Educational Development Corporation (EDUC) Q4 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Educational Development Corporation Fourth Quarter 2018 Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, today’s conference is being recorded. I would now like to turn the call over to Randall White, the 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 have got Heather Cobb, our Vice President of UBAM; we have got Craig White, who is our Vice President of Information Technology; and we have a new member of our staff, Trevor, he is 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 versus 2017 of $106,628,100. That is the 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 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 some people had taken the year-end results and subtracted quarter three to get quarter four. We normally don't report a quarter four, but probably should have because it was such a big adjustment a year-ago. So I apologize for that. So we want to clear that today about what happened. In quarter four a year-ago, you might 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 one-time 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, [indiscernible] client positive adjustments at year-end that we did. So when 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 2014. So if you take out again that one-time, $9 million, we were up 15%. Now if you add it back in the quarter three, I think we’ve got to add at someplace. Okay. In quarter three you add it back and we were still up 11% over quarter three, so no matter how you look at it, there is nothing negative or a downturn in any of these numbers. 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. To generate $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 to the debt, the $9 million of carryover, again, debit cash, credit deferred income, which put us out of sync with our debt-to-equity ratio. So that raised all interest rates. It was a very unique situation and it cleared itself out pretty quick. 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%, and we are working on bringing that down. Operationally, we are so much better. We today in a single shift can ship 8,000 to 10,000. A year ago, we could ship 6000, six maybe to 9000 in two shifts. So you can imagine, maybe, ship maximum 9,000 in two shifts, now we can ship 8,000 to 10,000 in one shift, so we're geared up to handle increased volume. Looking at the balance sheet side a little bit, in one year from the bank restricting our borrowing ability, which really caused us a problem, we had to go to our vendors and tell them that we have to slow down our payments. Because of our history, they all agreed, and by July everybody was back on schedule. And today, in one-year – little over one-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 are $12 million better than we were a year-ago. So again, you can see why I was pretty euphoric about this statement. It's just like almost a miracle that we could come so far in one 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 and came back on Monday and said, gosh you really have passed the problems and it's just now time to work through [ph], 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, I hope that's a reasonable explanation of why the quarter four didn't look as good because it is much better. Quarter four this year, when you put apples-to-apples has 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, taken 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 $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’ve reduced our bank – I’d tell you a little more about this, but they released our –but they’ve released restrictions and reduced them on our interest rate, which was, I’d say 65 basis points which saves us about $60,000 a year in interest going 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 do the fair comparison, but you guys can decide for yourself. 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 under our belt. We know what those are and we’re happy about that, and so we think it’s a very positive report. Dan, I’ve covered everything, would you mind if – I think maybe one thing I missed.

No, I think you’ve covered it Randall.

Well, everything. All right. Well at this point, we'll see how good a job I didn‘t cover, because I'm going to open up for questions, and for anybody who would like to ask questions about how I got these numbers or whatever, please feel free to join in here.

[Operator Instructions] And our first question comes from the line of [indiscernible] from Hollywood Fitness. Your line is now open.

How are you doing guys? Congratulations, great work, great year, great quarter. Just wanted to ask real quick, two 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 taken over the Company?

I'm not really concerned because people with 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 that somebody coming in on 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 it at $25 or $21 as the case maybe. So no on the first question. What's your second?

The second one was there any buyout interest so far, and of course you wouldn't sell it, where the stock is now. You would want to sell it, what two to three times 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 can anyone do this math that – we've got a pretty nice company going here. We're very proud of it and we think it’s still undervalued. So I’ll listen and pretty much flatly decline until we see – it’s just been pretty casual up to now.

All right, well that's it. Thank you guys. Great job.

All right. Thank you.

Thank you. And our next question comes from the line of Eric Landry from BML Capital. Your line is now open.

Thanks. 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. You gave us for the year, and then in the Q’s you gave us for quarters one, two, and three, but I don't have a fourth quarter number. I can do the math and the math sums up about somewhere between 35,000 and 37,000. I just want to confirm if that's correct?

Yes, that's pretty close. 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 six months basis. If you haven't ordered anything in six 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. That's about what it is. And by the way, November and December are two 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 two months.

Just to call, 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.

Okay.

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 six months, and so there could be some inactives in that number, 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.

Right. So that the year-end number that you listed in the press release, that is a [indiscernible] calculation than the average number that you give in the Q, 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.

Okay.

It's not in the K. You're right, that I can recall and it's not on the press release. So I don’t have it in front of me otherwise. We’ll give it to you. I just don't have the file open in front of me.

Okay.

And you realize any day, and by the averages. Averages, I don't think averages work, do well here, but just we’ll tell you sales are going up, head counts going up. We had a nice recruiting push in February. We got about a little under 9,000, so that have helped 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?

$2 million.

No, how much percent?

It’s about 15% to 20%.

Yes. It’s about 15% to 20% also. So these things are pretty consistent. We have about a 15% to 20% increase in registration and the good part about it is, it's just under 1,700 people and a 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 gospel code in Randall and then go back and spread it to all their down lines from what they learned at the convention. And we think it's a good indication to you have that many leaders here.

Okay. Last one, is there anything you can say about your productivity 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 you were consulting that down a little bit. First of all is that accurate and second of so that is that a trend that we should be watching?

Well, I wish you could project a trend, but I can tell you this, when you do the averages, you're going to throw somebody in who sold $200 in six months and then you got people who've earned $200,000 in a year. So averages are – there isn't an average productivity. I gauge it by our sales going up. That's why when you talk about headcount number consultants out there. It doesn't really – how many you have, what's your sales are? They turned in sales in? So many people buy a kit at a very economical price, which means they're getting a really nice box of books and if they don't sell anything, a lot of them are happy. I'm not, but they are, but we don't lose any money, so we're good. We make a little tiny bit or break even 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 increases what we look at. And if have 50,000 within the year and they're less protective, but sales go up $10 million, then we think that's good. It's an unusual business in that. It says you're self motivated. If you want to work, okay. I don't call them and say, you do anything today. They are independent contractors and they work that they want to. And to give an example of that, I think about a month ago somebody posted on Facebook, has shipping has gotten any better? Are you kidding me? That was 14 months ago. Where you’ve been? And that's what you're talking about. All I guess, I'll get back and get active. We'll see, seasonal in active, but she's back selling again. It's a very interesting business. When you'd had an order mix up and it's your friend, you probably not strong enough to handle it because your friends are mad at you. Then you're mad at me, and often times it go away a year later. Oh! things are better. Okay, I'm going back and order some. So averages – again, key indicator, our sales going up, and the fact that we had an increase in sales over the year before we had a near disaster 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 in the fact that we survived that and now gotten back to – we shipped same day and cheering all over the next day. You still had an increase in sales was kind of a minor miracle and we are very ecstatic about that. We think that base is now solid to have exponential growth on a go forward basis because all of our problems have been – not all of our problems, but the majority of our problems have been taken care of. A year ago in the fall, we had 25,000 customer service calls and we achieve it about $40 a piece, so a year ago, and those numbers, probably a $1 million of cost of areas we've made and this year we had a little under 3,000 overall on increased volume, so we’re very happy with the n6ew technology. Everything is done electronically now. The orders are checked by barcode, so the average rate is way down and we're working on getting it even lower. So Dan?

Yes, I will add on to what Randall’s 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 blur, 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 that we may have one product that is 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.

Hey Heather, anything you want to add – Heather Cobb is [indiscernible] anything you might want to add in there, Heather, about that?

I think the thing that's hardest and see in it’s collaborate is really the happiness and the productivity of our leadership groups that Randall referenced earlier that coming to convention as well as the others that aren't able to attend. I do got 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 collaborating those anecdotal stories and it is definitely trending upwards and add 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 everyone ones drives the company. And what happened is we have 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 is still be achieved director. And then you can add with large groups and so we as a disparity, we created what we call executive director – senior director. And about what six, seven months, we had 15 people – with 15 people promoted to that level. So we're seeing growth in upper level and what that means, you get the top people who make significant money and that would get spread around that you can make significant income with this company selling a value product at a reasonable price and still make we had to over 12 people who made over $100,000 last year working from there around their families. Some of them are in, we're employed full time. So, we think we have a good program here and it will continue to attract a higher level people and will continue to grow.

Thank you for the detailed answer.

You Bet.

Thank you. And our next question comes from the line of [Joseph Garner]. Your line is now open.

Hi, so a couple of questions. So first it was good to see the margins up, I was wondering, given the – do you expect it to me – do you think those are now sort of topped out or are sort of the improvements you made, the facilities and systems and so on, you expecting still margins increase going forward?

Well, two things, we just getting started on the technology. There's some 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 price go in normally box has flaps you take the bottom for the books can take the top will this one is snap 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 month and a half. So we are constantly working on improved margins. UPS is a key partner with us. They were in every warehouse in America and we're their top ship in Oklahoma now. So they bring every possible idea they can do 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. We will put in the mechanized pick-to-light system in our fastest moving line, plus a conveyor belt. It will take you from the back of the warehouse all the way to the truck, which will say taking the products in front to the back on a hand pallet. So it's everyday, everyday and now that we have control over our shipping, we can really hone in on an 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. Can you breakdown again the fourth - with the adjustments for the fourth quarter revenue of last year because again, I agree completely that was why to drop was yesterday. Could just go through again the breakout of – to make apples-to-apples?

Sure, so fourth quarter of last year were 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 that quarter from – there were actually quarter three orders.

Got it.

So when you pull out those quarter three orders that were recognized in quarter four, our actual net order volume for quarter four was $18.3 million and our actual order volume for quarter four of 2018 was $21.2 million. And so it was about a...

[17%]

2.8% increase in order volume or a 15% increase in order volume, if you're looking to apples-and-apples and saying, what orders came in during those three months.

Got it.

And Randall said in the beginning, it was really – we didn't really get into that in the press release because, it was last year, one-time phenomenon that we never want to repeat. It wasn't a 2018 activity, it was a 2017 activity that 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 2017 and fiscal year 2018, and then what you have planned for the summer increases?

Yes, absolutely. I think Dan kind of outlined and 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 and now we're at 8,000 to 10,000 on a single shift, as many as 15,000 on two shifts that we're looking at improving that with our line three expansion and I will say, we haven't been very aggressive with using part time employees. We've tried to keep people employed and try to find hours forum that we could get more aggressive as well on that using part time employees and shutting different parts of the warehouse down at different times. So there is still some operational benefits we can explore.

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

Okay. Is that answers your question.

Yes, it is. Thank you.

All right. Thank you. And our next question comes from the line of Dennis Amato. Your line is now open.

Thanks for taking the question. Your clarification on the revenues 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?

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 a suspicion. We report quarters before, but now we're just reporting the year and I think you're right that was probably a negative for the stock when it didn't have to be.

Yes, you're right. I would call it a lesson learned. We never reported fourth quarter that we never had the swings like this. When Dan came in, we got the accounting cleaned up. We had some pretty significant adjustments. And it wasn't just adjustments, it was not a bill 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 – for the first half a day, I'm thinking what the heck, what I say in there that would make somebody sell their stock and then couple of shareholders email me and said, well, it's your fourth quarter when in the tank. No I didn't. So our bad – the lesson learned.

Okay.

All right. Thank you. And our next question comes from Tom Fogarty from Thurles LLC. And your line is now open.

Thanks for clearing that up on the deferred revenue. That was unfortunate anyway. So just to make sure I understood correctly. You said that the 3Q comparison was 11% year-over-year?

Yes.

And then 4Q is about 15%.

Yes.

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

We don't do projections. I think Randall gave some comments that we're still seeing positive results, but we don't do projections. I think we try not to make mistakes and clearly we’re admitting one on this annual release that we should have probably done some 2017 to 2018 fourth quarter analytics for the press release, but opening up to earnings estimates and…

Yes. Well that's a result of us growing because when you guys have been around of all, I was always happy to give you a forecast. Well, I thought however, two 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. I really wasn't. It 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 it's not going to continue, so…

Yes. It was a good year and the same out of store reacted, but that's less than [indiscernible] 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 want to get that. So in one 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 it, give an instruction in one year was pretty amazing not to us here in this building because we knew it was happening, but I'm still very happy with the way it turned out and it could've been worse. So we're pretty happy with the year.

Sure. I just wanted to ask sort of a couple 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…

I see, never mind.

[Indiscernible]

Yes, the members on this call by the way, just sneaking on here listen. Yes, but I would say the answer is, yes. Yes we will. These delays 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 to recall your through in. Can you talk about – was that this year, can you talk about that, about the prepaid?

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 worked it out. So it was a week ago, two-weeks ago, one-week ago, Heather came up with this idea because we researched some things about free freight. And by the way, when you [indiscernible] free freight, and we haven't done that. So free freight is an anomaly, it's not really free, but we did it – we said, okay, for two days it was Tuesday and Wednesday. Is that right Heather? Why don't you tell them about it?

Okay. So when you basically look at offering a free shipping opportunity for customers on our e-commerce site with a minimum order thresholds similar to what you would see on other e-commerce sites, and we announced it to our field the night before so that they could prepare and let their customers know and on that Tuesday and Wednesday and 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 qualifies 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 he said, yes, we probably will be doing some sort of recruiting special in the future. We just don't give any dates or detail.

Yes, if we – we wouldn’t asked too for an advanced free freight, we wouldn't get any orders until that get fixed. So it was a little surprise, they never seen before. I think it was very well received. It was a 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 a bank that has this 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 increase sales which would be recruiting specials, all kinds of special. 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, so you said it's not really free freight and presumably you're subsidizing the freight expense on the orders that qualified.

Well, it was free freight to the people ordering, but it was one free to me, I still have to pay EPS.

Yes, okay. That's what I thought you meant. So that's two day promotion and the margin will be slightly smaller than that, but picked up quite a bit and it sounds like in terms of volume…

I mean our average cost of the shipment is $70 and the average was $50 and you can take it to $115, you can see with the 25% margin it was possible. And maybe more important than the actual profit was 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, hey, I guess something you to take advantage really quick. And so the effect of that probably was as much as the actual free freight. It just kind of woke people up that kind of out there thinking about. All I need to say something or whatever, but all of a sudden they're on that phone and it really went through the company. You saw it on Facebook, there was excitement more than we've had in a long time and so we wouldn’t think it was a very valuable promotion.

Super. Well, thanks a lot. I appreciate the color.

You bet.

Thank you. And our next question comes from the line of Paul Carter from Adaptable Capital. Your line is now open.

Good afternoon, everybody. Thanks for taking the questions. Just falling onto the previous caller's question about margins maybe talking out, I know Randall in October, I think it was you said that you'd like to think that at 10% to 12% pretax profit margin was noted the realm of possibility. Do you think the way that business is structured currently that got still a reasonable expectation or maybe objective for some point in the foreseeable future?

Well, actually I'm real sure it is. Historically, before you had this growth back in a smaller company that we kind of keep control of every $0.01 we spent. We had 12%, 14% pretax sometimes and actually – some point in time it went up to 16%. Well, just last couple 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, good. Great to hear. And then just sort of thinking longer-term, say no call over the next two to three years, if agencies going to grow to pick a number, a $150 million or $200 million or something like that, will that growth primarily or is that growth primarily going to come from increasing the size of your UBAM salesforce or getting your consultants selling more of what you have or maybe sort of adding additional products or product categories to your sales back? Or is it going to be a combination of all three?

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 county has about 2:50. We kind of make people crazy now when they're trying to choose between 2,000 items. So while we won’t probably increase the number will change them out, drops on add new ones. So not from the third category that yes that the growth will come from new people. We would like for people will be more productive and you can do that way or you can 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's over 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’s 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 that growth. We paid out $45 million last year in commissions and overrides, and so we're now competing with bigger companies and no longer can someone's going to say, well, sell this piece of crap over here, but you make a lot more money. Well, what I mean that was a really good product, but you make a lot more money. That's not happening now because our people have the potential to make serious money from an entrepreneurial work out of 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 to create a new level of dredge or a higher level. So we expect to growth to come from additional reps and hopefully their predicted.

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 and training, background checks and certifications, but trying to develop programs to give them the tools to be successful and more successful factor 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 has got a platform, whole training platform that we're in the development stage and we'd like to get uniform training. So we think that'll 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 objectives?

As our objective, we want to get to 50,000 by the end of the year. That's a goal.

That's a – that's an objective, not a projection as well. We'll see.

Totally understand. Okay. Well that's it for me. Thank you very much.

Thanks, Paul.

Thank you. [Operator Instructions] Our next question comes from the line of [indiscernible]. Your line is now open.

Hey Randall.

Hi, Joe.

How it’s going?

Going good.

Yes. It looks like it, for sure. So I had a couple of questions. What about dividend reinstatement? And I guess I haven't asked you in the 20 years I've owned the stock, is there international sales opportunities meaning, do they take some of the book content translated and you don't 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 cash flow from – specifically from operating?

Let me answer that first. Dan has assured me that it is, so yes…

Dan is a good man.

That’s right. 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 and what were received by the tax cut. We're a tax paying company, so on our tax – I'll that tax are reduced. It's just about the amount of dividends, so it does mean materially affect our cash flow, so we just made double that. Who knows? That was the objective, not a projection. Yes, the other question was do we have overseas capability for sales? No, we don't because Usborne has books translating 100 languages and they have the – we have the United States market exclusively. Now with Kane Miller, we do have some opportunity to do that, but right now we're concentrating on U.S. market is 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 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 you need to make anything material as far as investment in the line?

Okay. We are starting a project in a week to mechanize our line three. And line three is a line that has about 600 – approximately 500, 600 titles are fastest moving items. Oftentimes we'll get an order for two or three books. They'll come at fastest line, but we shouldn’t be there. We are mechanizing that in June, but that's already almost accounted for, so there is a capital and then how much can we squeeze out of here without major? I think we probably can do $150 million out of here, maybe $200 million before we get into it. Yes, 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 one shift and you can go to two shifts and then after that, if you really get into number that $300 million, we can actually double deck our product lines. There's room in the warehouse to put a line right on top of the other and ones one is on the platform and that will have 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 the 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 intensity company.

Well, okay.

I've seen a picture of what it looks like now and then double deck, but it become interesting, but I'll tell you the improvement in the last six months. People who were in this warehouse six months ago wouldn't even recognize it with the improvements that we've made. And all these things are fit into our budget and the profitability, and it's – we are doing very well. This has been an incredible year despite…

Yes. You got to throw some of those pics up on the website?

Okay. Yes, it's pretty spectacular. How about I put a picture of the building up, you'll be really, really impressed with that because it's a magnificent structure that Hilti pays for and the I can kind of photoshop and put our name in there were 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.

It's a good arrangement. Thank you, Randall. Thank you on a superior year.

Thanks.

All right. Well, it appears that I'm showing no further questions 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 divided, but today we have no line – no drawn down credit on our line and we got over $4 million cash and we generate cash. And so this is not going to restrict our growth in any way whatsoever. And it has been here for a while, now we're very conservative here and we wouldn't do this if we didn't have it planned out. So that's not going to inhibit anything we do. One other thing, I will tell you, about three weeks ago, I got to go to Dallas because we got named by the direct selling news is one of the 100 global largest company in the world, I guess globally what that means. So that was quite amazing to me that we were a little over $100 million, we'll right at $100 million and there was 100 companies on that list. And number one company was $8.5 billion. So I was kind of the bottom of the list and it was kind like everybody had on texts, 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're at the bottom of their run, I'm telling you the very bottom of the run. So we've got plenty of room to grow and we feel like we will. So that's the kind of size of market is and most the companies you never even heard of and some have been $50 million, I mean $500 million to $1 billion. And again, you don't – you never even heard of them and here we have the very best product 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 not as some of these companies that sell [indiscernible] probably wouldn't buy, but we're very comfortable with our product and the impact it makes on the nation's that we are seeing and happy with results. So guys, thank you, thank you very much for attending the call.

Our next question comes from the line of [Mark McLaren]. Your line is now open sir.

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 a analyst covering the company? I'd like to know a little bit more from an outside opinion?

So Mark knows more than me.

Yes, just a [indiscernible].

Yes, just kidding Mark. Gosh, we'd be happy to have an analyst look the place over. I don't know [indiscernible].

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 declined to pay for research. I think it's a good story kind of speaks for itself except for yesterday. So that that could have in the front, we'd like to get our story spread around and that's why we went to New York couple of months ago. We made around so that several people that we thought might have interest in a Company that size and we did get some interest from it, and so…

We will also go to Chicago in August, end of August and do some…

What we heard from the investment firms that we don't enough have stock out there. And so we're looking at that about how we can do that increased capitalization, not going to issue shares. Nobody heard that. I'm not issuing shares. Thank you. But there is the possibility of a split that would not reducing about holdings. So we're trying to accommodate the market now this whole world kind of upside down from two years ago when we were little company, nobody really cared about and when she crossed over that $100 million sales in valuation, you get a little more attention. So we are trying to pay attention to attract institutional investors, which while we tried to do in New York, 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 [indiscernible].

Yes.

Definitely, something we've looked to and are considering and continuing to consider.

Right, so the analysts 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…?

Mainly, we have troubled Mark without everybody.

Yes, unfortunately it looks like his line has disconnected.

Okay.

Well, the answer is, we made around I guess here in New York couple of months ago talked to several key people we thought and then we're going to Chicago when – at the end of August.

End of August, we'll hope to do a press release as we get closer to that announcing that we're going to meet with around the institutional investors at a Microcap presentation by one of the parties that's interested in becoming an analyst for us and the investment research.

Yes, well again, we need more stocking circulation, although yesterday, prove that there can be volume in our stock. I might set the record yesterday, you won the record I'm really proud off. But there's a lot of shares traded. But I think getting more stock in the float would be advantageous. A lot of the things we talked to said you don't have enough, we can't buy an enough without taking the price. So we're taking all that in consideration and trying to make this more possible for individual investors as well as investments months. So we're addressing out on a go forward basis in the game. We will be presenting in August to try to get more institutional stock. End of Q&A

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.