Good afternoon, ladies and gentlemen, and welcome to the Educational Development Corporation's First Quarter Fiscal Year 2025 Earnings Call. At this time, all lines are in a listen-only-mode. Following the presentation, we will conduct the question-and-answer session. This call is being recorded on Thursday, July 11, 2024. Before beginning the call, we would like to remind you that some of the statements made today will be forward-looking and are protected under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied due to a variety of factors. We refer you to Educational Development Corporation's recent filings with the SEC for a more detailed discussion of the company's financial condition. I would now like to turn the conference over to John Beisler, Investor Relations. Please go ahead.

Thank you, operator. With the Safe Harbor statement read, I'll turn the call over to Craig White.

Okay. Thank you. I want to introduce a couple of the people joining me on the call. We have myself, Craig White, President and Chief Executive Officer; Heather Cobb, Chief Sales and Marketing Officer; and Dan O'Keefe, Chief Financial Officer. After the market closed this afternoon, the company issued a press release announcing its results for the third quarter, which will be on our company's website at edcpub.com. Welcome, everyone, to the call. We appreciate your continued interest. I will start today's call with some general comments regarding the quarter. Then I'll pass the call over to Dan and Heather to run through the financials and provide an update on our sales and marketing. Finally, I will wrap up the call with an update on our progress of the sale leaseback of our headquarters, the Hilti Complex, and provide some comments on strategy and fiscal 2025 outlook. Our first quarter, as well as previous quarters of fiscal 2024, were driven by strategic decisions to prioritize cash flow over profitability. During the quarter, we ran several promotions to energize our current sales force and customers by offering discounts on our products as well as the freight we charge on shipments. These decisions were necessary in these difficult economic times when high inflation is eating the discretionary spending of our customers, coupled with our higher-than-normal inventory levels. We are continuing to evaluate and implement cost-cutting measures as well as leverage IT to provide new tools to energize the field sales force as well as contribute to the bottom line. While I'm not pleased to report a loss, we are actively working on the long-term strength of our business model. With that, I would like to turn the call over to Dan O'Keefe to provide a brief overview of the financials.

Thank you, Craig. To our first quarter summary compared to the prior first quarter, net revenues were $10 million compared to $14.5 million. Our average active brand partners totaled 13,400 compared to 15,000 at the end of our last fiscal year. Loss before income taxes was $1.7 million compared to a loss of $1.2 million in the first quarter last year. Net loss totaled $1.3 million compared to $0.9 million and loss per share totaled $0.15 compared to a loss of $0.11 on a fully diluted basis. To update everyone on our inventory and working capital levels, net inventories decreased $2.9 million from $55.6 million at the end of February 29, 2024, to $52.7 million at May 31, 2024. Now for working capital update. Our working capital line of credit borrowed was $5.5 million at the end of February 2024 and $5.6 million at the end of May 2024, with $1.4 million of availability at the end of the first quarter. That concludes the financial update. I'll now turn the call over to Heather Cobb, to talk about sales and marketing opportunities in further detail. Heather?

Thank you, Dan. As Craig mentioned earlier, we are making strategic decisions and adjustments to bring new initiatives for success to our PaperPie brand partners. In May, we held a site-wide sales promotion that engaged our customers and was very successful. At our June convention in Tulsa at the Cox Business Convention Center, we had over 50 presenters, including three of our Kane Miller authors and creators from both England and Australia. Dr. Amy Emerson, our newest Board member, gave keynote presentations on the science of hope and the importance of early literacy. The feedback from attendees was extremely positive, and the enthusiasm our brand partners left with was evident. This was highlighted by our next promotion the week after we returned, which was a one-day account activation special offer. This led to over 3,700 new brand partners joining us, maintaining our active brand partner count around 15,000. Many of these new partners are already successfully sharing our mission and products with their networks, attracting new customers just as we approach the fall selling season. This excitement is driven by the introduction of new products throughout June, which will continue over the summer. Both our PaperPie sales division and retail division are seeing increased activity with the launch of new titles. Our retail customers are excited about our offerings, discovering new series from Kane Miller, educational manipulatives from Learning Wrap-Ups, and STEAM-based kits and products from SmartLab Toys. That wraps up our sales and marketing update. I'll now hand the call back to Craig for closing remarks.

Thank you, both, Heather and Dan. One of, if not, the biggest events in fiscal 2025 is the anticipated sale and leaseback of our headquarters building, the Hilti Complex. The proceeds from this sale will not only bring savings from reduced interest expense but will allow us to build a positive cash position as we continue to work down our excess inventory level, which was approximately $30 million at year-end. On June 6, we executed our sale leaseback agreement for the Hilti Complex, totaling $35.5 million. The proceeds from the sale are expected to pay off our borrowings with the bank. With our new amendment, we will also have a line available to us post-sale with our bank of $4.5 million. The building sale agreement calls for a 60-day due diligence period with an additional 30 days to close the transaction. So we expect the building sale will be complete by the end of the second fiscal quarter or the start of the third fiscal quarter. Additionally, starting July 1, 2024, we have leased approximately half of our 220,000 square feet to a new tenant in a triple-net lease structure. The initial term of the lease is for five years and includes a five-year extension. This lease improves our monthly cash flow and further positions us to return to profitability. I want to reiterate that everything that we've done in the last 15 months is to meet the bank's requirements, which we have done. All of our efforts are beginning to come to fruition and once they fully do, we will start to see the fruits of our effort from reduced interest expense, lease income, which reduces our lease commitment, our cost cutting, and capitalizing on the goodwill received from charging less for our products and shipping. Our sales force is grateful and excited coming off convention, heading to the incentive trip to Vienna next week, and working towards next year's trip to Scotland. There are a lot of reasons to be positive as we head into our fall selling season. I want to thank all of our shareholders for their patience, our employees for their commitment to our mission, and our customers and brand partners for their loyalty during this difficult period. I'm confident in our collective ability to emerge stronger and more resilient than ever before. With that, I will hand it back over to the operator for questions and answers.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from Paul Carter of Capstone Asset Management. Your line is already open.

Thank you. Good afternoon, everybody.

Hi, Paul.

Just to start. So the $10 million of net revenue, how is that split between PaperPie and your Publishing division?

About 85-15, Paul.

Similar to pretty much every other quarter, yeah.

Okay. Great. And then you added over 3,700 brand partners thus far, which is great. Was that just during the month of June? Or was that post-convention up until today, I guess?

No, that's a great question. That was just during the promo in the month of June.

Okay. Great. Excellent. How confident are you in stabilizing your brand partner count at this 15,000 level? It seems like it is stabilizing somewhat, although the macro employment situation is getting somewhat worse, which might lead to more people signing on as part-time brand partners. Are you becoming more confident in that stabilization?

That's a great way to put it, Paul. Incrementally more confident is exactly what we should say. I think we'll put that on a T-shirt. But yes, I think that as we see things start to stabilize in the market as a whole, it makes us more reassured that we are heading in the direction of what we want the future of our brand partner base to look like.

Okay. All right. Thanks for that. And then just switching gears, talking about your building. So I guess is this new buyer, Rockford Holdings, associated with the same group of investors as the original ones that bowed out, Blue Ledge Group? Or is it a different group?

Yeah. Thank you. It is associated with the prior group. There are brothers involved, one with each group. And so it was kind of a fairly seamless handoff from one group to the other. But yet, it is a new group. So they're still going through their due diligence.

Okay. I was just going to ask about the first group and their due diligence, which I believe lasted 60 days. I'm curious why the second group, if they are connected, also requires a similar 60-day window. Is there something they didn't learn during the first due diligence period?

Well, I said they're closely related, but still, it is yet a different group. One of the pros from Blue Ledge may not have been comfortable, but one was still very comfortable. So he handed it off to Rockford, which is actually a brother. So yeah, we're confident; nothing has changed. It's just a new group, and they still need to go through their due diligence and have their own lending partner.

Fair enough. And so assuming that gets done as you anticipate, including commission costs, what do you think the total cost of selling the building is going to be? I don't know what sort of typical commission is for a commercial building down there.

Well, we think we'll net $34.5 million after commissions and expenses. So that will be sufficient to pay off our borrowings with our bank.

That's great. Okay. And then so your revolver with the bank, I know it steps down after you sell the building, but it matures on October 4. I know you're going to be hopefully generating some pretty good free cash flow. Do you intend on operating without a line of credit after October 4? Or are you looking for a different banking relationship?

That's a complex question. The good news is that when I said the $34.5 million will pay off the bank, that includes paying off the letter of credit. So the bank is offering us a $4.5 million letter of credit post-sale, which is a very positive thing. We're still evaluating what the right financing solution is, and we have several different options. But the good news is that BOK has offered us an operating line post-close that will allow us to operate. We've got some vendors that we need to catch up that we've kind of delayed a little bit. And so we'll have availability of $4.5 million to fund operations going into the fall, which you know is our busy season, which if we're turning a lot of inventory into cash during that period, hopefully, we'll be without a line by the end of the fall.

Okay. It seems you prefer to avoid being overly optimistic, but it appears that once the building is sold and the bank is settled, you might have a book value per share around $6 to $7. Additionally, you will be generating significant free cash flow as you work through your inventory. You mentioned dividends in your press release. Has the board considered the possibility of repurchasing a substantial amount of stock through a Dutch auction tender offer or a similar method? This could significantly increase the value of the remaining shares, even if the buyback occurs at a premium to the current stock price.

We have various tools available to us, including reducing debt through this transaction, stock buybacks, and dividends. We have options at our disposal, but we are not making any assumptions about the future outcomes at this point. It will depend on the circumstances as they develop.

Okay. And then just lastly, I'm curious about the undeveloped land that you're retaining. Do you have any long-term plan for that, or are you just planning to hold on to it for the foreseeable future?

Yeah. So bringing down those tenants, they're moving in the space that was not part of our operations, but we still have needs for storage. And I hate to use land just for storage, but that's a possibility or once we get this thing rightsized again and get going again, maybe it's further operations.

It seems you don't have plans to liquidate that in the near future.

No.

Okay, great. Well, listen, that’s it for me. Thank you very much for taking my questions.

Thanks, Paul.

Thanks, Paul.

Your next question comes from Frank Payer, Private Investor. Please go ahead.

Hi, everybody. I have a couple of questions. When the promotion that increases the brand partners was announced, were the partners added through existing partners recruiting people, or are they new without any connection to existing partners?

That's a great question, Frank. We actually don't engage in direct recruiting. We rely on our brand partners to communicate our mission and make opportunities available. Initially, we did have some individuals join without a sponsor in mind, but as part of our process, we automatically assign them to a sponsor because that's how our system is structured.

Okay. If I would summarize that I would maybe conclude that your promotion was inspiring to the existing brand partners, and they went out and got some new folks.

That's absolutely correct.

Perfect. Okay. The previous caller had mentioned buying back shares of stock or dividends, and I've been a shareholder for quite a while, and I did appreciate the dividends is very attractive. I guess I'm wondering what does your banker think about starting to buy back stock or pay dividends at this point in time?

Well, yeah, we didn't commit to doing it at this point in time. They would not yet be in favor of that. It's just once we are out of debt with our current lender and potentially moving to different lender or whatever our future may be, then we would look at it. It's not going to be before we execute this sale transaction.

Okay. One more thing is that, if I noted it correctly, you believe you have $30 million of excess inventory?

Unfortunately, yes.

Okay. Any great idea on how to get rid of that, that you haven't thought of?

There have been many people trying to advise us. The situation is very delicate, and we aim to avoid any actions that could harm our current business model. We are implementing strategies like discounting, and despite lower sales, we have successfully moved a significant amount of inventory. Our efforts are in line with the limitations set by our bank on our line of credit, and everything we are doing is effective. As we approach the fall, which is typically a peak selling season, we expect inventory levels to decrease. However, as we have mentioned before, this is all good inventory that does not require any write-offs or markdowns; it remains highly marketable. Our goal is to convert this inventory into cash and strengthen our position.

Sounds great. Thank you, folks. Keep up the good work.

Thanks, Frank.

There are no further questions at this time. I would hand over the call to Craig White for closing comments. Please go ahead.

Thanks, everyone, for joining us on our call today. Just as a heads up, because of the timing of the 4th of July holiday, we will be filing our 10-Q on Monday. So again, appreciate your continued support, and we look forward to providing you an additional update in October. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.