Franklin Covey's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Franklin Covey Co. (FC)

Q1 2012 Earnings Conference Call

January 5, 2012 5:00 pm ET

Executives

Derek Hatch – Corporate Controller

Robert A. Whitman – President & Chief Executive Officer

Stephen D. Young – Executive Vice President, Chief Financial Officer and Corporate Secretary

M. Sean Merrill Covey – Executive Vice President

Shawn D. Moon – Executive Vice President

Analysts

Joseph D. Janssen – Barrington Research Group, Inc.

John H. Lewis – Osmium Partners, LLC

James DeYoung – Credit Suisse

William Gibson – Legend Merchant Group, Inc.

Joe Janssen – Barrington Research

George Santana – Ascendiant Capital Markets LLC

Julian Allen – Spitfire Capital LLC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Franklin Covey Earnings Conference Call. My name is Larry and I will be your operator for today. (Operator instructions)

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

Derek Hatch

Good afternoon, everyone, and happy New Year. On behalf of Franklin, I would like to welcome you to our first quarter conference call for fiscal 2012. Before we begin today's presentation, we’d like to simply remind you that our presentation today 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 expectation and are subject to various risks and uncertainties including but not limited to the ability of the company to stabilize and grow revenues; the ability of the company to hire productive sales professionals; general economic conditions; competition in the company’s targeted marketplace; market acceptance of new products or services and marketing strategies; changes in the company’s market share; changes in the size of the overall market for the company’s products; changes in the training and spending policies of the company’s clients; and other factors identified and discussed in our most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.

Many of these conditions are beyond our control or influence, any one of which may cause future results to differ materially from the company’s current expectations, and there can be no assurance that the company’s actual future performance will meet management’s expectations. These forward-looking statements are based on management’s current expectations, and we undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of today’s presentation.

With that, I would like to turn the presentation over to Mr. Bob Whitman, our Chief Executive Officer and Chairman of the Board.

Robert A. Whitman

Good afternoon, everyone. We’re delighted to have you with us. We’re delighted to report we had a very strong first quarter. Hopefully you’ve seen the press release on that. It turned out to be the strongest first quarter ever for our current business and one that also somewhat exceeded our expectations. We continue to feel very good about the business, about our backlog, pipeline, momentum and our outlook for the second quarter of the year and the expected trajectory of our business over the next several years.

Today, I’m going to keep my remarks relatively brief to allow time, plenty of time for questions. So I’d like to touch on three topics: first, some key headlines regarding the financial performance of the business during the first quarter, second, our outlook for the year in what we see as a very positive trajectory for the business in our growth and earnings potential over the next several years; and then finally, the potential for further accelerating our growth with a specific focus on one particular growth opportunity.

So, first on first quarter headlines. First of those is that our revenue was very strong during the quarter. Our revenue during the first quarter increased to $39.5 million, with a $4 million or 12% increase in revenue from other areas of the business, more than offsetting the planned $3.9 million year-over-year decline in revenue related to the large Government Services contract, which as you know last year this time was in its initiation phase, or during the first quarter it was.

We’re pleased that our total revenue somewhat exceeded our expectations and made the first quarter the best first quarter ever for our current business. Our results even slightly exceeded the very strong first quarter reports of last year, which was driven by the substantial revenue we received as part of the initial launch phase of that contract. And then, for the trailing four quarters ended November 26, revenue of $160.9 million was, represented a $16.6 million increase or 11.5% increase compared to $144 million in trailing four quarters revenue we had a year ago.

We’re pleased that our [results] during the [first] quarter is very broad-based with revenue growth of 9% in our four U.S. and Canadian geographic direct offices; revenue growth of 24% in our National Account practices, with Sales Performance practice growing 37% in the quarter, the Education practice growing 23%, and Customer Loyalty growing 11%.

We had revenue growth of 22.8% for international licensee partner offices and we’re excited that 18 of our 20 largest licensee partners posted revenue growth for the quarter. And we also had a small amount of revenue growth in our international direct offices. So that’s kind of the first headline for the quarter.

Second headline is that a higher increase in percentage of revenue flowed through to increases in adjusted EBITDA, operating income, net income and free cash flow. I’ll just maybe touch on each of those. Our adjusted EBITDA grew 12.2% for the first quarter to $6.4 million, which is up from $5.7 million for the first quarter in fiscal 2011. This exceeded our expectations and also made the first quarter our best first quarter ever for adjusted EBITDA.

We really feel particularly good about this since we’re up against a very tough comp from last year, where our adjusted EBITDA had increased by 63% or $2.2 million compared to the first quarter of 2010, driven by the initiation of the government contract. Interesting for us is historically the only quarter in a year in which we’ve really ever achieved adjusted EBITDA of $6 million has been in our seasonally strong fourth quarter.

And just two years ago, we had what we view as a very strong first quarter when we achieved $3.7 million in adjusted EBITDA. So for us to [exceed] $6 million in adjusted EBITDA in our first quarter was very encouraging. For the trailing four quarters ended November 26, adjusted EBITDA increased to $21.8 million, an increase of $5.2 million or 31% compared to the $16.6 million in trailing four quarters adjusted EBITDA the same time a year ago.

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