Educational Development (NASDAQ:EDUC) Q4 2020 Earnings Call

0:01 Ladies and gentlemen, thank you for standing by and welcome to the Educational Development Corporation Fiscal 2020 Investor Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 in your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Randall White. Thank you. Please go ahead, sir. Well, thank you very much. Welcome, everyone, to the quarterly investor call. Here in the room with us on the call today are Heather Cobb, our Chief Sales and Marketing Officer. We also have Craig White, our Chief Operating Officer, and Daniel O'Keefe, our Chief Financial Officer. Got a bunch of chiefs here, and we're going to turn it over to one of them right now. Dan, give us some stuff on the earnings results.

0:51 All right. I'll give a quick update on the fourth quarter and then the year and then turn it right back over. So net revenues for the fourth quarter of fiscal 2020 were approximately $20.2 million, down $3.4 million or 14.7% from approximately $23 million reported in the fourth quarter of fiscal 2019. Pre-tax profit, however, was consistent between the fourth quarters of last year and this year at 3.5%. Net earnings in the fourth quarter of fiscal 20 remained consistent when net earnings reported last year as well at just right around a half a million. Earnings per share on a fully diluted basis decreased at $0.01 per share from $0.07 reported in the fourth quarter last year to $0.06 reported in the fourth quarter of fiscal 2020.

1:36 Now on to our full fiscal 2020 results. Net revenues for the fiscal 2020 were approximately $113 million, down 5.8 million, or 4.9%, from approximately $118.8 million reported in fiscal 2019. Pre-tax profits as a percentage of net revenues decreased from 7.7% in fiscal 2019 to 6.9% in fiscal 2020, primarily associated with the reduced net revenues. Net earnings in fiscal 2020 were $5.6 million, down $1.1 million or 15.5% from net earnings reported in fiscal 2019 of approximately $6.7 million. and earnings per share on a fully diluted basis decreased 13 cents from 81 cents a share reported in fiscal 2019 to 68 cents a share reported in fiscal 2020.

2:30 So, Randall, this concludes the fourth quarter and fiscal 2020 results, and I'll turn the call back over to you. Okay, Dan, thank you very much. Well, fiscal year 2020, definitely behind us, 90 days old information, probably most of you have it. and Daniel O'Keefe. while we introduced some new recruit promotion programs and a back office program from IT, which consultants use to run their individual businesses.

3:25 It took a little focus off of us, but it was building the foundation for the year that we're now in. We're almost 90 days into it, and I will tell you it's been terrific. Here's some of the highlights. March revenue was down 25%. Not a real good highlight, but that's what they were. We're impacted by retail division. There's store closings. Nobody's buying anything, so our retail side was down about 60% to 70%. We also have a lot of sales through school and library, which are book fairs. Those are pretty much nil. Any direct business we have where people do booths, that was impacted.

4:10 So the and the consultants were disrupted by all of the above. And while all that was going on, our tenant, which is a pretty big guy, did about $7 billion and made $400 million after tax profit came to us and wanted a rent abatement. Yeah, okay, let's do that. And we did. We also, on April 2nd, because of these results from March, we applied for a PPP loan and we were granted that, $1.44 million. The only question they ask is how many employees you have and what you pay them. There wasn't any other requirements, so we were granted the loan. April came around. Wow, thank you, April.

4:58 Our business exploded, and so much in fact that 40 days after we got the loan, we have no short-term debt, and we paid it back. Nobody asked us to. We weren't under any requirements to. But we kind of like to do the honest and ethical thing in this company. Educational Development Corporation, it's just kind of the way we operate our business. So we paid it back. And after that, it just keeps getting better. UBAM division, which I mentioned to you in the fourth quarter, we really set the stage for this year. And it took It took a whole faster than we even thought. April is up about, I don't know, 60% over April last year.

5:46 And that's without any of the school and library business. So we're very happy about that. We also got 5,000 new sales recruits. Pretty amazing for that. May, it looks like we're going to have about that number again. So we could very likely have 10,000 new sales recruits in this quarter. and interesting enough, these new people are joining now, they're out here to make money. And you know what, they do. And we've got some people who have really made some, come on and made sales at a very short amount of time. We, after being down 25%, we have already provided guidance that we'll be somewhere between 36 and a half to 38 and a half million I think that's compared to about $27 million in the first quarter last year.

6:38 So we're pretty happy about where things are going here. We're very fortunate. That's my story, so why don't we let somebody ask something they want to know. Anybody have any questions? As a reminder, to ask a question, you will need to press star 1 in your telephone. To withdraw your question, press the pound key. please stand by while we compile the candidate roster. I may have told you everything you ever want to know, which is that's okay. I see today in our stock is trading 61,000 shares on an uptick, which you got to like a market where 60,000 shares can get in and 60,000 shares can get out. That's a free market. Very interesting day.

7:33 You got a question? All right. We do have a question from Anthony Chiarinza with Key Equity Investors. Please proceed. Congratulations on the great improvement you've had. What I'm concerned about is as the COVID process kind of recovers, hopefully we get into a recovery, do you see this as a one-time effect that you're going to get over the next several months and then things will kind of stabilize again, or is this a beginning of a new trend? Well, you want my opinion? Anybody knows me, I'm always positive because I think we have the very best products in the world and we have an outstanding sales force and they're making money. We see a trend like it was in 2016 and anybody who was here in 2016, it grew so fast it about killed us. We went from 25 to 35 million, 35 to 65 and 65 to 106.

8:33 and that 65 to 106 about did us in. So this year, we're seeing that same growth and we're prepared for it. There are a lot of factors and I wish I could tell you, I know all the answers, Anthony, but I will tell you that we're seeing a lot of people who had really great jobs and lost them. And some of them are called back and some aren't. And we're seeing a little bit of thought process of, you know what, this is a pretty nice I'm going to keep that just in case for a fallback. And then other people are saying, I'm making more money doing this than what I was doing. So there are so many factors. I can only tell you we have not had a day in the last two months that wasn't better than the same day a week before that.

9:24 It gets better every week, every week, every week. I have not seen one negative trend change since the first of April. Now, I know one and a half months in a row is not exactly a trend, but we've been here a long time and we've seen a real positive thing. And there's some great stories here in this organization. And they're the ones that drive the sales growth, the people in the field. Right. I think the issue is the unemployment rate now is God knows what it is. It's 20% or it's 25% and obviously there are a lot of people at home and not working and not knowing whether they're going to go back and I think this represents a good opportunity and I guess if you can prove that this is something that they can make a living at, then you've got a big winner then at that point.

10:18 I think that's what you're saying. I am saying that, Anthony, and I will tell you that we are in a bubble that anyone who has educational material for children, you're in a good spot. Some of our customers, we sell to homeschool curriculums. And right now, homeschooling is taking a whole different viewpoint because people are not sure if school is going to open or not. And we're seeing our customers frantic to buy product from us for their curriculum. They write curriculum and they use our books in that. It's coming from a lot of places, and bear in mind, we've had hardly any impact from the school business. When that comes back, that used to be about 15% of our business.

11:06 Heather's standing here. She's smiling and frowning at the same time if I tell you the wrong stuff. So the school business is about 15%, and we're up 60% without that. So it's not like we're going to die tomorrow if everybody goes back to work. I don't think that at all. I think that people have discovered our products and they're working for them and I think the trend is going to continue. Heather Cobb Yeah, Anthony, this is Heather Cobb. I'll just jump in real quick too and say one of the things that happens with this business is once you start to generate momentum, it's really hard to stop it. So while some people may go back to the workforce and and all of these new consultants that have joined in April and even May, that they're having early success and while that doesn't specifically guarantee you can't ever do that with a salesperson.

12:26 What it does is it shows us that the potential is there for it to continue, definitely. I'm going to give you a couple of other positive facts. For one thing, we had to cancel our convention. And for people who come to convention, they have to pay all the expenses. And that generally costs them around $700 to $1,000, depending where they fly in from, drive in from, and where they stay, what have you. So we're going to have a virtual convention, and we were talking about it. Oh, my gosh, you'd think that we could possibly have 2,000 people who would sign up and have a virtual convention. So we had a day, what a day that was, and I'm sitting in Heather's office at noon when the registration began, and we were hoping to get 2,000. Oh, my gosh, before that day was out, we had over 5,000 people registered for this convention, and now we're up 6,200 registrants.

13:19 Here's a little fact for you. Last year, it cost us $258,000 to put this on. Our net cost was that. This is probably a profit this year. Let me tell you probably the most positive thing about a direct selling company. If people do this and have a legitimate product that is saleable to the public and they make money, they tell people. I'm going to give you two stories and I'm going to do it quick. We have two ladies here. One of them, her and her family, her and her husband were school teachers and they were teaching abroad on a contract. They came back to the United States because they missed their families. They had very little money. The person contacted them and said, why don't you come to this party? But she didn't really invite her because she knew she didn't have any money and didn't want to badger her. Very interesting.

14:08 And somehow she found out about it. And she got on the party and joined and... Gosh, she is very successful now and has probably, how many people in the downline? Thousands? One of our top five earners in the company. Wow. On someone who is hesitant. And here's another one, even better. Another school teacher that was on the party and wanted to join, and so she did, and her credit card... wouldn't go. The credit card got denied to buy the initial key. The first kid to get started. Well, fast forward about four years, that person earned $35,000 last month. Her downline did over a billion dollars alone.

15:04 So when you have success like that from nice people, school teachers, just people who earn over $200,000, $300,000 a year doing this, Sometimes you can't stop momentum because other people say, well, I think I can do that. And I say, you know what? You can. So there's a lot of factors, Anthony, that come into this. But we are extremely proud of our organization, that people have built a successful business and an honest, ethical business like we run. And we're very proud of it and also of them. That's great. That's great. That's very positive because I think Thank you for having me. I think you're probably right, and I will tell you that we never missed a day here.

16:12 We were deemed an essential business. and we take extra precautions. Everyone has their temperature taken. We wipe down everything two or three times a day. We are very, very cautious and we have not had one incident among about just under 200 employees. That's great. Also, I might also tell you that as the business has grown and ramped up, we have been able to handle it and Craig, who's our Chief Operating Officer, we find a way. We went from March... only being able to keep our warehouse busy for 32 hours. By April, we were into overtime and a second shift.

17:09 And we are opting two shifts and on overtime to stay up with the demand. What's our largest order today? You want to talk a little bit about how we're handling the business? Right. So like Randall mentioned, we go from a month where we're kind of down to a month where Thank you very much. We can certainly handle the volume right now.

18:01 Most days are between 8,000 and 12,000 incoming orders. So we're positioned to handle being able to keep up. But we have a lot of potential. We can expand our second shift. We can go to a third shift. We've got all kinds of options there to expand our capability as far as production out. And we're handling it fine just right now. Actually, the best thing, too, is technology every day. Every day we're making little tweaks to the system where we can process like 15,000 orders a day. It's been really interesting to watch and watch the company grow and handle the business and provide income for people. So we're very proud of the place, and we think that we're just getting started.

18:46 Someone else must think that today because we closed at 675 on 61,000 shares. That's a big trading day for our stock. and if it goes on an uptick like that, someone must be leaking out some information other than me. I was with you guys back five, six years ago and I remember the problems you had when the volume went up and you couldn't keep up with the volume and you were going night and day and you didn't have the warehouse and it seems such a different story now than it was four or five years ago when it was so difficult to do that ramp up and now you're ready for it, which is which is great to see, I have to comment. I remember you saying, oh, this is just, yeah.

19:31 It's really nice to have someone who does this here. I know during that period of time, I ran a third shift. That wasn't any fun. But we did what it took and today the technology is so much improved. Every day there's little nuances and the process 15,000 when back then we couldn't get out 8,000. So there's a big change here, and our forecast for the year has certainly increased over what we thought it was going to be, which causes you problems in things like ordering inventory. You know, we've got about a four-month lead time on inventory, so if we run out of stock of a product, it's four to five months to get it back in. So you're sitting here trying to talk about ordering $5 to $10 million of inventory because you think this trend is going to continue, Thank you.

20:20 Thank you for your comprehensive answer. I appreciate it. Good luck. Thank you. Again, for anyone else that would like to ask a question, please press star 1 on your telephone keypad. And at this time, there are no further questions in queue.

21:11 OK. Well, guys, thank you very much. We're very fortunate here, and while Humble is Normally, Ward and I associate with me. I do feel appreciative and humbled about a lot of things that have happened to our company. We were prepared for them, and we got a break or two with some things here and there, but we're very appreciative of what has happened here and the support of most of the shareholders. So thanks for being on the call, and we'll be here another 90 days. Thank you, guys. This concludes today's conference call. Thank you for participating.