Educational Development Corp
CEO: Randall White
WSA: Good day from Wall Street. This is Juan Costello, Senior Analyst with the Wall Street Analyzer. Joining us today is Randall White, CEO of Education Development Corporation. The company trades on NASDAQ, ticker symbol EDUC. Thanks for joining us today, Randall.
Randall White: Thanks for having me, Juan.
WSA: Great, anytime. Now, starting off, please give us a history and overview there of the company for some of our listeners who didn’t catch your interview last year.
Randall White: Okay. I came to the company over 30 years ago and it’s a small, very small publicly traded company back in 19 — I came in ’83, and then ’86, took over as CEO. The company was in very bad straights. It’s a very small company making about $6 million a year, and when I took over as CEO, it had lost $5 million in five years. Normally, you get to stop when you’re that in bad shape but had come in through the financial side, I was a Controller, and I was elected CEO in ’86.
And we had 24 employees and 22 employees or something like that. And so, I got them altogether and said, “Okay, it’s a new day at EDC. And our motto is spend less than you make.” So, that was our challenge. And I’m very proud to say in 30 years since I’ve been CEO, we’ve never had a losing quarter since.
So, it was–the company over the years grew a little bit and we now are down to two divisions. We sell–We’re in the publishing business, we publish children’s book, and the book are the very best in the world. They come primarily from Usborne books in England which have received recognition as the Children’s Publisher of the Year, and a couple of years ago was the Publisher of the Year, and that’s in competition with the major companies, Miller, Random House, and Hachette. So, very proud of us. We feel we have the very best products in the world.
And about six years ago to supplement that, we bought Kane/Miller, which is more a fictions line whereas Usborne is nonfiction. And the two blend themselves together and they complement each other very well. So, with that said, the company was doing very well but a few years ago, I didn’t notice that our sales was starting to decline and we were selling more to Amazon, but everything else was not doing as well.
The stores, people would–as you’re probably aware, we go in, and there’s an app you could scan the barcode and buy directly from Amazon. So, our stores were not too happy about that as you might imagine, and the same talk whenever we have–in the home business division, you have a group of people, and you’d show them the products, and they go, “These are great.” Then, you pull out your smartphone, you go “Thank you very much, I ordered one in Amazon.”
So, about three years ago, I got a call from one of our salespeople in Texas, and we were running a contest on an iPad. And she’d gone into a school, to present our products, and they’ve never seen them, and loved them. So, she said, “Oh boy, great.” The next day went in and they ordered them on Amazon. So, she called me crying and one of my least favorite things is to get a salesperson call me crying.
And so that was it. I said, “Okay, I’m done with this.” And on that day, we–I have set out to do everything I can to keep our products out of Amazon. I wasn’t selling to them directly but I was selling to them through to wholesalers. And so to accomplish this, we basically have eliminated most wholesale accounts which is–was taken with much skepticism in the industry because wholesalers provide a function such as Ingram and Baker &Taylor. If a little store wants to order ten products and maybe from three different publishers, a wholesaler can consolidate them. That’s fine but the problem is I didn’t want to sell in Amazon.
Randall White: Well, that was–they’re our largest customers, of course. I go, “No, we can’t do that.” I’ve had to eliminate those, and it’s probably $3 million overall sales to the division during ’11. And so that’s pretty scary to do that but we did and I’m happy to say that the first year, we made all of it back in the retail division. And each year, it’s still growing and each year, we’re having–in the last three years, we have a record year.
The home business division is a little slower to accept this but some are before last International Convention, they started to take hold, and we had suffered a nine-year decline in the home business division. At one time, we were in 23 million and it got down to 14, but then a year and a half ago–you have to go with this change and not still in Amazon because they were getting undercut. You can’t undercut sales, and accept, and they keep working for you. So, when they were making sales or thought they would, and then, it would go to Amazon, it was discouraging of course and we lost a lot of salespeople.
Well, nine years decline, a year and a half ago after commission, something happened there, a spark. And so, we’ve been growing ever since. And in this past summer, it really took hold. And this year, starting in March, we were growing at double-digit rates 20 to 30%. So, that’s for six months, I mean that really kicked in. We’ve been growing at 45 to 60%, and those numbers are compared to the same month last year for instance, October of this year which we have released in public information was at 57% over October a year ago.
So, we’re very happy with the trend in sales, and we think it’s going to continue because we’ve had a 72% increase in people joining our sales force. That’s always a good sign. We have an advance leadership retreat in the winter, mid-winter, and attendance there last year was 180 and this year’s over 250. So, we’re having — we’re seeing this growth across the board. And again, that’s the secret to this business is having a lot of people doing a little bit. So, we’re very excited about the growth and I think it can continue on.
WSA: Certainly. And what are some of the factors that you feel make the company unique from some of the other players there in the sector?
Randall White: Well, we’re very unique in the industry, in direct selling industry because we have a division that sells the same product in retail stores. Most direct selling companies only sell through that channel, but we were in the retail market first and we started the home business division later. And so, it’s been a real challenge to try to get the two to work together. So, we’re unique in the fact that we sell our same products in retail stores.
Now, I think that’s an asset because books are priced on the back and we sell–our largest single customer is Barnes & Noble. And the fact that they’re sold in Barnes & Noble, to me is credibility for the salespeople in the field because the product is not overpriced because you can’t sell an overprice book to Barnes & Noble because they don’t buy it. So, we’re very–I think we’re unique in the fact that the product is sold in two marketing channels and I think that’s credibility.
I think many of people think, “Well, I could sell more if they weren’t anywhere but with me.” Okay, that’s not what we do. So, it’s been a challenge to work with both channels but I think we’re doing it by eliminating the wholesale people, and Amazon, that discount the books heavily.
WSA: Right. And what were some of the other drivers there behind the record revenues and how do you plan on keeping that speed?
Randall White: Yeah. I would say that, well, before some things happened to us is four years ago, we found a new person to head up the home business division, Heather Cobb. She’s now Vice President. She came in as Sales Manager and is now Vice President, and she has a very good understanding of the business, brings a different vision than we have in quite some time. She really knows how to make it work and that is the incentives she provides to get the salespeople to motivate themselves. And the latest one, it’s crazy. Well, we always had trips, and you can earn a trip. And so, the one that’s coming up that will be next summer is Ireland and that really turned a lot of people on. It’s kind of a fantasy trip for people.
That was one but one that has been very successful is she has developed a branded suitcase, you know, the kind that you take to the airport, and roll around, and the little wheels will go all the directions.
Randall White: It’s a hard case suitcase, but it’s branded and you can personalize it too for yourself. And you have to sell a significant amount of products to do this. You have to sell about $7,000 in any one month to earn a suitcase. Well, in the example, its just taking hold and we announced that at a convention in June. I didn’t think anybody would do it but they have. And the example of the successes, $7,000 for an individual person to sell is pretty good. We really like that. That’s a nice challenge. And so, this November 75 people earned a suitcase and last year in November there are about 12 people in the whole company who sold $7,000. So, she’s terrific. I have to give her credit. She really knows promotions and incentives, and she’s got this sales force cranking. I’m very proud of her.
WSA: And what are some of the key goals and milestones that you’re hoping to accomplish or the course over the next 6 to 12 months?
Randall White: Well we’re just excited to be back to the revenue, historical revenue figures. Again, $4 million was the largest single month we’ve had and we did experience that nine years ago. And so, it’s really–we’re really happy to be back to that and we think that this will continue. We have a 50% growth rate. We’ve done that for a year. Boy you start kicking significant numbers, and we think that within a couple of years, we can be doing 50 million and that’s a goal for us.
That’s just kind of a milestone, $50 million a year because last year we were little short of that. I think overall last year, we did 20–26 million. So, to talk about 50 is–only that was a year ago, we’ll do–we’ll do around 30-31 this year, and then we hope 50 next year. Those are guidelines and goals that we think are reachable
WSA: Well, good. And so, perhaps, you can walk us through your background, and experience, and talk a little bit about the management team.
Randall White: Okay. My background is accounting, I have a degree there in accounting, and I started out as an accountant with the company Medco and an excellent company in the energy business and the pipeline business in Tulsa, Oklahoma. And from that, I went to a company called the Grand Carrier, CCI Corporation where I was a Corporate Manager there. And undergone on the–I was on the PepsiCo organization. Wow, that’s an excellent training. PepsiCo is quite an organization that provides lots of training. And you get lots of the scrutiny and lots of chances to work and grow in the business. So, I have a good experience with that, with PepsiCo.
And actually I spent about three years venturing out as an entrepreneur and I owned a trucking company. That was an adventure. We hauled produce across the country, pick it up in California and take it to the East Coast. So, I did that. And then, I got a job with Nicor Drilling, a big drilling contractor in Oklahoma back in the boom days when it was really growing. And I spent about three years there as a Chief Financial Officer. The company grew from–it was owned by Northern Illinois Gas at Chicago and we grew from 17 operating rigs to a hundred in about two years. Amazing, amazing growth and to be a part of that.
And then I left and found this little company, and I’ve been here ever since, and it’s been a great–it’s been just a great American story to find a little company that you could be involved in, it’s publicly traded, stock was about a dime. So, I was able to accumulate a significant portion of the stock which I now own just a little under 20% but to make it grow and the stock increased has been a great American story.
Back in these historical, when we were doing 30 million back 18 years ago, our stock was 12. So, today, it’s more like 4.70 or something like that and a year ago, it was 2.88. So we’ve had some growth and we’re starting to see some stock interest but we think there’s quite a bit of upside potential if we can continue our increase in sales.
WSA: Well, what are some of the things that you wish investors better understood about the company, which may result in a higher stock price and valuation?
Randall White: Well, the fact that they don’t look at us as a publisher and we really are, we own Kane/Miller Publishing but we also own the rights of the Usborne books and it’s an evergreen contract, it doesn’t have an expiration date. So, we’ve grown with them– which we think is the best children’s books in the world. We–back when I first came here, we had 50 titles, and now we have about 2,000. So, we were kind of a mid-range publisher of children’s titles.
And I feel like a lot of people misunderstand direct selling multilevel, they think, “Oh, it’s a pyramid.” It–we operate a very honest ethical pyramid system and there are legal and illegal pyramids. We certainly operate 100% honest and ethical. I tell our people, if there’s anything you find that we’re not doing 100% ethical, let me know. I’ll change it because that’s not what we do.
We just have a bunch of moms who often times have advance degrees but their priority is their family, and they want to be home with their family, and they want to make some extra money, and may not want to sell cosmetics. That’s fine. They can be involved in educational children’s book.
And so, we think there’s–it’s probably not a billion dollar market like some direct selling companies but we certainly think a 50 million, you know, ahead of us, a 100 million is possible in this marketplace because we also go into schools and do direct sales, fundraising, book fairs, and we have a grant program that is utilizing the schools. So, we think there’s an excellent growth potential and when the investors see that and then, when we come out with our earnings, I think they’re going to be really happy.
I get phone calls a lot saying, “Well, are you going to be able to keep your dividend up?” I say, “Well, I hope so because I get most of it as the largest shareholder.” We’re a company that doesn’t require capital for growth. So, consequently we generate cash, and what do you do with it? You have a couple of choices, you can buy back stock, or you can pay a dividend. Well, we only have about four million shares outstanding so it’s really not a big pressing need to buy stock back because maybe kind of creeping leverage buyout which should be okay, but we’re not trying to go private.
So, we maintain the dividend. There’s a couple of years in there where our dividend was more than our earnings. And people say, “How do you do that?” Well, I do that because I really believed to where we’re headed and we are, we’re there now, and the dividend has been cut a little bit but we’re paying eight cents a quarter. So, 32 cents on a $4.50 stock is not too bad. So, we–and the concern that a lot of people have is, “Can you maintain that?” Well, I certainly hope I can maintain it. As a matter of fact, I want to increase it because at one time we paid 15 cents a quarter.
So, I want shareholders to know that the company is operated pretty much for the shareholders, because I’m the largest one, that’s a unique feature than a lot of other companies who have management that are kind of after themselves, and just take off the top, and do whatever they do. Whereas in our case, the CEO has marginal salary. I make more income from my dividend in the stock than I do as a salary. And I think that’s a nice feature for investors to know that I’m in the boat with the shareholders as well as the management team.
WSA: Good. So once again joining us today is Randall White, the CEO of Educational Development Corporation. The company trades on NASDAQ ticker symbol EDUC. As mentioned, trading at 4.74 a share, market cap is about 18 million. And before we conclude here, Randall, to briefly recap some of your key points, why do you believe Investors should consider the company a good investment opportunity today?
Randall White: Well, we’re having just outstanding growth, which is certainly not in the industry. The industry growth as a matter of fact is in books is about 2% and we’re just far exceeding that, and we think that that will continue. So, the growth is there, back, and we’ve had it before. Stock has been up there in the $12 range before and we’re having growth. And we didn’t–I haven’t really mentioned cost cutting but we’ve entered into a new arrangements with the post office and EPS to lower our shipping rates because our model used to be, you have a home party and the six or eight people will be there, and you sell $400, and you put it in the box, and you ship it to them.
Well, technology has totally changed that now and they’re having Facebook parties where they’re virtual parties, and there will be 20 people maybe on, and they’re showing videos, and talking about the books on Facebook, and then they place the orders. Well, the problem with that is instead of one box of $400 going to the person, they’re now–that $400 is divided with among eight people, and you’re shipping it all over the country, and all of a sudden the model didn’t work, and we were losing money on the shipping. So, this new arrangement, we have–the post office is really getting into the small package business, so it makes it economical to send somebody two or three books.
I’m always amazed if somebody will pay $6 to get $10 worth of books delivered to them, but, you know, if that’s what they want to do, it’s fine with me, but we’ve now have a contract that makes these sales profitable also. So, that’s–that’s very–and those results would be released right after the first year for our November 30 quarter. We just had this going for about two months. So, it hadn’t fully kicked in yet but we’ve already seen some significant changes. So, growth, probably improvement on margins and we think we could sustain it. So, I think that we have a pretty good long term upside potential for our stock.
WSA: Well, we certainly look forward to continuing to track the company’s growth and report on your upcoming progress. We like to thank you for taking the time to join us there, Randall, and update our investor audience on EDUC.
Randall White: Okay. Well, thank you very much. I love this place. It’s a nice clean business. It’s cash generating, low capital intensive, and I just think that we virtually have no debt. We’re around 20 million dollars of assets and no debts. So, it’s just a nice clean operation that I’m very proud of. So, thank you for taking time to get our message out to the investment market.