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Robert A. Whitman - Chairman & CEO

Stephen D. Young – EVP, CFO and Corporate Secretary

Shawn D. Moon – EVP, Global Sales and Delivery

M. Sean Merrill Covey – EVP of Global Solutions and Partnerships and Education Practice Leader

Derek Hatch – Corporate Controller


Joe Janssen - Barrington Research

Jeff Martin – ROTH Capital Partners

Marco Rodriguez – Stonegate Securities

Sarkis Sherbetchyan - B. Riley & Co.

Jim Larkins – Wasatch

Franklin Covey Company (FC) F4Q 2013 Earnings Conference Call November 7, 2013 5:00 PM ET


Welcome to the Q4 2013 Franklin Covey Co Earnings Conference Call. My name is Ruther and I will be your operator for today’s call. (Operator instructions) Please note that this conference is being recorded.

I will now turn the call over to Mr. Derek Hatch, Corporate Controller. Please go ahead.

Derek Hatch

Thank you. Good afternoon ladies and gentlemen. On behalf of Franklin Covey Company I would like to walk you to our fiscal 2013 fourth quarter and full fiscal year earnings call.

Before we begin, I would like to remind everyone that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon management’s current expectations and are subject to various risks and uncertainties, including but not limited to the ability of the company to stabilize and grow revenues, the ability of the company to hire productive sales professionals, general economic conditions, competition in the company’s targeted marketplace, market acceptance of new products or services and marketing strategies, changes in the company’s market share, changes in the size of the overall market for the company’s products and services, changes in the training and spending practices of the company’s clients and other factors identified and discussed in the company’s most recent annual report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.

Many of these conditions are beyond our control or influence, any one of which may cause future results to differ materially from the company’s current expectations; and there can be no assurance that the company’s actual future performance will meet management’s expectations. These forward-looking statements are based on management’s current expectations and we undertake no obligations 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 I’d like to turn the time over to our Chairman and Chief Executive Officer Mr. Robert Whitman.

Robert A. Whitman

Thanks Derek. We like to welcome everyone to the fourth quarter and fiscal 2013 conference call. We appreciate all of you joining us. Over the past years and quarters as you know we’ve been pleased to be able to achieve both significant and consistent growth in revenue, adjusted EBITDA, adjusted EBITDA margin, operating income, net income and net cash generated.

As you can see in the slide 3, we were very pleased that these trends continue to be stronger in fourth quarter and fiscal 2013 as a whole with growth on all of the key metrics. We really did have a very, very strong quarter and strong year. We were delighted with the results and not only for the results in the sales, but for the foundation that it shows the different initiatives are working, the marketing and sales ramp up initiatives are working and we’ll dive into those in a minute.

The headlines for the quarter include the following: Revenue growth accelerated with revenue growth of 20.7% to $61.6 million in the fourth quarter making it our largest quarter ever for the current business and revenue growth of 12% to $190.9 million for the year.

Adjusted EBITDA increased significantly growing 29.8% to $12.5 million in the fourth quarter and growing 16.1% to $31.4 million for the full fiscal year. Our adjusted EBITDA margin also expanded increasing to 20.3% in the fourth quarter and to 16.4% for the year.

Income from operations grew significantly increasing 17% to $9 million in the fourth quarter and growing 22.9% to $21.6 million for the year. Net income growth also accelerated increasing a large percentage 127.1% to $7.7 million in the fourth quarter and growing 82.6% to $14.3 million for the year and then finally diluted net income per share also grew significantly increasing 161% in the fourth quarter to $0.47 a share and growing 86%, $0.80 a share for the year.

So we are very pleased with the year, the quarter, the momentum inversely every operation, every channel, almost every practice, in fact with the key basic strategic initiatives are working and so we are pleased with the results.

As you know we have three overarching imperatives. First is to grow top and bottom line revenue year-after-year, we just reported on that. The second is to deliver quality results for clients and the third is to increase the size and productivity of our sales and delivery forces worldwide.

Just provided the financial headlines I’ll give you brief update on our growth objectives. And I would now like to just share some headlines regarding our quality results for clients and sales force growth and productivity objectives. I’ll start with the brief report on our sales force growth and productivity. This initiative is focused on significantly increasing the size, capability and productivity of our sales and delivery forces worldwide.

As many of you know we have hundreds of as yet unfilled sales territories in the U.S. and Canada and in our direct offices in Japan, U.K. and Australia and international account practices. A similar opportunity for growth exists among our global licensee partners. This provides us with a lot of headroom for continued and accelerating growth. The key metrics by which we measure the success of this initiative include the following. First, increasing the size of our sales force, our number of client partners increased to 120 as you know in last fiscal year and then moved to 145 by the end of October. So this time we’re setting it about 145 client partners, of these 145 client partners 72 are still in their ramp up period and this is important because this group of ramping client partners not only generates current revenue but it also creates significant embedded future growth as they complete their ramp up over the next few years. In fact if we were to stop hiring sales people we’d expect the existing ramping class to generate more than $30 million of increased revenue in the coming years just from that ramp up alone.

As noted in our previous reports our goal is to add approximately 30 net new client partners per year, we’ve a very detailed office by office plan for meting this goal in our direct offices and national account practices for each of the next several years. In this year as I noted we were 145, so we were net 25 in last 12 months or so. We expect we’ll make up that you know the five that the five net that we missed last year and added another 30 on top of that in this year some time just start dates, somebody falls out or get safer something, the net number changes a little bit month to month.

So the first idea is to increase the size of our sales force we are doing that expect to continue to do that as around 30 each year. Second, to have the new client partners ramp up according to the plan as you can see in slide 4 we are pleased that during fiscal ’13 revenue from client partners and ramp up again exceeded expectations with these ramping client partners generating $41.3 million revenue in fiscal 2013 compared with our target of $34.7 million. With addition of our new sales manager positions in fiscal 2013 and the exclusive focus of we just have new client partner ramp up, we made really exceptional and accelerated progress in both the ramp up and retention of new client partners in fiscal 2013. I’ll just note that the exhibit on page 4 is a ramp up of just client partners in the U.S., Canada and our education doesn’t include our international direct offices and some of the other specialized sales forces, but this is the one that we usually measure and report on.

A third metric for growth initiative is to have the productivity of fully ramped client partners those that have been with us at least five years continue to increase. From fiscal 2004 when we began this hiring initiatives through fiscal 2013, our average revenue per seasoned client partner, eliminate client partner those with this five years has increased from 816,000 in 2004 to more than a million seven in 2013 that represents a compounded average growth rate of 8% which somewhat exceeded the original target productivity expectations as we said in 2005.

Our retention rate for these fully ramped client partners has also been very strong. In 2005 we had established the goal of having an annual retention rate of 95% of these fully ramped client partners and we’ve been fortunate that it’s been very close to that at 94.5%.

The fourth and final metric for this initiative is having the productivity of our international licensee partners also continuing to increase as you can see in the slide 5, the gross revenue from our intentional licensee partners on which we own a royalty of approximately 15% has increased on the left hand side as you can see from approximately $24 million in 2004 to $80.5 million in 2013.

Now royalties from the international partners has increased commensurately from $4.5 million to $12.9 million in 2013. Our royalty and new licensing revenue from the licensees continued to increase in fiscal 2013 growing 9.5%. So that first big initiative of increase in the size and capability of our – and productivity of our sales force continues to be on track. We believe we have put the infrastructure in place to continue to hire and ramp up, produce client partners a year in our direct tops as national account prices in the coming years.

We think that most of the, not all of the basic infrastructure bets are working, investments are working in terms marketing, sales managers, regional practice leaders etcetera and so, we feel at this point we’ve got a good structure, is working well in our U.S. office and the national account practices in the U.S. It’s beginning to work also, these same things have started to be implemented in our direct offices outside the United States as well as in the few of our international licensee partner operations. And so, we’ve got a big opportunity for accelerating growth for these things that are just being implemented.

Now, I’ll just give a brief review of our progress on our quality results for clients’ objective. This folks of this initiative is to ensure their content and solution that are best in class and have a measurable size mix so to speak, lasting impact on our clients results. We’ve made significant progress on our quality objective over the past years and this progress continued during the fourth quarter and for the full fiscal year.

We measure progress on this objective along the four dimensions, high revenue renewal rates, pricing power, growth across our content delivery, modalities or methods of delivery and growth of our various practices, we just hit those briefly.

First, revenue renewal rates, we’re pleased that our revenue renewal rate remains very high in fiscal 2013 with approximately 90% of our revenue from fiscal 2012 repeating in fiscal ’13. Second, pricing power, the quality of our best in class branded solutions continues to provide us with pricing power across all the various delivery modalities that doesn’t mean that it’s particularly expensive but is premium priced within the modality. But if somebody wants to have it online of course it will be premium price for that modality but much less expensive in having it delivered on site.

As a result of this, having these best in class branded solutions, you can see in slide 6, our gross margins have increased steadily over the past years and quarters. This trend continued in fiscal ’13 with our gross margin increasing to 67.6% from 66.1% in fiscal ’12 and this increase reflected during our normal annual price increases of 2% or 3% and an increase in the mix of client employed facilitated purchases.

The third metric for this initiative is that growth across our various delivery modalities, we’ve made very good progress and increase in the flexibility and scalability of our content delivery options over the years and we continue to show strong growth in each of these delivery options. We utilize variety of different modalities to reach people from electronic to live to a facilitator lead delivery and in 2013 revenue increased to reach out these modalities.

Revenue from our onsite delivery were an utilization higher there training consultants to deal with this onsite increase 19.7% to 11,000 training days in U.S. and Canada in 2013 compared to 9,200 training days or training engagements in 2012. These onsite training days often mark the starting point for what become large pervasive client implementations that include clients licensing in-house trainers who then purchase content in the form of either training manuals, pdf files, IP licenses, electronic or digital delivery in order to embed it. And so we did growth on onsite among our license facilitators inside company’s revenue are more than 12,000 active license client employee trainers increased 27.8% during fiscal 2013 to $44.4 million up from $34.8 million in fiscal ’12 reflecting both increased purchases from existing facilitators and the addition of more than 5,000 new facilitators inside companies which we expect will possibly impact our results in future periods.

A technology assisted delivery also continues to increase significantly throughout the company more than 85% of our new license client employee trainers now become certified to teach virtually either online or through web base methods. Approximately 60% of our revenue under execution practice now includes the purchase of license to utilize our “My4dX” software to assist in driving pervasive implementation of the 4dX execution methodology.

In fiscal 2014, this software is being hard bundled into and included in the pricing of the vast majority of our execution engagements which will both increased the stickiness and impact of our execution offering and creates additional recurring subscription service revenue in the future.

Next, the acquisition of NinetyFive 5 in March for our sales performance practice more than 50% of our sales performance practice revenue is expected to include technology-based implementation tools, in the future including our 5 Online subscription service in the coming years. In our education practice, more than 1,000 Leader in Me online subscriptions were sold in fiscal ’13 compared with 750 in the previous year. Leader in Me online subscriptions provide the school of the tool to continue to make Leader in Me their school operating system and create recurring subscription service revenue and is attached to an ongoing coaching package which aids the school in driving Leader in Me solution deep into the fabric of how the school operates.

And then, the final metric on this initiative of making an impact on clients is the growth in our various practices as you can see in slide 7, since 2005 each of our seven practices has grown significantly. This growth continued in fiscal ’13 as you can see also in slide 8, we achieved a significant revenue growth across most of our practice areas during last year with education growing 64%, Trust 31%, execution 27% productivity 22% and sales performance 12%.

Revenue in our customer loyalty practice decreased 7% in 2013 reflecting this multi quarter decline in revenue related to one large contract which is partially offset by expansion of other clients winning account, winning new accounts, we expect that customer loyalty practice will actually show revenue growth in fiscal 2014.

Revenue in our leadership practice decreased a 11% in fiscal 2013 reflecting both company's emphasis on our trust practice during the year, the decline in leadership practice revenue also related to the expected decline in revenue from large government agency contract. And the focus of our leadership practice came on the refinement and the pending launch at the end of our second quarter of our new leadership offerings which we will talk about in a few minutes. We expect launch for our new leadership offerings to drive really significant growth in our leadership practice revenues during the second half of 2014 and beyond.

One additional note on our ongoing R&D efforts, we have a reputation for having best in class solutions in each of our practice area. And we are committed to continue to earn that reputation. I am having some background noise. I am not sure. Maybe our operator can help this. I am not sure. Thank you.

Hopefully we all are still here. We invest approximately 4% of revenue each year on research and development and have done so each year for the past decade. We invest an additional approximately 3% of revenue each year in practice leadership to ensure the offerings are connected to the right client jobs to be done and they can be easily implemented by clients. As a result we have relevant up-to-date world class solution to allow higher gross margins and consistently produce great results for our clients which leads the 90% plus revenue repeat.

For this coming fiscal year, we are working on several projects which will support continued growth, some of these include new updated version of the seven habits of highly effective people signature program and this is a major redo which we believe maintains all the great things in it now but updates everything else. It's our largest single solution sold throughout the world. This will launch in March.

We are also working on new learning modules for our sales performance practice expanding a Leader in Me solution and updating our communication advantage series of well developing several new online learning applications. We believe our product development capability is a key competitive advantage for us and we are committed to keep it so.

So finally, I will just say to give the few comments on our outlook. Each of our key momentum indicators continues to be very positive. And the momentum in our business has ever been stronger and continues to be both strong and broad based.

Our corporate pipeline of days in awarded revenue continues to be strong during our very strong fourth quarter in which we grew 20.7% more than $10 million, a significant portion of our pipeline of days that have been on the books into the third quarter was actually converted to revenue in the fourth quarter which is great that was a fast conversion cycle.

Despite the tremendous amount of revenue delivered during the fourth quarter, we have strong new books resulting in our corporate pipeline of booked days of awarded revenue into the fourth quarter remain equal to that we had at the same time last year despite we had $10 million more revenue in this year's fourth quarter as you can see in the slide 9.

With strong continued bookings to-date in our fiscal first quarter, our pipeline of booked days and awarded revenue has increased $29.6 million as of the end of October and we expect continued additions during November. The green part of that thing on slide 9, our government contract pipeline of booked days and awarded revenue related to a specific large government agency contract. Net decline to zero at the end of 2013 only because there was a change in the contracting time frame so the old contract ended and the new one – the government didn’t rebid this contract until the first quarter.

The contract renewal process occurred in the first quarter in September and we were very pleased to be awarded renewal of that contract. As a result as you can see in slide 9, approximately $4.5 million of awarded revenue related to that contract was added to our pipeline of booked days and awarded revenue as of the end of October.

Our perspective business pipeline which is you know is a measure the amount of potential new revenue currently being discussed with and proposed to existing in potential clients increased significantly during the fourth quarter compared with last year and reached record levels in our U.S. geographic offices and our direct offices in Japan, Australia, and U.K. and international account practices.

These perspective business pipelines are one stage earlier in our business development process and our pipeline of booked days and awarded revenues and has historically been very strong predictions of the likely strength of our bookings and revenue in the coming months and quarters. In fact, the conversion this large perspective business pipeline at the end of the fourth quarter has already begun to translate into significant new contractual bookings and revenue in our first quarter of fiscal 2014.

So we are very encouraged by the strength of 2013 results by the momentum we are continuing to see in the business. By the continued growth and the size and productivity of our direct sales forces, by the growth in our international licenses partner operations and despite continued softness in our government business which we expect will turn some this year with the awarding of the new contract, we believe it indicates very strong growth for the coming quarters and for fiscal 2014 as a whole and beyond.

We are saying our fiscal 2014 full year adjusted guidance range at this time between $35 million and $37 million quite the similar range as we did last year. The low end of the range being about 10.8% and the higher end of the range being about 18% and we will provide additional updates in course of the year as move forward but we feel comfortable that our results should toggle within that range.

To provide some insight, just as part of this outlook on the likely spread of our expected increase in revenues and adjusted EBITDA maybe just ask you to refer to slide 10 which as you can see provides an overview of our historical spread of business throughout our fiscal year. This historical spread suggest that a disproportionate amount of our total adjusted EBITDA and our growth in adjusted EBITDA would be expected to occur in our fiscal second, third and fourth quarters.

This normal pattern actually is likely to be even more pronounced in fiscal 2014 due to applied factors; first the very large fourth quarter we just had in fiscal 2013 included some revenues that we had anticipated might have been recognized in first quarter which was due to the timing of contract that came into the fourth quarter and that will reduce the growth rate in the first quarter or so.

Second, the impact of the temporary government shutdown, although we won the rebid of the major government contract in mid September, well the shutdown was relatively short. The startup has taken a long time and so because of that and the time required just to get the government functioning basically again and rebooking postpone training dates we were – despite winning the contract, we were not able to recognize any of that awarded revenue in September and October and what we haven’t lost is it will still be there. We expect it will begin to recognize revenue from that contract through November but we will have lost those two months that we might have had to book.

Third impact on the first quarter will be the year-over-year decline in Yen loads of the dollar. This started in last June, second quarter meaning that despite the expected solid revenue growth in our Japan direct office and local currency in Yen there is likely to be a decline in revenue in U.S. dollar during the first quarter.

Fourth, we tend to hire a lot of our new sales people at the start of our fiscal first quarter so they can began sales school and attend our sales kick off meeting at the end of September. So the expense associated with increase in our number of new client partners has a disproportionate larger impact on Q1 and finally a tenant vacancy in our campus during the first quarter will reduce other revenue in the contribution to adjusted EBITDA from leasing.

Consequently we would expect that almost all of the strong growth in adjusted EBITDA we expect to achieve in fiscal 2013 will occur in our second, third and fourth quarters with our first quarter adjusted EBITDA being essentially flat or slightly down or slightly up compared to last year's first quarter depending on the timing of the government getting going and a couple of other contracts.

Now importantly we expect that some of these factors which will flatten the first quarter will actually provide a very positive tail wind for us in the future quarters including the follow up at one, we expect the revenue ramp up with the new client partners hired at the end of last year and our first quarter to really begin to bear fruit in the second, third and fourth quarters increasing revenue and the increase in the flow to also the revenue will flow through because they have pretty fixed cost in their first year.

Second, government, after two years of revenue declines in the government business, primarily related to the expected maturation of the particularly large government contract but also affected by other governmental things that have been going on. We now expect with renewal of this large contract and other opportunities we have been pursuing in winning of the government, our government business will grow again during the balance of fiscal 2014.

Third, the effect of foreign exchange, the Yen, the big increase in the value of the U.S. dollar relative to Yen accrued during our fiscal second quarter last year, and has impacted each quarter since. After December this year, however, the negative impact of that devaluation on our otherwise strong and growing Japan operations which grew 17% local currency last year is likely to be much less than last year plus positive later in the year. So all in all, with the success, with the traction we have had the size of our pipeline, the launch of seven habits, these factors that should be going force during the second, third and fourth quarters we feel very good about the momentum about what we are seeing in the business and are expected to grow during the fiscal 2014 and beyond.

I want to thank each of you for your continued support and guidance and like to now turn the time over to Steve Young, our CFO for some brief remarks.

Stephen D. Young

Thank you, Bob. Good afternoon everyone. I am pleased to be able to give you some bit of a summary of our financial results so for those of you who are like – who like numbers here are some additional numbers to the ones that Bob talked about.

So revenue slide 11, in the four year since the end of our fiscal 2009, a time when many in the performance improvement industry have struggled to grow, we are pleased that our revenue has grown from $123 million to $191 million, an increase of $68 million or 55% during that period.

For FY 2013, the revenue increased $20.5 million to $190.9 million, an increase of 12% compared to last year. In the fourth quarter, revenue grew $10.6 million or 20.7% compared to the prior year's fourth quarter. A breakout of revenue for each of our channel is shown in slide 12.

Adjusted EBITDA slide 13, for the fourth quarter adjusted EBITDA increased $2.9 million to $12.5 million, a 29.8% increase compared to last year's fourth quarter. For the year, adjusted EBITDA increased 16.1% to $31.4 million compared with the $27.1 million of adjusted EBITDA last year. Adjusted EBITDA for both the year and the fourth quarter were the highest ever for our current business.

Income from operations on slide 14, for the fourth quarter income from operations increased 17% or $1.3 million to $9 million. For the year income from operations increased 22.9% or $4 million to $21.6 million.

Net income, slide 15, for the fourth quarter net income increased 127% or $4.3 million to $7.7 million compared with $3.4 million in net income achieved last year. For the year, net income increased 83% or $16.5 million to $14.3 million. This increase in net income is due to the significant increase in operations and a significant decrease in the effective tax rates. Diluted net income per share for the fourth quarter, diluted net income per share increased 161% or $0.29 per share to $0.47 per share compared to $0.18 per share last year. For the year, diluted net income per share increased 86% or $0.37 a share to $0.80 a share compared to $0.43 a share last year.

Cash flow, net cash generated slide 16, for the fourth quarter our net cash generated increased 25% or $2.1 million to $10.4 million compared to last year's fourth quarter. For the year net cash generated increased 10.6% or 2.3 million to 24.5 million.

Our adjusted EBITDA to sales margin, which is Slide 17, shows our adjusted EBITDA margin expanded for both the fourth quarter and the year. For the fourth quarter, the flow through of increased revenue to adjusted EBITDA resulted in an increase in our adjusted EBITDA as a percentage of sales to 20.3%, up from 18.9% for the same quarter a year ago.

For the full year, despite significant year-over-year staffing investments, the things that Bob talked about, our adjusted EBITDA as a percentage of sales expanded to 16.4% up from 15.9% last year and 13.2% in 2011. With the expected continued strong revenue growth and high flow through of incremental revenue to adjusted EBITDA we expect our adjusted EBITDA as a percentage of sales to continue to increase and should reach approximately 18% on a full-year basis in a year or so.

Our ongoing investments, we are particularly pleased that these operating results are being achieved while we continue to make significant investments in growth, for R&D, practice leadership, marketing, higher number of client partners training consultants, and event marketing people, and then building our mentoring and training infrastructure for our direct offices, as well as helping our international licensee partner growth. While these investments totaled more than $18 million for 2013, we are pleased that we are still able to see significant growth in all the areas of our financial statement. We see significant opportunities for growth. We believe that we’ll be able to continue to high return from our continued investments in all of these areas.

For the fourth quarter, our flow-through of incremental revenue to incremental adjusted EBITDA increased 27% as Bob and I both mentioned before, and we expect that our flow-through will be sufficient over the next year or so that we can reach that stated target of 18% adjusted EBITDA to sales margins, which is something important to us.

Additionally if you look at Slide 20, you will see that certain financial -- or the 2014 estimates that we normally give at this time, we just put on Slide 20 rather than taking the time to talk about them. So we are pleased with the result for this quarter and for this year.

I like to now invite Shawn Moon, who heads all of our direct offices and our execution trust and sales performance practices, and also Sean Covey, who heads our education and productivity practices, our International licensing partner network, and our innovations group to give us comments about the major challenges.

Mr. Shawn Moon?

Shawn D. Moon

Thank you, Steve. Good afternoon. Revenue in our five direct offices in the US and Canada, including our government services region, grew 9.9% in the fourth quarter, and 11.9% in the full fiscal year ’13. Revenue in our four geographic offices, which excludes our government team, grew 22.8% in the fourth quarter and 18.4% for fiscal ’13 as a whole. Revenge in our government services region decreased 1.9 million or 28% during the fourth quarter and 2.1 million or 11% for the year. As Bob previously alluded the Federal government shutdown was very disruptive to our government services business.

Revenue in our direct offices in Japan, the UK and Australia increased 14.1% or 1.1 million in the fourth quarter, despite a $1.6 million negative impact on revenue and the year-over-year decline in the Yen as Bob mentioned. For fiscal FY ’13 as whole revenue in the International direct offices grew 2.7% with a 13.6% increase in revenue in Australia, 1.6% increase in revenue in the UK, and a 0.8% increase in revenue in Japan, despite a negative foreign-exchange rate related to the impact of the 3.1 million Yen in Japan.

In Yen, interestingly Japan’s revenue grew 16.9% and EBITDA 38.2%. So excluding this foreign-exchange related decline revenue for the year in these direct offices grew 14.5% or 4.2 million. As noted, the investments we have made in the US geographic offices, including investments in new hire -- new sales hires, the addition of a sales manager position in each region to help ensure and accelerate the new client partner ramp up, marketing events, regional practice leaders et cetera resulted in revenue growth in these offices of 22.8% in these offices in the fourth quarter, and the growth of 18.4% for the full fiscal year ’13.

We have started the implementation of these investments in our International direct offices and expect to drive accelerated growth in these offices in the coming quarters and years. Revenue in our sales performance practice increased 82% or 1.4 million in the fourth quarter reflecting partially an increase in revenue related to the acquisition of NinetyFive 5 at the beginning of the third quarter. For the full year FY ’13 revenue in the sale performance practice increased 12% or $1 million. As you know, shortly after the end of our fiscal second quarter we announced the acquisition of the sales transformation company NinetyFive 5 as a strategic addition to Franklin Covey’s sales performance practice.

We believe this acquisition positions Franklin Covey’s sales performance practice to be with one of the worlds largest and best sales enablement companies. Not only did this acquisition almost double the size of our sales performance practice, it also added a technology based subscription service component to support and implement Franklin Covey’s award-winning sales methodology, and as much as NinetyFive 5 has been a success for licensing, and Franklin Covey’s sales and leadership training content for the past 6 years, the integration of both companies methodologies and organizations are expected to be highly synergistic for our clients.

Sean Covey?

M. Sean Merrill Covey

All right. Can you hear me okay?

Shawn D. Moon

We can.

M. Sean Merrill Covey

I am out in the airport, and if you hear some planes taking off you will know why. So good afternoon, everyone. Let me begin by talking about the education practice and you know, our education practice continues to generate great results, and revenue in our practice grew by 66% or 4.9 million in the fourth quarter and for the year we grew by 64% or 9.2 million. That is for fiscal year 2013 overall.

And over the past five years, our education practice has grown from approximately t million to over 23 million, and we anticipate that we can continue this rapid growth for the next foreseeable future at least. We have now signed up over 1600 schools in our old school transformation process that we call the Leader in Me. And we believe that the primary reason for the growth is due to the performance results that schools are consistently reporting, including things like increased test scores, increased student self-confidence, greater teacher and parent satisfaction, declining discipline referrals and schools cultures that people want to be a part of.

We are now also beginning to penetrate large urban school districts such as the Boston Public, Chicago Public and The New York City public school systems, and we believe we have a relatively inexpensive unique solution that perfectly meets the challenges school systems are struggling with right now. Namely we are seeing a lot of burned-out teachers and administrators, low test scores, kids who are either dropping out of school or they are graduating, but they are unprepared for the demands of the 21st Century.

And we are also finding that these kind of challenges are not unique to the United States. They are very global and as a result we now have the Leader in Me moving into many other countries. We are in over 25 countries now outside the US, and we continue to sign up distribution partners in these countries to help us implement and scale faster. In Brazil, for example, we have partnered with a company called Abril Education. They are one of the largest education companies in Brazil, and they currently have the Leader in Me installed in over 100 schools, with plans to take it to several thousand schools.

We also have signed up distribution partners in Taiwan, Angola, in Africa, China, the Netherlands, and we have many other. I have been asked the question a lot, where do the schools find the money to pay for the Leader in Me, and we find that many of the schools find their own funding. They get it from Title 1 grants or other school-based sources, but we also get a lot of help from -- for schools, we help them to get access to funding from education foundations, chambers of commerce, large organizations who are very interested in community development, higher education institutions, and also federal grants.

As well we discount our solutions to make it more affordable and scalable as much as we can. We believe the work we are doing in education is very inspiring to our company. It is also inspiring to our corporate clients, who see what we are doing and are excited by it, and to help drive our mission, which is to enable greatness in people and organizations everywhere.

So our big picture mission and vision is to significantly help transform the education systems [Indiscernible] and beyond, and we hope to start an education movement around the world with [Indiscernible].

So, a brief update now on the international partner network. Our international licensing partner network now includes 50 partners. This time last year we had 44, and this represents operations in over 150 countries, and as was mentioned each licensing partner pays us a 15% royalty on top line revenue. Royalties from these partners grew 13.4% in the fourth quarter, and 9.5% for fiscal year 2013 as a whole. This growth reflects our continued penetration in our Asia-Pacific region, particularly in China, Indonesia, India and Thailand, as well as real strong growth in Brazil, Mexico and Central America and the Middle East region.

We found it more difficult to grow in Europe over the past several years. This has partly been due because of the softness of the European economies, but more so it is the fact that we don’t have many strong licensing partners in many of the major European economies at this point. And we will be working to strengthen and expand our licensing network in Europe in the coming years.

We are also excited about the growth we are experiencing in Africa from the seven new partners we have signed up during the last year, including partners in Kenya, in Botswana, Uganda, and Tanzania. The partner network has been one of the most consistent areas in the company and we have had strong annual growth for the past nine years.

We continue to have significant opportunities for growth in licensing revenue in each of the following three areas. First, building untapped markets, we have plans to activate and build each and every market. There are currently many large markets we have barely even touched that present large growth opportunities. This would include markets like Russia, France and Italy, big markets that we are doing very little there at this point.

As well, we’re just beginning operations throughout Africa as I mentioned, throughout the entire continent, which is showing a lot of promise. Second, growing our sales force. We are teaching our partners how to implement best practices around expanding the size and increasing the productivity of their sales forces just like we are doing it in the US. And the best practices that we find in the US are just starting to be implemented among our partners, and represent a lot of low hanging fruit. And then finally, we believe we can grow significantly by expanding our practices with our partners.

We are helping our partners expand into new practice areas, and the majority of our revenue right now is coming from one practice, which is our leadership practice, and so we see a lot of room for growth as we begin to build out the other six practice areas. This coming year in particular, we are going to be focusing on growing our execution practice and education practice and our self performance practice with our partners, and we will move to the other ones down the road.

So that wraps it up for the partners as well. Thank you.

Robert A. Whitman

Thanks Sean. We will now open it up for questions.

Question-and-Answer Session


Thank you. (Operator instructions) And our first question comes from Joe Janssen from Barrington Research. Please go ahead.

Joe Janssen - Barrington Research

Thank you for taking my questions, and first off congratulations on a great quarter and a great year.

Robert A. Whitman

Thanks Joe.

Joe Janssen - Barrington Research

Just want to get a little bit more visibility into the sales force given this is a very important part -- piece of the puzzle for the overall story. You talked about your net, about 145 client partners, of which we had 25 new in the year and you also talked about 72 that are in the ramp up right now. Does that 72 include the 25 net new hires?

Robert A. Whitman

It does.

Stephen D. Young

It does and the majority of that 72, just for my modeling purposes are year one, year two, year three and it tails off in year four and five.

Robert A. Whitman

We have 25 of the 72 about a third of them in their first year and the rest are spread across the ramp in different stages but if you go back we hired 25 net last year, 22 net the prior year, 18 the year before, and 12 so you can kind of get the relative build up of how that would go.

Joe Janssen - Barrington Research

I appreciate that, and then the 70 or so that are seasoned, maybe can you talk, is there any, be able to move the needle in terms of productivity or that’s still been holding the line or anything you could do there or is it a function of they just have their season, they have enough contacts out there it’s just too much to handle?

Robert A. Whitman

No, in fact, their productivity is a= that’s a great question, Joe. The productivity of that group has already ramped up. It's gone from a little over 800,000 in 2004 to a million seven this last year and really that’s compounded average growth rate a little over 8%. Their productivity growth has been good every year. Some years above 8%, very few below, couple below but it's been good and so I think really their capacity we think there is a lot of opportunities for growing the productivity of the existing people, once they get to full ramp up, they will continue to grow, I don’t know Shawn or Sean will add to that, but our top sales people are doing more revenue now than they have ever done.

Joe Janssen - Barrington Research

Yes, that 8% is like when they were growing and then once they hit maturity, could you give any kind of color of what that looks like --?

Robert A. Whitman

Sorry Joe. I didn’t do a good job. During the ramp up obviously their revenue growth is a lot faster than that. The 8% is after they are fully ramped. So once they have gone through the whole ramp up period and get to the 1.3 target then their average growth rate, their average annual productivity growth has been 8% thereafter. Does that help?

Joe Janssen - Barrington Research

Yes that does. I appreciate that.

Robert A. Whitman

Sorry, I didn’t made that very clear.

Shawn D. Moon

Yes Joe, our nomenclature around that is, if they are – they’ve been around for over five years we call them our alumni group and our alumni group has been at 8%.

Robert A. Whitman

Compounded for all these years.

Joe Janssen - Barrington Research

And then just wanted to focus on Sean's commentary, you talked about Europe with the licensee, the partners over there been weak, maybe not the right word difficult to penetrate, weak partners that you have, is again, I would think Europe that’s going to be right for the offerings that you guys offered to these potential clients. Are you looking for – is it a marketing, is it I mean in terms of attracting new partners, is it, I guess the existing partners that you have there it sounds like they may be underperforming to expectations potentially given the environment. Is there anything there you can do to reach out to new partners? I mean what's the marketing effort there?

M. Sean Merrill Covey

Yes, sure. Well, it's a combination of some of the partners not performing well and having to replace a couple and then the fact that we just – we’re really just quite young; we focus more on Asia where the big economies are and having to focus as much here but so I think like right now we are looking for new partners in a few countries in France and Italy, they’re both large economies. We have a brand new partner in Russia. The partner we have there for many years, we finally felt that they weren’t growing fast enough. It didn’t have the right setup to succeed so we had to replace the partner. So we are starting over there. But we see no reason why we can't grow Europe like we are growing everywhere else. I think that the economies are struggling some more especially in the south but that’s not the reason for the lack of growth.

We are so underpenetrated; I am not worried about economies right now. It’s just getting big key players in place in these bigger economies and replacing two or three of our partners. We have partners in the Nordic region, and in the Netherlands that are great. They are superstars. They are growing consistently and that part of the region we have been growing a lot. So we know it can be done.

Joe Janssen - Barrington Research

How big is Europe in terms of licensee revenues?

M. Sean Merrill Covey

Yes, well the $80 million we do Europe is about 30%, about $25 million. And so, we think there is still lot of opportunities here and we are going to focus on it. So it's finding two or three new key partners and then getting our other established ones to continue to grow.

Joe Janssen - Barrington Research

Okay. And two more questions if I can before I jump back in the queue. Big picture, you know last year I think you gave out - you thought you could get the licensee business to $30 million by 2020. You grew that business 8% to 9% in 2013. Is that still an achievable goal?

M. Sean Merrill Covey

Yes, we think it is. Yes, our goal is to get to $200 million in 2020 and we are going to need to grow out about 14% to do it. This year we had quite meet that and it was a lot of it was due to a particular partner that hurt us pretty badly but yes we believe we can continue to grow at double digits based on those three areas I mentioned, new practices, getting operations in every country and the sales force ramping. We are trying -- we are taking our best practices learned in the U.S. and we’re continually applying them, going country by country and we were seeing great promise as we [quantify] [ph] these best practices and implement them in different countries. Brazil for example has been doing terrific and they are adopting all of the U.S. best practices, it’s working well, still a young business for us but [inaudible] they’re about a $7 million business we believe they can grow to be a $25 million business, see no reason why we couldn’t get there. I hope that helps.

Joe Janssen - Barrington Research

Yes, it does and one last question and I’ll jump in, real quick, maybe just kind of update on any interesting acquisition potential candidates out there, and secondly the $10 million buyback, did you buy any shares during the quarter and at these levels does it still look interesting?

Robert A. Whitman

So in terms of acquisition I think that -- we think that maybe subsequent quarter we can kind of give our, a little bit of an overview of our thoughts about acquisitions, but we at all times we are having people contact us, bringing us things that might be of greater or lesser interest what tends not to have very much interest since we can hire and ramp up sales people, give all your money back from when you payback on our investment that we tend not to be that interested and acquiring just more distribution for existing offerings. But from time to time you get an interesting offering that could get within our portfolio also has some distribution capability with it and I expect that as time goes on there’ll be additions as we have had couple over the years that will have additional pieces added, build on acquisitions to existing practice and perhaps the acquisition of an add-on practice, Stephen last question on the buyback.

Stephen D. Young

Yes Joe even though we didn’t buy shares on the market under our buyback program we did spend when you see our cash flow statement a $1.3 million on shares during the year what that is primarily we -- when the warrants came due and when certain share based awards are available against that $1.3 million essentially to reduce the outstanding share count, well not in the open by program.

Robert A. Whitman

Yes, intermittently attractiveness for us we think we’ll be able – repurchase would be very attractive at current levels it’s more – you see where the capital has been invested this year, we made the acquisition. We have payments in the previous acquisition, primarily sending working capital in the fourth quarter, in third and fourth quarter, it's a big revenue increase. So, we will end up with a lot of cash about the end of December, early January and so stay tuned on this. Yes, maybe thanks, Joe, so much for all your questions.


Our next question comes from Jeff Martin from ROTH Capital Partners, please go ahead.

Jeff Martin – ROTH Capital Partner

Thanks guys. I would like to add a compliment on the quarter. Can you give us some insight and education is a really big number in the quarter. Just curious, how that plays out from the seasonality point of view, if education is going to kind of really move to the next level or if there's something almost in Q4?

Stephen D. Young

Yes, sure. Yes, 52% of our revenue hits in the fourth quarter consistently. So I mean, we grew for the year about the same rate we grew in the fourth quarter about 65% or so. So education is doing really well. We will continue to grow fast, the opportunities are immense. Our market penetration is 1%. So we think, we can continue to grow but the fourth quarter is an anomaly. What happens is we do a lot of the selling during the school year and then because there is not a lot of professional development days available in the school year, we do a lot of our training in the summer, in June, July and August, which is our fourth quarter and hence, we have a big spike in the fourth quarter. As well all of our renewals for things like coaching and our Leader in Me online comes in the fourth quarter. So it's been consistent for the last five years, about 50% of revenue hits in the fourth quarter. We expected to continue to be like that.

Jeff Martin – ROTH Capital Partner

And then same with the education, as this program becomes more and more successful, are you anticipating some copycat programs out there? Are you seeing any competitive threats out there, I mean, I think at some point you could come across that?

Stephen D. Young

Yes, we expect, we are starting to see some. But there's so much to this, I think we got some pretty good modes built around it. A sophisticated process, the seven habits which is kind of like the Intel inside, a lot of momentum is - I think it will be pretty hard to copy, but in Boston school system, we recently saw somebody come in and claiming to be similar to us. We looked into and like it was too much of a threat, but we are expecting more to come. And but right now given that this is elongated, integrated process with some real unique branded content. We think it's going to be quite difficult to copy. I don't think that's our biggest worry right now. The biggest worry is just maintaining the quality because we find if we can go in the school district and take five schools and then do well with them that will have access to another 100 schools. So currently we are, in the New York City, we started with one school, there is 750 schools and then got to - they did it, it was named the number one school in the district and then we went to 15 more, now we have an opportunity to get to 180. So the key is continuing to drive quality result and that just rides you, you are writing on a ticket to do that.

Robert A. Whitman

Just context, really quickly there are about a 101,000 case with six schools in the U.S. and Canada and so we, I mean, although it’s lot of schools, we now crossed over to 1% penetration mark. And so, we are really trying to make sure that pot by pot, we are doing a great job, school by school, district by district and it's been now would be able to, be a winning strategy whether or not others might join to take some, to pursue these other 100,000 schools, we don't have to.

Jeff Martin – ROTH Capital Partner

Sure, sure. I know, we are running short on time. Let me just ask one more question and then I will hop up. Bob, as we look at SG&A, I mean, understandably you made quite an investment in sales infrastructure this year, so SG&A as a percent of revenue did pick up, do you expect quite a bit of leverage in ’14 and ’15 on the SG&A line?

Robert A. Whitman

We do. Yes, we do and we are betting for it, so I think you should expect to see it. I mean, really – the short answer is this that with addition of every new salesperson, there is some infrastructures of fractional client service coordinator or fractional regional practice leader, fractional IBP but what we did last year with the addition of, little over a 100 people only about 25 of which were salespeople. We added the 75 support people in event registration and internal business partners and marketing and so forth. This coming year, we think it will be more like one to one. So we add 25, 30 salespeople, you will have 30 total support people and by next year you add 30, you'll add probably two or may two-thirds of, you know, half to two-thirds of the persons. So we think it's a very leveraged going forward it has been in the past, we used to say, step up to the next plateau of growth at 30, move to that next level to people hire 30, we needed to make the investment. We think now actually to move up to 40 or 50, you won't have that little big one time, you will just have to continue to invest incrementally in these positions so.

Jeff Martin – ROTH Capital Partner

Okay, great. Keep up the good work guys.

Robert A. Whitman

Thanks Jeff.


And our next question comes from Marco Rodriguez from Stonegate Securities. Please go ahead.

Marco Rodriguez – Stonegate Securities

Good evening guys. Thanks for taking my questions. I have just a couple here, real quick high five level type questions. First, Bob, maybe you can talk from a strategic standpoint, I am kind of curious here as to where, you kind of spending the most of your time today versus last year?

Robert A. Whitman

Great. The two big priorities, that to the, the first, we don't want to lose side of the fact that the 93,000 companies or company users, they have at least 200 employees in the U.S. and Canada. We currently have 3,700 as customers and so the number one thing, we are not claiming victory in the U.S., we are claiming progress and you know, 18 to 20% growth in our direct offices, needs of the last quarters. The number one priority is to make sure, we refine the system and accelerate the growth in the U.S.

The second is very similar to that which is institutionalized that same system in our direct offices internationally among our international licensee partners. So the topic is, the topic we are spending almost over time on, is that hiring and ramping up salespeople, whether it will be in the U.S. or otherwise, and then the other big focus on making sure you know, so that's the one side, those are the first to channel priorities. On the other side, you know, contents, that making sure, the thing we talk about everyday with our practice leaders as quality results for clients, it's number one goal. And so, those are the two things, you have great thing, deliver it well, make sure as it works for the patient and then dramatically expand our ability to distribute it.

Marco Rodriguez – Stonegate Securities

Got it and Shawn, I wonder if you can maybe provide us, just kind of quick update, you guys have, spend a lot of time last year, kind of building the infrastructure to support all the client partners. Where is that team, in regard to your expectations and what are the top couple items that you are focusing on now with them?

Shawn D. Moon

Yes, thanks Marco. We are pleased with the direction that it's headed in fact, if you look at one of the things, I think you and I talked about before, with the sales management role, sales manager role and where the dilemma is that we had, was looked in span of control, how it provides the right kind of coaching and mentoring in development, so that we actually get a return on this, pretty massive investment of our client partnership. And so we actually believe we are a little bit ahead of schedule. If you look to the production per client partner in the production of our new client partner relative to what our goal was and what it had been, we are encouraged by that.

But it also represents you know, we have a lot of opportunity for continued progress there Marco and so that represents probably the biggest areas, how do you maintain and actually grow a 30 client partners a year?

One of our GM's recently said to me, not just recent, it was yesterday. He is looking at the map, he is looking at the model and seeing the impact, of the things success of our plan, we caught this, sales go to market, which represents, what the client partners do and how do we support themselves, they can actually ramp up and continue to grow both our new and our partners and he is looking to say, gosh, I actually think I could add more for a partner then the plan. So we will take a look at that, we are not going to go faster than we, you know, we are not going to run faster than we can walk, but we are pleased that's the reaction from people rather than saying, gosh, you don't slow down, I can't do enough this is too fast for me.

The infrastructure is not perfect, but we are constantly refining as Bob said, spending all of our time on this and we do spend all of our time on this, but we are pleased with the progress that we are making the adoption, the buy and end of the results we are getting from. So, it's kind of a long answer to your short question, the short answer is, we see great progress, we have more work to do.

Marco Rodriguez – Stonegate Securities

All right, thanks a lot guys.


Our next question comes from Sarkis Sherbetchyan from B. Riley & Co. Please go ahead.

Sarkis Sherbetchyan - B. Riley & Co.

Thanks for taking my question. Good, how are you? Thank you. So, to start off with the housekeeping question, is it possible to breakout the cost of revenues between training and consulting services versus product and I think you had a third one, do you think which is probably smaller?

Robert A. Whitman

On our K, when you see our K filed next week, we will have that. I don't have that sitting in front me, but you will be able to see that, yes.

Sarkis Sherbetchyan - B. Riley & Co.

Okay, thank you, I was just trying to see if I can get that right now. And then next, can you give us some color on what you are seeing real-time out there, as it relates to training budgets?

Shawn D. Moon

Sure. I will be happy to provide my perspective. We are seeing, if you go back to few years, there was this belief that training budgets would continue to decrease over time and that there would be more and more demand on e-learning in fact instructor led training or ILT adversely go away and we are seeing that actually, that's not the case that there is, a high percentage of training where there is being spent on instructor led, is there ever has been and there is more and more pressure on quality e-learning delivery, so that if you do take that modality, it delivers the kind of results that you need. We are seeing the budget themselves, they are maintaining. We are not seeing a massive decline in the training budgets nor are we seeing a massive increase.

Robert A. Whitman

I think it was 5% to 6% last year was the report – industry report. So it's a modest but you know, for us there are two opportunities, though I think, one is competing for the portion that’s outsourced, which is the minority, the smallest portion of the training budget. The bigger portion is what's done inside. So for us, we design our offerings so on one hand, they can be integrated solutions that are delivered throughout an organization that will be part of it. And often times actually, those only within the training budget, those are out of the operating budgets of company. So our goal is to move the operating budget versus training budgets even though they are going and second to be able to integrate our content by selling people intellectual property licenses, they can now integrate our content into their big part of the training budget, which is what they do inside.

So for us, having best in class content is the lead gives us an ability to operate outside of whatever the normal training industry is doing. Our execution practice, our sales performance practice and our customer loyalty practice, none of that comes out of training budgets. It's all in operating budgets, trying to improve some business outcome. And so, I think, I don't know if that's responsive.

Shawn D. Moon

I think Bob noted in his earlier piece that as you look at the internal delivery in which that represents our biggest competitor, the market -- the product are often we have to surf that is our client facilitators and we think, we actually grew that based by 5,000 additional facilitators this year.

Robert A. Whitman

I think Steve has the answers.

Stephen D. Young

Yes, I can – if you have a pencil, I can give you the numbers, you asked about earlier. To break down our 190.9 million, it’s 178.7 training and consulting, 8.1 products, 4.2 leasing and the cost of sales is 56.9 training and consulting, 3.1 products and 1.9 leasing.

Sarkis Sherbetchyan - B. Riley & Co.

Thank you very much. Those are both helpful and then one final one, if I may sneak that in, and we are running short on time. So with regards to the government shutdown, you did mention that it has been impact on heading into this Q1. Did you see any revenues get pulled into Q4 from Q1 and also if you can may be describe magnitude if that's possible?

Robert A. Whitman

Yes. Two things, on the government side, we didn't have first quarter revenue pull into fourth quarter and the impact was bigger than you would have thought in the first quarter just because the government shutdown – with the shutdown, they stopped training and then when they started back up, they are just doing normal, getting the business back running and so – and before they start scheduling. In terms of the overall company, the pull forward, you never know when you are working on big contracts exactly the date when they are going to hit. We probably had about $1.5 million of revenue in our fourth quarter that would have been in the first quarter was high margin revenue but something of that negative.

Stephen D. Young

Not on the government shutdown and not only do they have it impact on the revenues from the government specifically but other revenues we have with other government contractors.

Sarkis Sherbetchyan - B. Riley & Co.

Okay, understood, thanks and good luck for the next quarter.

Robert A. Whitman

Thanks so much okay.


Our next question comes from Jim Larkins from Wasatch, please go ahead.

Jim Larkins – Wasatch

Hi, my questions have largely been answered. Just wanted to get some guidance on tax rate and what your – if that reflects also your true cash taxes you’re paying?

Stephen D. Young

Our reduced tax rate is more reflective of the amount of cash that we actually because we’re still benefiting from unused foreign tax credits. So when we elect to use our foreign tax credits is the time that it benefits our effective tax rates. So we went through three quarters of the year looking at around 40% effective rate and then it ends up being over 26% for the year which is very positive that’s the result of us in our fourth quarter being able to elect to use previously unrecorded foreign tax credits.

So as we go throughout next year, we will begin the first three quarters most likely in a similar fashion of recording 40%, 41% effective tax rate and then if it’s beneficial to us and the facts and circumstances support it as being acceptable then we could in our fourth quarter elect to use some of our unused foreign tax credits again and see a decrease in that rate in the fourth quarter.

Jim Larkins – Wasatch

Do you have kind of sufficient kind of amount of credits kind of in that bucket if that symptoms could repeat for number of years or do they get kind of regenerated every year and it really depends on the circumstances?

Stephen D. Young

Our normal foreign tax credits are included in our effective rate of about 40%. The unused tax credits that allow us to record 26% rather than 40% is approval of credits that will diminish within a couple of years.

Jim Larkins – Wasatch

Okay. All right, great, I think that’s all I have thanks a lot.

Robert A. Whitman

Thanks Jim.


And we have no further questions at this time.

Robert A. Whitman

Sorry, we’ve gone over a bit, but we appreciate all your great questions, appreciate your support. Again, as we had our kick off meeting here a month or so ago, we feel on one hand we’re celebrating a great year and a great series of years, but we really, our message was we’re not, it’s not correct to the finish line. We are just at the starting line of the new game which is, new game as we’ve been all this time investing in infrastructure, strategy, people etcetera. We are now kind of in the -- we hope the inflection point for growth which we’re showing in our U.S. direct offices these high teens, growth rates for the year and higher than the fourth quarter, we think that’s the model we are looking for in future so we hopeful start of an inflection point it will allow us to really grow and just an execution, but now I hope we are doing. So thanks each of you and we look forward to answer any other questions if you want call us directly.



Thank you ladies and gentlemen this concludes today’s conference, thank you all for participating you may now disconnect.

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