Q3 2025 Educational Development Corp Earnings Call
3rd Quarter Fiscal Year 2025 Earnings Goal
Speaker Change: At this time, all lines are in 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 the operator. This call is being recorded on Monday, January 13, 2025. I would now like to turn the conference over to Mr. Steven Hooser, Investor Relations. Please go ahead.
Speaker Change: Before turning the call over 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 private Securities Litigation Reform Act of 1995.
Speaker Change: Actual results may differ materially from those expressed or implied due to a variety of factors. We were afraid it to the educational development Corporation recent filings with the SEC for more details on the company's financial conditions and for full forward looking statements with that I'd now like to turn the call over to Craig White, the company's President and Chief Executive Officer.
Speaker Change: Greg.
Speaker Change: Thank you Steven and welcome everyone to the call. We appreciate your continued interest.
Speaker Change: I will start today's call with some general comments regarding the quarter, then I will pass the call over to Dan Heather to run through the financials and provide an update of our sales and marketing.
Speaker Change: Finally, I will wrap up the call with an update on our progress of the sale leaseback of our headquarters the Hilton complex and provide some comments on strategy for fiscal 2025.
Speaker Change: During the third quarter of last year, we recognized a $4 million gain on the sale of our old warehouse.
Without this one time event, our third quarter pretax losses would have been $1 3 million compared to the pre tax loss of $1 1 million in the third quarter of this year.
Speaker Change: Our third quarter results are lower than historical revenue levels reflect the continued operational improvements we have made over the past year and our continued focus on driving continued operational and cost efficiencies.
Speaker Change: During the quarter, we continued intentionally to offer additional discounts to our customers, which negatively impacted our gross margin and bottom line.
Speaker Change: Our increased discounting has solely been to boost bolster sales.
Speaker Change: In terms of excess inventory into cash to be used to pay down our bank debt.
This is a short term strategy that we will continue to strategically pursue until we sell our building and pay back all of our borrowings.
Speaker Change: At that time, we will be able to return to more historical promotions and pricing, which should have a positive impact to our cash flow and margins.
Speaker Change: With that I will now turn the call over to Dana to provide a brief overview of the financials Dan. Thank you Craig.
Dana: So our third quarter results compared to the prior year third quarter net revenues were $11 1 million compared to $16 9 million.
Dana: Average active brand partners totaled 12400 compared to 16400.
Dana: Loss before income taxes totaled $1, one compared to income of $2 7 million.
Dana: Net loss totaled 800000 for the quarter compared to a net income of $2 million in the third quarter last year.
Dana: Loss per share for the quarter totaled 10 cents compared to earnings per share last year of 24 on a fully diluted basis.
Dana: Now for a year to date summary, compared to the prior year.
Dana: Year to date net revenues totaled $27 6 million compared to $42 1 million.
Dana: Our average active brain paper pay brand partners totaled 13300 compared to 19200 last year.
Dana: Loss before income taxes totaled $5 3 million compared to income before taxes of $2 9 million.
Dana: Net loss after taxes totaled $3 9 million compared to income of $2 2 million loss per share totaled 47 cents compared to earnings per share of <unk> 26 on a fully diluted basis.
Dana: Now for a quick update on our working capital positions.
Dana: Net inventories decreased $8 6 million from $8 8 million from $55 6 million at February 28, 2024.
Dana: To $46 8 million at November 32024.
Dana: Borrowings on our working capital line of credit totaled $4 3 million at the end of November 2024, with $1 2 million of availability at the end of the quarter.
Speaker Change: That 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 Cobb: Thank you Dan.
Speaker Change: Favorite pie, we remain committed to the strategic initiatives that drive growth and success for our brand partners. This quarter. We introduced key efforts designed to deliver both immediate results and long term value.
The first one the shipping subscription lines in November we introduced a membership program offering customers the opportunity to qualify for reduced or free shipping along with value added products, such as monthly email birthday postal rates for their children and their lives and more.
Speaker Change: Graham has been met with overwhelming positive feedback from those brand partners and customers affirming its value as a relationship building in revenue driving tool.
Speaker Change: Our Black Friday promotion known as book Friday was expanded this year launching earlier in alignment with broader retail trends.
Speaker Change: Fitment generated by social media activity and direct messaging translated directly into sales performance throughout the event.
Speaker Change: And our story maker summit in 2025 paper Pie will host five storey maker summit in major cities across the U S. Running from January through June this shift from a single National Convention allows us to engage with more brand partners in smaller more intimate regional settings, facilitating deeper connection between attendees and.
Speaker Change: Home Office staff registration opened in Q3 and the enthusiastic response suggests this format, maybe kind of part of a new every other year rhythm for the business alternating with our National Convention.
Speaker Change: Looking ahead a bit in 2025, we prepare we're preparing innovative projects and initiatives across both the paper pie and retail divisions with a continued focus on expanding our impact and enhancing brand partner success.
Speaker Change: We remain confident in our products and mission print books continue to be the overwhelming preferred choice for reading, particularly in the children's market education and learning needs will persist a D. C is well positioned to meet those demands with our diverse collection of quality books and educational toys and resources. This.
Speaker Change: Concludes our sales and marketing update I will turn the call back over to Craig for closing remarks, Greg.
Speaker Change: Thank you, both Heather and Dan and now for an update on the Hilton complex building sale process.
Speaker Change: In September of 2024, we announced that we had executed a new letter of intent and in late October we announced the asset sale agreement, which started the due diligence timeline with a buyer group the.
The initial due diligence period due diligence period is scheduled to expire on January 19th and the buyer has an option to extend the due diligence period for another 30 days.
Speaker Change: As such we hope to have a transaction completed by the beginning of March.
Speaker Change: While this June timeframe is longer than we were hoping a transaction of this size is not something that moves quickly.
Speaker Change: One positive side and the delayed closing of this transaction transaction is that we will continue to make monthly pay downs on our debts with our bank and our available cash at closing will be higher.
Speaker Change: The proceeds from this sale will not only bring savings from reduced interest expenses, but will allow us to build a positive cash position as we continue to work down our excess inventory levels, which was approximately $30 million at the end of November.
Speaker Change: As previously stated the agreement excludes to 17 acres of excess land, which will remain under edc's ownership and provide further strength to our balance sheet post building sale.
Speaker Change: The proceeds from the sale are expected to fully pay back to bank, leaving us with no debt and we expect to have limited borrowing needs moving forward.
Speaker Change: While the building sale as a large project, we continue to focus on growing our brand partner levels and sales.
We continue to pursue additional enterprise projects between our it and marketing teams that we feel will generate positive momentum in the upcoming fiscal year.
Speaker Change: Lastly, I want to thank all of our shareholders for their patients our employees for their commitment to our mission and our customers and brand partners for their loyalty during this difficult period.
Speaker Change: I'm confident in our collective ability to emerge stronger and more resilient than ever before.
Speaker Change: Now that we have provided a summary of some recent activity I will now turn the call back over to the operator for questions and answers.
Speaker Change: Operator.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your telephone keypad you would hear you prompt that Johanna it's been raised and should you wish to cancel your request. Please press star followed by the deal.
Speaker Change: If you are using a speaker phone please lift the handset before pressing any keys once again that is far and want to ask a question.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Once again that is star and want to ask a question one woman. Please for your first question.
Speaker Change: Okay.
Speaker Change: Okay.
Your first question comes from the line of Olivia Dorky from please.
Speaker Change: Please go ahead.
Olivia Dorky: Yes, Hello, It's Oh did you do it from Geneva.
Speaker Change: Thank you for taking my question and thank you for your updates.
Speaker Change: I have two quick.
Olivia Dorky: <unk>.
Olivia Dorky: Do you hear me well.
I do.
Olivia Dorky: Okay. Good. So first question is about the new markets. Maybe you you are taking in a constant right now.
Olivia Dorky: Have you any ideas about new markets and where are you where do you see you know about that.
Olivia Dorky: The second one is about the.
Olivia Dorky: As a new I T <unk>.
Olivia Dorky: Implementation.
Olivia Dorky: First on the partner side.
Olivia Dorky: Sorry.
Olivia Dorky: What are your returns and on the customer side do you.
Speaker Change: Think about.
Olivia Dorky: And did you thought the extension of your product so.
Olivia Dorky: What is while you are gaining on this side of <unk> it.
Olivia Dorky: With your new implementation.
Olivia Dorky: Okay.
Olivia Dorky: I think I've got those.
Olivia Dorky: As far as new markets, we're always looking for new markets I would say, while it's not necessarily a new market or smart led toys in the retail division has done very very well for us.
Olivia Dorky: So kind of almost consider that a new market, but I don't have anything necessarily new to report at this time about new markets, what I will say and I can expand on it during the questions is that.
Olivia Dorky: We've been very successfully.
Olivia Dorky: Planting a couple of major projects and it first of all being the E. Commerce as you know roughly a year ago. That's gone very well, we continue to make tweaks and add new features consistently we've had the shipping.
Olivia Dorky: Shipping subscription, which is a big project that launched in that third quarter, which has been successful.
Olivia Dorky: Moving forward we have.
Olivia Dorky: Our online fundraiser program that will kind of.
Olivia Dorky: New abilities with.
Olivia Dorky: With it being online, but that's going to be in the next couple of months.
Olivia Dorky: And we're also tight talking about.
Olivia Dorky: Making this a slight tweak to our models not abandoning our model, but adding <unk>.
Olivia Dorky: <unk> Ambassador, which is kind of more of the affiliate type program.
Olivia Dorky: There's been more than a couple multi level marketing companies that have attempted that and not done well, but I'm very excited with what we've come up with it's probably not quite as aggressive as other multilevel marketing companies, but it does expand us into a different.
Olivia Dorky: I Wouldnt say market per se, but it does give us the ability to increase brand partner counts.
Olivia Dorky: Without shiny up through our traditional model.
Olivia Dorky: So that's kind of what we have on the horizon for Ikea I hope that answers your question.
Olivia Dorky: Yes.
Olivia Dorky: Okay.
Olivia Dorky: Maybe a little that day too.
Olivia Dorky: Have you any news from it's dawn.
Olivia Dorky: Dan has quarterly or monthly.
Monthly calls with their CFO.
Olivia Dorky: Everyone's just kind of patiently waiting.
Olivia Dorky: For us to get through this difficult period.
Olivia Dorky: We don't have any news to report that.
As you know as restrictions for purchasing are lifted.
Olivia Dorky: We anticipate that we will.
Olivia Dorky: <unk>.
Hum.
Olivia Dorky: Yes, it returned to normal purchases with those words.
Olivia Dorky: Okay.
Olivia Dorky: Okay. Thank you.
Olivia Dorky: Thank you.
Speaker Change: Thank you and our next question comes from the line of Paul Carter from Capstone asset management. Please go ahead.
Olivia Dorky: Yes.
Speaker Change: Oh good afternoon everybody.
Olivia Dorky: Thanks for taking my questions and happy new year.
Olivia Dorky: Just to start off minor question.
Olivia Dorky: So you previously announced did that on September 19th you executed.
Speaker Change: Our commercial real estate sales contract and the due diligence period started that day on September 19th, but now you're saying that was only a letter of intent and due diligence period.
Olivia Dorky: Started on October 28th So can you just maybe explain what happened there.
Speaker Change: Well it's.
Speaker Change: The.
Speaker Change: Oh why isn't it it's just that it's just a letter of intent and so we had to wait until we could get an asset purchase agreement documented for the due diligence.
Speaker Change: <unk> to be defined and start.
Speaker Change: So while.
What the real issue Paul from a macro perspective was.
Speaker Change: We were kind of under the impression with the buyer group that they wanted to close this by year end and so when we went to the bank and when we asked them for the last amendment and we.
Speaker Change: Put everything out in a timely and we were really geared towards a year end close and so.
Speaker Change: Our amendment with our bank on our disclosures.
Speaker Change: We're all geared towards that whats ended up happening is.
Speaker Change: The buyer group has kind of hit.
Speaker Change: Another transaction that they said that kind of took all their focus away from year end and so they.
Speaker Change: They didn't start a lot of their work until.
Speaker Change: Towards the November December timeframe, which slowed them down and so now we're <unk>.
Speaker Change: Left with the asset purchase agreement definitions, which outline that they've got 75 days from the.
Speaker Change: The delivery of certain key documents to them, which started.
Speaker Change:
Speaker Change: And basically early no early November and so that puts our timeline.
Speaker Change: For the initial due diligence period to be January 19th.
Speaker Change: We also have they have in the asset purchase agreement, a 30 day option to extend that which would put them into.
Speaker Change: Mid February.
Speaker Change: And then there is still closing after that so that's why we've gone to the bank. We've recently executed a new.
Speaker Change: Pardon me, a new amendment to extend our line out until April four to give us sufficient time to.
Speaker Change: To close the transaction and just kind of it.
Speaker Change: Uh huh.
Speaker Change: So that's the that's the current timeline.
Speaker Change: Okay. That's fair that's fair thanks, thanks for that detail.
Speaker Change: And is there a sales price are still $38.3 million or was that a change.
Speaker Change: Changed.
Speaker Change: No.
Speaker Change: The terms of the.
Speaker Change: Asset purchase agreement were consistent with the LOI. So.
Speaker Change: Okay. Okay. Okay.
Speaker Change: Great and then just another unrelated question.
Speaker Change: For the quarter your average active.
Speaker Change: Our brand partners was 12400 <unk>.
Speaker Change: Say, what you ended the quarter at.
Speaker Change: Well, that's the average for the quarter.
We don't report monthly numbers for our effective average brand partners.
Speaker Change: Okay, No fair enough.
Speaker Change: Alright. So this is a policy is further rather blunt question, but I'll ask it anyway. So four years ago, you were doing about 200 million in net revenues and our growing your capacity to get up to afford a $450 million and now you're done with that revenue run rate of about call it $30 million.
Speaker Change: Take.
Speaker Change: And I.
Speaker Change: I guess, there isn't a lot of evidence yet that that things have totally bottomed.
Totally understand.
Speaker Change: I've been following you for a long time I understand you've been facing multiple.
Speaker Change: Challenges all at the same time like inflation, because I was born.
Speaker Change: <unk>.
Speaker Change: The overhang of your debt agreement et cetera.
Speaker Change: But rather than just selling your building has the board.
Speaker Change: Centered hiring a banker and pursuing all strategic alternatives, including selling the company to maybe a different another party with greater resources.
And if the board hasn't done that I'd just be interested in why not.
Speaker Change: Well I.
Speaker Change: You mean, the closing of the current.
Speaker Change: Building sale transaction is imminent.
Speaker Change: It doesn't seem appropriate to to look at options until that.
Speaker Change: In their closes or doesn't that being said, we've got several options on the table as well that we've kind of been thinking about.
Speaker Change: Not moving forward is the current <unk>.
Contract is exclusives that we have several options.
Speaker Change: If in fact, we do get the transaction closed and were out of bank debt didn't work kind of.
Speaker Change: Back going again.
Speaker Change: We feel like our sales force is kind of <unk>.
Speaker Change: Sitting on the sideline to see what happens honestly, we've kind of thrown up several red flags with the heavy discounting and selling off assets. It does look like we're going out of business, but we're not.
Speaker Change: If we complete this transaction.
Speaker Change: Sure.
Speaker Change: A much stronger financial position.
Speaker Change: We can do run our business, how we need to it's it's been two years that we've been under.
Speaker Change: Okay Storm, if you will so we haven't been able to operate our business as we would normally.
Speaker Change: Yeah, No that's fair enough I thought I'd, just throw that out there just to kind of get your reaction, but yeah. It does sound like closing of this transaction will hold.
Speaker Change: Hopefully be a bit of a bit of a catalyst for a for an inflection point, but but that's it that's it for me everybody. Thanks very much.
Speaker Change: Thanks, Paul.
Speaker Change: Thank you and your next question comes from the line of Joseph <unk>. Please go ahead.
Speaker Change: Oh Hello.
Speaker Change: Quick question about the brand partner numbers. If you can just comment a little more on those.
Speaker Change: Just kind of the numbers and what's generally happening.
Speaker Change: Yes, just kind of.
Speaker Change: The decrease in them.
Speaker Change: Uh huh.
Speaker Change: How do you feel that trend is.
The motivations of the brand partners for leaving.
Speaker Change: Do you have an idea of that.
Speaker Change: I mean, I think that I think that Paul alluded to some things even in this question talking about economy and the headwinds that everyone has been facing.
Speaker Change: There I think that their R&D and.
Over arching theme.
Speaker Change: Things that that we are up against just as an MLM. We've talked about this several times on the calls.
Speaker Change: The the reputation that MLR tends to carry with it.
Speaker Change: And then Craig alluded to some others that we do sense that they are sort of waiting kind of in a waiting game, they're going to wait and see attitude, but the overwhelming response that we get Fran.
Speaker Change: Any sort of a release of new title or a conversation about what's next and all of those things that we are privy to that unfortunately that the public can't see it always overwhelmingly positive.
Speaker Change: The heart of the Michigan and the foundation of why we do what we do.
Speaker Change: Continues the impact and what we believe is.
Speaker Change: It continues to be able to grow and so while the numbers have decreased. Unfortunately, we don't think that that is a trend that will continue into future years, but it's something that we believe will get turned around as the sale of the building is done and we are purchasing again and things like more normal.
Speaker Change: For us from a business standpoint.
Speaker Change: Yes.
Speaker Change: Okay. Thank you.
Speaker Change: Good question.
Unidentified Operator: Thank you there are no further questions at this time I will now hand, the call back to Mr. Craig White for any closing remarks.
Speaker Change: Thank you.
Speaker Change: Before I get into my my closing I do want to just reiterate what Dan mentioned it was in the press release at three o'clock, but we signed an amendment that now extends through April 4th which I feel is a very good sign what it tells me is that the.
Speaker Change: The bank.
Speaker Change: Believes we're doing everything we can to pay them back.
Speaker Change: We're doing everything we can to get back to a stronger financial position. So.
Speaker Change: Until further notice that's what we're doing where we're trying to get back to business as usual if we can purchase some new titles.
It.
Speaker Change: Looked like a normal new title release, our sales force will get excited and we're kind of back going again.
Speaker Change: Anyway that remains to be seen.
Speaker Change: Thanks to everyone for joining us on our call today. We appreciate your continued support and look forward to providing an additional update.
Speaker Change:
And my next one will be in May next one will be in May 2025. Thank you have a great day.
Speaker Change: Thanks, everybody.
Unidentified Operator: Thank you and this concludes today's call. Thank you for participating you may now disconnect.
Unidentified Operator: Okay.