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Franklin Covey Company (NYSE:FC)

F4Q11 Earnings Call

November 8, 2011 05:00 pm ET

Executives

Bob Whitman – Chairman, President & Chief Executive Officer

Steve Young –Chief Financial Officer

Derek Hatch – Corporate Controller

Analysts

John Lewis – Waitrose

Joe Janssen – Barrington Research

[Don Hickman] – [Latinburg]

Bill Gibson – Legend Merchant

Jaime DeYoung – Credit Suisse

Operator

Good day, ladies and gentlemen, and welcome to the FQ4 2011 Franklin Covey Co. Earnings Conference Call. My name is Justhania and I’ll be your conference operator for today. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Derek Hatch, Corporate Controller. Please proceed, Sir.

Derek Hatch

Thank you. I’d like to welcome everyone out to our earnings call this afternoon for Q4 and the fiscal year ended August 31, 2011. Before we get started I’d like 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, changes in the training and spending policies of the company’s clients and other factors identified and discussed in our most recent annual report on Form 10(k) and other periodic reports which are filed with the Securities and Exchange Commission.

As 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 obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of today’s presentation.

And with that I’d like to turn the time over at this point to Mr. Bob Whitman, the company’s Chairman and Chief Executive Officer.

Bob Whitman

Thanks, Derek. We’re delighted to have a chance to talk with all of you today and I’m clad that you could join us. I’d like to start just with a few headlines and maybe just hit three. First, as you probably say in the press release we achieved significant revenue growth for the year. We finished revenue at $160.8 million with a $23.9 million or a 17% increase over the $137 million achieved in F2010, which in turn was $13.8 million higher than the $123 million in revenue we achieved during F2009, so we’ve been able to keep this momentum going and we’re pleased with that.

Our growth during the year was very broad-based, which is exciting for us, with the company achieving revenue growth in every major channel and in every practice. It’s important to note that this broad-based revenue growth for the year is a continuation really of the seven-year growth trend in our core business that has seen revenues grow from approximately $96.5 million in F2004 to $160.8 million in F2011. We were not able to pull those numbers out before we sold the previous business, but this is for us, in this business, a continuation although it’s accelerated recently.

We’re also really pleased to have achieved revenue of $45 million in FQ4. You may recall that in our webcast in June we said that due to the very high revenue level achieved in FQ4 2010 which was driven by the significant initial revenues associated with the launch of that new government services contract we had just been awarded, we said that we believed then that despite strong (inaudible) it was unlikely that our FQ4 revenue in the other areas of the company, the growth in the other areas of the company would be sufficient to offset the year-over-year declines in revenue related to that contract.

So we are very pleased that the $3.7 million in revenue growth achieved across the rest of the company in FQ4 more than offset the expected and anticipated $3.4 million year-over-year decline in revenue from the government contract during the quarter, thus resulting in strong revenue for the quarter. And in fact it was the strongest FQ4 we’ve ever had for our business. So point one is good, strong revenue growth.

The second point I’d make, a highlight would be a significant portion of our increased revenue for the year flowed through to increases in adjusted EBIDTA and free cash flow. On our last conference call we said that we expected our full-year results to be very strong and toward the higher end of our previously provided adjusted EBIDTA guidance of between $18 million and $21 million. As a result of the strength and momentum of our business during FQ4, adjusted EBIDTA for the year closed at $21.2 million, just exceeding the high end of our previously provided guidance.

This $21.2 million in adjusted EBIDTA represented a $6.7 million or 47% increase in adjusted EBIDTA compared with the $14.4 million achieved in F2010, which in turn was an $11.2 million increase compared with the $3.2 million achieved in F2009. Because of our high gross margins, which as you know are mid-60%’s and the variable nature of our selling cost, somewhere around 430% to 38% of incremental revenue flows through to EBDITA even after making investments for hiring new client partners, staffing regional practice leaders, etc.

In F2011, $6.7 million of the $23.9 million increase in revenue, which is 28%, flowed through to adjusted EBIDTA, and over the past two years $18 million or 47% of our $38 million in increased revenue flowed through to adjusted EBIDTA. Because our ongoing maintenance capital expenditures are modest, typically less than $2 million a year, and because NOL carry forwards reduce and will for at least the next several years reduce our net cash tax expense, for the next several years approximately 70% of the increase in adjusted EBIDTA is expected to flow through to free cash flow or usable cash.

The final point I’d make is just our adjusted EBIDTA margins also expanded significantly during F2011. Adjusted EBIDTA to sales increased to 13.2% in F2011 from 10.5% in F2010, and with expected future revenue growth and the expectation of continued high flow through of the incremental revenue to adjusted EBIDTA we expect that margin, the adjusted EBIDTA to sales margin, to increase to approximately 17% to 18% over the next couple of years.

Well, all in all we’re pleased and encouraged by these strong results. We expect to continue to be able to achieve strong revenue growth in the future which we expect will drive increases in adjusted EBIDTA and cash flow and continue to expand our operating margins.

I would just make a note that in addition to these strong financial results, our channels and practices also gained important strategic ground during F2011. Just a few highlights: from the book launch standpoint we just published, as you may have seen, a major new book through Simon & Schuster called The Third Alternative by Stephen R. Covey. We recently signed contracts also for two other important books including Smart Trust coming out in January, and The Four Disciplines of Execution to come out in the Spring of 2012.

In our education business we added 450 schools in our “Leader in Me School Transformation Processes” this past year including 100 schools outside of the US and we’re just beginning a “Leader in Me” implementation with 20 schools in India which we hope will be part of the much larger-scale rollout.

In terms of new offerings, we’re in the middle of our largest new training launch ever. It’s for our new “Five Choices for Extraordinary Productivity” offering. Many of you have seen this material and some have attended, but we are doing a 177-city launch tour; we’re about halfway through. There’ll be 192 events in that. Early indicators tell us that this offering has the potential to become a real blockbuster solution for us in the marketplace and we really think it will be.

We added 15 net new client partners during the year. We increased the number of active certified facilitators inside client companies to just more than 10,000. The percentage of recurring customers increased during the year to 62% compared to 53% at the end of last year, and the average revenue per client also increased by more than 12%. And we also increased the number of larger clients which has been a focus for us, which are accounts greater than $100,000 by 16% during the year. So there were a lot of other things that we think are building a foundation for the future of the company.

I’d just like to recognize and acknowledge that the significant increases in these financial results together with these strategic achievements are really a testament to our extraordinarily talented and committed associates and partners around the world who have executed with really impressive discipline on our key initiatives over the past years and throughout F2011.

In addition, we deeply appreciate and recognize the trust which our thousands of clients, our many strategic partners and each of you have extended to us, and we’d also like to thank each of you personally for your support, advice and assistance. And really for us, success does mean winning with all of our key groups of stakeholders and we’re committed to doing so.

Now I’d like to turn the focus of our comments on the following four topics: one, I’m going to turn the time to Steve Young to do a deeper review of our operating and financial performance for FQ4 and for the year as a whole, and we’ll come back and give a report on our business momentum and our pipeline. We continue to be very encouraged by the momentum that we’re seeing in the business. We’ll then share our outlook for F2012 and maybe a little beyond, and also discuss some key elements of our plan for accelerating the value of the company over the next three years.

So now I’d like to turn the time over to Steve Young who you know is our great CFO.

Steve Young

Thank you, Bob. I’m very pleased to be with you this afternoon, even more pleased to talk about our financial results. As Bob mentioned, I also am pleased with the amount of growth we had in the year, the broad-based nature of that growth; pleased with the increase in adjusted EBIDTA and pleased that we’re generating some cash at the end of the day.

As Bob noted in the headlines, our revenues for the year did grow to $160.8 million, a significant $23.9 million or 17.5% increase compared to $136.9 million last year. A key driver of our revenue growth is the growth in the size and productivity of our sales force, which in turn is driven by growth in our number of clients and our average revenue per client. During F2011 we benefited from increased productivity of existing sales people as well as from the addition of 15 new sales people in our direct offices, bringing the size of our direct office sales force to just over 100.

As pointed out in previous conference calls, as our salespeople become more seasoned their productivity increases at a fairly defined rate. The company’s revenue benefits from new salespeople in year one, and this benefit increases to an average of $1.4 million of revenue per salesperson for salespeople that have been in the company at least five years, with top sales people generating as high as $3 million or $4 million in sales. The productivity and ramp up rate for salespeople has accelerated in recent years as a result of our focus and support of our various practices. During F2011, revenue per salesperson with us at least one year increased by 16%.

New sales force additions typically benefit the company at the EBIDTA line in a salesperson’s second year, and with approximately 45% of an individual salesperson’s incremental revenue being recognized as EBIDTA, an averaged seasoned salesperson’s contribution to EBIDTA typically exceeds $600,000. An example of a typical salesperson’s ramp rate and EBIDTA contribution is included on Slide 3. Many of you have seen this before – we think it’s important to show this slide periodically.

As we’ve noted in prior sessions we believe that there are more than 500 potential sales territories in the geographic boundaries of our existing direct offices compared with our current sales force which lies, as I said, at just over 100. Consequently, we continue to view growth in the size and productivity of our sales force as a substantial driver of future revenue growth and we continue to have a goal to add new salespeople in our direct offices and practices at a rate of 20 to 30 salespeople per year. With these additions, we expect to double the size of our direct sales force to more than 200 over the next four or five years while continuing to increase the productivity of our sales force by at least 6% per year.

The size and productivity of our international licensee partners’ sales forces is also a key driver behind their almost tripling of revenue over the past seven years. We also expect the size of these international licensee partners’ sales forces to more than double over the next four or five years and to see the steady increase in the productivity of their salespeople.

This increased productivity from seasoned and new salespeople resulted both from an increase in the number of clients and even more importantly perhaps from the more than 12% increase in the average revenue per client, even after excluding revenue from the large government contract. Importantly, the percentage of F2010 customers who repeated in F2011 has increased to 61.6% this year compared to 53.1% last year. This percentage has grown steadily from the mid-40%’s just a few years ago to the current level. As we continue to connect our offerings to our customers’ key strategic imperatives we expect this percentage to continue to increase in the future.

As Bob noted earlier, particularly encouraging is that our revenue growth was very broad-based with significant growth in all of our major channels and practices. As you see on Slide 4, which is sales by channel, we are pleased to have achieved growth in all of our major sales channels. Revenue in our government services group grew $8.3 million for the year, impacted materially by the revenue from the significant government services contract awarded to us in FQ3 of last year.

As noted earlier, while this contract continues to generate substantial revenue, because of the magnitude of the initial implementation phase of the contract during FQ1 2011, our year-over-year revenue for the contract declined $3.4 million during FQ4 2011 compared to FQ4 2010. As noted earlier, we are pleased that this decline was more than offset by the significant increases in revenue from our other offices and channels in FQ4.

We also achieved significant growth in all of our other key channels in this year, F2011. Seven of our eight direct offices, both in the US and internationally, grew revenue during F2011 as did all four of our field support practices, our international licensee partner group, and all three of our national account practices. In FQ4, six of eight direct offices both in the US and internationally grew revenue as did all three of our national account practices and our international licensee partner group.

All four of our geographic offices in North America grew their revenues during the year and in FQ4. Revenues in these offices, excluding the government services region, grew $9.5 million or 18% in F2011. In FQ4, revenues in these offices grew $2.1 million or 14%. Revenue in our international direct offices grew 13% in F2011 and 11% in FQ4, including in Japan where revenue grew 24% for the year despite the impact of the tsunami and 19% in FQ4 – that’s significant. Well, lots of things are significant but that one is especially significant to some of us.

Also Australia grew 11% for the year and 17% in FQ4. The significant revenue growth in our offices in Japan and Australia was somewhat offset by a $600,000 revenue decline in the UK for the year, and $300,000 in FQ4. Our total international licensee partner revenue grew 14% in F2011 and 19% in FQ4 with all but six of our 35 international licensee partners growing over the prior year and 14 of 15 of our largest licensee partners growing.

As you can see in Slide 5, all seven of our practices grew significantly during the year. Revenue for our national account practices grew 22% in F2011 and 34% in the quarter, the sales performance practice growing 33% for the year – 60% for the quarter; education practice – 19% for the year, 29% for the quarter; and customer loyalty practice – 12% for the year and 16% for the quarter.

And after all of that we had profit. As noted earlier, as a result of our strong revenue growth and our improvement in SG&A as a percentage of sales, as you can see on Slide 6, adjusted EBIDTA which is a key measure to us, grew from $14.4 million last year to $21.2 million this year, an increase of $6.7 million or 47%; and as Bob mentioned, slightly above the high end of our previously announced adjusted EBIDTA range of $18 million to $21 million.

The improvement of adjusted EBIDTA also flows through to income from operations and income before income taxes with income from operations increasing $7.1 million to $11.1 million, and pre-tax income increasing $7.3 million to $8.4 million. Our net income from continuing operations improved $6.1 million due of course to the increase pre-tax and due to a significant reduction in the income tax provision effective rate which decreased from over 200% last year to a reasonable 43.1% this year.

For quite some time we recorded that unusually high effective tax rate. In this FQ4 our evaluations indicated for the first time in many years we were able to record the benefits of our F2011 foreign tax credits. The net amount of this benefit recorded this year was more than $2 million. Next year our tax rate will still be a little bit high but should be closer to this year’s rate than to the 200% last year, or the 68.5% we recorded through the first three quarters of this year; and after this we still have a significant amount - $15 million of NOL remaining and unrecorded foreign tax credits of about $10 million – which will create as much as $15 million of cash tax benefit in coming years.

In Slide 7, you’ll see that we generated cash from operating activities and as a note we invested quite heavily in curriculum and course development. So you see that our operating activities generated $13 million of cash even after we invested $3.1 million in some pretty significant curriculum development. So we’re generating cash, we’re investing cash to grow and we’re investing a little bit in working capital. We make our annual earn out payment and we expect to generate cash in the future.

In these webcasts we spend most of our time on the income statement. I don’t think that when you review our balance sheet there will be anything surprising there. You’ll see there our goodwill increased with our [covet link] earn out payment. Our working capital increased significantly as we paid off our revolving line. Our inventories, receivables, payables in my opinion are all at acceptable levels, reflecting significant growth in these areas.

So I would just say if there are any on the call who are new to the company, please call. I’d be happy to discuss the balance sheet because I think there’s some positive things there that might not be readily apparent. So Bob, I’m pleased with the quarter and I’ll turn the time back to you.

Bob Whitman

Thanks, Steve. We really do feel good about the company’s performance, both F2011 and FQ4, on really essentially every major metric. I’d like to maybe just focus now on our pipeline and our momentum. As I noted upfront we continue to be very encouraged by the strength that we’re seeing in the business.

Our visibility into future revenue really has four key elements. The first and one that we’ve talked about before is our pipeline of booked days and ordered revenue. A second, though, is our revenue from international licensee partners. A third is revenue from our more than 10,000 active client facilitators and fourth is self-funded marketing revenue. I’d like to briefly touch on each of these to let you know at least how we see the visibility of our business.

The first of these metrics is what we refer to as our pipeline of booked days and ordered revenue. While this metric only captures booking data for our US operations and therefore excludes the approximately 50% of our revenue which is recognized in our international direct offices and our international licensee offices, and from sales of materials to our license facilitators both in the US and Canada and international offices. It typically has provided a good insight into the likely strength of our booked revenue for at least the next couple of quarters.

Just a few observations about this pipeline: despite ongoing economic uncertainty the vast majority of our clients are focused on growing their businesses and are still focused on making essential investments. We have thousands of clients around the world; they continue to take sales calls, they continue to request recommended proposals. They’re putting out RFPs and we’re bidding on them. Our face-to-face meetings with clients are very high and we’re talking about a lot of business. So as long as it’s training investments connected to key strategic imperatives, they’re still making these investments.

As a result, as discussed in our press release issued at the end of September, our pipeline of booked days and ordered revenue increased during FQ4 and as of August 31, this key metric increased to $9.7 million from $5.2 million at the same time in F2010. This is an increase of $4.5 million as you can see in Slide 8.

It’s worth noting that this pipeline increase was after deducting several million dollars in pipeline value related to the government contract whose revenue we knew would be smaller going into this year’s FQ1 than it was in last year’s FQ1, and so we were delighted to have that 18% growth particularly after having several million dollars of reduction in the pipeline related to that government contract.

As you can see, starting in FQ2 2011 the amount of corporate or non-government contract bookings in our total pipeline increased both in dollar terms and as a percent of our total pipeline. As you can see in Slide 8, as a consequence at the end of FQ4, 77% or $22.8 million of our $29.7 million pipeline was non-government contract related, which is up $7.3 million or 47% compared with the same quarter last year.

Only 23%, or $6.9 million of our pipeline was government contract related, which was a decline of $2.7 million or minus 28% compared to the same quarter last year. As you can see on Slide 8 also from FQ4 2010 to FQ4 2011 the size of our corporate pipeline grew by $9.1 million from approximately $15 million to approximately $24 million, which is an increase of approximately 58%.

This large growth allowed us to overcome the large but anticipated decrease in the government contract revenue in FQ4 and should come close to doing the same in FQ1 if not more; and thereafter we expect that this pipeline will translate into significant growth as the year-over-year changes in the government contracts are relatively minor thereafter.

We’re pleased also that just in the first two months of our new fiscal year, that as of the end of October our pipeline had grown additionally by an additional $1.2 million as of the end of October, so our FQ1 momentum continues. And while our pipeline reflects only domestic bookings we should note that we estimate our international direct offices have an additional pipeline of booked days and committed revenue between $8 million and $10 million themselves which we expect to include in our future pipeline discussions as this data becomes more standardized.

So this first element of visibility gives us pretty darn good visibility into the next couple of quarters. It suggests growth because we have $5 million or so more on the books to be delivered, and this reflects only the half of our business that is on-site and contractual business here in North America.

So, a second element of revenue visibility is really our royalty and related revenue from our 35 international licensee partners. As you know, the vast majority of this revenue comes to us in the form of royalties with very high gross margins and operating margins. Our international licensee partners’ gross revenues have almost tripled since F2004 from approximately $29 million in 2004 to approximately $74 million in F2011. During the same time period our royalty and other revenues from licensee partners have increased from $5.2 million to $12.6 million and grew another 14% in F2011.

These revenues have been highly predictable within a relatively narrow range and so for us we feel like we have good visibility now even for the year because it’s broad based, it’s always operated within a band and these are contractual minimum license fees, many of them, that continue to drive business; although we’re delighted that all but a few of our international licensee partners are actually operating north of their minimum contractual payments.

A third element of revenue visibility is revenue from our more than 10,000 active client facilitators who train more than 300,000 people within their companies each year, purchasing manuals or other materials from us to do so, and they generate predictable recurring revenues of approximately $33 million to $35 million annually.

As you know, these facilitators are employees of our client companies who have been certified to teach certain of our courses and who attend Franklin Covey-led courses each year in order to refresh their teaching skills and remain certified. So it renews their commitment, ups their skills and motivates them to continue to order these manuals. Even through the year of the Great Recession, these client facilitators ordered more manuals during those years than in the prior year.

A final element of revenue visibility is revenue that comes from what we refer to as self-funded marketing programs. These marketing programs include public programs, books, audios and speeches which build public awareness. These activities build awareness of our offerings and at the same time generate approximately $8 million to $9 million of revenue and a small contribution to adjusted EBIDTA. Because we largely control the volume of public programs and speeches, and book and audio sales are quite predictable, we have good visibility on these revenues for the year.

So combined, these four elements provide us relatively strong visibility to approximately $100 million of annual revenue at any given point in time, with the balance being revenue we generate in the year for the year from our ongoing marketing and selling activities. As this is not yet predicted revenue we have a series of lead measures which we watch carefully that have proven to be quite predictive of the building of our revenue pipeline.

These include the number of face-to-face sales calls, the number of what we call solution recommendations, the number of proposals we’re issuing – and based on this activity we feel encouraged and optimistic about the prospects for continuing to build our pipeline and to have revenue growth going forward.

As is probably obvious, if we have good visibility for the whole year around elements 2, 3, and 4 – around our royalties, our facilitators and our self-funded marketing – the visibility for the whole year increases of course every quarter. And so as you have revenue behind you and since the pipeline is predictive a couple of quarters out, an extra $15 million to $20 million of visibility against say our total revenue of $160 million last year becomes visible each quarter. We feel very good about the momentum we’re seeing in the business and expect that momentum to continue to drive growth in both revenue and profitability for F2012 and beyond.

A third point I’d like to talk about is just giving our outlook for the coming year and a little bit beyond. Based on our momentum leading into F2012, based also on the growth of our pipeline and what we expect will come from the worldwide launch, the business that will come from the worldwide launch of our new “Five Choices to Extraordinary Productivity” offering, which we now expect will generate almost $2 million of incremental revenue even in FQ1, we expect our FQ1 and full-year results to be very strong and expect to continue to achieve strong growth in both revenue and profitability in the future.

In our conference call at the end of June we communicated that our preliminary guidance for F2012 was to grow adjusted EBIDTA by approximately 20% to 25% in F2012. At that time we expected full-year adjusted EBIDTA to come in at approximately $20 million which implied that our adjusted EBIDTA guidance in our minds was something between $24 million and $25 million. We ended up a little higher than that, as you saw.

We’re now solidifying and formalizing and increasing our guidance for F2012 at between $24 million and $26 million of adjusted EBIDTA which would represent another very strong year of significant growth. As noted above we expect strong revenue growth in F2012 driven by continued strength across all of our channels. We also expect to achieve very strong revenue during FQ1, with significant growth in our corporate non-government areas as reflected in our pipeline.

We expect however that this growth will be offset during FQ1 to some degree or maybe totally by a reduction in the magnitude of revenues received from the government contract which in last year’s FQ1 was still in its large revenue launch phase. As I mentioned before, the year-over-year impact on reduced revenues from this government contract is expected to be much less significant during this year’s FQ2 and beyond, and really not very meaningful.

So we’re encouraged by our results for 2011, the momentum we’re seeing and expect to achieve strong growth and this guidance in the $24 million to $26 million range of adjusted EBIDTA. We look forward to reporting on our continued progress.

Finally, I’d like to maybe spend a minute now on outlining our plan for accelerating the company’s value creation in this year and the coming years. Recently, one of our financial advisors prepared the information included on Slides 9 and 10 which suggests that our share price has actually performed pretty well ahead of major industries over the past one, five and ten years; and also well against comparator companies. Despite this – and we’re happy that that’s happened – but we believe that the market has really yet to fully recognize the inflection point that we’ve had in our operating results and strategic positioning over the past few years.

We are interested in seeing the value of the company increase in the market and our interests actually are extremely well aligned with those of all shareholders I believe. We have very substantial insider ownership and in July we instituted a new incentive stock plan that fully invests in our top 20 leaders only if the company achieves a share price of $17 per share by July, 2014. In addition, once the share price exceeds approximately $15 per share the company’s outstanding share count will immediately be reduced by more than $3.3 million shares, which is more than 18% of outstanding shares as management’s stock loan shares currently in escrow revert to the company.

We believe that two key achievements are necessary in order to significantly increase the value of the company and also to have that value be more fully reflected in the market. The first of these is really the big one – we need to continue to grow revenue and to have that revenue flow through to increased adjusted EBIDTA and free cash flow. Our analysis suggests strongly that anything else pales in comparison with the importance of continuing to hit our numbers. Achieving low double-digit increases in revenue as we’ve talked about before, say 10% with a 35% or so flow through to adjusted EBIDTA would result in an almost doubling of adjusted EBIDTA over the next three years or so.

Our analysis suggests that if we achieve that kind of performance, more than 80% of the potential future value of the company will likely result from simply meeting our numbers. And so that’s where we’ve got to focus. That’s where we have focused and where we’ll continue to and I’ll just note that we have plenty of opportunities for growth. I’m going to name a couple of them.

One, we have a big opportunity just to accelerate growth by gaining deeper penetration within existing client accounts. While we have several thousand clients in North America, we have enormous potential for growth just through deeper penetration within these client companies with the existing offering’s they’re purchasing, as well as by expanding the number of offerings in which they are involved. Over the past two years we’ve put a real focus into expanding our business and existing accounts and we achieved a more than 12% increase in revenue per account even excluding the large government contract in F2011.

Our efforts also to get various practices to work together on penetrating certain key accounts is also starting to bear real fruit. In one large account for example, we achieved a worldwide rollout of a customized joint sales performance and execution offering that generated more than $1 million in new revenue with that client last year alone. So we have plenty of opportunity for penetration within the existing client base that we have.

Second opportunity for growth is we can really accelerate growth by significantly expanding our number of clients. Despite having thousands of clients, in North American there are 113,000 companies or company units with whom we don’t yet do business that have at least 500 employees. To address this opportunity we plan to double our North American sales force over the next four to five years. We’ve doubled it over the past five years; we expect to do it again and to accelerate that. But even achieving this would leave us far short of penetrating this definable market. As Steve noted, we believe that we will only have more than 500 sales people in our direct offices and we’ve been able to increase significantly the number of client partners we can add in a given year.

Another key strategy for achieving market penetration is something we’ve been working on for the last few years which has really proven to be very successful. It’s an event-based marketing strategy which invites potential buyers to attend carefully prepared marketing luncheons which make the case and describe the value proposition for our various practice offerings. Based on the success of these marketing events over the past several years we are significantly expanding our number of such events in F2012. Noted before in our productivity practice, we’re in the midst of a 177-city, 192-event launch of our new “Five Choices to Extraordinary Productivity” offering and we’re really excited and pleased about the early returns on that.

We will also hold more than 150 “Execution Practice” events up from 100 last year. During this coming year we’ll also hold more than 200 “Leadership Days” hosted by “Leader in Me” schools which is twice the number we held last year; and we also plan to hold 30 or so merger and acquisition oriented cultural integration events for our “Speed of Trust” practice – we’ll be using trust to improve the likelihood of mergers and M&A activity working out.

Internationally we have an even bigger opportunity than in North America. Our client penetration levels are even smaller. Despite tripling the revenue over the past seven years, even with the planned doubling of our international licensee partner sales forces over the next four years we still have even lower penetration than we currently have in North America and there are more than 30 countries in which we have no real presence at all into which we plan to expand. So we have good opportunities of what we call “reach” – expanding our coverage around the world.

Third, we can also accelerate growth by penetrating narrow market segments in each of our practice areas. We now target markets and we do this with our marketing approaches, where if we’re able to achieve even a 3% to 5% penetration of our definable market we have generated at least $100 million in revenue. In education for example we now have more than 650 “Leader in Me” schools, an increase of more than 400 during the year. But with more than 140,000 K-6 schools in North America alone this is only approximately 1.5% penetration. Each 1% penetration of the North American K-6 market will generate approximately$60 million in revenue over three years or so.

In India where they have more than 700,000 elementary schools we’ve just won our first assignment with 20 schools in Delhi. We have similar-sized opportunities in our “Execution Practice” with multi-unit operators – lodgings, supermarkets, retail, etc. – with M&A integration opportunities for our “Speed of Trust” practice where we’ve recently won four new assignments, and for increasing our penetration of the $6 billion leadership market. So there’s plenty of opportunities in just narrowing the market and once we penetrate, continuing to penetrate that and then add on new segments.

Finally we’re also seeing a few but very attractive capital-driven growth opportunities. We’ve often said and I’ve often said that we believed it was unlikely that we would find attractive opportunities for deploying excess capital within our business beyond just funding working capital and R&D. But as we’ve expanded our international licensee operations and as we’ve strengthened and focused our practices, we are now actually seeing a few very attractive investment opportunities. Some could involve making investments to significantly accelerate the growth of our licensee partners in key markets; others include the opportunity to make small add-on acquisitions to expand an existing practice in an area we might otherwise take us years to replicate.

So with these four opportunities – and there are others that I could name – if we fail to grow it won’t be for lack of opportunity. It’d be a failure of execution, and we feel good about the prospects for growth. We don’t feel like we need actually to grow – if we can continue to do just what we’re doing in the seven practices with the potential of just the segments we’ve chosen in those practices, we could achieve all the growth that we expect in the coming years.

So second, within those same practices, there’s an opportunity to expand say for multi-unit operators and execution to manufacturing to take other… We have that same opportunity geographically so we think there’s plenty of opportunity but we’re going to stay focused on what we’re doing, try to drive more and more of our revenues through these successful and very economically attractive marketing events which are practiced literally hundreds of times. Rehearsals are held, people are challenging; there’s a review every single night at 6:00 to refine them until they have the results that we expect.

In addition to continuing to grow the business we also need to do a better job of explaining Franklin Covey to the investment community and of expanding our investor outreach efforts. We’ve allowed others to put us into peer groups that don’t really match our business. As we show in Slide 11, it’s the puzzle piece slide, there are several truly unique aspects to our business that differentiate us from other companies in the consulting or performance enhancement groupings that people could connect us to.

One element of this, and each of these at least could argue for an expansion in multiple but it resides in managing the message to institutional shareholders so they understand where we’re positioned. The first of those elements is our productized consulting or media model. More than 70% of our revenue comes not from our consultants delivering training but from the sale of training manuals – more than 500,000 annually – or training via electronic delivery, intellectual property licenses issued, customized training products. This allows scalability as shown by our more than 10,000 licensed facilitators. It shows scalability as shown by the fact that our licensee partners are able to expand rapidly and this is a key element that’s very different from the traditional training company.

Second is our international licensee network. This network as you know doesn’t use capital – it pays royalties. These are strong partners who are growing and tripling their business in the last seven years and expect to double again in the next three to four years. They’re gaining strength and momentum within their markets. Our senior team is off every week somewhere in the world. Shawn Covey’s right now in Singapore, Shawn Moon is in the UK today, but there is a big opportunity for the expansion of the international licensee network including as I mentioned 30 countries in which we have no presence or essentially no presence at all right now, and some big countries actually, within who we see some opportunity.

The third element is our royalty-like annual product orders from our 10,000 licensed facilitators that make up $33 million to $35 million a year of revenue and seem to be predictable as you can think they would be, ordering these manuals for $125 even in tough times. These people are embedded in the companies. They are committed to the initiative. The expenditure per person is small but the impact on our revenue and margins is high.

And finally our highly visible brand and our strong brand equity: in each of our practice areas our go to market approach is to start with establishing general thought leadership in the category. So many years ago, Seven Habits of Highly Effective People established the gold standard for having a book with influence. It’s now sold over 20 million copies; it’s one of the best-selling business books of all time and continues to sell. The Speed of Trust in our trust practice has become a best-seller and they have a follow-on book coming out, Smart Trust, in January.

In our execution practice there’ll be the launch in the Spring of a new book which we expect to be a best-seller called Four Disciplines of Execution. A year from now we expect to launch a new book on The Five Choices for Extraordinary Productivity. Our sales performance book, Helping Clients Succeed, is the best seller in its category. The Leader in Me is read by principals all over the world and it’s only in customer loyalty at this point that we don’t have one, that we’re working on the foundations for that.

So each of these differentiates us so that when a client is going for a specific need we hope that our thought leadership, our branded content, our best-in-class content that’s practiced again and again, the scalability that we build into it through the investments in film-based learning, etc. allow us to scale these things. As shown in Slide 12, several of our key metrics are actually much more similar to the high multiple learning and human capita software corporate content companies than they are to consulting firms.

If you look on line 1 our gross margins for example are virtually the same as the gross margins for learning and human capital software companies. As discussed above, this is due to the high percentage of our revenue which comes from the sale of productized training manuals, electronic delivery of training and because of our very strong best-in-class branded content. Our EBDITA to sales margins, even though they’ve grown a lot, are more similar to the learning and human capital software companies or consulting than they are to government services, but we expect these as we noted to grow to 17%, at which point they would be above the average for everybody except the corporate content companies, like Corporate Executive Board.

Our revenue per employee is higher than any of these other groups except for outright consulting firms, but despite all these different factors our current adjusted EBIDTA multiple is lower than that than for any of these comparative groups, and so we have allowed ourselves to be positioned as though we were a consulting body shop when in fact we’re quite different.

With our new expanded Investor Relations program we expect to really broaden the sharing of what we believe is an exciting investment story with the investment community that is looking for companies like ours that have proprietary products, a stable and growing customer base, a history of sales and profit growth, strong execution, solid management debt and we expect to make significant progress toward properly explaining the company. And that activity has increased significantly.

Final point, mercifully, is a question that over the past years we have shown a predisposition for returning excess cash to shareholders. One of our advisors prepared the information included in Slide 13 which shows that since 2002 we have returned $227 million of capital in favor of shareholders including repaying $105 million in debt that was senior to shareholders, redeeming $87 million in preferred stock and also senior to common shareholders, and repurchasing $36 million in common stock, including as many of you will recall $30 million just three years ago.

As shown, whether taking all these three elements together into consideration or if you only take into account the preferred and common stock repurchases, or even just the repurchase of common stock alone, we have returned a dramatically higher percentage of our EBIDTA and free cash flow to shareholders than typical Russell 2000 companies. In fact, Franklin Covey has been in the top decile or quintile of all Russell 2000 companies in returning capital in favor of shareholders on every one of those metrics.

As our Board considers how to utilize the free cash flow we expect to generate in the coming years, we’ve had to balance this predisposition to returning capital to shareholders with ensuring that we retain sufficient capital to ensure that we can take full advantage of our growth opportunities. Since more than 80% of all future equity value will depend on this growth our first question has been to determine precisely what is the appropriate amount of cash to keep in the company to ensure that we can take advantage of our significant opportunities for growth; and then and only then consider what to do with the excess cash.

We’ve engaged outside advisors to help us to study this question and with their help we’ve looked at a broad range of growth companies and their levels of liquidity. Among other things we’ve learned that a significant percentage of the Russell 2000 companies hold net cash, or net of debt, equal to approximately 80% to 120% of their annual EBIDTA. A confirmatory learning is an analysis of 20 comparator companies, some of whom have done major stock buybacks and paid dividends who are actually holding even higher levels of cash relative to their trailing EBIDTA and free cash flows than these Russell 2000 companies. So they are truly doing any stock repurchase or dividends from the true excess of cash over and above maintaining 1.5x to 2x their annual EBIDTA.

So despite our past record and predisposition to return cash to shareholders in some way, as a Board we’ve made two decisions: one, that we won’t go into debt in order to buy stock; and second, that we will first build up sufficient cash to ensure that we can take advantage of the growth opportunities before us before returning additional cash to shareholders. We’ve set this threshold of net cash in the range of $15 million to $20 million, a level which we expect to reach in approximately 18 months or so at which time the Board will then address how best to utilize the excess cash that our company generates.

If it turns out obviously that we have more cash than we can possibly use, the great news about having it is we can always then choose to return money to shareholders but it gives us great optionality for the coming couple years; and as I noted, we think now there are really some exciting opportunities for expanding the growth of our business and helping that along with the use of capital.

So my final statement would be that we are very pleased with the company’s performance in F2011, we feel good about the company’s momentum going into F2012. We believe that we have truly extraordinary opportunities for growth and that we can execute on them, and we intend to do everything we can to take advantage of these opportunities to properly represent the company in the marketplace. And we thank you for your continued support.

I apologize that our presentation went a little long today. We were trying to cover also the whole year-end and the strategy going forward but I hope you’ll find it helpful, and I’ll now turn the time over for questions to those who would like to pose a few.

Question-and-Answer Session

Operator

(Operator instructions.) The first question comes from the line of John Lewis. Please proceed.

John Lewis – Waitrose

Well first of all I guess I would be in very sharp contrast to your Board and advisors on the advisement of building up a significant cash position, and over the years you guys have seemed to indicate to investors that you thought it was a very attractive opportunity to repurchase shares. You’ve been saying on numerous calls that you believe the end of calendar year 2011 was an appropriate time to get into this discussion. And given your extreme optimism on the business it seems like a very odd departure. Can you give us some clarity on in a near zero rate interest environment why it’s a good idea to build up cash?

Bob Whitman

Sure, John. I think it’s a tradeoff. I’ll say it very simply because obviously I’m not very articulate otherwise – it’s this: if 80% of the future value of the company and its shares depends on achieving significant growth, and if another 15% of that future depends on increasing our multiple, it would really be foolish for us to do anything… If we have opportunities to invest in the business it would be really foolish and unwise for our shareholders for us to instead dividend it out or to repurchase shares rather than invest in the business.

So if I misspoke and it was unclear, we have had a very big record of returning cash to shareholders, and the only reason we haven’t done it in the recent years is because three years ago we took $30 million of our cash and instead of paying off debt we did repurchase shares. So I think our record on this-

John Lewis – Waitrose

Look, I hear you there, Bob, that’s helpful but-

Bob Whitman

What I’m saying, John, and I think two things we’re saying is one, we should only do it out of excess cash. Other people who are doing buybacks and dividends are doing it out of excess cash and so all we were saying is to do that you have to establish what is required cash versus excess, and we’ve established that in this $15 million to $20 million range. We continue to agree on your point otherwise, which is above that minimum threshold it’s a great idea and we’ve show a predilection to do that.

So I think the only thing that’s changed is that given the acceleration of growth, the fact that we have more large contracts which tend to require more working capital; the opportunity to invest in the business in ways we think can give us a multiple return on a few of these add-on acquisitions and investments – that in trying to assess that whole thing I hope that it makes sense that we try to figure out as a company what we think we need to take advantage of all the stuff that we think can actually increase the value. And that’s all we’re saying, that rather than saying “We’ll take the cash to zero and borrow money to buy stock,” we just have said “Once we have sufficient cash and that we are comfortable that we can fund the growth opportunities, well then the idea of returning cash makes sense after that point.”

John Lewis – Waitrose

Got it, okay. I’ll just leave it and we’ll move on to some other questions but basically one, the business as you guys have said is way more predictable. It’s gone from 40% to 65% recurring revenue. EBIDTA margins have expanded; there’s attractive growth opportunities as far as the eye can see. The debt’s been paid down in like I said, a zero interest rate environment. You can pay dividends, buy stock, and for a very predictable business like this I’m sure there’s no problem in getting any kind of line if you had very attractive investment opportunities.

But this is a sharp departure over your history of repurchasing stock when the business was in a much more precarious position over time, and so to see the business in a much better position and to see you guys saying you need a $15 million to $20 million cushion strikes be as ridiculous. And your Board and your advisors don’t represent what I think is necessary for this business.

Bob Whitman

I appreciate that, John, and I think the only difference is what you think the minimum cash is.

John Lewis – Waitrose

I mean you said it on the last call. You thought that the international licensee business in your opinion was worth 750 to 10 on a standalone basis, so I just find it shocking that you have all these other great growth opportunities, you have a stock price under your watch over ten years that really hasn’t done anything. I saw you guys picked the low price but the reality of the situation is the stock price hasn’t done anything, we haven’t been able to get analyst coverage, we haven’t been able to get really any buy side attention and it’s frankly frustrating and disappointing to see you guys change what you have stated you’d do in the past. You can move on to the next question.

Bob Whitman

Okay, thanks John.

Operator

The next question comes from the line of Joe Janssen from Barrington Research. Please proceed.

Joe Janssen – Barrington Research

Hey guys. Just kind of building on what was previously said, you mentioned a large addressable market within your existing practices. You talked about the sales force; you’re going to add an additional 20 in 2011. Are there any internal conversations of really starting to accelerate the hiring of these salespeople especially if they can ramp up so quick and become so profitable so fast?

Bob Whitman

Yes. Yeah, in fact we think we have the opportunity in certain practice areas to hire as many salespeople within a given practice, like in education, as we historically hired in the whole company. So we have a steady stream of recruits. It’s an accelerated effort and it’s ongoing so we see opportunities there. We think there’ll be some opportunities to hopefully invest in the expansion of our licensee network so that it can grow even faster than it would otherwise grow because we have, as great as our licensee partner business is, sometimes these people don’t have the capital necessary to grow their business and it’s being constrained. We have some opportunities there.

We have some opportunities to reacquire some countries and so forth that we then could get new partners in who could penetrate it further. We’ve got these big investments that we’re making in these marketing programs which have a predictable return, so I think there are four or five key levers for driving the growth of the business and we expect to do so.

Joe Janssen – Barrington Research

I appreciate that. And just a modeling question – I always ask this: taxes, as you mentioned, were going to be similar to the tax rate you had on a full-year basis. Should I be expecting lumpiness in that or is that somewhat normalized where I’d expect that 43% to go over quarter-over-quarter for the next four quarters? I know you give a formula historically but I wasn’t really expecting the gain, which is a benefit in terms of EPS, but just some clarity around that.

Steve Young

I don’t have an exact number but it would be more like the 43% we would expect next year.

Joe Janssen – Barrington Research

On a year-over-year basis and on a quarterly basis? Should I expect some lumpiness or would that be more normalized?

Steve Young

That’s about the same percentage each quarter the way we do our tax provision.

Joe Janssen – Barrington Research

Okay, I’m going to jump back in queue.

Operator

The next question comes from the line of [Don Hickman] from [Latinburg]. Please proceed.

[Don Hickman] – [Latinburg]

Hello. I’m new to this story and I’m interested if you can just, I mean without too much elaboration but can you talk about how you’re selling your education services product into the schools these days when school districts by and large have no money?

Bob Whitman

Yeah, the growth in our education business has really occurred during the last three to four years when the schools have had no money. So the growth in that has come really from two roles. One, there are certain Title IX schools and so forth, and Title I programs that allow the expansion and they’re actually allowed different ways to fund. But beyond that, the majority of the growth has actually occurred by the results that schools have have been profound enough and encouraging enough to the whole community that in many cases chambers of commerce have stepped in to fund them, some of our investors have sponsored schools in their own communities which we admire and appreciate.

We have some larger companies who have decided to fund a number of schools based on what they’ve seen happen in those schools, and so through a combination of community funding, endowments, large businesses and government funding we’ve been able to find those schools and they’ve been able to in many cases go find the money themselves. It may be a wealthy parent who decides, commits to do it. So obviously having free-flowing money would be an easier thing but all of the growth that we’ve had to date has been in that kind of circumstance. So it’s based on really the results a school gets and that’s been the focus.

[Don Hickman] – [Latinburg]

So do you sell that on a per-school basis, per-classroom?

Bob Whitman

It’s a per-school basis, so it’s a whole school implementation program and that’s the focus.

[Don Hickman] – [Latinburg]

So what’s the per-school cost?

Bob Whitman

A school would typically invest over its first three years about up to $45,000, so on average $15,000 a year. It’s more on the front, close to $25,000 to $30,000 in the first year or so as you take everybody through the initial phases of training and then there’s an ongoing fee that continues and hopefully continues forever in the schools.

[Don Hickman] – [Latinburg]

And then can you go over the stats just one more time? What’s the opportunity nationwide, the number of schools?

Bob Whitman

There are just over 140,000 K-6 schools and so if you look at 1% penetration it would be 1400 schools, and so 1400 schools, for every 1% penetration if there’s $45,000 or $50,000 of revenue you can kind of do the math. It suggests that every 1% can generate $55 million to $60 million of revenue in that business. We’ve grown to 0.5% penetration over the past three years and I think we can continue the momentum, but that’s kind of the math and that’s just in US and Canada. It doesn’t include the foreign opportunity which we are starting in India.

[Don Hickman] – [Latinburg]

And that’s just one module – the $15,000 is just one?

Bob Whitman

That’s one school, yes. So it’s a whole school integration.

[Don Hickman] – [Latinburg]

But I guess you could add other products to that over time.

Bob Whitman

It’s an integrated product, it’s an integrated offering. We’d be happy to take you through on the website and maybe have our education practice people take you through it in detail. I think you could get a good feel for it if you’d like.

[Don Hickman] – [Latinburg]

Okay, thank you.

Operator

(Operator instructions.) The next question comes from the line of Bill Gibson of Legend Merchant. Please proceed.

Bill Gibson – Legend Merchant

Hi, Bob. I love how the business is operating but I’m more in John’s camp, and you know where I stand so this is more for any directors that are listening. You had all those nice tables but I can play with spreadsheets and show you can play considerably above today’s price and be accretive to earnings. And to not have an opportunistic program in place, and what I mean is that doesn’t mean you charge in and drive the stock up, but we’re in one of these volatile markets where bouts of weakness come about where all the buyers go on strike. And to not take advantage of that is just absolutely crazy in my opinion because you have relatively low compulsory capital investments. So that was my two cents’ worth on stock buybacks. I think you ought to have a program in place.

My question, and this is just kind of really minor because you went over everything in pretty good detail – the third alternative, which practice does that fall in?

Bob Whitman

That falls in the leadership practice.

Bill Gibson – Legend Merchant

That’ll be in the leadership, okay. Thank you.

Operator

Your next question comes from the line of Jaime DeYoung from Credit Suisse. Please proceed.

Jaime DeYoung – Credit Suisse

Yes, thank you. Bob, Steve, congratulations on a very nice quarter and a great end to the year. I think other people have echoed this. I think that seven quarters in a row now, I may be a quarter off, of at least meeting if not beating expectations. You did a good job of talking about how you’ve got increased visibility into your business and are really pleased with the opportunities that you have in front of you for this next year.

You talked a little bit about what you think the opportunity is for long-term adjusted EBIDTA margin. Did you also talk about kind of the long-term EBIDTA goal? We finished this year at a little over $21 million and you’ve continued to grow EBIDTA in this 20%, 25% range that you’ve been growing which you seem to have been able to execute on extremely consistently. That would get you to $40 million in EBIDTA three years from now, and what’s that, about $2.50 in EBIDTA; and given what valuations are, comps, really an opportunity to have an opportunity to make 2.5x, 3x your money on the stock.

That’s what I’m in the stock for. Is that really how you want to present this thing? When you’re going out on the road, how do you want people to view this story, because you’ve got some sell side analysts who position this for “Hey, over the next three months we think the company’s going to earn this and we’ve got an $11 target on it.” And then you do this and they move their target up to $13, but that’s not a way to really position a company to new investors. So as a leader to this company how is it that you want to position it?

For people who have the ability to be in the stock for the next three years the challenge is that this is a volatile stock, but I’m willing to live with volatility given the predictability of your results and the visibility you have on your business, and the growth that you think you have in front of you. So can you just speak to that because if your projection for the next three years is what I think it is I’m going to be here for a long time. So that’s be helpful if you can speak to that.

Bob Whitman

Thanks, Jaime. We see it the way you said and that’s I think what’s behind this desire to make sure we have plenty of ability to invest. The opportunities are getting bigger. For us, we’ve said time and time again that we think maintaining kind of organic growth in that 10% top line a year is something that we can do, and we can flow through a lot of it; and so the number that you talked about as a base plan would lead you to the kind of numbers you talked about. I mean if you grew $6 million of EBIDTA a year, $5 million to $6 million of EBIDTA a year you’d be in that $40 million range.

We think the potential is at some point along that. It’s not that that doesn’t require a lot of hard execution and that’s a fast growth rate at the bottom line, and organically there aren’t that many companies who are growing organically at that rate. At the same time we think that there are, as others have noted, there is an opportunity to accelerate that. So that’s really what’s behind the desire to have sufficient liquidity to take advantage of it, is that we believe there are inflection points in various of these practices and various of these countries that could really change the equation for us.

And so we’re playing, as great as it would be and we hope we can do something like you’re talking about – continue to every year put up good numbers and grow the EBIDTA by a predictable amount – we think there also may be a couple of opportunities along that road to make a pretty significant leap in one area or another. So that’s really what’s behind the thinking of our Board that’s considered this very carefully. I hear the others and I actually agree with John, and Jaime, with you, that buying stock if you believe that you’re going to get to $40 million or $50 million of EBIDTA over the next few years, the stock is cheap.

At the same time, getting to $40 million or $50 million might require some financial flexibility and so I think it’s really been a discussion among all of our Board members and ourselves to look at a variety of scenarios and just try to peg a number that says “Look, we’re not…” We haven’t as a Board made it impossible for the Board to have a phone call and decide if there’s real weakness in the stock that we can’t move. But what we are saying is that as a general matter, the many companies that we’ve studied over the last six months who have done buybacks, etc., have done so from their excess cash and it seems wise for us to do that.

I wish again and again that three years ago maybe we shouldn’t have bought the $30 million and then maybe we’d have the $30 million today and we’d make people happier today, and to John’s point, it is a departure not to be buying right now but the difference is, then we had excess cash. And so all we’re trying to do is quickly get ourselves back up to the point where we have the flexibility to invest in the business and to grow it.

We see as you say, Jaime, each of our practices, and we talked several years ago about having these practices be able to move from $3 million to $7 million or $8 million – we have five of the six that have gone past that at this point, and we see the opportunity to double those again and triple those. So we see plenty of opportunity, some of which will require some capital, and so for us we’re playing for the kind of thing you’re talking about which is if it’s next quarter that we’re playing for, obviously we’re playing for that, too. But we’re trying to figure out how do you create a couple of hundred million dollars of incremental value in the company over the next three years by executing well on the strategy? And we’re trying to keep ourselves focused on that question and hope that that effort will attract the kind of people who like that idea and can see the intrinsic value and want to be part of it.

Jaime DeYoung – Credit Suisse

Okay, that’s helpful. I appreciate it. I’m encouraged by the fact that you’ve got internal growth projects that could utilize cash and have a much higher return on invested capital than a buyback. I think if that’s the case then I would be in favor of investing in internal projects, and at some point when we can do both that’s a great position to be in. So thanks again for your efforts this quarter and I’ll be in touch next quarter. Thank you.

Operator

Your next question comes from the line of Joe Janssen from Barrington Research. Please proceed.

Joe Janssen – Barrington Research

Yeah, my question was already asked.

Operator

I would now like to turn the conference over to Mr. Bob Whitman for closing remarks.

Bob Whitman

Well, I’m sorry that we’ve gone over. We appreciate your questions and we’re happy to have a chance to talk to you and of course we’d be delighted to talk to any of you individually who would like to talk further. And for those who would like to learn more about any part of the business we can arrange to have either practice leaders or others to spend some time with you, and we welcome you of course to visit here or we’d be delighted to visit with you as we will be doing in the coming weeks. So thanks very much and have a good rest of the day. Thanks.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect and have a great day.

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