Franklin Covey Co. (FC)

F3Q10 (Qtr End 05/29/10) Earnings Call Transcript

July 1, 2010 5:00 pm ET

Executives

Derek Hatch – Corporate Controller, Central Services, Finance

Bob Whitman – Chairman and CEO

Steve Young – CFO

David Covey – Co-COO, Global Operations

Stephan Mardyks – Co-COO, Global Operations

Sean Covey – Chief Product Officer, Education Practice Leader, Head of Alternate Distribution Channels

Analysts

Joe Jansen [ph] – Barrington Research

James Maher – ThinkEquity LLC

Kevin Henehan – KMH Capital Advisors

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the fiscal third quarter 2010 Franklin Covey Company conference call. My name is Sally and I will be your operator for today. At this time, all participants are in 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, Derek Hatch, Corporate Controller. Please proceed, sir.

Derek Hatch

Good afternoon, everyone. Welcome to our earnings call for the third quarter of fiscal 2010. Before we get started, I’d like to remind everybody this afternoon 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, and also like to add, expectations surrounding the recognition of revenue in future periods, 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 in the periodic reports filed with the Securities and Exchange Commission.

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

Bob Whitman

Thanks, Derek. We are delighted to have the chance to talk to everybody this afternoon. Let me start it out and just make one statement. We know that the results for the quarter were somewhat lower than what the analyst estimates had been. And we are going to talk about some of the reasons why we think that may have been the case in just a minute.

But surprisingly, we are actually very excited. In light of that, we are very excited about the trends that we saw in the business this quarter, and we actually view it as a fundamentally very strong quarter that were each of the key bets for us. We are on track and where our revenue generating capability actually was really well in excess of what we would have anticipated in terms of what we were able to put on the books.

And as I said, we’ll go through some of the differences in analysis. But let me say that one of the key underpinnings to our value creating strategy of course is to continue to drive revenue growth. We think we have our costs well under control; our gross margins have been solid and continue to be. And so the key issue is going to be drive revenue through each of our key channels.

As you see in slide four, in a number of our channels, we did. In the direct offices in the US and Canada, revenues were up 8%, that really reflected was four offices that were up more than 8% and one office in our Western region of the United States whose economy has recovered a little slower than Southern California and Arizona, Nevada and other parts of the country where there was a year-over-year decline that offset that.

But still, overall, the revenue growth was solid. And the good – what we feel good about is we see strengthening in that West region. And in May and June, we have seen significant strengthening and we, in previous closing, have shown some good revenue growth. We’ve seen – always had an offset from that West region. We think that won’t be the case going forward. It would be much less the case going forward.

Let me skip over a little and come back to our international direct licensees – our international direct offices. International licensee office grew revenues by 16% during the quarter. They have had very solid revenue growth, particularly in the last two quarters. The national account practices had growth of 14%. Their self-funded marketing programs, which you recognized, are these public programs that became self-funded.

There was a small increase. Because we have a sale-leaseback in our campus where we have multi-tenants, we had a lease to that rolled out that did not get replaced in the quarter. And that resulted in a decline of around $300,000, which has a high percentage associated with it in our lease revenue, but we are confident that we will be able to release that space and that will return over time.

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