Educational Development Corp (EDUC) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Educational Development Corporation First Quarter 2019 Results Conference Call.

(Operator Instructions)

I would now like to introduce your host for today's conference, Randall White, CEO and President.

Please go ahead, sir.

Thank you, Chris.

This is Randall White.

With us today are Dan O'Keefe, Heather Cobb, Craig White.

And so to get started, I think we'll just go ahead and start with Dan to announce our earnings results.

Well, Dan, take it over.

Thanks, Randall.

To announce our earnings.

Our net revenues grew from -- or grew $3,081,100 or 11% from $26,941,200 reported in the first quarter of fiscal 2018 to $30,022,300 reported in the first quarter of fiscal year '19.

Earnings before income taxes grew approximately $514,000 or 26% from $1,982,200 in the first quarter of fiscal year 2018 to $2,495,800 in the first quarter of fiscal year 2019.

Net earnings after taxes grew approximately $591,000 or 48% from $1.2 million to $1.8 million over the common first quarter periods.

Earnings per share on a fully diluted basis increased $0.14 per share or 47% from $0.30 per share reported in the first quarter of fiscal 2018 to $0.44 per share reported in the first quarter of fiscal 2019.

This concludes the earnings results for the quarter.

And I'll pass the call back to Randall White, our CEO and President.

Okay.

Well, pretty glad to see that our double-digit growth has continued.

I think this is the third consecutive quarter.

And during this quarter, we maintained a consistent level of active consultants, which is just around 35,000.

The sales efforts of these active consultants really drive the success of this division.

I might note that the consultants are up 26%, revenue up 12%.

Heather, you want to make any comment on that?

It's kind of a trend in the industry.

But I thought, Heather Cobb, who is our Vice President in that division, might add a little bit.

Sure.

We were happy to see the growth in sales, especially with the growth in the number of new consultants that we have.

But as Randall alluded to, it is pretty much following the same trend in the industry, which is seeing a slight decrease in the average order size through the direct-selling model.

And so while that is not necessarily something that we track and are able to speculate on moving forward, we did have access to information to show us that we were in line with those industry trends.

So overall being up 11%, of course, is the key number.

The number of active consultants, that's all -- that's a good number.

But actual sales results are, we think, the most important.

But I'm really happy to see that our Publishing and retail division has reported its first revenue growth in over a year.

Publishing sales were up 9% over the first quarter last year, and that's primarily due to the increase in order volumes with our smaller retail and toy and gift store accounts.

However, I might add, Heather and I recently, about 2 weeks ago in New York, visited Barnes & Noble, which has been our largest customer, probably still is.

But we are very encouraged with our reception there.

And we're very happy with our reception there -- better leave it at that.

So we think that we can see the Publishing Division return to historic growth levels.

I'm contacting some of the major accounts, myself and John, to see if we can increase the volume in that division.

We want growth in all divisions.

In addition to our revenue growth in the first quarter, we continued to make operational improvements that increased our bottom line.

Our pretax profits grew 26%.

And thanks to the new tax laws, our earnings per share increased probably about 47%.

These increase in operational improvements really date back to -- from the day we move in the building, and it's a constant update.

We've recently completed an update of our Line 3, which was our smaller line, more for Internet orders.

It has about 500 of our top best sellers, so the order book there is faster.

And we've just completed another update to that to make it even more efficient and reduce the labor involved in processing order because they are small.

Our free cash profits continue to grow faster than our revenues.

It's -- again, we're identifying and implementing operational improvements, so reducing our cost, as Line 3 I mentioned.

It also is reducing the cost per package to ship, less overhead and in our office staff also.

So we expect these benefits to continue through the next several quarters.

So I think you can expect us to improve profits maybe more than sales increase.

We're happy about that because we've got a lot invested.

In the last couple of years, we invested about $5 million from 2016, when we had to struggle by assessing the revenue that we had in hand.

So it's all -- it's falling in place, and we're seeing the benefits of the technology and operational improvements.

So that's basically what I have.

We welcome to answer any questions.

(Operator Instructions) And our first question comes from Paul Carter from Adaptable Capital Management.

First of all, how did the national convention go?

And what's the impacts been sort of postconvention in terms of sales and recruiting momentum?

And I know you don't give any guidance, but is there anything you can say about how like June and July are going relative to last year?

The national convention went very well, the largest one ever.

And that's always a good indication because you do realize they pay all the cost themselves to attend unless they earn it in some type of contest.

And so to have a 25% increase in attendance was encouraging.

And sales and recruiting continuing to do well.

We just had a -- we took a little over 100 of our top salespeople that earned it in a 5-day trip to Punta Cana.

And I can tell you that the enthusiasm is high there, and the significance of that is it's your top business builders generally.

And so that -- so you want to be motivated because they're the ones that are significantly building the business.

So we're definitely upbeat about what the rest of the year looks like in recruiting and sales, Paul.

Okay, great.

And then regarding your announcement last month that you are going to publish Spanish language titles, do you have like a numerical expectation of how much that might positively impact either your sales or your recruiting process next year?

(foreign language) I'd tell you, that was the most exciting thing on the trip this week for the people.

They are just overwhelmed by it because we have access to a 1,000 titles, and the 1,000 titles we have access to are the ones that we have the same book in English.

So now you can have a bilingual product, so to speak, not all in the same book; but you can, of course, have the English and Spanish book side by side.

We'll come out probably with around 200 or less, maybe -- somewhere between 100 and 200.

Don't write this down, guys.

We're in the process of translating and -- not translating, but getting them ready for January.

So we're going to try to make as big a splash as possible because it's a key factor.

Now the downside of that is we'll have to spend some money to develop material in Spanish, even videos and printed materials, because we're going to have to expect that we can recruit Spanish-speaking consultants.

But that wasn't the goal.

The goal was to get into these emerging programs, which are really big across the country, and book fairs so that -- the people, again, this weekend, this past week, were -- that was one of the things they were most excited about and came up and said, "I've been waiting on this for years." Okay, well, here it is.

So how numerically, I don't know because we never sold any, but there was a very, very good reception to the announcement, Paul.

Okay, that's great to hear.

And then just finally.

So last year you added just over 32,000 new sales reps during the year or like maybe 2,500, 2,700 per month on average.

So to get your goal of 50,000 by February that you mentioned last call, do you figure you're going to have to add recruits at a significantly faster rate than that?

Or are your consultants staying active for longer simply because they are happier now than they were a year or 2 ago?

Heather, do you want to address that one?

Sure, I can.

That's a great question, Paul.

Actually, we are seeing that they are staying active longer.

I think that the numbers that Dan and Randall mentioned earlier are some of the evidence of that.

They are happier.

They have what they feel like is a little bit more opportunity.

The family feel of the business continues to evolve and help them succeed; the level of training that is offered, not only with our core library program but as we get to a point that we will be rolling out full-fledged training for those new consultants, we think that, that will improve even more than what we're seeing now.

So I think it will be a little bit of a combination of the 2, but we're definitely seeing people maintaining their active status for a longer time period.

I think -- and part of that too is the fact that it's taken us quite a while to overcome 2016 because I see people post on Facebook that say, "How's that shipping?

I haven't ordered in a while." And like, my gosh, that was 2 years ago guys, girls.

But we see consultants coming back that they see that the problems have been fixed and we're shipping quickly now.

A lady actually told me we're shipping faster than Amazon, but I don't know that.

I haven't ordered from Amazon, so I wouldn't know about that.

But some great stories about people coming back and retention a little bit longer.

So we think that we'll -- we're certainly trying to hit that goal, and it can be done by more recruits and then the ones doing -- we have with better retention.

(Operator Instructions) And I'm not showing any further questions.

Wow, you guys are easier today.

Thought there'd be a few questions, but that's all you got.

Oh, we got another one?

Yes.

Pardon me, we do have a question from the line of [Edward Morosini], private investor.

I have a question about your inventories.

Last year they were at $34 million, and this year at the end of fiscal 2018, they're down to $27 million.

I would think that with the company growing as fast as you are your inventories would be more.

You would have more books on hand.

Can you explain why they are down about $8 million?

Can you hear me?

Yes.

I hear you.

That's a great question and a very easy answer.

The inventory got to that level because in 2016 we had orders -- we had the business to ship $150 million, and the inventory was to support that level.

It overwhelmed us operationally.

We couldn't get it out of the door.

It was taking 3 to 4 weeks to ship an order.

So consequently, at year-end, we had inventory, and we had the business for it, but we couldn't ship it.

And that's what happened in the fourth quarter last year when it showed the revenue of higher than it was because $9 million as of November 30 -- not last November, it was a year ago, we couldn't get it out of the door, so it fell in the fourth quarter, but it really occurred in the third quarter.

So the inventory was built to a level of the volume of orders we were getting, couldn't ship them, so the volume went down, of course.

And we've -- what we've done is, is work through the inventory to get it back to a level that we're comfortable with on the volume today.

And we'll build it as we need to as we grow.

But that is a good question.

It happened absolutely on purpose to get us back to the correct inventory level.

Okay.

Kind of helps cash flow too when you cut your inventory down to $6 million or whatever.

$12 million.

Yes.

That was -- that helped cash flow.

It helped us reduce our line of credit at some point this year 0, from a high of about $8 million or $9 million, I guess was a high.

So these are all part of the improvements that we see.

Here's why in my press release I put out it's the best year we've ever had.

Certainly believe that.

The earnings were up considerably.

Sales were up.

We now have 3 quarters in a row of double-digit sales growth, and we think we can improve that.

So is that it for everybody?

Anybody have any questions?

I'm not showing any further questions.

I would now like to turn the call back over to Mr. Randall White, CEO and President, for any further remarks.

Well, that was me, and I think I gave them to you.

But we are very upbeat here.

As you can see, our stocks made a nice little improvement 2, 3 days from whatever was keeping it down.

And I think we're starting to see a little bit more of shareholder confidence in the -- by -- indicated in the share price.

So we hope that continues too.

And no more questions, we'll just call it a day.

And thanks for attending, guys.

Thank you, everyone.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude today's program.

You may all disconnect, and everyone, have a great day.