Nov 10, 2010
Operator
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 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.
Derek Hatch
Good afternoon on behalf of Franklin Covey I would like to welcome you to our four quarter fiscal 2010 conference call. Before we begin the call and the information just want to represent it today.
We’d just like to remind everybody about forward-looking statements and 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 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 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 said, I would like to turn the time over this afternoon to our Chief Executive Officer and Chairman of the Board Mr.
Bob Whitman?
Bob Whitman
Good afternoon everyone. I am delighted to have the chance to talk to you all of you today and appreciate you joining us.
So I’d like to organize my comments there 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’ll go into details 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 momentum we are 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’ll just provide some detail behind each of those.
First with respect to the fourth quarter, you’ve all seen the press release. As you see, revenue for the fourth quarter totaled $44.7 million, which is an increase of $11.3 million or 34% from the $33.4 million we achieved in the fourth quarter of fiscal 2009.
And our strong bookings during the third quarter obviously translated into revenue growth during the fourth quarter which means we exceeded both last year’s revenues and our expectations. You may recall that at the end of 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’ll talk about in a moment, we still have $12 million more in 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 achieve growth in all of our major channels. The first line item which is US, Canada direct offices that break into two components.
First, revenues in our government services group grew by $6.7 million in the fourth quarter reflecting in part of previously announced government services contract which was awarded to us in the beginning of the quarter that we talked about it in the last call. It is important that 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 I had previously 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 have achieved revenue growth in Japan where we’ve 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, which generated double-digit growth. And finally revenues in our national account practices grew 19% in the quarter with our education practices growing $900,000 or 30% and the customer loyalty practice growing $200,000 or 19%.
And the sales performance practice is the only national account practice that did not increased revenues in the quarter. They declined $100,000 in the quarter but for the year as a whole, as you’ll recall they had sales growth around 30%, so which is particular within the quarter on another ways great trend.
From a profitability standpoint, adjusted EBITDA for the fourth quarter really adjusted for the severance cost with $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 a $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 sales people exceed their annual target, they get accelerated commissions on that increment above their target.
Normally that’s within a small range, 3% or 4% or 5% increase because these were stretched targets and so normally this number is relatively low in this particular quarter because revenue grew by their original proto so far these bonuses were substantial and extra bonuses were substantial and they totaled about a $1.7 million. Without these special commissions which on the same revenue next year, they would not get these special bonus commissions the goals are actually up and we think it’s very significant increase in revenue over this year to get those same ones and without these special bonuses the flow through would have been more of what you had expected on that increased revenue and would have exceeded $8 million.
We’ll come back to that. And the 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 higher margins and other types of their training and consulting sales.
Second, increased international licensee royalty revenues which have high incremental margins, and three, the increase in training and 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 over because of the increased revenue SG&A expenses increased approximately $5 million during 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 resulted in others earning additional performance paid for the quarter. Another approximately $1 million of the increasing was for severance cost 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 from revenue achieved during the quarter and there were some additional non-commission SG&A cost which were incurred in connection with setting up for the government contract which increased reported SG&A expense. Our other central SG&A continue to be essentially at the reduced levels achieved as a result of cost reduction efforts in 2009.
We do continue to make investments to grow our sales force and to build our practices and those – while those investments are covered by new revenues, nevertheless that increase is the actual line on SG&A. Our main focus is of course 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 from the 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 pre-tax 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’ll see or as you have seen is more than 100% of pre-tax income.
It’s hard to imagine how that happened. We sometimes are – and I think sort of you all do the same analysis, we often just start with adjusted EBITDA to calculate what normal earnings would be on our operations and this quarter how that would work at least the way we would do that math and maybe some of you would take care of adjusted EBITDA of $6.53 million, subtract at $1.7 million of depreciation and amortization leaving us with operating income of just over $4.8 million – $4.83 million.
It would take interest expense out of around $700,000 that would leave pre-tax income for the quarter of $4.1 million adjusted for these severance cost and that 41% of normalized tax, you’d have a $1.7 million tax expense and about $2.4 million of after-tax on a more normalized basis. Clearly that’s helped with you, to how we kind of 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 proof, overall we feel very good about the fourth quarter.
We’ll talk in a minute about the momentum we feel 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 contract 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, general point, we also feel very good about the company’s progress and performance for the whole year of 2010.
As you can see revenues for the year ended up $136.9 million which was up 11% compared to 2009. The company’s adjusted EBITDA of $13.3 million for 2010 reflects a substantial growth compared to the $2.6 million in adjusted EBITDA achieved during 2009.
And you may note that this $13.3 million in adjusted EBITDA excludes approximately a $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 an $1.1 million gain should resulting from that sale and just $13.3 million and adjusted EBITDA was also after paying the previously discussed $1.7 million in special bonus commissions from our repeat in fiscal 2011 on the same level of revenues.
Perhaps more 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 cost remained low. We made investments in new sales people and in our practices, almost all of which were recovered or will be shortly recovered at least on the track to being recovered if they weren’t fully covered during the year.
And so we feel like these investments that we can count on and it can help to continue to drive the business. Third point, we continue to be exciting and encouraged by the trends we’re seeing in the business.
We were very encouraged by the continuous 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 the future delivery of training engagements onsite at plant locations.
As you can see in slide five, in last year’s fourth quarter we booked approximately 1,400 days for future delivery, 1,400 training days where our consultants would be onsite. And this year’s fourth quarter, we booked approximately 2,300 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’ll note in a moment in our first quarter. As shown 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 a $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 in the previous year.
And so we expect bulk of these bookings will be delivered over the first three quarters of 2011, which will give a good boost with revenues already on in that pipeline to the first three quarters, we expect we’ll continue to have good strong bookings and that will strength it and so most of this we think will fall, the big increases should be in revenues that occur in the first three quarters obviously given their very large fourth quarter that will be a tougher one to beat significantly. As noted we’re pleased with the 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% and even without the bookings related to the government contract our other bookings grew by 44% during September and October. So that’s actually 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 continuous 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 the awarded contract revenue on our other operating assumptions, we expect that the company will grow adjusted EBITDA from $13.3 million in 2010 to between $18 million to $21 million in 2010 of fiscal 2011 representing growth of between 35% and 57%. And this range is $18 million to $21 million range is without approximately a $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 could believe that some of the estimates that are been out there if not all have not been adjusted to reflect the sales of Japanese business. So this would put our range clearly wrapping around that.
So all in all, I’m very excited about the quarter. Probably as the start to this year, and excited about the trends.
And then now I’ll ask members of the executive team to read briefly address the company’s performance and kind of their specific areas of responsibility. I’d like to ask Shawn Moon, who is joining us from Japan this morning.
Well, it’s morning there, afternoon here. Shawn maybe you could just give an update on the direct offices and the field support practices and anything else which you’d like to cover and then ask Shawn probably to talk about international licensee business, education and his various responsibilities.
Shawn?
Shawn Moon
Good morning from me, good after for you all. Thank you for taking some time.
I’m very pleased to follow-up on the information that Bob had provided and really just want to restate a couple of things. We are very pleased that the all ten of our major delivery channels which includes the four geographic regions, two vertical regions are including our federal government and education in 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 continued to see that pace here in the first quarter.
Our international direct offices in Australia and UK achieved double-digit growth as Bob mentioned I am in Japan and pleased about the momentum that they have created after a tough few quarters in the first part of fiscal ‘010. 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 the organization is engaged from us, but so that’s encouraging. Also look at the major contracts that have been awarded and we saw a significant momentum in that area in the fourth area 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 to $6 million in the year. Our execution practice which grew from $4.4 million, about $8.5 million in the fiscal year in our Speed of Trust practice which nearly doubles 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 sales people’s focus in terms of how they go to market and we’re seeing some great momentum and traction from that. So pleased about the direction that is happening within our direct offices across the world and our practice area.
Bob Whitman
Thanks Shawn. I’d ask Sean Covey maybe just to continue if you would?
Sean Covey
Sure. Well good afternoon everyone.
Good to being with you. As you are aware, we have 38 license partners throughout the world and they cover over 120 country.
So virtually every country on the globe is covered by a Franklin Covey partner. And we had a really god 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 of 12% growth.
And we’ve got good momentum this first quarter so far. So overall for the year we ended up 5% over last fiscal year because of the first quarter was down a little bit for fiscal year ‘010.
And as a whole, we believe our license operations represent a major growth opportunity for our company over the next five to 10 years. And specifically there is great growth opportunities in many operations including India and China, Indonesia, Brazil, Mexico and Central Eastern Europe experiencing double-digit growth in all those countries and can foresee that for a long time to come.
In terms of some of the practices, as Shawn has responsibility for some and I have responsibility for some others, including our education practice that continues to grow very strong, 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.
We were pleased with the top and the bottom line growth of education. What we’re doing in education is a unique process called the Leader in Me, and it’s in elementary school transformation process.
And is 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 result 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, 2,000 schools.
Our technology platforms practice has also experienced strong growth of more than a 100% in the fourth quarter, and for the year we grew the – we started off pretty small at $700,000 and we grew up to $3.0 million this year. And we expect continued growth as organizations continue to look for online training solution.
So overall for the entire year, fiscal year 2010, our national account practices grew by 32% or $4.7 million, and the EBITDA contribution of the national account practices went from $2.4 million to $4.5 million, up 85%. So as we’ve discussed before in other calls, we believe that this new practice structure is going to offer many new growth opportunities, 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, we will create a compound interest effect that will be terrific going forward.
Thank you.
Bob Whitman
Thanks, Sean. Let me turn to over Steve Young, our CFO, to talk a little more detail about the financial results.
Steve Young
Okay, 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’d 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.
Slight eight in one sentence says that we’re happy that all of these activities that we’re excited about are converting into cash. And 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 excluding noncash 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’ll see that our balance sheet continues to be strong. You’ll know that at yearend, 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 yearend are still in receivables. You also notice that our inventory balances have come down and you will notice that these commissions and bonuses that Bob was talking about the – we’re happy to pay, because they’re based on sales and earnings are sitting in our accrued liabilities at yearend.
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 yearend – and we do have cash of $3.5 million at yearend, 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 planned to essentially out of our revolving credit agreement by yearend 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 that we’d like to describe our tax provision. And so we just say that it’s interesting.
And if we take our pretax income times the 41% that Bob was talking about and then add to $2 million to $2.5 million, you’ll get to what our tax provision is for the year, and that’s what it will be until we get to a point that we don’t have NOL carryforwards anymore. And I’ll just point out that when you look at our cash flow statements, you’ll see that even though our tax provision is extremely high, in FY 2010, we paid $400,000 in actual cash payout 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, is how we deal with the – 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 we’re not pretending to say how you should value the company, we know there are many different ways, but this is an 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 results for the quarter, we’re pleased for the year, pleased for our current momentum. That’s all.
Thank you, Bob.
Bob Whitman
Great. Just before we can go to question, maybe I’ll just make a concluding statement that this doesn’t feel like an accident, but 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 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 and 30% increase in revenue.
So we feel – we had a good offsite management meeting last week with our top leaders with all 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 is quite extraordinary.
And so for us this is a continued execution to us this year, we’re going to try – one of our big initiatives is to try to shorten the ramp-up time for new sales people, because that is such a profitable investment even as it is. But we believe their 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 in greater presence where they are.
And we’ve 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 is a lot we feel is moving in the right direction.
We’ve got 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 roles more than three to five years generally. And so we feel like we’ve got a great team, great offerings, a good go-to-market approach, a business model that’s 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 the business model it should drive through pretty high flow through month-by-month, quarter-by-quarter where we feel like we’re off to a good start, the momentum in this quarter.
Obviously in any given quarter, there will be non-comfortable things from the prior years where you had a particularly big thing, one year – one quarter another and expense comes up you didn’t have. But I think on a rolling 12 months basis, we expect the things to continue to move northeast.
And I guess we’re kind of putting the stick in the ground and giving some guidance here this year and we look forward to reporting again that. And, with that, I’m going to now open it for questions.
Okay, if you’re coordinating that.
Operator
(Operator Instructions). Our first question comes from the line of Benj Gallander of Contra the Heard.
Please proceed.
Benj Gallander
Hi, first I’d like to congratulate you guys on a fine quarter, moving in the right direction.
Bob Whitman
Thanks Benj.
Benj Gallander
And it’s good to hear that 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 factor in the quarter and quarters coming up.
Steve Young
This is Steve Young. Yes – the answer is yes.
This tax provision will be interesting until the point that our net operating loss carryforward is consumed and we have about $30 million of net operating loss carryforwards. So on one hand, it’s unfortunate that that causes us to have such a high tax rate in our tax provision – of course, it’s beneficial to us that we have an NOL carryforward so that our cash out for taxes is low – but it’s just that odd situation of having an extremely high expense and extremely low amount paid down in taxes, that’s 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 would be paying our taxes at that same level.
Benj Gallander
Okay. But that’s likely a few years away I’m guessing.
Steve Young
Yes. However long we predict it would take to consume $30 million of NOL domestically, yes.
Benj Gallander
Okay. And the next question – the last question, I think is for Bob.
I notice you’ve doing a fair bit of selling and everything seems to be going in the right direction, and then you see the headman selling a fair bit of stock. I’m just wondering what investors like myself are to make of this.
Bob Whitman
Well, hopefully, you’ll – if you look at the total shareholders I have, and the fact that I have also about a 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 three-and-a-half years I took no compensation.
I bought almost all the shares that I own, I purchased then never sold or taken. I haven’t had – I haven’t ever taken a pay increase or anything else.
So I say that only to say that I’m committed, I’m here, so forth. At the same time, family has made other commitments to charities and other things that – what I’ve done over the years is continue to sell other things.
And finally we said, “Look, I’m not going to sell more.” I received the certain of the share gains every year.
And so on a net basis I don’t anticipate reducing my overall shareholdings, but I’m selling a relatively small amount every month trying to do it in a simple way that doesn’t lose the market, but that’s what’s going on. So hopefully the commitment has been shown, continues to be shown in a significant shareholdings, et cetera that I continue to have and other things will show a commitment, but I understand that for some of that maybe problematic.
Benj Gallander
Yes, well, no, you certainly have shown the commitment and there’s no question there, and I can see how personally one would want to sell from. And I think as you said, it’s important that you do it so that you don’t upset the market and that’s great.
And last thing is I mean previously you guys did a Dutch auction, any thoughts on doing something like that again?
Bob Whitman
Yes, we – I think our feeling is we made a little bit of announcement in the spring that once we got through this yearend, we would anticipate addressing this in our upcoming Board meeting, kind of what’s the – since we anticipate we’ll be in a position where we will be paying off our credit facility, and we expect if we’re meeting, our objective and the guidance here we’ll be generating significant amounts of positive cash flow. In the past, predilection has been kind of three-for-one to make sure we have plenty of liquidity and so we want to make sure we continue to do that.
Second is to return shares to the – returning 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’s conceivable in the future that might include a small dividend or something as we reconsider this.
So that will be the topic of the Board meeting. We’ll expect to report on that in our January quarterly report.
Benj Gallander
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.
Bob Whitman
Thanks so much, Benj.
Operator
Our next question comes from the line of James DeYoung [ph] of Credit Suisse. Please proceed.
James DeYoung
Hi Bob, hi Steve, nice quarter.
Bob Whitman
Hi Jamie, how are you?
Steve Young
Thanks.
James DeYoung
Couple of things, it looks like you’ve got some nice leverage going with that cost reductions that you did last year EBITDA margin. Looks like it 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 want to ask you about was government services graduate school program, I think you recognized revenue $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?
Sean Covey
Bob, I can address that. 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 gradual school trains about 200,000 government employees a year. And this is something I personally have been working on for a number of years to secure this relationship, they’re very excited about it, and we’re 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 substantial revenue that is incremental to our existing delivery channel.
And second is that it’s very meaningful exposure we have had in our past a very robust pilot programs open enrollment type engine, served in a given market and that has not happened in the last several years, so this is going back to that. So it’s both the revenue play and an opportunity for a substantial exposure in the years ahead.
James DeYoung
My last question is what do you think is the biggest opportunity in fiscal year 2011 that could bring potential no upsides above and beyond your initial forecast for the year?
Bob Whitman
I think for us – you can answer it from different prospects. 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 have 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. It’s – we’ve seen strengthening and yet it’s still well below where it was in 2008.
So I think the biggest surprise which we’re not forecasting in our numbers – and then 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 for the year and – but had some growth in the fourth quarter it was in this core training business.
So I think there could be $8 million to $10 million of revenue just on the recovery – if the economy is viewed as continuing to strengthen, that could be our big surprise for the year I suppose.
James DeYoung
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.
Bob Whitman
Okay.
James DeYoung
That’s great. Continue the good work.
Thanks a lot.
Bob Whitman
Thanks James.
Steve Young
Thank you.
Operator
Our next question comes from the line of Patrick Retzer. Please proceed.
Bob Whitman
Hi Pat, how are you?
Patrick Retzer
Congratulations 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.
Bob Whitman
Thanks very much. Pat, we appreciate your support and we hear your vote.
Patrick Retzer
Okay, thanks.
Bob Whitman
Register.
Operator
(Operator Instructions). Our next question comes from the line of John Lewis with Osmium Partners.
Please proceed.
John Lewis
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?
I mean it seems like that’s a significant needle moving opportunity, but what are your thoughts on that?
Sean Covey
Yes, Bob, this is Sean again. I’ll offer my perspective on this.
Hi John. 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 and so different by the way than the graduate schools. So those are opportunities that we’re regularly pursuing and anticipate that we’ll have more.
John Lewis
Great. And I guess, I think you said you were going to relaunch – there’s going to be a new launch of basically the core productivity solutions in 2011.
Can you give a little more color on – I mean it’s been a while I think – I think it’s been quite a lot since it’s been up rated. Can you give a feel for what kind of impact that could have on the business?
Sean Covey
Sure. This is Sean Covey.
And as you know, productivity or time management training has been part of our core for long time. In fact, that’s where Franklin Quest started with the merger of Covey and Franklin Quest, it brought the full-time management offering in.
That’s been a really big business for us for a long time and we have not paid that much attention to it and we’ve seen a decline over the years and we’ve always been a leaders in that space and felt like we’ve lost our leadership position. So our opportunity here is to reclaim that and that’s what we’re targeting.
We’ve been working on this new solution over a year, it will be launching in the spring timeframe 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 productivity teams and organizations. But we think the – the growth in this area could be significant.
When we adjusted other core offerings in the past we’ve 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’s more relevant than before. So part of our growth expectation for this year includes what’s going to happen with productivity.
Now we’re only going to be capturing half the year, because this will be launched in the spring timeframe, so we get about a six months impact and we’ll continue on with 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.
John Lewis
Great, that’s very helpful. I guess the last question regards, I believe you said that you may accelerate the hiring pace.
It seems like I think as you said you planted the seedlings, you have some trees that are growing at a pretty decent pace. I guess kind of with that backdrop at improving economy and good products, I believe the old – the old metric was that you were aiming the higher I think 10 to 12 maybe in 15 client partners a year.
How could this change given the success and strengthening of your product curve suite?
Bob Whitman
I’m happy to address this. Sean, you want to address this – Sean Covey in your own areas.
Sean Covey
Sure. Yes, we are aggressively looking at this model.
We want to make sure that – Bob mentioned one of our key initiatives – there is 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 that there is an investment in year one and then they start paying this 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 ramps, so that you’re 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’s about doubling what we had initially anticipated with the folks who will focus specifically on the productivity launch and who we believe because if 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 how quickly we add this people in the future.
John Lewis
Great, thanks a lot, and congratulations to you guys.
Sean Covey
Thank you, John.
Bob Whitman
Thanks John, thanks very much. 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 one” which is kind of our channel view, how many sales people we can add, how big, how many sales people are international licensee partners can add.
That’s one way to look at world and that’s a big number. When we looked through “view two” 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 can penetrate each of those markets – any of those markets between 2% and 4% of the potential in the United States alone, you’d have each of those would be a $50 million or bigger factors.
And so you take an example in education, there are a 124,000 K-3-6th schools in North America. Every 1% – given our – the revenue or the cost of doing 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 we have a specific buyer like a principal or a school district, superintendent of a school district with a specific solution to a specific problem at a great offering that you know works. We’ve also learned in that situation that sales people in that situation historically in that example our education sales force ramped up slower than corporate people did, they achieve lower revenues.
In that environment, where they know who they’re talking to with a great solution, they’re ramping up much faster than corporate people are. We’ve seen the same thing in our sales performance group, which is the same thing in our execution practices.
And so that’s really the idea that we’ve been testing and practicing and so – but we believe we’re now ready to say, “Well, gosh, if we’ll just narrow the focus, these are huge markets, and we’ll never get there adding 10 sales people a year, as exciting as that can be, because those 10 sales people turn into $5 million of EBITDA in their fifth year. But if we can 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 – because you wouldn’t have a negative investment in the first year, you might flatten your EBITDA margins a little bit, because of the addition, but you wouldn’t be going negative.
That would allow us to really ramp.” And so this year from our 10, we’ll be I think at 17 or 18 this year – many of them have been hired, and so we’re starting to [inaudible] that up.
John, I’m sorry for the long answer to your short question. Any other questions.
Operator
There are no further questions at this time. I would like to hand the call back over to Mr.
Bob Whitman.
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 sent 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.
Thanks.
Operator
Thank you for your participation in today’s conference. This concludes the presentation.
You may now disconnect. Have a great day.
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