Q4 2022 Educational Development Corp Earnings Call
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Thank you for joining the educational development Corporation third quarter earnings call.
Before beginning I would like to remind you that some of the statements made today will be forward looking and are protected under the private Securities Litigation Reform Act of 1995 <unk>.
Actual results may differ materially from those expressed or implied due to a variety of factors.
We refer you to the educational development Corporation <unk> recent filings with the SEC for a more detailed discussion of the company's financial condition.
With that I'd like to turn the call over to Craig White, the company's President and Chief Executive Officer, Sir you May now begin.
Thank you and welcome everyone to the call.
With me today are Heather Cobb, our chief sales and marketing officer, and Dan <unk>, Our Chief Financial Officer.
As we have signaled in all of our previous calls we continue to look at our business as compared to pre pandemic levels given that Kelly created record demand and results from our company I am pleased that we exceeded pre pandemic levels in our fiscal fourth quarter with increases in net revenues.
And average number of consultants, resulting in continued profitability.
Now to address the elephant in the room, we have decided to temporarily suspend our dividend the dividend has always been a priority for the company as part of our long term capital allocation strategy to create shareholder return this strategy.
<unk> remains unchanged, but given the strong positive COVID-19 tailwind our inventory levels are at record highs and this decision is solely to protect our balance sheet.
As our inventory levels normalize later this year our plan is to reinstate our historical dividends and this remains a priority.
With that I will now turn the call over to Dan O'keefe, Our Chief Financial Officer to provide a brief overview of the financials for our fiscal year 2022.
Thanks, Craig.
So for some fiscal year 2022 highlights our net revenues for fiscal year 2022 totaled a $142 2 million a decrease of $62 4 million or 35%.
Compared to $204 6 million reported for fiscal 2021.
Earnings before income taxes for the fiscal year totaled $11 2 million, a decrease of $6 million or 34, 9% compared to $17 2 million reported in fiscal 2021.
Net earnings totaled $8 3 million compared to $12 6 million a decrease of $4 3 million or 34, 1% from last year.
And finally earnings per share on a fully diluted basis totaled 98 cents compared to $1 50.
Down 34, 7% on a fully diluted basis.
And.
And as Craig mentioned.
And discuss some of the recent.
Events that have happened with EDC.
As you might have read in the 10-K that was filed earlier today and our subsequent event footnote we increased our working capital line from 20 million to $25 million to strengthen our balance sheet during this quarter.
We ended the year with a proxy ended the fiscal year 2022, with approximately $73 million of inventory. We expect this to be our peak inventory level and see a significant amount of inventory turning into revenue and cash over the next three quarters.
In addition to our working capital line pausing the dividend as Craig announced earlier.
Increase our cash position by about $1 million a quarter on a temporary basis.
This concludes the financial report and now I will turn the call back over to Greg.
Thanks, Dan a couple of items I'd like to begin with.
Our fiscal year 2022 was the second largest revenue and earnings per share in our company's history and while we experienced a decline in revenues our pre tax profits remained strong which reflects the overall strength of our business model.
<unk> generates profits not only during periods of growth, but also periods of decline.
Our fiscal 2022 results could not have happened without the hard work of our UBM sales consultants and our publishing sales teams. Both groups continued their sales efforts into fiscal 2023.
It's still not a normal.
Sales environment out there with pandemic, you know world views, but let me.
Hand, this over to head into further talk about our sales opportunities.
Thanks, Craig.
During the fourth quarter, we continued to experience an increase in our publishing division sales and a decrease in sales from our E beam division when compared to last year.
Our publishing division sales totaled $2 $9 million in the fourth quarter and $13 3 million for the year.
Publishing division fiscal year, 2022 sales grew $4 6 million or 53, 6% over fiscal 'twenty, one and represented a 15, 6% growth over our largest publishing sales year and $11 5 million in fiscal 2015.
While some of this growth came from the return of normal sales activities to stores that were temporarily closed during fiscal 'twenty. One our publishing sales team was able to add several new customers and gaining business with existing customers that resulted in the record sales.
Our UBM sales declined 35% to $17 $6 million in the fourth quarter of fiscal 'twenty, two primarily due to the anomaly that last year was with the pandemic.
Throughout fiscal 'twenty, two we have seen our active consultant count declined due to consultants returning to full time work as well and our children returning to school.
Although our consultant counts had been declining they still are above the pre pandemic levels that we had experienced our active consultant count averaged 37500 in the fourth quarter, which was 19% higher than the fourth quarter of fiscal 2020, when our active consultant count averaged 31400 this increase consultant count.
Has driven our increase in revenues ever pre pandemic level.
In addition, we continue to introduce new technology based tools to help our consultants to be more successful in reaching new customers and expanding that recruiting effort, which we anticipate will ultimately lead to overall sales consultant growth and retention.
During the fourth quarter, we rolled out our new online training platform <unk>.
Some enhancements that we've made with this platform includes several touch points.
With our field sales force, we have regularly scheduled new consultant meetings as well as new leader meeting, which allow asset home office to reach these leaders in these consultants and ways that we hadn't done in the past.
We also plan to roll, our new ecommerce website, which will add mobility and other additional features we're very excited about this new E. Commerce website as it will allow us to bring additional features that will make it easier for our consultants to do business as well as allow us to develop additional enhancements on site to improve our coast and customer.
Experiences.
This concludes our sales update and I will turn the call back over to Craig. Thanks.
Thanks Heather.
One other impact you'll see from our recently published financials as our continued high levels of 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.
Inventory turns to cash we will pay down on our borrowings expect to be back to a normalized working capital within the fiscal 2023.
Now you've heard me say this the last couple of calls, but I just wanted to make sure everyone is clear and understands.
The inventory levels that we're seeing now was from inventory that was purchased in.
February March and April .
Fiscal first quarter of fiscal 2022, and so it's just coming in.
October November December January , which means our inventory levels kind of peaked at.
At the end of the fiscal year and now 90 to 120 days later those inventory purchases are coming due so that's why our.
Our working capital line needed to be increased.
During this first quarter of fiscal 2023, we have experienced some headwinds against sales in our <unk> division due to the impact of inflation as fuel prices and food prices have increased at record levels, our customers have been forced to slow down on spending in other areas.
In an effort to spur revenues, we have recently introduced new online specials and additional consultant incentives to energize, our UBM salesforce and give them tools to help generate sales in this challenging environment.
We're also excited to see rebounding sales from <unk> sales channels that were negatively impacted by the pandemic, including school book fairs, and boost and fair events. These two channels have taken a positive turn back towards pre pandemic levels.
Now that we have provided historical and current information I will open the call up to questions from our investors.
Thank you speakers participants we will now begin the question and answer session.
To ask a question over the phone you May press the star key followed by the number one from your telephone keypad to withdraw your request you May press the pound key.
Again, Thats star one to ask a question over the phone or.
Or the pound key to withdraw your request.
Speakers. Our first question is from the line of Walter Schenker Your line's now open.
Yeah.
First I will make a complaint which has nothing to do with your earnings.
But it has to do with the fact that if youre going to report at the end of the day.
Ensuing conference call should be either the end of that day or the beginning of the next day. It should not be 24 hours. After you report it would've been theoretically just as easy to report today after the close and have the conference call at 430 this is especially.
True if youre going to report news, which might be unsettling to the market.
So now that I've said.
Yes.
That off my chest.
Since we'd like to go back and compare to 2019 in 2019 inventory was about 30 odd.
I have it in front of me 30, some odd million dollars is since we're going to compare the increase in sales.
Yeah, well bring that up 20% to $36 million relative.
Relative to the sales we had in the last year should I take that to mean that we have $40 million roughly of excess inventory.
Net is that it.
They look at it.
Well I I understand how you are looking at it it's not exactly accurate I would estimate that we have more like 15 to 20 million excess inventory.
So that going forward.
Assuming sales are flat I understand would be nice swim to grow but if sales are flat.
Well, we're going to free up is I'll call. It 15 to $17 $5 million will split the difference.
Inventory and therefore.
In regard to cash flow and paying down that debt will remain well above where it had been two years ago. Despite the earnings over the last couple of years, if thats, where youre going to free up.
Well, okay. Good point.
Didn't specify that we're going to be flat.
I mean, if we're maybe we do.
I'm sorry go ahead no.
No no I understand that I'm just.
Making.
A generalized.
My assumption Euro assumption.
Thanks.
So the issue remains.
And our financial position and the elimination temporarily or longer of the dividend is a function of.
Again inventories and debt levels I realize this is being redundant.
But that basically you said you did earn a dollar last year roughly.
Right.
Correct.
And was there a covenant issue that also caused you to borrow more money, but did that run you into a covenant or you just thought it was prudent.
To do it on the dividend.
At this at this term at this time it was just what we felt was prudent we did not run into a covenant issue at this time.
Okay, I'm, not and I'm not ready to Kevin the issue in the near future either I'm, just saying that it was just a prudent decision.
Okay.
And lastly, since we both know you and your father, who the largest shareholders are do you have I realize it's up to the board do you have a sense as to what financial condition. The company relative to that would need to be in for you to reinstitute a dividend.
As though.
So what have we cut it and if we can get here we may reinstituted.
And I haven't I have something in mind, it's not.
It's not necessarily based on the statistics, but.
It's likely to be third quarter.
So we missed the second quarter and be back in the third quarter now.
To give you specific details.
We'd have to talk about it but if we're turning inventory into cash and we're getting our working capital line.
In the neighborhood of 25 million down to between 10% and $15 million and I would absolutely reinstated and maybe it doesn't have to get down that low in my opinion, but.
Down in the 10% to 15 ranges where.
Were projecting.
Okay.
Yeah.
Just lastly.
Since I had said flat and you didn't.
No you're not going to forecast.
But took some minor exception my statement of flat.
Looking at the year, you would still hope not forecast, but hope that earning revenues this year.
Should exceed last year.
And.
So I guess thats close to forecast.
Yeah, that's close to a forecast there's too many economic external pressures right now I mean.
Let's face it children's books are a discretionary purchase and until the economy and gas prices and food prices start to turn back down I can't I can't forecast or anything.
We believe in our sales model, we believe in our sales division so.
If all of these economic external pressures were reduced.
We would feel very good.
Yes, Joel joining I'll just.
Walter I would just add to Craigs comment there.
We've kind of put out some currently because of what's going on right now for the last couple of months, we've seen with the war Ukraine and of course, the following levels of inflation jump up what are you seeing the immediate impact of that.
Yeah.
A key indicator to our current environment right now that's why we're being as protective as we can with our balance sheet.
It's.
We're seeing headwinds against us with inflation and as <unk>.
Consumers of our purchasers of chilled.
Children's books. These are typically young families with.
They'd have to distinguish between what are we buying fuel food or children's books, and so we've seen some pressure.
And we wanted to be prepared for this for a longer term, we don't know when as Craig said when the.
The current environment.
<unk>.
He is going to change and so we just want to be conservative right now.
Okay. Thank you I'm done.
Thank you Walter.
Okay.
Speakers next question comes from the line of total Honeywell. Your line is now open.
Yeah.
Oh, I'm sorry, Hello.
So.
My question has to do with the very recent change that I've been concerned about for some time after researching the company and I've been very impressed by the adaptability.
Ever since the.
The company came about 2014 started reporting 2014.
But there's a lot of market uncertainty right now and one of the things that.
Has suddenly changed is the management.
And Craig as you are a straight shooter.
I tried to tell things as it is without palm punches.
I kind of have a one dimensional understanding of you.
Having a background.
Having been around people that are.
Of that type, sometimes they they want to manage things as opposed to people.
Okay.
And I think that the people relationships are very important, especially in a business like this.
What I want to know and I would appreciate specific examples.
Is can you kind of.
Round out how.
How you have transitioned into the role of CEO .
From your background.
And what expertise do you surround yourself with and take counsel from and feel free to give specific examples. Please.
Sure.
Well, obviously as well as surround myself with two experts and our CFO , Dan and then our chief sales and marketing officer Heather.
But what I've done and I recognize that that I've been a more.
Maybe a quiet person but.
You have to understand that Randall has a big personality and there's there's not a whole lot of room behind them and so when I have kind of taken over I've instituted.
Weekly and monthly.
Cause with the next level down our directors, because let's face it they're doing the lion's share of the work in the company our level of directors nine of them.
The strongest it's ever been.
Sure.
So I feel like we are working very well on communication within the company we're working on.
Culture in the company.
I'm not.
Trying to say anything negative about Randall, but even the older gentlemen, and he comes from a different generation and so I'm trying to change the culture, a bit and improve the communication.
In my previous role I managed relationships with UBS software vendors.
Things like that so I have had great relationships with all of those groups.
I've been working under Randles leadership for 30 years, So I kind of learned what I need to and some of those things but.
The management team has basically been the same throughout to transition the board members have been consistent throughout their transition.
So.
I appreciate your sentiment that I'm excited about the opportunity and I am absolutely driven to create my own success. So.
I don't know if that answers your question, but.
That's a little bit maybe.
In the room.
Yeah, Thanks for that.
That's helpful.
And I also I failed to mention that I I've also been impressed by.
The changes that you have brought to the company whether it's through software through the production lines are not the production lines with the the pick and pack lines and so forth and the adaptability there you certainly.
<unk> shown you prove your metal there.
A follow up question.
I'm really hoping can we expect to see a CEO letter from you soon.
Yes.
Yes, yeah, absolutely in the annual report is where we usually have one so that'll be out in the next six to eight weeks right. Okay. Okay.
Thank you that's all I have.
I appreciate it Joe Thank you.
Speakers. Our next question is from the line of Joseph Polar Costa. Your line is now open.
Hi, So I had.
The question so I appreciate it.
Youre talking about the effect of inflation on on demand I'm.
I'm wondering because I know one of the advantages of having bought all of this inventory is is that you bought at a lower cost.
Going forward do you have sort of any view to this.
Where it gets replenished over the next year as you go down and have to do how much additional all of that cost is and then also on the other side do you have any price increases planned before that you can sort of hold the line now whats sort of the point on that.
Good question. So all of our inventory is in fact at lower cost.
We have not raised prices across the board ever we've only ever increase prices here and there where it was necessary. So I would anticipate that there might be some meager pricing changes over the next year or two but no wholesale changes.
Nothing like that.
Hi.
Yes, yes, I mean, we had.
Dan's reminding me that the prices are printed on the back of the book. So there are some challenges to raising prices.
We can and I think we've done a great job of.
Keeping our prices low we have it.
Like I said had any wholesale changes so.
A few price increases over the next year or two would probably be prudent.
Understood. Thank you.
Thank you.
Again.
<unk>.
I wanted to ask a question over the phone.
Keith I will draw your request for tomorrow.
Next question is from the line of Randy Freeman. Your line is now open.
Can you hear me.
We can.
Hi, Okay. So I have three really quick questions.
Looking at the earnings on the announcement and.
It looks like.
The share count went down by about three or 4% is that because you were buying back stock or does that have certain sort of more complicated more complicated reason for that.
And well.
I wasn't aware of that.
We've not had any significant share now ownership changes, we haven't bought back any stock or issued any additional stock outside of.
<unk>.
Some shares that were issued.
Last year, so 2021 associated with our long term incentive plan, yes. So if anything the number of outstanding went up a little bit, but they shouldn't have gone down.
When were healthier and a better cash position, we will look at buying back shares, but that we can't do that right now.
Okay. So I am looking at the table in the announcement at T O.
For the 12 months ended February of 'twenty, one there is 8.3.
352 million shares outstanding and for the 12 months just ended there is 839.
So unless I'm missing something.
Alright, Yeah, we're enables route.
Yeah, we're looking it up real quick.
Okay that makes a ramp.
Yes, just one SEC.
Okay.
Now the diluted was about the same at least 12 months, but the basic went down.
And for the three months the diluted also went down.
Okay.
Okay.
Yes.
Yes, let me look at that.
And we need to make a correction, we will make a correction on that but.
Randy just to confirm we really havent other than the long term incentive plan, we haven't had.
And we have a bonding okay. Yeah, so maybe they're just a mistake in that table.
Okay. Thank you Dave.
You can look that up if you want to correct that okay. So my second question.
And I'm looking at the net profit margin I mean, one thing that I'm just thinking I know you can't forget the next fiscal year and the sales or are the profitability, but if you're working right now for the next two or three quarters like you said through inventory that cost less than what youre going to have to buy it for in the future.
And when you look at the current.
Quarter.
Net earnings were around one 5% plus or minus.
Net revenues.
So.
Are you able to do are probably not able to do you can say, whether you think you are going to be.
I know in the announcement you said you.
You're making some changes now so you can try to preserve profitability.
It's possible you may not be profitable for a quarter or two or more is that where does that fair statement or are you able to comment on that at all.
Yes, so there is.
There is a part of our business is affected by seasonality so.
Our third quarter is typically the most profitable quarter, we have and it is usually about it's our largest revenue quarter.
And then the third quarters, followed by the first quarter.
And then the second quarter and then last is the fourth quarter. So typically our fourth quarter has the least amount of profitability.
So because it's when you look at the four quarters before.
Orders of our fiscal year, our fourth quarter is typically usually the smallest quarter.
But.
Heather Whispering to me here, she says but of course, we don't forecast of where I'm, giving you historical seasonality of our business by quarter.
Okay. So we don't quite know what the next couple of quarters are going to.
Yes.
We have invented crystal ball I'll buy it.
Yeah Yeah.
Is it sort of a personal question I guess for for Heather and Dan 19 pool Craig.
I know you really can't even tell me this but.
There is a website you can look at to see if anybody has bought in stock or sold any stock any insiders.
Are there any plans for you I know Randall has enough already but are there any plans for your three to maybe buy some stock at these levels or.
You really I know you probably can't even tell me, but when do you think.
Okay.
We offer our stock through our 401K plan.
And so I can tell you that the three of us continually buy stock through our four one K plan each quarter.
We don't have to reconsider that.
And we have if you go back you will see some form four filings for us in the past that show that we've continually bought shares.
Yes, I saw that.
So we continually invest and then there are opportunities we buy we do buy shares outside of the plan and we announced that when we do it and certainly at today's prices.
Attractive goodbye.
Okay.
Okay, Yes.
The first the first gentlemen made a statement about you know that you had the continental.
24 hours. After your earnings announcement, you didn't really have any.
You're asking me to address that but.
What do you think is that late <unk>.
Ryder in the future or.
I personally don't care that much I don't think it's going to really matter.
If you had your conference call right. After your announcement I mean, the market. The next day is going to do what it's going to do anyway. So right.
Okay.
What we tried to do is we try to do the earnings announcement.
In the call within that 24 hour period.
And we tried to be consistent in what we're doing.
But we do.
We do have an investor relations firm <unk> advisors, we will take the comment that Walter made up with them and if theres a better doing it that is more.
Fair to everybody, then certainly we want or as best practices, certainly we want to do that so we will take his comment up with our Investor Relations group.
See if we can make some improvements.
Yeah.
So we don't have any problem with what youre doing a lot of companies do it that way another company that reported that I own. After the market closed yesterday had their conference call. This morning.
Just a little bit after the market open so I don't think it really matters a lot that's my own opinion, but.
Okay. Thank you very much.
I appreciate it Randy Thanks, Randy.
Thank you. Thank you.
Speakers. Our next question is from the line of John John Your line is now open.
Good afternoon, Craig I Wonder if you could tell me something about the contract you have with US born who provides most of the content of the books that you are selling how long does your agreement with them last and do you have any requirements in terms of how much you purchase from them each year.
No we do not have any requirements for how much we purchase well I say that the original agreement I think said $3 5 million, which is a very very low number.
So that the contract is evergreen.
<unk>.
So yeah.
We've gone through a new transition period, where I'm, the new CEO of our company and Nicola is Peter <unk>, daughter, and she seems to be taking over more and more over there. So we've I've attempted to improve the relationship with her and.
So that we can workloads moving forward.
Okay. So there are no.
Current.
Contracts that.
Hello.
Number of years to run or any specifics in terms of what's your relationship with US born is.
No nothing.
Right correct.
So okay John .
Just a few.
Be clear, we have a contract with us for and we filed it as an attachment to our 10-K that dates back to 1988.
That's the current agreement is Craig outlined it has some purchase.
Requirements in it but it's very very small I think it's as Craig said, it's less and.
Less than $5 million, and we've been buying $50 million a year from them for the last couple of years close to it.
We're.
Certainly meet those minimum requirements.
Okay. Thank you.
Thank you John .
Any other questions.
No further questions.
Okay.
Okay.
Okay. It looks like we had one more.
Okay.
Next question is from the line of change in your line's now open your line.
Okay, well good afternoon, and thank you for taking my questions I have two quick questions.
Alright.
And now let me Sofia online consultant database shows that the number of consultants.
And then another 40% to 50% from the end of February until today.
Why haven't you renewable facilities decline naphtha.
First question.
And secondly, the cash that youre in how much does this massive decline in consulting increased the company's solvency rate.
Thank you.
The first question I'm not sure how you got that those statistics, because it's absolutely not correct.
We've fallen from our peak in 2020, but the numbers, we said earlier in the call or where we're at I've heard of other people trying to do queries on her.
<unk>.
Consultant searches and extrapolate numbers.
You know that's not good science so.
The numbers, we told you are accurate so.
And then the second question.
I don't even remember when it was because I was focused on a solvency so.
Key thing is.
Last year, we were very profitable, we expect to be profitable going forward I think last year was we announced we made 98 cents a share.
We expect to be profitable this year.
I think if you look at our historical financials going back into the late eighties, you will find that EDC has been a profitable company every year or so.
We think for sure that will.
We will be profitable.
Going forward and we have no concerns about.
Solvency.
Okay.
Thank you Kay.
Alright.
Yes.
Yeah.
Again participants again star one to ask a question over to fill that towards the balance sheet turnaround of classical request.
Okay.
Okay.
Yes.
Thank you participants ill now turn the call back over to Craig White for final warrants final.
Thank you Jesse.
Just to address I'd like to question asking about me personally.
Not many people know me very well.
One of my core values that I am a straight shooter.
I'm not going to sugarcoat it spin it all those things now that doesn't mean on a negative or a realist.
I believe that we're going to be heading in a positive direction and get back to.
Positive ways, but.
I'm a collaborator by nature so.
Anything that any.
Any tough decisions that we have I immediately told Dan and Heather and I together.
And depending on the nature of the problem Randall as well.
And then and then I have to make I have to move forward I don't necessarily vacillate I look at all the options.
For resolution to a problem and then we move on we make a decision that we move on we do the best we can every single day.
And we're doing that right now to try to increase sales, we have a lot of new incentives coming out the field is absolutely fired up right now.
Evidenced by a couple of calls we had this week so.
We're looking forward to getting back so.
Thank you everyone and we'll see you on the next call.
This concludes today's conference call. Thank.
Thank you all for joining you may now disconnect analysis disconnects.
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