Executive Summary

Q2 2026 revenue was $4.621M, down 28.9% year over year (vs. $6.509M) and down 34.9% sequentially (vs. $7.106M); net loss improved YoY to $(1.295)M but widened sequentially, with loss per share at $(0.15) vs. $(0.22) last year and $(0.13) in Q1 .
Average active PaperPie brand partners fell to 5,800 from 13,900 YoY (−58%) and from 7,700 in Q1 (−25%), underscoring continued salesforce attrition and the impact of limited new title releases .
Management reiterated the Hilti Complex sale as the linchpin to deleveraging and re-energizing operations; timeline shifted to mid-November close, with bank agreement expiration on Sept 19 and loans currently in default status pending sale completion .
Key stock reaction catalysts: resolution of real estate sale and bank default, stabilization in brand partner counts via new titles and mobile-first IT upgrades, and reduced discounting to restore margins .

What Went Well and What Went Wrong

What Went Well

Loss before taxes improved YoY despite lower sales: Q2 2026 LBT $(1.75)M vs. $(2.47)M in Q2 2025, reflecting ongoing cost reductions .
Management progress on inventory reduction: inventory decreased from $44.7M at FY26 start to $40.7M by August, generating ~$4M cash used to pay vendors, reduce bank debt, and fund operations .
Retail channel remained steady in specialty, toy, and gift markets, providing diversification and consistency in revenue base .
“The next big step toward profitability will be returning to revenue growth which will be driven by adding Brand Partners and increasing sales” — Craig White, CEO .

What Went Wrong

Significant salesforce attrition: average active brand partners dropped to 5,800 from 13,900 YoY; sequential decline from 7,700 in Q1 underscores recruitment and retention challenges .
Aggressive discounting to generate cash hurt gross margins and profitability; management acknowledged these promotions as short-term tactics not aligned with the normal business model .
Bank credit agreements expired on Sept 19, and loans are in default status until the building sale closes; the bank has reserved rights including liquidation of collateralized assets, increasing near-term financing risk .

Financial Results

Metric	Q2 2025	Q4 2025	Q1 2026	Q2 2026
Revenue ($USD Millions)	$6.509	$6.636	$7.106	$4.621
Net Loss ($USD Millions)	$(1.803)	$(1.346)	$(1.075)	$(1.295)
Loss per Share ($USD)	$(0.22)	$(0.16)	$(0.13)	$(0.15)
Gross Profit Margin %	56.02%*	60.54%*	58.22%*	58.17%*
Net Income Margin %	−27.71%*	−20.27%*	−15.13%*	−28.02%*

Values with * retrieved from S&P Global.

Segment breakdown: Not disclosed in quantitative form; management indicated retail channel performance was steady while PaperPie (direct sales) continues to face a challenging environment .

KPIs

KPI	Q2 2025	Q4 2025	Q1 2026	Q2 2026
Avg. Active PaperPie Brand Partners	13,900	9,400	7,700	5,800
Inventory ($USD Millions, end of period)	$44.7 (FY25 end)	$44.7 (FY25 end)	$42.0 (May 31, 2025)	$40.7 (Aug 31, 2025)
Revolver Borrowings ($USD Millions)	$4.2 (Feb 28, 2025)	$4.2 (Feb 28, 2025)	$4.2 (May 31, 2025)	N/A (agreements expired Sept 19; default status)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Hilti Complex sale close	FY26 Q2–Q3	Close by early September (after 90-day DD)	Close in mid-November; buyer notice to proceed	Delayed
Bank debt elimination	Post-close	Use proceeds to fully pay down debts; minimal borrowing thereafter	Reiterated; loans in default until sale completes	Maintained (with near-term risk)
Credit facility (post-close)	Post-close	Limited borrowing needs	Exploring conservative $3–5M line; alternatives pending sale	New detail / Clarified
New titles & inventory strategy	FY26	Conservative phased approach after sale; replenish bestsellers	Phased new product introduction; expect energizing impact in spring; still reduce excess inventory	Maintained
Dividends	Next 1–2 quarters	Aspirational reinstatement after positive cash flow	“Wouldn’t see it for a quarter or two at least”	Delayed
Discounting cadence	Near term	Tactical discounting to generate cash	Intends to normalize and reduce deep discounting post-sale	Positive directional

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2025, Q1 2026)	Current Period (Q2 2026)	Trend
Building sale / financing	Executed PSA at $35.15M; 90-day DD; early Sept close targeted; triple-net lease at $8.62/sqft . Q1: Due diligence extended; still targeting Sept close .	Buyer notice to proceed; mid-Nov close targeted; buyer linked to Tenmark; earnest money $100k; management very confident (Q&A referenced $32.2M level) .	Timetable delayed; buyer specificity increased; price expectations appear lower than prior disclosure (note discrepancy).
Brand partner counts / recruiting	Large QoQ drop; need new titles; recruiting specials drive volatility . Q1: attrition continues; phased title buys planned .	Avg. active partners 5,800; focus on mobile-first IT, onboarding and tools; targeting Millennials/Gen Z parents .	Still declining; tactical shift to tech-enabled recruiting.
Discounting / margins	Deep discounts to generate cash; margins pressured . Q1: promotions continued; short-term tactic .	Acknowledged non-normal discounting; plan to reduce after sale; discounts are second-largest P&L impact after interest .	Set to normalize post deleveraging.
Banking relationship	FY25 end: revolver $4.2M; lender supportive amid amendments . Q1: lender supportive, urgency to be repaid .	Agreements expired (Sept 19); in default; bank cross-collateralized assets; no enforcement yet .	Elevated risk until sale completion.
Retail channel	Summits, incentives; retail provides diversification .	Retail steady in specialty/toy/gift markets .	Stable.
Governance / board	Added IR partner to board in May . Q1: considering governance improvements .	No new governance items in Q2 call.	Neutral.

Management Commentary

“The next big step toward profitability will be returning to revenue growth, which will be driven by adding Brand Partners” .
“We are improving our technology to have a mobile-first impact and make it easier to do business with us, including our onboarding process” .
“Inventory levels have decreased from $44.7 million… to $40.7 million… generating $4 million in cash flow from inventory reductions” .
“Our bank loan agreements expired on September 19… we received a notice of default… To date, the bank has not taken any of the rights outlined” .
“We expect the [Hilti Complex] sale to be completed prior to… November 25, 2025… We continue to develop options for financing post-building sale close” .

Q&A Highlights

Real estate buyer and confidence: Buyer group related to Tenmark Holdings; earnest money $100k; management “very, very confident” sale will close (Q&A referenced $32.2M level) .
Post-close credit line: Exploring conservative $3–$5M facility; banks awaiting sale close; also alternative financing not tied to building .
Cost levers: Interest expense is the largest P&L impact; discounts second; exiting ~$1M/yr outside warehouse costs as inventory normalizes; ongoing smaller cost-saves of $50–$100k .
Bank collateralization: Assets cross-collateralized (building, AR, inventory, equipment, land), to be released upon sale .
Dividend: Reinstatement remains a goal but not likely for “a quarter or two at least” post-turnaround .

Estimates Context

Coverage appears limited; Wall Street (S&P Global) consensus for Q2 2026 EPS and revenue was unavailable, preventing a formal beat/miss assessment. Actual revenue was $4.621M and loss per share was $(0.15), but no consensus means comparison cannot be made .
Values retrieved from S&P Global where noted.

Metric	Q2 2026 Consensus (S&P Global)	Q2 2026 Actual
Revenue ($USD Millions)	N/A	$4.621
Primary EPS ($USD)	N/A	$(0.15)

Key Takeaways for Investors

Near-term inflection hinges on closing the Hilti Complex sale; resolution would eliminate bank debt and default risk, restore operating flexibility, and reduce interest expense drag .
Revenue trajectory remains challenged until brand partner counts stabilize; watch for new title rollouts and mobile-first IT/onboarding improvements aimed at Millennials/Gen Z to drive recruiting .
Margin recovery depends on curtailing deep discounting and exiting external warehouse rentals as excess inventory normalizes; management flagged these as the biggest P&L levers after interest .
Expect conservative financing posture post-close (target $3–$5M line); liquidity discipline should constrain growth investments to phased, ROI-positive title launches .
Dividend reinstatement is aspirational but at least 1–2 quarters away post-turnaround; prioritize deleveraging and salesforce rebuild first .
Retail channel is a steady contributor; any reacceleration in PaperPie (direct sales) will be the key swing factor for topline .
Monitor for clarity on sale price variance (prior 8-K $35.15M vs. Q2 Q&A mention of $32.2M) and any bank actions before close; this is the primary stock-moving narrative .

Notes:

Values with * retrieved from S&P Global.

EDUCATIONAL DEVELOPMENT CORP (EDUC)·Q2 2026 Earnings Summary