Welcome to the First Quarter 2015 Franklin Covey Earnings Conference Call. My name is Betiva [ph] and I will 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 that this conference is being recorded. I will now turn the call over to Derek Hatch, the Corporate Controller. Derek, you may begin.

Thank you, Betiva. Good afternoon, ladies and gentlemen and Happy New Year. On behalf of the Company, I’d like to welcome you to our first quarter fiscal 2015 earnings conference call this afternoon. Before we begin, I would like 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 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, except as required by law. With that out of the way, we would like to turn the time over to our Chairman and Chief Executive Officer, Mr. Bob Whitman.

Thanks Derek. I would like to welcome everyone to the call. I appreciate you joining us. As you know in November we reported our strongest fourth quarter and fiscal year ever for our current business and we are pleased to have continued to build on that momentum in the first quarter of fiscal 2015. With the positive momentum we continue to have in the business and the expected positive impact from our first quarter growth investment which as you know were quite front end loaded. We are very excited and confident about both the direction and performance for the business overall. For that reason we feel confident reaffirming our previously announced annual adjusted EBITDA guidance of $37 million to $40 million for fiscal 2015. I’d like to just briefly today discuss the quarter and provide some detail and the factors that impacted the first quarter and how we expect these factors to reverse and moderate in the coming quarters. Second, review our progress and our key growth initiatives including our sales force growth and productivity and finally address the momentum and the underpinnings of their confidence and the guidance. So first the discussion of the quarter. We are really pleased to have achieved revenue growth of 10.3% in the first quarter getting to $47.9 million which is our highest ever first quarter revenue for the business. We were particularly pleased actually to have achieved this growth after absorbing more than $700,000 revenue impact caused by foreign exchange fluctuations. As the foreign exchange remained neutral year-over-year revenue for the first quarter would have grown up to approximately $48.6 million which is represented growth of 12%, so we felt very good coming out of the blocks strong on top of a very strong fourth quarter. Our revenue growth also was very broad…

I agree.

This would be okay. So at this we’ll now turn the time over for questions and we have the executive team members here with the exception of Sean Covey who is in the Netherlands at a conference this week. So I’ll turn it over to questions.

Great, thank you. [Operator Instructions] And our first question is going to come from Tom Mcque [ph]. Please go ahead with your question or comment.

Hey Tim.

Hey, this is Matt Hill in for…

Hey Matt, how are you?

Fine, good thanks. A couple of questions, the nice growth is on direct [ph] office and it was $1.6 million, just can you give any bit of size on how big that office is compared with the other international direct offices?

Sure. First of all you know about a year and a half ago we began to maybe almost two years about a year and a half ago anyway we began to implement the same hiring and event strategies in the U.K. that we had been doing in the U.S. and do it at an accelerated level. And so the underpinnings of the growth that we achieved in the U.K. started really in last year and then we had our best year ever in the U.K. last year that momentum continued during the first quarter. And so, so that growth was substantial and so part of the question what caused that? And I think if the other question was how did that conserve with the other offices. Was that, did I have that right?

Yes thanks.

Yes and so we had growth in the U.K. office. In Australia we were down slightly to the quarter and in Japan we were affected by the – you know we had good quarter they are continuing to launch the 7 Habits in local currency, but we’re impacted significantly by the end of valuation total revenue…

It’s about half of Japan and twice of Australia.

Yes. So the total for fiscal 2015 is fiscal 2014 Japan is around $18 million, the U.K in 2015 might be around $9 million and Australia is probably $5 million.

Okay, all right great. And then with the guidance is there -- do you have any indication at this point [Indiscernible] strongly one way or another I know the range could change but is there any outlook as about which way it might be swinging and then are there any practices that their initial guidance that maybe are doing better or worse than when we had originally set that guidance.

Yes first rest of the guidance range I think we were conscious of setting that what is maybe a -- it seems like a wide range, but it really is only about a 10% range. So I think at this point saying that we feel confident in the range, we’ll probably just leave it at that right now I think it’s early after the first quarter to say where it will be. I can tell you that our – when we sit round our table, the goal isn’t here at the bottom end of the range. So certainly all of our thinking is to how do you plan to hit at the top end, so that anything that happens to you gives you some cushion, to help in that – we in that effort we’ve not included in that guidance assumptions about renewals of major contracts unless we know they are renewing. We haven’t assumed big wins of contracts that have typically happened. On the other hand, the foreign exchange devaluation has been worst than that we thought and we’re hoping that that trade – we’re thinking the trade of what we haven’t included versus things are going to happen to us that we don’t about it, will swing to the positive side for the year as a whole. In terms of the performance, actually right now and essentially, timely we every week we have a review with every unit, a brief review with each of our major units. We’ve been doing that today. I think here all of our units were on track have a good year, really good year, I mean, forgetting foreign exchange everybody’s plans are to grow, our each channel grew and despite foreign exchange during the first quarter every practice grew with the exception of execution which is a little anemic which relates more to a specific a couple of two specific client. Everybody grew close to double-digit. So I think at this point we’re feeling that – the thing that we feel generally good everybody, let’s say, that said, we have list of things that aren’t going as well ones that we feel need more help, but we have been adding that help in terms of resources that might go to an international direct office to help out and that’s really helped us in the U.K. where we’ve got marketing resources or hiring new coaches or things to help out. But at this point we feel that the year is likely to be have broad based growth, revenue growth which occurred in the first quarter which happens for the trailing four quarters has really happened pretty much across the board for each of our operations over the years. And so, we have – most of our time is spend on things, they aren’t going as well as we think they can, but they aren’t very many things that aren’t going quite well, I don’t know if that’s responsive, please push harder if you’d like.

That’s great. And then just one final numbers and question, with the client partners, I think you’re saying 178 or…?

Yes.

With the new, I think you’ve said 16 were added and during the fourth quarter you add 176 client partners and as I’ve just said timing, I was looking at the [indiscernible] so that new 16 that were added?

Yeah. So I mean some of these numbers I probably mess up, not mess up in actual by reporting them at the time we’re actually reporting earnings versus the end of the quarters, so it might be some of that. In the first quarter we added 16. We also lost client partners to debt one to retirement. We had one that was client -- has historically been a contract client partner who then became full time for year that went back to contracts as we don’t count and even who is still doing work for us. And we’re still flexed in that and I think there were two client partners who just didn’t make it from the prior year also. So there’s little moving around. We can – if you’d like to we’d be happy to just reconcile, that’s one thing we reconcile every week and we can give you a clear reconciliation for any period you’d like on that matter if you’d like to go into more detail.

Okay. So the 16 is more of that growth additions, it’s not…

Yeah, that is a number of new client partners we hired. That just not the net number – net number added and we can you precise at the end of each quarter any period you want.

Okay. Got it.

But I think for us we see -- the basic idea is we’ve increased by 31 over the last 12 months net we’ve increased by 31, we expect to do roughly the same over the next 12 months and we feel like we’re in a good track of being able to handle that 30 year so net higher as the year.

Okay. Thank you for taking my questions.

Thanks very much for the good questions.

Thank you, Tim. Our next question is going to come from Jeff Martin from ROTH Capital Partners. Please go ahead with your questions and comments.

Thanks. Hi, Bob, hi, Steve

Hey, Jeff, how are you doing?

Hi.

Doing well. How are you?

Great. Thanks.

Bob, could you give us an update on 7 Habits conversion or something that you’ve talked about on previous quarters, be curious to hear how that’s going?

Yeah. The 7 Habits conversions continue to go well. So we have kind of two elements to it. One, was the conversion of people who are already 7 Habits 3.0 customers and that’s what we refer to sometimes it’s the conversion of reconverting those folks over. About two-thirds of those people have converted to-date. The ones who haven’t converting either had lots, had -- lot of inventory in 3.0 or they had build the worldwide training network around 3.0 and didn’t want to convert over into we had in every language or there maybe or they’ve trained so many, they’ve got affiliate partners that they’ve trained in it and that would be a big effort and so that other third will come in probably over the next year to 18 months, but we had a very good, the conversion of that initial group was substantial. It drove the big results in second, third quarter. The second part of the course of the launch is the ongoing, the 10 million managers in the United States who can make a decision about buying some training for their team even if their company hasn’t decided to do an overall initiative, and beginning even in the second quarter when we were trying to convert a lot of people we had about half of the people who came to the event season and that quarter were these new, brand new clients to the company that increased to 70 plus percent in the third quarter and to about 75% in the fourth. We didn’t have a lot U.S. domestic events in 7 Habits this first quarter, because of the recession emphasis last year, but in the second and third quarter we’d expect that the 70% plus continues. Japan, we got after – they didn’t launch until…

Very helpful. Could you give us kind of a status report, you are doing quite a few more events this year. How are you tracking to your schedule there? Is it a lot to handle? I would imagine close to 50% bump in the number of events, it’s not an easy thing to manage? There are certain --?

No. It is infact – said Scott Miller, who heads our marketing to talk about the – what’s happening and how that’s going.

Yeah, but I think we’re more than on track, Bob’s report said 700 I think largely end up closer to 750 this year, and I feel very confident that we’re putting a big focus on increasing our database in terms of both size and quality of prospects, we’re finding our messaging. We’ve hired about a 20 person outbound calling team that complement both our direct mail and our email strategy, strong effort focus on our current clients to refer in other individuals in their organizations and network. So we feel by all measures that the lighter that marketing strategy is working extremely well in all of our direct offices and now becomes the crucial part of international partner operation as well too, one of the key measures of our international partners is to put on several 100 events this year. So from all of our signs it’s a key focus of ours, not without challenges as you say, but we felt very bullish about the quality of prospects coming in, the quality of the pipeline coming out in the conversion of revenue. So – but we’re pleased about that.

Shawn, you want to add.

Yeah, Jeff one thing I would add to that as we bring on new client partners. This is Shawn Moon. As we bring on new client partners their primarily job, their job one as part of their getting up to speed to work these events. It becomes a very doable thing for them right out of the gates to prospect, get people to come, give them an experience in our content and then set up the opportunity for broader discussions. And so the infrastructure with our new client partners and the addition of our new client partners actually allows us the ability to add these events in the way that we have.

Jeff, your question is really perceptive on the – this is not been an easy thing, but we started several years ago. When we knowing that these events worked, it just drove us nuts, so we had 54 events in the whole central region three years ago and our constraints were that we didn’t have a database sufficient to mail to. We had a million names in the whole company and that’s after three years of activity on it. Today we have closer to 5 million and we’re not happy with that. We’re trying to – we figuring now. We’re investing in names in every event, but that was wonderful thing, is whole strategy for name acquisition doing archeology digs on who it is that actually comes and buys, trying to profile those people get us which been our three-year effort getting there. We recognize that sales people spend way too much time trying to make initial calls and people respond to their emails, so we build this calling team to which Scott referred. There has always been a major effort building the event coordinators out in the field. These are pay per day people, but still we have to get good people who represented in. So we’d have to take years to get at the point where we felt comfortable kind of ramping this up. But because we spend the years and we’ve got great people here, that’s gone quite smoothly and – but it wasn’t significant. Yeah, we still trying fill that many additional events in Q2 certainly have the impact on Q1.

Yeah. Okay. And then last question you refer to excess cash, historically I think you’ve mentioned over $10 million cash on the balance would be considered excess cash, how do you look at timing of cash flows this year and remind us what you share repurchase authorization is?

Yeah. So our share repurchase authorization, couple of years ago was $10 million, now we made these acquisitions reviews most of our excess cash and completing the buyout or earn-out of Trust practice, Speed of Trust and making the acquisition of NinetyFive 5. Their threshold was $10 million, above that, we in sort of day we have more than $10 million of cash and we have also – we didn’t at quarter end, we have big collections as expect in the course in December was our biggest collection month ever. And so, we’re above the $10 million. We expect to be a lot above the $10 million by year end if we do something with it There are lots of choices of what you do with it, but I suspect one of those we’ll be buying back some share certainly at today’s multiples we would expect that we would be buying, taking the advantage of the chance to buy some shares.

Yeah. Okay. Thank you very much.

Thanks, Jeff, every much.

Thank you. And then our next question is going to come from Kevin Liu from B. Riley & Company. Please go ahead with your question and comment?

Hi guys, good afternoon.

How are you?

Good, good. I guess first question here just looking at your international growth rate suddenly the direct business continues to grow strongly. The licensee growth is little bit more muted in the period. So, I was wondering if that was more disproportionately hit by the FX impact you saw or if there was some factor that drove lower growth there relative to the rest of year of [indiscernible]?

Yeah, it was actually, I mean, we had – the impact of FX hit us kind of in three ways. One is the balance sheet, so to the extent we have receivables or cash whatever you know on the balance sheet in our direct offices we got a whack there. The other was on the actually operations which was both in our direct offices and in our international licensee partners. So the impact international licensee partner operations was about $225,000 during the quarter, that of course effected the grow rates significantly given that these are royalties and so feed that at 225 we’d be more in the range, we expect in local currencies that we’ll grow north of 10%. We’ll hope to find ways also with their – with new licensees that we’ve added this last year to get 10% even with the FX impact, but it did effect us in the first quarter for sure.

Got it. And you highlighted some of the issues around utilization within the quarter that I got myself correcting over the rest of the year. Education, I would assume kind of turns naturally in the fourth quarter when lot of your booked days come through, but what gives you confidence on kind of the turnaround in the Japanese operations. Do you already see that within kind of booked days pipeline and can we see that improve as soon as the second quarter here?

Yes. The combination, in fact we know the seasonality of Japan, our biggest quarter in Japan also turns out to be the fourth quarter, but second, third quarters tend to be bigger than our first quarter. So some it will get absorbed in the second and third quarter, but certainly about fourth quarter it will have flipped over, it will be contributing positively. We will fully absorb their cost and have very high margin. So I think part of it just the normal seasonality. Part of it also is that some of these consultants, I mentioned that we have this third party sales partner in Japan. They have had difficult challenges in the business, but they’ve got some new leadership there, Shawn Moon just been over met with their President. They are making big efforts on re-launch of 7 Habits. That actually helps us because our delivery consultants also deliver all the content. These are the sales partners but we deliver there. So I think it expects some positive impact during quarter certainly by the third and fourth, it will have reverse just on seasonality alone. But we’re also driving a lot of business, most of the consultants are 7 Habits consultants and so the launch have set ongoing launch will help accelerate that absorption, so we feel quite confident.

Yeah. And I would just add two other things, like we’re doing in the U.S. we’re continuing to hire aggressively there, so they’re going to have new client partner, they had new client partners that are being ramping. We’ll continue to do that, that’s one.

And they absorb and therefore they absorb the consultant.

Right, because more they book more consultants deliver and we are doubling the number of events that we did from last year to this year in Japan, which also drives additional days that been help the absorption of consultant cost, so the same play we’re running here, we’re running there which has impact on that absorption number.

Thanks for taking my questions.

Yeah, maybe one of the thing I just noted, maybe against few – it’s not way that for talking, but everyone is that one thing that I think is been a mistake is that we have not – our fourth quarter has been so big that we have and our big – and we always have our kick offs in the first quarter, we have not – last year we have the same number of events in the first quarter that we have in the second and third and there is no practical reason for not doing so, and so we’re already now. We’ve identified the schedule. We could of included on that exhibit also our first quarter. Next year’s first quarter we’ll look a lot like this year’s second quarter in terms of events so that we’re absorbing more of this faster. We’re getting out of blocks a little faster, and we would like to [indiscernible] first and second quarter be such some burden and have it all come in the third and fourth that’s maybe of interest. Thanks Kevin.

Thank you.

Thank you. Our next question is going to come from [indiscernible]. Please go ahead with your question or comment.

Hey, guys, Happy New Year.

Hey, guys, how you doing?

Good. So Bob, I guess a few questions have already been answered, but I was curious to hear more about the cash flows for 2015 and looking back you had some pretty heavy investments in contents and you alluded this already on the call briefly, but curious to hear what portion of EBITDA you think could flow through to cash flow and what we should expect you guys to put on the balance sheet over the course of 2015 if you can?

Great. Steve, you want to answer that.

So, we’re not prepare to say exactly what we think our cash balance is going to be at the end of the year just to say that we believe is going to increase and increase quite significantly especially as compared to the increase that we’ve seen over the prior 12 months for the reasons that you mentioned. During the last 12 months we’ve had a significant amount that we have spend. Our cash out that wouldn’t be repeated in the coming year. You mentioned the additional amount that we’ve invested in the development of 7 Habits that was several million dollars. We had a – what was reflected is a share repurchase for $4 million. We had acquisition related earn-out payments related to acquisition that have come to an end related to the Speed of Trust. We also had a very interesting taxing that I won’t go into, but the cash was $2 million that will actual reverse in this year. We also unfortunately did not see a decrease in our day sales outstanding. So the combination of all of that is we were generating a meaningful amount of cash and it was being consumed by these activities which we think are valuable and good activities. They are just once that won’t repeat in the coming year and that’s of course we decide to buy shares or something like that. But as Bob said our highest collection month ever was a month of December and we expect our day sales outstanding to be similar during the year and Shawn, we expect to have enough excess cash to do anything that we can envision and choosing to do with excess cash.

That’s helpful. Yeah, and the comments on a buyback are encouraging as well, I know, we were looking at some of the annual letters going back to 2006 and 2007 and right around the time of the financial crisis and Bob you kind of repeatedly talked about how there are two real levers to running the business in terms of how you think about day to day decision making to ramp client partner hiring and to meaningfully reduce the share count, it sounds like at the current valuation you’re still looking at the world through that lens, is that fair to say?

That is correct. As you recall first, as you know well, we did the 3 million share repurchase in 2009, but then since then not done a lot, we’ve done some, but yeah, I think our due is now having the excess cash, expecting to have it – having it and expecting to have more of it. And there maybe acquisitions that – small acquisitions from time to time, but certainly right now it appears to us that this will be a good use of cash.

That’s helpful. Last question from me, if you take a long term view again, we’ve seen EBITDA margins go from low single-digit now to the teens, and where we headed over the long run, what do you feel comfortable laying out as a long term three-year out target for what sort of profitability that you think the business can achieve?

Yeah, I mean, we’ve always said and that we would trade off increase in EBITDA margin for accelerated growth if we thought we were holding back the growth just for that reason. But right now, we don’t feel like we’re doing that and if we’re able to full through incrementally 25% to 30% of incremental revenue to impact – increases in adjusted EBITDA of course that will continue to move it up. We’d said a year or so ago that we thought, that in this period we get to 18% or so hitting our guidance of this year we kind of get us in that range and we think that’s probably not the of it so I suspect to continue to move toward 20 over the next few years and we’ll try to have not do that by finding ways to accelerate our growth, but it maybe just organizationally although we can say grace over will resolve and the EBITDA margins continue to increase.

Great, guys. Thanks so much.

Thanks so much.

Thank you [indiscernible]. And then our last question is going to come from Peter Van Roden from Spitfire Capital. Please go ahead with your questions or comments.

Hey guys.

Hi, Peter.

Hi, Peter, how are you doing?

Good. Just a quick question going back to the consultant account, can you talk through kind of how we get from the 176 at the end of Q4 to 178, say us a little bit just having trouble to get that?

Oh, thanks. Steve.

So, in the discussion we always have a number of CPs at the time that we’re talking on the webcast and then we have a number that’s a different number, at the end of the quarter that we’re reporting. So, when we did our year -- during our year-end call as we were talking about the number of CPs we said, at that time we had a 176 I believe is right, and as of right now we have 178. So some of terminations that Bob talked about net of the adds we’ve added as -- added to since we reported. We ended the year at more like 169 at the end of the quarter, so there was more an increase in the quarter than there is increase in the time between the two calls. So given that I think the key number is that over the last 12 months apples-to-apples in time period we’ve added 31. And while we might have a little bit of confusion we’ll try to avoid is to whether we are talking about the quarter end we’re reporting or the time that we are reporting. I think the key thing is that we are intending apples-to-apples to add 30 net per year.

Okay. Perfect. Thanks, guys.

Thanks very much.

Thank you. And actually we have an additional question coming from Joe Janssen from Barrington Research. Please go ahead with your question or comment.

Hey, Bob and Steve.

Hi, Joe.

Hey, Joe. How are you doing?

I am good. I’ll just sneak one in there real quick. I know I late in the call here. The marketing events, I am just curious, one, kind of what that number look like in 2013. And then historically its attendance kind of growth been in line correlated to -- it’s not correlated but have you seen similar growth rate in terms of actual market event growth, or given the number in managing that process. Are these like smaller attendants and kind of more niche, more nearly focused?

No. They are not. In fact, well, Scott Miller…

I mean there is a vast majority of events spread across our four five main practices, although we are increasing the number of events aimed at industries; for example we have an event next week in California focused on the Hi-tech sector, but generally they spread across our five main practices, is that your question?

Well, there is also how much I think Joe let me just stay back and then…

Sure.

Let Scott to response. So one question, what was the number of events in 2013? We went to 440 and changed in 2014, I think the answer is in the low 300s in 2013 we can get you the number but it’s approximately to call it 330 or something, so we increased it some. Second, I think what is the connection between all these events and revenue, is there a strong connection and is it getting less or we starting to have them in secondary cities more than primary cities, was that kind of adjust?

Yes, just more niche and focused.

Yeah. They are not so much honestly. We defined an event in our minds of having 18 organizations attending on average and that’s kind of the target minimum number of organizations, which usually include something like 26 to 30 participants because some organizations bring more than one. So that standard hasn’t changed and in fact with our author tour [ph] with launch of ‘The 4 Disciplines of Execution’ which is ongoing author tours and those tend to be bigger events. The ‘Speed of Trust’ authored tours are tend to be bigger with Stephen M.R. Covey and we are just starting now with ‘The 5 Choices’ which we by the way we were happy to see that it rank number four on business books and we just new book ‘The 5 Choices’ to extraordinary productivity as I report yesterday that. I know I saw the report. I can’t certify its gravity [ph] I does not, but as doing all terms of blocks in a good way, but those author tours tend to be bigger. So we actually know what we -- what we track Joe is the amount of pipeline that is added for every event. It’s tracked that we have a DEFCON system we call it and where if X number reach out we haven’t had certain amount of pipeline, the certain amount of revenue. We talked about we go back over and so it’s quite predictable and say, so, yeah, the accelerated – the acceleration of events we think over the revenue comes in from that event over 11 to 13 months with a big bulge in that four to seven month period. Having these events really starts to build your pipeline but it doesn’t do it – I mean it affects in the quarter, certainly affects the quarter in the quarter, in the quarter for the quarter that affects that is certainly the next two quarters a lot. And so as we end this up, we would expect that it starts to build the bulge where for the offices that are holding this you know they start to have a much easier time hitting their ongoing 12% revenue growth goal.

Okay, appreciate it. Thanks for the color.

Thanks Joe.

Thank you. And at this time we have no additional comments.

All right. We’ll just thank everyone very much for joining the call today. Thanks even more for your long term support and ongoing efforts on our behalf. We appreciate it and Happy New Year. Thanks.