Q1 2024 Educational Development Corporation Earnings Call
Okay.
Thank you.
Yes.
Yeah.
[music].
Okay.
[music].
Good afternoon, ladies and gentlemen, and welcome to the educational Development Corporation first quarter fiscal year 2024 earnings call.
At this time all lines are in a listen only mode.
Following the presentation, we will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for operator.
This call is being recorded on Thursday, the 13th of July 2013.
Before beginning the call 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.
Actual results may differ materially from those expressed or implied due to variety of factors.
We refer you to the educational development Corporation city since filings with the S. E C for a more detailed discussion of the company's financial condition.
I would now like to turn the conference over to Jean Marie Young from three part advisors. Please go ahead.
Thank you J P and good afternoon, everyone. Thank you for joining us today for educational Development Corporation fiscal first quarter earnings call on the call with US today are Craig White.
Didn't and Chief Executive Officer, Heather Cobb, our 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 fiscal first quarter release is available on the company's website.
At Www E D C. P U b dot com with that I'd like to turn the call over to Craig White, the Companys, President and CEO Craig.
Thank you, Jim and welcome everyone to the call.
I will start today's call with some general comments in regards to the quarter, then I will pass the call off to Dan 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 on strategy in fiscal 2024 outlets.
During the first quarter, our sales continued to be impacted by high inflation, which we will likely face for the remainder of the year.
As we have said on previous calls our sales results were primarily driven by our active brand partners.
As a key indicator that reflects current sales levels, and where we expect them to trend in the future.
Our brand partner levels decreased again this quarter. We believe this is for a variety of reasons like you mentioned economy rebrand et cetera.
As I mentioned on the fourth quarter earnings call. Some of this was carrier carryover from rebranding, which takes some time to work through our entire network of sales partners were still making additional changes to improve our sales to not only make our brand partners more successful, but also entice Newberry important partners to join paper pie.
I will talk further about that later in the call on a more positive note our brand partners at leadership levels remained higher than pre pandemic numbers and they are primary drivers for new recruiting and overall sales growth.
Brand partner success generates additional brand partners and that continues to be our number one focus.
We will be looking at numbers of our active brain partner count from this summer as an indicator for the future. This is due to the fact that by the end of the summer based on our definition of active.
Hasnt changed that each of our brand partners, we will either have joined under the new paper pie brand and or made a sale under this new brand.
As you will hear Heather discuss a bit more our marketing promotions and programs our focus on building this number back up to higher levels.
Another positive from the first quarter with the continued results from our Smart lab toys product line.
We introduced 13, new smartphone toys to our publishing and paper by customers and our sales have exceeded expectations not only have we received a great reception from our recent retail customers, but we have also picked up some nice international orders as well.
Our paper packaging Division continues to drive the total sales for our company and the and the sales of smaller towards toys from this division are exceeding our original expectations.
During the quarter, our gross sales of smart coil products exceeded $1 4 million.
We introduced 10, new products in June and have another 15 or so over the next 12 months.
Some of these our customers have never seen before so we've started new development since we've owned them.
With that I'll now turn the call over to David to provide a brief overview of the financials Dan.
Thank you Craig.
For our first fiscal first quarter results compared to the first quarter of last year net revenues of $14 5 million, a decrease of $8 7 million or <unk> 37, 5% compared to $23 2 million.
Our average active paper pie brand partners for the first quarter totaled 23200 compared to 32200 in the first quarter last year, a decrease of 9000 or 28%.
Loss before income taxes totaled $1 2 million a decrease of $1 5 million compared to an income of <unk> 3 million in the first quarter last year.
After tax loss totaled.
900000 compared to.
200000, a decrease of $1 1 million.
Loss per share for the quarter was <unk> 11, compared to income of <unk> <unk> per share on a fully diluted basis.
To update everyone on our inventory and working capital levels inventories decreased $8 3 million from $70 6 million at May 31, 2022, compared to $62 3 million at May 31, 2023.
Our working capital line of credit was $11 million at the end of May 2023.
That concludes the financial update and I will turn the call over to Heather Cobb to talk about sales and marketing opportunities in further detail Heather.
Thank you Dan.
As Craig mentioned earlier, we have made some recent changes to bring success to our brand partners. This summer we know that success beget success and this is true with our brand partners as well.
With our current brand partners leads to better recruiting which leads to more sales.
This impact will change that we have made is to reduce the freight change on outbound shipping to our customers, that's reducing hurdles that prevent them from shopping with our brand partners.
Prior to this change we saw a reduction in the number of smaller orders overall and we believe that this is a direct reflection of the impact of inflation on the economy by.
By reducing our freight charge.
Simple flat rate structure, we expect to entice these customers to complete a purchase with a smaller order as opposed to abandoning their cart and not buying anything from their brand partner we are.
Also we expect our number of higher dollar orders to stay.
<unk> the same.
An additional benefit from these smaller orders is that they introduce more new customers to our product having more customers introduced to these products gives our brand partners more opportunities to find their next party host and possibly even recruit their next brand partner.
We've heard stories from all levels of our brand partners that they joined for the Buck.
They turn their discount into a successful business because we want our brand partners to be even more successful with their business. This summer we've offered them additional cash bonuses on their sales. This is due to the fact that we have seen a direct correlation between our brand partners, who sell during the summer months and.
And then.
Continuing to sell and have success during the fall, which is always our busiest season of the year.
We have also added other promotions and specials. This summer to give our brand partners reason to contact their existing and potential new customers with these new and exciting offerings. This summer is normally our slowest time of the year. So we are giving our brand partners lots of reasons to stay engaged and build their businesses.
This concludes our sales and marketing update for the today I'm turning the call back over to Craig now for closing remarks, Greg.
Thank you Heather and Dan.
As I have said before EDC is decades long history of profitability naturally it's easier to grow profitability when revenues are increasing and steadily outpacing expenses. However, we are in a period, where we have seen our revenues decline and thus we are having to manage our costs.
We will continue to make operating adjustments each month to reduce our costs. The single most significant cost reduction this year will come from normalizing our inflated inventory levels.
As we reduce inventory it turns into the free cash flow, which will be used to pay down debt, which will reduce the interest expense that hits. Our P&L. This will be one of the most significant improvements to profitability in fiscal 2024.
To normalized inventory levels were executing a two pronged approach first and foremost as Heather mentioned earlier, we are taking significant steps to energize energized our sales force.
We expect to introduce new incentives and promotions not only this summer throughout the rest of the year.
Additionally, we will maintain our strict discipline in our purchasing over the past 12 months, we have made significant efforts to reduce the corners of titles. We are printing and put increased focus on ordering more frequently.
We expect this two pronged approach will normalize our inventory faster.
As an example, we have.
Purchased.
Roughly half of what we did last year and about a quarter of what we did pre pandemic levels.
We have also reduced payroll and other operating cost and look for every opportunity to improve our bottom line performance. We will continue on this path until we reach profitability.
Once we return to profitability and pay down debt levels, we plan to reinstate our past practice of paying quarterly dividends to our shareholders. This has been and continues to be a top priority for myself and our shareholders.
I'd like to take this opportunity also to mention.
We've just come off a couple of our largest.
Opportunities to energize, our sales force and.
Make her a paper by division as attractive as possible.
In June we had a convention where we had.
Hey, good average number of attendees, but what we kind of heard is that a lot of them are coming to just kind of see what the brand. The rebrand was all about.
To a person every single person left much more positive and they come into it they were very impressed with what our sales and marketing teams have done with the brand.
And we really really focused on our mission.
Which is children's literacy and learning so those those things that convention was a very positive impact.
And right now I happen to be Heather and I happen to be on our sales incentive trip.
So we came from Rome last week, where we had roughly that was that's the highest level trip had roughly 40 people that with family members and such we brought about 125 people and now we're in Pune kind of Dominican Republic, where we have.
Roughly.
100 people and that's not all earners, but that's including family members. So that's the biggest recruiting factor or one of the biggest recruiting factors for paper pie is to see the amazing trips, we take people to earn on.
So anyway.
We're very very encouraged coming out of convention and out of these trips and we're looking forward to the fall.
Now that we have provided a summary of some recent activity I will now turn the call back over to the operator for question and answers.
Thank you ladies and gentlemen, we will now begin the question and answer session.
If you have a question. Please press star followed by the number one on your Touchtone phone you will hear after April and prompt acknowledging your request.
If you would like to cancel your request please press star two.
And certainly if the handset if youre using a speakerphone before pressing any keys.
Your first question comes from the line of Ed <unk> private Investor. Your line is now open.
Craig I'll talk to you in a while.
I'm on the call.
I was looking at.
10-K.
Yeah.
That was published in February .
This year at February 28.
Your inventory to that level.
What's that.
Each line.
Today, it's $62 million. So it went up $3 million from the last.
Quarter.
Sure.
It seems to me that.
Inventory is gone in the wrong direction.
Yes.
Right.
And having said this is Dan.
Yeah. This is Dan.
To clarify because I think you've got some numbers that are different if you look at our press release, our inventory at the end of February of this year was if you add both the current and the long term inventory together was $63 million.
800000, and at the end of <unk> at 62300, So we dropped about a million and a half this quarter.
And just just I just wanted to clarify that before.
The.
Okay.
We have dropped inventory you made in the half.
Well, Dan My point is and Craig also.
Also in that 10-K that you released you are having problems with the bank they need their money.
Is there any plans do you have any plans to sell any of your assets in bulk like for example sell on the Hilton complex.
Al Kane, Miller, or maybe sell $30 million worth of this inventory back to us for two or another distributor.
Do you have any plans to get the massive amount of cash and pay off these debts.
I am worried about it.
Yes.
Can you kind of hit a bunch of points that I was trying to keep track. So I could respond first of all okay.
Yeah inventory levels.
I've said all along that we will continue to order new titles, we have to do that but what.
We said in the earlier in the call was that we were reducing the quantities and potentially the number of new titles that we're ordering so we're being very aggressive on reducing our purchases very aggressive.
Historically aggressively low so.
As we sell inventory I'll turn it into cash we'll pay the bank back. Another points. You made is that we owe the bank a lot of money, yes, we do and we have renewals coming up next month and there is no indication whatsoever.
That we will not be able to renew successfully with him and that's for our.
Working capital line.
And another point you made is do we have any plans to sell our assets.
Aye.
We have engaged with a firm to look into the market for our building of our size and our market is very good we could turn the building around and sell it within 60 to 90 days. So we know that's available to us I want to keep that in my back pocket as a last resort we have plans for this property.
And once we get sales back up so I don't want to.
Get rid of that property just yet now if we need to we can so.
Again, I just wanted to reiterate that we have a good relationship with the bank and there is I've had no indication that we're not going to be able to renew the line of credit.
As far as the building that.
<unk> pays their part we pay a smaller portion of it.
We have never defaulted on any payment so again, they're not concerned.
About the building that they just want us to work down the working capital line, which we're doing by selling inventory.
Okay.
That's helpful. Greg.
My other main concern.
We're right now in my mind, you have no concrete plans to sell.
30% to $40 million worth of that inventory back to us for I know another another distributor because I've been look I'm looking at Greg at your 2017.
Fiscal <unk>, we had approximately 25000 consultants, which are probably what you have today, but you had 34000, sorry, excuse me $34 million in inventory. So it seems like to me youre like close to $30 million over what you need.
Based on 2017, Okay. So that's correct what would it be would it be helpful. If.
Just had a mass sale just because it seems like.
The consultants.
Producing enough sales to reduce this inventory to normal levels.
Yeah. That's a good point, we are looking at options to do some massive inventory reductions.
Whatever we do we don't want to.
Damage our brand partners' ability to continue to sell inventory as far as showing it back to wander other distributors, that's not an option there.
They have no incentive to buy back inventory from us. So again, we're looking at some major foundation, we're looking at some other inventory.
Inventory reduction sales and things like that so.
I'll also add and one of the things that we know that you look for us to do for the company is to manage not only the short term.
Challenges as well as successes that with long term things in mind and so I'll just.
Kind of reiterate what Craig said, we're looking at what all of our options are now, but one of the last things that we want to do it some sort of short term strategy that will end up in some sort of you know.
Damaging long term effect and that none of us wanted to fee. So while yes, we are looking at various different creative and alternative ways to reduce this inventory we definitely wanted to do it in a way that will allow us to continue the business.
As we've done with paper pie as well as with our retail division.
For the long term.
Okay and Ed Ed.
Ed.
This is Dan I'll kind of add another thought is.
You mentioned the two 7% 2017 period, if you recall during that time, we were also over inventoried.
And you know the over inventory issue as we have.
Excess quantities of our best selling items those are the titles that we ordered the most quantity of the titles that are our best sellers.
And so in 2017, we did as we worked through it.
And through 2017 to 2018, we reduced our inventory from the high Forty's down to about $30 million, reaching line about 18.
And so that's kind of the approach, we're taking right now too.
We're a little bit more aggressive on the purchasing than we were back in 2017 as as Craig as explained earlier.
But.
<unk>.
The excess inventories working down and it's in our best selling items.
Okay that's understood.
My other question, if you don't mind.
<unk> around it.
Relationship with us for.
I read in the 10-K that you are in violation of the new district distribution requirement.
Correct.
Yes, not enough, we're not buying enough minimum.
Amounts from US point say you are in violation.
According to the 10-K, they can cut you off at any minute because youre violated the contract.
What do you say to that what kind of assurances can you say because you've been dealing with these people for decades and also they said that.
Theyre not they owe you $1 million from last year, and they're not paying to me, it's like whoa, you've been dealing with these people for decades and they.
Sure.
Fighting deal about a million dollars discount rebate.
To me, it's like Wow. This is not right. So what do you what do you say to that.
Yeah, we have been dealing with everyone for decades, I've, just taken over and dealing with them myself for the last two years and recently Nicholas father, Peter Osborne, the founder of the company passed away some dealing exclusively with Nicole at this point there is no incentive for them to to cancel the distribution agreement.
That's not to say they won't.
But they know that we've just got to get this inventory situation back to a normal level and then we will get back to purchasing inventory at historic levels. So they have no.
They have no options to replace test.
There.
On the paper price side, they're replacing assets distributor for our retail division, but that's gonna be take years and years for them to ramp up the inventory that's necessary to service.
Service the retail division, so I really don't feel like it's in their best interest again.
We are preparing ourselves we are trying to protect ourselves.
Whatever kind of.
Installation of the <unk> distribution agreement.
Gives us a selloff period so.
We're just trying to get stronger financially by selling down inventory and that gives us a little bit more leverage.
With us worn so that's the that's the approach we're taking.
Well my other question, Dan, Let's say, what's the status of the employee retention credit.
Well, we filed for it so.
We're waiting on we're waiting on the IRS to.
Take action.
Nothing concrete there.
No intentions.
Okay.
Okay, well, that's all I was just wondering if theres nothing theres no definitive answer from the IRS on that.
Not yet not yet.
I mean, we meet the requirements. So I would expect that we would get it at some level, which man if we get some some cash from that would be outstanding it's not necessary or required for us to continue arm, but it sure would be great.
Okay well.
Yes.
And Craig.
Wanted to ask you. This question, we're going to have to go back in time.
Yeah.
Christmas of 2016 do you remember when you guys just moved into the Hilton complex and you bought it.
You bought a software package from a company in Florida.
And broke down actually.
It wasn't it was a classic nightmare okay.
Your father, and you had grandkids up there trying to.
Get all the packages out in customer service was gone Crazy anyway, you paid about $1 million from the software packages as I recall.
Did you ever get your money back for that software.
No no.
Oh of course, I've been with the company for 30 years I remember that of course I do.
Both sides are working in good faith, and we had just determined that it was not in our best interest to continue with them. So we suffered the Thai.
And we moved on we developed all the software programs we needed in house.
And so that's a distant distant memory.
Yes.
It almost bankrupt your company at the time, if I recall because you were also in violation.
Covenants with the bank I think it was Midwest bank at that time, so anyway.
Right now I think you guys are in a pickle and we have to get this.
Inventory or.
Some catch up to get the back because you're working on a labor right now it seems like from the 10-K and how generous are they going to be with the waiver I mean, they could shut you off August 9th I think.
It might be out of business as a going concern.
No no no. There's a lot of it is highly unlikely alright. Thank you Ed I appreciate it.
Alright, Thanks, Ed.
Your next question comes from the line of Frank Madelle from Jim Gabel Associates. Your line is now open.
Yes am I on.
Yes, we can hear you.
Yes.
I had a couple of comments.
Okay.
Half of what it said.
I noticed the sales sales volumes are down quite a bit everything has healed of course I've been in business myself. Many years everything gets heal this.
If you can increase sales.
What's the outlook for the next year.
Year or so.
Realistically.
Well, we don't and this is Dan.
Frankly, we don't give guidance as far as revenue.
Just to just to put that out there before I turn the call back over to Craig as a small reporting company we just.
She'd been our past practice to just be conservative and not put our guidance Craig I'll, let you take over from there.
Yeah no that's good thank you.
Well.
Things are looking up we've we're doing all kinds of things to help increase sales retain brand partners and it takes a little time for those things to come to fruition.
The sentiment right now is more positive than it has been we're going to be releasing some of our software projects in the next couple of months, which will be a positive impact.
Our products get better and better.
When we keep our brand partners and salespeople and customers focused on our mission of children's literacy and learning.
Things always go better so we're doing all the right things, it's just taken a little longer than we'd hoped.
We will we will survive this tough period and increased sales.
Second question I had what are the what are the insiders within EWC doing as far as stock retention.
Carl I mean, three of us are buying.
Yeah.
How is it going to say so.
The insiders being the obviously the white family the.
The board and nobody has really been selling any shares.
And then of course, as Craig mentioned, Heather Craig and I continue to buy shares every quarter.
We recently filed form fours that reflect our activity for the first quarter.
Okay.
To that to that point.
One way you, obviously improved cash flow is to pay in shares rather than salaries, obviously people have to make a certain amount of money to maintain our standard of living.
Companies I worked for in the past often did that.
Call them Golden handcuffs, whatever but they paid with shares when times are hard.
To reduce reduce.
Losses, I guess, you could say by having.
Hi salaries.
There's a learning curve.
I don't know how long ago, you mentioned and but Frank the key thing that I.
I mean, it's a great idea, it's something that Craig is and I've talked about in the past, but I just wanted to before Craig turn the call over to Craig I, just want to make sure youre aware of that.
It's not legal underneath the SEC rules for us to issue shares to management, unless we've got shareholder approval to do so so we will to do that we will have to file we would have to file on it.
Registration statement registering the shares and have a shareholder vote.
So just.
Just given your current SEC guidance, Craig I'll, let you.
Discuss the.
Yes.
No.
Yeah. The only thing else I was going to add is that we do have short term and long term incentives the long term incentives.
Our shares now.
Those were <unk>.
<unk> and the first tranche was awarded this past March after a five year vesting period, but we have other.
Chunks of stock that our top 15 to 20 management.
We have earned over the past several years.
They're still being invested in things like that so.
We do have.
Long term incentive plans in place we have small cash bonuses with short term they've been bigger in the past we're doing very nominal.
Short term cash incentives, but.
Yeah.
I like to thinking but.
We're doing some of that.
Part of where I'm going is your highly incentivized to turn this company around.
Rather than bailing, when it gets tough and.
You are in a tough situation right now so as a stockholder.
I have a lot of patience if I have hope that if you lose hope then your patients goes away so.
Sure.
It's just it's been a.
Tough timeframe do you see in my own stock account that I have with it Luckily.
A lot of other assets.
It's just a very worrisome thing when you see a company stocks go down as heavily as a AUC has done in the last three years.
I'm sure I'm, not telling you I agree.
Right.
I'm probably in the top.
10 largest shareholders, including institutional so I get what youre, saying I've been through a lot of the good times some of the bad times.
Ever since I took over it's been a little bit of a tough tough stretch with.
The pandemic, and then economy and things like that but.
I'm here for the long haul.
I've got to look at this as a long term turnaround in.
We're here for it.
Alright.
All the comments I have thank you.
Thank you Frank.
Thanks, Greg.
There are no further questions at this time I will now hand over to Craig. Please continue.
Thanks to everyone for joining us on the call today. We appreciate your continued support and look forward to providing an additional update when we report quarter two in October .
We know it's been a tough time.
We're doing everything we can to get this turned around things.
Seeing positive indicators so.
Hanging in there.
Have a great day. Thank you.
Thank you everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Okay.