Educational Development Corp (EDUC) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the fiscal 2021 second quarter earnings conference call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Randall White. Please go ahead, sir.

Hello there, investor. Welcome to our call today. Before we get started, we would just like for you guys to know that today is a unique day in our history. We closed at the highest all-time price in our history. $19.17 is what I show. But that's the first time it's closed over $19. But the best is yet to come. This is just the start.

With me today, I have Heather Cobb, our Chief Sales and Marketing Officer; also, I have Craig White, our Chief Operating Officer; and I have Dan O'Keefe, our CFO.

And I'm going to hand it over to Dan while I do a little Irish jig in the background. So let's go, Dan.

All right. Thanks, Randall. Here's a brief summary of our second quarter results. Net revenues for the second quarter of fiscal '21 -- 2021 were approximately $59.3 million, up $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 $0.39 a share 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 the 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 you guys, and I can identify who's on call, so I could say hello to some old pals here on the call.

Incredible month. I do have one apology, and that is, the quarter is so good, my apologies to those people who'd 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. We ended up with over 50,000 at the end of the quarter. Pretty amazing growth, and it's just a great story here.

Since I didn't do it all, only very little, I'm going to pass to the marketing side, over to Heather. And tell us how why we're so successful, Heather?

Thank you, Randall. Well, I wish there was a single key factor, but I think that actually one of the reasons that led us to that significant increase in the number of consultants were several factors.

So the first one I would say is that we had increased demand for educational and boredom busting products in the home. As we know, people were forced to do distance learning, 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 nontraditional income. This was either to supplement or replace lost income from the COVID-19 pandemic.

We, in February, introduced a new consultant success program called Climb. We feel like 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 suites. They have easier and more streamlined access to the data that they need to run their business 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 presentation. They had the opportunity over a 3-day period to hear from some of our top field leaders, who cast vision. And 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-priced 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 Chief Operating Officer, I go over warehouse operations as well as IT. I'm just going to give a brief update on warehouse operations.

So in the last few years, we've had to handle big growth. In fact, I've developed plans over the last few years as to whenever we got to certain levels, this is what we would need to do. We are constantly evaluating production levels. I know what we should be getting out each day. And so I'm constantly evaluating where we're at and what we need to be able to get out the current level of sales.

So we have -- in the second quarter, we added a second shift, which has been very successful. And 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. So we're excited about what that will provide us.

Now from an IT standpoint, as Heather mentioned, we implemented a new back office, which means that's the software that our salespeople log into to see their sales reports, their new recruits and all those things. And we did a major, 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've also now moved that software to the cloud so that we can handle whatever growth we need to.

We have also started adding text alerts to our salespeople for certain milestones, and we will continue to add those text alerts, kind of gamify the back office, if you will. So we're very excited about that.

We've also added in-stock notifications for our customers, which means they can go to our e-commerce site, give us their e-mail address on products that they want to be notified for when it comes back in stock.

Okay. So in the last couple of months, we've sent out 80,000 to 90,000 e-mail notifications of in-stock items, and those have resulted in well over $0.5 million, closer to $1 million in sales just from those notifications. So we're very excited about what that can provide us.

So things are going very well in warehouse operations as well as IT operations.

Now I'd like to pass the call back to Randall.

Okay. Thanks, Craig. So by the way, I got Craig, Heather and Dan here. And I just want to tell you, because most of you guys know how old I am, and really, I want to reassure you that we have a very strong management group here. Very proud of the 3 and what they've done.

Heather, people are going to ask how we will grow, probably going to wonder how we're going to get from 50,000 to 100,000. Well, here's our formula. I'm going to put a message out to those who -- to our sales consultants that each one of them to go and try to find one friend. So by the end of the week, we should have 100,000 salespeople. Don't put out [a statement] on that. 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 it, how it works.

I will tell you a little bit about the Publishing division. It's not doing well because, as you know, the retail is struggling right now. And for the quarter, our sales were down 13.5%, not a big deal to us while we wait out this situation we're in. But that's much better because in the -- over the first quarter last year, we were down 31%. So we're making an improvement there. We have great products. We'll sell in retail stores once the stores are back open.

So moving on to profit growth. And what happened, as you noticed, we went from $0.12 to $0.51. That's a product of having financial management here that we get -- when we bring in extra money, we don't spend it. So we're now spreading our costs over a larger base, and it becomes more profitable. That's the theory of it: we have lower cost.

But also, I would tell you that things happened in the quarter that may not happen again. Heather mentioned about the convention. Well, we went from having a convention of about just under 2,000 people to having 10,000 virtual. And while the one that people hear we didn't recover our cost, and we did going virtual. Very interesting how it all came about.

But we're a nice model here because the growth in UBAM -- we have a great story. About 5 years ago, a teacher who had no money tried to join, and her credit card declined. It was only about $75 to join, but her credit card declined. Somehow, we got it figured out. And a month ago, she made $55,000 for the month. Now that is not average. That's not -- by the way, I'm not telling you everybody does that. I'm telling you what this one lady did. We have other people doing very well. But the model is the same. And the more they make, the more we make. And so we're very excited about that. We don't -- the model doesn't change, guys.

And the best part about it is -- maybe is all these orders that we're shipping are prepaid. They come in on credit card or whatever, and we're shipping over $1 million a day, which means we're bringing in about $1 million a day cash. So what happens is we have a lot of cash here.

And we have no short-term borrowings now, and we paid down $7 million -- $7.2 million of building debt. So the only debt we have left is about $11 million on this building, which is about a $35 million complex.

And Hilti Corporation, they have a monthly rental of $104,000...

$114,000.

$114,000 a month, and we're getting lease revenue from them, and we pay out about $80,000 in principal and interest amount. So very nice cash flow.

And you think, what are we going to do with all that money? We, at the end of August, had $22 million cash and very little debt. There's about 3 choices: You can pay down debt; you can increase your dividend, or you can buy back shares; or you can give me a big bonus. This quarter, we chose to pay down debt, and then we increased the dividend 67%. The dividend is now $0.10, a pretty nice, I think, use of our cash to reward the shareholders.

So with that, there must be somebody that has a question about one thing I possibly didn't cover. So on that, I'm going to turn it over to somebody asking me a question.

(Operator Instructions)

Pretty euphoric day for me here, guys. So if I'm a little enthusiastic, it's...

We have a question.

Got a question?

We have a question from the line of [Bob Bradshaw]. He's a private investor.

Randall, can you hear me there?

I can, Bob.

I guess the comment I had is that I think what you did with the conference this year was pretty amazing, and you kind of really, to me, glossed over it a little bit. I think it was a really big deal. And I know it's off in the future, but I'd kind of like to know how you're prepping for next year.

And then the second thing is I thought I've heard from you previously about some rather big efficiencies in the warehouse and getting away from having to have a third shift and just down to 2 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 way better than we thought because we like that conference where we can see face-to-face our consultants. But when we were able to project our message over 10,000 people, it became more and more effective, I guess.

And so we're looking at some type of hybrid or something in the future out, Heather?

Yes, Bob. I think we'd be fairly shortsighted to say that we want to go just back to a live event. But I also think that there's definitely some of the things that the live event can provide that a virtual event cannot. I think there's a place to do possibly some sort of a hybrid for both. And hopefully, we'll have the opportunity to do so next year. If not, we feel like we're poised and ready to just continue with another virtual event.

Bob, on the efficiency in the warehouse, I'm going to let Craig address them because it's something that we do every day, is to try to pick up some little nuance that will increase the productivity.

We've always been pretty efficient on the first shift. It's adding a whole second shift, which is roughly 125 people. They don't just come in and perfectly productive the first day. So that took a couple of weeks. There's some turnover.

So getting the second shift up to speed is where we gained, I wouldn't say efficiency necessarily, but great productivity, I will say. We are poised and ready to have a third shift when it will be ready.

I don't think Craig is taking enough credit because, yes, you bring in new people, and you walk out too, and it doesn't look as efficiency should be, but 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're ready.

So we're -- October, November, December are our biggest months, and we're today shipping that. Dan's [reason for his PAT] here. That's the -- we're geared up to have a big third quarter.

And your next question is from the line of Edward Norcini.

Thank you. Can you hear me, Randall?

I can, Ed.

I want to thank you for raising the dividend. Great help for us investors. And also reducing the debt of the company, I know the company is getting stronger when you reduce your debt.

And third, my question is, are there -- you're saying that you're running 2 lines, 2 production lines, right now. Do you foresee a third shift coming in November or this month...

Ed, yes, we do. What we have here is our regular operation with 2 shifts, and we've set up a temporary line to add another complete line and another shift for October, November and December if we need it. And we're right on the brink of trying to get that staffed. But -- so yes.

Well, you're welcome about the dividend. Because I get most of it, so I like it, too. And I like low debt. But then again, I'm not 25. So...

Yes, well, I think you guys -- your team really knocked the cover off the ball this year with the -- during the pandemic, being able to produce what you did and letting people work safely from home and also ramping up the distribution and production side.

Other question is, is the tenant paying the rent now?

Is the what?

Is the tenant paying the rent?

Tenant, [Tryco].

Yes. Oh, yes. Oh, yes. They're a $7 billion company. I don't think you need to worry about them. You might worry about us more than them.

And [Derek Mulvin].

Congratulations on the quarter and all the success you all have had.

Maybe a question for Heather. Maybe just give us a little bit of color on how are the sales consultants having success in the field. Is it primarily through social media how they're making sales today? I know that business has changed quite a bit.

And then maybe as people are going -- starting to go back to school, what kind of feedback are you getting from the people on the field?

Yes. I will say one of the things about our field sales reps that I think has happened over the last several years actually is they adapted real well. We were already, I would say, probably primarily online. And so we did not have to make a full 180 pivot that some companies did. And so we were already poised and ready to be where the customers were going to be.

So the majority of our sales do come from online, but I also have to give credit to our School and Library Division, who really tried to work within whatever confines they needed to, to get books to the schools. I know in the spring, especially when the shutdown happened quickly, they were working in very close contact with school administrators who were trying to get backpacks of books directly to kids and different things like that. And so we were able to adapt, and we were able to really serve our customers in the way that they needed, and that continues to be the case.

We've just recently launched some cash option, virtual book fairs so that schools have additional options with us as they go back. And so I think really -- and I know it may sound a little crazy, but it was kind of business as usual for us. We just had a little bit of pivot to make. But really, the biggest thing that we do is continue to serve our customers in the way that they need us to, which our salespeople do amazingly well.

[Derek], let me add just one more thing to that. You wondered what's going to happen in the school when everything went back to normal, whatever normal is. Well, we're down probably $5 million in retail that will come back. And we're down probably $15 million in the school and library and booths. Like, we'll have people go to a Green Corn Festival and have a booth outdoors. Those are gone. So we think the loss in school book fairs and face-to-face sales are about $15 million. So we could rebound there also. So a lot of good things will happen.

And by the way, anybody in this marketplace that we are today that's selling educational products for the home are doing very well. We have customers that are doing very well. And I'll tell you, we're all very thankful and a bit humbled about the fact that we are in the right place at the right time, and it's -- 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. Wow, historic day. Any other questions?

(Operator Instructions)

Okay. I guess there's not much more questions you can ask with $19.17. And I think we're just getting started. So thanks 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. So thanks for being a part of our investor call.

Thank you, everyone.

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