Franklin Covey Co (FC) 2012 Q4 法說會逐字稿

Hello and welcome to the Q4 2012 Franklin Covey Company earnings conference call. My name is Maisha], and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note this conference is being recorded.

I will now turn the call over to Derek Hatch, Corporate Controller. You may begin.

Thank you. Good afternoon, everyone. On behalf of the Company, I would like to welcome you to our fourth quarter and full fiscal year webcast this afternoon to discuss our financial results. Before we get to the good stuff, however I want to remind everybody 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 the Company's most recent annual report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.

Many of these conditions are beyond our control or influence. Any one of which may cause future results to differ materially from the Company's current expectations, and there can be no assurance that Company's actual future performance will meet management's expectations.

These forward-looking statements are based on management's current expectations, and we undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of today's presentation, except as required by law.

[Also I'd] like to invite you to read the other remaining stuff on the slide regarding Regulation G of the Securities Exchange Commission and our definition of adjusted EBITDA.

And with that said, I would like to turn the time over this afternoon to Bob Whitman, our Chairman and Chief Executive Officer.

Thanks, Derek. Hello to everyone. We appreciate you joining us today. We are pleased to report that we had a very strong fourth quarter and fiscal year, turned out to be the strongest quarter and year ever for our current business. During our third quarter earnings call, we announced an increase in our adjusted EBITDA guidance range between $26 million and $27 million for the year. And we are pleased that, given the strength of our fourth-quarter revenue and adjusted EBITDA results, our full-year adjusted EBITDA actually increased to $27.1 million, slightly exceeding the upper end of our increased guidance range for the year. Adjusted EBITDA of $21.7 million represents a $5.9 million or 28% increase, compared to the $21.2 million in adjusted EBITDA achieved in fiscal 2011, which in turn was up substantially from the $14.4 million in adjusted EBITDA we achieved in fiscal 2010.

We continue to feel very confident about our business and about our prospects for continued strong growth in each of our channels and practice areas. We also feel very good about our momentum, the trajectory of our business in the coming quarters, and our outlook for continued growth in fiscal 2013 and beyond.

So today I'd really like just to touch on three topics briefly. First, review of our overall financial results for the quarter and the year; second, review our results for each of our channels and practice areas; and finally, review our momentum, business pipeline, and outlook for fiscal 2013.

So I'd like to start with an overview of the financial results for the quarter and the year, starting with revenue. We achieved strong revenue growth for the fourth quarter and for the year. In the fourth quarter revenue increased $6 million to $51 million, a 13.3% increase compared to the $45 million in revenue achieved in the fourth quarter of fiscal 2011 and the very first time that we've exceeded $50 million in revenue for a quarter.

Our revenue growth is very broad based with growth in all of our major channels. And for the full fiscal year, revenue increased $9.7 million or 6%, all of which was organic. This is on the heels of an extraordinary fiscal 2011 where revenue grew $23.9 million or 17.5% and that growth was significantly enhanced by a large government contract about which we've spoken previously that had been awarded during the last quarter of fiscal 2010.

Excluding our government services segment which had an expected $3.4 million year-over-year decline in revenue in 2012 compared to 2011 due to the maturation of that large government contract, revenue in the rest of the Company grew $13.1 million or 9.5% for the year.

As shown in slide three, on a two-year basis, just two years to try to normalize for the significant revenue from that government contract, the $170.5 million in revenue achieved in fiscal 2012 represented a $33.6 million or 25% two-year increase compared to the $136.9 million of revenue we had in fiscal 2010 which will give us a compounded growth rate of 12%, all of which was organic. Second point is [that our high-end] increasing percentage of revenue flowed through the increases in adjusted EBITDA, income from operations, and net income.

As shown in slide four for adjusted EBITDA, adjusted EBITDA for the full year increased $5.9 million or 28% to $27.1 million as noted before, compared to $21.2 million in fiscal 2011 which in turn was up substantially from $14.4 million in fiscal 2010. For the fourth quarter adjusted EBITDA increased $3 million or 45% to $9.6 million compared to $6.6 million in the fourth quarter of fiscal 2011. Adjusted EBITDA for both the quarter and for the full fiscal year were our best ever for our current business.

For income from operations, income from operations increased by $6.5 million for the year to $17.6 million, 58% increase compared to the $11.1 million in income from operations in fiscal 2011 and up from $4 million in fiscal 2010. And for the fourth quarter, income from operations increased to $7.7 million, which was a $4.4 million increase compared to the $3.3 million achieved in the fourth quarter of fiscal 2011.

Net income for the year increased by $3 million to $7.8 million or $0.43 a share, a 63% increase compared to the $4.8 million or $0.27 a share of net income achieved in fiscal 2011. This reflects both the strength of our operating performance and an improvement in our effective tax rate.

For the fourth quarter, net income increased $400,000 to $3.4 million or $0.18 a share compared to $3 million or $0.16 a share in the fourth quarter of fiscal 2011. It may be worth nothing that these operating results are being achieved after making very significant ongoing growth investments in the business for R&D, practice -- staffing and managing our practices, new marketing, hiring new client partners and training consultants and event marketing people and building and mentoring and training infrastructure both our direct offices and to help our international licensee [partner growth].

Specifically, fiscal 2012's $27.1 million adjusted EBITDA was achieved after expensing almost $16 million in gross investments in the year. So as you can see, we're not holding back on investing in the business. We see extraordinary opportunities for continued growth and have a lot of confidence in achieving great returns on these ongoing investments. We've been doing it for years. And we now have high confidence that we can make these investments in new client partners and sales people and marketing events [et cetera that they'll pay back].

A third point about our financial results is that our cash flow was also very strong for the fourth quarter and for the year.

Our net cash generated, which is a version of free cash flow, for the year increased by $6.6 million to $22 million, up 44% from the $15.4 million we achieved in 2011, which in turn was up from $12.1 million in fiscal 2010. For the fourth quarter, our net cash generated increased to $8.2 million, an increase of $3.3 million of 66% compared with $4.9 million in the fourth quarter of 2011.

In terms of our cash from operating activities, although adjusted EBITDA increased $5.9 million for the year, our cash flow from operating activities of $15.6 million at year-end was approximately even with that achieved in fiscal 2011, which reflected the increased cash required to fund working capital needs related to the $5.7 million year-over-year increase in accounts receivable resulting from our high sales in the fourth quarter.

As in the past, we expect that these receivables from our seasonally high fourth-quarter sales will be converted into cash in the late first quarter and early second quarter resulting in significant increase in cash from operating activities.

Finally, our adjusted EBITDA margin also expanded during the year in the fourth quarter. As you can see in slide six with a significant flow through of increased revenue to increases in adjusted EBITDA, our adjusted EBITDA as a percentage of sales increased to 15.9% for the year, up from 13.2% in fiscal 2011 and 10.5% in 2010. And for the fourth quarter, adjusted EBITDA as a percentage of sales increased to 18.9% compared to 14.7% in the fourth quarter of fiscal 2011.

So with expected continued revenue growth and continued high flow-through of incremental revenue to adjusted EBITDA, we expect our adjusted EBITDA margins to continue to expand and believe it should reach approximately 18% on the full-year basis over the next two years.

I would now like just briefly review our revenue performance for each of our channels and practices. For our direct offices in the US and Canada, they grew 16% -- revenues in those -- in our direct offices in US and Canada grew 16% in the fourth quarter. For the full year, revenue in these direct offices grew 2%. Excluding the government services region, which as we noted before had this planned 15% decline in revenue relating to the maturation of the large government contract, our other direct offices in the US and Canada achieved revenue growth of 8% for fiscal 2012 [on top of a] very strong 16% revenue growth in 2011.

In our national account practices, fourth-quarter revenue grew $1.4 million to $10.2 million representing a growth of 16% compared to the $8.8 million revenue achieved in the fourth quarter of 2011. As you can see in slide seven, for the year revenue in our national account practices grew $4.6 million to $27.4 million, representing 20% growth in fiscal 2012 compared to fiscal 2011 and growth of 41% compared to fiscal 2010.

Our international licensee partner revenue continued to grow and grew 13% in the fourth quarter and 14% for the full fiscal year. This growth reflects our continued penetration in China, Singapore, the Middle East, India, and other emerging markets, as well as general growth worldwide.

We continue to have significant opportunities for growth in our licensee operations, including; first, organic growth as existing licensee countries continue to increase the size and productivity of their own sales forces; second, adding more of our newer practice area content to their existing mix of offerings; and third, activating countries which are currently covered by license agreements but where revenues are currently extremely small.

In our international direct offices, revenue grew just 0.5% of the fourth quarter and 5% to the full fiscal year primarily [as a result of] strong revenue growth of 13% in our Japanese operations and 4% in UK, offset by a decline in revenues in Australia. For the past two years revenue in our international direct offices has grown 19%.

Finally, in our seven practices areas, as you can see on slide eight, in the fourth quarter four of these seven practice areas achieved [lead to some] really dramatic growth with revenue growth of 44% in our productivity practice reflecting the successful launch of our new 5 Choices offering, 41% in our trust practice, 40% in our education practice, and 32% in our execution practice.

Revenue in our leadership practice remained approximately flat for the quarter with a 1% decline. And fourth-quarter revenue declined in our customer loyalty practice and our sales performance practice, reflecting primarily a transition. Contributing both practices were revenue from certain large accounts that were there in the prior year, declined year-over-year in the quarter. Now they had both won a number of new accounts. Those accounts were still in their early ramp-up stages during the quarter.

For the full fiscal year, five of the seven practice areas experienced growth during the year with revenue growth of 40% in our education practice, 35% in productivity, 8% in sales performance, and 5% in execution. The planned reduction in revenue from the large government contract -- from that contract resulted in only modest growth in our trust practice since a lot of content that they were training on was in trust, the slight decline in revenues in our leadership practice, and as noted in customer loyalty, it was down 8% for the year with the timing of the planned decline in the revenue from the -- one large contract more than offsetting the ramp-up of six new contracts won during the last part of the year.

We're very pleased and encouraged by the strong results achieved in the fourth quarter and for the year. And maybe I'll just segue from there into a few comments about our momentum and outlook for the coming year. [Certainly our] momentum in our business continues to be very strong and very broad based.

First, our pipeline of booked days and awarded revenue, as you can see on slide nine, which is business already booked or awarded in our five direct offices in US and Canada and our national account practices grew to $33.8 million at the end of the fourth quarter reflecting a $4.1 million or 14% year-over-year increase compared with our $29.7 million pipeline at the same time last year. This growth in our pipeline of booked days and awarded revenue made our pipeline the largest ever starting a new fiscal year.

In our prospective business pipeline for our five direct sales forces in North America and for our direct offices in UK, Japan and Australia, we also track what we call our prospective business pipeline which is a measure of the amount of potential new revenue currently being discussed with and proposed to existing and potential clients.

This prospective business pipeline is [one stage earlier than] our business development process in our pipeline of booked days and awarded revenue, which is actually contractual, and historically have been a strong predictor of the strength in our bookings and revenue in the coming months and quarters in these offices.

We are very encouraged that our prospective business pipeline at the end of the fourth quarter was significantly larger than at the same time last year, indicating strong and accelerating momentum which we expect will convert to increased bookings and contractual commitments in the coming months and quarters. In fact, the conversion of this large prospective business pipeline at the end of the fourth quarter has already begun to translate into significant new contractual bookings in fiscal 2013.

Final factor underpinning our momentum is, and one of the most important is, the continued growth trajectory in terms of hiring and ramping up new client partners [who are] sales people.

In our third quarter conference call, we reported that our cumulative net additions of client partners to our US and Canada-based sales forces from 2005 to 2011 totaled 47 and that we had also added an additional 13 net new client partners in our international direct offices through 2011.

We also reported that these new client partners had achieved a revenue ramp-up which was somewhat ahead of our model generating $29.9 million in revenue in fiscal 2011 compared to our expected ramp-up model that would have called for $25.2 million, so about $4 million ahead, a little more than $4 million ahead.

As shown in slide 10, in fiscal 2012 we increased our cumulative net new hires in the US and Canada from 47 to 62 and also added six new client partners in our international direct offices making the total around 21 for the year. Then this cumulative group of new CPs generated revenues of $40.5 million in fiscal 2012, which also exceeded their -- the cumulative expected ramp-up revenue target of $35.7 million.

At the end of fiscal 2012, our total number of client partners was 120. As you can also see in slide 10, we expect to add additional 25 net new client partners in these offices in 2013 plus an additional at least five net new client partners at our international direct offices and seven of these new client partners have already been hired in the first two months of our first quarter [and have a good-sized] pipeline of people [with whom we're] working right now.

So given those factors, the strength of our fourth-quarter performance and full fiscal 2012 performance, momentum we're continuing to see in the businesses as reflected in both the size of our pipeline of booked days and awarded revenue and the magnitude of our prospective business pipeline and the fact that there -- it was continued growth in the size and productivity of our direct sales forces and among our international licensee partners, we are very excited about the positive momentum and trajectory of the business and what that indicates for the coming quarters and for 2013 as a whole and beyond. As a consequence we're setting our fiscal 2013 full-year adjusted EBITDA guidance range of between $30 million and $32 million.

So to summarize, we're pleased with the results and momentum of the business and expect to be able to continue to achieve both strong top and bottom line growth during fiscal 2013 and beyond. I want to thank each of you for your continuing support and guidance.

Now I'd like to turn the time over to Steve Young, our CFO for some brief remarks and then open up for questions. Steve?

Thank you, Bob and good afternoon, everyone. I'm also very pleased with our financial results for this quarter and for the year. Bob has given a lot of very important highlights. So, let me just say a little -- a few words about our balance sheet and our cash flows and a little bit about next year.

First the balance sheet, our balance sheet remains strong in my opinion and balances are still generally within the expected ranges. Our cash balance increased to $11 million, and we have no borrowings against our revolving credit line. Our accounts receivable balance is up over last year, due primarily to significantly increased sales in the fourth quarter and particularly in the month of August.

Additionally, on our balance sheet, we classified a portion of our [FCOP] receivable as long term to reflect the timing of our expected collections, and accordingly we discounted that amount to reflect the time value of money. We expect to collect at least $3.5 million in cash from FCOP in the next three months.

You might note that our number of common shares outstanding at August 31 was 18.1 million reflecting in that number there is an exercise of [1 million] warrants for about 341,000 shares.

You also have noted probably that we have initiated buying under our Board authorized $10 million stock buyback plan and had purchased about $400,000 worth of stock by year-end. As I always say, if you are new to the story, I strongly encourage you to call me to talk about our balance sheet, particularly our financing obligation that's really like a capital lease, our tax NOLs and foreign tax credits, our future share account, and our real estate operations. I really enjoy these conversations and they generally turn out to be positive and shed some light on these often misunderstood account scenarios of our business.

As Bob mentioned, we continue to invest in our curriculum. We've spent more than $2 million this year directly on the outside cost related to curriculum, and we will spend $1 million more than that in this coming year. We're committed to always spending a significant amount and investing in world-class courses. In fact, we target 4% every year just for this part of our investment in our courses.

We continue to benefit for net operating loss carry-forwards and unused foreign tax credits. Our cash paid for taxes this year was only $2.3 million in cash reflecting that benefit. As our NOLs and foreign tax credits are consumed, we'll have the opportunity to pay more ordinary tax amount. And in this coming year, we expect the amount to pay for taxes to increase quite a bit to perhaps $5 million to $6 million. Even though we still have net operating loss carry-forwards available, we run into a few limitations on how much we can use in a year. So, we expect to continue to generate cash in the future -- in our future years as we've talked about before.

I'd now like to talk about some straight numbers. These are numbers that people are often interested in and we talk about. So let me just go through a few of these. The amount of our share-based compensation this year that is included in SG&A and excluded from adjusted EBITDA was $3.8 million.

The amount of share-based compensation next year is expected to be less than $2.5 million. The amount of product amortization cost in cost of sales is $1.8 million this year and next year it will be approximately $2.3 million.

Depreciation and amortization expense this year totaled $5.5 million, and we expect depreciation and amortization to be about the same amount next year. Interest and discounting cost this year totaled about $3.9 million. We expect that amount to be approximately $2.9 million next year.

And our effective tax rate, which historically has been very high, as you know, this year is approximately 43%. Next year, we expect our tax rate to be between 42% and 44% or about the same just a little bit higher or a little bit lower, but in the same range.

So, we're pleased with our performance in this quarter and this year. We're pleased with our strategic direction. We'll continue to invest in our growth and growth strategies and we expect to generate cash. So we're pleased with where we are.

With that, I'd like to turn the call back over to the operator to open up the line for questions.

Thank you. (Operator Instructions) Omid Eftekhari, Roth Capital Partners.

Thank you. Good afternoon, guys.

Hi, Omid. How are you?

Doing well. How are you?

Good. Thanks.

First question I have is on the international licensee business. Curious if you can give us some more color behind the 13% growth by curriculum maybe or just by geography?

Sure. Hi.

(inaudible) answer who overseas that business.

Okay. Hi. This is Shawn. Yes, so a little bit of insight on that. We've had good solid growth over the past many years. If you look back, the last eight years has been pretty solid at about 12%, 13%. This last year, we grew 14%. The growth is pretty evenly spread out. I think we are seeing higher growth in Asia generally than in Europe.

Our highest growth areas right now are the bigger countries because we're putting more behind them. So China, very strong growth in China last year, about 10%. India grew at about 30%. Good growth in Thailand, a very strong country. And most of our operators in Asia are doing pretty well.

Latin America, Colombia is growing well. Brazil is growing well. Our revenue distribution, if you were to just look at where our revenue is coming from, it's about 50% from Asia, about 30% from the Europe and about 20% from Latin America.

Now, most of these countries are pretty under penetrated. And so, that's where we think the biggest opportunity is. If you were to compare the penetration level, market penetration level of our countries across the board, we've got 39 partners operating in our 144 countries.

Our penetration level is about one fourth that of the US. And so, we're doing about $10 million, for example, in revenue in China. And if we are doing the same as the US, we would be more like $40 million. So, we think the opportunity for further penetration is very strong across the board. And the growth -- we also have many countries that are hardly even touched on yet.

For example, Germany is a huge economy. We've got a very small operation there. There's a lot of opportunity there. France is another one big -- France and Italy are both big opportunities, big economies where we have very little penetration.

So, just looking at the future, it's very clear that we've got a lot of strong growth opportunities in penetrating deeper in some of these key countries and activating countries that are currently doing almost nothing. And then in terms of product mix, that's another big growth opportunity, because most -- about 70% of our mix is coming right now from one category, which is leadership and compared to about -- that's about 25% in the United States.

So, we are doing most of our business through one practice. So, as we build other practices such as education and execution and productivity, which we've done very little with yet internationally there is a lot of growth opportunity there. So looking forward to the next few years, we think we can anticipate good solid growth with our partners.

So that -- does that answer your question or do you have any other (multiple speakers)?

Yes. No, no. That was very helpful. Thank you. And second question, I was curious what the average revenue per salesperson was at the end of the quarter and for the full year?

For the full year -- Steve, this would be approximately right, about [$1.580 million] for the salesperson who has ramped up. So for a person who has gone through the ramp and has been here [all] the time necessary to get to ramp is just over $1,580,000, that's up from about $800,000 in 2005.

And then for overall, including all the new salespeople, the mean for all salespeople is about [$1.01 million as] that includes a lot of people who are just starting out ramp, and we -- as you know we expect most people to ramp to at least [$1.03 million] and then continue to increase their productivity thereafter. That's where it was for this last year.

Okay. Great. And then, if I recall correctly it was about $1.2 million last year, correct?

I think it was about [$1.03 million]. I think if the memory serves, [$1.380 million] was the actual for the -- I think sometimes we mix the two numbers, Omid, and so I think for those people who had ramped up last year were at about -- just about $1 million, no maybe it was [closer to $1.02 million or $1.03 million]. I think it's a little higher, the [$1.380] is the actual number and then less for the people in ramp and so this is a good increase in productivity for the average salesperson in addition to the continued ramp up for the salespeople.

Right. Okay. And then final question is on the SG&A leverage. I mean, we saw a pretty [big] decline year-over-year and you touched on it a little bit, but curious what's your expectations are for next year if we can expect further improvements or any kind of color would be helpful there?

Steve?

Well, in our SG&A category, we have, as you would expect, costs that are variable and that will increase like our commissions paid to salespeople. We will continue to have increased cost related to hiring of new salespeople and the direct support of salespeople. So, those are items -- those are areas where our cost will increase in this coming year and we'll continue to increase as we grow.

And then there are other costs that are related to our corporate overhead and those central type costs that are more fixed, but in the future should be a decreasing percentage our overall revenues. So, the combination of those should provide a little bit of improvement in the percentage of SG&A compared to revenue.

And then all of that would be impacted by anything we might choose to do on top of that like a marketing promotion or something might just impact [for a] short term. But overall we would see a decrease in percentage that it is a good part of the reason why we would expect our adjusted EBITDA to increase to 18% in a couple of years.

Okay. Great. That was helpful. Thanks, guys.

Thanks. And maybe just one addition to that, Omid, is that in our direct offices in the field and for every operation in the Company, we really have a model that they are targeting toward. And so we expect that even with the -- as we grow salespeople, sales support people et cetera, the field office level in the US and Canada will be able to maintain EBITDA contribution margins of about 35%, net of those additions.

In our international direct offices (inaudible) don't have the same central support that the US offices do. It's more in the range of 22% to 25%, the target is 25%. And so -- I know we spend about 4% on R&D and so just as another way of saying what Steve is saying is that our central staff really hasn't increased on a net basis.

Our number of people in the central office here has remained about the same for the last two or three years, if not slightly less. We don't expect that to increase. And so, we have kind of what we call a [pod] model which [was trained] to support the salespeople and ramp them up between the salesperson, the marketing investments et cetera.

And we think that [those ought to] be able to contribute mid-30%s contributions against [relatively] fixed cost and that's just another way of cutting the same issue, which is that in a given quarter you might have more expense because of the product launch or something. But in general, we are trying to have everybody run against a specific model that will continue to drive our EBITDA margins.

Okay. Great. Thank you.

Thanks so much. Great questions.

Joe Janssen, Barrington Research.

Hi, gentlemen. Great quarter.

Thank you so much, Joe.

Hey, just kind of building off of that previous question, historically, I've thought about this and you've talked about this, the follow-through on incremental revenue in that range of kind of like the [35 to 45] and I think we're kind of trying to hit this point in the previous question. Are we -- [and if] I look at your run rate what you have done lately it's been trending greater than 50% if I've done my math right. I mean, should I rethink this or is that incremental revenue flow-through of about [35 to 45] still accurate because you've been trending higher?

Well, we have been trending higher for the last several years, and I think it's possible that it will be a little big higher. But as we accelerate the number of people that we're hiring, as I mentioned, we are going to accelerate the number of new client partners that we hire in this coming year, as we build out the practices et cetera, I think chances are [we] may be a bit higher than the [35 to 40]. But I think if we can keep our central costs in a good shape, if it's in that -- I think it will be something [where we are] going to make more investments to grow a little more rapidly and [so it will] probably come down a little bit relative to the recent years.

Okay. And then any effect from the hurricane up in the Northeast expected in Q1, anything we should be looking for?

Yes. Shawn Moon, [you're on it, I believe]. (multiple speakers)

Good to talk with you, hello. It has had an impact on our business there. [And they are hurt all] by this nasty nor'easter and that has resulted in several programs that [have been] postponed. We don't anticipate the long-term cancellation of those things.

It's just simply a matter of shifting when those programs are delivered. And with our first quarter ending on the end of the month, this month, we are not able to get all of those rescheduled. In fact many of them are looking like, if not most, are looking like they are going into the second quarter. So there is an impact. (multiple speakers)

Can you quantify (inaudible) assuming those who are sitting in the pipeline?

I'm sorry. Say it again.

Can you quantify that on the pipeline, like you exclude that and we are comparing like an apples-to-apples basis like -- because you've had accelerated [pipe] in Q4 when you guys reported. I'm assuming there's some lumpiness in the pipeline.

Yeah. For the quarter, we anticipated it could be as much $300,000 to $400,000 of revenue.

Okay.

Yes. So it's not a huge number but it probably could affect revenues 1% or so.

Okay. And one last question just on the education practice, I think you've talked to about 800 schools in the US and Canada but another 100 outside, what are your expectations if you look into 2013, where do you think those numbers will fall out at?

Sure, well the growth continues to be pretty strong. We think we will add probably another 300 to 400 schools. I think next year and that will keep accelerating. I think we could be -- our target is to [get to] 10,000 schools in US and Canada. 300 to 400 next year will be a good estimation and probably another 100 outside of the US. We have -- The Leader in Me, which is the solution we are selling in education, which is a school transformation process, is now in about 22 countries. Some of these are pretty substantive. So that's the plan.

Okay. Great. Appreciate it. I'll jump back in queue. Good quarter.

Thanks, Joe.

Marco Rodriguez, Stonegate Securities.

Good afternoon, guys. Thanks for taking my questions.

[Hey, Marco.]

Hi. I just want to get a clarification. Did you say that you had about -- you had 120 sales people at the end of the year?

Yes.

Okay. And could you please provide sort of a break-up, if you will, or a distribution of those 120 people who are the alumni versus the ramp people?

Yes, of the 120, I think -- the chart that we included I think shows that as of the year-end we had about 62 that were new client partners who would be in the ramp. And so the difference would be people who are ramped up, alumni client partner or people who've gone pass the ramp and gotten there. And so that would be -- so it's roughly 50-50 breakdown.

And so what really is embedded in our growth, I mean if we can continue to, we've been fortunate and we think had a good record now being able to ramp up new sales people.

And so, even if we were to stop hiring new sales people, we've got 60 -- approximately 60 people that are still in the ramp in some form. And so we'd expect just the people in the normal course of ramping up would add significant revenues in 2013, 2014 and 2015 just from the continued ramp up independent of the new hires.

And of those 62 new CPs, I mean can you differentiate who is who, like how many are at one and who is at four?

We can't. I'm not sure we have that. Maybe that's something we got to provide for everybody in the next quarter, but we're happy to try to break that down for anybody who wants to talk to us and give us a call. But if you look at -- I can just -- but I'll give you a way to estimate it.

If you look at our -- the chart on, I think it was slide seven, we provide what the cumulative number is by year. And just looking at that chart -- actually at slide, hold it, slide 10, you can kind of estimate what the additions were by each year and figure out where in the ramp they are likely to be, but we'd be happy to do that math for you.

Okay. Great. And then I was wondering if you could also talk a little bit more about the expansion in the sales force here, looking like you're being ready to ramp that up next year. Can you talk a bit about your ability to find qualified candidates?

Sure. I am going to ask Todd Davis who is our Chief People Officer and who is here to respond to that (inaudible) find top sales people.

Yes. Hi. This is Todd Davis. Thanks for allowing me to join. We have a recruitment division in our people services, at our human resources group headed by Aaron Thompson, who is actually a former client partner with us for many years before we put him in his role of Director of Recruitment.

And then Aaron has working for him several recruiters mainly whom are contract recruiters so we can kind of have ebb and flow with the needs of the Company. Most of them are specifically focused on the client partner, the sales role that being the biggest levers as we've discussed.

So we have and had for a long time an ongoing process through -- a lead-generation process through many of the online sites as well as LinkedIn. We work with several outsource firms and more and more we have -- and it's true in my many years of recruiting you find the best people from our own people.

And so we have a very large internal referral fee. We have our client partners and [consultants already] with us, always [with the recruiter head on] looking for great talent out there with some of the other folks, competitors that we went into.

There are certainly pockets in our various regions where we will have a challenge finding a particular [a A+] talent. And so we'll move more of our resources including [finder speeds] and some of these contract recruiters over that area.

And so far, as Bob mentioned, even just two months into the quarter for these 25 net new hires that we are hiring in the direct offices here in the US, we've got seven of those and [they are] quite outstanding hires already started. So, overall, we feel good and it's always our number one area of focus, it's finding the right people and then focusing on their very quick ramp.

Todd, you might just mention also [or talk] about your perspectives on how the support structure we provide for a sales person helps us to recruit people who might not be doing the same support elsewhere.

So as Bob mentioned in this pod, once a client partner comes on board then she or he has quite a network that is invested in helping them with lead generation for their client pipeline with a new world that we've added [to this part] called the Inside Business Partner. And the whole purpose of this person is to do all of the administrative work, including setting up appointments and putting all of the information from those appointments in our sales force tracking system so that the client partner is focused on, and has the time for many hours out of their week just face to face with clients so they have an impact business partner.

There is another role called an Event Registration Partner. These are folks hired by the region that come in and they are just cold calling and dialing, and finding the right kind of folks that we need to get into all of our events which is a huge source of our lead generation and then [somebody knows to be] appropriate client partner what they [tend to be events].

So there is quite an infrastructure built there for the client partner. There is a whole sales academy that the client partner once she or he joins the Company that they go through where they have intense training and involvement and engagement in understanding and learning all of our solutions and how we position those solutions, and how we then meet face to face with the clients, and get into more, and more deeper levels and higher levels within each organization.

Okay. Got it. And last quick question here and I'll jump back in the queue. Could you provide an update on the hiring of your Area Directors and where you kind of are in completing that part of the strategy?

Bob, do you want me to talk about this?

(inaudible)

Marco, hello. We extended an offer this week to the final piece of the puzzle, so that is complete for the year. Each of the regions as talked about before, has a targeted spend of control now with our sales people. This is a big part of the answer to your previous question. How do we ensure that our client partners come on board, they have the appropriate focus, they have the appropriate resource tools and all of the things they need to hit their number. And the Sales Manager and Area Director function is a key part of that and that [coverage] is now complete and moving forward.

We are having great success with it by the way. I think we have a process whereby every week the client partner sits down with their respective sales manager to review their plans, to review their pipelines, to review their actions, clear the path items that are necessary and -- [put the client] forward for the coming weeks. So there is much higher level of touch than there has historical been, and we're finding that that is helping our client partners hit the ground running better.

Got it. Thanks a lot, guys.

Thank, Marco.

[John Lewis, O. Partners]

Good morning. Good afternoon, guys.

Hi, John.

Just a quick question, looking at your balance sheet, I think you guys said that you expect to collect $3.5 million receivable from Franklin Covey planner in the next three months here?

Yes.

And if you just look at the seasonality and how you generate cash, Q1 is typically more muted and Q2 is strong. I mean, just looking at the kind of seasonality and the related party, would you expect to see your cash double between now and March 1?

I wouldn't expect it to double, but I would expect it to significantly increase, John, for all the reasons that you talked about and to increase significantly. I don't have an exact number to say, but we would expect it to increase significantly. Just [now] you said that our sales at the end of the year are good.

We collect those amounts. We collect money from FCOP and then remembering that in -- so all of that money is coming in that's positive in Q1 and Q2, and then we also have a significant payout of our year-end variable pays and bonuses and things that are tied to year-end numbers that happens in Q1.

Right. Okay. That makes sense. And if you could just replicate the first half of last year and you collect the receivable, you would be something like $11.5 million. I guess one other -- and you guys said that your game plan is still to use cash obviously about $10 million for share repurchases?

Yes.

Yes. We still have that program in place and that's what we intend to do.

Great. Well, thanks a lot. Great numbers and congratulations. Thanks so much.

Thanks, John.

Thanks, John.

We have no further question at this time. I would like to hand it back to Bob Whitman for closing remarks.

Great. We would like to thank everyone for being on the call today. I appreciate your continued support and interest. Let me just say as we close that this is a very exciting time for us and the business. We've spent years putting in place the practices, the regional infrastructure, the processes to hire ramp-up people and the marketing machinery over the last several years, and we feel like we're now in a position where we've moved to a different plateau. We are able to do this at a fundamentally different scale.

[That wasn't] many years ago when the EBITDA that we have had in this last quarter was what we had in the year, not quite even. And so we feel like it is the time where we try to teach other companies about execution, but I think as staying focused on, helping our client partners to be successful, working with our major clients we had about 89%, a little over, maybe just slightly over 90% of the revenue from 2011 repeated in 2012 from our clients.

So there is high resilience and commitment for our customers, our average size of engagement is growing with our customers. One of our goals is to increase our deep pervasive ongoing relationships with our customers and there are a number of large, I think large for us, I mean, larger accounts is going to add significantly, and just at every price tier there are just more people doing more business with us. They stay longer and having more impact.

The people that we have, I mean, [they're such] strong people in our sales forces, in our delivery forces and this is an example, I mean recently, we hired a couple of regional practice leaders in our execution practice. One of them was Bill Bennett, the name you will recognize from the past who was the President of our Organizational Business Division and he is thrilled to be back as a Regional Practice leader in the Northeast.

And we have these kinds of people everywhere really, it's just sounding, the quality of the people, the quality of the engagements we're having. And so for us we think just within those stroke of the seven practices in which we're involved now, there is such opportunity even narrowing the targets.

And we're trying to have the discipline to keep those targets narrower, on [k through six] in education, multi-unit operators and education. But we recognize as we penetrate those markets within those same categories, there is opportunity for adjacent expansions in similar segments whether it's secondary education or healthcare or manufacturing execution. So we see really a lot of great opportunities.

We think we've got terrific group of people who have been here a long time. As we did our kick-off meeting this fall, we visited every office and saw everyone of our people and recognized that really our senior people, probably our top 40 or 45 people, there are probably 35 of them who have been here more than 10 years and are committed to the mission and doing this.

So, for us it's an exciting time. We're committed to trying to keep the momentum moving and feel our pipelines and other things are good [and thus on an] overall basis we will have a good 2013 and beyond. So, thanks, again to each of you and hope you have a good rest of the week. Thanks.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you all for participating. You may now disconnect.