Educational Development (NASDAQ:EDUC) Q1 2021 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by and welcome to the Educational Development Corporation's first quarter physical 2021 earnings conference call. At this time, all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your presenter, Mr. Randall White. Thank you. Please go ahead, sir. Okay, Erica. Thank you. Welcome, everyone, to the quarterly investor's call. I will tell you here in the room with me, we have Heather Cobb, our Chief Sales and Marketing Officer, Craig White, our Chief Operating Officer, and Dan O'Keefe, our Chief Financial Officer. What I'm going to do first is hand it off to Dan to give you a review of the quarterly results.

0:59 Thank you, Randall. Here is our first quarter results for fiscal 2021. Net revenues for the first quarter were approximately $38.3 million, up $10.7 million or 38.8% from approximately $27.6 million reported in the first quarter of fiscal 2020. Pre-tax profits for the first quarter totaled $2.6 million, an increase of $800,000 over the pre-tax profit of 1.8 million reported in the first quarter last year. Pre-tax profit as a percentage of net revenues increased from 6.7% in the first quarter of last year to 6.9% in the first quarter of fiscal 2021.

1:45 Net earnings in the first quarter of fiscal 2021 totaled 1.9 million compared to approximately 1.4 million reported in the first quarter of fiscal 2020. Pre-tax earnings grew 41.6% over the first quarter last year. Earnings per share on a fully diluted basis increased $0.06 per share from $0.17 reported in the first quarter of fiscal 2020 to $0.23 per share reported in the first quarter of fiscal 2021. Earnings per share for the quarter increased 35.3% over last year. This concludes the earnings results, and I'll pass the call back to Randall. Okay, Dan, thank you. Well, guys, what a heck of a quarter.

2:32 And it's kind of an unusual quarter, too, because March started out with our first kind of hint about the virus, the COVID-19. And, wow, things changed for everybody in the world during that period. Of course, it goes back to February, but for us, we started seeing it in March. And what happened was our March was down. Well, let me tell you what happened. Publishing, of course, was down because stores closed. Our school and library sales, and any other face-to-face like booths and what have you, were basically non-existent because that was gone. The UMAM consultants were disrupted all over the country. And our tenant asked for a 90-day rate abatement. I went, okay. Well, I tell you, we granted that because we got a pretty good deal with our tenant. And so we said, okay.

3:24 So quarterly sales down 25% in March. Kind of gloomy, the forecast. However, April came. And wow, did April come in strong. For whatever reason, we just got inundated with orders. And we handled it. Our ability to take these on the Internet, and process these went off basically without a hitch. I'm not saying they weren't a few glitches here and there, but we handled that volume at 60% up in April after 25. And when I was talking about April, April compared to last April. All our comparisons are the same month last year, so you can have a benchmark. So that's been up 60% in April. We're going, oh yeah, life is good.

4:10 Well, during that period at the end of March, we applied for a PPP loan that was pretty and a couple around the country. We had no problem. It was granted. We got $1.44 million to keep our workforce employed. And by the way, in March, our warehouse was working a 32-hour week. That's how far down we were in keeping our people working. Well, April, exciting. But then again, two weeks isn't necessarily a trend yet. but we were monitoring it daily as you might imagine when May came and it got better it's amazing so what you have here when we reported a quarter we didn't probably tell you the month but if you got a pencil write this down March down 25% April up 60 May up 116 or somewhere in that range incredible graph looks like a check mark down and then two up.

5:16 And in during the month of April and May, we added 10,700 new consultants. So it's just, it was incredible because May was 16 million and last May was around 7 million. So it was quite amazing turnaround. Now, Dan's got his pad over there, so if I get out and get into forward-looking statements to get ahead of myself, we'll have to issue a press release to get your pad ready. Because the thing about it is, people need to know what apparently some people do know. Because our volume of stock trading has been phenomenal in the last 30 days. We had like, did you say 800,000 shares traded in like four or five days, something like that?

6:04 A lot. When our average is 27,000. So apparently some people must think they know things, and it's to me, I want people to have the same information. So I will tell you that our momentum has continued in quarter two. Accelerated. We just completed the largest revenue month in our history and this was in July? June. June, which generally is the lowest month of the year. Our big months are October, November, December. And June exceeded our biggest revenue month in history. That's and a lot of, oh my gosh, how are we going to handle it? We went through this in 2016, if anybody's on the call might remember that, and it was brutal. But we got through it, so we do have some experience with it. And so we started looking ahead all the way into that month, and if you did a comparison of what June was to June last year, if you move it on into what June was compared to October, November, December, Whoa, it's staggering numbers.

7:11 So that's what we're looking at. We finished June with the highest number of active consultants in our history. That was adding 6,000 more in June. So we wound up somewhere around, again, active consultants, guys, don't make this your life and death number because it changes every day. We know when they start. We don't know when they stop. But it's somewhere around 39,000 active sales recruits at the end of May. June, which is, again, not in the Twitter. We think you need to know the trend here of what's happening because some of you may be wondering, why is that stock doing what it is? And I want everybody to have as much information as I can legally tell you, and maybe just a little bit more.

8:07 June revenues for publishing started to come back. A few stores started opening and restocking. That helped. We hope this will continue, but you know, you look around and stores open, they're going to close again. It's a very uncertain time in the retail industry. I'm sure I don't have to tell you that. We've had these extraordinary growths before, and it was in 2016, and we have meetings almost daily about, is it 2016 again? Or anyway, I'm saying that. and so we are looking ahead at significant expansion of our facilities to handle the kind of volume that may be coming. I'm not forecasting it. It may be coming. And our number one focus is keeping up with increased demand through the fall selling season, which must be typically three times what they were in the summertime.

9:00 And so you guys can do the math on that. So it's been an extraordinary time here. Thank you very much. Thank you very much. because we have people now who are making the most money they've ever made in their life in their commissions and overrides. And by the way, if anybody gets all concerned about that, let me tell you something. I've been here 35 years, and the formula here has not changed. And it's 25-25-50, basically.

10:25 50% for marketing, 25% for cost of goods, and 25% for us to run the company. And the more they make, the more we make. It's a formula. So we have people who are now making over $300,000, salespeople in the field, staying home with their families and promoting literacy. It's just an incredible time. I can't tell you how proud I am of the company and the impact we're making on families and maybe a little bit on literacy too. So we're looking out ahead. We have people come in and give us quotes on how to expand our pipeline to make it bigger and adding additional shifts. And with that, without getting too far deep into this, why don't we just let somebody ask a question if there is one possible thing I didn't tell you.

11:18 You can ask it now. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. and your first question comes from Edward Norcini, a private investor. Hello, Ed. Hi, Randall. I want to thank you for raising the dividend. I thought that was a nice way to go. Can you give me a status report on your renters? I'm a little concerned with the coronavirus on their ability as renters. You're the biggest distributor in Oklahoma, but you're also a big landlord. What's the situation with the renters?

12:12 We have basically one renter. We have a couple of renters in an old building that we went a couple of years without them, so we don't really care. The one that we care about is a company that last year had $400 million after-tax profit. I'm not worried about them. We gave them a 90-day abatement. Not even blinking our eyes because we have a sweetheart deal here with that company because their rent pays our mortgage. We're basically living here free in a 400,000 square foot incredible facility on 40 acres. And their rent pays our mortgage. So a 90-day abatement, all we did was add it to the lease, so we'll get it. It's just out there further and We have a great relationship with them, and I was happy to accommodate them because they're in the construction business.

13:07 Their business did go down, but they're the leading supplier of the components that they provide for the construction industry. So they're an incredibly solid international company. Don't worry about it. OK, great. My other question, Randall, I would like to know your thoughts. and I would like to know your thoughts on selling some stocks to pay off some of this debt to build up your balance sheet and also decrease the amount of interest that you pay every year. Thank you. Ed, I guess you're talking about selling treasury stock? Yes. That's kind of tricky to do, by the way, but we don't need to sell stock to pay off The entire amount of debt we have, and let me leave it at that.

14:01 You understand, guys out there, that all these orders that come in are prepaid. So if we ship a million dollars in a day, we've gotten a million dollars cash in before we ever ship it. So we're a very nice cash-producing company, and we could pay off our debt if we elected to do that. What happens is when you have cash, you make a decision. Do you invest it in the future in building? Well, we don't really need much. We're not a company that needs a lot of fixed assets. We do need inventory. The next thing you can do, you can pay down debt or you can increase your dividend. I like a dividend because I get most of it. But, you know, we have to look at what's the best for your company.

14:48 We raised it. Hey, look around next quarter and see what happens. If we're flush with cash, that's another decision we make quarterly. and this is Dan, just to add to Randall's comment. While there's debt on the balance sheet, we really don't look at that. The only debt is the debt on this building. And with our tenant paying the mortgage payment for us, we don't really view it as debt. I mean, to us it's just, we've got a great asset and we've got a mortgage on it and our tenant who, as Randall said earlier, is a very viable tenant. they're making the payments for us. We don't view it as in a shareholder's best interest for us to pay an offer. When I see people evaluate our company and come out with knowledgeable advice and say we're overloading debt, I say, you need to pull your head out.

15:42 We don't even have any debt. Yeah, really? You want to say that we have too much debt? Okay. Whatever. I don't think so. I'd worry about us more than are tenants. They're a $7 billion sales company, so I think they're going to be okay. Okay. Well, I realize that you paid off one of the loans on the older building this year, which is a great help. But I was just thinking, you know, from being a private investor and from the Wall Street point of view, these companies like companies that have right now with a lot of cash on the balance sheet and low debt, and I think that would help... to pay off a debt that's 100% covered by rent, there might be better use of cash because we get in more than we pay.

16:42 Again, we don't consider that as debt because the people that pay it are pretty big boys. That's something we talk about. Pay off debt, increase dividends, Increase my salary. All these things coming up. And everybody's voted down the salary so far. But dividend we'll look at. Anybody else have a question? Thanks, Ed. And as a reminder, if you would like to ask a question at this time, simply press start and the number one on your telephone keypad. and there are no further questions at this time.

17:27 Are you kidding me? Didn't anybody want to say, hey, Randall, you're awesome? Come on. Can I get something here? We had the best quarter in our life and you got nothing? Bring it. Come on. How about a hooray, brother? Okay. All the information you wanted to know, I guess we can go home. Really? Well, thanks for being on here, though. I see a lot of good pals on here. Jeremy, I met you in Chicago. You can jump on here and say good job, Randall. I don't know. Marissa, you work for us. You can say what a good job or something. Okay. Nothing? Okay. Hey, thanks for being on the call, and next quarter is going to be better. Thank you, everybody.

18:14 Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. How disappointing.