Educational Development Corp (EDUC) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Educational Development Corporation Fiscal 2020 Investor Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions)

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

Thank you.

Please go ahead, sir.

Well, thank you very much.

Welcome, everyone, to the quarterly investor call.

Here in the room with us on the call today are Heather Cobb, our Chief Sales and Marketing Officer.

We also have Craig White, our Chief Operating Officer; and Dan O'Keefe, our Chief Financial Officer.

Got a bunch of chiefs here.

And we're going to turn it over to one of them right now.

Dan, give us some stuff on the earnings results.

All right.

I'll give a quick update on the fourth quarter and then the year and then turn it right back over.

So net revenues for the fourth quarter of fiscal 2020 were approximately $20.2 million, down $3.4 million or 14.7% from approximately $23 million reported in the fourth quarter of fiscal 2019.

Pretax profit, however, was consistent between the fourth quarters of last year and this year at 3.5%.

Net earnings in the fourth quarter of fiscal '20 remained consistent with net earnings reported last year as well at just right around $0.5 million.

Earnings per share on a fully diluted basis decreased $0.01 per share from $0.07 reported in the fourth quarter last year to $0.06 reported in the fourth quarter of fiscal 2020.

Now on to our full fiscal 2020 results.

Net revenues for the fiscal 2020 were approximately $113 million, down $5.8 million or 4.9% from approximately $118.8 million reported in fiscal 2019.

Pretax profits as a percentage of net revenues decreased from 7.7% in fiscal 2019 to 6.9% in fiscal 2020, primarily associated with the reduced net revenues.

Net earnings in fiscal 2020 were $5.6 million, down $1.1 million or 15.5% from net earnings reported in fiscal 2019 of approximately $6.7 million.

And earnings per share on a fully diluted basis decreased $0.13 from $0.81 a share reported in fiscal 2019 to $0.68 a share reported in fiscal 2020.

So Randall, this concludes the fourth quarter and fiscal 2020 results.

And I'll turn the call back over to you.

Okay.

Dan, thank you very much.

Well, fiscal year 2020, definitely behind us, 90-days-old information, probably most of you have it.

They were below our expectations, but it was still the second largest year we'd ever had, $113 million and $7.6 million pretax.

And going back 5 years ago, we made $875,000 for the whole year.

So it's -- while it's disappointing, nobody's jumping off a cliff over here.

During the fourth quarter, we -- this is the information I'm going to go and give you, we -- the impact to our earnings and sales.

While we introduced some new recruit and promotion programs and a back-office program from IT and our -- which consultants used to run their individual businesses, it took a little focus off those.

But it was building the foundation for the year that we're now in with almost 90 days into it.

I will tell you, it's been terrific.

Here's some of the highlights.

March revenue was down 25%.

Not a real good highlight, but that's what they were.

We're impacted by retail division.

There's store closings.

Nobody's buying anything, so that our retail side was down about 60% to 70%.

We also have a lot of sales through school and library, which are book fairs.

Those are pretty much 0. Any direct business we have where people do booths, that was impacted.

So the consultants were disrupted by all of the above.

And while all that is going on, our tenant, which is a pretty big guy who did about $7 billion and made $400 million after-tax profit, came to us and wanted a rent abatement.

Yes.

Okay.

Let's do that.

And we did.

We also -- on April 2, because of these results from March, we applied for a PPP loan.

And we were granted that, $1.44 million.

The only question they asked is, "How many employees do you have?

And what do you pay them?" There weren't any other requirements.

So we were granted the loan.

April came around.

Wow, thank you, April.

Our business exploded.

And so much, in fact, that 40 days after we got the loan, we have no short-term debt and we paid it back.

Nobody asked us to.

We weren't under any requirements to, but we kind of like to do the honest and ethical thing in this company.

We -- Educational Development Corporation is just -- that's kind of the way we operate our business.

So we paid it back.

And after that, it just keeps getting better.

UBAM division, which I mentioned to you in the fourth quarter, we really set the stage for this year.

And it took hold faster than we even thought.

April was up about, I don't know, 60% over April last year, and that's without any of the school and library business.

So we're very happy about that.

We also got 5,000 new sales recruits, pretty amazing for that.

In May, it looks like we're going to have about that number again.

So we could very likely have 10,000 new sales recruits in this quarter.

And interestingly enough, these new people are joining now, they're out here to make money.

And you know what?

They do.

And we've got some people who have really made some -- come on and made sales at a very short amount of time.

We -- after being down 25%, we have already provided guidance that we will be somewhere between $36.5 million to $38.5 million, and I think that's compared to about $27 million in the first quarter last year.

So we're pretty happy about where things are going here.

We're very fortunate.

That's my story.

So why don't we let somebody ask something they want to know.

Anybody have any questions?

(Operator Instructions)

I may have told you everything you ever want to know, which is -- that's okay.

I see today in our stock, it has traded 61,000 shares on an uptick, which you got to like a market where 60,000 shares can get in and 60,000 shares can get out.

That's the free market.

A very interesting day.

We got a question?

Oh, we have.

We do have a question from Anthony Chiarenza with Key Equity Investors.

Congratulations on the great improvement you had.

What I'm concerned about it is as the COVID process kind of recovers, hopefully, we get into a recovery, do you see this as a onetime effect that you're going to get over the next several months and then things will kind of stabilize again?

Or is this a beginning of a new trend?

Well, you want my opinion?

Anybody who knows me, I'm always positive because I think we have the very best products in the world, and we have an outstanding sales force and they're making money.

We see a trend like it was in 2016.

And anybody who was here in 2016, it grew so fast it about killed us.

We went from $35 million -- we went from $25 million to $35 million, $35 million to $65 million and $65 million to $106 million, and that $65 million to $106 million about did us in.

So this year, we're seeing that same growth and we're prepared for it.

There are a lot of factors, and I wish I could tell you I know all the answers, Anthony.

But I will tell you that we're seeing a lot of people who had really great jobs and lost them.

And some of them we called back and some aren't.

And we're seeing a little bit of the thought process of, "You know what?

This is a pretty nice side gig.

I'm going to keep that, just in case, for a fallback." And then other people are saying, "I'm making money doing this than I was -- what I was doing." So there are so many factors.

I can only tell you, we have not had a day in the last 2 months that wasn't better the same day a week before that.

It gets better, every week, every week, every week.

I have not seen one negative trend since 1st of April.

Now I know 1.5 months in a row is not exactly a trend, but we've been here a long time.

And we've seen a real positive thing.

And there's some great stories here in this organization.

And they're the ones who drive the sales growth, the people in the field.

Right.

I think the issue is the unemployment right now is, God knows what it is, if it's 20% or it's 25%.

And obviously, there are a lot of people at home and not working and then not knowing whether they're going to go back.

And I think this represents a good opportunity.

And I guess if you can prove that this is something that they can make a living at, then you've got a big winner then at that point.

I think that's what you're saying.

I am saying that, Anthony.

And I will tell you that we are in a bubble that anyone who has educational material for children, you're in a good spot.

Some of our customers, we sell to homeschool curriculums.

And right now, homeschooling has taken a whole different viewpoint because people are not sure schools are going to open or not.

And we're seeing our customers frantic to buy product from us for their curriculum.

They write curriculum, and they use our books in that.

So we're -- it's coming from a lot of places.

And bear in mind, we've had hardly any impact from the school business.

When that comes back, that used to be about 15% of our business.

Is that -- am I close?

I mean, Heather is standing here, she's smiling and frowning at the same time, if I tell you the wrong stuff.

So the school business is about -- I think it was about 15%, and we were up 60% without that.

So it's not like we're all going to die tomorrow if everybody goes back to work.

I don't think that at all.

I think that people have been discovered our products, and they're working for them.

And I think the trends we're going to -- the trend is going to continue.

Yes.

Anthony, this is Heather Cobb.

I'll just jump in real quick, too, and say one of the things that happened with this business is once you start to generate momentum, it's really hard to stop it.

So while some people may go back to the workforce and schools may start to open back up, we may see societies go back to whatever sense of normal, they will.

We're generating such amazing positive momentum that people are having success, and one of the keys ingredients of continued success in the direct selling industry is early success.

And so we're seeing that happen with all of these new consultants that have joined in April and even May, that they're having early success.

And while that doesn't specifically guarantee it, you can't ever do that with a salesperson, what it does is it shows us that the potential is there for it to continue, definitely.

I'm going to give you a couple of other -- let me give you other positive facts.

For one thing, we had to cancel our convention.

And for people to come to a convention, they have to pay their -- all their expenses.

And that usually costs around $700 to $1,000, depending where they fly in from, driving from and where they stay and what have you.

So we're going to have a virtual convention, and we were talking about it.

"Oh, my gosh, you think that we could possibly have 2,000 people who would sign up and have a virtual convention?" So we had a day, whatever day that was, and I'm sitting here and saw it was noon when the registration began.

And we were hoping to get 2,000.

Oh my gosh, before that day was out, we had over 5,000 people registered for this.

And now we're up 6,200.

And here's a little fact for you.

Last year, it cost us $258,000 to put this one.

Our net cost was that.

This is probably a profit this year.

Let me tell you one -- let me tell you probably the most positive thing about (inaudible) company.

If people do this and have a legitimate product that is suitable to the public and they make money, they tell people.

I'm going to give you 2 stories, and I'm going to do it quick.

We have 2 ladies here.

One of them, her and her family, her and her husband are school teachers, and they were teaching abroad on a contract.

They came back to the United States because they missed their families.

They had very little money.

A person contacted them and said, "Why don't you come to this party?" But she didn't really invite her because she knew she didn't have any money and didn't want to badger her, very interesting.

And somehow she found out about it.

And she got on the party and joined.

And gosh, she -- well, she is very successful now and has probably -- how many people on her downline, thousands?

One of our top 5 earners in the company on someone who was hesitant.

And here's another one, even better.

Another school teacher that was on the party and wanted to join.

And so she did and her credit card wouldn't go.

The credit card got denied to buy the initial kit, the first kit to get started.

Well, fast forward about 4 years, that person earned $35,000 last month.

Her downline did over [$1 million] alone.

So we had -- when you have success like that from nice people, school teachers, just regular people who earn over $200,000, $300,000 a year doing this, sometimes you can't stop momentum because other people say, "Well, I think I can do that," and I said, "You know what?

You can." So there's a lot of factors, Anthony, that come into this.

But we are extremely proud of our organization, that people have built a successful business and an honest, ethical business like we run.

And we're very proud of it and also of them.

That's great.

That's great.

That's very positive because I think once you get them into the processes, is I think what you're saying, is they're going to see that there's a potential here, whether how quickly the recovery comes becomes less relevant than that there's a business here, whether there is a recovery or not.

And in my opinion, it's going to take a little bit of time.

Everybody says, the fourth quarter is going to be good.

Everything is going to recover, but scientists tell us it's going to take 1 year, 1.5 years to (inaudible) optimistically to get a vaccine and then be able to distribute it across the world and do everything else or whatever.

So this may last a little bit longer than I think people suspect.

So that -- in any case, that may be positive for the business, too.

And you don't go from (inaudible)...

I think you're probably right.

And I will tell you that we never missed a day here.

We were deemed an essential business, and we take extra precautions.

Everyone has their temperature taken.

We wipe down everything 2, 3 times a day.

We are very, very cautious, and we have not had one incident among about just under 200 employees.

So -- also, I might also tell you that as the business has grown and ramped up, we have been able to handle it.

And Craig, who's our Chief Operating Officer, we find a way.

We went from March only being able to keep our warehouse busy for 32 hours.

By April, we were into overtime and a second shift.

And we were operating 2 shifts and on overtime to stay up with the demand.

Craig, what's our largest order day?

You want to talk a little bit about how we're handling the business?

Right.

So like Randall mentioned, we go from a month over kind of down to a month where it's likely a record month.

So we had to evaluate our infrastructure as far as our software that handles taking orders and revamped our -- that to handle the volume.

We were hiring people in the warehouse.

We've had a few 14,000 order in coming days.

And as of yesterday, we shipped 15,000 in between the 2 shifts.

So we can certainly handle the volume right now.

Most days are between 8,000 and 12,000 incoming orders.

So we're positioned to handle, being able to keep up, but we have a lot of potential.

We can expand our second shift.

We can get into a third shift.

We've got all kinds of options there to expand our capability as far as production hours.

So -- and we're handling it fine just right now.

Actually, the best thing, too, is technology every day.

Every day, we're making little tweaks to the system where we can process like 15,000 orders a day.

It's been really interesting to watch and watch the company go and handle the business and provide income for people.

So very proud of the place.

And we think that we're just getting started.

Someone else must think that today because we closed at $6.75 on 61,000 shares.

That's a big trading day for our stock.

And (inaudible) goes on an uptick like that, someone must be leaking out some information other than me.

Yes.

Yes.

No, a little bit -- they shouldn't be -- I was with you guys back 5, 6 years ago.

And I remember the problems you had when the volume went up, and you couldn't keep up with the volume.

And you were going night and day, and you didn't have the warehouse.

And it seems such a different story now than it was 4, 5 years ago when it was so difficult to do that ramp-up.

And now you're ready for it, which is great to see, I have to comment.

I remember you saying, "Oh, this is just (inaudible)."

It's really nice to have someone who does (inaudible) us here.

I know during that period of time, I ran a third shift.

That wasn't any fun.

But we did what it took.

And today, the technology is so much improved.

Every day, there's little nuances.

And to process 15,000 when back then, we couldn't get out 8,000, so there's a big change here.

And our forecast for the year has certainly increased over what we thought it was going to be and we -- which caused you problems in things like ordering inventory.

We got about a 4-month lead time on inventory.

So if we run out of stock of a product, it's 4 to 5 months to get it back in.

So you're sitting here, trying to talk about ordering $5 million to $10 million of inventory because you think this trend is going to continue.

But what we've done, because of 2016, we're going to err on the high side, and that is order the inventory that we think is going to happen because the worst is it takes you just a little bit longer to sell it.

So we think we're prepared in every area to handle the growth that we're seeing has come.

So hey, it's nice to see you, Anthony, somebody who's been around a while.

(Operator Instructions) And at this time, there are no further questions in queue.

Okay.

Well, guys, thank you very much.

We're very fortunate here.

And while humble is normally a word not associated with me, I do feel appreciative and humble about a lot of things that have happened to our company.

We were prepared for them, and we got a break or 2 with some things here and there.

But we're very appreciative of what has happened here and the support of most of the shareholders.

So thanks for being on the call, and we'll be here in another 90 days.

Thank you, guys.

This concludes today's conference call.

Thank you for participating.

You may now disconnect.