Educational Development Q4 2024 Earnings Call Transcript

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May 21, 2024

There are 6 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the Educational Development Corporation's Fiscal Year 20 24 Earnings Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Tuesday, May 21, 2024. I would now like to turn the conference over to John Beisler.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Educational Development Corporation's 4th quarter fiscal year 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, company issued a press release announcing its results for the fiscal Q3. The release is available on the company's website at www dot edcpub.com.

Speaker 1

Before turning to prepared remarks, I would like to remind you 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 a variety of factors. We refer you to Educational Development Corporation's filings with the SEC for a more detailed discussion of the company's financial condition. With that, I would like to turn the call over to Craig White, company's President and Chief Executive Officer. Craig?

Speaker 2

Thank you, John, and welcome everyone to the call. I really 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 our sales and marketing efforts. Finally, I will wrap up the call with an update on our progress of sale leaseback of our headquarters, the Healty complex and provide some comments on strategy and fiscal 2025 outlook. Our Q4 as well as the previous quarters of fiscal 2024 were driven by the tactical decisions to prioritize cash flow over profitability.

Speaker 2

During the year, we ran several promotions to energize our current sales force and customers by offering discounts on our products as well as the freight we charge on shipments. These decisions were necessary in these difficult economic times when high inflation is eating at the discretionary spending of our customers coupled with our higher than normal inventory levels. We have continued our strategic focus on differentiated ways to reduce expenses, evidenced by the reduced loss numbers reported on lower revenue levels. Although I'm not pleased to report a loss, these loss reductions show the continued improvements we are making in the long term strength of our unique business model. With that, I'll now turn the

Speaker 3

call over to Dan O'Keefe to provide a brief overview of the financials. Dan? Thank you, Craig. Net revenues for the quarter or for the 4th quarter summary compared to the prior year 4th quarter, net revenues were $9,000,000 compared to 15,000,000 dollars Average active Paper Pie Brand Partners totaled 15,500 compared to 26,100. Loss before income taxes were $2,200,000 compared to a loss of $2,600,000 in the Q4 last year.

Speaker 3

Net loss totaled $1,600,000 compared to $1,900,000 Loss per share for the quarter totaled $0.19 compared to a loss of $0.24 on a fully diluted basis. Fiscal year summary compared to the prior year. Net revenues of $51,000,000 compared to $87,800,000 Our active average from our average active brand Paper Pie Brand Partners totaled 18,300 compared to 28,000. Earnings before income taxes were $700,000 an increase of 4,100,000 dollars Net earnings totaled $500,000 an increase of $3,000,000 Earnings per share totaled $0.07 compared to a loss per share of $0.31 on a fully diluted basis. To update everyone on our inventory and working capital levels, net inventories decreased $8,200,000 from $63,800,000 at February 28, 2023, compared to $55,600,000 at February 29, 2024.

Speaker 3

Now for working capital update. Our working capital line of credit borrowed was $5,500,000 at the end of February 2024, with $2,500,000 of availability. 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?

Speaker 4

Thank you, Dan. As Craig mentioned earlier, we continue to make strategic changes to bring new initiatives for success to our brand partners. One highly anticipated change was the launch of our new e commerce system in January. This new e commerce platform was developed to not only improve the shopping experience with additional shopping opportunities that allows also mobile shopping and is device agnostic. The new platform was developed over the past 2 years with countless hours of work from our IT department and sales and marketing teams.

Speaker 4

The effort to bring this project to implementation was monumental and the results have been exciting to watch, from customers visiting 8 pages on average during their visit to almost 200,000 sessions within the 1st week of rollout. Implementing a new e commerce system for our brand partners and our customers is a business distraction and a sales disruptor, but our brand partners rallied behind the adoption of this new platform. We also ran sales during the launch of our platform during the Q4 to promote acceptance and familiarity. Our IT team and sales and marketing teams have done a great job of identifying, prioritizing and implementing enhancements over the past 3 months. And I am proud to say, we are now working on new modifications that we believe can further improve sales.

Speaker 4

We expect this to be the foundation on which more impactful projects can be developed and have already begun work on some of those with our teams. All of these things are important aspects of our strategy to increase sales and brand partner headcount. This year, we also proudly launched our buy 1, give 1 campaign, a testament to our commitment to literacy, learning and community engagement. By partnering with national charities each quarter, we are able to donate products to these organizations based on customer purchases from select categories. The response to this campaign has been overwhelmingly positive, allowing both our customers and brand partners to play a significant role in supporting communities in need.

Speaker 4

And now switching to our retail sales team. They continue to focus on opening new customer accounts. The introduction of our Smart Lab Toys line has successfully captured the interest of our retail partners, providing them with innovative steam focused products that are both educational and engaging. We plan to continue the introduction of new products from Kay Miller and Smart Lab Toys in fiscal 25, which we expect will continue to have a positive impact on the sales within this division. The Smart Lab Toys product line complements our existing offerings from Kane Miller and Learning Wrap Ups.

Speaker 4

The overall catalog offering to our retail customers provides quality learning products, especially books that span not only different age ranges, but also genres and topics and interests of children and families. Diversifying our offerings allows us the opportunity to attract and reach different consumers through both bookstores as well as toy and gift establishments. This concludes our sales and marketing update. I will turn the call back over to Craig for closing remarks. Craig?

Speaker 3

Thank you, both Heather and Dan.

Speaker 2

I want to reiterate the focus from our last several quarters, which remained in the Q4, which was to drive sales. We were trying to get cash in to pay our bank back. And so everything we did was to provide cash flow and not focus on profitability. But one of, if not the biggest event in fiscal 2025 is the anticipated sale and leaseback of our headquarters building, the Hilti complex. The proceeds from this sale will not only bring savings from reduced interest expense, but allow us to build a positive cash position as we continue to work down our excess inventory level, which was approximately $30,000,000 at year end.

Speaker 2

We've been working with our brokers and reviewing several interested buyers' offers. The Hilti complex is a large investment and requires an ample due diligence period and structured financing for interested parties. We along with our brokers are actively engaged in selling the Hilti complex and paying off our debt, and we look forward to providing you with an update very soon. Lastly, I want to thank all of our shareholders for their patience, our employees for their commitments for our mission, and our customers and brand partners for their loyalty during this difficult period. I'm confident in our collective ability to emerge stronger and more resilient than ever before.

Speaker 2

Now that we have provided a summary of some recent activity, I'll now turn the call back over to the operator for questions and answers. Operator?

Speaker 3

Paul, are you there?

Speaker 5

Very much for taking my call. Yes, just on the building, first of all, so I know a couple of months ago, you had a letter of intent from an interested party, and I think that was to have been completed by yesterday. Based on your comments, it sounds like maybe that's not happening with that group, but you're back at, I guess, marketing the property to others. Could you just talk through that a little bit, please?

Speaker 2

Well, I will say that group is not gone. We're still moving forward with them. But I really can't comment too much on the building sale transaction as we're really actively working with several groups that are involved in the transaction. So that group is still involved, though.

Speaker 5

Okay. And then, I guess, how does that impact your revolving loan? I know the maturity date is next Friday. Do you anticipate an extension? Is your bank being pretty understanding of this delay?

Speaker 2

They are. I have regularly scheduled calls with the bank. They are supportive of our progress. They are kept in the loop every step of the way of the process. They've been kept abreast of any offers and our counter offers.

Speaker 2

And so yes, they've been very supportive.

Speaker 5

Okay. So, it's reasonable to expect another amendment, 8 ks filing before next Friday?

Speaker 2

That would be reasonable.

Speaker 5

Okay. Great. And then, so I know in your press releases, when you talk about average brand partner count, on the last few, you've used the word stabilization or referenced that the numbers have stabilized. I know you didn't this quarter and I understand with the e commerce site that's provided a little bit of disruption, but is that sort of process of stabilizing brand partner count? Is that I guess is it unstabilized at this point?

Speaker 5

Or do you anticipate

Operator

sort of

Speaker 5

a flattening of that coming quarters?

Speaker 4

That's a great question, Paul. Hi, this is Heather. If your crystal ball happens to be clearer than mine, I will definitely take that on loan. Yes, we definitely saw the disruption that I mentioned during the rollout of the e commerce. I think that as Craig has mentioned and we continue to refer to the economy continues to be a factor that we're trying to navigate and traverse through.

Speaker 4

Our ultimate goal is to have a full stabilization and in fact an increase of our brand partner headcount and we continue to work in that direction.

Speaker 5

Great. Thanks for that, Heather. And then just lastly for me, in the past you've referenced what your excess inventory is or I guess indirectly kind of what level of inventory you're comfortable holding. With the business being sized as it is today, what do you think is kind of a reasonable or a targeted level of inventory once you liquidate the excess inventory? Like what level do you see that number being?

Speaker 3

Well, it's it kind of moves with revenue, right? But if you're saying what would be the target inventory level for a $50,000,000 company, dollars 51,000,000 company where we landed this last fiscal year be in the $20,000,000 to $25,000,000 range.

Operator

There are no further questions at this time. Please continue.

Speaker 2

All right. Thanks everyone for joining us on our call today. We appreciate your continued support and look forward to providing additional update in July of 2024. Thank you, everyone. Have a great day.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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Key Takeaways

  • Q4 net revenues fell to $9 million (from $15 million) while loss before taxes narrowed to $2.2 million as the company prioritized cash flow through promotional discounts.
  • For fiscal 2024, the company recorded net earnings of $0.5 million (EPS $0.07) versus a loss of $0.31 per share last year, driven by expense controls and an $8.2 million reduction in inventory.
  • The new e-commerce platform launched in January delivered strong engagement (8 pages per visit, ~200,000 sessions in week one) and supports mobile, device-agnostic shopping for brand partners and customers.
  • A planned sale-leaseback of the Hilti complex headquarters in FY2025 aims to pay down debt, reduce interest expense and build a positive cash position.
  • Sales and marketing efforts include the Buy 1, Give 1 literacy campaign and the launch of SmartLab Toys to diversify offerings, support community engagement and grow retail accounts.
AI Generated. May Contain Errors.
Earnings Conference Call
Educational Development Q4 2024
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