is that our deferred revenue billed and unbilled reached an all-time second-quarter high balance of $128.7 million versus $124.8 million at the end of last year's second quarter. Finally, our total subscription and subscription services revenue increased to record levels for the second quarter, year-to-date, and latest 12-month periods, with $37.5 million of subscription and subscription services revenue in the second quarter, $79.1 million year-to-date, and $162.1 million for the latest 12-month period. While this combination of subscription and subscription services sales achieved a historic high watermark, its growth rate was somewhat muted by the fact that while clients have continued to purchase, renew, and expand their All Access Pass subscriptions and purchase a substantial number of subscription services, they have been purchasing a somewhat smaller amount of those services. In the Education division, Education subscription revenue also grew to an all-time high for the second quarter, year-to-date, and latest 12-month periods, reaching $9.5 million in the quarter, up 7%; $19.3 million year-to-date, up 7%; and $40.9 million for the latest 12-month period, up 10%. Second, in Education, amounts invoiced also grew to an all-time high for the second quarter and for the year-to-date and latest 12-month period, reaching $9.8 million in the quarter, representing 23% growth; $18.1 million year-to-date, up 14%; and $79.7 million for the latest 12-month period, up 13%. Finally, for Education, while it is still early in our contracting year, the number of new schools we've contracted is significantly higher than it was at the same point last year, a year in which we added a record number of schools. In addition, the number and percent of schools retained is also up significantly year-over-year. I’m particularly encouraged by the progress we're making on many of the important leading indicators that point toward accelerating growth. Specifically, I'll talk about the areas of new client acquisition and services bookings. First, related to new client acquisitions, we closely track the leading indicators related to new client revenue growth. Two important metrics in North America are the number of people participating in our marketing events where thousands of prospective clients join us throughout the year to learn more about Franklin Covey solutions and the volume of new client acquisitions that actually enter into our pipelines. As it relates to the number of people participating in our marketing events, we're very pleased with the year-over-year growth we're experiencing in that participation rate, particularly over the past 120 days, seeing a meaningful increase in attendance on a year-over-year basis due in part to high interest in our new speed of trust and navigating difficult conversations solutions, as well as general interest in our overall solutions to help organizations improve leadership, culture, and execution. We expect this increase in participation rates to lead to an increase in new client opportunities entering our pipeline, and it is. Regarding the volume of new client opportunities that are entering our pipeline, over the same last 120-day period, our pipeline of new client acquisition opportunities has also increased steadily on a year-over-year basis. While we don't close every opportunity that enters our pipeline, this acceleration in new client pipeline is a positive leading indicator of future new client growth. The second area related to these leading indicators is we closely monitor our subscription services booking pace. Booking pace is important because before we can deliver services, we first need to book them and get them scheduled with the client. Just to note about services, when a person buys a subscription, whether that's All Access Pass or Leader in Me, included in that purchase is access to either an implementation strategist in our enterprise division or a leader in me coach in the education division. They're there to help the client drive maximum impact of their subscription. In addition to those services, which are included in the subscription, clients can also purchase access to Franklin Covey delivery consultants to train and coach their employees as needed. Before the pandemic, the attachment rate of services to All Access Pass subscriptions steadily increased, reaching 55%. During the pandemic and in the post-pandemic work from home environment, clients took advantage of our live online services delivery capability to engage their remote workers, pushing services sales above their normal attach rates, reaching 60%. That specific pandemic and post-pandemic use case has moderated somewhat, and our return to the pre-pandemic high services attach rate is a primary contributor to our reduced services sales this year. We expect the services attach rate to be high and to end the year at around 55%, about what it was pre-pandemic. Despite this environment and tougher comparisons, we've been encouraged from a leading indicator standpoint, that in our US and Canada Enterprise business, our services bookings, which are a leading indicator of future services revenue, have improved over the past 60 days and are now ahead of prior year. We expect to achieve strong services revenue growth in the education division, particularly in the fourth quarter when new schools and districts typically complete meaningful portions of their onboarding training and coaching prior to the new school year. As I shared, we also expect to see a rebound in All Access Pass clients' purchase of subscription services in the enterprise division. I'm encouraged by these trends and thought you might find those insights into the business interesting and hopefully helpful. So far, I shared with you what I'm not pleased with and also areas that we're excited by. And I'd now like to transition to my third point, before I turn the time to Steve, which is to talk about some areas in which I'm excited and that we believe will accelerate our growth. I'd like to briefly share three significant executable opportunities for accelerating our growth that are right in front of us, which we expect to execute on, and we believe will collectively make significant contributions to not only continuing this growth but to meaningfully accelerating it. As shown on slide 6, the first opportunity is what I'm calling project penetration. Since the launch of All Access Pass eight years ago, the company has become quite adept at retaining All Access Pass clients, expanding penetration levels, and providing clients with best-in-class services to help them achieve their most important jobs to be done. As a result, the average revenue per All Access Pass holder has increased from approximately $54,000 in fiscal 2018 to more than $83,000 at the end of fiscal 2023. As significant as this growth has been, approximately three years ago, in an effort to see how high we might be in terms of client impact and therefore, in client expansion and penetration, we organized an increased number of client-facing resources around a subset of our client partners in North America to create client impact pods. These pods included providing client partners involved in this test with access to one or more implementation strategists, the services of client success specialists, and the ability to access Franklin Covey's delivery consultants to assist in the implementation of client solutions. Under the direction of the client partner, this impact pod's sole focus has been to assist clients in achieving such great results that we would earn the right to expand our solutions even further throughout the client organization and create clients for life. The results mentioned show that while both the impact pod group and traditional client partner group achieved strong results, the impact pod group's performance has been truly extraordinary along several key metrics. First, as shown on slide 7, the size of the average All Access Pass subscription contract for the impact pod average grew to $80,000, whereas the traditional client partner group averaged $45,000. The second enhancement is the subscription services attach rate, which both groups marked significant growth; however, the impact pod’s subscription services attach rate now represents more than 67%, compared to 50% for the traditional client partner group. Thirdly, the combined subscription and subscription services revenue per All Access Pass holder has reached an average of $132,000 per impact pod client compared to $63,000 per traditional client partner client. Finally, the logo retention rate further establishes these positive outcomes; while the overall All Access Pass logo retention rate is very high, the impact pod averages are more than 500 basis points higher than the traditional client partner group. As a result of these impacts, our top-performing client partners who used to average approximately $1.5 million in annual revenue now average between $2.5 million and $3 million, with several generating more than $3 million each year, compared to the average revenue for all client partners of approximately $900,000. Importantly, despite the significant impacts of penetration and increases in revenue within the client impact pod group, each still has tremendous opportunities for growth. We're still only penetrating about 10% to 15% of the way into these clients' total populations and potential. The potential impact of project penetration on accelerating revenue growth is quite significant. For example, if its full implementation resulted in the average client partner generating even an additional $300,000 per client partner—or 20% of the increase achieved by the impact pod group—this would ultimately add nearly $40 million of incremental revenue compared to the standard client partner ramp. As much as the impact pod is simply a resource pool, which can be accessed by a number of client partners, and since we’ve already hired and trained many client-facing team members to populate additional pods, we’re positioned to expand the rollout of project penetration in the coming quarters. As noted in several earnings calls over the year, the incremental flow-through of this increased revenue to adjusted EBITDA and cash flow is expected to be high, so we're excited about project penetration. The second opportunity for targeted growth, shown on slide 8, is Project Speed to Ramp. The focus of project speed to ramp is to significantly increase the number of new client logos that client partners add each year—accelerating their ramp trajectory and increasing the number of clients we can continue to penetrate and grow over many years. As part of this, we have built a robust team that uses the latest recruiting tools and a rigorous interviewing process to ensure new recruits meet our established profile of a successful client partner. Once recruited, these client partners are assigned a list of named accounts that they are responsible for penetrating. Our support for these new client partners during their ramp-up includes having them go through extended live and live online sales training sessions, providing mentorship with sales presentation aids, holding many hundreds of live events for potential clients, and assigning them to a managing director who works with them weekly, going on sales calls, and doing many other things to support their development. This process continues to be effectively refined, driving significant sales growth worldwide. Over the years, while primarily relying on client partners to generate their own new business from qualified accounts, we have also explored various ways to further accelerate their ramp-up while steadily increasing the revenue growth rate for already ramped client partners. The goal of what we're calling Project Speed to Ramp is to significantly increase the percentage of time a client partner spends making sales presentations compared to prospecting, along with increasing the success rate of those presentations. This will involve implementing a significantly expanded lead generation effort, tested in various circumstances, and so far, the results have been promising. We remain excited about Project Speed to Ramp's potential to accelerate both the ramp time for new client partners and their total revenue once ramped. As we add more than 100 net new client partners in the coming years, this combined approach could bring tens of millions of incremental profitable growth. As part of the implementation of Project Penetration and Project Speed to Ramp, we recently evaluated the size and configuration of our approximately 290 client partners and over 150 additional client-facing field teams. We determined that we should place a few additional resources in roles focused on business development and account penetration. Additionally, we made the difficult decision to separate from approximately 24 client partners who didn’t fit within our planned future field structure. This refinement of our client partner force is similar in nature and scope to refinements made in 2016 when we transitioned to a subscription model. We expect to begin aggressively hiring new client partners in fiscal 2025 and beyond as we fully implement both Project Penetration and Project Speed to Ramp. The third growth accelerator initiative I would like to discuss is Project Impact, as seen on Slide 9, which involves our ongoing investment in developing high-impact solutions that drive collective action at scale. We partner with organizations to address their most important people-related challenges, such as developing leaders at all levels, building winning cultures, and creating systems for execution to achieve breakthrough results. Our strategies do not merely focus on individual improvements but work to systematically transform performance across organizations. To that end, I’d like to present a few product updates. In the last six months alone, we completed and launched leading at the speed of trust, significantly modernizing the solution to ensure it remains relevant for contemporary work cultures. We also launched a new companion solution, working at the Speed of Trust, which extends impact to individual contributor audiences. Three months post-launch, leading at the Speed of Trust achieved a remarkable Net Promoter Score of 78, representing a 34% increase compared to our previous renowned solution. Moreover, through advancements in technology like the Impact platform, working at the Speed of Trust has been assigned on demand to more than ten times as many learners compared to the prior solution. The second product-related update is the newly launched communications offering entitled Navigating Difficult Conversations, which debuted in February. It is an engaging solution that equips individuals and teams with the skills necessary for impactful conversations. Within the first month, Navigating Difficult Conversations has already been adopted by clients at twice the rate of any other skill-specific solution we've launched in recent years. The third product offering launched is Helping Clients Succeed: Strikingly Different Selling, leveraging the intellectual property of our traditional sales offerings. The solution is designed using the latest science of learning research to drive measurable outcomes for business-to-business sales. Initial client reactions have been overwhelmingly positive. Our Impact Platform has now become an industry-leading technology solution, as we've launched it in over 20 languages and built robust diagnostic experiences to measure behavior change over time. Over 80% of our clients have upgraded to the Impact Platform, with those who have upgraded assigning four times as much content to their populations. Looking ahead, we expect to upgrade 100% of our clients by January 2025. Notably, we are revamping our flagship 7 Habits solution for individual effectiveness, with the most significant overhaul in a decade set for launch in fall 2024. Furthermore, clients are pleased with the increasing access, engagement, and enjoyment of the learner experience we've been working on, with exciting improvements to the Impact Platform launching soon, including our first-ever native mobile apps and exciting enhancements to the admin experience. Stepping back, I'm very pleased about these three key projects: Project Penetration, Project Speed to Ramp, and Project Impact, which we hold high expectations for in terms of driving increased growth in the coming quarters and years. I now want to turn some time over to Steve to discuss more specific results from the quarter.
Steve Young, CFO
Thank you very much, Paul. Good afternoon, everyone. It's a pleasure to be with you today. I'd like to briefly provide more detail on the factors underlying our performance, focusing on the overall company results for the quarter and then on three key areas of our company: our Enterprise business in North America, our international Enterprise business, and our Education business. As shown on Slide 11, second quarter sales were $61.3 million, which, as we expected, was roughly even with the record $61.8 million achieved in the second quarter of last year. Year-to-date sales were $130 million compared to $131 million in the prior year. For the latest 12 months, sales were $279 million compared to $276 million in the prior year. These results are essentially even with the record levels achieved last year, with year-to-date sales down about 1%, but the latest 12-month sales up about 1%. Second quarter adjusted EBITDA was $7.4 million this year compared to $8.2 million last year, with year-to-date adjusted EBITDA at $18.4 million compared to $19.7 million in the prior year. The latest 12-month adjusted EBITDA was about $47 million compared to about $44 million the prior year. Now as shown on Slide 12, results in our Enterprise business in North America continued to be strong in the second quarter. Sales in North America, which accounts for about 73% of total Enterprise Division sales, was $34.1 million in the second quarter, $72.5 million year-to-date, and $150 million in the latest 12 months. The revenue achieved in this period is essentially even with prior years, which were up 8% for the quarter, 12% year-to-date, and 15% for the latest 12 months. Subscription sales in North America were $22 million, growing 5% for the quarter, or $44.5 million year-to-date, which is up 6%, and $87.8 million for the latest 12 months, also up 6%. The combination of subscription and subscription services sales in North America was $31.5 million in the second quarter, representing 4% growth on top of the 7% achieved last year's second quarter. These sales were $66.3 million year-to-date, up 2%, and $136.4 million in the latest 12 months, which is up 4%. Our balance of deferred subscription revenue billed and unbilled in North America continued to be strong, growing to $117 million in the quarter, which is up 3% against the 22% growth achieved in last year's second quarter, establishing a strong foundation for next year's growth. The percentage of North America's All Access Pass for multiyear periods increased to 56% from 50% last year, while the percentage of invoice sales represented by multiyear contracts increased to 62% from 57% last year. As shown on Slide 13, revenue from our international operations accounts for approximately 17% of our total Enterprise Division revenue, standing at $7.2 million in the second quarter, which is even with last year, $16 million year-to-date, down about 4%, and $34.5 million in the latest 12 months, which is up about 5%. As also shown on Slide 13, our international licensee partner sales were $2.7 million in the second quarter, a decrease of 6%. Year-to-date, sales totaled $6.1 million, even with last year, and $11.6 million in the latest 12 months, which is up 3%. If we cut through these numbers, we can see that in the Enterprise division, our subscription business is generally up, while our other revenue is down, making the overall result essentially flat. The fact that it’s our subscription business that's up is encouraging as we look toward future quarters and years. Lastly, as shown on Slide 14, sales in our education business, which accounts for about 25% of total company sales, grew to $14.6 million in the second quarter, up 3% on top of the 28% growth achieved in the second quarter of FY '23. Year-to-date sales grew to $29.3 million, up 3%, and for the latest 12-month period, they were $70.5 million, up 4% on top of the 22% growth in the previous year. Education subscription and subscription services sales grew to $12.9 million in the second quarter, up 4% against the 30% growth in the previous year's second quarter. Year-to-date, sales grew to $26.1 million, up 2%, and for the latest 12-month period, education sales were $65.2 million, up 4% against last year's same period growth of 23%. The balance of deferred subscription revenue billed and unbilled for Education increased by $10 million to $30 million compared to last year. As you recall, not many years ago, the Education business was small with a traditional services and materials business model. We are excited that since the launch of the Leader in Me subscription in the Education division, revenue has grown substantially from just over $3 million in the first year to more than $70 million in the latest 12-month period, transforming the Education business model to closely mirror that of Enterprise with approximately 90% of its revenue now coming from subscription and subscription services. We also expect that after years of accelerated investment, the Education division's adjusted EBITDA margins will continue to expand this year and beyond. Now, regarding cash flows and the balance sheet, as shown on Slide 15, our year-to-date cash flows from operating activities were $30 million this year, compared to $11 million last year. Our free cash flow for the first two quarters increased to $24.7 million, compared with $3.3 million for the prior year, reflecting improvements in working capital compared to last year, including accounts receivable, accounts payable, accrued liabilities, and deferred revenue. In Q1 and Q2, we invested $18.4 million to purchase 461,000 shares, totaling more than $49 million for share repurchases over the past four quarters. We ended the quarter with over $103 million in total liquidity, including $40.9 million in cash and $62.5 million available under the revolving credit facility, even after investing $18.4 million in stock repurchases. Compared to Q2 of FY 2023, the sum of billed and unbilled deferred subscription revenue increased by 9% to $158.5 million, providing substantial visibility into future sales results. Of that, deferred subscription revenue increased 13% to $86 million, while unbilled deferred revenue increased 4% to $73 million. We continue to report a strong balance sheet. Now, for guidance. In our first quarter earnings call, we communicated that we expected revenue in the back half of this fiscal year to be higher than in the first half and that we expected to finish the year with adjusted EBITDA at the bottom of our range of between $54.5 million and $58 million in constant currency. While we expect our back half revenue growth to exceed that which we achieved in the first six months, we expect the absolute amount of that growth to be lower than the low double-digit growth we had previously expected for the back half. This is primarily due to the fact that although our expected rebound in services is occurring, it began slightly later than anticipated. As a result, we now expect total sales for the year to be lower than previously expected, with growth of approximately 1% in the third quarter, increasing to approximately 6% in the fourth quarter. Despite this lower revenue, we still expect adjusted EBITDA to come in at the bottom end of our previously announced guidance range of $54.5 million to $58 million in constant currency. This forecast reflects the expected high flow-through of incremental revenue to adjusted EBITDA, largely due to our high gross margin and declining SG&A as a percentage of sales. Additionally, it accounts for the restructuring event that Paul mentioned, along with the fact that a substantial portion of our compensation throughout the company is tied to growth in sales and overall financial performance. For Q3, we expect net sales to grow approximately 1%, reaching around $72 million, and adjusted EBITDA to range between $12 million and $13 million, reflecting an anticipated midpoint increase of approximately $600,000 over the prior year. Our back half projections align with our expectation that add-on sales will continue to strengthen. As previously mentioned, our education division is also expected to have a robust Q3 and Q4.
Paul Walker, CEO
Steve, thanks so much for that. Thanks for going through the quarter. Let’s now invite Lisa to open the call for questions, and as she does that, I'll reiterate that we feel very good about the building momentum we're seeing in the business and are looking forward to a strong back half and a positive fiscal 2025. So Lisa, let's take some questions.
Operator, Operator
Thank you. Our first question will be coming from Dave Storms with Stonegate. Your line is open.
Dave Storms, Analyst
Good evening. Appreciate you taking my question.
Paul Walker, CEO
You bet. Hi, Dave.
Dave Storms, Analyst
How is it going? Just want to kind of start around the slower-than-expected rebound. It sounds like that's just a timing issue. Can we kind of expect that to hopefully restart back in the early parts of 2025? Or is there anything that you would expect to maybe bring that back into play for the second half of this year?
Paul Walker, CEO
Yeah. Are you referring specifically to the services rebound?
Dave Storms, Analyst
Yes. Yes.
Paul Walker, CEO
Okay, great. Yeah, we're—so yes, the rebound—the leading indicators and the services booking pace suggest that the rebound has begun, and it is taking about a quarter slower than we thought. We're beginning to see the rebound. We expect that rebound will accelerate through the back half of the year, and we'll certainly witness a part of what's driving growth in the back half overall due to the flattish first half of the year. The adjustments look like having reached a high watermark of 60%, at least for now, the services attach rate is regressing back to what was already a high rate of about 55%. We expect it will stay there, and we will work to improve it over time.
Dave Storms, Analyst
Understood. Very helpful. Thank you. And then it sounds like you had a really strong quarter for logo retention. Any thoughts around that going forward? It sounds like there might be fewer delays in decision-making among clients. Is that expected to be the trend moving forward?
Paul Walker, CEO
Yeah. Great question. We were pleased with the logo retention in the quarter, as I mentioned, it was one of our best quarters for logo retention. I believe it is due to a couple of factors. One is, as we were in the fall this year executing, we may not have fully understood the extent to which clients were pausing to think about their budgets and possibly create new budgets or scoping back, while at the same time, interest rates were spiking. I think that has created headwinds for us in the first part of this year. Now clients have their budgets clearer and are realizing a bit more certainty in the economy, shifting from a headwind to possibly less of a tailwind. The second factor driving this logo retention rate is that we've learned quite a bit over the eight years we’ve been a subscription company. We converted to a subscription model eight years ago and had never been a subscription business prior. We've improved our post-sale support to help clients, and this project penetration's real goal is to increase client retention in terms of both logo and revenue, and we’re starting to see that begin to bear fruit as well.
Dave Storms, Analyst
That's very helpful. Thank you for taking my questions.
Paul Walker, CEO
Thanks, Dave.
Operator, Operator
Thank you. One moment for the next question. Our next question will be coming from Jeff Martin of ROTH. Your line is open.
Jeff Martin, Analyst
Thanks. Paul, can you hear me okay? I'm in the car.
Paul Walker, CEO
Yeah. Hi, Jeff.
Jeff Martin, Analyst
Okay, great. So Paul, could you touch on the client partner changes? I mean, you ended Q1 at about 300 client partners, and the goal is to add 40 net new this year. Now it seems we took a step back down to 265. Could you explain the plan for this year? Did I hear correctly that you're taking a pause on hiring client partners until next year?
Steve Young, CFO
Yes, you heard that correctly. So what's underlying that is—so as we've been working on Project Speed to Ramp, part of that effort involved building a field-facing organization of about 430 people. We focused on understanding how to configure those groups correctly. We believe we have a good configuration map. Historically, we didn't segment based on client size or verticals; going forward, we see opportunities to create strategic segmentation. We identified about 24 partners who didn’t fit our future deployment structure, leading to the decision to pause and refine our hiring strategy. We'll aim to add new client partners during fiscal 2025 and beyond.
Jeff Martin, Analyst
Okay.
Steve Young, CFO
This will provide us the necessary structure to capitalize on existing accounts while also exploring new markets. This segmentation around Project Penetration and Project Speed to Ramp aims to unlock significant growth opportunities.
Jeff Martin, Analyst
And my other question is about those executable opportunities you detailed. Where are you in terms of implementation of those projects, and when do you expect to see traction in those efforts? Additionally, when should we expect a material reacceleration of revenue growth?
Steve Young, CFO
Great question. We're in the midst of implementing those initiatives now, particularly as we move toward full configuration by September 1. We're optimistic that we'll see results as we execute these growth projects. While we're already experiencing some natural acceleration in revenue growth, we expect these projects will have a cumulative impact on increasing the overall growth seen in the upcoming quarters and fiscal year.
Jeff Martin, Analyst
Great. Thanks for taking my question.
Paul Walker, CEO
Thanks, Jeff.
Operator, Operator
Thank you. One moment for the next question. Our next question will be coming from Samir Patel of Askeladden Capital. Your line is open.
Samir Patel, Analyst
Hey, guys. Congratulations on successfully executing in a tough environment. I've followed you for nearly a decade and have been a continuous shareholder for eight years. The biggest pushback I've often faced from other investors is about your cyclical nature, suggesting you'd struggle during a recession. While many consulting companies are experiencing double-digit organic declines, I'm impressed your subscription invoices are growing. This highlights the strength of your business model and suggests your valuation should reflect that. Should you consider leveraging this perspective for a tender offer?
Paul Walker, CEO
Thanks for your comment. Indeed, our ambition is to grow faster, and we appreciate your recognition of our performance in a challenging environment. I want to acknowledge the team for their tremendous work and maintain our focus on continued improvement.
Samir Patel, Analyst
Great. Regarding your earlier comments about M&A, do you feel closer to completing one or two acquisitions, considering this environment may present opportunities to acquire competitors who lack a strong subscription model?
Paul Walker, CEO
It's an exciting opportunity, Samir. We’ve been exploring potential M&A opportunities, and while we've been cautious, we believe that in the future M&A will play a larger role for us. We're closely watching how competitors have performed post-pandemic; we see opportunities to acquire companies at attractive valuations as many companies in our space faced challenges after the pandemic, and growth metrics are stabilizing as you noted.
Samir Patel, Analyst
And on the cash usage topic, can you comment on the recent slowdown in repurchases and your outlook for share buybacks? Given your strong cash flows, do you see that as feasible, potentially through a tender offer?
Steve Young, CFO
Certainly, Samir. We perceive the situation the same way you do. We are weighing our options carefully for potential repurchases moving forward. While we don't typically commit to specific plans, there’s a positive sentiment around it.
Samir Patel, Analyst
Okay. Thanks, guys. I appreciate the insights.
Paul Walker, CEO
Thanks, Samir.
Operator, Operator
Thank you. One moment for the next question. Our next question will be coming from Nehal Chokshi of Northland Capital. Your line is open.
Nehal Chokshi, Analyst
Yes. Thank you, Steve. What are your current expectations regarding currency headwinds for both revenue and EBITDA?
Steve Young, CFO
We've experienced a $200,000 impact on both revenue and adjusted EBITDA this year due to currency fluctuations.
Nehal Chokshi, Analyst
And what do you anticipate for the next two quarters given current currency rates?
Steve Young, CFO
Based on current rates, we project about $200,000 in adjusted EBITDA impact for Q3 and $200,000 again in Q4 compared to last year.
Nehal Chokshi, Analyst
Great. Thank you. Paul, can you provide an update on the timing for delivering value on the three projects you discussed?
Paul Walker, CEO
The value delivery timeline varies across projects. We're solidly in the midst of the initiatives. We have a multiyear roadmap for project impact and expect to gain traction soon for projects speed to ramp and penetration. We anticipate seeing results start to manifest later this year and into next year.
Nehal Chokshi, Analyst
Could you share the subscription penetration metrics for both the Impact Pod and the Traditional Pod?
Paul Walker, CEO
Of course. The Impact Pod penetration currently represents about 20% of our overall subscription and subscription services revenue.
Nehal Chokshi, Analyst
What percentage of client partners currently benefit from the improved selling structure?
Paul Walker, CEO
Currently, around 10% to 15% of client partners will benefit from this improved selling structure, and we plan for wider implementation in the coming quarters.
Nehal Chokshi, Analyst
What distinguishes an Impact Pod from a Traditional Pod operationally?
Paul Walker, CEO
The key difference lies in the level of support; Impact Pods have enhanced infrastructure surrounding them, allowing for more effective engagement of clients post-sale, resulting in expanded subscription and service sales.
Nehal Chokshi, Analyst
Lastly, can you comment on the consumption characteristics of your new and refreshed content pipeline?
Paul Walker, CEO
Certainly. The new module, Leading at the Speed of Trust, has had 10 times the usage of the previous version in its first three months. We expect Navigating Difficult Conversations to follow a similar trajectory as initial client interest is high.
Nehal Chokshi, Analyst
Thank you very much.
Paul Walker, CEO
Thanks, Nehal.
Operator, Operator
Thank you. That concludes the Q&A session for today. I would now like to turn the call back over to Paul for closing remarks. Please go ahead.
Paul Walker, CEO
Lisa, thanks so much for turning back over. Thanks, everyone, for joining us today. I really appreciate your questions, and thanks for your continued interest. Have a great rest of your day and week.
Operator, Operator
Thank you all for joining today's conference call. This concludes the meeting. Have a great evening. Please disconnect.