Educational Development Q3 2025 Earnings Call Transcript

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January 13, 2025

There are 8 speakers on the call.

Operator

This call is being recorded on Monday, January 13, 2025. I would now like to turn the conference over to Mr.

Operator

Steven Huser, Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Educational Development Corporation's fiscal Q3 of 2025 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, the company issued a press release announcing its results for the fiscal Q3 and year to date results. The release will be available later today on the company's website at www dotedcpub.com.

Speaker 1

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 more details on the company's financial conditions and 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. Craig?

Speaker 2

Thank you, Stephen, 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 our sales and marketing. Finally, I will wrap up call with an update on our progress of the sale leaseback of our headquarters, the Hilti complex, and provide some comments on strategy for fiscal 2025.

Speaker 2

During the Q3 last year, we recognized a $4,000,000 gain on the sale of our old warehouse. Without this one time event, our Q3 pre tax losses would have been $1,300,000 compared to the pre tax loss of $1,100,000 in the Q3 of this year. Our Q3 results on 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. During the quarter, we continued intentionally to offer additional discounts to our customers, which negatively impacted our gross margin and bottom line. Our increased discounting has solely been to bolster sales and turn excess inventory into cash to be used to pay down our bank debt.

Speaker 2

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. 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. With that, I will now turn the call over to Dan O'Keefe to provide a brief overview of the financials. Dan?

Speaker 3

Thank you, Craig. To our Q3 results compared to the prior year Q3, net revenues were 11 $16,900,000 Average active brand partners totaled 12,400 compared to 16,400. Loss before income taxes totaled 1.1 compared to income of 2,700,000 dollars Net loss totaled $800,000 for the quarter compared to a net income of $2,000,000 in the Q3 last year. Loss per share for the quarter totaled $0.10 compared to earnings per share last year of $0.24 on a fully diluted basis. Now for a year to date summary compared to the prior year.

Speaker 3

Year to date net revenues totaled $27,600,000 compared to $42,100,000 Our average active brand Paper Pie brand was $13,300 compared to $19,200 last year. Loss before income taxes totaled $5,300,000 compared to income before taxes of $2,900,000 Net loss after taxes totaled $3,900,000 compared to income of $2,200,000 Loss per share totaled $0.47 compared to earnings per share of $0.26 on a fully diluted basis. Now for a quick update on our working capital positions. Net inventories decreased $8,800,000 from $55,600,000 at February 28, 2024 to $46,800,000 at November 30, 2024. Borrowings on our working capital line of credit totaled $4,300,000 at the end of November 2024 with $1,200,000 of availability at the end of the quarter.

Speaker 3

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. At BakerPie, we remain committed to 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 was the shipping subscription launch. In November, we introduced a membership program offering customers the opportunity to qualify for reduced or free shipping, along with value added perks such as monthly emails, birthday postcards for the children in their lives and more.

Speaker 4

The program has been met with overwhelming positive feedback from both brand partners and customers affirming its value as a relationship building and revenue driving tool. Our Black Friday promotion known as Book Friday was expanded this year launching earlier in alignment with broader retail trends. The excitement generated by social media activity and direct messaging translated directly into sales performance throughout the event. And our Storymaker Summit. In 2025, Paper Pie will host 5 Storymaker Summit in major cities across the U.

Speaker 4

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 connections between attendees and home office staff. Registration opened in Q3 and the enthusiastic response suggests this format may become a part of a new every other year rhythm for the business, alternating with our national convention. Looking ahead a bit in 2025, 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 4

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. As education and learning needs will persist, EDC is well positioned to meet those demands with our diverse collection of quality books and educational toys and resources. This concludes our sales and marketing update. I will turn the call back over to Craig for our closing remarks.

Speaker 4

Craig?

Speaker 2

Thank you, both Heather and Dan. And now for an update on the Hilti complex building sale process. 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 the buyer group. The initial due diligence period is scheduled to expire on January 19 and the buyer has an option to extend the due diligence period for another 30 days. As such, we hope to have the transaction completed by the beginning of March.

Speaker 2

While this time frame is longer than we are hoping, a transaction of this size is not something that moves quickly. One positive side in the delayed closing of this transaction is that we will continue to make monthly pay downs on our debts with our bank and thus our available cash at closing will be higher. 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 $30,000,000 at the end of November. As previously stated, the agreement excludes the 17 acres of excess land, which will remain under EDC's ownership and provide further strength to our balance sheet post building sale. 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.

Speaker 2

While the building sale is 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. 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. 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 2

Operator?

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Olivier Dorte from please go ahead.

Speaker 5

Yes. Hello. It's Olivier Dorte from Geneva. Thank you for taking my question. Thank you for your update.

Speaker 5

I have 2 questions. Do you hear me well?

Speaker 3

I do.

Speaker 5

Okay, good. The first question is about the new markets. Maybe you are taking in account right now. Have you any ideas about new markets? And where are you?

Speaker 5

Where is EDC now about that? And the second one is about the new IT implementation. First, on the partner side, what are your returns? And on the customer side, do you think about digital extension of your products? Or what is where are you again on this side of customers with your new implementation?

Speaker 2

Okay. I think I've got those. As far as new markets, we're always looking for new markets. I would say, while it's not necessarily a new market, our Smart Lab toys in the retail division has done very, very well for us. So kind of almost consider that a new market.

Speaker 2

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 IT questions is that we've been very successfully implementing a couple of major projects in 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 subscription, which is a big project that launched in that Q3, which has been successful.

Speaker 2

Kind of moving forward, we have our online fundraiser program that will kind of add new abilities with it being online, but that's going to be in the next couple of months. We're also talking about making this a slight tweak to our model, not abandoning our model, but adding brand ambassador, which is kind of more of an affiliate type program. There's been more than a couple multilevel 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, I wouldn't say market per se, but it does give us the ability to increase brand partner counts without signing up through our traditional model. So that's kind of what we have on the horizon for IT.

Speaker 2

I hope that answers your question.

Speaker 3

Yes.

Speaker 5

Maybe a little update. Have you any news from us, Dom?

Speaker 2

Dan has quarterly or many monthly calls with their CFO. Everyone is just kind of patiently waiting for us to get through this difficult period. We don't have any news to report, but as restrictions for purchasing are lifted, we anticipate that we will return to normal purchases with Osborn. Thank you.

Operator

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

Speaker 6

Good afternoon, everybody. Thanks for taking my questions and Happy New Year. Just to start off, minor question. So you previously announced that on September 19, you executed a commercial real estate sales contract and that the due diligence period started that day on September 19. But now you're saying that was only a letter of intent and the due diligence period only started on October 28.

Speaker 6

So can you just maybe explain what happened there? Well,

Speaker 3

it's the LOI is in it, it's just that, it's just a letter of intent and so we had to wait until we could get NASA purchase agreement documented for the due diligence piece to be defined and start. So while what the real issue Paul from a macro perspective was 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 we asked them for the last amendment and we kind of put everything out in a timeline, we were really geared towards a year end close. And so our amendment with our bank on our disclosures were all geared towards that. What's end up happening is the buyer group is kind of had another transaction that they said that kind of took all their focus away from year end and so they didn't start a lot of their work until towards the November December timeframe which slowed them down.

Speaker 3

And so now we're left with the asset purchase agreement definitions which outline that they've got 75 days from the delivery of certain key documents to them which started in basically early November. And so that puts our timeline for the initial due diligence period to be January 19th. We also have they have in the asset purchase agreement a 30 day option to extend that, which would put them into mid February. And then they're still closing after that. So that's why we've gone to the bank.

Speaker 3

We've recently executed a new amendment to extend our line out until April 4th to give us sufficient time to close the transaction. And it's just kind of a so that's the current timeline.

Speaker 6

Okay, that's fair. That's fair. Thanks for that detail. And is the sales price still $38,300,000 or was that changed?

Speaker 3

No, it's that the terms of the asset purchase agreement were consistent with the LOI. So nothing changed. Okay,

Speaker 6

great. And then just another unrelated question. For the quarter, your average active brand partners was 12,400. Are you able to say what you ended the quarter at?

Speaker 3

Well, that's the average for the quarter. We don't report monthly numbers for our active average brand partners.

Speaker 6

Okay. Fair enough. All right. So this is apologies for the rather blunt question, but I'll ask it anyway. So 4 years ago, you were doing about $200,000,000 in net revenues and are growing your capacity to get up to $4,000,000 to $450,000,000 And now you're done with a net revenue run rate of about, call it, dollars 30,000,000 give or take.

Speaker 6

And there I guess, there isn't a lot of evidence yet that things have totally bottomed. And I totally understand, and you know I've been following you for a long time, I understand you've been facing multiple challenges all at the same time like inflation, the Osborne relationship, the overhang of your debt agreement, etcetera. But rather than just selling your building, has the Board considered 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 2

Well, I mean, the closing of the current building sale transaction is imminent. It doesn't seem appropriate to look at options until that either 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 not moving forward as the current contract is exclusive, but we have several options. If in fact we do get the transaction closed and we're out of bank debt, then we're kind of back going again. We feel like our sales force is kind of sitting on the sideline to see what happens.

Speaker 2

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. If we complete this transaction, we're in a much stronger financial position and we can do run our business how we need to. It's been 2 years that we've been under the okay stump, if you will. So we haven't been able to operate our business as we would normally.

Speaker 6

Yes. No, that's fair enough. Yes, I'd probably just throw that out there just to kind of get your reaction. But yes, it does sound like closing of this transaction will hopefully be a bit of a catalyst for an inflection point. But that's it.

Speaker 6

That's it for me, everybody. Thanks very much.

Operator

Thank you, Paul. Thank you. And your next question comes from the line of Joseph Bebe. Please go ahead.

Speaker 7

Hello. Quick question about the brand partner numbers, if you can just comment a little more on those.

Speaker 2

Just kind of the numbers and what's generally happening?

Speaker 7

Yes. Just kind of the decrease in them and just how you feel the trend is and the motivations of the brand partners for leaving, if you have an idea of that?

Speaker 4

Sure. I mean, I think that Paul alluded to some things even in his question talking about economy and the headwinds that everyone has been facing there. I think that there are the overarching things that we are up against just as an MLM. We've talked about those several times on the calls. The reputation that MLM tends to carry with it, and then Craig alluded to some others that we do sense that they are sort of waiting kind of in a waiting game.

Speaker 4

They're in a wait and see attitude. But the overwhelming response that we get from 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 the public can't see is always overwhelmingly positive. The heart of the mission and the foundation of why we do what we do continues. The impact we believe is just 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 look more normal for us from a business standpoint.

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 2

Thank you. Before I get into my closing, I do want to just reiterate what Dan mentioned. It was in the press release at 3 o'clock that 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 bank believes we're doing everything we can to pay them back. We're doing everything we can to get back to a stronger financial position.

Speaker 2

So until further notice, that's what we're doing. We're trying to get back to business as usual. If we can purchase some new titles, make it look like a normal new title release, our sales force will get excited and we're kind of back going again. But anyway, that remains to be seen. Thanks, everyone, for joining us on our call today.

Speaker 2

We appreciate your continued support and look forward to providing an additional update

Speaker 3

in May. Next one will be in May.

Speaker 2

The next one will be in May 2025.

Speaker 3

Thank you. Have a great day. Thanks, everybody.

Operator

Thank you. And this concludes today's call. Thank you for participating. You may now disconnect.

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Educational Development Q3 2025
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