Educational Development Corporation

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.

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 .edcpub.com. Before turning to prepare 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, Company's President and Chief Executive Officer.

Craig? 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 sell lease back of our headquarters, the healthy 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 in 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 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 fourth quarter summary compared to the prior year fourth quarter net revenues were nine million compared to 15 million. Average active pay for five brand partners totaled 15,500 compared to 26,100. Loss before income taxes were 2.2 million compared to 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 19 cents compared to a loss of 24 cents 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 primary our average active brand paper pie 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 dollars. Earnings per share totaled seven cents compared to a loss per share of 31 cents 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 28, 2023 compared to 55.6 million at February 29, 2024. Now for 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?

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 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 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 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 K Miller and smart lab toys in fiscal 2025 which we expect will continue to have a positive impact on the sales within this division. The smart lab toys product line compliments our existing offerings from K 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?

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 lease back 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 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 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.

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 touchtone phone. You will hear a prompt that your hand has been raised. If you would like to cancel request please press start to please ensure you lift the handset before pressing any keys. One moment please for your first question.

Paul are you there? Thank you very much for taking my call. Yeah just on the building first of all so I know a couple 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?

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.

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?

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.

Okay so it's reasonable to expect another amendment, a K filing before next Friday?

That would be reasonable.

Okay great and then so I know in your press releases when you talk about average brand partner count, the last few you've used the word stabilization or reference 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 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?

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.

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? What level do you see that number being?

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

Okay excellent. Well terrific thanks very much that's it for me.

Thank you Paul. Once again if you have a question please press star 1 on your telephone keypad. There are no further questions at this time please continue.

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 2020-2024. Thank you everyone have a great day.

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