Franklin Covey Co FC
Q1 2011 Earnings Call Transcript
Transcript Call Date 01/05/2011

Operator: Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Franklin Covey Earnings Call. My name is Melanie, and I’ll be your coordinator today. At this time, all participants are in a listen-only mode. We will accept your questions at the end of this conference. As a reminder today's call is being recorded.

I would now like to turn the call over to Mr. Derek Hatch, Corporate Controller. Please proceed.

Derek Hatch - Corporate Controller, Central Services, Finance: Thank you, Melanie. On behalf of the Company, I'd like to also welcome you to our first quarter fiscal 2011 earnings call today and hope you enjoy today's presentation. Before we get started, I’d like to begin with our forward-looking statement presentation and remind you 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 & Exchange Commission.

Many of these conditions are beyond our control or influence, any one of which may cause future results to differ materially from the Company’s current expectations, and there can be no assurance that the Company’s actual performance will meet management’s expectations.

These forward-looking statements are based 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’d like to turn the time over to our Chairman and Chief Executive Officer, Bob Whitman.

Robert A. Whitman - Chairman and CEO: Thanks, Derek. I'm glad to have the chance to talk with all of you today and appreciate you joining us. Hope each of you had a chance to read the press release that was issued about an hour ago.

I'd like to address some detail behind that. I like to organize my comments today around kind of four headlines or themes. First, that we are very pleased with Company's strong performance and results in the first quarter.

Second, we are encouraged by the strong booking trends momentum we are continuing to see in the business. Third, based on these trends we expect to achieve significant continued improvement in both revenues and profitability during 2011 and beyond. Then fourth, we believe we have the opportunity to significantly accelerate our growth in the future perhaps beyond what we've talked about in the past and I'll read some headlines there.

So I'd just like to now maybe provide some detail behind each of these themes. The first one, being pleased with the Company's performance and results in the first quarter.

As you saw from the revenue perspective, revenue for the first quarter totaled $39.4 million, just an increase of $7.5 million or 23.5% from the $31.9 million we achieved during the first quarter of fiscal 2010. As expected our strong bookings during the third and fourth quarters and our pipeline that we talked about at our last call translated into significant revenue growth during the first quarter.

As you see in slide 4 which is the sales detailed by region and type, we were pleased to have achieved growth in almost all of our major channels and I'll just address these quickly.

Revenue in our government services group grew by $5.7 million in the first quarter reflecting the previously announced government service contract that was awarded beginning of last year fourth quarter and other contracts won by that group.

As significant this contract was and is we also achieved significant growth during the quarter in other key channels in fact, six of our eight direct offices both domestic and international grew revenues during the first quarter as that every field support practice our international licensee partner in two of three of the national account practices.

Revenues in our geographic direct office in U.S. the four of them which, excluding the government services region grew 900,000 or 7% during the quarter reflecting the delivery of the trading related to the strong bookings achieved during the third and fourth quarters and four of the five domestic offices grew revenues during the quarter.

Revenues in our international direct offices also grew and also actually grew 16% for the quarter with the big news being that Japan has continued to gain momentum and generated actually 30% revenue growth during the first quarter. We also achieved growth in Australia, revenues in our U.K. office however declined $200,000 during the quarter but based on bookings, we expect U.K.'s revenues to be back and be at least flat versus last year during the second quarter.

Our international licensee partner revenues also grew and grew by 10% in the quarter with their royalty portion growing 15% and wholesale actually declining a little bit with most of our international licensee partners growing over the prior year including nine of our ten largest licenses.

In our national account practices, or education practice grew revenues by 16%. The customer loyalty practice grew by 10%. The sales performance practice which achieved 37% revenue growth in 2010 as expected saw a decline in revenue during the first quarter of $700,000 and that was expected during last year's first quarter, the sales performance group has ordered a large new multiyear sales training contract with major technology firm.

Last year, the revenue associated with the launch of this new contract was $1.3 million during the first quarter alone and while this contract continues to be very significant and actually generated approximately $450,000 during the first quarter, this was $900,000 lower than during last year’s launch year. So, other than that we grew and despite this decline we expected sales performance practice to achieve revenue growth of approximately 20% for fiscal 2011 as a whole. So, it's in good shape.

On profitability, adjusted EBITDA from first quarter was $5.3 million, which is an increase of 58% and $2 million compared to last year’s first quarter and this was after converting approximately $800,000 in extra expenses related to our once every three year worldwide sales and delivery conference which we held this September. So, we felt very good about the growth and profitability, I’ll touch more on that.

Our gross margin dollars increased by $4.5 million or 22% for the quarter; our gross margin percentage, however, decreased to 63% compared to 64.6% in the first quarter of fiscal 2010. We maintained gross margin percentages in all of our major operating categories. So this overall reduction in gross margin percentage primarily reflect the shift in our mix of delivery method with more of our delivery during this quarter being onsite or higher percentage being onsite and a lesser percentage being these facilitator orders than in last year’s first quarter.

SG&A declined to 50.2% of sales during the first quarter compared to 54.1% of sales in the first quarter of 2010. In absolute dollar terms, SG&A expenses increased approximately $2.5 million during the quarter compared to the first quarter of 2010, primarily due to $1 million increase in commission costs associated with increased revenue and $800,000 previously noted conference costs for our annual sales and delivery conference which I noted is held every three years.

So, otherwise, even with that $800,000 (arrear) SG&A as a percentage of sales declined. As noted above, adjusted EBITDA for the quarter was $5.3 million, as we said reflects a 58% growth over the $3.3 million achieved in last year’s first quarter.

Income from operations increased $2 million during the first quarter to $3.4 million, more than doubling the prior year performance. Pre-tax income improved to $2.7 million in the first quarter, which is up $2 million compared to the $700,000 achieved in the first quarter of last year.

So, overall we felt very good about the Company’s first quarter financial performance. It is strong in almost every quarter. We are also pleased that as of today our cash balances of $5.8 million exceed our outstanding balance on our credit line as expected and that we are therefore in a position to pay off our credit facility. We expect to continue to have credit facility of approximately $10 million available in the future which would be kind of the rainy day decline and occasionally you'll dip into it but we had said several times that we expect it by year end to be essentially out of the line and that happened instead on the fifth of January, bit pretty close.

So, again the first point, we are pleased with the performance in the first quarter on really all fronts. Second, we continue to be excited and encouraged by the trends we're seeing in the business. We are very encouraged by the continuing strong momentum in our bookings during the first quarter. A key metric we referred to as book days which are commitments for the future delivery of training engagements onsite at our clients' locations.

As shown on slide five, in last year's first quarter we booked approximately 1,350 days for future delivery and this year's first quarter we booked approximately 2,300 days for future delivery, an increase of 70% but even without the benefit of the bookings in ways of large government contracts have booked days that grew by 21% during the first quarter.

As you can see in slide 6, this strong booking momentum and the addition of new contracts during the quarter resulted in there having $11 million more in our pipeline of booked day and awarded contract revenue at the end of the first quarter which will be delivered in coming months in quarters than we had at that time a year ago. We also grew our total pipeline data by about $1 million relative to where we were at year end.

We expect as usual that the bulk of these bookings that we deliver over the next three – two to three quarters. You might I'd note that the course of this pipeline relates to the large government contract and the delays and the approval of federal government budget could impact a portion of this revenue at least shift the timing they are of it -- if the government is somehow to get a budget improved sometime soon.

Third, observation based on these trends we expect to achieve significant continued revenue in both revenues and profitability during fiscal 2011. As a result of this booking momentum and the strength of our other lead measures such as number of face-to-face meetings with client, number of account solution recommendations that these are proposals that we issue, these kinds of lead measures. We believe we are positioned to achieve continued growth in revenue and profitability during the second quarter and beyond.

As you know while historically, we've not provided guidance. We decided at the end of level before we did our annual update to decide to provide adjusted EBITDA guidance this year to get some additional clarity on how we see the trajectory of our business unfolding in fiscal 2011.

As we said, during our last webcast based on the strong pipeline of days and awarded contracts and on our operating assumptions. We expect that the company will grow adjusted EBITDA from $13.4 million in fiscal 2010 to between $18 million and $21 million in 2011 which will represent growth of between 35% and 57%. For the first quarter, we made good progress towards that.

Given this solid first quarter and historically our strongest quarter is the fourth quarter and we would expect and we should expect more on an absolute basis more modest results during the second and third quarter although it's still improving with the third quarter likely to be stronger than the second quarter which is our normal seasonal pattern and also that we know some specific revenue that would tend to make that the case this year.

Finally, just say that we believe we have the opportunities to significantly accelerate our growth in the coming quarters and particularly in the coming years. Our growth as you know, over the past several years, has been driven by two key initiatives. First, growth in the size and productivity of our sales forces and in our – both our direct offices and in our licensee offices and second, the growth in our practices, both those we called field support for the revenues reflected in the field numbers and the national account practices. Whose revenues are identified separately.

As you can see on slide 7, the combination of these initiatives has resulted in significant growth over the last five to six years as you see from 2004 to 2010, driven by increases in the sizes and productivity of our sales and delivery forces. Revenue in our direct offices grew by 28% and that's even after the effects of the recession.

EBITDA also grew 67% and as you can see in slide 8, during the same year, loyalty revenue from our international licensee partners more than doubled from $4.3 million to $9.2 million, and during the same year as our national account practice revenue almost doubled from $9.8 million to $19.5 million. So, we continue to be excited about these initiatives and believe in them, and we’re excited to share with you that we now believe we’re in a position in the coming years to significantly accelerate the growth of these two initiatives. Just headlines on that, with respect to increasing the size and productivity of our own direct and delivery forces, we used to think in terms of having to potentially increase the size of our direct office sales force from approximately 100 to approximately 220 client partners, adding approximately 10 client partners net per year and having new sales people cover their costs in a year or two of their – after their hire and ramping up to more than $1 million in revenues in four to five years.

Based on our experience and analysis, we now believe we have the potential to ultimately have more than 500 client partners in our direct offices versus approximately 100 at present. We believe we have the potential to own. We have more than a 1,000 client partners in our licensee offices versus approximately 200 at present. We believe with all that we've done we can now accelerate our hiring of new client partners from 10 per year to 20 next year then approximately 30, then 40 and maybe getting as much as 50 a year over the next several years. We believe that a new sales person can fully recover his costs in the first year rather than over two years. And the ramp up to the $1 million plus level can occur in three to four years rather than four to five years. Obviously, achieving this potential will require great execution on our part, but that was important to announce those shifts in our goals with respect to growing the size and capabilities of our sales force.

With respect to our growing our practices, we now believe that our six largest practice areas; execution, education, speed of trust, sales performance and then our two newest practices, leadership and productivity which already have a substantial base but did not had a practice leader in the past, each have the potential in the coming years to grow significantly and ultimately become $50 million plus practices, even at relatively low levels of penetration of the defined markets. As an example, there are 124000 (K through 6) schools in U.S. and Canada. The average school in our Leader In Me program spends approximately $60,000 with just over a period of three to four years. So, for every 1% penetration that we can get of the elementary school market in North America, that’s over $70 million of revenue.

Now we're at 400 – we've crossed over the 400 school mark now, we've got a long way to go to penetrate the market, but we have confidence in our ability to do that. As you may recall, at one point we owned Premier School Agendas, where we build a 120 sales force just in education. We sold that business in 2001, but we have an idea of what’s possible in terms of building the sales forces.

So, in summary, we are very encouraged by the results of the quarter, the momentum we're seeing in the business and the potential to accelerate our growth in future quarters and years. I look forward to reporting on our continued progress as we go through the year.

So, I now like to turn the time over to Steve Young, as you know our CFO to discuss our financial results in more detail. Steve?

Stephen D. Young - CFO: Thank you, Bob. I hope that you all enjoyed Bob's report as much as I did. It's nice to have good numbers to talk about. I am also pleased with the first quarter operating result.

When you review our balance sheet you'll notice a few things. You'll see that the accounts receivable balance was $5.3 million higher than at year end and incidentally $11.4 million higher than last November. This increase is due to increased sales and unusually high balances from just a few large customers which have now been reasonably collected.

You'll also see that accrued liabilities decreased significantly in the quarter nearly $4 million. As a result or an impact on cash of increased receivables and decreased accrued liabilities, our line of credit was still $11.3 million at quarter end with $1.7 million in cash.

So, we are very pleased that today Bob could announce that our cash balance exceeds our credit balance. So as you can see we have collected a significant amount of cash in the past six weeks. November and December seem always to be our highest collections months by quite a bit.

If you look at the slide titled, Selected Cash Information you'll see a summary of cash generated by these operations. You'll see that net cash generated in Q1 was $3.4 million even after we paid $300,000 for capital additions and $1 million for curriculum development. I should say $1 million for very exciting and important curriculum development.

At the end of Q1 we still have $31 million of domestic net operating loss carry forward and additional unused foreign tax credits. The amount we pay for domestic income taxes will therefore be significantly less than statutory rates for some time.

Our tax provision is however an unusually high rate at 71%. This high tax provision makes it look like we have a bad tax situation in the company and it does hurt our calculation of earnings per share but we really have a favorable tax situation with such a large net operating loss carry forward and unused foreign tax credits.

For some time we will continue to have a high effective tax rate on our income statement but happily we will also continue to pay a relatively small amount of cash that actually goes out for taxes.

If you are new to Franklin Covey and have interest, then please call me and I would love to talk more about this tax provision and also our financing obligation which is really capitalized rent and 3.4 million outstanding shares that are held in escrow related to our management loan program.

So in summary, we are pleased with our first quarter result. We are pleased with our current momentum. We expect to invest in growth and to grow in the future. As we grow, we expect to generate income increased cash from operations. We expect our balance sheet to remain strong. We expect our liquidity position to be strong and again, we're just pleased with a good quarter and if you have any balance sheet or other questions, please call. Thanks, Bob.

Robert A. Whitman - Chairman and CEO: Thank you, Steve. Before we go to question and answers, I would just like to invite Shawn Moon, who runs all of our -- oversees all of our direct offices and our field, all of our field support practices as well as some of our national account practices, just to share a couple of views on what’s going out on in the field. Also ask Jen Colosimo who is our Chief Operations officer also leads our leadership practice, so just giving very quick updates and then we'll go to questions and answers.

Shawn Moon - EVP, Global Solutions and Partnerships, Education Practice Leader: Thank you, Bob good to be with you all good afternoon. As Bob mentioned in his discussion earlier, our direct offices achieved significant revenue growth in the first quarter, revenues from our 8 direct offices were $28.1 million which was $8 million or 40% higher than the prior year with our domestic offices growing at 51% and international offices growing at 16%.

As Bob, noted the large part of this growth was the result of the government services contract however it's not limited to that our growth was broad-based as six of our eight locations grew over the prior year with over 50% growth in our southeast and government regions. Furthermore our product growth was broad-based it wasn’t just in one area, each of the major product lines which includes our individual effectiveness lines, productivity, leadership, execution and trust all grew over the prior year.

Our domestic growth was primarily result of 23% increase in the number of days delivered, not including the days in connection with the government services contract. So these are in addition to, these days were largely results of the strong bookings we had in the third and fourth quarters of the prior fiscal year and we’re also pleased to report that our strong booking paces continued through the first quarter of our current fiscal year. Revenues have also increased as we’ve realized more revenue per day delivered than in the prior year.

The favorable delivered pay trends were particularly offset, or partially offset by a decrease in product sales to lead client facilitators. The Company’s client base continues to be strong. This is an indicator we watch closely. The Company had double digit increase in its client’s base and we define a client as an entity that purchases more than $30,000 worth of products or services in the preceding 12 months and that increase maintains over 60% of our business being generated from repeat customers, which indicates a loyal customer base. We are also seeing an increase in the average revenue generated from each client.

Furthermore as we discussed in previous webcast, we sold our Japanese consumer products business during the fourth quarter of FY 2009 actually we put full attention on growing Japan's training business which had been unfavorably impacted by their difficult economic conditions and we are pleased to report that we have had 30% growth in Japan our Japanese operations during the quarter and expect to see double-digit growth in the second quarter.

Just a final note. Bob mentioned that we had in September our once every three year sales and delivery conference. This is an opportunity where we are bringing all of our clients, sales partners, consultants, operational personnel and licensees. This is an opportunity for us to present to them our growth strategies and make sure that everyone is on the same page and it was a terrific event and we feel like everyone left that marching on into the same beat and the results that we are seeing now are evidence of that in fact happening. So that's the report from the direct office and the practices.

Robert A. Whitman - Chairman and CEO: Thanks so much Shawn. Jen.

Jennifer Colosimo - EVP, COO and Chief Learning Officer: Yes of course you say Jen, the minute the pilot speaks, right? It’s been silent until then. Hello everyone, as many of you know I wear a variety of hats. I have two practices reporting into me, the national winning customer loyalty practice and the field based leadership practice. I also have our operations from order to cash and quality and our internal on boarding and learning function, and I just have three things to share, number one, as Bob mentioned, our winning customer loyalty practice grew 10%. We're excited about that, that's the result of expanding our customer base and retaining our biggest customers. So, we're thrilled about that growth. The leadership practice has been integral into our field both international and domestic growing and an exciting thing happening with the leadership practice. We have a keynote session coming at the training 2011 conference on effectiveness, engagement and execution were really being recognized as a leader in leadership recently within Training Magazine Newsletter that we're seeing growth on both the winning customer loyalty and the leadership fronts.

From an operational internal standpoint, we have for years collected quality data from our participants of all of our training and consulting and that continues to be high. We continue to get excellent participant experience and we have started to delve into getting very scientific buyer experience. Of course, we had qualitative; we had their experiences they share with us and now we're going with the same organization we work with our customer loyalty practice to go out and find from our buyers the results.

So, beyond experience getting more results focused, more scientifically and quantitatively over time. We're excited about that happening and that we'll be able to even better meet the needs of our clients, ramp up those client partners that Bob mentioned and be better at hitting their exact circumstances.

Robert A. Whitman - Chairman and CEO: We'll now prepare to go to question and answer, and just before we do one of the questions, of course, has been on the table – been on your mind and in our mind has been when we get to the point where we have excess cash and liquidity, what are we going to do with that liquidity, and that's been a topic of discussion over the month at our most recent board meeting. It will be something, the discussions will continue on.

As you probably know, there are couple of things that we're trying to take into account in deciding what that answer is. One is just the fact that the seasonality of our actual cash flow. Even the business isn't that seasonal. It seems like our cash flow is somewhat seasonal because of our big third and fourth quarters and our big first quarter, you'd end up using a lot of working capital defend the increases in sales during those quarters that you don't really collect until later. So, if you look at something like that might be in the order of $14 million of free cash flow this year, we really have used $12 million of that to pay down our credit facility recently, and so for us while this year is an important one it will likely be later in this year maybe even at the end of this year to early next year when we have substantial excess liquidity.

The second is that with the expectation that now we'll be able to accelerate our growth, while we don't think we'll have to fund losses to do that. As we said, we think we'd be able to get sales people ramped up in the year. Nevertheless, the working capital needs associated with that – with the success of the speed of trust practice, we have buyout obligations, earnout obligations there. We're going to continue to address this at this meeting and finalize and answer it as strategy that fits with our revised growth plan in our spring strategy retreat and this will occur in May. But I'm sure there'll be some additional question on that, but I want to at least make you aware that this is the topic on our minds as well as on yours. We think it's obviously a critically important one. Historically, we've had a (indiscernible) to return all excess cash that we could to the shareholders even in the form of buyouts, pay off the senior debt or buying back stock. We’re considering the prospect of the dividend as well in the future, but we want to make sure – I think the exciting and perhaps change in the perspective over the last while I was been that – we actually had more opportunities for investment in the business than we might have thought and we want to make sure they are planned appropriately, addresses those various needs as well as the seasonality of the cash flow.

At this point, I’ll now turn the time over to you all for questions and let our moderator tell us how we do this.

Transcript Call Date 01/05/2011

Operator: Joe Janssen, Barrington Research.

Joseph D. Janssen - Barrington Research: I just need a bit of clarification here. In the press release you mentioned direct office was up 45%, and you mentioned largely owning to several large contracts and then Shawn had mentioned something of 50%, excluding certain things here. I’m trying to get what excluding those several large contracts what on a year-over-year basis, what direct offices did?

Robert A. Whitman - Chairman and CEO: Yeah, in my comments and sorry if we confuse you. Let’s take the government service group out separately and say did it grew by five points, it grew revenues $5.7 million during the quarter and that’s like 280% growth. If you exclude that not all of that was due to the contract, because it has other, it has number of broad-based contracts, if you take those out the regional offices grew revenues 7%, the geographic office grew revenues 7% in the quarter and that’s reflecting the three of the four regional U.S. offices grew by 13% on average and one declined during the quarter. It’s one of our largest most profitable offices and it will grow for the year. It just had a year-over-year contract that was smaller in this first quarter, keep going with the question if I have not answered.

Joseph D. Janssen - Barrington Research: No, that growth rate in this quarter and Q4 has really started to accelerate. As this government contract works its way through, are we looking to slow down here, a deceleration?

Robert A. Whitman - Chairman and CEO: Well, first of all we've had government contracts for many, many years in this Company and they may be different branches of the government, but we did a lot of work in the Department of Defense and the agencies and so forth. This is a business for us that we expect to be ongoing. We hope that we'll win contracts that will replace this. We expect this contract will have a reasonably long tail on it and other work will come from it. We have a very precise strategy about going after other large contracts like this. So, we hope this to be part of the business, but even if it were to tail down. I think the news has been that over the last quarter's independent of the government -- these particular contracts, we've had other substantial contracts we've signed in the execution business and in our schools and other things all of our practices and booked days unrelated to this contract were up 21% during the first quarter. So, I think bookings are consistent even though independent of the government contract are pretty consistent with the revenue growth that we think we can, at least there is another options that we can keep bookings up 21% ultimately we'll have good at least, we think double-digit growth in the direct offices.

Joseph D. Janssen - Barrington Research: That kind of leads to me to my next question with reporting Q1 and seeing December's bookings are you more confident that your EBITDA guidance could be at the high end of the range?

Robert A. Whitman - Chairman and CEO: I think, we are just confirming the range. I think – it's while the world is following -- we are doing strategic business. The timing of which could change. You got this government funding issue there. So, we are reaffirming the 18 to 21 range. I think the first quarter is in line with what we would have hoped it would be. We thought it would be good. We reported at the end of the fourth quarter that we had $11.5 million more revenue to be delivered in future quarters then we've had at the time that time last year and so the fact little over half of that was came through – a little more than half of that difference came through in the first quarter. It's pretty much what we would have expected. So, we're sticking with our range and feel and as you saw I reaffirm that range but we didn't slip off our pace in the first quarter which is good.

Operator: (Julian Allen, Spitfire Capital).

Julian Allen - Spitfire Capital: You mentioned an increase and an acceleration in some of your longer term growth targets specifically client partners, perhaps the long term target being 500 instead of 200 with faster ramp. Could you give us context to that increase in target? Is it cyclical? Is it product based? Is it client based but any context to that increase would be appreciated.

Robert A. Whitman - Chairman and CEO: The foundation for this, we've been talking about in webcast since several quarters which has been that we've tried to go from what I'd call a net approach where we have client partners who are representing all of our solutions to all customers to one where they are focused on is narrower set of solutions, focused on a narrower and more targeted group of clients. That's happened in all of our practice areas in the past years and even through the recession. We've seen the growth of those practices could be significant, not only double digit but high double digit growth where we've actually picked a specific problem or job to be done and targeted a specific sales force against it. So the constraints that at the 200 level, there were four constraints that we were moving. One is the idea that a client partner owns the geography forever and that when you take an example, just a state like Ohio, there are – we have wonderful client partner there, who is one of our top client partners and will always be one of our top client partners but there are 3,780 companies or company units with more than 500 employees and another 5000 have more than 100 employees. We have some very good strategic business there, but our business there is done with 70 of those clients. So, I think, as we have analyzed this and understand the prospects for the client partner like that one can do in terms of penetrating existing clients to recognize the number of new clients it will likely attract every year, even as good as it is you just see the opportunity. As we have seen with the separate educational effort or that client partner might be even have other client partners working with him that can penetrate this market. So, one element and it is just the recognition now, understanding where our target markets are and recognizing that there is a significant potential as you target specific client they are kind of non-geography based as you can do that's one thing. Second is that we assume – as we’ve narrowed the scope of these offerings that our client partners represent and narrowed the range of clients to whom they are presenting they have a more repetitions and more experience going after specific target client with the specific solution. We’ve learned their conversion rates are much higher, their ramp rate is higher. One of the constraints to growing faster has been you are trying to grow earnings every year and growing cash flow and even though we had a fast pay back of investments in new client partners, it assume having $1 million investment or so to hiring new client partners has been some kind of a constraints if we could remove that – and ramp in the year would accelerate. The third and perhaps the most important constraint has been mentorship. You have to get client partners ramped up and to hire new client partner one of our constraints which we talked about when this question have been raised in the past. There is constraint of having enough mentors and that we were trying to develop mentors and mentorship model. Again these practices are reporting us very significant boost to our mentorship capability as we now have in certain practices regional practice leaders who are there – while you have a general manager and area directors and so forth which we'll continue to have. You find the new client partner in the central region out of Chicago assigned to work primarily on the execution practice with multi unit operators. In the past, I had to (count on) getting in mind share of my senior client partner. Now I've got a practice leader who is (writing short gun) with me. As we've done that for the last few years, we've seen the conversion rates increase successive penetration. So, it’s really the combination of those factors that we've already been doing. The natural result of that is that with – there are 115,000 companies or organizational units in the country that have at least 500 employees. There are another 130,000 that have more than a 100 all of those can fit in our target. About 4,000 of those are currently clients. Given the substantial amount of business we do with existing clients each year and there the penetration of that, we're just not going to get to those others very fast without answering this up and we now think we understand how to do that. Not saying there won't be execution issues related to it obviously anytime you make a big jump, like that. No matter how much you're prepared, it will take us we're not going to go from 10 to 50 year in one jump, but we expect to move to as 15 this year, 20 next year, 30 the following year. Hope at that point we'll see it very clearly as we go higher, but that’s the kind of ramp that we think we can get to and the same thing works in our international licensee partners. We have a couple of hundred client partners today and their major growth initiative will be the same and be driven by the same factors. Our practices will have that reach internationally as well. So hopefully that's – is that helpful at all Julian.

Julian Allen - Spitfire Capital: Just my only follow-up is it sounds as if that the growth bias is towards practices versus call it the traditional type training business, is that a fair assumption?

Robert A. Whitman - Chairman and CEO: I'd just may be make one distinction is what we are really saying there is a lot of business we do that will be in the traditional training business, for example, we have formed a new leadership practice and we've formed – we are forming we are in kind of in the middle of forming a new productivity practice which is in our regional, our historical core offerings. So, we have good start and look at those areas. What we are really doing though is narrowing the circumstances and problems that we are trying to address with those so that we can get specific things, for example, in one of our practices one of the major circumstances that we've gotten hired to address is when there has been a major organizational change either because there has been a change in the top leader at the divisional level or up or there has been a merger or business combination or restructuring. These leaders were in the circumstance and needing to establish a new foundation for what they are doing. We now can identify a thousand leadership changes a month in our direct offices and target those clients. So I think what's happening is these practices are the way in which we go to market. Our historical content is often part of the solutions that are offered but it's just a different way of going to market.

Operator: (Kevin Henehan, KMH Capital Advisors).

Kevin Henehan - KMH Capital Advisors: I just had a question which I probably asked in the past and I heard you say the word dividend near the end of your comments before the questions started. So I wonder if you can just juxtapose for us, share buyback which you've done in the past and I had a share buybacks in the big Dutch auction just before Lehman Brothers went down. Juxtapose the share buyback versus the dividend or approximately both with your excess free cash flow. That you expect to have going forward?

Robert A. Whitman - Chairman and CEO: Yes, I suppose there is a strong argument that the buyback creates more long term value for shareholders to stay in for the long term. There is a lot of research that might suggest that. At the same time in the world where liquidity is important where certain funds can't participate unless there is a dividend. There is at least some broadening of the shareholder base. There is some push on that side so I don’t know whether we'll come out on the balance. My background would orient me more toward buybacks than dividend but at the same time I think and you're recognizing where the world is and so as we think about it, things they discussed or prospect of having some meaningful but minimal level of dividend that wouldn’t preclude buybacks at such times as we have liquidity level we think is appropriate for our growth plans. So I don't know if that was helpful to obviously kind of state the obvious but…

Kevin Henehan - KMH Capital Advisors: No, that's helpful. I've asked the question to other companies recently especially because the dividend tax cuts got extended but then as things goes usually and so while the buy back is more efficient in terms of taxation because there is no tax or if the dividend is going to get taxed at 15% but that is helpful. I really appreciate it.

Operator: Ladies and gentlemen, I show no further questions at this time. I’d like to turn the call back over to Mr. Whitman for any closing remarks. Please proceed.

Robert A. Whitman - Chairman and CEO: So again, we just thank each of you for being – for making the time to be on the call today. Thank you for your continued interest and support for the Company. I think I have said enough about the business, but we do feel optimistic about what’s going on and feel like we’ve build the foundation and most of these things that we've been investing in are now trees that we’ve been planting are now out of the ground and growing. We think we can -- we’ll probably spend most of our time trying to help the trees we’ve already planted to grow (indiscernible) amount I am investing in new planting in trees probably to new people and new client partners. So look forward to talking to you again in a few months and individually in between now and then. Thanks very much.

Operator: Ladies and gentlemen, thank you for your participation in today’s conference. That does conclude the presentation. You may disconnect. Have a wonderful day.