Transcript
Ladies and gentlemen, thank you for standing by and welcome to the Fiscal 2021 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. I would now like to hand the conference over to your speaker today, Mr. Randall White. Please go ahead, sir.
Hello there, investors, welcome to our call today. Before we get started, I'd like for you to know that today is a unique day in our history. We closed at the highest all-time price in our history, $19.17, which is the first time it’s closed over 19. But the best is yet to come; this is just a start. With me today I have Heather Cobb, our Chief Sales and Marketing Officer. I also have Craig White, our Chief Operating Officer, and Dan O'Keefe, our CFO. Now I’m going to hand it over to Dan while I do a little Irish jig in the background. So let's go, Dan.
Thanks, Randall. Here's a brief summary of our second quarter results. Net revenues for the second quarter of fiscal 2021 were approximately $59.3 million, up from $34.8 million or 143% from approximately $24.4 million reported in the second quarter of fiscal 2020. Pretax profits for the second quarter totaled $5.8 million, an increase of $4.4 million over the pretax profit of $1.4 million reported in the second quarter last year. Pretax profit as a percentage of net revenues increased from 5.7% in the second quarter of fiscal 2020 to 9.8% in the second quarter of fiscal 2021. Net earnings in the second quarter of fiscal 2021 totaled $4.3 million compared to approximately $1 million reported in the second quarter of fiscal 2020. Net earnings grew 322% over the second quarter last year. Earnings per share on a fully diluted basis increased from $0.12 a share reported in the second quarter of fiscal 2020 to $0.51 per share in the second quarter of fiscal 2021. Earnings per share for the quarter increased 325% over last year. This concludes the earnings results and I'll pass the call back over to the man doing the Irish jig, Randall White.
Thanks, Dan. By the way, I've got a screen that shows all of you, and I can identify who's on the call, so it's good to say hello to some old pals here. Incredible, incredible month. I do have one apology, and that is the quarter was so good; my apologies to those people who shorted it. But to move on, our revenue growth in UBAM was 162%. It's been amazing. We started out with about 36,000 active consultants and we ended up with over 50,000 at the end of the quarter. Pretty amazing growth, and it's just a great story here. And so since I didn't do it all or very little, I'm going to pass the marketing side over to Heather. Tell us why we're so successful, Heather.
Thank you, Randall. Well, I wish there was a single key factor, but I think one of the reasons that led us to that significant increase in the number of consultants were several factors. The first one I would say is that we have increased demand for educational and boredom-busting products in the home. As we know, people were forced to do distance learning and learning from home, and we were able to pivot and adjust to that very quickly. In addition to that, we also saw an increased demand for supplemental, non-traditional income. This was either to supplement or replace lost income from the COVID-19 pandemic. In February, we introduced a new consultant success program called Climb. We feel that the fact that this allows our consultants to experience success sooner has led to some of the significant growth. Another item is that we have implemented several technology improvements, both customer-facing and with our consultants' back office product suite. They have easier and more streamlined access to the data that they need to run their businesses smoothly and successfully. One of the biggest factors, I think, was our convention attendance. Since we had to make the change to a virtual convention due to the challenges with COVID, we saw almost 10,000 people attend our convention presentations. They had the opportunity over a three-day period to hear from some of our top field leaders who cast vision. We feel that the fact that this message was able to get out to almost 10,000 of our fields, in conjunction with the last factor that I want to share, which is a lower price entry kit for new consultants, I think that all of those paired together have attributed to the success that we've had. Now I'd like to pass the call over to Craig to discuss some of the recent customer-facing and consultant-facing technology improvements.
Thank you, Heather. As we continue to handle large growth in warehouse operations as well as IT, I'm just going to give a brief update on warehouse operations. Over the last few years, we've had to handle significant growth, and we've developed plans based on our anticipated levels. We are constantly evaluating production levels. I know what we should be getting out each day. In the second quarter, we added a second shift, which has been very successful. I've had to pivot a bit on some of our construction projects, so we're moving ahead and able to handle the sales growth. We're excited about what that will provide us. Now from an IT standpoint, as Heather mentioned, we implemented a new back office. This means the software that our salespeople log into to see their sales reports, their new recruits, and other data. We did a major overhaul at the start of this fiscal year and worked on it throughout the summer as well. We introduced a mobile-friendly version of the back office software. We have also moved that software to the cloud so that we can handle whatever growth we need. We have started adding text alerts to our salespeople for certain milestones and will continue to add these text alerts to gamify the back office, if you will. We have also added in-stock notifications for our customers. This means they can go to our e-commerce site, give us their email address for products they want to be notified about when they come back in stock. In the last couple of months, we've sent out 80,000 to 90,000 email notifications of in-stock items, which have resulted in well over half a million, closer to a million dollars in sales just from those notifications. So we're very excited about what that can provide us. Things are going very well in warehouse operations as well as IT operations. Now, I'd like to pass the call back to Randy.
Okay. Thanks, Craig. So, by the way, I got Craig, Heather, and Dan here, and I just want to tell you, most of you know how old I am and I'm here to reassure you that we have a very strong management group here. I'm very proud of the three and what they've done. Heather, people are going to ask how we grow. They're probably going to wonder how are we going to get from 50,000 to 100,000? Well, here's our formula. I'm going to put a message out today to our sales consultants for each one of them to go try and find one friend. By the end of the week, we should have 100,000 such people. That's not a forecast; that's just how it works. We wish it was that easy. It's not. But that's the theory of how it works. I will tell you a little bit about the publishing division. It’s not doing well because, as you know, retail is struggling right now. For the quarter, our sales were down 13.5%. Not a big deal to us while we wait out this situation, but that's much better than the first quarter last year, when we were down 31%. So we're making improvement there. We have great products that will sell in retail stores once they are back open. Moving on to profit growth, as you know, we went from $0.12 to $0.51. That's a product of having financial management that we understand. We bring in extra money and we don't spend it. So we're now spreading our costs over a larger base, which becomes more profitable. We have lower costs, but I will also tell you that things happened in the quarter that may not happen again. Heather mentioned about the convention. We went from having the convention with just under 2,000 people to having 10,000 virtual attendees. We recovered costs in this format differently than we did in person; it's very interesting how that all came about. We're in a nice model here because of the growth in UBAM. We have a great story about a teacher who had no money trying to join five years ago, and her credit card declined; it’s only about $75 to join. However, a month ago, she made $55,000 for the month. Now, that is not the average; I’m not saying everybody does it, but I’m telling you what this one lady achieved and we have other people doing very well. The model is the same. The more they make, the more we make. We’re excited about that. The best part is all these orders they were shipping were prepaid. They come in on credit cards or whatever, and we're shipping over a million dollars a day, which means we're running out about a million dollars a day in cash. So what happens is we have a lot of cash here, and we have no short-term borrowings now. We paid down $7.2 million of building debt. The only debt we have left is about $11 million on this building, which is a $35 million complex. It's a healthy corporation. They have a monthly rental of $114,000 and we receive lease revenue from them, paying out about $80 in principal and interest now. So very nice cash flow and what are we going to do with all that money? At the end of August, we had $22 million cash and very little debt. There are about three choices: pay down debt, increase the dividend, or buy back shares, or you can give me a big bonus. This quarter, we chose to pay down debt and increase the dividend by 67%. The dividend is up $0.10; pretty nice, I think, as a use of our cash to reward shareholders. With that, there must be somebody that has a question about one thing I possibly didn't cover. So from that, I want to turn it over to someone to ask me a question.
We had $22 million in cash and very little debt. We have three options: pay down debt, increase the dividend, or buy back shares. This quarter, we decided to pay down debt and increase the dividend by 67%. The dividend has increased by $0.10, which I believe is a nice way to use our cash to reward shareholders. With that said, I'm sure someone has a question about something I may not have covered. I'll now turn it over to someone to ask me a question.
30-40 days for me here, guys. So if I'm really enthusiastic, got a question?
I guess the comment I had is that I think what you did with the conference this year was pretty amazing. You kind of glossed over it a little bit; I think it was a really big deal. I know it's often a future, but I'd like to know how you're prepping for next year. Also, I thought I heard previously about some rather big efficiencies in the warehouse and getting away from needing to have a third shift and just down to two shifts. Could you talk a little bit about that as well?
Well, I'm going to let Heather tell you about the conference because it turned out much better than we thought. We like to accomplish face-to-face with our consultants, but we were able to project our message to over 10,000 people, which became more effective. So, Heather, you're looking at some type of hybrid or something for the future, right?
Yeah, Bob, I think we'd be fairly shortsighted to say that we want to go back to just a live event. There are definitely aspects of a live event that a virtual event cannot provide. There’s a place for a hybrid approach next year. If not, we feel poised and ready to continue with another virtual event.
Bob, regarding efficiency in the warehouse, I’m going to let Craig address it because it's something we do every day to pick up nuances that will increase productivity.
Well, we've always been pretty efficient on the first shift. Adding a second shift, which consists of roughly 125 people, doesn’t come in perfectly productive on the first day. It took a couple of weeks, and there's some turnover. So getting the second shift up to speed is where we focus. I wouldn’t necessarily say efficiency, but great productivity, I will say. We are poised and ready to have a third shift when it becomes necessary.
I don't think Craig’s taking enough credit because, yes, you bring in new people, and you walk out and the efficiency isn't supposed to be as high. We had our largest shipping day in history. We shipped 1.3 million last week in one day and that’s without the new line, which will be ready when we are. October, November, December is our biggest month and we're shipping at that level today. Dan's reason for his pad here is at that we are gearing up to have a big third quarter.
And your next question is from the line of Edward Norcini. Please go ahead.
I want to thank you for raising the dividend; it’s a great help for us investors. Also, by reducing the debt of the company, I know the company is getting stronger. My question is, you're running two production lines right now. Do you foresee a third shift coming in November or this month?
Yeah, we do. What we have here is our regular operation with two shifts, and we set up a period to add another complete line and a third shift for October, November, December if we need it. We're just about ready to get that staffed. You will come back to the dividend because I gave most of it, so I like it too, but then again I'm not 25.
Well, I think you guys' team really knocked the cover off the ball this year during the pandemic, being able to produce what you did and getting people to work safely from home while ramping up the distribution and production side. I have a question: is the tenant paying the rent now?
There's a $7 billion company; I don't think he's worried about them. Not worried about us more than them.
And Derek Moulton, your line is open.
Hey, congratulations on the quarter and all the success you've had. Maybe a question for Heather; could you provide us with a little color on how the sales consultants are finding success in the field? Is it primarily through social media? How are they making sales today? I know that business has changed quite a bit. Also, as people are starting to go back to school, what kind of feedback are you getting from the people in the field?
I will say one of the things about our field sales reps that I think has happened over the last several years is they adapt really well. We were already primarily online, so we did not have to make a full 180-degree pivot like some companies. We were poised and ready to be where the customers were going to be. The majority of our sales do come from online. I also have to give credit to our school and library division to work within whatever confines they needed to get books to the schools. In the spring, when the shutdown happened, they were in very close contact with school administrators who were trying to get backpacks of books directly to kids. We were able to adapt, and we served our customers in the way they needed, which continues to be the case. We’ve recently launched some cash option virtual book fairs so that schools have additional options with us as they go back. Overall, it wasn't a huge shift for us; it was more about continuing to serve our customers how they needed us.
Hey, Derek, let me add one more thing to that. You wonder what's going to happen to schools as everything returns to normal, whatever normal is. We're down probably $5 million in retail that will come back, and additionally we're down probably $15 million in the school and library sector. Booths like those at green country festivals are gone. We think the loss in school book fairs and face-to-face sales is about $15 million. So we can rebound there as well. A lot of good things will happen. By the way, anyone in this marketplace that sells educational products for the home is doing very well. We have customers who are thriving, and we're all very thankful and a bit humble about the fact that we're in the right place at the right time, and we’re just glad to be able to take advantage of it.
Well, congratulations and thanks for your time.
Thanks, Derek. Anybody else? $19.17, a historic day. Any other questions?
We have customers who are thriving, and we're grateful and a bit humbled by the fact that we are in the right place at the right time, and we’re happy to take advantage of it. Thanks for your time. Any other questions?
Okay. I guess there aren't many more questions you can ask beyond $19.17. I think we're just getting started. Thank you for being a part of our group, and if you haven't bought any shares, you should. I think this is a great company to own and a great company to work for. Thanks for being a part of our investor calls.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.