Educational Development Q1 2026 Earnings Call Transcript

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July 7, 2025

Key Takeaways

  • Negative Sentiment: During Q1, net revenues dropped to $7.1 M from $10 M last year and active brand partners fell to 7,700 from 13,400, reflecting continued sales challenges.
  • Positive Sentiment: The planned sale‐leaseback of the Hilti Complex is expected to close by September, eliminating all debt and reducing future borrowing needs.
  • Positive Sentiment: Management launched new incentives, IT enhancements like guest checkout, and regional summits to energize brand partners and drive recruitment.
  • Positive Sentiment: Inventories declined by $2.7 M and borrowings on the working capital line fell under covenant limits, demonstrating improved liquidity management.
  • Negative Sentiment: High inflation and reduced disposable income continue to pressure the direct‐sales product sector, making new consultant recruiting and sales growth difficult.
AI Generated. May Contain Errors.
Earnings Conference Call
Educational Development Q1 2026
00:00 / 00:00

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Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Educational Development Corporation's financial and operating results for its fiscal twenty twenty six first quarter results. As a reminder, this conference is being recorded. On the call today are Craig Wise, President and Chief Executive 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 twenty twenty six first quarter results. The release will be available later today on the company's website at www.edcpub.com.

Operator

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 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 recent 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 mister Craig White, the company's president and chief executive officer. Craig?

Craig White
Craig White
President & CEO at Educational Development

Thank you, operator, and welcome everyone to the call. We appreciate your continued interest. I want to quickly mention that Heather is taking time to be with family as she as there was a recent death in her family. I will start today's call with some general comments regarding the quarter then I'll pass the call over to Dan to run through the financials, after which I will provide an update on sales and marketing and finish up the call with an update on our progress of the sale leaseback of our headquarters, the Hilti Complex. During the first quarter, we experienced decreased sales compared to the prior year first quarter.

Craig White
Craig White
President & CEO at Educational Development

This was driven primarily by our reduced brand partner levels within our paper pie division along with continued customer sales events offered to promote our paper pie sales division and generate cash to meet our lenders' requirements. We view these sales events as short term tactics used to generate cash and to reduce our borrowings with our bank. Over the past year, we have seen our brand partner levels decline due to several factors, including the challenging sales environment with high inflation and reduced disposable income of families with small children. Further, this direct sales industry, especially those within the product sector has experienced challenging period for new consultant recruiting. While we have been through downturns in the industry before, the current environment is having a short term impact on our operating levels.

Craig White
Craig White
President & CEO at Educational Development

While we generated less sales during the quarter, our loss before taxes declined from last year. This reflects our continued focus on reducing expenses during this difficult environment. With that, I'll now turn the call over to Dan O'Keefe to provide a brief overview of the financials. Dan?

Dan O'Keefe
Dan O'Keefe
CFO at Educational Development

Thank you, Craig.

Dan O'Keefe
Dan O'Keefe
CFO at Educational Development

To our first quarter results compared to the prior first quarter last year, net revenues were $7,100,000 compared to $10,000,000 Our average active brand partners for the quarter totaled $7,700 compared to $13,400 in the first quarter last year. Loss before income taxes totaled a negative $1,400,000 compared to negative $1,700,000 in the first quarter of fiscal twenty twenty five. Net loss totaled $1,100,000 compared to $1,300,000 loss last year. Loss per share totaled $0.13 compared to a loss per share of $0.15 on a fully diluted basis. Now for an update on our working capital positions.

Dan O'Keefe
Dan O'Keefe
CFO at Educational Development

Net inventories decreased $2,700,000 from $44,700,000 at 02/28/2025 to forty two million dollars at 05/31/2025. Borrowings on our working capital line of credit totaled $4,200,000 as of 05/31/2025 meeting the step down required by our bank agreement to be under $4,500,000 starting 06/01/2025. That concludes the financial update. And I'll now turn the call back over to Craig White. Craig?

Craig White
Craig White
President & CEO at Educational Development

Thanks, Dan. As I mentioned earlier, we continue to make strategic changes to bring new initiatives for success to our brand partners. We concluded a successful incentive challenge. We launched our next incentive trip, which has been has gone very well so far. Our percent of sales decline has been lessened.

Craig White
Craig White
President & CEO at Educational Development

I've started going to more industry type events to just kind of get a perspective around the industry, which has been great. We've made some great connections from not only vendors but other companies. And so that's I'm gonna continue to do that. From an IT perspective, we'd launch guest checkout, which the goal of any IT project is to make it easier to do business with us, whether it's our customers or our brand partners. And the guest checkout process has been received very, very well.

Craig White
Craig White
President & CEO at Educational Development

We've had a successful partnership with Ticket to Dream, allowing us to place thousands of books into the hands of foster kid kids and families. So we've also concluded our summits, which took the place of convention for this year. We had Dallas, Atlanta, Salt Lake City, Chicago, and Philly. And we just had Philly in the last few weeks, and we left there very encouraged. There was seem to be a lot of excitement.

Craig White
Craig White
President & CEO at Educational Development

As each summit happens, we have more information as to our financial stability or our sales or our inventory levels. And so at some of these more intimate sized level meetings, I'm able to have one on one conversations. It's things that I, you know, can't say from a stage without any kind of context or explanation that people that have been with us for ten, fifteen, twenty years I can have conversations with. We've started promotions to encourage promotion to leadership, which in turn encourages recruiting, but we've got to have new titles. So as we have a clearer picture of whether we're going to complete the sales transaction, we've already started coming up with our phase one, two, and three plan for purchasing new titles and replenishing best sellers.

Craig White
Craig White
President & CEO at Educational Development

So all these things are necessary to to make it look like we're thriving business to our sales force. Okay. That concludes our sales and marketing update. Now for a building sale update. In May, we executed an agreement to sell the healthy complex.

Craig White
Craig White
President & CEO at Educational Development

This agreement outlined a ninety day due diligence period. Recently, we announced an amendment of this agreement extending the due diligence period as well as a shortened close period. The purpose of this amendment was to give the buyer more time to perform their due diligence and structure the building acquisition financing. We continue to work with the buyer group and provide requested information timely so they can perform their necessary work as quickly as possible. We continue to expect this sale to be completed before the September.

Craig White
Craig White
President & CEO at Educational Development

The proceeds from the sale are expected to fully pay back the bank leaving us with no debt and we expect to have limited borrowing needs moving forward. Lastly, I want to thank all of our shareholders for their patience, our employees for their commitment to 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. So I think I'll turn it back over for to the operator for questions.

Operator

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 will hear a prompt that your hand has been raised. And should you wish to cancel your request, please press star, followed by the 2.

Operator

If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.

Craig White
Craig White
President & CEO at Educational Development

Hey, Paul. Are you there?

Operator

Thank you. And your first question comes from the line of Paul Carter from Capstone Asset Management. Please go ahead.

Paul Carter
CIO at Capstone Asset Management Inc.

Hi. Good afternoon, Craig. Good afternoon, Dan.

Craig White
Craig White
President & CEO at Educational Development

Hey.

Paul Carter
CIO at Capstone Asset Management Inc.

So I know the healthy complex sale has obviously taken a lot longer than expected.

Paul Carter
CIO at Capstone Asset Management Inc.

But it at at this point, it's clear that the viability of the business hinges on getting that done. So brand partner count is down another 18% this quarter, and there is no clear sign of stabilization, and you explained kinda why that is. But if this latest transaction falls through, and and hopefully it doesn't, but if it does, what is the board's contingency plan? And would you be prepared to hire an adviser and formally explore strategic alternatives for the business? Because I don't I don't think you can afford to just try again and then push this resolution or push the push the resolution of this transaction down the road another five or six months?

Craig White
Craig White
President & CEO at Educational Development

Yeah. Good question. And, yeah, certainly to the point. We have not only do we have other offers, and, I understand your point of of not going through another ninety to a hundred day to a hundred and twenty day process, and I agree with you. That's not necessarily where we wanna go.

Craig White
Craig White
President & CEO at Educational Development

So anything that we do, obviously, has to have bank input, if not final approval. But we have a plan b, a viable plan b. Our plan a is to sell the building, which brings us the most proceeds. But our plan b also gets us out of bank debt, and we can move forward. So my intention is that one way or another, we will have executed plan a or plan b and have it finalized by the September.

Paul Carter
CIO at Capstone Asset Management Inc.

Can you share anything about the plan b?

Craig White
Craig White
President & CEO at Educational Development

We've had well, it's it's other offers that are are have a quick close contingency. There's a couple of pieces to it that we've kind of curated, if you will, over the last six months. And, again, they're not quite as good as plan a, but they're definitely better than not having any plan at all. So there's some smaller loans and things like that that would get us out.

Craig White
Craig White
President & CEO at Educational Development

So I don't anticipate that this I I actually feel pretty good about this, and I've said this multiple times so you can take that with a grain of salt. But this group is from Oklahoma. They understand the environment. They understand the area. They've known about this building for a long time.

Craig White
Craig White
President & CEO at Educational Development

There's several multiple groups kinda coming together as a as a in a total investor investor group. So I feel good about it. But again, I've learned over the last fifteen months or so that that's just not good enough. So we've we've developed a plan b that we feel very good about. And, you know, if it comes to it, then that will be done pretty quickly as well.

Paul Carter
CIO at Capstone Asset Management Inc.

Okay. And I think I mentioned or I asked last quarter if you're able to share anything more about this buyer group. It's TG OTC, I think it is. Are you able to share any more about them? Is this just sort of a group of individual investors, or is it a real estate, like, REIT or something like that?

Craig White
Craig White
President & CEO at Educational Development

It is a real estate company. They've kinda reached out for advice from friends, if you will, that may become partial investors in the group. But I would feel a lot more comfortable after this initial due diligence period is is closed. Once since we gave him the thirty day extension, I think it closes July 30.

Dan O'Keefe
Dan O'Keefe
CFO at Educational Development

Twenty eighth.

Craig White
Craig White
President & CEO at Educational Development

Twenty eighth. July 28 is the end of this initial due diligence period, in which case half the deposit goes hard. So we'll know a lot more, you know, by the July, whether we're moving forward with plan a or pivoting to plan b.

Paul Carter
CIO at Capstone Asset Management Inc.

Okay. Okay.

Paul Carter
CIO at Capstone Asset Management Inc.

Great. And then just my second question. This is just a governance question. But so apart from you, Craig, nobody on the board holds a material stake or a material equity stake in the company. Has the board considered implementing minimum ownership requirements just to better align like director incentives with long term shareholder value?

Paul Carter
CIO at Capstone Asset Management Inc.

And I know that's generally considered good governance, especially in small cost situations like this. So just wondering if that's something that's been discussed or is being considered.

Craig White
Craig White
President & CEO at Educational Development

Yeah. We're trying to over this last couple of years, you know, been focused on growing the business back. Board makeup and governance has been near the front of my mind as well, though.

Craig White
Craig White
President & CEO at Educational Development

We're kind of been transitioning to make it, you know, more my board than the previous my my predecessor's board.

Paul Carter
CIO at Capstone Asset Management Inc.

Okay.

Craig White
Craig White
President & CEO at Educational Development

So board members don't make much money for being here on our board. We have started giving them small amounts of stock. So we're trying to make it more like like a a big company board, if you will.

Craig White
Craig White
President & CEO at Educational Development

Now we're we've got some strides to make, and we're not not there yet. But there's still gonna be some changes over the next nine to twelve months. We know, hopefully, the compensation and then partially the board makeup.

Paul Carter
CIO at Capstone Asset Management Inc.

Okay. Okay.

Paul Carter
CIO at Capstone Asset Management Inc.

That's good to hear. Okay. Well, that's great. Well, well, good luck, and we'll just, I guess, hope hope for plan plan a here coming through.

Craig White
Craig White
President & CEO at Educational Development

Yeah. Appreciate you, Paul.

Paul Carter
CIO at Capstone Asset Management Inc.

Alright. Thanks very much.

Operator

Thank you. Once again, press and 1 to ask a question. And your next question comes from the line of Daniel Bakken. Please go ahead.

Analyst

Hi. Hi, both of you. My question is surrounding these three phases of buying new titles. What do you think well, why do you think this strategy would work when we've got such significant levels of inventory already?

Craig White
Craig White
President & CEO at Educational Development

Well, we have to have new titles.

Craig White
Craig White
President & CEO at Educational Development

That's what energizes the sales force. All of our inventory is still selling and and selling through to, you know, at a rate, but we have to have new titles. And phase one, two, and three are very conservative. They're not adding much to your inventory. You know, each phase is made up of half new titles, which may be 15 or 20 new titles and then replenishment of some good sellers, which may be another 10 to 15 titles.

Craig White
Craig White
President & CEO at Educational Development

So it's a very conservative approach. It's not going to increase inventory levels that much, but that's the first green flag, if you will, that shows our sales force that, hey. We're still a viable business, and and we've got new product coming in, and we want you to reach out to your customers and and kinda energizes them.

Analyst

I see. And what would the selling process be for the remaining inventory once the new items have come through?

Craig White
Craig White
President & CEO at Educational Development

Well, we won't have to drastically change prices of older inventory. And as what we currently said earlier in the call, we've had strategic sales, but that's just to try to bring in infusions of cash to pay down bank debt. But we know that strategy is short term. I mean, if we continue drastically reducing the sale of our product, we we diminish the value of our products, and that's just not a long term strategy at all. We're trying to break that cycle where where we don't have to discount.

Craig White
Craig White
President & CEO at Educational Development

So all of our product sells. Of course, there's some that's getting a little bit longer, older than length of time that we've had it, and so we may discount stuff a a little bit. But that's always been the case. We've always done that as a strategy to to reduce older inventory. But on a on a big scale, we're trying to get away from that going forward.

Analyst

Okay. And and with this normalization, what sort of what's the sort of target net revenue run rate? What's the sort of target average from partners? What, like, what's this normalization really look like?

Craig White
Craig White
President & CEO at Educational Development

But Well, it's gonna take sure.

Craig White
Craig White
President & CEO at Educational Development

It should take some time. I mean, we gotta slow it down, and then we gotta start rebuilding. But we're starting to put the pieces in place. We're very strong from an IT perspective. We're making it easier to do business with this.

Craig White
Craig White
President & CEO at Educational Development

We're coming out with new projects that excite the field all the time. So all these things lead to recruitment of new salespeople. If our current salespeople are happy, then they're gonna bring more people into the business. So it starts with making it easy to do business with this, having new titles, then making more money. So it's it's gonna be a slow gradual build.

Craig White
Craig White
President & CEO at Educational Development

And then, hopefully, the you know, I wouldn't say well, I'm absolutely not saying hockey stick. But once things kinda get rolling again, they kinda start compounding. But what's the goal? I you know, we have to do forecast for different entities, be it bank or investors or or, you know, potential buyers and things. And so we've we've targeted, you know, a low, medium, and high expectation, and they're they're all conservative. It's gonna take some time.

Analyst

Mhmm. Has has there been any discussion in terms of similar similar sort of businesses which you might be interested in some sort of small acquisition of educational development?

Craig White
Craig White
President & CEO at Educational Development

We I get requests occasionally, and we vet them for how serious they really are. We use our IR firm or our our previous our IR rep is now on our board to kind of vet any of these offers, and most of them are not very serious.

Craig White
Craig White
President & CEO at Educational Development

But, you know, we haven't seriously Never received any serious inter offers. Right.

Analyst

Right. Why why do you think that would be it?

Craig White
Craig White
President & CEO at Educational Development

Well, probably because we haven't Why?

Analyst

Got to know many options.

Craig White
Craig White
President & CEO at Educational Development

To to to buy our company?

Dan O'Keefe
Dan O'Keefe
CFO at Educational Development

I well, as I've since I've been here for eight years, Daniel, we've never had a an unsolicited offer to to buy the company that I'm aware of.

Craig White
Craig White
President & CEO at Educational Development

And who knows why that is? Maybe we're not on many people's radar.

Craig White
Craig White
President & CEO at Educational Development

I I really don't know. It's I I can't even speculate on that. But, you know, we would entertain it. I mean, that's not our first thought right now at all. We wanna get through this transaction and and grow the business back to where we know it can be.

Analyst

Mhmm. What just a final question. What's the sort of the the banking relationship at the moment? I mean, obviously, they continue to get some sort of flexibility. What is that?

Analyst

What is your personal relationship sort of how does your personal relationship change to that? And and is it likely to be that once we've retired those outstanding debt balances that there will still be a sort of that relationship with the working capital, like the facilities? Would that still continue?

Craig White
Craig White
President & CEO at Educational Development

That's probably not the goal. I'll never say never.

Craig White
Craig White
President & CEO at Educational Development

But so far, our relationship's been good. I mean, obviously, each amendment gets a little more restrictive, and that's just to make sure we're completely focused on bringing in whatever cash is necessary to pay them back. But they've they've understood every step of this process. They've supported us through every step of the process. Now, you know, there is a sense of urgency to be paid back, but, again, they agree with every step that we've taken.

Craig White
Craig White
President & CEO at Educational Development

They're involved with with every step, and so it's been good so far.

Analyst

Okay. When when is the next call? When is the next piece of earnings release?

Craig White
Craig White
President & CEO at Educational Development

It will be in October.

Craig White
Craig White
President & CEO at Educational Development

We haven't announced the earnings call date, but the court second quarter earnings call will be in October, probably around the tenth or this time frame. So it should be after completion of this sale process.

Analyst

Yes. Hopefully. Well, thank you, Craig, and thank you, Doug.

Craig White
Craig White
President & CEO at Educational Development

Yeah. Appreciate it.

Operator

Thank you. And there are no further questions at this time. I will now hand the call back to mister Craig White for any closing remarks.

Craig White
Craig White
President & CEO at Educational Development

Thank you. Thanks, everyone, for joining us on the call. Appreciate your continued support and expect to provide additional updates from the healthy complex sale progress prior to the next scheduled meeting in October. We'll file, you know is it eight k, 10 k? Eight k.

Craig White
Craig White
President & CEO at Educational Development

Eight k's as necessary. So you'll probably know before the next board meeting or before the next earnings call. But, anyway, good questions. I appreciate everyone's support. Thank you.

Dan O'Keefe
Dan O'Keefe
CFO at Educational Development

Thank you.

Operator

Thank you. And this concludes Thank you for participating. You may all disconnect.

Executives
    • Craig White
      Craig White
      President & CEO
    • Dan O'Keefe
      Dan O'Keefe
      CFO
Analysts
    • Paul Carter
      CIO at Capstone Asset Management Inc.
    • Analyst
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