Franklin Covey Co. (FC) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Franklin Covey Earnings Conference Call. My name is Larry and I will be your operator for today. (Operator instructions) I would now like to turn the conference over to your host for today, Mr. Derek Hatch, Corporate Controller. Please proceed.

Good afternoon, everyone, and happy New Year. On behalf of Franklin, I would like to welcome you to our first quarter conference call for fiscal 2012. Before we begin today's presentation, we’d like to simply remind you that our presentation today contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon management’s current expectation and are subject to various risks and uncertainties including but not limited to the ability of the company to stabilize and grow revenues; the ability of the company to hire productive sales professionals; general economic conditions; competition in the company’s targeted marketplace; market acceptance of new products or services and marketing strategies; changes in the company’s market share; changes in the size of the overall market for the company’s products; changes in the training and spending policies of the company’s clients; and other factors identified and discussed in our most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission. Many of these conditions are beyond our control or influence, any one of which may cause future results to differ materially from the company’s current expectations, and there can be no assurance that the company’s actual future performance will meet management’s expectations. These forward-looking statements are based on management’s current expectations, and we undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of today’s presentation. With that, I would like to turn the presentation over to Mr. Bob Whitman, our Chief Executive Officer and Chairman of the Board.

Good afternoon, everyone. We’re delighted to have you with us. We’re delighted to report we had a very strong first quarter. Hopefully you’ve seen the press release on that. It turned out to be the strongest first quarter ever for our current business and one that also somewhat exceeded our expectations. We continue to feel very good about the business, about our backlog, pipeline, momentum and our outlook for the second quarter of the year and the expected trajectory of our business over the next several years. Today, I’m going to keep my remarks relatively brief to allow time, plenty of time for questions. So I’d like to touch on three topics: first, some key headlines regarding the financial performance of the business during the first quarter, second, our outlook for the year in what we see as a very positive trajectory for the business in our growth and earnings potential over the next several years; and then finally, the potential for further accelerating our growth with a specific focus on one particular growth opportunity. So, first on first quarter headlines. First of those is that our revenue was very strong during the quarter. Our revenue during the first quarter increased to $39.5 million, with a $4 million or 12% increase in revenue from other areas of the business, more than offsetting the planned $3.9 million year-over-year decline in revenue related to the large Government Services contract, which as you know last year this time was in its initiation phase, or during the first quarter it was. We’re pleased that our total revenue somewhat exceeded our expectations and made the first quarter the best first quarter ever for our current business. Our results even slightly exceeded the very strong first quarter reports of last year, which was driven by the…

Thank you, Bob. Hello everyone. Happy New Year; to Derek, Happy New Year. I’m also pleased with our first quarter result and look forward to exciting things in the future. Bob gave a wonderful summary of our earnings, so I’ll just mention really three quick points related to our balance sheet, our taxes, and our share count. First, our balance sheet. Our balance sheet remains strong. I don’t think that when you review our balance sheet you’ll see any unexpected amount or unexpected changes in those balance sheet accounts. We know that in our first quarter of each year our accrued liabilities will decrease significantly due to our payment of fourth quarter and annual revenue and earnings based compensation. So that cash is always used in Q1. So you’ll see that and that’s normal and I think you’ll see that everything related to our balance sheet is clean and our balance sheet remains strong. Second, our taxes. Our income statements reflect a significant decrease and effective tax rate that Bob spoke of. For several years, we were unable to record the benefit of foreign tax credit. In some quarters, our tax expense actually exceeded our pre-tax income. Now fortunately we are able to reflect the benefit of current foreign tax credits. So the current tax rate of about 46% is more typical of the effective tax rate that we will see for the remainder of this year and in the near future. Please also as you think of taxes remember that we do still have net operating loss carry forwards and unused foreign tax credits that will give us about 12 million plus dollars of tax relief in the future related to cash for taxes. And third, our share count, again as you look at our income statement you'll see…

Thanks, Steve. We would now like to open it for questions and I guess turn it back to the operator to tell us how we do this.

(Operator Instructions) And our first question comes from the line of Joe Janssen of Barrington Research. Please proceed. Joseph D. Janssen – Barrington Research: Gentlemen, congratulations on a good quarter.

Thank you. Joseph D. Janssen – Barrington Research: My first question maybe is for Bob. I’m trying to get a sense of the quality of your pipeline in terms of like the visibility. Can you provide and you’ve talked about this in the past, you’ve given some color on the conversations with clients within the pipe, in your prepared remarks you mentioned that they are committed to help growing the business, but can you maybe take it a step further and dive a little deeper?

In terms of our pipeline you’re saying? Joseph D. Janssen – Barrington Research: Quality of the pipe. Like you’ve put out like, what you’re seeing in RFPs, in terms of taking sales cost, you’ve kind of given some metrics in the past and I just kind of want to get a feel of where that’s trending?

Yeah, great. And in fact Shawn Moon who leads all of our direct sales force, maybe I’ll just have Shawn make some comments and I’ll follow up with those, Joe, if that’s okay? Joseph D. Janssen – Barrington Research: Yeah, that’s great.

Hi, Joe, good to talk with you. We feel encouraged by the strength of our pipeline and the visibility in the pipeline we think is better than it has been in the past and the utilization of tracking tools is better than it’s been in the past. One of the things that is encouraging to us is the nature of large deals. They are bigger and more prevalent than they’ve been in the past. So that allows us to be a little bit more predictive. As an example, the large government contract that Bob referenced, that’s a three-year contract and very predictable, well mostly predictable quarter-by-quarter. So that gives much more visibility into how we’re able to track that and predict. Joseph D. Janssen – Barrington Research: What was the average revenue per client in the quarter? I think last year, it was up 12%, you said larger content, you quantify them as 100,000 plus that was also growing, are we still seeing the same trend?

We are. We are actually, Joe, if you’re in our conference and heard it too, we’ve got a list of about 30 large accounts who are on the books that we’re working so. And so last year excluding the government contract which would have skewed the data, we had just over 12% growth in revenue per client and that has continued in the first quarter. So we’ve had, again, when you exclude, as we said earlier we have little over 12% growth in revenue from our geographic offices during the first quarter and the only place that declined was this government contract which we knew. And so most of that, some of that of course is new clients which we, but most of the new clients are being driven, a lot of the new clients in the first quarter were driven by the new type choices launched and so not a lot of those converted to a lot of revenue in the first quarter. So primarily I would say that the exact number we could provide, but it’s roughly in the range of 11% to 12% revenue growth per client also during the first quarter. Just stepping back, because you’re asking kind of the visibility question, let me just say there are four stages in that question. We have actual bookings, which is this pipeline of booked days and ordered revenue and we’ve given that. The pipeline of potential step is currently being discussed with clients. We know how big that is and we have percentages applied to different categories of these in A, B, C, D percentage that gives us a weighted average pipeline there, this step is currently being discussed and ultimately would go into the pipeline we mentioned that that’s also much larger than it was at this time last year. The third element is our marketing event pipeline. A lot of what we do nothing sells for us like an experience with our content; we have these two hour marketing overviews where the right targeted buyers are invited. We’ve got more than double the number of those scheduled this year. One, because we’ve proven that really work, that the number of those, that will drive new opportunities into the potential business which eventually will translate. And then we’ve also got something just a number of face to face calls on clients that we track. And so when you look at whole will thing, the visibility from what’s already been booked is two to three quarters out. Joseph D. Janssen – Barrington Research: Right.

Maybe, one to three quarters. What’s in the pipeline is two to four quarters. The marketing event drives that from two to four or five quarters and the face to face meetings get started and those will move to more than a year. And so increasingly as Shawn said, we feel like we have some visibility where we can think of a three-year plan and say, we have good visibility for a quarter or two and good visibility about the lead metrics out beyond that so that we can really be thinking, as we (inaudible) out here we think that, hey this month might be looking a little softer, this one looks really great, and what can we do about it, you’re out, and that’s helping us in our predictability. Does that respond to your question? Joseph D. Janssen – Barrington Research Group, Inc.: No, it does, it’s very helpful. I appreciate that.

Thanks, Joe. Joseph D. Janssen – Barrington Research Group, Inc.: I’ll jump back in queue.

Okay, thanks.

Our next question comes from the line of John Lewis of Osmium. Please proceed. John H. Lewis – Osmium Partners, LLC: Hi, guys.

Hi, John. John H. Lewis – Osmium Partners, LLC: I have a question for Steve. What percent of EBITDA should equate to free cash flow in just in a steady state environment, not obviously, you had some growth, but I’m just trying to get a feel for that?

Okay, so in the slides, there is a package that I didn’t really refer to, but it’s slide number, page is number nine, which shows for the quarter and for the year, our net cash generated, which is our view of free cash flow. So if you, John it’s probably easier to talk about on a year basis. So if you look at the four trailing quarters, we’re at $13.1 million to $13.2 million of net cash generated on between 21 and 22 adjusted EBITDA. So that’s kind of the relationship that you would see going forward. John H. Lewis – Osmium Partners, LLC: I understand that. I guess my question is in a steady state environment, because I guess my understanding is business model that was going to become less capital intensive and you picked up the government contract, so that capital intensity has gone up. I’m just trying to connect the dots to what a steady state EBITDA of the free cash flow ratio should look like if my understanding is the ratio has declined keeping this government contract in the revenue growth being taken up with the working capital?

Well, the free cash flow as a percentage of adjusted, as a percentage of adjusted EBITDA will change, the percentage would change consistently as they both increase. I think it's the gap between the two that will remain consistent. So as an example, just say that right now were relationship is for example $21 million of adjusted EBITDA to $13 million. If the $21 million goes up by $5 million to $26 million, then we'd expect the free cash flow to go up $5 million from $13 million to $18 million. That percentage will be less, but it's like all of the increase in adjusted EBITDA is flowing through to free cash flow. Does that… John H. Lewis – Osmium Partners, LLC: Hey, that's helpful. We can talk more offline about that, so I appreciate your insights there. I guess my next question was in light of the success factors in Element K transactions in the fourth quarter, clearly there is a ton of demand out there from customers given their growth rates and the multiples that strategic buyers paid for these businesses, I’m just curious what is your strategic focus, you guys talked a little bit about it, but really to meaningfully drive this distribution channel with live [quick's] insights and another offerings and I’m just curious on what’s going on in that front?

Maybe I’ll just respond to that John. Probably, a little different than some of the companies, I’m not saying whether it's better or worse, but it is different is that there are some companies who would pick the modality through which they're going to deliver their content, there's going to be a technology-based delivery mechanism where they are going to be a subscription service. And then what they do is the best they can to deliver the results or whatever having shows in the modality. We have had a different view, which is more a continuum of delivery that would say that we want to be sure that those peoples who those customers who have picked the, if they want to pick modality, we want to make sure we can deliver in the modality. But more often than not for us, we’re looking at a continued delivery that meets that who are, companies are engaging us to try to get some kind of a transformational result. And so for them, the result is the question, and they want to make sure that we can address that at a wide range of, in a wide range of ways. And so what we’ve done is to draw this continuum has on one end, self-serve where they can buy this technology, and self-paced, the person can take it and that is great for many of their front-line employees. There may be middle level employees who are, because they are leaders, middle line leaders who will go through and want to have some onsite delivery with blended delivery to make as much impact as they can, but just feeling across lots of leaders. And then at the top, they may want to have a very hands-on help, I mean which would be a fully,…

So I think we are continuing the investment every year in the technology side, we got a big focus on integrating everything, that we can, anything we can be delivered technologically; we want to make sure it's available. But rather than telling trying to sell the customer on modality, we want to sell them on the results and tell them that we have it available through any modality, does that help at all? John H. Lewis – Osmium Partners, LLC: Yes, it's very helpful. And then I completely understand that. I guess my, so basically what you're saying is clearly there's a lot of customer demand for the modality to be delivered some kind of online component if it’s a webinar clearly $7 million to $40 million. So there is the consumer demand. I guess my next question is given the enormous growth rates and the interest out there just industry-wide do you have the right distribution to sell in with client partners or do you need more people in inside sales force, or how do you continue to grow the modalities that customers are interested in given the economics presumably are significantly better than consultant?

Yeah, and hey, it will take John just, we really do know consulting, just, we actually do not, about five years ago, we did have an organizational consulting group, we had about 20 people that we disbanded and sold off, so we actually do not… John H. Lewis – Osmium Partners, LLC: Well, I was just…

Just to work with that, so perhaps it’s just a question on the continuum, do you want a premium service like I can get at Gartner. Gartner, they’re reporting every quarter on, and I’m very proud of the fact that any addition to the no hands on and self served model that they also have an increasing amount of businesses in the, there is a premium service that includes some, where they have a human being that’s involved, that’s how we see this. So I just see this. Again in terms of the lines you’re looking to, we don’t visit many customers who are saying, I have the demand for online learning, what can you do for me, there are some. More, they have an execution problem and they want to know how you can make this available for them across the range of their whole things. And so, for that question, our practice-led, the way we sale this is through adding sales people front-end, you mentioned some great point, which is increasingly we’ll have front-end marketing people on the phones and e-mail programs and so forth that are driving them to then that drives me to this pipeline. But for us, if when we get people committed to solving a problem and then have the modalities available, so that whatever they want to do we can deliver at a cost, at a quality and cost that it is competitive with anybody who is primarily modality focused, that’s really our strategy and there is no lack of opportunity there. I mean, I think there are people like Element K, who’ve gone to sell, who are great companies, we love them and are selling them modality into the education space, but I wouldn’t, I don’t think, I don’t know that I’d trade their value proposition for ours in that space. I think it’s a wonderful offering but when you are going into transform a school, it has allowed us to get to a more than we just crossed over our 700 school Shawn.

Yes.

And so I don’t know if that’s helpful. John H. Lewis – Osmium Partners, LLC: That’s helpful I mean it’s fair, and then I appreciate the color and I’ll leave at that we can talk more offline, but I’ll leave it as…

But the really [in cycle] question though John would be delighted to… John H. Lewis – Osmium Partners, LLC: No, no, no, I appreciate it. I guess just the point and value differences Element K got 47 times EBITDA two times sales just because they have the online learning component and I’m clear there is a lot of interest in the marketplace given the economics…

I think we need to do a better job John that explaining, I mean this is the first day that we’ve ever said we have $40 million of revenue that’s either technology delivered or technology assisted. And your point I think, if I understand, one of your points is, hey, fine you may have the strategy, but let's make sure people understand the extent to which you have this technology-based [delivered] because it gets a lot higher valuation if people understand that you've got the scalability, than if they think you're kind of a body shop, if there is a bunch of consulting, and we really need to do a better job of explaining that. John H. Lewis – Osmium Partners, LLC: All right. I appreciate that. Thank you.

Thanks John.

Our next question comes from the line of James DeYoung of Credit Suisse. Please proceed. James DeYoung – Credit Suisse : Good afternoon, Bob and Steve.

Hi, Jamie, how are you?

Hi. James DeYoung – Credit Suisse : Doing well, thank you. I just had a couple of observations and questions. The international licensee royalty were really nicely in the quarters, I think that was up 23% year-over-year.

Yep. James DeYoung – Credit Suisse : If you kind of expand upon that a little bit, what percentage of revenue is coming from time management versus other products.

Great. And said this is Sean Covey so let me ask him to as you Sean heads up the International Licensee Effort.

Hi, this is Sean, how are you? James DeYoung – Credit Suisse : Hey, Sean how are you doing today?

Good, thank you. Yeah, so our international partners the revenue primarily is right now coming from our leadership practice, which is about 74% of it. So very little comes from time management about $5 million in total of the $75 million. So with the launch of this new productivity solution that we just spent last couple of years building we think this is a huge opportunity for us to get this going internationally. So yeah, it's a small piece and that’s one of the big opportunities we have. They licensee network is pretty young relatively speaking and so like Franklin Covey direct many years ago, we kind of started with seven habits another leadership offerings and then began to grow to other practices. They are kind of on the same trajectory, starting with seven habits other leadership solutions and so forth. And so again we think the opportunity is huge for productivity, time management and then also [other] offerings, execution and other practices. Did that help? James DeYoung – Credit Suisse : Yeah, that’s helpful. It leads to my next question, which is it’s seems like a lot of these new practices and products that you’ve developed over the last couple of years. Really aren’t there infancy in terms of being introduced internationally. So when I look at and I greatly appreciate the visibility that you shared on the call with kind of where you hope to get to I think the $40 million in EBITDA exiting 2014 gets you around $2.50 a share in EBITDA. But it’s hard for me not to think that that’s an incredibly conservative number, because I think you grew EBITDA as a company if almost 59% last year. And $24 million to $26 million this year suggests 14% to just under 24% EBITDA growth and when you layout the pipeline that you do. And then you have you talk about in turn, I actually just scratching the surface, it seems to me that $50 million truly the number for 2014. And its one thing to be conservative and don’t want to miss numbers. But it’s other thing to be so conservative that it’s hard to take you seriously. So, I’d challenge you to really get out there and put some numbers out there that are believable. And the last question I had was can you expand a little bit on the sales performance practice that had a very good quarter extremely strong last four quarters, and give a better sense of kind of—what you think, the longer range kind of opportunity is to expand that offering.

Yeah, and Shawn do you want?

We think our path forward is going to be accelerated, as we continue to grow within our domestic offices and we’ve over the last couple of years, we’ve doubled the size of the sales force and doubled the size of the delivery force, and we’re seeing that start to bear fruit and that’s exciting. But in addition to that, during the same kind of main-streaming efforts with our licensee partners that are eager to have this and [therefore] have not had access to it. So that includes a process of certification and it includes the process of ensuring that we have strict centerline and ensuring quality of delivery as we take this audits. It’s a little bit more skill based, and in some cases, a little more sophisticated and complex in some of other offerings. And so there is some work to do there to ensure that we maintain the high standards of quality that we have. But we’re excited as we look forward with sales performance and our ability to scale that with our licensees.

Yeah. Right now, we only have, this is Sean Covey. Of our 35 partners, only one of them is doing anything significant right now with our sales performance practice, so a [very big] opportunity there. The allowance is very, very big there.

Yeah. So Jamie, to your point, obviously there are harder and easier ways to grow. But one of the big, one of the easiest ways to grow is to get these centerline, these offerings expanded around the world, because each of them has a ton of potential. And so for us, in the last few years, we’ve been spending kind of getting everything counterfeit, here’s what the marketing event looks like, here’s what the product looks like, here’s what the translation is into your country, here’s the platform that allows you to easily scale this. We’ve gone through the phase of working on joint contracts together, but we’re really, as I said, we stepped across this, we really stepped across the chasm on 5 Choices launch this fall. And we’ll continue just to say, look, we’re going to be worldwide from day one on the new productivity offering; we’re going to expand execution, we’ve got eight new countries right now involved in a big execution effort. So to get them up to speed this coming year and then we’ll sell, divide into this and each year it will grow from there. And so, in addition to the organic growth, our intention is to accelerate. So, we accept your challenge. James DeYoung – Credit Suisse : I appreciate that. I’m just encouraged by all the opportunity you have in front of you. One last question if I may. So, when you talk about selling internationally to places like Brazil or India and China, is more of the opportunity today taking one of your existing large customers like Marriott or (inaudible) and converting that business internationally into additional sales or is it more Greenfield opportunity at this point?

I understand, the way you pose the question I’d say it’s more Greenfield than it is expansion but there is big opportunity in both. What we’re looking in these countries, it's interesting in my last trip to India, every evening we had events with business people. And of course you would have, you have a handful of those that are the U.S. companies end customers who came because they already know our offerings, already doing it. There were many more who came because they knew the company, they knew Franklin Covey and they are aware of our top leadership, but were interested in the topic of execution or topics of enlightenment. So we're really doing, we have a global sales initiative that focuses on these truly global accounts and involves our team from our licensees, the team from our direct offices coordinated by Shawn Moon and Shawn Covey. And they work together on a number of large global deals and those number, and the number that we're winning is going up a lot. And so there is a big opportunity for expansion on the globe, when we figure how to get that team works, and so there is, we know exactly how you handle that. But still, really to any individual country business, it probably represents less than 10% of their business. They’re going out and getting the local companies and hitting those. And so there is enormous numbers of accounts that are being addressed by the licensee network outside the U.S. so… James DeYoung – Credit Suisse: All right, thank you very much.

Yeah, but it’s also doubled in the last year and a half, our number of global sales, global deals has doubled, and again, we think that’s a big opportunity, as we get the international partners to coordinate with the direct offices there in the U.S.

And the nature of our offerings, they more strategically aren’t our solutions, they're more pervasive, they're going be across large organizations, which by nature, goes across boundary.

Yeah, then last, and just last point, and last we call Redwood council meeting, which is our Top-20 leaders, we invited, the person who made the buying decision for a large client in Europe before we had a, we now have a global deal to come over and kind of beat us up and tell us what we did well and what we didn’t do so well. Thankfully, it was mostly stuff, it was nice and did, most of the stuff that we did well, but we wanted to, we were in a push to what we need to do better, because we have a unique footprint. Our global footprint is, unlike anybody else in our industry, we can actually limit these things. And so, as Shawn said, we doubled it, there is big opportunity for growth there, but I think the big of the two, much more of our growth would be driven by penetrating local markets and it will be just expanding, but we're going to work on both. Thanks, Jamie. I know our time is about up for there are other questions, we’re happy of course to continue to extent you all.

Yes. Our next question comes from the line of Bill Gibson of Legend Merchant. Please proceed.

Hey, Bill. William Gibson – Legend Merchant Group, Inc.: Hi. You went over most of what I wanted to understand, but I do have one question, and it relates to Europe. Are you seeing any impact from the problems there?

Europe, so far no, Europe is growing healthy. We’ve had problems in particular countries that had issues. But generally so far we haven’t seen much impact. We had healthy growth in the first quarter; we had healthy growth last year. We’ve had problems in the Middle East a little bit with Egypt obviously and Libya. But so far we haven’t felt it, we’re watching carefully for what’s going to happen. But Europe is even younger than our presence in Asia and in Latin America. And so, we think there are big opportunities still in Europe and we’ve got to see an impact.

Yeah, what I think the real, probably the reason for that, Bill, is we all know the economy is not great in Europe, but we, as I, as we tell our own people, yeah, if we were GE or somebody who already has a 40% or 50% market share, then yeah, we probably ought to be affected by, the GDP of these countries will affect us. But with the competitive advantages we have and the small penetration we have, our job is to go out and take market share. If the economy grows more slower, we just need to win greater market share. And so I think the world is having an impact, but our share of it's increasing in some of these countries and we are not feeling it. William Gibson – Legend Merchant Group, Inc. : Good, thank you.

Thanks Bill. Any other questions?

Our next question comes from Joe Janssen of Barrington Research. Please proceed. Joe Janssen – Barrington Research : Yeah, just one follow-up question. With these potential 19 new partnership agreements, where, like geographically, where are you seeing these opportunities?

Yeah, well, most of them, most of the world is already licensed, most of these are in Africa. Joe Janssen – Barrington Research : Okay.

We got a new licensee down in South Africa, which is at the good side of economy, but most of it's in Africa, and Mongolia. We also see a lot of opportunity with some of our current partners that have maybe more territories than they can handle, and stripping off some pieces and giving more focus to particular countries. But they are generally smaller economies. So the bigger opportunity is just penetration with the partners we already have in their home countries and in their satellite countries.

As Shawn said, I think the other is in the, so there's 19 new licenses that are in the smaller economies, we also have this opportunity, since two-thirds of our licensee revenue comes from just 35 of the 141 countries under license, this opportunity is either feel how to grow fast there or to find a way to work out a reasonable deal with our licensee partners where we do a win-win agreement where we get some of those countries back and it helps them and helps us, there is an opportunity for growing there too. Joe Janssen – Barrington Research: For certain contracts like in terms of timing, like I mean…

I think Five-year license. Joe Janssen – Barrington Research: You have agreed a certain amount of territory for X number of years, or is that all negotiated?

Now these tend to be five-year agreements, and so we have a chance to relook at this stuff and they have, there is a motivation on their part. If they're not willing to penetrate the country, they have to pay a minimum royalty payment in that country. So it's a reasonable thing to say, you know what, you’ve been there for four or five years, can we agree on a plan so you penetrate country X, and if not, hey, you'll have to pay the minimum royalty payment for something you can’t form, so to speak, and we can get it back and get a team in place there that can grow it. And we’re aggressively pursuing doing that.

Yeah, just to give you a feel for this, most of our partners are $1 million to $5 million businesses. We’ve got a few that are a lot bigger, most are in the $1 million to $5 million range and so they’re thinking a lot of low-hanging fruit in terms of growing and penetrating a lot of these countries. And getting from $1 million to $5 million, to $10 million to $15 million businesses, the opportunity and we can do that in many, many countries across the world over the next four, five, six years.

And that's where we have driven a lot of the growth as the small start-ups becoming, there, eight or ten of them have become pretty good size businesses, $5 million to $20 million businesses, that $5 million to $15million businesses, I guess, and they are now really gaining strength. So we’ve got plenty of opportunities to either get back or help them making investments necessary to grow in some of these ancillary countries. Joe Janssen – Barrington Research: Now just for clarity, Bob, I just want to, you know, last quarter you referenced, increased visibility, or not visibility, but an acquisition strategy. Is this what you were referring to?

Yeah, I just mentioned there’d be opportunities to, I did mention in the last call that there would be some opportunities to help grow the licensee network. One, in some case you might have to, you might decide to reacquire a licensee in a country. Joe Janssen – Barrington Research: Okay, just wanted to clarify that.

In other cases, you might find ways of providing some capital to help some of these licensees who are constrained by cap, where their growth is constrained not by opportunity, but by capital to try to figure out some wins. That’s what I was referring to last time is, you know, it’s not huge amounts of capital, and we’re not trying to become more capital-intensive, the small investments, a few hundred thousand here and there could add up to a couple a million dollars that could really help accelerate growth in some of these circumstances. Joe Janssen – Barrington Research: I appreciate the color. Thank you.

Thanks, Joe.

Our next question comes from the line of George Santana of Ascendiant. Please proceed. George Santana – Ascendiant Capital Markets LLC : Hey, I’ll keep it quick considering the time. Considering the sales cycle and you’ve addressed this in a couple of different ways, but are you seeing a lengthening or a shortening of that sales cycle at all? And a follow-up question, any guidance for the current quarter? Thanks.

Okay, thanks. I’ll let Shawn.

Yeah, I’ll speak to the sales cycle. We actually are seeing an acceleration of the sales cycle as a byproduct of our go-to-market strategy. Bob talked about the event strategy. And one of the things that we know through our many years here is that, that when people have an opportunity to experience the content and not just get an intellectual understanding, but get an intellectual understanding and a visceral understanding of how this IP solves problems on the teams in the organizations and in their personal life, it does accelerate how they buy. And Bob mentioned, the dramatic increase in the number of events is part of our go-to-market efforts this year over the last year, and so we're starting to see more activity.

, : George Santana – Ascendiant Capital Markets LLC : Okay, thank you.

Thanks.

And our last question comes from the line of Julian Allen of Spitfire Capital. Please proceed.

Hi, Julian. Julian Allen – Spitfire Capital LLC : Hey, Bob, good afternoon.

How are you? Julian Allen – Spitfire Capital LLC : Just switching gears for a quick, for one quick question, could you talk a little bit about your say, dual exposures to the legacy products business? I know and this is that on the balance sheet the third-party receivable is now up to about $6.4 million. Could you give just a quick comment on a, how that business is doing and what the residual exposures are? B, they to the EDS sublease or other contracts? Thanks very much.

Yeah, I can just, I’ll give you the headline thing, we’re happy to go into any detail, but you wants to do internal. But the short answer is the residual liability has gone down dramatically over the last few years. They’re down to, the residual liability came in one of three forms, retail stores, they are now down to less than 12 stores left, and a year from now, they'll have no, essentially no stores remaining. And so that liability has gone from having 60 leases down to 12 to, that will be close to zero. We had the second, which was the EDS warehouse agreement, we worked out a new deal with them and half of that liability is now resolved and we expect the rest of it to be resolved through the leasing out of the existing warehouse. And then the final area is just office space here, which is a relatively small exposure, I mean, it’s a small amount per year. And we’ve had some good success at finding new tenants. So as a just general idea is that the liabilities shrunken down dramatically, the receivable that’s outstanding, we have allowed, they are payable to us to increase in certain time to allow them to get some of these things resolved whether they bought out of store lease and things like that. Today, I think we received a $3 million payment or so from them which will significantly reduce that, so we’d expect that liability to continue to decline. This is the time of the year when they have the most cash of course. The business generally is holding it’s own, Julian. They’ve – with restructuring and so forth it’s gone on they are basically on a basis where the – they’ll – they continue to generate around $3 million or so of positive cash flow and EBITDA. There are no real big, say, we put in that just a steady state thing that eventually just continues to distribute out. And we get a share of that cash flow, starting about six months, it will further reduce that liability. So I don’t know, Steve, if you have anything to that.

No, all right, I agree, the balance we expect to be significantly lower one or the quarter – second quarter.

Yeah. And a year from now Julian, we would expect to have essentially no balance outstanding just current – just 30-day balances between the companies who step we buy from them et cetera. So that that risk we never view it as a huge risk, but whatever it was before as much, much smaller now, we think it will be essentially joining it from now. Julian Allen – Spitfire Capital LLC : Terrific. Thank you very much.

Thanks, Julian. All right. Well, I think that’s it probably for questions unless if there are, to the operator is there any more in waiting.

There are no other questions at this time.

Well, we just express appreciation each of you for being on the call today and for your continued support and great questions. We are very happy and delighted to follow up on any questions offline here and we appreciate everything that you’re doing to help us. Thanks very much.

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may disconnect at this time. Have a great day.