Franklin Covey Co (FC) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Franklin Covey investor conference call. My name is Chris, and I'll be your operator for today. All participants are in a listen-only mode. Later we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Derek Hatch, Corporate Controller. Please proceed.

Good afternoon. On behalf of Franklin Covey I would like to welcome you to our fourth-quarter fiscal 2010 conference call.

Before we begin the call and the information that is going to be presented today, I would just like to remind everybody about forward-looking statements [we make].

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 the company's most recent Annual Report on Form 10-K, which is coming very soon, 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 expectation. 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.

With that said, we would like to turn the time over this afternoon to our Chief Executive Officer and Chairman of the Board, Mr. Bob Whitman.

Good afternoon everyone. I'm delighted to have the chance to talk with all of you today and appreciate you joining us.

I would like to organize my comments today around the following four headlines or themes.

First, that we were very pleased with the company's strong performance and results in the fourth quarter. We will go into the detail on those.

Second, we also feel very good about the company's strong performance and tremendous progress for 2010 as a whole.

Third, we're excited by the strong booking trends and momentum we're continuing to see in the business.

And fourth, based on these trends we expect to achieve significant continued improvement in both revenues and profitability during fiscal 2011.

So with those headlines, maybe I will just provide some detail behind each of those.

First, with respect to the fourth quarter, you all have seen the press release. As you see, revenue for the fourth quarter totaled $44.7 million, which was an increase of $11.3 million or 34% from the $33.4 million we achieved in the fourth quarter of fiscal 2009.

Our strong bookings during the third quarter obviously translated into significant revenue growth during the fourth quarter, which meaningfully exceeded both last year's revenues and our expectations.

You may recall that at the end of the -- at the third quarter webcast, we talked about having around $15 million more revenue to be delivered in coming periods on the books at that time than we had had at that point in the prior year. And as you can see, a lot of that, $10 million of that, came through in the quarter, and as we will talk about in a moment, we still have $12 million more on the books at this point than we had at this time last year, so we see a continued strong pipeline.

As shown in slide four, we were really pleased to have achieved growth in all of our major channels.

The first line item, which is US/Canada direct offices, I'm going to break into two components.

First, revenues in our government services group grew by $6.7 million in the fourth quarter, reflecting in part a previously announced government services contract that was awarded to us in the beginning of the fourth quarter, which we talked about on the last call.

As important as this contract was and is, however, we also achieved significant growth during the quarter in each of our other key channels. In fact, every direct office both, domestic and international, grew during the fourth quarter, as did every field support practice, our international licensee partners, and two of the three national account practices.

Revenue in our other geographic domestic direct offices grew -- other than government -- grew $2.2 million or 17% in the quarter, reflecting the actual delivery of bookings that had previously been put on the books in the third and fourth quarters. As I noted, every domestic office grew revenues and profitability during the quarter.

Revenues in our international direct offices also grew 6% for the quarter, which is the first time we've seen growth overall in these offices this year.

The UK, Australia and Japan all had growth. The UK and Australia each achieved double-digit growth. And we were especially pleased to have achieved revenue growth in Japan, where we had experienced year-over-year revenue declines in 2009 and during the first three quarters of fiscal 2010.

Japan, I'm happy to say, has continued to gain momentum. We currently expect it to generate double-digit growth during this fiscal year's first quarter.

Our international licensee partner royalties grew 12% in the quarter, with most of our international licensee partners growing over the prior-year, including each of our five largest licensees, who each generated double-digit growth.

And finally, revenues in our national account practices grew 19% in the quarter, with our education practice growing $900,000 or 30%, and the customer loyalty practice growing $200,000 or 19%.

And the sales performance practice the only national account practice that did not increase revenues in the quarter. They declined $100,000 in the quarter, but for the year as a whole, as you will recall, they had sales growth of around 30%. So this is a particular blip in this quarter on an otherwise great trend.

From a profitability standpoint, adjusted EBITDA for the fourth quarter, really adjusted for the severance costs, was $6.5 million, which was 2.7 times the $2.4 million level achieved during last year's fourth quarter, and this $6.5 million was after paying approximately $1.7 million in what we call special bonus commissions on top of the normal commissions in the fourth quarter.

We have a program where when salespeople exceed their annual target, they get accelerated commissions on that increment above their target. Normally that is within a small range, a 3% or 4% or 5% increase, because these are stretch targets, and so normally this number is relatively low.

In this particular quarter, because revenue blew by their original quotas so far, these bonuses were substantial, and extra bonuses were substantial, and they total about $1.7 million.

Without these special commissions, which -- on the same revenue next year, they would not get these special bonus commissions, because the goals are ratcheted up and it would take a very significant increase in revenue over this year to get those same ones, and without these special bonuses, the flow-through would've been more what you would've expected on that increased revenue and would've exceeded $8 million. We will come back to that.

On a gross margin -- our gross margin for the quarter from continuing operations increased to 67% compared with 63.2% in the fourth quarter of fiscal 2009.

This reflected several things --

One, the impact of the government services contract, which included the licensing of intellectual property, [since] those licenses have other margins than other types of our training and consumer sales.

Second, increased international licensee royalty revenues, which have high incremental margins.

And three, the increase in training consulting sales generally, which has higher margins than either the product or leasing revenues that we have.

Our SG&A expenses declined to 54.4% of sales during the fourth quarter, compared to 57.7% of sales in the fourth quarter of 2009. We like that trend and would like to continue it.

In absolute dollar terms, however, because of the increased revenue, SG&A expenses increased approximately $5 million in the quarter, compared to the fourth quarter of 2009, with again, the $1.7 million of that for the special bonus commissions referred to previously.

Our strong performance also resulted in others earning additional performance pay for the quarter.

Another approximately $1 million of the increase was for severance costs associated with previously announced changes in the composition of our executive team.

Approximately $1.1 million related to -- $1.2 million related to standard commissions on the $11 million increase in revenue achieved during the quarter.

And there were some additional non-commission SG&A costs, which were incurring in connection with setting up for the government contract, which increased reported SG&A expense.

Our other central SG&A continued to be essentially flat, at the reduced levels achieved as a result of cost reductions efforts in 2009.

We do continue to make investments to grow our sales force and to build our practices, and while those investments are covered by new revenues, nevertheless that increases the actual line item of SG&A. But our main focus of courses is on reducing SG&A as a percentage of revenue as we continue to grow.

As noted, adjusted EBITDA, again, was $6.5 million, 2.7 times the $2.4 million level achieved in last year's fourth quarter.

Income from operations increased $9.5 million during the fourth quarter to $3.9 million on a reported basis, but excluding severance costs, operating income for the fourth quarter was $4.9 million.

And pretax income improved also to $3.2 million in the fourth quarter, which was up by $9.6 million, compared to a loss of $6.4 million in the fourth quarter of fiscal 2009.

Again, with our unusual tax provision, which as you will see -- or you have seen -- is more than 100% of pretax income -- it is hard to imagine how that happens -- we sometimes are -- and I think some of you all do this same analysis. We often just start with adjusted EBITDA to calculate what normal earnings would be on our operations. In this quarter how that would work -- at least the way we would do that math -- and maybe some of you -- we would take our adjusted EBITDA of $6.53 million, subtract $1.7 million of depreciation and amortization, leaving us with operating income of just over $4.8 million, $4.83 million. You would take interest expense out of around $700,000. That would leave pretax income for the quarter of $4.1 million, adjusted for these severance costs. And then at a 41% normalized tax rate, you would have $1.7 million tax expense and about $2.4 million of after-tax on a more normalized basis.

Whether that is helpful to you all, that is how we try to reconcile what the real net income from operations was.

And so we're excited about the direction of it, the absolute magnitude of it, as well, and feel good about the profitability.

So on that first one, overall we feel very good about the fourth quarter. We will talk in a minute about the momentum. We've felt particularly good about the continued momentum. But the results were, we felt, great.

The flow-through on incremental revenue was less due to these extra costs of setting up the government contracts and these bonus commissions, but otherwise, on similar revenues in another year, we would flow through more than $8 million on that, and so we feel good about the ongoing operations.

Second, a general point, we also feel very good about the company's progress and performance for the whole year of 2010.

You can see revenues for the year ended up at $136.9 million, which is up 11% compared to 2009.

The company's adjusted EBITDA of $13.3 million for 2010 reflected substantial growth compared to the $2.6 million in adjusted EBITDA achieved during 2009.

And you may know that this $13.3 million in adjusted EBITDA excludes approximately $1 million of EBITDA which we earned in the first three quarters from the Japan product sales business, which was sold in the fourth quarter and classified as discontinued operations.

It also excludes a $1.1 million gain, as it should, resulting from that sale.

And this $13.3 million in adjusted EBITDA was also after paying the previously discussed $1.7 million in special bonus commissions, which will not repeat in fiscal 2011 on the same level of revenues.

Perhaps most encouraging for us is that these significant improvements in operating results in 2010 were driven primarily by growth in revenues and by the expansion of gross margins.

Our central costs remained low.

We made investments in new salespeople and in our practices, almost all of which were recovered or will be shortly recovered or at least are on a track to being recovered if they weren't fully covered during the year.

So we feel like these are investments we can count on and that can help to continue to drive the business.

Third point, we continue to be excited and encouraged by the trends we're seeing in the business. We were very encouraged by the continued strong momentum in our bookings during the fourth quarter.

As you know, one of our key metrics is what we refer to as booked days, which are contracts for future delivery of training engagements on-site at client locations.

As you can see in slide five, in last year's fourth quarter we booked approximately 1400 days for future delivery, 1400 training days where our consultants would be on-site.

In this year's fourth quarter we booked approximately 2300 days for future delivery, which represented an increase of 65% compared to the fourth quarter of 2009.

Even without the benefit of bookings related to the government contract, our booked days grew by 14% during the fourth quarter and have accelerated further, as I will note in a moment, in our first quarter.

As shown in slide six, this strong booking momentum and the addition of new contracts during the quarter resulted in -- despite the fact that we recognized an extra $10 million of revenue in the fourth quarter, we ended the quarter having $11.5 million more in our pipeline of booked day and awarded contract revenue at the end of the fourth quarter than we had at that point the previous year.

So we expect both of these bookings will be delivered over the first three quarters of 2011, which will give a good boost -- with revenues already in that pipeline -- to the first three quarters. We expect we will continue to have good, strong bookings, and that will strengthen it. So most of this we think will fall -- the big increases should be -- in revenues -- either occur in the first three quarters -- obviously given our very large fourth quarter, that will be a tougher one to beat significantly.

As noted, we're pleased that this strong booking momentum has continued through September and October with approximately 2,000 booked days in these two months, compared to approximately 900 in 2010. So that's more than a 100% increase.

Even without the bookings related to the government contract, our other bookings grew by 44% during September and October. So that is actually an accelerating trend even relative to the summer months.

Final point is our outlook. As a result of this booking momentum and with the strength of our other lead measures, we believe we are positioned to achieve continued significant growth in revenue and profitability during the first quarter and beyond.

As you know, historically we have not provided guidance, but we have decided to provide adjusted EBITDA guidance this year in order to provide some additional clarity to you all as to how we see the trajectory of our business unfolding in fiscal 2011.

So based on our strong pipeline of booked days and awarded contract revenues, on our other operating assumptions, we expect the company will grow adjusted EBITDA from $13.3 million in 2010 to between $18 million and $21 million in 2010 -- or fiscal 2011, representing growth of between 35% and 57%.

This range, this $18 million to $21 million range, is without approximately $1 million in EBITDA from the Japan products business that we sold. Otherwise, our estimates would be probably in the $19 million to $22 million range. And I believe that some of the estimates that have been out there, if not all, have not been adjusted to reflect the sale of the Japanese business. So this would put our range clearly wrapping around that.

So all in all, very excited about the quarter, the start to this year, and excited about the trends.

I'm going to now ask members of the executive team to briefly address the company's performance in their specific areas of responsibility.

I would like to ask Shawn Moon, who is joining us from Japan this morning -- well, in the morning there, afternoon here. Shawn, maybe you could just give an update on the direct offices and the field support practices and anything else you would like to cover.

Then ask Sean Covey to talk about the international licensee business, educational in his areas of responsibility .

Shawn?

Certainly. Good morning for me. Good afternoon for you all. Thank you for taking the time.

I'm very pleased to follow up on the information that Bob has provided, and really just want to restate a couple of things.

We are very pleased that the -- all 10 of our major delivery channels, which includes the four geographic regions, two vertical regions, our -- including our federal government and education and our three international offices and licensees all increased revenue over the prior year.

Our other major domestic delivery channels are up. Our facilitator revenue, which is one of our key indicators -- this is the revenue that is brought about by the facilitators that are trained within an organization -- that was up in the fourth quarter. And Bob mentioned the booked day revenue was up significantly and continues to -- we continue to see that pace here in the first quarter.

Our international direct offices in Australia and the UK achieved double-digit growth.

I -- as Bob mentioned, I'm in Japan and pleased about the momentum that they have created after a tough few quarters in the first part of fiscal 2010.

So overall we're very pleased by the direction that we're headed.

One of the key indicators that I look at, of course -- Bob mentioned the bookings, which is reflective of the consulting day that organizations engage from us. But -- so that is encouraging.

And also look at the major contracts that have been awarded, and we saw significant momentum in that area in the fourth quarter, with a couple -- with several major engagements that began and will continue throughout this year.

And then our practice areas, three of which I'm responsible for, had great growth.

Bob mentioned our sales performance practice, which grew from about $4 million to just over $6 million in the year.

Our execution practice, which grew from $4.4 million to about $8.5 million in the fiscal year.

And our speed of trust practice, which nearly doubled, from $8.3 million to over $14.7 million.

So all in all we're very encouraged by the momentum.

We concluded our year with our annual sales conference, our sales and delivery conference where we brought our key partners in from across the world and really focused on some key areas, institutionalizing some sales management processes, which people are excited about, and also refinement of the particular salespeople's focus in terms of how they go to market. And we're seeing some great momentum and traction from that.

So I'm pleased about the direction that is happening within our direct offices across the world and our practice areas.

Thanks Shawn.

Next Sean Covey, maybe just to continue, if you would.

Sure. Well, good afternoon everyone. Good being with you.

As you are aware, we have 38 licensed partners throughout the world, and they cover over 120 countries, so virtually every country on the globe is covered by a Franklin Covey partner.

And we had a really good fourth quarter, and for the year, for the second quarter we had 17% growth. The third quarter, year over year, we had 16% growth. In the fourth quarter we continued with a good quarter at 12% growth.

And we've got good momentum this first quarter so far.

So overall for the year we ended up that 5% over last fiscal year, because the first quarter was down a little bit for fiscal year 2010.

And as a whole we believe our license operations represent a major growth opportunity for our company over the next five to 10 years.

Specifically there's great growth opportunities in many operations, including India and China, Indonesia, Brazil, Mexico and Central/Eastern Europe. We're experiencing double-digit growth in all of those countries and can foresee that for a long time to come.

In terms of some of the practices -- and Shawn has responsibility for some, and I have responsibility for some others, including our education practice. It continues to grow very strong. I'm very pleased with it. The revenue increased to $4 million in the fourth quarter, from $3.1 million last year, a growth rate of 30%. And our EBITDA increased from $1.0 million to $1.3 million.

For the year the education practice grew from $6.5 million to $8.4 million, and our EBITDA increased from $0.7 million to $2.0 million.

So we're pleased with the top- and the bottom-line growth of education.

What we're doing in education is a unique process. We call it The Leader in Me. And it's an elementary school transformation process. It's very exciting and having a lot of impact right now. We're currently in over 350 schools in the US and Canada, and a few schools outside of the US, and we're picking up about three new schools each week.

So given the track record of results that we're getting in these schools and given the environment in education right now, we believe the opportunity is immense and that eventually we could penetrate well over 1,000 to 2,000 schools.

Our technology platforms practice has also experienced strong growth of more than 100% in the fourth quarter, and for the year we grew the -- it started off pretty small at $700,000, and we grew it to $3.0 million this year. We expect continued growth as organizations continue to look for online training solutions.

So overall for the entire year, fiscal 2010, our national account practices grew by 32% or $4.7 million, and the EBITDA contribution of the national account practices went from $4.5 million -- or from $2.4 million to $4.5 million, up 85%.

So as we have discussed before on other calls, we believe that this new practice structure is going to offer many new growth opportunities and will give us focus to become market leaders in each of the areas that we choose to focus on. And so from trust to execution to sales performance to education, each one of them is experiencing significant growth. We believe along with our channel focus, the practice focus will create a compound interest effect that will be terrific going forward.

Thank you.

Thanks Sean.

Steve -- let me turn it over to Steve Young, our CFO, to talk in more detail about the financial results.

Thank you Bob. I'll just add my voice to the others that are pleased with the result of the quarter and pleased with our current momentum.

I would like to draw your attention to slide number seven, which is simply a reconciliation of our bottom-line earnings to adjusted EBITDA. It shows the elements that are included and excluded and shows the numbers that we've been talking about, a good increase in the quarter, from $2.4 million to $6.5 million. A good increase in the year, from $2.6 million to $13.3 million. Good, positive results.

I'd like to also draw your attention to slide eight. Slide eight, in one sentence, says that we're happy that all of these activities that we're excited about are converting into cash. So this is just a selected cash information, which shows that our earnings for the quarter and for the year, if you take this approach, is excluding non-cash items, and then deducting our purchases of property and equipment and curriculum, that we are generating cash -- $10.4 million for the year and almost $4 million for the quarter.

When you look at our balance sheet, you will see that our balance sheet continues to be strong.

You'll note that at year end our receivable balance is $7.8 million higher than it was last year. This is due primarily to the great sales in the month of August that at year end are still in receivables.

You will also notice that our inventory balances have come down.

And you will notice that these commissions and bonuses that Bob was talking about, that we're happy to pay because they're based on sales and earnings, are sitting in accrued liabilities at year end.

So what that means is, first, that our balance sheet is strong, and second, that even though we have a revolving credit balance of $9.5 million at year end, and we do have cash of $3.5 million at year end, but even though our revolving line is $9.5 million, our receivable balances are high enough -- and we expect those to come down -- such that the comments we've made in the past that we plan to be essentially out of our revolving credit agreement by year end are still true -- of course contingent upon collecting all of these receivables, which we believe that we will.

So we have good earnings, backed up by a solid balance sheet, backed up by cash generation and good liquidity.

I would like to take the next hour to talk about our tax provision, but let's just say that in our official filings we can't use the words we would like to to describe our tax provision, so we just say that it is interesting.

And if we take our pretax income times the 41% that Bob was talking about and then add $2.0 million to $2.5 million, you will get to what our tax provision is for the year, and that -- what it will be, until we get to a point that we don't have NOL carry-forwards anymore.

I would just point out that when you look at our cash flow statements, you will see that even though our tax provision is extremely high, in FY 2010 we paid $400,000 in actual cash out for taxes.

Also in the slides, just draw your attention to slide number nine, which is entitled -- or titled Valuation Scenarios.

We are sometimes asked about how we view the valuation of the company, and normally what we're talking about there is how we deal with our financing obligation, debt that is on the books, and the fact that our -- that we have a $53 million note receivable that does not show on the books, and that we have management loan shares totaling $3.4 million that are held in escrow, and just how we consider all of these things when we're valuing the company.

So while we are not pretending to say how you should value the company -- we know there are many different ways -- but this is some information that we look at and would like to talk about more, as we're out meeting with investors and potential investors concerning our valuation.

So I guess the summary of all that is simply kind of as Bob stated, we're pleased with our result for the quarter, pleased for the year, pleased for our current momentum.

So thank you Bob.

Great. Just before we go to questions, maybe I'll just make a concluding statement that -- this doesn't feel like an accident that things are moving the right direction. They've actually -- with the exception of 2009, this is a continuation of a trend that really began in 2005 with respect to the business that we still have remaining.

As you may recall, from 2005 to 2008 our direct office revenues collectively, domestically and internationally, grew by 42%, with EBITDA contribution growing 92%. Our international licensee business more than doubled during those years.

During those years we started these national account practices, originally had costs, all of the startup costs, but you see this flow-through on incremental revenues that Sean talked about -- Sean Covey -- a moment ago, with 84% increase in EBITDA on 30% increase in revenues.

So we feel -- we had a good off-site management meeting last week with our top leaders, called our Redwood Council, last week, and we identified all the different things that have been started over the past five to seven years, where they were now, and I think our conclusion was, we actually have a number of -- all the trees came out of the ground, they're all above ground now contributing, that some of them are pretty big -- some are saplings, but most are pretty good-sized trees, and the potential in each of the businesses is quite -- we believe quite extraordinary.

So for us this is a continued execution push this year. We're going to try -- one of our big initiatives is to try to shorten the ramp-up time for new salespeople, because that is such a profitable investment, even as it is, but we believe there are ways, by narrowing their focus, specializing them on specific target markets that we can get their ramp-up to be faster, and that would be a huge advantage for us.

We continue to work with our international licensee partners to help them grow, because they have tremendous opportunities and great presence where they are.

And we have got some investments in new offerings that will be coming out, a big, new launch of a new productivity offering, which will replace our historic time management offerings, later this year.

So there's a lot we feel is moving in the right direction.

We have great people in every key spot. You looked around the room with the 25 top leaders last week, and most of them have been with us seven to 12 years. They've been in their role more than three to five generally.

So we feel like we have got a great team, great offerings, a good go-to-market approach, a business model that is improving.

Our investments -- the investments we have to -- we're not intending a lot of new investments to plant new trees. Our investments are now in how to grow the trees we have, primarily over the next three years, and we expect with the business model that should drive through pretty high flow-through, month by month, quarter by quarter, we feel like we're off to a good start and momentum this quarter.

Obviously in any given quarter there will be non-comparable things from a prior year, and where you had a particularly big thing one year -- one quarter or another, or an expense comes up you didn't have. But I think on a rolling 12 month basis, we expect things to continue to move northeast, and I guess we're kind of putting a stake in the ground on giving some guidance here this year, and we look forward to reporting against that.

With that, I'm going to now open it for questions, if you are coordinating that.

(Operator Instructions) Benj Gallander, Contra The Heard.

Hi. First, I would like to congratulate you guys on a fine quarter, moving in the right direction. It's good to hear that it looks like profitability in the next quarter.

I'm just wondering in terms of the interesting, as you said, tax situation, is that going to be a factor in the quarter and quarters coming up?

The answer is yes. This tax provision will be interesting until at a point that our net operating loss carry-forward is consumed. And we have about $30 million of net operating loss carry-forward.

So on the one hand, it is unfortunate that that causes us to have such a high tax rate in our tax provision. Of course, it is beneficial to us that we have an NOL carried forward so that our cash out for taxes is low.

But it is just that odd situation of having an extremely high expense and extremely low amount paid out in taxes. That is why we encourage people -- and we predict that when our net operating loss is consumed, at that same point we will be recording the 40% to 42% tax -- effective tax rate that everyone would expect, and we'll be paying our taxes at that same level.

Okay. That is likely a few years away I'm guessing.

Yes, we -- however long we predict it would take to consume $30 million of NOL domestically, yes.

The next question, my last question, I think, is for Bob. I noticed you have been doing a fair bit of selling, and everything seems to be going in the right direction, and then you see the head man selling a fair bit of stock. I'm just wondering what investors like myself are to make of this.

Well, hopefully you'll -- if you look at the total shareholdings I have and the fact that I have also got 1 million of the warrants, hopefully it won't be an upsetting thing.

For years -- I'll just say, when I announced this last year, for the first -- for 3.5 years I took no compensation. I bought -- almost all the shares that I own, I purchased and have never sold or taken -- I haven't ever taken a pay increase or anything else.

So I say that only to say that I'm committed and I am here and so forth.

At the same time, our family has made other -- has commitments to charities and other things that, what I've done over the years is just continue to sell other things, and finally we said, look, I'm not going to sell more. I received a certain number of share grants every year. And so on a net basis, I don't anticipate reducing my overall shareholdings but am selling a relatively small amount every month, trying to do it in a simple way that doesn't move the market, but that is what is going on.

So I -- hopefully the commitment that has been shown and continues to be shown in the significant shareholdings, etc., that I continue to have, and other things, will show a commitment. But I understand that for some that may be problematic. So --

Yes. Well, no, you certainly have shown the commitment, and there is no question there. I can see how personally one would want to sell some. I think, as you said, it's important that you do it so that you don't upset the market, and that is great.

The last thing is, previously you guys did a Dutch auction. Any thoughts on doing something like that again?

Yes, we -- I think our feeling is -- we made a little bit of an announcement in the spring that once we got through this year end, we would anticipate addressing this in our upcoming Board meeting, kind of what's the -- since we anticipate we will be in a position where we will be paying off our credit facility and we expect, if we're meeting our -- the objectives in our guidance here, we will be generating significant amounts of positive cash flow. In the past our predilection has been threefold.

One, to make sure we have plenty of liquidity. And so we will want to make sure we continue to do that.

Second is to return shares to the -- return cash to the shareholders in some other way, in some way. We've done it primarily through purchase in the past, but I think it is conceivable that in the future that might include a small dividend or something as we consider this.

So that will be the topic of the Board meeting. We will expect to report on that in our January quarterly report.

Well, I'm certainly always happy to see dividends, and it's good to know that it's on the agenda in the not-too-distant future. And once again, thank you so much for your results.

James DeYoung, Credit Suisse.

Nice quarter.

Couple of things. It looks like you've got some nice leverage going with that cost reduction shift you did last year. EBITDA margin looks like was up maybe as much as 14.5% in the quarter, which was a huge jump from what it had been previously. So really pleased with that.

The other thing I just wanted to ask you about was, so government services graduate school program, I think you recognized revenue of $6.7 million in the quarter, and in the pipeline of bookings, you mentioned $11.5 million, in the press release. Just was curious what you thought kind of the ultimate opportunity could be with the graduate school, going forward.

That actually, the increase in the fourth quarter in the government services was actually not as a result of the graduate school relationship. That is just actually launching this quarter. We anticipate -- graduate school trains about 200,000 government employees a year, and this is something I've personally been working on for a number of years to secure this relationship. They're very excited about it, and we are piloting it beginning in January with the initiation of about eight programs or so.

We anticipate that this relationship could result in a couple of key things for us.

One is some substantial revenue that is incremental to our existing delivery channel.

And second is that it is very meaningful exposure. We have had in years past a very robust public programs open enrollment type engine serving the government market, and that has not happened the last several years. So this is going back to that.

So it is both a revenue play and an opportunity for substantial exposure in the years ahead.

My last question is, where do you think is the biggest opportunity in fiscal year 2011 that could bring potential upside above and beyond your initial forecast for the year.

I think for us the -- you can answer it from different perspectives, but I think the biggest thing will be the -- the biggest single thing, in my judgment, will be just the recovery of the core, traditional training business, because we have people all over the world who have for years been able to sell the core training offerings to HR and training people in major companies. That -- the demand for that obviously went down during the recession, but this is a business that is historically good. We have seen strengthening in that, and yet it is still well below where it was in 2008.

So I think the biggest surprise, which we're not forecasting in our numbers -- we believe we can grow -- last year we grew the execution practice. We grew the speed of trust practice. We grew the education practice, the customer loyalty practice, the government business. Everywhere where we had a target customer and a target offering, we grew -- and not just grew, we grew double-digits, and pretty significant double digits.

Where we kind of maintained through the year and -- but had some growth in the fourth quarter was in this core training business. So I think there could be $8 million to $10 million of revenue just on the -- if the economy is viewed as continuing to strengthen, that could be the our big surprise for the year, I suppose.

So lastly, just with the leverage you've got in the model now, you really only have to hit high single digit revenue growth to achieve this EBITDA range that you have thrown out there?

Right.

That's great. Continue the good work.

Patrick [Retzer].

Congrats on a great quarter.

I was going to ask about stock buybacks or dividends, and somebody jumped the gun ahead of me. So I just wanted to encourage you to move forward on that and cast my vote in favor of a dividend. And lastly, I appreciate the guidance for next year. And good luck in achieving that.

Thanks very much. We appreciate your support, and we hear your vote.

Okay, thanks.

It was registered.

(Operator Instructions) John Lewis, Osmium Partners.

Hi, guys. Congratulations. I'm on the road -- but well done.

Just a couple of quick questions. First off, are there any other graduate type relationships potentially out there? It seems like that is a significant, needle-moving opportunity. But what are your thoughts on that?

I'll offer my perspective on this. Yes, we're constantly looking for those types of relationships. In fact, the significant government contract that we were awarded in the fourth quarter was a result of a key strategic partnership. So -- different, by the way, than the graduate school. So those are opportunities that we are regularly pursuing and anticipate that we'll have more.

Great. I guess I think you said you're going to re-launch -- there was going to be a new launch of basically the core productivity solutions in 2011. Can you give a little more color on -- it has been a while I think. I think it's been quite a while since those have been upgraded. Can you give a feel for what kind of impact that could have on the business?

Sure. As you know productivity or time management training has been part of our core for a long time. In fact that's where Franklin Quest started, with the merger of Covey and Franklin Quest, they brought that whole time management offering in, and that has been a really big business for us for a long time.

We have not paid that much attention to it. We've seen it decline over the years. And we've always been the leaders in that space and felt like we've lost our leadership position, though our opportunity here is to reclaim that, and that's what we are targeting.

We've been working on this new solution for over a year, and it will be launching in the spring time frame, and it will be a radical redesign of our entire philosophy and a new solution around how to become a more productive individual and how to create more productive teams and organizations.

So we think the growth in this area could be significant. When we have adjusted other core offerings in the past, we have seen growth of those offerings in the range of 20% to 50% that will go for two or three years, just from a lot of existing clients renewing, getting some new clients coming in because it is more relevant than before.

So part of our growth expectation for this year includes what is going to happen with productivity.

Now, we're only going to be capturing half of the year, because this will be launched in the spring time frame, so we'll get about a six-month impact, and it will continue on for the following year.

Typically a new solution will have a two- to three-year pretty significant impact of 20%, 30% plus growth in that category. And this is our second biggest category, after our leadership offering, which includes our 7 Habits brand.

Great. That's very helpful. I guess my last question regards -- I believe you said that you may accelerate the hiring pace. It seems like you -- I think as you said, you planted the seedlings, you have some trees that are growing at a pretty decent pace. I guess with -- kind of with that backdrop, an improving economy, good products -- I believe the old metric was that you were aiming to hire I think 10 to 12, maybe even 15 client partners a year. How could this change given the success and strengthening of your current product suite?

I am happy to address it. Shawn Moon, do you want to that -- and Sean Covey -- in your own areas?

Sure. We are aggressively looking at this model. We want to make sure that -- one of -- Bob mentioned one of our key initiatives is -- well, there's two aspects of this. One is how do we most effectively target and bring on the right people? And then how do we mentor those?

The quicker we can accelerate the first year ramp, the easier it is for us to add this to our business model.

Our current model shows there is an investment in year one, and then they start paying -- the new sales folks start paying for themselves in year two and beyond.

So one of our key strategic initiatives this year is to actually accelerate the year-one ramp so that they are paying for themselves and then some in year one, which will allow us to be quite aggressive, we believe, in adding new people.

We're doing this, incidentally, with -- in conjunction with this new productivity launch where we'll be adding -- well, Bob, I think it is about doubling what we had initially anticipated, with folks who will focus specifically on the productivity launch and who we believe, because of the methodologies and training and the process and tools we now have in place, that they will be able to cover their costs in this first year.

When that pilot proves to be true, which we anticipate, it will certainly inform certainly how quickly to add people in the future.

Great. Well, thanks a lot, and congratulations to you guys.

I'll just make one other comment maybe on that last question, because for us, as you look at -- we can look at the business a lot of different ways. We call view 1, which is kind of our channel view -- how many salespeople we can add, how big, how much -- how many salespeople our international licensee partners can add. And that is one way to look at the world, and it is a big number.

When we look through view 2, which is around the solutions, you recognize that we really have today seven big problems we're trying to solve. Each of them -- if we could penetrate each of those -- any of those markets, between 2% and 4% of the potential, in the United States alone, you would have -- each of those would be a $50 million or bigger practice.

And so you take an example the -- in education, there are 124,000 K-5, K-6 schools in North America. Every 1% -- given our -- the revenue -- or the cost of doing -- and the revenue we get from a Leader in Me program, every 1% penetration is worth $60 million of revenue.

And so for us, targeting that way, where you have a specific buyer, like a principal or a school district -- superintendent of a school district, with a specific solution to a specific problem and a great offering that you know works, we've also learned in that situation that salespeople in that situation historically, in that example, our education sales force ramped up slower than corporate people did, they achieved lower revenues. In that environment where they know who they are talking to with a great solution, they are ramping up much faster than corporate people are.

We've seen the same thing in our sales performance group. We see the same thing in our execution practices.

So that is really the idea that we have been testing and practicing and so forth, and we believe we're now ready to say, well, gosh, if we'll just narrow the focus, these are huge markets, and we will never get there adding 10 salespeople a good year, as exciting as that can be, because those 10 salespeople turn into $5 million of EBITDA in their fifth year, but if we could make that 20 and 25 and get them ramped in the first year, we wouldn't have to sacrifice short-term earnings much. You might subtract -- you might -- because you wouldn't have a negative investment the first year, you might flatten your EBITDA margins a little bit because of the additions, but you wouldn't be going negative. That would allow us to really ramp.

So this year we're -- from our 10 we will be I think at 17 or 18 this year, many of whom have been hired, and so we're starting to [add] that of, John, so sorry for the long answer to your short question.

Any other questions?

There are no further questions at this time. I would like to hand the call back over to Mr. Bob Whitman.

I would just like to thank everyone for joining us today. Thank you also for your continued interest and support, all the great ideas you send to us. And we will look forward to reporting on our first quarter here in about a couple of months.

Thanks very much. Hope everyone has a good month.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.