Franklin Covey Company (FC)

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Franklin Covey Co. (FC)

F2Q11 Earnings Call (Qtr End February 26, 2011)

March 31, 2011 5:00 p.m. EDT

Executives

Derek Hatch – Corporate Controller

Bob Whitman – Chairman, President and CEO

Steve Young – CFO, EVP of Finance, Chief Accounting Officer, Corporate Secretary

Sean Covey – Head of International Licensee Partners

Analysts

Joe Jansen – Barrington Research

Patrick Retzer – Retzer Capital

James DeYoung – Credit Suisse

Bill Gibson – Anderson & Strudwick

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Franklin Covey Company Earnings Conference Call.

My name is [Derrick] and I'll be your operator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session at the end of the conference. If at any time you require operator assistance, please press star 0 and an operator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Derek Hatch, Corporate Controller with Franklin Covey. You may proceed.

Derek Hatch

Thank you. Before we begin today, this afternoon's presentation, once again, thank you for joining us. And we will begin with our forward-looking statements.

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.

With that out of the way, I would like to turn the time over to our Chief Executive Officer and Chairman of the Board, Bob Whitman. Thank you.

Bob Whitman

Thanks, Derek. We're delighted to have the chance to talk with all of you today and appreciate you joining us.

Hopefully each of you had seen the press release that went out about an hour ago. And we're also delighted to report that revenues were up 19% for the quarter and 21% year-to-date and that our adjusted EBITDA for the quarter was up 78% and up 68% year-to-date. So, just hopefully we'll have a more fun call and continue the progress of the last many quarters.

I'd like to organize my comments today around the following core headlines and themes. First, we are very pleased with the company's strong performance and results in the second quarter. Second, we continue to be encouraged by the strong booking trends and momentum we're continuing to see in the business. Third, based on these trends, we expect to achieve significant growth in both revenues and profitability during 2011. And fourth, that we believe we have the opportunity to continue the strong growth in the future. So I'll just maybe give some background on each that contributed to the quarter.

From a revenue perspective, revenue for the second quarter totaled $35.5 million, which is an increase of $5.7 million or 19.2% compared to the $29.8 million in revenue that we achieved in the second quarter of fiscal 2010. This is pretty much as expected because of our strong bookings during the fourth quarter and first quarter we expected to translate into significant revenue growth, and they did.

As shown in Slide 4, we're pleased we've achieved growth in all of our major channels. Revenues in our Government Services Group by $2.6 million in the quarter, reflecting the previously discussed government services contract that we were awarded at the end of last year's third quarter. We also achieved growth in all of our other key channels. In fact, seven of the eight direct offices both domestic and international grew revenue during the second quarter as did three of our four field support practices, our international licensee partners as a group, and all three of our national account practices. And you'll remember from last quarter that we -- the sales performance practice had been down a little bit last quarter, reflecting the lower revenue repeat of the kickoff of the big contract last year. We expected it to come back this quarter and they did.

Revenues in our four geographic direct offices in the U.S. excluding the government services region grew $2.4 million or 20% in the quarter, again reflecting the delivery of the training engagements booked during the fourth and first quarters, and all four of our geographic domestic offices grew revenues during the quarter.

Revenues also grew in our international direct offices by 13%, including Japan, where revenue grew 23%. We also achieved growth in our Australian office. Revenue in the U.K. office was essentially flat for the quarter, a slight decline of $77,000. But based on bookings, we expect U.K.'s revenues to be flat, slightly up, probably slightly up to last year during the third quarter.

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