Q3 2023 Educational Development Corp Earnings Call
[music].
Yes.
Good afternoon, everyone and thank you for participating in today's conference call to discuss educational development Corporation financial and operating results.
<unk> third quarter fiscal 2023 year to date results. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Steven Hooser Investor Relations.
Thank you.
Greater and good afternoon, everyone. Thank you for joining us today for educational Development Corporation third quarter in fiscal 2023 year to date earnings call.
On the call with me today are Craig White, President and Chief Executive Officer, Heather Cobb, Chief sales, and marketing officer, and Dan O'keefe Chief Financial Officer.
After the market closed this afternoon the company issued a press release announcing its results for the third quarter and fiscal 2023 year to date the releases available on the company's website at Www Dot EDC pub Dot com.
Before turning to the prepared remarks, 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 1095 actual results may differ materially from those expressed or implied due to a variety of factors. We refer you to educational development Corporation's recent filings with the <unk>.
SEC for a more detailed discussion of the company's financial condition with that I would now like to turn the call over to Craig White, the company's President and Chief Executive Officer, Greg.
Thank you Steven and welcome everyone to the call I.
I will start today's call with some general comments in regards to the quarter, then I will pass the call off to Dave Heather to run through the financials and provide an update on our sales and marketing.
Finally, I will wrap up the call with some comments and strategy in 2023 outlets.
We are pleased with our sales for the third quarter, especially when compared to the previous quarter. We continue to face macroeconomic pressures from record inflation, resulting in high food and fuel costs that have hit the pockets of our target customers, which are families with young children.
To combat these continued pressures like many retailers, we offered additional discounts to support our customers and additional incentives to energize our sales force.
These market decisions allowed us to generate over $30 million in net sales, but did impact our ability to drive the bottom line, having said that I am pleased by our ability to remain profitable for the quarter.
With that I will turn the call over to Dana or Keith to provide a brief overview of the financials Dan. Thank.
Thank you Craig.
Turning to the third quarter net revenues were $30 3 million, a decrease of $14 8 million or 32, 8%.
Paired to $41 $45 1 million in the third quarter last year or an increase.
Yeah.
50 to 56, 2% as compared to $19 4 million during the previous quarter.
The annual decrease is due to the positive benefit we saw a year ago driven by the pandemic.
The quarter over quarter increase was primarily due to the seasonality and also included some promotional from some promotions and incentives.
Average active E band sales consultants totaled 27.1.
<unk> 7100, compared to 41500 in the same period a year ago.
In 2006.
800 in the previous quarter of this year.
During the third quarter, we saw stabilization in the average active number of consultants.
We have seen our active consultant levels begin to rebound, while our lead leader level consultants remain at historically high numbers.
Earnings before income taxes for the third quarter were zero.
<unk> zero million, a decrease of $3 6 million compared to $3 6 million recorded in the third quarter of last year.
Net earnings for the quarter also totaled zero compared to $2 6 million a decrease of $2 6 million.
Earnings per share totaled zero compared to 31.
On a fully diluted basis.
Now turning to our year to date highlights we recorded net revenues of $72 8 million a decrease of $46 1 million or 38, 8%.
Compared to $118 9 million during the same period of 2022.
The decline was primarily due to lower active consultant count coupled with rising inflation, especially during the first and second quarters. This year.
Average active E band sales consultants totaled 28700 compared to 47300 for the first three quarters of 2022.
Last year, we saw inflated numbers continuing from the pandemic when school closures continued in memory family members worked from home.
This year as schools remained open and families returned to work we've seen our sales consultant levels start to normalize.
Yeah.
Year to date loss for income taxes was $800000 a decrease of $11 7 million compared to $10 9 million during the same time last year.
Net year to date loss totaled 600000 compared to $8 6 million for the first half of last year.
For the first three quarters of last year, a decrease of $8 6 million.
Year to date loss totaled <unk> <unk> compared to earnings per share of <unk> 94 from the first three quarters of fiscal 2022.
Down 107, 4% on a fully diluted basis.
To update everyone on our working capital levels inventory levels decreased from $67 6 million at the end of the second quarter to $64 3 million as of November 32022.
Cash generated from our reduced inventory was primarily used to pay down our working capital line, which ended the quarter at $9 million.
We continue to expect further inventory reductions and working capital line Paydowns during our fiscal fourth quarter and throughout fiscal 2024, as we normalize our inventory levels.
Lastly, our long standing dividend program remains paused as part of the strategic decision to preserve cash, which improves cash flows by approximately $1 million per quarter.
This concludes the financial update I will now turn the call over to Heather Cobb to talk about sales and marketing opportunities in further detail Heather. Thank you Dan.
Greg mentioned earlier, we continue to evaluate market conditions and make changes we feel are needed to motivate our sales force and engage our customers. We ran several customer discount promotions and sales incentives during the quarter to ensure strong results during our peak seasonal selling period. These market decisions not only helped us normalize our working capital.
Also keep our commission based sales force engaged.
During the second and third quarters, our sales and marketing teams internally spent significant effort executing a Brent rebranding directive for our direct sales division, we announced the rebranding efforts in June engaged a tier one rebranding firm to assist us and completed and announced the new name of our direct sales Division paper Pie in December .
This new name allows us to better showcase our full product offering Kane Miller books Osborne backs smartwatch toys and learning wrap up paper Pi also allows us to build a recognizable name unique to R. R.
Our rebranding process was completed earlier this week when we transitioned our customer facing e-commerce and brand partner facing back office to the new paper Pie Dot Com. We are extremely excited about our new name <unk> paper pie as it does allow us to build a recognizable brand and purpose encompassing all of our wonderful products and people.
Theres a lot of meaning behind the name, but overall, we wanted our brand to represent our mission I'm gathering forget around literacy and learning.
This is a newly formed compound word, which we will be defining ourselves at paper Pi paper is our medium of communication, whether it's aboard book gain pieces a series of chapter books are creative activities.
As the World continues to fight for our children's attention three screens and devices. It has never felt more important for tangible literacy and learning tool that will feed the imagination grow the emotions and nourish the mind of our children and when you think of Pi you think of something to be gathered around something to be shared an experience where it stayed around that.
Exactly what we believe our products are made for literacy and learning as a lifestyle paper pie is for memory, making creative learning and unlimited possibilities all within the context of togetherness.
Along with this strategic rebranding starting this week, we rolled out our smart lab toys product line.
These award winning steam based products, including Squishy Human body Laboratory toys Science labs ways.
And our tiny series offer children ages eight hands on learning opportunities.
We expect our initial launch of 10 products to have an immediate sales impact and we plan to follow that up with additional product releases mid season. This spring and another significant release this summer.
This concludes our sales and marketing update I'll turn the call back over to Craig for closing remarks, Greg.
Thank you, both Heather and Dan.
IDC has decades long history of profitability, we have been profitable during recessions and other challenging times.
During this past year, our product costs and sales commissions have remained unchanged. The other costs have increased especially in the areas of inbound and outbound freight.
As our earnings have been impacted we have made recent changes to improve profitability, including increasing the freight we charge. Our customers. This was done late in the quarter. So it had a small impact so far we.
We have also made changes to reduce our operating expenses and we are seeing inbound freight rates come down and are taking advantage of better spot rates. We expect these changes will yield profitable results even on reduced sales volumes.
As we return to higher profitability, we plan to reinstate our long standing practice of paying quarterly dividends to our shareholders. This has been and continues to be a top priority for myself and our shareholders.
Turning to future expectations I want to highlight some exciting changes happening at EDC first I want to thank Heather and our sales and marketing team for the successful rebranding launching paper pie was a great accomplishment.
Not only short term benefits from the excitement surrounding our new name, but a positive momentum building trend in our paper Pie brand partner count as we rally around our new names are improving and diversified line of products and our improved systems.
We recently hired a new Chief Information Officer, John Leach that brings 30 years of experience in 20 years experience in the direct sales industry his guidance and leadership supporting our paper Pi launch was a key to its success and the additional resource library that was added to our brand partner success platform.
He has taken the lead on several projects that we have new products and system enhancements that will not only make our existing paper Pi sales brand partners more successful, but offered new brand partners a shorter path to financial success selling our products, we will be rolling out several system improvements over the next few months.
Lastly, I would like to talk about our new product lines Smart lab toys. This product line has a long history of sales success, but has never had a marketing and sales engine white paper pie, where we have a much broader reach also.
Our trade retail division has outside sales groups have represented the product line in the past and are ecstatic to get the line back.
Smart life toys, most recent year sales was $7 5 million and we feel very good about being able to exceed that.
We do not need to acquire companies to continue to diversify the product lines, we have been working with existing vendors to provide more educational games and toys.
Begin selling some of those this week.
We will continue to look for opportunities with our existing vendors as well as outside opportunities.
Now that we have provided a summary of some of our recent activity ill now turn the call back over to the operator for question and answers.
Yes.
Thank you.
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Okay.
Hello Alan.
I'll introduce them.
Yes.
Hello.
Hello This is Alan.
Yes. It is.
Shoot.
Okay.
I'm sorry.
The question.
Do you have a question for Ellen sorry, Yes, I do I do I'm, sorry, I wasn't sure if I was on or if I was holding there.
We weren't sure either.
[laughter].
Okay. So how about I'll I'll ask my three questions and then I'll hang up and listen to your response.
First.
<unk> net sales per average consultants quarter was 941 down 6% from the same quarter last year and down 17% from the same quarter just before.
Oh, sorry.
In fact this is the fourth year in a row that Q3 sales per consultant felt are you or your consultants selling less each year or is your definition of active consultant becoming more liberal.
Secondly.
This past June as borne publishing limited in the UK applied with the U S patent and trademark office to register the Uba M trademark and expressly stated that it intends on using his trademark and commerce is ask for and planning on launching its own MLM business to compete directly with paper pie.
And finally Eurosport distribution agreement specifies minimum revenue targets that you must order from US one what are these amounts.
For your time.
Thanks, Alan sure.
Let me address this.
Well I'll address all of them, but.
Our sales per consultant going down has mostly to do with the economic factors, but I will say.
The new distribution agreement that we signed with Asbury. This summer caused a great deal of confusion and chaos and.
Wondering what the future is going to look like as we had to get to this major rebrand so.
I think that's a lot of it.
Say we are.
Necessarily on a downward trend I think there is a great deal of excitement around the new brand.
It's very exciting that paper pie as Heather mentioned is in a very clean.
<unk> and social media space, So, they're really rally around the new name and so.
I don't anticipate that trend will continue but that remains to be seen.
Also with <unk> trademark.
Yes.
The.
<unk> Dot com.
<unk>.
Yes.
They are not watching their own MLM division.
<unk>.
The whole idea around this rebrand is that they're trying to protect their global brands and thats, what caused us to need to rebrand as you know as we're mixing more has the word as born in it and they wanted us to rebrand. So theyre just trying to protect it so that it doesn't get taken going forward, but.
We have no indication that they're going to compete with us in a multi level marketing.
Division.
And then with minimum revenue target.
Minimum purchase yeah, we had minimum.
We have not published the minimum purchase agreements.
They're working with us. They know this is a difficult economic time, and we still just short of it but.
Again, they're working with us.
So.
Anyway. Thank you for the question.
Yes.
Ladies and gentlemen, as a reminder, should you have a question. Please press the star followed by the number one.
Next question, we have Jim luxury.
Your line is open.
Yeah.
Slot.
I'm curious about the impact of inflation on your year.
Year over year and quarter over quarter growth in the.
In the release, you talked about how inflation.
Has an impact so I'm just hoping you could.
Quantify that or put it in a range of of how much inflation contributed to the.
Quarter over quarter growth for the year.
For the quarter.
I don't think we can quantify inflations impact, it's just that whether we like to believe it or not children's educational products are a discretionary purchase for young families.
I don't think there's any way we can quantify that.
So the key thing we look.
As we said in the in the color.
Make market decisions based upon <unk>.
Sales activities and we are constantly.
Looking at.
What we need to do to capture sales in gross sales and so we ran some promotions this quarter and offered some additional incentives.
Just to make sure that we're capturing as much of the business as we could.
Okay.
And that was my second question is the reduced also talked about discounts and incentives.
Are those expected to continue.
For the next couple of quarters or is this.
A one time thing.
Right, Dan just said, we always try to react to sales and marketing conditions at the time, we don't expect it's not a company wide decision to discount or do any of those kind of things but.
We kind of spur and try to ignite the salesforce whenever we see it as necessary.
Okay. Thank you.
Thank you.
Thank you, ladies and gentlemen, as a reminder, should you have a question. Please press the star followed by the number one.
Next question, we have Christy Johnson with educational development.
Ashley Please see this going.
Your line.
Okay.
Again, ladies and gentlemen, these fast as far filed later number one.
Next question, we have that cliff.
Martin.
Private investor.
Great.
Please go ahead.
Ask your question.
Yeah.
Okay.
Sure.
Go ahead from Morgan has disconnected.
Hi.
Again, ladies and gentlemen, please press the star followed by the number one.
Yes.
Yes.
Your next question comes from John Bair, with ascend wealth adviser Sean Zara.
Your line is open thank you.
Thank you.
Good afternoon, Greg and Heather.
Heather and Dan.
Question.
Are there any other.
Blinds that you might add in addition to the.
The squishy skeleton in other words.
Any other kind of theme that you might be able to add to that product line are those offerings I guess.
Yes, good question so.
Just wanted to have choice over their history, you have introduced 40 or 50 products.
And some of them have been discontinued, but we're looking at bringing back any or all or any combination thereof. So they had several basic category groups I would say that our circuits.
Group of products they have the Chinese they have the squishies, which there's a squishy brain and they have a new product that they actually never sold before we acquired them, which is the ultimate squishy human body, which is.
Much more integrated with electronics, you can put put.
The Oregon's Im just little electronic pad and you can do closes on that Oregon, you can keep track of.
The cuisines and so that's that's another product in that line.
But like I said and then there is.
Science labs, and some of those things. So we have a wealth of products that we can bring out.
And we didn't want to overwhelm and bring out 20 or 30, all at once so we're kind of space in those releases out but yes. There are further products.
So might an approach be too.
Inquire of your consultant lines of of.
Inquiries about.
Some of those products that you haven't introduced yet in other words.
Rather than human anatomy type.
Products maybe.
Cats dogs.
You know that kind of thing.
Yeah.
This is Heather John how are you.
Thanks.
And they have a catalog of products for us to continue to pull from but in addition to that we also kept on staff one of their creators and developers. He was responsible for the creation of these products and we have already been in conversations and brainstorm sessions about what's next.
Next.
As far as the creation process. So we have the best of both worlds, we can pull from the backlist of their catalog and we also are planning to create some of our own things to follow up with.
Okay. Okay.
Well I'm just wondering.
The debt.
If you if you.
Question those in the.
In the consultant line.
And get their feedback of any <unk>.
Interest about certain products.
From their down line or whatever are the people that are having third parties and whatever and kind of query them as to what's going on or.
That that might give.
To give you a better.
Idea of what the public wants so to speak.
Is that a an approach you're considering.
It's actually approach that we already use we have constant interaction with our field.
To receive feedback to get ideas and.
We have an entire section of our back office support ticket category to take recommendations and suggestions and say that that's what we've already been doing with our product line and is taking the temperature of our field as well as the customers I'm watching trends and seeing where we can fill gaps that we current.
We arent offering or isn't available in the market otherwise.
Okay. Okay very good thanks for taking my questions.
Absolutely. Thank you.
Hello, Kristen Christy are you there.
Yes, yes.
My question is since I had difficulty logging on and missed the part that I wanted to learn about what's the price of stock at where would I access the recording.
Yeah.
Following our call.
Following our call today, we will get a.
A recording and put it on our investor.
Page of our EDC pub Dot com website.
And if you go to where and under what I look there, but when I was trying to log on so what's it going to be under welcome corporate filings governance or epic you.
Hold on just second we'll pull it up right now and I can direct you there.
You can follow and under and under the investors.
Corporate filings and then there is earnings calls yes.
Corporate filings.
Okay, Theres nothing under corporate filings at this point right.
<unk> earnings call.
Oh in the press releases.
What I've been able to get the phone number to call in.
Online because I couldn't find it and the reception that couldn't get it for me.
Yes, So we filed an 8-K a couple of weeks ago that gave the earnings call information that was an earnings call announcement.
And then we also filed a 8-K in our press release today that both included the earnings call number.
Okay is it online.
Yeah, all of our filings on your website.
We are in very high demand and filings.
Yes, we will put them on after the call.
But that's where it was today I should have been able to find it under SEC filings.
The phone number.
Yeah. If you go to that SEC filings and open up that eight first 8-K.
And then you can walk through that 8-K announcement and at the bottom there is a third quarter earnings call information.
Okay.
I cant, but I got to Edgard search rates.
The result, but that's all right I can get a recording later some place.
Yes, the Edgar search results are correct and then if you click on that 8-K.
Under the Edgar our search results it'll open up our press release.
Yes.
Okay and 8-K.
I mean, what I mean, I might hurt results in IC filing type of do I type in okay. There.
I'll tell you what.
So why don't you you've got our offices later, alright Goodbye, yes, that's fine.
Yeah, great, Thanks, and I'll be happy to help you.
Thank you.
Ladies and gentlemen, as a reminder, should you have a question. Please press the star followed by the number one.
Yes.
Okay.
Yes.
And there are no further questions at this time, we have any closing remarks.
Yes. Thank you thank.
Thanks, everyone for joining us on our call today. We appreciate your continued support and look forward to providing an additional update when we report Q.
Q4 in May.
So again appreciate your support.
Reach out anytime and thank you.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Okay.
Okay.
We pointed out that.
Alan Rockwell convergent capital he's the one that drove some of the three.