Ladies and gentlemen, thank you for standing by. And welcome to the Educational Development Corporation Fiscal 2020 and 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. Please be advised that today’s conference is being recorded. 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 Dan 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.

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. Pretax 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 2020 remained consistent with net earnings reported last year at just around $0.5 million. Earnings per share on a fully diluted basis decreased $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. Now on to our full fiscal 2020 results. Net revenues for fiscal 2020 were approximately $113 million down $5.8 million or 4.9% from approximately $118.8 million reported in fiscal 2019. Pretax profits as a percentage of net revenues decreased from 7.7% in fiscal 2019 to 6.9% in fiscal 2020, primarily associated with 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 $0.13 from $0.81 a share reported in fiscal 2019 to $0.68 a share reported in fiscal 2020. 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 is definitely behind us, 90 days old information. Probably most of you have it. They were below our expectations but it was still the second largest year we'd ever had at $113 million and $7.6 million pretax is only about five years ago, we made $875,000 for the whole year. So while it's disappointing, nobody is jumping off the cliff over here. During the fourth quarter, this is information long ago with you. We impacted our earnings and sales while we introduced some new recruitment promotion programs and a back office program from IT which consultants use to run their individual businesses. It took a little focus off of this, but it was building the foundation for the year that we're now in. We're almost 90 days into it. I will tell you, it's been terrific. Here are some of the highlights. March revenue was down 25%, not a real good highlight, but that's what they were. We’re impacted by the retail division, their store closings and retail sales were down about 60% to 70%. We also have a lot of sales through schools and libraries, which are book fairs, those are pretty much nil. Any direct business we have was impacted. So 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. Yes, okay, let's do that and we did. We also applied for a PPP loan on April 2 because of these results from March, and we were granted that $1.44 million. The only question they ask you is how many employees you have and once you pay them, the one-year requirements, so we were granted, we’re granted the loan. April came around. Well, thank you April. 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 at this company. So we paid it back. And after that, it just keeps getting better. The UBAM division, which I mentioned to you in the fourth quarter, really set the stage for this year. And it took hold faster than we even thought. April is up about 60% over April last year, and that's without the school and library business. So we're very happy about that. We also got 5,000 new sales recruits, which is pretty amazing. May 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. Interestingly enough, these new people are joining now to make money. And you know what they do. And we've got some people who have really made some sales in a very short amount of time. After being down 25%, we have already provided guidance that we will be somewhere between $36.5 million to $38.5 million, nothing compared to that $27 million in the first quarter last year. 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 them if they want to know. Any questions?

We do have a question from Anthony Chiarenza with Key Equity Investors. Please proceed.

Congratulations on the great improvements 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 the beginning of a new trend?

Well, in my opinion, everybody 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. Anyone who was here in 2016, it grew so fast it about killed us. We went from $35 million to $25 million, then from $35 million to $65 million, and from $65 million to $106 million. This year, we're seeing the 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. Some of them are recalled back and some aren't. And we're seeing a thought process of, 'This is a pretty nice side gig. I'm going to keep that just in case for a fallback.' I'm likely saying, 'I don't mind doing this, then what I was doing.' So there are 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. It gets better every week. I have not seen one negative trend 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 are some great stories here in this organization, and they're the ones that drive the sales growth. The people in the field.

Right. Okay, I think the issue is the unemployment rate now is God knows what it is, it's 20% or 25%. Obviously, there are a lot of people at home and not working and not knowing whether they're going to go back. 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 at that point and I think that is what you're saying?

I am saying that, Anthony. I will tell you that we’re in a bubble, that anyone who has educational material for children is in a good spot. Some of our customers we sell to are homeschool curriculums. Right now, homeschooling is taking a whole different viewpoint because people are not sure school is going to open or not. And we're seeing our customers frantic to buy product from us for their curriculum. They're writing curriculum, and they use our books in that. So we’re seeing it come 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. My close, Heather, is standing here. She's smiling and frowning at the same time, turning the wrong step. So the school business is about, there's about 15% and we were up 60 without that. So it's not like you want to tie the market if that goes back to work. I don't like that at all. I think that people have discovered our products, and they're working for them. And I think the trend we're going to see is going to continue.

Yes, Anthony, this is Heather Cobb. I will just jump in real quick to say that 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 schools may start to open back up, we may see societies go back to whatever sense of normal they will, we’re generating such amazing positive momentum that people are having success. And one of the key ingredients of continued success in the direct selling industry is early success. We’re seeing that happen with 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, what it does is it shows us that the potential is there for it to continue, definitely.

Correct.

I'm going to give you several other positive facts. For one thing, we had to cancel our convention. For people who come to our convention, they have to pay all expenses, and that June cost them around $700 to $1,000 depending on where they fly in from, driving from and where they stay, what have you. So we're going to have a virtual convention, and we were talking about it, thinking, oh, my gosh, do you think 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 here when all of a sudden 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 event. Now we're up to 6,200. And here's a little fact for you: last year, it cost us $258,000 to put this on; our net costs were low this year. Let me tell you probably the most positive thing about direct selling companies. If people do this and have a legitimate product that is suitable 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, are school teachers who were teaching abroad on a contract. They came back to the United States because they missed their families. They had very little money, a 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. Somehow she found out about it, and she got on the party and joined. And gosh, well, she is very successful now and has probably how many people on her downline? Thousands. One of our top five earners in the company—someone who was hesitant. And here's another one even better, that schoolteacher that was on the party wanted to join, and so she did, and her credit card wouldn't go through; the credit card got denied to buy the initial kick to get started. Well, fast forward about four years, that person earned $35,000 last month while her downline did over $1 million in sales. So when you have success like that from nice people, school teachers, just like rich people who earn over $200,000 to $300,000 a year doing this, sometimes you can't stop momentum because other people say, 'Well, I think I can do that.' I'm not sure I 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 that people have built a successful business in an honest, ethical way, and we're very proud of it and also of them.

That's great. That's very positive because I think once you get them into the processes as well, I think what you're saying is they're going to see that there's potential here, whether how quickly the recovery becomes less relevant than that there's a business here, whether there is a recovery or not. And in my opinion, it's going to take a little bit of time. Everybody says the fourth quarter is going to be good, everything's going to recover. But the scientists tell us it's going to take a year, year and a half optimistically to get a vaccine and then be able to distribute it across the world and do everything else or whatever. So this may last a little bit longer than I think people suspect. So in either case, that may be positive for the business too.

I think you're probably right. And I will tell you that we never missed a day here. We’ve been deemed an essential business, and we take extra precautions. Everyone's temperature is taken, and we wipe down everything two to three times a day. We are very, very cautious. We have not had one incident among just under 200 employees.

That's great.

I will also tell you that as the business has grown and ramped up, we have been able to handle it. And Craig, our Chief Operating Officer, can talk about how we're handling the business.

Right. So like Randall mentioned, we went from a month where we were kind of down to a month where it's likely to be a record month, so we have to evaluate our infrastructure as far as our software that handles taking orders and revamped that to handle the volume. We’re hiring people in the warehouse and we’ve had a few days with 14,000 order incoming days and yesterday we shipped 15,000 between the two shifts, so we can certainly handle the volume right now. Most days are between 8,000 and 12,000 incoming orders. So we're positioned to keep up, and we have a lot of potential; we can expand our second shift, we can get into a third shift, we've got all kinds of options there to expand our capability as far as output.

Actually, the best thing to do is technology. Every day, we’re making little tweaks into the system where we can process like 15,000 orders a day. It's been really interesting to watch the company grow and handle the business and provide income for people. So very, very proud of the place and we think that we're just getting started. 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 there's been an uptick like that; someone must be leaking out some information other than me.

Yes, although they should be. 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. 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 great to say, I have to comment, I remember you saying all this. Yes, go ahead.

It's really nice to have someone who does this here. I know during that period of time, I ran a third shift. But we did what it took and today the technology is so much improved. Everything has little nuances, and the process to do 15,000 orders a day, it's been really interesting to watch the company grow and handle the business. Our forecast for the year has certainly increased over what we thought it was going to be, and we might, which could cause problems with things like ordering inventory. We got about four months 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 million to $10 million of inventory because you think this trend is going to continue. But what we've done because of 2016, we're going to err on the high side, and that is we have inventory that we think is going to happen because the worst is it takes you a little bit longer to sell it. So we think we're prepared in every area to handle the growth that we're seeing. It’s gone. So hey, it’s nice to see you, Anthony, somebody who has been around for a while. Thanks.

Okay, thank you. Thank you for your comprehensive answer. I appreciate it.

Good luck. Okay, thank you.

And at this time, there are no further questions in queue.

Okay. Well, gosh, thanks very much. We're very fortunate here and while humble is normally a word not associated with me, I do feel appreciative and humble about a lot of things that have happened to our company—we were prepared for them. 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 our 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.