Q2 2025 Educational Development Corp Earnings Call
Speaker Change: no
Speaker Change: Music Music
Speaker Change: Good afternoon ladies and gentlemen, and welcome to the educational development corporations second quarter fiscal year 2025, early in the call. At this time, all lines are in need of an only mode. Following the presentation, we will conduct a question and answer session. If at any time during the call to require immediate assistance, please press star zero for the operator.
Speaker Change: The call is being recorded on Thursday of 12th, 2024. Before beginning the call, you would like to remind you that some of the statements we today will be forward-doking and are protected under the private security esthetication reform of 1995.
Speaker Change: After all results may be for materiality from those expressed, or implied good over idea of factors.
Speaker Change: We'd refer you to the educational development corporations, recent following with the SET for a more detailed discussion of the company's financial condition.
Speaker Change: I would now like to turn the conference over to Steven Hooser, Pete Go ahead
Steven Hooser: Thank you operator, and thank you everyone for joining today.
Steven Hooser: For Educational Development Corporations, First, Second, Quarter, 2025, Earnings Call. On the call with me today, our Craig White, President and Chief Executive Officer, Heather Cobb, Chief Sales and Marketing Officer, and Daniel OKeefe, Chief Financial Officer. After the
Steven Hooser: For the fiscal second quarter and year-to-date results, the release will be available on the company's website at www.edcpub.com. As the operator mentioned, we will make forward-looking statements and I suggest that you take a look at our forward-looking documents. With that, I'd now like to turn the call over to Craig White, the company's president and chief executive officer.
Craig Light: Thank you, Steven, and welcome everyone to the call. We appreciate your continued interest. I will start today's call with some general comments regarding the quarter. Then I will pass the call over to Dan and Heather to run through the financials and provide an update on ourselves in marketing.
Craig Light: Finally, I will wrap up the call from that date on our progress of the cell lease back to our headquarters, the healthy complex, and provide some comments on strategy and the remaining fiscal 2025 outlook.
Craig Light: During the second quarterly we ran recruiting promotions to increase our brand-new partner levels and offered discounts to customers both in an effort to increase sales in generate cash flow.
Craig Light: These strategic decisions are necessary to address the covenants of our bank agreement related to our current inventory levels coupled with the challenging macro economic environment. As higher inflation is reducing the discretionary spending levels of our customers.
Craig Light: Although these higher than historical discounts increase our sales in the short term, it also negatively impacts our gross margin percentage and our pretext profits for the quarter.
Craig Light: While we have been making these strategic decisions to focus on sales stability, our priority is focused on improving our overall operational efficiency in reducing costs. I will talk about some of these changes at the end of the call. With that, I'm now trying to call over to Daniel Keap to provide a brief overview of the financials. Thank you, Craig.
Daniel Keap: Our second quarter summary compared to the prior year second quarter net revenues were 6.5 million compared to 10.6 million. Our active active brand partners totaled 13,900 compared to 18,100.
Daniel Keap: Laws before income taxes were 2.5 million compared to income before taxes of 1.5 million. Net loss total 1.8 million compared to income of 1.1 million. Laws per share total 22 cents compared to income per share of 13 cents on a fully diluted basis.
Daniel Keap: Next to our year-to-date summary compared to the prior year, net revenues of 16.5 million compared to 25.1 million are active active brain partners from our active average brain partners total 13,700 compared to 20,600.
Daniel Keap: Laws before income taxes totaled 4.2 compared to income before income taxes of .3 million.
Daniel Keap: Lost total 3.1 million compared to income of 0.2 million and lost per share total 37 cents compared to income per share of 2 cents on a fully diluted basis.
Daniel Keap: Now for an update on our working capital positions, net inventory is decreased 5.3 million from 55.6 million in effect to worried 28.24 to 50.3 million as of August 31st, 2024.
Daniel Keap: borrowing on a working capital line of credit total 6.1 million at the end of August with 9 million of availability at the end of the second quarter.
Daniel Keap: That concludes the financial update I'll now 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 continue to make strategic changes to bring new initiatives for success to our brand partners on the paper price side.
Daniel Keap: This included our June National Convention, which happened shortly after we launched our new StoryScape Travel Incident Contest.
Daniel Keap: After convention, we held July sales promos, including a very successful dollar days incentive, where we offered several books for one dollar to our customers and sold through full inventory on many of those.
Daniel Keap: In addition, we offered a summer recruiting promotion where we provided training, support, and incentives for promoting to leadership. Our overall focus on the paper pie side continues to be on brand partner growth and retention, as well as sales strategies to move inventory.
Daniel Keap: Our retail division continues to see success, working with current customers, as well as with new independent bookstores and specialty gift shops, especially in relation to our smart lab toys line of offerings.
Speaker Change: This concludes our sales and marketing updates. I will turn the call back over to Craig for closing remarks.
Craig Light: Thank you both Heather and Dan. One of the biggest events in fiscal 2025 is the anticipated sale and least back of our headquarters building, the Healthy Complex.
Craig Light: The proceeds from this sale will not only bring savings from reduced interest expense, but will allow us to build a positive cash position as we continue to work down our excess inventory levels, which is approximately 30 million at the end of August.
Craig Light: 25 to 30 million in excess.
Craig Light: Solving the complex of this size is not an easy tree infection, as we have learned over the past 10 months. However, we remain confident in the sale based on strong recent interest levels. One recent improvement that is driving demand in the complex's marketability is the work we did to add a new tenant, Crusoe Energy Systems.
Craig Light: which began occupying just under 30% of the complex on July 1, 2024. This new tenant not only strengthened the income of the complex but they had committed to several capital improvements in their least space.
Craig Light: As we previously announced on September 19th, we executed a letter of intent to sell leaseback of the healthy complex.
Craig Light: The agreement excludes the 17 acres of excess land, which will remain under EDC's ownership.
Craig Light: The proceeds from the sale which is expected to be completed around the end of this calendar year is expected to fully pay back the bank leaving us with no debt and we expect to have limited borrowing needs moving forward.
Craig Light: We made other recent improvements to help reduce our costs, including changing our outbound freight carrier, which has reduced outbound parcel costs by approximately 20%.
Craig Light: Making this change was not easy, but a strategic and necessary move to reduce freight costs that have increased significantly over the past several years.
Craig Light: Another cost reduction we executed after the end of the second quarter was the consolidation of our Learning Wrap-ups warehouse in Salt Lake City, Utah, into our Tulsa facility here in Oklahoma.
Craig Light: Savings from both these changes will improve our operational performance on the go-for basis.
Craig Light: Lastly, I want to thank all of our shareholders for their patience, our employees for their commitment to our mission, and our customers and brain partners for their loyalty during this difficult period. I'm confident in our collective ability to emerge stronger and more resilient than ever before.
Craig Light: Thanks for watching.
Craig Light: hello
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star button, followed by the number one on your touch, don't follow it.
Speaker Change: You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press the star button followed by the number two.
Speaker Change: If you are using a sticker phone, please leave the hunt set before pressing any keys.
Speaker Change: One moment is for your first question.
Speaker Change: Your first question comes from Apple Carter from Capstone Asset Management.
Speaker Change: Your line is not open, please go ahead.
Speaker Change: Thank you. Good afternoon, everyone.
Speaker Change: So just talking about the building, first of all, so this is the third investor group that you've announced, buying the healthy complex. I know the first two investor groups fell through, but now you've got the Crusoe energy lease there. Can you just talk through a little bit more like how confident are you that this third investor group, you know, we'll close on the transition.
Speaker Change: Yeah, the first two groups were actually somewhat related at ArmsLink, so I'm kind of considering that one group. But towards the end of that negotiation period, it got to where they were.
Speaker Change: Using deadlines to renegotiate the cell price and we had full support of our bank to terminate.
Speaker Change: that L.O.I. and move on. Oh, the group, OK, so the structure or the details of this transaction with this investor group, you feel is a little bit more solid.
Speaker Change: Yes, yes, I do, so they've been on the sidelines for the last eight to ten months, they've put in a couple of offers which
Speaker Change: Each time was not our best offer, but they've increased their offer and were moving forward with them. Yeah, the only thing I would add to that Paul is that this new group.
Speaker Change: We've disclosed as partner holdings if you look at their holdings on the internet, they have similar campuses to this. So the healthy complex is a campus and some of the real estate that's underneath the management of partner holdings.
Speaker Change: is similar kind of to this kind of a structure where you've got an entire complex.
Speaker Change: You know, not just a small real estate holding.
Speaker Change: OK, that's great. And then so the sales price in the letter of intent is 30, just over 38 million. What's the net amount that you figure you'll be receiving?
Speaker Change: Paul, we haven't executed the agreements to identify what the net price is going to be. We've got the letter in 10 executed, but we're not at a point where we can disclose the net number at this time.
Speaker Change: OK, OK. And then assuming that goes through, you're going to pay off your bank. Will you be entering into another credit agreement with a different institution just to facilitate new inventory purchases? And if so, have you thought through parameters of what that agreement might look like?
Speaker Change: We have a couple of different interested parties to give us some small working capital needs. You're right that we will need to buy some inventory, but we're talking about a very small borrowing that will be paid back in under 12 months.
Speaker Change: OK, it's just, you're actually right though we do need to do some inventory of replenishment and some purchases of new titles that we've kind of been.
Speaker Change: Delaying, and we expect to do that, and as soon as we close on this agreement, move forward.
Speaker Change: Great and speaking of that, so I understand that your recent sort of inability to purchase new inventory.
Speaker Change: has related to an inflated level of out-of-stocks, which, and I don't know how significant is that, but can you quantify, like how much has that impacted sales? The last couple of quarters has that been sort of a meaningful drag on paper pies net revenues.
Speaker Change: Hi Paul. I'll jump in and give my...
Speaker Change: My color on that question, I think that, yes, absolutely, it's a factor. I don't know that we are in a place that we can truly say that it is representative of a specific percentage.
Speaker Change: because I think it has to do a little bit with out of stock waiting to be replenished, as well as O.K. Leather number of idols.
Speaker Change: Are you there?
Speaker Change: And so I think there's a number.
Speaker Change: Paul, can you hear me? Oh sorry, yeah, you cut out there for a moment. I can hear you now.
Speaker Change: No worries, no worries. No, I do think that there's a number of factors that you know we always say it's hard to identify any one specific factor. The economy right now is an added insult to injury as we're dealing with the various things that we are and so we're actually taking this time to just make some strategic decisions on what our catalog of offerings looks like and building that out in a way that is going to be successful and sustainable for both the paper pie and the retail divisions as we move forward.
Speaker Change: OK, thanks for that. And thinking of strategies, so I know Tupperware recently followed for bankruptcy which introduces probably quite a bit of uncertainty for their independent sales reps. What strategies are you guys sort of using to specifically attract those Tupperware, Tupperware sales reps that are probably looking to do something else with their time right now?
Speaker Change: Yeah, that's an interesting question, Paul. We're not specifically doing any targeted outreach to those brand ambassadors or consultants that Pepper Ware has.
Speaker Change: It's not necessarily a one-to-one, just because they're selling temporary where it means they're going to want to fill their time selling children's books. They may want another opportunity for an arm of income that they can bring in and obviously we are ready and willing and available and are making ourselves as prominent as we can with anyone who would be looking not just temporary. We are working on the strategies, like I said with our products, but also with our programs and our offerings so that we can adapt to the various different things that we're seeing in society right now and what the different generations are expecting and really want to fill their time.
Speaker Change: planning to see out of the direct selling industry.
Speaker Change: OK, curious too, many of your brand ambassador or brand partners also sell for Tupperware.
Speaker Change: of the ground.
Speaker Change: Oh, that's a great question. We don't track, specifically who else they sell for, but off the top of my head I can't think of, I can't think of very many that are doing that side by side.
Speaker Change: OK. All right, great. Well, that's it for me. Thanks very much everybody.
Speaker Change: There are no further questions at this time, I will give back the call to Mr. Craig White. Please go ahead.
Craig White: All right, thank you, erm...
Craig White: Yeah, it's been a challenging, challenging year, but we get through this sale, lease back transaction, and kind of get back to somewhat business as usual, and I think we're poised and ready to go. I mean, we've gotten more efficient. We've changed. We've adapted some of our paper pie division offerings, and we're really excited about the future. So thanks everyone for joining us on our call today. We appreciate your continued support and look forward to providing an additional update in January 2025. Thank you, and have a great day.
Speaker Change: Ladies and gentlemen, this concludes today's conference call, thank you for your participation, you may now disconnect.
Speaker Change: Thank you very much.