Transcript
Thank you all for being here, and welcome to the Educational Development Corporation's First Quarter Fiscal 2021 Earnings Conference Call. I will now turn the call over to your presenter, Mr. Randall White. Please proceed, sir.
Okay. Erika, thank you. Welcome, everyone, to the quarterly investors 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.
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. Pretax profits for the first quarter totaled $2.6 million, an increase of $800,000 over the pretax profit of $1.8 million reported in the first quarter of last year. Pretax 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. 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. Pretax 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.
Thank you, Dan. We had quite a remarkable quarter, and it was quite unusual as well. In March, we first got wind of the COVID-19 virus, and everything changed for everyone around the world. Although it traces back to February, we really began noticing the impact in March. Sales in March were down largely due to store closures. Our school and library sales, along with all face-to-face interactions, were virtually non-existent. Human consultants faced disruptions nationwide, and our tenant requested a 90-day rate abatement, which we granted since we had a solid deal in place with them. As a result, quarterly sales dropped by 25% in March, which wasn’t the most promising outlook. However, April brought a strong turnaround. For some reason, we were overwhelmed with orders that month, and our internet order processing went smoothly, with only a few minor hiccups. Compared to April of last year, our sales surged by 60%. It gave us a positive outlook. Toward the end of March, we applied for a popular PPP loan, which was approved, providing us with $1.44 million to help us retain our workforce. In March, our warehouse team was on a reduced 32-hour workweek due to the downturn. April was an exciting month, but we knew two weeks didn't necessarily indicate a new trend, so we monitored it closely. May continued this positive trend, which was remarkable. To recap, March saw a 25% decrease in sales, April had a 60% increase, and May experienced a remarkable 116% increase. Our sales growth graph resembled a checkmark, dipping in March and rising in April and May. We added 10,700 new consultants during April and May, which was astounding, as our May sales reached $16 million compared to around $7 million last year. It’s been quite an impressive turnaround. Now, Dan is ready with his notes, so if I inadvertently make forward-looking statements, we’ll need to issue a press release. The remarkable trading volume we've seen in the last 30 days indicates that people are clearly aware of our situation, with around 800,000 shares traded today alone within just 4 or 5 days.
A lot.
Our average is 27,000. Some people might think they have insider knowledge, but I believe everyone should have access to the same information. I can share that our momentum in the second quarter has accelerated. We just achieved the highest revenue month in our history, and that was in July.
June.
June is typically the lowest month of the year for us, with our largest months being October, November, and December. This year, however, June surpassed our biggest revenue month ever, which has sparked a lot of excitement and some concerns about how to manage this growth. We experienced a similar situation in 2016, which was quite challenging, but we managed to get through it and learned from the experience. Looking ahead, the comparison of June's performance to last year is impressive, especially when compared to October, November, and December. We ended June with the highest number of active consultants in our history, adding 6,000 more in that month alone. As of the end of May, we had approximately 39,000 active consultants. Please note that active consultant numbers fluctuate daily, as we know when they start but not when they leave.
June.
We are currently not considering the quarter but rather the trends affecting our stock performance. It’s important to share that June saw a rebound in publishing revenues as some stores began reopening and replenishing stock, which gave us hope for continued improvement. However, the retail environment remains unpredictable, with many stores reopening only to potentially close again. We've previously experienced extraordinary growth, notably in 2016, and we possess internal data regarding our current situation. We're planning significant facility expansions to prepare for potential increases in demand, especially during the fall selling season, which can typically surge to three times summer volumes. It's been quite a demanding period for our facilities; in March, we were operating on a 32-hour schedule, while currently, we are working 10-hour days, including Sundays, leading to 58-hour work weeks with the addition of night shifts. We're evaluating our capital expenditures, focusing on how to manage increased business if sales continue to grow. In our industry of direct sales, we see companies reaching revenues of $500 million to $600 million, and while I won't comment on their products, I believe ours stands out. Many of our team members are earning record commissions, and historically, the compensation structure here has been consistent. The more our salespeople earn, the more we all benefit. We currently have individuals making over $300,000, allowing them to balance work at home with promoting literacy, which makes me incredibly proud of our impact on families and literacy initiatives. As we look to the future, we have plans to expand our pipeline and add shifts. I’m happy to answer any questions you might have now.
Your first question comes from Edward Norcini, a private investor.
Randall, I want to thank you for raising the dividend. I thought that was a nice way to go. And your status report on your renters, I'm a little concerned with the coronavirus on the ability of your renters. You're the biggest distributor in Oklahoma, but you're also a big landlord. What's the situation with the renters?
We have essentially one primary renter. There are a couple of other renters in an older building that we worked on a few years ago with Adam, but they aren't a concern for us. The renter we focus on is a company that had $400 million in after-tax profit last year, so I'm not worried about them. We provided them a 90-day rent abatement without hesitation because we have a favorable agreement with them. Their rent covers our mortgage, allowing us to occupy a fantastic 400,000 square foot facility on 40 acres without charge. The 90-day abatement was simply added to the lease for a later date, so it won't affect us long-term. We maintain a strong relationship with this company; I was pleased to support them since their business is in construction. Although their business has declined, they remain the leading supplier in their industry and are a very solid international company. There's no reason for concern.
Okay. Great. My other question, Randall, I would like to know your thoughts. The stock price has been on a rocket ship last month. And I would like to know your thoughts on selling some stock 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.
Ed, I guess you're talking about selling treasury stock?
Yes.
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. Do you understand, guys out there that all these orders that come in are prepaid? So if we ship $1 million in a day, we've got $1 million cash in before we ever ship it. So we're a very nice cash-producing company. 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 is, you can pay down debt or you can increase the dividend. I like a dividend because I get most of it. But we have to look at what's best for your little company. We raised it. Hey, look around next quarter and see what happens. If we flush with cash, that's a decision we make quarterly.
And this is Dan. To add to Randall's comment, while there is debt on the balance sheet, we really don't focus on that. The only debt is related to this building, and since our tenant is covering the mortgage payment, we don't consider it as debt. To us, it’s just a great asset with a mortgage attached. Our tenant, who is quite reliable, is the one making the payments for us. Therefore, we don't believe that paying it off is in the best interest of our shareholders.
When I hear people assessing our company and providing advice that claims we're burdened with debt, I find it necessary to challenge that perspective. We actually don't have debt. Sure, you might say we have too much debt, but I disagree. If there were any concerns, I would be more worried about our tenant, who is a strong $7 billion sales company. I believe they will be just fine.
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 from being a private investor and the Wall Street point of view, these companies like companies that have a lot of cash on the balance sheet and without debt, and I think that would help the price appreciation at this time. That's my...
Yes, paying off a debt that is fully covered by rent might not be the best use of cash since our income exceeds our expenses. We don't really view this as significant debt because the tenants are substantial companies. We discuss options like paying off debt, increasing dividends, or raising salaries, but so far, everyone has rejected the salary increase. However, we will consider dividends.
And there are no further questions at this time.
Are you kidding me? Did anybody want to say, hey, Randall, you're awesome? Come on. Can I get something here? We had the best quarter of our life and you got nothing? Bring it, come on. How about a hooray, brother? Okay. All the information you want to know, I guess, we can go home. Really? Well, thanks for being on here, though. I see a lot of good friends on here. Jeremy, I met you in Chicago. I think you could jump on here and say, good job, Randall. I mean, I don't know. Marissa, you worked for us, you could say what a good job or something. Okay. Nothing?
All right.
Okay. Hey, thanks for being on the call. And next quarter is going to be better.
Thank you, everybody.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.