Educational Development Corp (EDUC) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Educational Development Corporation Fourth Quarter 2018 Results Call.

(Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the call over to Randall White, Chief Executive Officer.

You may begin, sir.

Okay.

Thanks, Mark.

Welcome to our conference call, guys.

Here in the room with us, we have: Dan O'Keefe, our CFO; we've got Heather Cobb, our Vice President of UBAM; we've got Craig White, who's our Vice President of Information Technology; and we have a new member of our staff, Trevor, who's from -- he's our new Controller.

So got a good staff here today, and thanks so much in answering any questions you might have.

So I think I'll first turn over to Dan and let him reiterate our year-end report that we put out yesterday.

Thank you, Randall.

Just to report our earnings for the fiscal year 2018, our net revenues for the year were $111,996,100 (sic) [$111,966,100] versus 2017 of $106,628,100.

That is a 5% increase in revenue growth.

Net earnings for the year of fiscal 2018 were $5,214,700 versus fiscal 2017, which was $2,860,900, representing a growth of 81% in bottom line earnings.

Earnings per share on a diluted basis for the fiscal year 2018 was $1.27 per diluted share and versus fiscal 2017 was $0.70 per diluted share.

So we had a $0.57 increase in earnings per share over the prior year.

That concludes the earnings update for the conference call, and I'll turn the call back over to Randall White, our CEO.

Thanks, Dan.

While I thought that the year-end results were very good, we saw pretty negative reaction yesterday to our press release.

And it was pointed out later by a couple of our investors that they thought people had taken the year-end results and subtracted quarter 3 to get quarter 4. We normally don't report a quarter 4 but we probably should have because it was such a big adjustment from a year ago.

So I apologize for that.

So we want to clear that out today about what happened.

The -- in quarter 4, a year ago, you may remember that we had quite a struggle to ship orders.

And at the end of November, we had 127,000 orders prepaid that we couldn't ship.

We could ship about 8,000 a day.

So the entry was debit cash, credit deferred income.

So then $9 million of revenue that came in, in November got transferred into December into the fourth quarter.

Well, in addition to that, in cleaning up our year-end a year ago, we had several large adjustments that netted about $1.3 million onetime adjustments in the fourth quarter.

So the fourth quarter a year ago got the benefit of $9 million of revenue that didn't occur in that quarter, and $1.3 million of adjustments turned out to be positive (inaudible) positive adjustments at year-end that we did.

So you get -- if you want to compare apples to apples, if you will just look at this as a quarter-by-quarter comparison, if you want to do that, by taking the $9 million out of the quarter, we were still up 15% over the fourth quarter last year.

It would make our revenue $18 million for 2017 and $21.1 million for '14.

So if you take out the -- again, that onetime $9 million, we were up 15%.

Now if you add it back into quarter 3, I think we've got to add some place, okay.

In quarter 3, you add it back, and we were still up 11% over quarter 3. So no matter how you look at it, there is nothing negative or a downturn in any of these numbers.

The -- there's a lot of other things that happened here.

I guess I got a little euphoric about the numbers because the best year in our history wasn't even close.

We started out well over a year ago in January where the bank restricted our borrowing ability because we had so many orders.

I normally -- and they thought that was a bad trend.

I generally think -- I think $9 million of prepaid orders is not a company has a problem that you can't fix.

January at $9 million normally is a problem.

So at that time, they put on all account restrictions, eliminated the dividend.

I had to get -- personal guarantee the debt, the $9 million carryover, again, debit cash, credit deferred income, which put us out of sync with our debt-to-equity ratio.

So they raised all interest rates.

It was a very unique situation, and it cleared itself out quickly.

So today, with the new technology, we are shipping so much faster and more efficiently.

Example, a year ago, we had an error rate of about 7%.

And today, it's about 2%.

We're working on bringing that down.

Operationally, we are so much better.

We -- today, a single shift can ship 8,000 to 10,000.

A year ago, we could ship 6,000, maybe to 9,000 in 2 shifts.

So you can imagine, maybe ship maximum 9,000, 2 shifts.

Now we can ship 8,000 to 10,000 in one shift.

So we're geared up to handle increased volume.

The -- look at the balance sheet side a little bit.

In 1 year, from the bank restricting our borrowing ability, which really caused us a problem -- we got to go to our vendors and tell them that we had a slowdown on payments.

Because of our history, they all agreed.

And by July, everybody's back on schedule.

And today, in 1 year -- a little over 1 year, our cash when you consider new shares, cash, accounts payable and our line of credit, that's all grouped that into one category, and we're $12 million better than we were a year ago.

So again, you can see why I was pretty euphoric about this statement.

It's like almost that a miracle that we could come so far in 1 year.

But Dan, who was fairly new at that time, actually the first weekend that he was employed here, took the numbers home with him, came back on Monday and said, "Gosh, you really are past the problems and it's just now a time to work from." And you're right.

Our only problem was we had too much business.

We had the inventory for it and couldn't ship it.

So that's -- I hope that's a reasonable explanation of why the quarter 4 didn't look as good because it is much better.

Quarter 4 this year, when you put apples to apples, it's significantly improved over the fourth quarter last year.

Now everything is up, 81% increase in earnings; revenues, up.

The bank has relinquished all its restrictions, taking me off the -- going to take me off the personal guarantee, which I don't really mind because it's on this building, which is a $20 million building that the tenants have made a $10 million improvement since we bought it, which was -- we thank them very much for that.

So taking me off that guarantee is not a big deal to me.

But they've also released other restrictions.

They reduced our bank -- I'd tell you a little more about this.

But they released our -- I'm not going to let him.

But they have released restrictions and reduced -- on our interest rate, which was, I would say, 65 basis points, which saved us about $60,000 a year in interest go forward.

So everything that I can think of -- I can't think of one thing negative in the company.

And to see a 23% drop yesterday was pretty chilling because I just feel like people -- someone did not really read and did a fair comparison.

But you guys can decide for yourselves.

We think everything is very positive here.

And on a go-forward basis, we see nothing but positive.

We've only got a couple of months on our belt.

We know what those are, and we're happy about that.

So we think it's a very positive report.

Dan, I covered everything.

Would you mind if -- I think -- maybe one thing I missed.

No.

I think you covered it, Randall.

Wow, everything, all right.

Well, at this point, we'll see how good a job I didn't cover because I'll open it up for questions.

And for anybody who would like to ask questions about how I got these numbers or whatever, well, please feel free to join in here.

(Operator Instructions) And our first question comes from the line of from [Marcus Samurai] from [Hollywood Fitness].

Just wanted to ask real quick, 2 questions.

Has there been any offers or interest with buying out the company?

I know you guys have a very small float, low outstanding shares.

Are you guys concerned at all about somebody coming in and scooping in the float and taking over the company?

I'm not really concerned because people with the name White have 25% of the company.

So you have to have a -- there's not that much float.

When you think of the percentage that we own and then that we don't control that are in friendly hands, the fact of somebody coming in on a hostile takeover is very small.

And I can tell you right now, with the future I see ahead of us, I'm not interested in selling at $25 or $21, as the case maybe.

So no on the first question.

What's your second?

No, the second was, was there any buyout interest so far?

And of course, you wouldn't sell it where the stock is now.

You wouldn't want to sell it for 2 or 3x of where it is right now.

But I was wondering, has there been any interest?

Yes.

I get inquiries.

People fire shots over the bow every now and then and telling me, do you want to do this and that?

But we've got a pretty nice company going here.

We're very proud of it, and we think it's still undervalued.

So I'd just -- I'll listen and pretty much flatly decline until we see -- it's just been pretty casual up to here -- up to now.

And our next question comes from line of Eric Landry from BML Capital.

Could you give me any idea of what your average consultants were in just the fourth quarter?

What was your question?

What's our average consultant, the number?

Yes, just the fourth quarter.

So you gave us for the year.

And then in the Qs, you gave us for quarters 1, 2 and 3, but I don't have a fourth quarter number.

I can do the math, and the math sums about -- somewhere between 35,000 and 37,000.

I just want to confirm if that's correct.

Yes.

That's pretty close, yes.

Again, I will warn you, as I do every time, consultant headcount is a very soft number, guys.

And I don't really like to be held down to exact because we know when they start.

We don't know when they stop.

And we go back and purge the list on a 6-month basis.

If you haven't ordered anything in 6 months, we consider you inactive and don't include you in the headcount.

And by the way, that's pretty conservative because people will come back and still be a part of the company.

So we think we do a fairly conservative value on coming up at that number because -- but it is a soft number, and we think you're pretty close.

So that's about what it is.

And by the way, November and December are 2 of our largest months, which are in the third and fourth quarter.

And so you would probably have your highest -- pretty much highest headcount for people active in those 2 months but...

And we just to call -- I mean, Eric, to clarify in the press release that we issued on the 29th, we identified that at the end of the year -- at the end of February, we had 35,500 active sales consultants.

And so it's not the number that we do track and we do roll forward.

But Randall is absolutely right when he says it's a little soft because we're tracking anybody that's active that has had a sale in the last 6 months, and so there could be some inactives in that number and -- but you know when they come on.

You just don't know -- there's not like a resignation you get when they decide to stop selling.

Great.

So the year-end number that you [listed] in the press release, that is a different calculation and the average number that you give in the Qs, correct?

Yes.

So that's just the -- that was the year-end number.

So that wasn't the average for the quarter.

We do track that and I just -- that's not reported right here in any of this information.

We didn't -- it's not in the K, you're right, that I can recall, and it's not on the press release.

So -- and I don't have it in front of me.

Otherwise, we give it to you.

I just don't have the file open in front of me.

And you realize, every -- any day -- and by the way, averages, averages -- I don't think averages work too well here but just -- we'll tell you sales are going up.

Headcount is going up.

We had a nice recruiting push in February.

We got about a little under 9,000.

So that helps with the numbers.

I can tell you other statistics.

For example, we have a national convention starting next week.

And our registration is up -- how much, Heather?

800.

No, how much percent?

Oh, up?

Up, with some 14% to...

It's up about 15% to 20%.

Yes, it's up about 15% to 20% also.

So these things are pretty consistent.

We have about a 15%, 20% increase in registration.

And a good part about it is it's just under 1,700 people.

And 1,000 of them have achieved leadership status, which means these are the -- more of the top people in the company that will be here.

They'll listen to the gospel according to Randall and then go back and spread it to all their downlines from what they learned at the convention.

And we think that's a good indication, too, to have that many leaders here.

Okay.

My last one, is there anything to say about your productivity per consultant?

Because if I do the math here, it looks like it may have gone down just a little bit using the mid-30,000 number for the fourth quarter.

Maybe book per consultant, they're down a little bit.

First of all, is it accurate?

And second, what is the trend we should be watching?

Well, I wish you could project a trend, but I can tell you this.

When you do the averages, you want to throw somebody in who sold $200 in 6 months and then you've got people who earned $200,000 in a year.

So averages are -- there isn't an average.

Productivity, I gauge it by our sales going up.

It -- that's why when you talk about headcount, number of consultants out there, it doesn't really -- how many you have got how many -- what your sales are.

Are they turning sales in?

So many people buy a kit at a very economical price, which means they're getting a really nice box of books.

If they don't sell anything, a lot of them are happy.

I'm not, but they are.

But we're not losing money.

So we're good.

We make a little, tiny bit or breakeven on the kits.

And so if somebody signs up to sell and all they do is read the books and get a little bit smarter, we're happy about that, too.

So headcount and averages just are what they are.

Sales increase is what we look at.

And if we have 50,000 at the end of the year and they're less productive but sales go up $10 million, then we think that's good.

It's an unusual business in that -- it's a -- you're self-motivated.

If you want to work, okay.

I don't call them up and say, "Are you doing anything today?" They're independent contractors and they work if they want to.

And to give you an example of that, about a month ago, somebody posted on Facebook, "How's shipping?

Has it gotten any better?" Are you kidding me?

That was 14 months ago.

Where have you been?

And that's what you're talking about.

"Oh, I guess, I'll get back and get active." Well, see, she's now inactive but she's back selling again.

It's a very interesting business because if you had an order mix-up and it's your friend, you're probably not strong enough to handle it because your friend is mad at you then you're mad at me.

And most of the time, they go away.

A year later, "Oh, things are better?

Okay, I'll come back and order some." So averages -- again, key indicator, our sales going up and the fact that we have an increase in sales over the year before when we had a near disaster.

And I'm -- and guys -- some of you guys remember this.

A year ago when we couldn't ship those orders, 127,000 orders at the end of November, we could ship 8,000 a day, and they were Christmas presents.

And I got an earful many times, and the fact that we survived that and now have gotten back to we ship same day and shipping orders the next day and still have an increase in sales was kind of a modern miracle.

And we are very ecstatic about that, and we think the base is now solid to have exponential growth on a go-forward basis because the -- all of our problems have been -- not all of our problems, but the majority of our problems have been taken care of.

We -- a year ago, in the fall, we had 25,000 customer service calls, and we attribute about $40 a piece.

So a year ago, in those numbers, probably $1 million of cost of errors we made.

And this year, we had a little under 3,000 overall on increased volumes.

So very happy with the new technology.

Everything is done electronically now.

The orders are checked by bar code.

So the error rate is way down, and we're working on getting it even lower.

So again...

Yes.

And I will add on to what Randall is saying.

We do look at our active consultant count as a key indicator of how many people are out there potentially selling our products in the marketplace.

So we think that is a key indicator, but we don't look at production volume by consultant because it gets very blurred very fast, and we haven't found that to be a true key indicator.

We're also introducing new products several times a year and different combinations several times a year.

That can all influence the success rate of a consultant.

When we come out with new releases twice a year, someone might find -- or we may have one product that it's just -- takes off like wildfire because it's a really hot item that's popular in culture right then.

And so that might be a kind of a blip that influences a statistic like an average that we don't look at and consider.

Heather, do you think you want to add -- Heather Cobb is right on the firing line with all this.

Anything you might want to add in there, Heather, about that?

I think the thing that's hardest to see in an average is really the happiness and the productivity of our leadership group that Randall referenced earlier that come into a convention as well as the others that aren't able to attend.

I do think that in fiscal year 2018, we were still seeing some of the fallout from the year prior with shipping and different things like that.

But I have to say from a purely anecdotal standpoint, although we are still seeing some sales that are corroborated in those anecdotal stories, it is definitely trending upwards.

And as Randall mentioned, we are preparing for, what we believe, will be even more growth in the coming months.

We've had some growth in our upper-level leadership, and that's a real key factor because they're the one who drives the company.

And what happened is we had to develop another level this past year, our senior -- our top level is called Director.

And so you can have a direct -- you can be a director on the low end and have a small -- a fairly small group and still be -- achieve Director.

And then you can add to your large group.

And so we had such a disparity.

We created, what we call, Executive Director?

Senior Director.

Senior Director, I'm sorry.

And in about, what, 6, 7 months, we had 15 people.

We had 15 people promoted to that level.

So we're seeing growth in upper level.

And what that means, you've got the top people who make significant money.

And that word gets spread around that you can make significant income with this company selling a valuable product at a reasonable price and still make -- we had over 12 people who made over $100,000 last year working from their -- around their families.

Some of them are -- were employed full-time.

So we think we have a good program here, and it will continue to attract high-level people and we will continue to grow.

And our next question comes from the line of [Joseph Connor].

So a couple of questions.

So first, it was good to see the margins are up.

I was wondering, given the -- do you expect it to be -- do you think those are now sort of topped out?

Or are sort of the improvements you made to facilities and systems and so on, are you expecting still margins to increase going forward?

Well, 2 things.

We're just getting started on the technology.

There's more significant gains that we're seeing on a go-forward basis from the technology in the warehouse.

We're also seeing improved margins with our Kane Miller division because volume in print runs, you get better pricing.

And so we're seeing gains, improved margins from better pricing on print runs of the books as well as continued efficiencies in the warehouse.

One quick example, after all these years, we were presented a box that the majority of our products go in.

And normally, a box has flaps.

You take the bottom.

Put the books in.

Take the top.

Well, this one is snapped together.

When it does, just imagine the floor going down and fitting together in the box.

Well, that saves us about $0.10 an order.

So when you're talking about 10,000 orders, that's just a small thing and that just got started in the last -- about 1.5 months.

So we are constantly working on improved margins.

UPS is a key partner with us.

They're in every warehouse in America, and we're their top shipper in Oklahoma now.

So they're running every possible idea they can to help us.

We meet weekly with them and try to implement cost savings, which we're constantly doing.

Matter of fact, we're getting ready to start a project in June where we'll put in the mechanized pick-to-light system in our fastest moving line plus a conveyor belt.

It will take it from the back of the warehouse all the way to the truck, which will save taking products from front to the back on a hand pallet.

So it's every day, every day.

And now that we have control over our shipping, we can now really hone in on improved margins, and so we feel like that there's definitely improvement in margins upcoming.

Okay.

And then could you -- I missed at the beginning of the conversation.

The -- can you break down again the fourth -- or the adjustment for the fourth quarter revenue of last year?

Because again, I agree completely that was why the drop was there yesterday.

Could you just go through again the breakout of -- to make it apples to apples?

Okay -- maybe Dan?

So fourth quarter of last year, we reported $27.3 million of revenue but we had a deferred revenue come into that quarter.

So there was about $8.9 million of deferred revenue fall into the quarter from -- they were actually quarter 3 orders.

So when you pull off those quarter 3 orders that were recognized in quarter 4, our actual net order volume for quarter 4 was $18.3 million, and our actual order volume for quarter 4 of 2018 was $21.2 million.

And so it's about a $2.9 million...

17%.

Increase in order volume or a 15% increase in order volume if you're looking at apples and apples and saying, what orders came in during those 3 months?

And Randall said in the beginning, it was really -- we didn't really get into that in the press release because it was a last year, one-time phenomenon that we never want to repeat.

It wasn't a 2018 activity.

It was a 2017 activity that we certainly, we've worked really hard with.

As Randall said, the automation improvements out in the warehouse that Craig White, our Vice President of IT and Operations, has done.

And he's on the call here as well.

But we've made some amazing increases in our daily shipping capacity.

And so some of the things that Craig pointed out for the call -- and he's on it but he's traveling.

And so I'll go ahead and speak, Craig, unless you're there.

Are you there, Craig?

Okay.

So I'll go ahead.

Yes.

Sorry, I'm here.

Okay.

So did you want to speak to the production increases between fiscal year '17 and fiscal year '18 and then what you have planned for the summer increases?

Yes, absolutely.

I think Dan kind of outlined it briefly, or maybe it was Randall, that we were roughly 8,000 to 9,000 orders per shift and now we're -- on multiple shifts, excuse me.

And now we're at 8,000 to 10,000 on a single shift, as many as 15,000 on 2 shifts.

But we're looking at improving that with our Line 3 expansion.

And I will say we haven't been very aggressive with using part-time employees.

We've tried to keep people employed, tried to find hours for them that we could get more aggressive as well on using part-time employees and shutting different parts of the warehouse down at different times, though there is still some operational benefits we can explore.

As our volume increases, right -- so when you get to be at certain size, now you can -- as you continue to grow, you can really balance that employee population out, right.

Okay, does that answer your question?

Yes, it does.

And our next question comes from the line of [Dennis Amato].

Your clarification on the revenue was very helpful, but can you also be specific as to exactly what earnings per share were in the fourth quarter of this year?

This year compared to last year?

No, just what were they in the fourth quarter this year?

Of this year.

$0.20.

We had $0.20 a share this year.

Okay, yes.

I mean, it's never a good idea to force investors to try and back everything out.

I would encourage you in the future to always report the quarter because it just causes suspicion that -- we report quarters before, but now we're just reporting the year.

And I think it's right that, that was probably a negative for the stock when it didn't have to be.

Yes.

Yes, you're right.

I would call it a lesson learned.

We've never reported the fourth quarter but we never had the swings like this.

When Dan came in, we got accounting cleaned up.

We had some pretty significant adjustments.

And it wasn't just adjustments.

It was not able to ship.

So while that won't -- we don't think that will happen because this year, by the way, we didn't have those because we got the accounting under control.

And we didn't have the major adjustments, but I can see we -- for the first half of day, I'm thinking, what the heck?

What did I say in there that would make somebody sell their stock?

And then a couple of shareholders e-mailed me and said, "Well, it's your fourth quarter went in the tank." I went, "No, it didn't." So our bad.

We -- lesson learned.

And our next question comes from the line of Tom Fogarty from Thurles LLC.

Thanks for clearing that up on the deferred revenue.

That was unfortunate, anyway.

So just to make sure I understood correctly, you said that 3Q comparison was 11% year-over-year?

Yes.

And then 4Q is about 15%?

Yes.

And -- I mean, is that a -- is that -- are those numbers sort of the ballpark for what you're seeing so far in this quarter?

Well, we're not -- we don't do projections, Tom.

I think Randall gave some comments that we're still seeing positive results, but we don't do projections.

And I think we are -- we try not to make mistakes.

And clearly, we were omitting one on this annual release that we should have probably done some 2017 to 2018 fourth quarter analytics for the press release but...

Well, guys...

Opening up to earnings estimates and future...

Yes.

Well, that's the result of us growing because some of you guys have been around a while.

I was always happy to give you a forecast.

Well, I thought, however, 2 years ago, when I forecast like $140 million, well, we had the orders for and we couldn't ship them.

So everybody said, "Okay, you're a bad projector." Well, I really wasn't.

I was a bad operator.

But yes, we're trying to be conservative about forecast because we have a great story here, and there's nothing that I can see that is not going to continue.

So we expect people are...

Then I guess -- yes, you know what, it was a good year, and it was a shame how the stock reacted.

But that's -- a lesson is learned and maybe an opportunity for some of us on the call.

I'll tell you, Tom, it was even better than you think because well over a year ago, the bank had a gun to my head.

And I will never forget that.

So in 1 year, the improvement is dramatic that to cut us off and not allow us to have enough money to pay our creditors and now releasing all that and release the dividend restriction in 1 year was pretty amazing.

Not to us here in this building because we knew it was happening.

But still, I'm very happy with the way it turned out.

It could have been worse.

So we're pretty happy with the year.

Sure.

I just wanted to ask sort of a couple of more -- a couple of questions on the consultants.

Are you planning to run another recruitment drive?

Heather?

They would love for us to announce that on an investor call like this but we have (inaudible)

Oh, I see, never mind.

Recruitment drive probably.

Yes.

Remember on this call, by the way, they're sneaking on here, listening, yes.

But I would say the answer is yes.

Yes, we will.

We're not saying when.

These employees in the field are pretty clever, Tom.

They figured out how to work the business to their best advantage, and that's good for them because they are entrepreneurs and that's fine.

So we don't announce anything too far in advance.

I will tell you a little wrinkle we threw in.

Can we talk about -- was that this year?

Can we talk about that, about the free freight?

Yes, you can.

I can, okay.

I'm going to, all right.

We just try to do things spontaneous because if you give somebody too much notice, they kind of plan it out and work it out.

So it was a week ago, 2 weeks ago -- 1 week ago, Heather came up with this idea because we researched some things about free freight when -- by the way, when UPS [quits charging us,] there's free freight.

And they haven't done that.

So free freight is anomaly.

It's not really free, but we did it.

We said, "Okay, for 2 days." It was Tuesday and Wednesday.

Is that right, Heather?

Why don't you tell them about it?

You know more about it than I do.

Yes.

So it, basically, was offering a free shipping opportunity for customers on our e-commerce site with a minimum order threshold similar to what you would see on other e-commerce sites.

And we announced that to our field the night before so that they could prepare and let their customers know.

And on that Tuesday and Wednesday, comparatively, we saw an increase in all of the numbers we were looking to see an increase in.

We saw an increase in the average order size, we saw an increase in the number of orders, and we actually saw an increase in the overall average order size even on those that didn't qualify for free shipping.

So the free shipping minimum that we set on this one was $75, but the average orders that qualified for free shipping were upwards of $115 to $120.

So we feel like it was successful.

And we like to try to do different incentives, different promotions, things like that like Randall said.

And like you said, yes, we probably will be doing some sort of recruiting special in the future.

We just don't give any dates or details.

Yes.

If we announced too far in advance free freight, we wouldn't get any orders until that went into effect.

So it was a little surprise.

I've never seen it before.

I think it was very well received.

It was very efficient for us, profit-wise, when we see the order size increase.

So these are the things.

Now that we're kind of over the hurdle of the bank got -- that has us in their grasp that we can do things now, we have the cash that we can -- and profitability that we can offer things to even increases sales, which would be recruiting specials, all kinds of specials.

So you can see this coming year that we feel like we have the operations under control.

We will now spend more dollars in marketing to get back our historical growth.

Just to follow up on that last bit there.

So you said it's not really free freight.

I mean, it's -- presumably, you're subsidizing the freight expense on the orders that qualified?

Well, it was free freight to the people ordering.

They weren't free to me.

I still have to pay UPS, is what I meant.

Yes, okay.

That's what I'm talking about.

So -- that's a 2-day -- basically, a 2-day promotion, and your margin will be slightly smaller on that but picked up quite a bit, it sounds like, in terms of volume.

Yes.

The deal -- I mean, our average cost of a shipment is $7, $8.

If the average order is $50 and you take it to $115, you can see, with a 25% margin, it was profitable.

And maybe more important than the actual profit was the enthusiasm it generated.

We call this a reason to ring.

And all of a sudden, so many thousand people have something to be excited about to call and say, "Whoa, hey, I've got something new to take advantage of really quick." And so the effect of that probably was as much as the actual free freight.

It just kind of woke a few people up that kind of out there thinking about, oh, I need to sell something or whatever.

But all of a sudden, they're on that phone and it really went to the company -- you saw it on Facebook, it.

Was excitement more than we've had in a long time, and so we think it was a very valuable promotion.

And our next question comes from the line of Paul Carter from Adaptable Capital.

Just following on to the previous caller's question about margins maybe topping out.

I know, Randall, in October, I think it was -- you said that you like to think that a 10% to 12% pretax profit margin was not out of the realm of possibility.

Do you think the way that business is, like, structured currently that that's still a reasonable expectation or maybe objective for some point in the foreseeable future?

Well, actually, I'm really sure it is.

Historically, before we had this growth back when we were a smaller company that we'd kind of keep control of every penny we spent.

We had 12%, 14% pretax sometimes and actually, at some point in time, went up to 16%.

Well, these last couple of years, when you go from $35 million to $100 million, you don't have control of all those expenses, but we are getting control of them again.

And I can tell you on a go-forward basis that, that is our goal to reach the 10%, and I can tell you it is attainable.

All right.

That's great to hear.

And then just sort of thinking longer term, say, call it, the next 2 to 3 years, if you can see it's going to grow to -- I don't know, pick a number, $150 million or $200 million or something like that, will that growth primarily -- or is that growth primarily going to come from increase in the size of your UBAM sales force or getting your consultants selling more of what you have or maybe sort of adding additional products or product categories to your sales bank?

Or is it going to be a combination of all 3?

Well, that's a good question.

I don't think it's going to be the third.

We're not really looking to add products.

We have about 2,000 products now.

The average direct selling company has about 250.

We kind of make people crazy now when they're trying to choose from 2,000 items.

So while we won't probably increase the number, we'll change them out, drop some, add new ones, so not from a third category.

But yes, the growth will come from new people.

We would like for people to be more productive.

And you can do it that way or you just add more people.

And if they average the same amount or less but more people, you can do the math on that.

So Heather is over here, shaking her head -- yes, that we want to have 50,000 by the end of the year.

And will they be as productive?

I don't know.

Some will be more.

Some will be less.

But we have enthusiasm and happiness in the workforce, and that's the most important thing that you can have because if they're happy, they tell people about it.

And if they're not happy, they tell people about it.

So we're in a good place right now that we're increasing.

And another thing is the growth.

We paid out $45 million last year in commissions and overwrites.

And so we're now competing with bigger companies.

And no longer is someone's going to and say, "Well, sell this piece of crap over here but you'll make a lot of more money." Well, what I mean, it was a really good product but you make a lot of money.

That's not happening now because our people have the potential to make serious money from an entrepreneurial work at your home.

So we're able to keep our sales reps and have them grow, which is exhibited by the fact that we have had created a new level of Director, a higher level.

So we expect growth to come from additional reps, and hopefully, they're productive.

We're also committed to continuing to develop our existing reps through additional training, certainly, rolling out programs like we did at the beginning of the year with our school and library certification program that involves online training, background checks and certifications.

But trying to develop programs to give them the tools to be successful and more successful faster in their journey as a consultant is something that we're continuing to invest in and look for ways to invest in as a company.

Yes.

Heather's got a platform, a whole training platform that we're in development stage, and we'd like to get uniform training.

So we think that will be a way to make people more productive in the upcoming months.

Okay.

And sorry, I didn't quite catch that.

What did you say about the 50,000 sales reps that -- is that a year-end objective?

That's our objective.

We want to get to 50,000 by the end of the year.

That's a goal.

That's an objective, not a projection.

That's what we're reaching for.

We will see.

(Operator Instructions) Our next question comes from the line of Joseph Geraci from Mill City Ventures.

Say, I had a couple of questions.

What about dividend reinstatement?

And I guess I haven't asked in the 20 years I've owned the stock, but are there -- is there international sales opportunities?

Meaning, do they take some of the content translate it and have German folks, Italian folks, French folks selling it for you, too?

And lastly, the cash flow trajectory.

Do you think that ,that's sustainable?

Because that was pretty impressive turnaround on cash flow from -- specifically from operating.

Let me answer that first.

Dan has assured me that it is, so yes and...

Dan is a good man.

That's right.

See, we started out with $0.10.

We left off with $0.09.

So that's how confident we are because we've got these things under control.

Also, you might -- without deceiving anybody, that dividend that we reinstated is just a little bit more than what we received by the tax cut.

We're a tax-paying company.

So when our tax -- our federal tax are reduced, it's just about the amount of the dividend.

So it doesn't even materially affect our cash flow.

So we just may double that.

Who knows?

That was objective, not a projective.

Duly noted.

Yes, your other question was, do we have overseas capability for sales?

No, we don't because Usborne has books translated in 100 languages, and they have -- we have the United States market exclusively.

Now with Kane Miller, we do have some opportunities to do that.

But right now, we're concentrating on U.S. market.

It's big enough that we think that there's plenty of growth there.

Okay.

And forgive me if -- can I squeak another one in?

Forgive me if you answered it, but do you -- is there any more short-term need for production line investment?

Or if there isn't, how much more can you stack on the revenues before you do need to make anything material as far as investment in the line?

Okay.

We're starting a project in a week to mechanize our Line 3. And Line 3 is a line that has about 600, approximately 500, 600 titles, of our fastest moving items.

Oftentimes, we get an order for 2, 3 books that will come at that fastest line.

Boom, we'll shoot them through there.

We're mechanizing that in June, but that's already almost paid for, accounted for.

So there is the capital.

Then how much can we squeeze out of here without a major?

I think we probably can do $150 million out of here, maybe $200 million before we get it.

Yes, we're -- that's hard to tell because we're on one shift.

Matter of fact, they've already gone home today, we're so efficient.

So we're on 1 shift and you can go to 2 shifts.

And then after that, if you really get into the number of $300 million, you -- we can actually double deck our product lines.

There is room in the warehouse to put lines right on top of the other ones on a platform and double the capacity, so within this building, I mean, there's $500 million before we'd outgrow that.

I would like to see that, but that's kind of far-fetched out there.

But yes, we're pretty efficient right now, and we don't see a lot of capital needs coming up.

That's why our cash flows are going to get better because this is a low capital-intensive company.

I have to send you a picture of what it looks like now and then double deck if -- but if it become interesting, then I'll tell you the improvement in the last 6 months.

People who -- in this warehouse 6 months ago won't even recognize it with the improvements that we've made.

So -- and all of these things are fit in to our budget and the profitability and it's -- we're doing very well.

It's been an incredible year, despite yesterday.

You've got to throw some of those pics up on the website.

Okay.

Yes, it's pretty spectacular.

I'm going to -- how about I put a picture of the building up.

You'll be really impressed with that because it's a magnificent structure that Hilti pays for.

And I can kind of Photoshop it and put our name on it, where Hilti is, and you'd really think we have an impressive place.

But we do own it all, by the way.

They just pay for it.

That's a good arrangement.

And our next question comes from the line of [Mark McLaren].

How about I put a...

Oops, what happened?

Looks like he may have declined to ask a question.

Oh, man.

He can ask the same one again.

We don't care.

We got all afternoon, okay.

All right.

Well, it appears that I'm showing no further question at this time.

I would now like to turn the call back over to Mr. Randall White for closing remarks.

Okay.

Well, we feel like we had a terrific year.

I'm very sorry that we didn't report it well enough.

That's pretty unfortunate and to me specifically, but I'm good with that because I know where we're going.

I'm happy about the dividend reinstatement.

Some people don't think that we should pay a dividend.

But today, we have no line on our -- no drawn down credit on our line.

And we've got over $4 million of cash, and we generate cash.

And so this is not going to restrict our growth in any way whatsoever.

Anybody who has been around here for a while knows we're very conservative here, and we wouldn't do this if we didn't have it planned out.

So we -- that's not going to inhibit anything we do.

One other thing I would tell you.

About 3 weeks ago, I got to go to Dallas because we got named by the Direct Selling News as one of the 100 global largest company in the world.

I guess global is what that means.

So that was quite amazing to me that we were a little over $100 million -- or right at $100 million and then -- and there was 100 companies on that list.

The #1 company was $8.5 billion.

So I was kind of at the bottom of the list, and it was kind of like everybody had on a tuxedo and I had on brown shoes.

But we were in there, but the thing that was striking to me was in that room was $50 billion in sales in the direct selling industry.

So we were at the bottom of the rung.

I'm telling you, the very bottom of the rung.

So we've got plenty of room to grow, and we feel like we will.

So that's the kind of the size of the market it is.

And most of the companies, you've never even heard of.

And some of them, $50 million -- I mean, $500 million to $1 billion.

And again, you don't -- you've never even heard of them.

And here, we have the very best products at a fair value.

We have the lowest margins of anybody in that room.

And so we feel like that we have upside potential.

I was really surprised that -- it's nice that some of these companies that sell -- something I probably wouldn't buy.

But we're very comfortable with our product and the impact it makes on the nation's reader scene and happy with the results.

So guys, thank you very much for attending the call and I...

Looks we have one more question.

Got another question, okay.

Our next question comes from line of [Mark McLaren].

Hello?

Can you hear me?

Yes.

We're good, Mark.

I had a couple of questions for you.

First of all, could you tell me any plans to get an analyst covering the company?

I'd like to know a little bit more from an outside opinion.

From an outside opinion.

So, somebody who knows more than me?

I guess a different opinion.

Yes, yes.

Just kidding, just kidding, Mark.

Gosh, we'd be happy to have an analyst come look the place over.

I'm not -- I don't know if we -- how that works.

Do we...

Well, we say analysts.

So if you're talking about an analyst tracking our stock and publishing investment articles about us and doing investment research, we've been approached by several firms and investment research firms that -- to do some marketing for us.

But at this point, we still haven't chosen to go in that direction.

We basically decline to pay for research.

I think it's a good story.

It kind of speaks for itself except for yesterday.

So that could happen on that front.

I'm -- we'd like to get our story spread around, and that's why we went to New York a couple of months ago.

We made the rounds of several people that we thought might have interest in a company of this size, and we did get some interest from it.

And so...

We'll also go to Chicago in August -- end of August and do some...

That's the potential thing, [the metrics].

What we heard from all the investment firms is that we don't enough have stock out there.

And so we're looking at that, about how we can do that and increase capitalization.

I'm not going to issue shares.

Nobody heard that.

I'm not issuing shares.

Thank you.

But there is a possibility of a split that would not reduce anybody's holdings.

So we're trying to accommodate the market.

This whole world is kind of upside down from 2 years ago when we were a little company nobody cared about.

Once you cross over that $100 million sales and valuation, you do get a little more attention.

So we are trying to pay attention to attract institutional investors, which is what we tried to do in New York and got a little bit of interest.

So we don't have any specific plans for analysts, if that was your question, but we'll definitely keep that on the front burner.

Yes, definitely something that we've looked to and are considering and continuing to consider.

Great.

So the analyst is the one part of the question.

But the other part, in connection with that, is the idea about attracting more institutional investors who can...

Have we lost him again?

Man, we have drilled Mark.

We got everybody.

Yes.

Unfortunately, it looks like his line is disconnected.

Okay.

Well, the answer is we've made a round, I guess, in -- here in New York a couple of months ago, talked to several key people we thought.

And we're going to Chicago when?

The end of August.

The end of August.

We'll do a press release as we get closer to that, announcing that we'll -- we're going to meet with a round of institutional investors at a microcap presentation by one of the parties who's interested in becoming an analyst for us, an investment research firm.

Yes.

Well, again, we need more stock in circulation, although yesterday proved that there can be volume in our stock.

I think we might have set a record yesterday.

It wasn't a record I'm really proud of, but there's a lot of shares traded.

But I think getting more stock in the float would be advantageous.

A lot of the funds we -- said you don't have enough.

We can't buy enough without taking the price.

So we're taking all that in consideration and trying to make this more palatable for individual investors as well as investment funds.

So we're addressing it now on a go-forward basis.

And again, when we're presenting in August, we'll try to get more interest in our stock.

And Mark, I think that concludes the call from our side.

All right.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program and you may all disconnect.

Everyone, have a great day.