Educational Development - Q4 2024

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen, and welcome to the Educational Development Corporation's Fiscal Year 2024 earnings call. At this time, all lines are in a 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 Tuesday, May 21st, 2024. I would now like to turn the conference over to John Beisler. Please go ahead.

John Beisler (Head of Investor Relations)

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Educational Development Corporation's fourth quarter and 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, the company issued a press release announcing its results for the fiscal third quarter. The release is available on the company's website at www.edcpub.com. Before turning to 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 Craig White, the company's President and Chief Executive Officer. Craig?

Craig White (President and CEO)

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 Hilti Complex, and provide some comments on strategy and fiscal 2025 outlook. Our fourth quarter, as well as the previous quarters of fiscal 2024, were driven by the tactical decisions to prioritize cash flow over profitability. 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 the...

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 call over to Dan O'Keefe to provide a brief overview of the financials. Dan?

Dan O'Keefe (CFO)

Thank you, Craig. Net revenues for the quarter or for the fourth quarter summary compared to the prior year fourth quarter, net revenues were $9 million, compared to $15 million. Average active PaperPie brand partners totaled 15,500, compared to 26,100. Loss before income taxes were $2.2 million, compared to a loss of $2.6 million in the fourth quarter last year. Net loss totaled $1.6 million, compared to $1.9 million. 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 million, compared to $87.8 million. Our active average, pardon me, our average active brand, PaperPie brand partners totaled 18,300, compared to 28,000.

Earnings before income taxes were $0.7 million, an increase of $4.1 million. Net earnings totaled $500,000, an increase of $3 million. 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 $8.2 million from $63.8 million at February 28th 2023, compared to $55.6 million at February 29th, 2024. Now for a working capital update. Our working capital line of credit borrowed was $5.5 million at the end of February 2024, with $2.5 million 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?

Heather Cobb (Chief Sales and Marketing Officer)

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, but allows also mobile shopping and is device agnostic. The new platform was developed over the past two years with countless hours of work from our IT department and sales and marketing teams. The effort to bring this project to implementation was monumental, and the results have been exciting to watch. From customers visiting eight pages on average during their visit to almost 200,000 sessions within the first week of rollout.

Implementing a new e-commerce system for our brand partners and our customers is a business distraction and a sales disrupter, but our brand partners rallied behind the adoption of this new platform. We also ran sales during the launch of our platform during the fourth quarter 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 three months, and I am proud to say we are now working on new modifications that we believe can further improve sales. We expect this to be the foundation on which more impactful projects can be developed and have already began 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 One, Give One 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. And now switching to our retail sales team. They continue to focus on opening new accounts and selling to our established customer accounts. The introduction of our SmartLab 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 Kane Miller and SmartLab Toys in fiscal 2025, which we expect will continue to have a positive impact on the sales within this division. The SmartLab Toys product line complements our existing offerings from Kane Miller and Learning Wrap-ups. 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?

Craig White (President and CEO)

Thank you both, Heather and Dan. I want to reiterate the focus from our last several quarters, which remained in the fourth quarter, 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 million at year-end. 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 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'll now turn the call back over to the operator for questions and answers. Operator?

Operator (participant)

Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press star, followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. If you would like to cancel the request, please press star two. Please ensure you lift the handset before pressing any keys. One moment, please, for your first question.

Craig White (President and CEO)

Paul, are you there?

Paul Carter (Research Analyst)

Very much for taking my call. Yeah, 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?

Craig White (President and CEO)

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.

Paul Carter (Research Analyst)

Oh, 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?

Craig White (President and CEO)

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 counteroffers, and so, yes, they've been very supportive.

Paul Carter (Research Analyst)

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

Craig White (President and CEO)

That would be reasonable.

Paul Carter (Research Analyst)

Okay... Great! And then, so I know in your press releases, when you talk about average, or Brand Partner count, on the last few, you've used the word, stabilization or, 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, or, or do you anticipate, sort of a flattening of that 15,500, give or take, and then, you know, hopefully get some lift in the coming quarters?

Heather Cobb (Chief Sales and Marketing Officer)

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. Yeah, 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. 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.

Paul Carter (Research Analyst)

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, you know, liquidate the excess inventory? Like, what level do you see that number being?

Dan O'Keefe (CFO)

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 million company, $51 million company, where we landed this last fiscal year, it would be in the $20-$25 million range.

Paul Carter (Research Analyst)

Okay, excellent. Well, terrific. Thanks very much. That's it for me.

Dan O'Keefe (CFO)

Thank you, Paul.

Operator (participant)

Once again, if you have a question, please press star one on your telephone keypad. There are no further questions at this time. Please continue.

Dan O'Keefe (CFO)

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

Operator (participant)

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