Arch,
Couldn't resist an invitation to talk about management. Added a lot of my own thoughts it helps my self confidence. It's been frustrating. No buyers out there for small or micro's.
It is often stated that , management holds the key to corporate success. I believe this to be especially true within the realm of small and micro cap companies. The informed investor needs to look beyond the story and into the eyes of management intent on discovery. How credible is management. How knowledgeable are they of the business. What are the near and long-term business strategies. What is the performance in good times and bad. What are the attitudes toward investors.
I'll give you some of MY thoughts on these questions and why I think investors in Edusf are fortunate.
(Of course this should be viewed as a subjective interpretation presented by myself) First, I have met and spoke to several members of Edusoft management. Other investors may also want to communicate with management I consider it mandatory in all my investments. Use mail, telephony or visit if possible. Be prepared , have specific questions and try to have some knowledge of the business yourself. (read the 10K or 20F).Let them do the talking hopefully expanding on your questions. ( I almost never practice this part )
Don't ask for numbers unless they have previously been released. You will quickly develop an awkward relationship.
Credibility within management is paramount. It takes work on the investors part. It involves keeping or discovering the track record of management's accomplishments based upon their projections, plans and outlooks. Are they delivering on what they say. Read news releases, management discussions in filings, and letters to shareholders in annual reports. Conference calls are of the utmost importance to investors. Partake if possible, listen or replay is a necessity. Edusoft's management has during the time I've been tracking been very consistent in fulfilling their projections often exceeding them. Margins and revenues have improved as projected in late 96 and 97. Global marketing expansion is continuing as promised. Product upgrades and development have been timely and on schedule. With credibility comes trust, I see every indication that Edusoft management has sought for investors trust and confidence.
Management's business savvy and knowledge can be best gauged as a combination of their past and present performance , experience and accomplishments especially when compared to peer companies. In this area, edusoft has excelled. In spite of periodic downturns in strategic markets and in the face of a general trend of increased multimedia titles, increased competition and price erosion industrywide Edusoft has remained profitable and has actually improved margins and revenues. From a peer group perspective, Edusoft fundamentals are enviable. This can only be attributed to sound management directives.
A good example: The USA retains the largest multimedia market and provides a tempting target for any software title provider. Most multimedia-software concerns who have attempted to gain market share in this arena have paid with heavy loses from marketing costs and deteriorating margins from undercutting by the market titans. Although Edusoft maintains a position in the USA (Edustar) the bulk of their efforts have been in other global markets (sometimes scanty) where the larger companies avoided. By establishing these market links about the globe, Edusoft has maintained the niche position as a premier educational software provider. Now as many of these larger companies are beginning to seek a presence in these developing markets, They are finding Edusoft(and Degem) as an existing and often dominant force with name recognition. Also by aligning themselves with large distributors local within these global regions, it affords some marketing protection. Edusofts management hasn't abandoned the US market. Instead, by marketing agreements such as H and H, expensive distribution and marketing costs are at the least shared. this maintains margins.
Good companies, with good management should have a business plan and objectives that are easy to comprehend and address short and long term growth strategies. I think it's as easy as this
Edusoft will continue to exploit the global courseware markets both consumer and institutional by broadening existing areas in which they are well established like Latin American and Europe while expanding often by regional agreements in newer less developed ones like Asia, Pacific Rim , India and USA. Emphasis will center on ESL and courseware products that continue to show marketing success. This basic short and long term plan is augmented by a commitment to a long term growth initiative. The focus is upon the utilization of current company strengths to expand into the SERVICE SIDE of the market. That is Compu- Lingual ( next post on my vision of compulingual and why it could be destined to succeed)
Even the best of managers are faced with declining market conditions that create challenges within the company. Layoffs, restructuring, collapsed margins and investor pressure all contribute to the problem of declining sales. How management has reacted in the past is often an indication of reactions to future challenges. In spite of a Latin American meltdown in late 95 and early 96 Edusoft continued profitability by austerity and refocusing on other markets. Operating income has been negative only once during the history of Edusoft. As situations improved, these same measures are now accentuating positive conditions. Edusoft quickly rebounded to produce million dollar quarterly earnings in 97.
My thoughts on management's attitudes toward investors is mixed. Of all the duties and responsibilities of management "appeasing" investors should be low on the list. Management's that are focused on share price or try to rationalize the market or offer explanations to valuation or lack of (like "it's the short sellers) are probably not focused on the business at hand. Their business. Market evaluation is the investors job and frankly it's tough in micros. However, providing timely information, open discussions (like CC's) and honest projections are important functions of management. (which reminds me that I haven't received my 20F yet)
The fiduciary responsibilities of management are embedded in law but conveyed by market. Investor confidence can only be maintained with good management. Economic conditions can vary, how the company responds is management. Edusoft retains my confidence. Don't know when others will share in this. Chart looks horrible, but we may be starting the prerelease blip.
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