Q2 2022 Educational Development Corp Earnings Call
Your conference is scheduled to begin momentarily. Please continue to standby. Thank you for your patience.
[music].
Good day, and thank you for standing by and welcome to the educational Development Corporation second quarter fiscal year 2022 earnings conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
You require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Craig White, Chief Executive Officer and President. Please go ahead Sir.
Thank you Norma.
As norm said my name is Craig White, our president and CEO and with me on the call today are Randall White, our executive chairman of the board.
Heather Cobb, our chief sales and marketing officer, and Dan O'keefe, Our Chief Financial Officer at this time I'd like to pass it over to Dan to announce our earnings results. Thank you Craig.
Now, we're going to announce our second quarter results net revenues for the second quarter of fiscal 2022 were approximately $33 million a decrease of $29.0 million from 44, 4% from $62.0 million reported in the second quarter of fiscal 2021.
Pre tax profit in the second quarter totaled $9.0 million a decrease of $4.0 million from $13.0 million, representing a decrease of approximately 53, 4%.
Net earnings in the second quarter of fiscal 2022 totaled $10.0 million compared to $7.0 million, representing a decrease of $6.0 million or 55, 8%.
Earnings per share on a fully diluted basis for the quarter totaled 23 per share compared to <unk> 51 per share reported in the second quarter last year, a decrease of 54, 9%.
This concludes the earnings results for the second quarter, and I will pass the call back over to Chris.
Thanks, Dan.
Okay.
So.
My personality used to tell you like it is and the Covid pandemic affected most businesses either a hugely positive are hugely negative last year and our company was no exception, our second quarter last year was a monster quarter sales in the second quarter or historically, not very strong but last year. This quarter. We saw a strong increase in the demand for our <unk>.
<unk> due to school closures and travel restrictions.
Our business model and our consultants capitalized on that opportunity.
The results from this year's second quarter is more in line with pre Covid quarters.
Fiscal 2020 and that is why we presented most current pre COVID-19 year comparison in the press release.
While our sector.
While our <unk>.
<unk> revenues are down significantly from the second quarter of last year. They are up over pre COVID-19 levels, primarily due to our increased consultant channel.
We see our active consultants continuing to drive sales in fiscal 2022.
So what we're trying to say is fiscal 2021 was an unusual year. We took it we are poised and ready and we took advantage of it.
And it's a very difficult comparison is as we've been saying.
But we still see continued growth and I'm going to hand, the call over to Heather.
To talk more about our sales opportunities.
Thanks, Craig.
During the second quarter, we experienced an increase in our publishing division sales and a decrease in sales from our E beam Division.
Our publishing division has experienced a steady increase in sales at stores have begun reopening and restocking their shelves.
We've had over $1 million in net sales each month from this division in fiscal 2022, and we see this growth trend continuing interest in the fall and into the next fiscal year.
Our UBM sales declined primarily due to the anomaly that last year was especially in relation to the overwhelming demand for our product. Our average active consultants sales were unusually high during the second quarter last year, which is typically not as strong selling quarter for us during.
During this year's second quarter, our sales per average active consultants with more in line with previous pre pandemic years.
During the second quarter, we saw pullback in the average number of active consultants and while there is no magic formula to maintaining and growing active consultant. There are several things that we're doing to help them be more successful and when existing sales consultants are successful and in turn they recruit more and that success builds on itself.
One of the items that we are looking at rolling out is our new E. Commerce platform. This new platform will be mobile friendly and offer our consultants customers a better online shopping experience with the rollout of this new platform. Our it team will have additional bandwidth to work on several new projects that will also make our consultants job much easier.
These projects are still in the development stage.
And we'll also provide a more streamline consultant experience leading to more success and as I've stated before success build more success with that I will turn the call back over to Craig.
Thanks Heather.
One other impact you see from our recently published financials as our increased working capital we have increased inventory levels and increased working capital borrowings.
These increased levels are temporary and will rebalance as we turn inventory into cash over the next few quarters as inventory turns to cash we will pay down all borrowings and expect to be back to a more normalized working capital level within the next year.
And while we are currently heavy on inventory. We expect this will be a good benefit for the next several quarters as several companies have already announced supply shortages that will impact them through the holiday season.
What we've been saying internally as are our shelves are full and we're we're ready to have product to sell.
One of the other highlights of our second quarter was our strong pre tax profit levels, our pretax profit as a percentage of net revenues totaled five 8%.
These pre tax results are much lower revenue levels reflect the strength of our business model and our management's attention to cost containment.
As you can probably tell we are very excited about our accomplishments and where we are headed into fiscal 2022.
We are also excited to see the rebound from certain sales channels that were negatively impacted by the pandemic, including sales through school book fairs, Booz and in person events.
These two sales channels combined for about $30 million of business, which we haven't fully realized yet.
We're still in a strange year.
Face to face events are coming back theyre not completely back so that's still a potential that we could see coming up.
So.
Those are our highlights.
We've provided historically historical and current information I want to open it up to questions from our investors.
Thank you.
Just to ask a question you will need to press.
Star one on your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.
Your first question comes from Tony Chiarenza with key equity investors. Your line is now open.
Good afternoon.
Congratulations on a good quarter, even though it's down but it's still I think you are still doing well.
Our first question is on the average number of consultants, obviously last quarter. It was like 55000 or so now it's down to 46000 for the average for the quarter, where do you expect that number to stabilize at some point, obviously, it's coming down obviously from the peak of the pandemic.
Where do you see stability.
Well I hope, it's nearing the bottom now that count comes from our.
Our active count is the definition of our active count is it they've sold something in the last six months right. So our second quarter is always our our our softest quarter for head count because <unk>.
Some of our.
Consultants, maybe only sell them a fall and after Christmas and they don't sell against the next fall. So a lot of those people have dropped off and we kind of hit the bottom about this time, then we start start going back up toward as we go into the third quarter.
Okay. So so you I don't know I don't want to put words in your mouth is at 45040.6000 or somewhere that you would stabilize if you've kind of hit the bottom I know I know that number is an average so it doesn't reflect what it probably was at the end of the quarter.
Well I wish I could tell you.
Covid is still kind of a bit of a damper on not only customers, but people seeking extra income opportunities.
It's hard to tell.
Like I said, we hope that we're picking back up for the third quarter, but I can't commit to a number.
Okay I understand now you mentioned that the inventory levels are high now that that is just something that developed was that intentional or.
Sales came in lower than you expected can you give us some color about why the inventory that has built up so much app.
Absolutely. Thanks, Tony I was I was going to get into this anyway. Okay. So in the fall of calendar 2020 last fall.
Our record breaking sales worried.
Sure.
We had them despite that we are out of stock of 25% of our titles. So.
While we didnt see 80% growth. This year, we thought we'd see modest growth or maybe even being a little bit flat. So we ordered inventory to prepare for this fall.
As you probably know we have to order that six to eight months in advance. So we were planning for growth and we didn't want to be out of stock of things in the fall and sales are down a little bit now. So that's why our inventories a little bit high I will say, we havent purchased much inventory since April so we saw kind of some trends.
And we kind of slowed down our purchasing.
We have to buy new titles and new titles are the lifeblood of this business. So we will be purchasing new titles for those different seasons, but we're going to aggressively worked through our inventory levels over the next six months okay.
And you would expect it to go down can we expect it to go down back to the $50 million level or so from the 65 is that your objective Russo.
Absolutely, maybe even more okay. Okay.
But like I said in the in our script it puts us in a great position for the fall a lot of our competitors are going to run out of stock in their shelves will be empty. So we are poised and ready to have a great fall.
Yeah, no not everybody's out of inventory and I think that's the problem with supply chains every company that I'm involved with has trouble getting inventory at this point, so I think you're absolutely right now.
Now obviously.
With the inventory has come a higher long term debt and thats built up a little bit how much liquidity do you have left at this point on your both on your <unk>.
Revolver in your term debt.
And I'll take that Tony This is Dan O'keefe so.
We've got our existing working capital loan of $20 million, but last year, we were aggressive in paying down our debt, we actually paid down.
A year ago in November we had $30 million of cash and we used some of that cash to pay down about $10 million of building that so we still have a lot of.
Of gunpowder so to speak in the in our reservoir, if we need to go in and raise additional capital through additional bank borrowing there still.
We expect there to be a lot of available capacity to do that okay, but you don't anticipate needing it given that you have the inventory that you need that because you buy some new titles, but you're trying to work it down so I'm, assuming you're not going to need additional liquidity at this point is that correct.
Well it just depends on two we're hitting our busy selling season right now so there's no crystal ball for what's going to happen over our next.
90 days, which is what we typically will have 40% 50% of our business. So it all depends on how these next 90 days come in.
Need to borrow a little more but if we need to borrow more the point I was trying to make is we certainly have a strong enough balance sheet that will allow us to borrow borrow more with our existing.
Lender, well and I will also add to that.
We purchased in April so all of those titles are coming in now so in the next 90 to 120 days, we got to pay for that inventory. So.
No.
We're reserving the right to need more.
More money so.
The good news is as we we aggressively paid down debt last year, we paid down about $10 million of our building that.
Last year and did that.
And so that creates a lot of available.
Assets to use as working capital along with our inventory right. Alright. So you would have something in the neighborhood of $5 million to $10 million and additional availability I'm, just making a number of the.
At least then make at least 10, Oh that's <unk>.
Tremendous amount of flexibility.
Good and then that kind of gets worked up and after we go through the selling season that will going to work down again as we go into January and February.
Exactly right okay.
Okay, great. Thank you so much for answering the question that and best of luck as you go through the Christmas season.
Thank you Tony I really appreciate it.
Thank you. Our next question comes from Walter Schenker with MAZ Partners. Your line is now open.
Actually I have two questions I think I have two questions hi.
Which one of which came up from the last question and answer if you order inventory in April.
When does it show up when the age you actually pay for it. This is the movement of cash and be at what point does it show up on your balance sheet.
If you order in April and you don't pay till September and isn't a.
Delivered till September then it doesn't show up anywhere.
On your income or balance sheet statements question.
The company's balance sheet.
Walter This is Dan again.
So.
When we buy.
It depends on the product that we're buying and where we're printing it we print some in China, which prints I'm, an Arab Emirates of Malaysia.
Typically title passes.
When we get control of it either once at a board the boat or once it hits the U S. Sure one of the two.
And at that point, we take control of it and we book the inventory and the payable, but as Craig mentioned before that can be six to eight months.
More longer sometimes depending on the complexity of the book that we're ordering.
Some of our books have very long lead times, because they take a lot of hand to work to build them.
So, but six to eight months from the time, we order it to the time, we take control of it as kind of the typical scenario.
Okay.
Although from a cash generation standpoint, when your sales associates.
What are they pay.
So as you get sales and before they.
Credit card whatever the cash comes in even before you ship it out effectively correct.
Absolutely. So like you said 120 days from shipping which means.
Shipping times are delayed right now so we may have it.
On the premises between 150 days. So yes, we can start selling it some of it before we pay for it so it helps but it doesn't cover it all.
Okay.
Too much on cash, it's not going to be a problem.
In over the last few months.
However, we wanted to point a few months the company repeatedly.
And towards credit went out of its way to point out that you are a beneficiary of Covid last year that this was a very difficult comparison in the quarter you just reported.
That's the fact, when you did it again and again so that was.
And it again now.
I heard you do it again and again, so I know you did it again and again.
On this call.
We're going into the seasonally stronger period.
You have not said and I know youre not going to make a forecast last year was solar extraordinarily strong it's going to be very difficult.
Two as well as we did last year and listening to this call and you don't know the answer but it would appear that you or you do not have the same concerns you had about the quarter just ended and in fact, it is possible without making a forecast that the next selling season this year could be.
Comparable to the selling season last year.
Or better.
You would not expect it to be down substantially.
No we would not expect it to be down substantially as.
As an example.
Second quarter last year was.
A crazy amount, whereas the fall selling season was.
Modest increases over fiscal 2020, so we.
We hope we can.
Be in line with last fall selling season.
And.
To help our pretax profits and whatnot, we're improving our margins, we're getting more efficient in the warehouse.
Our new.
Capex project for our expansion in the warehouse has been running for about two months now and we're seeing great results from that we're gearing up.
Staffing.
To staff the two lines that we abandon the last couple of months to be ready for the fall selling season. So everything we're seeing is positive.
Okay and just last question.
While the federal Reserve May think inflation's transitory it may or may not be lots of things have gone up a lot your costs I realize you've ordered a lot of stuff for a while ago and youre getting at but are you seeing pressure from a cost standpoint, as you look going forward to new ordering ordering new titles and additional inventory.
Later this year into next year.
Yes. This is Dan Wilford.
The key things that we saw.
We can go backwards in time over the last year there were some paper challenges.
In the.
Late winter and early spring.
But most of those.
Because our volumes we were buying so much more we had volume discounts that were offsetting a lot of the paper challenges and shortages of that period, but really what we saw.
As the shipping challenges that have started happening in the last 60 days Fortunately for US we had already ordered and received a majority of our big bulk purchases that happened.
Last last year in the fall and the winter.
So we missed a lot of the shipping craziness that's been happening over the last 30 to 45 days, we still have a few product coming in but.
The shipping challenges have been just.
Unusual now what we know is that the shipping challenges, our supply and demand imbalance and from what we understand from the big vessel carriers that handle the cargo ships in the containers is that they see this demand imbalance continuing for the next six to 12 months.
Until 2023, when new vessels come online.
Fortunately for US we've got the majority of our inventory. So we will we will be somewhat cushioned from the problem of right now and hopefully the vessels will come onboard in a timeframe that we can get back to normalized shipping costs.
Okay.
And again just to repeat myself to make you repeat yourself.
The comparisons in the next six months or more comparable last year to the year before they were only up modestly.
And with the sales base and the inventory.
The better economics, you are reasonably optimistic.
About the comparisons for the next six months.
We're we're cautiously optimistic.
We're seeing some slow churn thing.
We put out new titles Monday, we have a smaller release in October and we've had incredible results. This week. So that's all I'm going to say.
As far as our forecast.
No no.
Okay. Thank you very much.
Sure. Thank you Walter.
Sure.
Thank you. Our next question comes from Joseph Fuller Private Investor Your line is open Sir.
Hi, I apologize I got on the call a little bit late so I apologize if somebody has already asked this the capital expenditures I know, we're a little bit of an elevated level. If I remember was something related to warehouse or an extra line extension or something how much longer do you expect.
That sort of higher level to remain sort of get back to what was usually a very low level capital expenditures.
Well that was to increase capacity in our warehouse fulfillment.
We don't anticipate needing any further capex for quite some time, we think with that addition, we could get to sales levels of 400 to 450 million without further capex now obviously, we're going to be paying down this project for a little while but.
No no further large capex at this point.
Can I ask one more question I also and I understood Yeah.
And I appreciate all the discussion of the inventory because that was actually that.
The question I had also so.
So once that inventory is sold and pay down some of the debt and so on.
Presumably again this becomes a pretty high cash flow business and primarily.
I remember on the last conference call. There was some talk about stock buyback or increasing dividend then I assume that's on hold now temporarily.
Because of the buildup of the inventory, but has more thought and given sort of long term.
How do you use the extra cash.
Well I've only been in my position for two months give me a little time to think about it sure.
Fair enough fair enough.
Obviously, we're not increasing the dividend share right now or buying back stock because of our inventory levels, but.
I'm telling everybody.
<unk>.
Im kind of aggressive and everything's on the table everything is up for discussion, but not right now.
Fair enough. Thank you.
Q.
Thank you. Our next question comes from Adam Kipling with Hollywood Fitness. Your line is open.
Hello, Yes.
To just ask a quick question I was going to ask you I was going to ask why you guys chose to pay at Tencent dividend instead of trying to chew up the float with the share buyback that you guys have a pretty low flow I would think eating up that slow and then when the demand comes in that would send the stock price up pretty well.
We don't disagree.
I think just.
Cash flow is a short term problem I think changing the dividend down since a more negative message than working through our temporary problem.
So we've chosen to keep it and I'll add to Craigs comment that we have the board of directors authorized us to buy 800000 shares of company stock in the last.
18 months ago. They did so we have that availability to do it.
As Craig said right now we are investing in inventory because inventory is really the funnel for sales growth.
And so we're heavy in inventory right now, but as we work through the the bulge in our inventory and we come more working capital balance we have the ability to to buy shares.
And.
We'll have the cash flow and availability to do it.
Yes.
Alright, it sounds good that's all I have for you guys. Thank you. Thank you Adam.
Thank you. Our next question comes from Marty Alexander Private Investor Your line is open.
Yeah, Hi, I had a question.
From 2019 in your average revenue.
Per consultant.
Back in 2019 so.
Pre COVID-19.
It looks like the revenue per consultants up about 30% do you expect it to drop back down to 2019 levels or are you seeing some kind of traction that we should expect that the revenue per consultant is going to be going up my second question would be.
Do you are you finding that.
Some of the folks that you have coming on that are being consultants are kind of looking at this maybe is a good word for type job versus traditional employment.
Do you see that shaking or do you see that as a go forward opportunity where do you see.
However, it is more of a kind of a flash in the pan because even prior to Covid. Your total consultant count was going up.
You had mentioned that I think covered was a catalyst not the cost so could you add a little color to that thank you.
Sure Marty this is heather.
And I just wanted to talk about revenue per consultant I think that what we are seeing is that the.
The average revenue per consultant during COVID-19 ways, and with inflated a bit due to the overwhelming demand in the product I think that.
While we still fully believe that our sales consultants to drive generating those sales.
And they just they were on cruise control a bit more last year than they have been in free COVID-19 areas and then they are now and just didn't take quite as much energy or effort. So I think that what we are looking at it.
Possibly landing somewhere.
Closer to pre Covid levels.
Always our hope that that we can that we can increase that but at the end of the day.
It's our bigger hope that we can increase the number of sales consultants, which kind of goes to your second question, which is where we think that that's heading with supplemental and Ken I'll refer a little bit too and what Craig was saying earlier, which is.
Still being in the midst of the pandemic, it's really hard to assess that entire situation, but having been a business that has been around in this industry for over 30 years in an industry that's been around longer than that.
They've survived things.
Different than the pandemic, but definitely recessions and.
Various different things that have happened within the economy and within the in the country and I think it will still absolutely be a viable option for supplemental income.
I think especially as what we've seen and what we believe is that people are getting back to the basics when it comes to.
Having books in their homes with kids and different things like that not only the business model that we have but the product that we sell.
<unk> two big things that we have going for us.
Adam I might I'm, sorry, Marty I might add my first love us.
I came from being over it so I hope that we can increase revenue per consultant with our new e-commerce rollout in some of the other.
Projects that were working on so I just wanted to throw that in as well.
Okay. Thank you very much.
Thank you.
Thank you as a reminder to ask a question Thats Star One. Our next question comes from David Wright with Henry Investment Trust. Your line is open.
Hi, how are you all doing.
Great.
I wanted to go back to Walter's last question, which he restated in our home I'll take the third track at it.
Third quarter revenues last year were $66 million your commentary suggests that it's not.
Pie in the Sky outrageously impossible that your third quarter revenues. This year could could get close to that is that is that what youre, saying.
I'm going to.
Eternal optimist, so I would like to thank thats, what im, saying, but act.
We just don't know yet there's still too many unknowns.
Yes.
It's possible, but you know.
Im not committing to that.
Well I mean I think.
David to the opposite of that I don't think we're going to see the disparity that we saw in the second quarter between the second quarter of this year in the second quarter last year.
I think that the.
Two quarters have a more similar.
Volume than what we saw there was just a huge demand in the second quarter last year.
That.
That caused a big delta between the second quarter last year in the second quarter. This year, we don't see that delta being.
Being nearly as significant.
Whether or not that delta is.
Tiny or not tiny we don't see it being as nearly as significant as the delta in the second quarter.
David I'll, just add one more thing to that it's hard to SaaS, we weed.
We've called last year, as a whole and anomaly and so it's hard to know if the.
The increase in the surge that happened in the third quarter can be attributed to COVID-19 or it can be attributed to it being the fall selling season, and so as Craig said the reception that we've received to the mid season releases that we made available this Monday.
Make us really optimistic but we also still feel like it's early really early.
To feel like our Crystal ball is it's close enough to be able to answer your question probably to the extent that you want us to.
Well I mean, I think what's significant is that you know pre Covid. You were you know the three years before Covid 17 through 19, your average revenues were around $112 million.
And it's pretty clear that on the other side of Covid youre going to be more than $120 million a year business.
And ditto for the earnings per share.
We're going to come out higher regardless so.
A great store Youre doing a great job.
I like the dividend by the way.
Yes.
We appreciate you recognizing that we're not necessarily going back to pre COVID-19 or lower numbers. We know we know with pretty much certainty that that's not the case so.
So yes. It is good to see that we're getting that story across.
I won't call it good luck going forward.
Thanks, David Thank you David.
Thank you, Okay and I'm currently showing no further questions in the queue at this time I'd like to hand, the conference back over to Mr. Craig White for any closing comments.
Alright, Thank you Norma.
Obviously.
We wanted to be back in a high growth mode.
We feel like we're doing pretty well again not to beat it to death. So we're trying to compare to 2019 and were up in that 35% to 40% range. So.
Two back to back years of 20% growth is not bad and that's where we want to get back to.
Thank you for being on the call I appreciate it.
This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
[music].
Okay.
And the team.
Hum.
[music].
Sure.
[music].
Yes.
Yes.
Yes.
Sure.
[music].