Educational Development Corp Q1 FY2022 Earnings Call

Good day, and thank you for standing by. Welcome to the first quarter fiscal 2022 earnings conference call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Randall White, CEO and President. Please go ahead.

Okay. Thank you very much. We welcome everyone, and he's here on the call with us. We got some nice earnings reports to discuss. First, I'll let Dan give us the quarterly highlights.

Alright. Thank you, Randall. For the first quarter results, our net revenues for the first quarter of fiscal 2022 were approximately $40.8 million, an increase of $2.5 million or 7% from approximately $38.3 million reported in the first quarter of fiscal 2021. Pretax profit increased $2.1 million from approximately $2.6 million to $4.7 million, representing an increase of approximately 81%. Net earnings in the first quarter of fiscal 2022 totaled $3.4 million compared to $1.9 million last year, representing an increase of $1.5 million or 79%. Earnings per share on a fully diluted basis for the quarter totaled $0.41 per share compared to $0.23 per share in the first quarter last year, an increase of 78%. This concludes the earnings results, and I'll pass the call back over to Randall.

Okay, Dan. Thanks. The first quarter is pretty solid. Revenue is up 7%. It's not the greatest, but it's up almost 10% over previous results. We made significant improvements. The fourth quarter last year was really strong due to COVID-related issues. Those impacts are faded in our current sales, and earnings have not completely rebounded yet. However, I'm excited to announce that I'm going to pass the phone over to Craig to give us some exciting updates about what we have coming up.

Okay. Thanks, Randall. Just to give you a little update on operations and IT. As you may have heard in previous quarter investor calls, we have a CapEx project in the warehouse to basically double our picking, packing, and shipping capacity. Lines 7 and 8 are operational and fully tested. We're just waiting for the final stages to be completed before we start using them. We will shift to those lines in the next few weeks. They are much more efficient with higher output and lower labor requirements. So adding these two lines will effectively double our shipping capacity, maintaining a single shift for the foreseeable future, which is much more efficient than having to rely on second and third shifts. Additionally, we're moving into the testing phase for our new e-commerce version. We've been working on this for quite some time, and we're now in the final stages of development and testing. This new e-commerce platform will improve the customer online shopping experience, making it mobile-friendly and significantly enhancing our market presence. We expect increased shopping cart closures and higher customer engagement with this new platform. We will also implement marketing emails and abandoned cart notifications, which will enhance our reach. We're gearing up for the fall selling season operationally and IT-wise, and we're looking forward to a very busy next few months as this period is typically our heaviest time of the year. With that, I'll give it back to you, Randall.

Yes. Thanks. We're quite excited about what's happening right now. Due to COVID, we missed out on significant revenue opportunities last year. In fact, I'm estimating we lost about $30 million in revenues because we couldn’t engage face-to-face. Normally, we have booths at events, and that experience translates to sales. But those opportunities are returning, and we're seeing a resurgence in our school sales as well as people coming back to face-to-face events. Consequently, we're hopeful for a good year overall. This is a blend of historical and current information, and I believe we had a solid quarter. Now, let’s open up to questions from our investors.

Your first question comes from the line of Bobby Mahara.

Okay. First question should be quite obvious. How has Q2 trading gone so far? So we've been in this quarter for about 5 or 6 weeks?

How is the current quarter performing so far? Is that what you're asking?

Yes, the current quarter. We got the results for Q1. How's Q2 started?

Well, I must inform you that we're limited on what we can disclose. We haven't released any financials yet, but I will tell you that we're facing a tough quarter. The second quarter last year was our best, and it was huge. We're probably not going to exceed those sales figures, but I will tell you this: based on our forecasts from this morning, we believe that by year-end, we will recover from this tough Q2 and be up for the full year. That's just our feeling based on current progress. I wish I could provide a more definitive answer, but our sales are lower than last year's second quarter so far, yet we are optimistic as we had our first $1 million shipping day recently, and we're pleased with the direction things are heading in despite the tough comparison.

Okay. Yes, last year was definitely a very good Q2. I have a few other questions, so I'll keep going.

Sure.

So my next question relates to sales agents. I think we had 57,600 by the end of last year, and now it's slipped down to 55,100. You previously stated the more sales agents, the higher the sales. So, how is that trend continuing and how will it impact both sales and earnings per share?

I'll tell you—I mention this every time—that number is somewhat soft. We know when someone is signed up, but we cannot predict when they will leave. In general terms, more salespeople will yield more sales, but a slip of a couple thousand from 55,000 doesn’t necessarily mean our sales will decrease by that much. Some join with high energy but never sell, which is fine because we don’t incur losses on new kits. The numbers naturally ebb and flow, and, Rob, this is not alarming for us. You may notice a slight dip and think it’s a trend, but we will evaluate more in October to December. Last year, when we had significant growth, we did nothing about recruiting or offers to get new people out there. But now that things are leveling out, we will incentivize new recruits. These cycles are natural, and we haven’t previously incentivized recruitment efforts. However, we’re ramping up now.

Randall, let me add a little bit to that, Bobby. Summer tends to be a natural attrition time. We count active consultants based on their having made sales in the last 6 months. We are reaching out to people who made it through the busy holiday season and maybe haven't engaged in several months. So this is a typical time for drops in numbers six months after our peak selling season.

Okay. So basically...

Bobby, let me add one more thing. While we do see drops, it doesn’t mean they’re no longer consultants. If they sell something next month, they become active again. And that will happen as evidenced by our past data.

Correct.

Yes, that’s good. I understand what you stated. I see the numbers are down, but I'm not sure if it's alarming. Your input suggests it’s a normal part of the yearly cycle. You’re not particularly worried about it, presuming your sales trend upwards. Is that right?

Yes, that's correct.

And earnings per share as well, with your reduced shipping costs and publishing costs, and now with lines 7 and 8 operational, do you expect your actual margins to be high enough that your earnings will rise even if your sales are flat or slightly down in Q2? Does that sound correct?

That's how we perceive it. Even with flat sales, we anticipate increased earnings.

That sounds good. And tagging onto that, do you put out lot of discount offers? Do you discount books? Is that something you do less of now, or is it not necessary?

Considering our books are fairly priced for direct selling, we find that we don't tend to offer discounts unless necessary. Many companies mark up prices, but we maintain the same cover price as at Barnes & Noble. While some might run specials, we actively discourage discounting, as we find our prices fair. Currently, the average cost per book is about $10. Thus, we believe pricing is appropriate and discounting is unwarranted.

That's great. No changes to normal selling behavior, which is nice to see. Regarding your website, you mentioned the upcoming live rollout in about 8 weeks. Additionally, you have an investor website that is undergoing revamping. Do you have an idea when that will go live?

Yes. Our main focus is on the e-commerce site roll-out. We do have a few junior developers working on the investor site too but I don't have enough data on that front right now. However, we expect it will be around the same timeframe, in about 6 weeks or so.

Okay, cool. Thanks.

Let me add my thoughts. One significant factor that will impact our company is the new website. Millennials expect cutting-edge technology and instant access. We’re optimistic that launching the new e-commerce platform, which is mobile-friendly, will have a positive influence.

That’s impressive. I noticed the same thing when I first examined your website; it felt outdated compared to more modern competitors. It seems you're headed in the right direction.

Bobby, just to clarify, you likely landed on our corporate website, with which we've not invested heavily. The site our sales force relies on is myubam.com. We need to enhance our corporate site to better reflect our services, and we acknowledge that improvement.

Okay. Great. Thanks for addressing my questions. Everything sounds encouraging.

Your next question comes from the line of Joseph Ford.

About the sales consultant question: the large increase in sales consultants was at least partly due to the pandemic, as people were looking for supplementary income. Thus, I had expected some natural drop-off as folks return to work. Based on your last answer, I didn't gather that you foresee a major reduction. Is that correct?

No, you're not incorrect. We are not anticipating any drastic drops. People are shifting back into work life but some have indicated they wish to stay in our program for part-time income. It's interesting to see that people have gotten comfortable working from home and appreciate the flexibility it offers. We are adjusting to the current employment trends, and I want to emphasize how proud I am that we paid $80 million in commissions last year. Many of our salespeople are mothers who prioritize family yet can earn a living at home. We feel this trend will only strengthen our core group who appreciate the income and want to maintain it. We'll continue to monitor turnover while bringing in new recruits as necessary.

Joseph, also, our consultants are increasingly looking for multiple income streams. They may have other roles alongside what we offer, so we don't foresee a significant drop.

That was a good point. Today’s young people, combined with the influence of the internet, tend to juggle multiple opportunities. The easier we make it for them, the more likely they are to stay associated with our products. Addressing abandoned carts and simplifying online processes must be part of our strategy. IT will have the most substantial impact on our company in the next few years. Our products are top-tier; now we must enhance usability.

Your next question comes from the line of Ron van Wachem.

Looking at your website, I noticed a gap. Your independent agents need better representation on the main page to convey what you're about, especially regarding the $80 million revenue from moms selling books. A bit of marketing on your website might help. Additionally, I encountered a downloading error when attempting to access the publishing credit application. That should be resolved. It seems you have significant potential, provided you enhance your web presence to attract independent sellers.

I completely agree, and we are actively working on it. The primary income-generating site is accessible by our consultants, which you aren't able to view. We’ve neglected the corporate site to a degree, but we recognize its importance and are making it a priority.

Ron, it sounds like you looked at the corporate site, edcpub.com. The site our sales force uses is myubam.com.

And there are no other questions at this time.

Okay. Alright then, I guess we can wrap up.

This concludes today's conference call. Thank you for participating. You may now disconnect.