Good afternoon, ladies and gentlemen, and welcome to the Educational Development Corporation's Third Quarter Fiscal Year 2025 Earnings Call. At this time, all lines are in listen-only mode. Following the presentation we will conduct a question-and-answer session. This call is being recorded on Monday, January 13, 2025. I would now like to turn the conference over to Mr. Steven Hooser, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Educational Development Corporation's Fiscal Third Quarter 2025 Earnings Call. On the call with me today are Craig White, President and Chief Executive Officer; Heather Cobb, Chief Sales and Marketing Officer; and Dan O'Keefe, Chief Financial Officer. After the market close this afternoon, the company issued a press release announcing its results for the fiscal third quarter and year-to-date results. The release will be available later today on the company's website at www.edcpub.com. Before turning the call over to prepared remarks, I 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 more details on the company's financial condition and full forward-looking statements. With that, I'd now like to turn the call over to Craig White, the company's President and Chief Executive Officer. Craig?

Thank you, Steven, and 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 will 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 with the sale-leaseback of our headquarters, the Hilti Complex, and provide some comments on strategy for fiscal 2025. During the third quarter last year, we recognized a $4 million gain on the sale of our old warehouse. Without this one-time event, our third-quarter pretax losses would have been $1.3 million compared to the pretax loss of $1.1 million in the third quarter of this year. Our third-quarter results on lower-than-historical revenue levels reflect the continued operational improvements we have made over the past year and our continued focus on driving operational and cost efficiencies. During the quarter, we continued intentionally to offer additional discounts to our customers, which negatively impacted our gross margin and bottom line. Our increased discounting has solely been to bolster sales and turn excess inventory into cash to be used to pay down our bank debt. This is a short-term strategy that we will continue to strategically pursue until we sell our building and pay back all of our borrowings. At that time, we will be able to return to more historical promotions and pricing, which should positively impact our cash flow and margins. With that, I will now turn the call over to Dan O'Keefe to provide a brief overview of the financials. Dan?

Thank you, Craig. To our third quarter results compared to the prior year third quarter, net revenues were $11.1 million compared to $16.9 million. Average active brand partners totaled 12,400 compared to 16,400. Loss before income taxes totaled $1.1 million compared to income of $2.7 million. Net loss totaled $800,000 for the quarter compared to a net income of $2 million in the third quarter last year. Loss per share for the quarter totaled $0.10 compared to earnings per share last year of $0.24 on a fully diluted basis. Now for a year-to-date summary compared to the prior year. Year-to-date net revenues totaled $27.6 million compared to $42.1 million. Our average active brand partners totaled 19,200 last year. Loss before income taxes totaled $5.3 million compared to income before taxes of $2.9 million. Net loss after taxes totaled $3.9 million compared to income of $2.2 million. Loss per share totaled $0.47 compared to earnings per share of $0.26 on a fully diluted basis. Now for a quick update on our working capital positions. Net inventories decreased $8.8 million from $55.6 million at February 28, 2024 to $46.8 million at November 30, 2024. Borrowings on our working capital line of credit totaled $4.3 million at the end of November 2024 with $1.2 million of availability at the end of the quarter. That concludes the financial update. I will now turn the call over to Heather Cobb to talk about sales and marketing opportunities in further detail. Heather?

Thank you, Dan. At PaperPie, we remain committed to strategic initiatives that drive growth and success for our brand partners. This quarter, we introduced key efforts designed to deliver both immediate results and long-term value. The first was the shipping subscription launch. In November, we introduced a membership program offering customers the opportunity to qualify for reduced or free shipping along with value-added perks, such as monthly emails, birthday postcards for the children in their lives, and more. The program has been met with overwhelming positive feedback from both brand partners and customers, affirming its value as a relationship-building and revenue-driving tool. Our Black Friday promotion, known as Book Friday, was expanded this year, launching earlier in alignment with broader retail trends. The excitement generated by social media activity and direct messaging translated directly into sales performance throughout the event and our StoryMaker Summit. In 2025, PaperPie will host five StoryMaker Summits in major cities across the U.S., running from January through June. This shift from a single national convention allows us to engage with more brand partners in smaller, more intimate regional settings, facilitating deeper connections between attendees and home office staff. Registration opened in Q3, and the enthusiastic response suggests this format may become a part of a new every-other-year rhythm for the business, alternating with our national convention. Looking ahead a bit in 2025, we are preparing innovative projects and initiatives across both the PaperPie and retail divisions with a continued focus on expanding our impact and enhancing brand partner success. We remain confident in our products and mission. Print books continue to be the overwhelming preferred choice for reading, particularly in the children's market. As education and learning needs persist, EDC is well positioned to meet those demands with our diverse collection of quality books and educational toys and resources. This concludes our sales and marketing update. I will turn the call back over to Craig for our closing remarks. Craig?

Thank you both, Heather and Dan. And now for an update on the Hilti Complex building sale process. In September of 2024, we announced that we had executed a new letter of intent. And in late October, we announced the asset sale agreement, which started the due diligence timeline with the buyer group. The initial due diligence period is scheduled to expire on January 19, and the buyer has an option to extend the due diligence period for another 30 days. As such, we hope to have the transaction completed by the beginning of March. While this time frame is longer than we are hoping, a transaction of this size is not something that moves quickly. One positive side in the delayed closing of this transaction is that we will continue to make monthly paydowns on our debts with our bank, and thus, our available cash at closing will be higher. The proceeds from this sale will not only bring savings from reduced interest expenses, but will allow us to build a positive cash position as we continue to work down our excess inventory levels, which was approximately $30 million at the end of November. As previously stated, the agreement excludes the 17 acres of excess land, which will remain under EDC's ownership and provide further strength to our balance sheet post building sale. The proceeds from the sale are expected to fully pay back the bank, leaving us with no debt, and we expect to have limited borrowing needs moving forward. While the building sale is a large project, we continue to focus on growing our brand partner levels and sales. We are pursuing additional enterprise projects between our IT and marketing teams that we feel will generate positive momentum in the upcoming fiscal year. Lastly, 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. Now that we have provided a summary of some recent activity, I will now turn the call back over to the operator for questions and answers.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from the line of Olivier from Geneva. Please go ahead.

Yes. It's Olivier from Geneva. Thank you for taking my question and thank you for your update. I have two quick questions. Do you hear me well?

I do.

Okay, good. So the first question is about the new markets you are considering right now. Do you have any ideas about new markets and where EDC currently stands on that? And the second one is about the new IT implementation. First on the partner side, what are your returns? And on the customer side, are you considering a digital extension of your products? Where are you on this side of customers with your new implementation?

Okay. I think I've got those. As far as new markets, we're always looking for new markets. I would say, while it's not necessarily a new market, our SmartLab Toys in the retail division has done very well for us. So kind of consider that a new market. But I don't have anything necessarily new to report at this time about new markets. What I can say, and I can expand on it during the IT discussion, is that we've been successfully implementing a couple of major projects in IT. First, the e-commerce implementation, which you know took place roughly a year ago, that's gone very well. We continue to make tweaks and add new features consistently. We've had the shipping subscription, which is a significant project that launched in that third quarter, and it has been successful. Looking forward, we also have our online fundraiser program that will add new capabilities with it being online, but that's going to be implemented in the next couple of months. We're also discussing a slight tweak to our model—not abandoning our model—but adding a brand ambassador role, which is more of an affiliate-type program. There have been others in the multi-level marketing space that have attempted that and not been successful, but I'm very excited about what we've come up with. It may not be as aggressive as other companies, but it does allow us to increase brand partner counts without signing up through our traditional model. So that's what we have on the horizon for IT. I hope that answers your question.

Yes. Maybe a little update, do you have any news from Usborne?

Dan has quarterly or maybe monthly calls with their CFO. Everyone is just kind of patiently waiting for us to get through this difficult period. We don't have any news to report, but as restrictions for purchasing are lifted, we anticipate that we will return to normal.

Return to normal.

Okay. Thank you.

Thank you.

Thank you. And your next question comes from the line of Paul Carter from Capstone Asset Management. Please go ahead.

Good afternoon, everybody. Thanks for taking my questions and Happy New Year. Just to start off, minor question. So you previously announced that on September 19, you executed a commercial real estate sales contract and that the due diligence period started that day on September 19. But now you're saying that was only a letter of intent, and the due diligence period only started on October 28. Can you explain what happened there?

Well, the LOI is just that. It's just a letter of intent. We had to wait until we could get an asset purchase agreement documented for the due diligence piece to be defined and start. The real issue from a macro perspective was we were kind of under the impression with the buyer group that they wanted to close this by year-end. So when we approached the bank and we requested the last amendment and laid everything out in a timeline, we were geared toward a year-end close. What ended up happening is the buyer group got distracted by another transaction, which delayed their work until the November-December time frame, slowing everything down. Now we're left with the asset purchase agreement definitions, which state that they've got 75 days from the delivery of certain key documents to them, which started in early November. That puts our timeline for the initial due diligence period to be January 19. They also have an option to extend that by 30 days, which would push them into mid-February, and then they're still there for the closing afterward. That's why we've gone to the bank. We've recently executed a new amendment to extend our line until April 4 to give us sufficient time to close the transaction. That explains the current timeline.

Okay. That's fair. Thanks for that detail. And is the sales price still $38.3 million? Or has that changed?

No. The terms of the asset purchase agreement were consistent with the LOI, so nothing changed.

Okay. Okay. Great. Then another unrelated question. For the quarter, your average active brand partners was 12,400. Are you able to say what you ended the quarter at?

Well, that's the average for the quarter. We don't report monthly numbers for our active average brand partners.

Okay. Fair enough. Apologies for the rather blunt question, but I'll ask it anyway. Four years ago, you were doing about $200 million in net revenues, and you were growing your capacity to get up to $400 million to $450 million. And now you're down to a net revenue run rate of about, call it, $30 million, give or take. And I guess there isn't a lot of evidence yet that things have totally bottomed. I totally understand, and you know I've been following you for a long time, I understand you've been facing multiple challenges at the same time, like inflation, the Usborne relationship, the overhang of your debt agreement, etc. But rather than just selling your building, has the Board considered hiring a banker and pursuing all strategic alternatives, including selling the company to another party with greater resources? If the Board hasn't done that, I’d be interested in why not?

Well, I mean, the closing of the current building sale transaction is imminent. It doesn't seem appropriate to look at options until that either closes or doesn't. That being said, we've got several options on the table that we've been considering. If we get the transaction closed and we're out of bank debt, then we’re ready to proceed again. We feel our sales force is kind of sitting on the sidelines to see what happens. Honestly, we've thrown up several red flags with the heavy discounting and selling off assets. It does look like we're going out of business, but we're not. If we complete this transaction, we're in a much stronger financial position, and we can operate our business as we need to. It's been two years since we've been constrained. So we haven't been able to operate our business as usual.

Yes. No, that's fair enough. Yes, I thought I'd put that out there just to kind of get your reaction. It does sound like closing of this transaction will hopefully be a bit of a catalyst for an inflection point. But that's it for me, everybody. Thanks very much.

Thanks, Paul.

Thank you. Your next question comes from the line of Joseph. Please go ahead.

Hello. Quick question about the brand partner numbers. Can you comment a little more on those?

Just kind of the numbers and what’s generally happening?

Yes. Just kind of the decrease in them and just how you feel the trend is and the motivations of the brand partners for leaving, if you have an idea of that?

Sure. I think that Paul alluded to some things in his question about the economy and the headwinds that everyone has been facing. I think that there are overarching challenges we are up against, just as a multi-level marketing company. We've discussed those several times on the call, including the reputation that MLM tends to carry. Additionally, Craig mentioned others, which is that we do sense that they are in a waiting game. They're in a wait-and-see attitude. The overwhelming response we get from any sort of new title release or conversation about what's next is always overwhelmingly positive. The heart of the mission and foundation of why we do this continues. We believe that our impact is set to grow. While the numbers have decreased, we don’t believe that this trend will continue into future years. But it's something we believe will get turned around as the sale of the building is done, and we begin purchasing again, making things appear more normal from a business standpoint.

Okay. Thank you.

Thank you. There are no further questions at this time. I will now hand the call back to Mr. Craig White for any closing remarks.

Thank you. Before I get into my closing, I want to reiterate what Dan mentioned. In our press release, we signed an amendment that now extends through April 4, which I feel is a very good sign. What it tells me is that the bank believes we're doing everything we can to pay them back and are working towards a stronger financial position. Until further notice, that’s what we're doing. We're trying to get back to business as usual. If we can purchase new titles and make it look like a normal new title release, our sales force will get excited, and we'll be back on the right track again. But anyway, that remains to be seen. Thanks, everyone, for joining us today on our call. We appreciate your continued support and look forward to providing another update in May.

Next one will be in May.

Thank you. Have a great day.

Thanks, everybody.

Thank you. And this concludes today's call. Thank you for participating. You may now disconnect.