Educational Development Corp (EDUC) 2026 Q1 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Educational Development Corporation's financial and operating results for its fiscal 2026 first-quarter results. As a reminder, this conference is being recorded.

On the call today are Craig White, President and Chief Executive 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 fiscal 2026 first-quarter results. The release will be available later today on the company's website at www.edcpub.com.

Before turning to the 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 a more detailed discussion of the company's financial condition.

With that, I would like to turn the call over to Mr. Craig White, the company's President and Chief Executive Officer. Craig?

Thank you, operator, and welcome, everyone, to the call. We appreciate your continued interest. I wanted to quickly mention that Heather is taking time to be with family, as there was a recent death in her family.

I will start today's call with some general comments regarding the quarter. Then, I'll pass the call over to Dan to run through the financials, after which I will provide an update on sales and marketing and finish up the call with an update on our progress of the sale-leaseback of our headquarters, the Hilti Complex.

During the first quarter, we experienced decreased sales compared to the prior year first quarter. This was driven primarily by our reduced brand partner levels within our PaperPie division, along with continued customer sales events offered to promote our PaperPie sales division and generate cash to meet our lenders' requirements. We view these sales events as short-term tactics used to generate cash and to reduce our borrowings with our bank.

Over the past year, we have seen our brand partner levels decline due to several factors, including the challenging sales environment with high inflation and reduced disposable income of families with small children. Further, the direct sales industry, especially those within the product sector, has experienced a challenging period for new consultant recruiting. While we have been through downturns in the industry before, the current environment is having a short-term impact on our operating levels.

While we generated less sales during the quarter, our loss before taxes declined from last year. This reflects our continued focus on reducing expenses during this difficult environment.

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 first-quarter results compared to the prior first quarter last year, net revenues were $7.1 million compared to $10 million. Our average active brand partners for the quarter totaled 7,700 compared to 13,400 in the first quarter last year.

Loss before income taxes totaled a negative $1.4 million compared to negative $1.7 million in the first quarter of fiscal 2025. Net loss totaled $1.1 million compared to $1.3 million loss last year. Loss per share totaled $0.13 compared to a loss per share of $0.15 on a fully diluted basis.

Now, for an update on our working capital positions. Net inventories decreased $2.7 million from $44.7 million at February 28, 2025, to $42 million at May 31, 2025.

Borrowings on our working capital line of credit totaled $4.2 million as of May 31, 2025, meeting the step-down required by our bank agreement to be under $4.5 million starting June 1, 2025.

That concludes the financial update, and I will now turn the call back over to Craig White. Craig?

Thanks, Dan.

As I mentioned earlier, we continue to make strategic changes to bring new initiatives for success to our brand partners. We concluded a successful incentive challenge. We've launched our next incentive trip, which has gone very well so far. Our percent of sales decline has been lessened. I've started going to more industry-type events to just kind of get a perspective around the industry, which has been great. We've made some great connections from not only vendors but other companies, and so I'm going to continue to do that.

From an IT perspective, we've launched guest checkout, which the goal of any IT project is to make it easier to do business with us, whether it's our customers or our brand partners. And the guest checkout process has been received very, very well. We've had a successful partnership with Ticket to Dream, allowing us to place thousands of books into the hands of foster kids and families.

We've also concluded our summits, which took the place of convention for this year. We had Dallas, Atlanta, Salt Lake City, Chicago, and Philly, and we just had Philly in the last few weeks, and we left there very encouraged. There seemed to be a lot of excitement. As each summit happened, we have more information as to our financial stability or our sales or our inventory levels.

And so at some of these more intimate-sized-level meetings, I'm able to have one-on-one conversations. It's things that I can't say from a stage without any kind of context or explanation, but people that have been with us for 10, 15, 20 years, I can have conversations with.

We started promotions to encourage promotion to leadership, which in turn encourages recruiting, but we've got to have new titles. So as we have a clearer picture of whether we're going to complete the sale transaction, we've already started coming up with our Phase 1, 2, and 3 plan for purchasing new titles and replenishing best sellers. So all these things are necessary to make it look like we're thriving business to ourselves for us.

Okay, that concludes our sales and marketing update. Now for a building sale update. In May, we executed an agreement to sell the Hilti Complex. This agreement outlined a 90-day due diligence period.

Recently, we announced an amendment of this agreement extending the due diligence period as well as a shortened closed period. The purpose of this amendment was to give the buyer more time to perform their due diligence and structure the building acquisition financing. We continue to work with the buyer group and provide requested information timely so they can perform their necessary work as quickly as possible. We continue to expect the sale to be completed before the end of September. 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.

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 am confident in our collective ability to emerge stronger and more resilient than ever before.

So I think I'll turn it back over to the operator for questions.

(Operator Instructions) Paul Carter, Capstone Asset Management.

Hi. Good afternoon, Craig. Good afternoon, Dan.

So I know the Hilti Complex sale has obviously taken a lot longer than expected, but at this point, it's clear that the viability of the business hinges on getting that done. So brand partner count is down another 18% this quarter and there's no clear sign of stabilization, and you explained kind of why that is.

But if this latest transaction falls through, and hopefully it doesn't, but if it does, what is the Board's contingency plan? And would you be prepared to hire an advisor and formally explore strategic alternatives for the business? Because I don't think you can afford to just try again and then push the resolution of this transaction down the road another five or six months.

Yeah, good question, and yeah, certainly to the point. We have -- not only do we have other offers, and again, I understand your point of not going through another 90- to 100-day to 120-day process, and I agree with you, that's not necessarily where we want to go. So anything that we do obviously has to have bank input if not final approval.

But we have a plan B, a viable plan B. Our plan A is to sell the building which brings us the most proceeds, but our plan B also gets us out of bank debt and we can move forward. So my intention is that one way or another, we will have executed plan A or plan B and have it finalized by the end of September.

Can you share anything about this plan B?

We've had -- well, it's other offers that have a quick close contingency. There's a couple of pieces to it that we've kind of curated, if you will, over the last six months. And again, they're not quite as good as plan A, but they're definitely better than not having any plan at all. So there's some smaller loans and things like that that would get us out.

So I don't anticipate that this -- I actually feel pretty good about this, and I've said this multiple times so you can take that with a grain of salt, but this group is from Oklahoma. They understand the environment. They understand the area. They've known about this building for a long time. There's several multiple groups kind of coming together as kind of a total investor group.

So I feel good about it. But again, I've learned over the last 15 months or so that that's just not good enough. So we've developed a plan B that we feel very good about, and if it comes to it, then that'll be known pretty quickly as well.

Okay. And I think I mentioned or I asked last quarter if you're able to share anything more about this buyer group. It's TG OTC I think it is. Are you able to share any more about them? Is this just sort of a group of individual investors? Or is it a real estate, like REIT, or something like that?

It is a real estate company. They've kind of reached out for advice from friends, if you will, that may become partial investors in the group. But I would feel a lot more comfortable after this initial due diligence period is closed. Since we gave them a 30-day extension, I think it closes July 30.

28.

July 28 is the end of this initial due diligence period, in which case half their deposit goes hard. So we'll know a lot more by the end of July, whether we're moving forward plan A or pivoting to plan B.

Okay, great. And then just my second question, this is just a governance question. So apart from you, Craig, nobody on the Board holds a material stake or a material equity stake in the company. Has the Board considered implementing minimum ownership requirements just to better align director incentives with long-term shareholder value? And I know that's generally considered good governance, especially in small-cap situations like this. So just wondering if that's something that's been discussed or is being considered.

Yeah. Well, kind of over this last couple years been focused on growing the business back, Board makeup and governance has been near the front of my mind as well, though. We're kind of been transitioning to make it more my Board than the previous -- my predecessor's Board.

So Board members don't make much money for being here on our Board. We have started giving them small amounts of stock. So we're trying to make it more like a big company Board, if you will. Now, we've got some strides to make and we're not there yet, but there's still going to be some changes over the next 9 to 12 months, we know, hopefully partially the compensation and then partially the Board makeup.

Okay. That's good to hear. Okay. Well, that's great. Well, good luck and we'll just, I guess, hope for plan A here coming through.

Yeah. I appreciate you, Paul.

All right. Thanks very much.

(Operator Instructions) And your next question comes from the line of [Daniel Balkin].

Hi, both of you. My question is surrounding these three phases of buying new titles. What do you think -- why do you think this strategy would work when we've got such significant levels of inventory already?

Well, we have to have new titles. That's what energizes the sales force. All of our inventory is still selling and selling through at a rate, but we have to have new titles.

And Phase 1, 2 and 3 are very conservative. They're not adding much to the inventory. Each phase is made up of half new titles, which may be 15 or 20 new titles, and then replenishment of some good sellers, which may be another 10 to 15 titles. So it's a very conservative approach. It's not going to increase inventory levels that much. But that's the first green flag, if you will, that shows our sales force that, hey, we're still a viable business and we've got new product coming in and we want you to reach out to your customers and kind of energizes them.

I see. And what would the selling process be for the remaining inventory once those new titles have come through?

Well, we won't have to drastically change prices of older inventory. I mean, as we kind of said earlier in the call, we've had strategic sales, but that's just to try to bring in infusions of cash to pay down bank debt. But we know that strategy is short term. I mean, if we continue drastically reducing the sale of our product, we diminish the value of our products, and that's just not a long-term strategy at all. We're trying to break that cycle where we don't have to discount.

So all of our product sales, of course, there's some that's getting a little bit longer, older in length of time that we've had it, and so we may discount stuff a little bit. But that's always been the case. We've always done that as a strategy to reduce older inventory. But on a big scale, we're trying to get away from that going forward.

Okay. And with this normalization, what's the sort of target net revenue run rate? What's the sort of target average brand partners? What's this normalization really look like for --

Sure. It's going to take some time. I mean, we got to slow it down and then we got to start rebuilding.

But we're starting to put the pieces in place. We're very strong from an IT perspective. We're making it easier to do business with this. We're coming out with new projects that excite the field all the time. So all these things lead to recruitment of new salespeople. If our current salespeople are happy, then they're going to bring more people into the business.

So it starts with making it easy to do business with us, having new titles, then making more money. So it's going to be a slow, gradual build. And then hopefully the -- I wouldn't say -- well, I'm absolutely not saying hockey stick. But once things kind of get rolling again, they kind of start compounding.

But what's the goal? We have to do forecasts for different entities, be it bank or investors or potential buyers and things. And so we've targeted a low, medium, and high expectation. And they're all conservative. It's going to take some time.

Has there been any discussion in terms of similar sort of businesses which might be interested in some sort of small acquisition of Educational Development?

I get requests occasionally, and we vet them for how serious they really are. We use our IR firm or our previous IR rep who's now on our Board to kind of vet any of these offers. And most of them are not very serious. But we haven't seriously entertained --

Received any serious offers.

Right. Why do you think that would be?

Well, probably because we haven't --

Why aren't there many offers?

To buy our company?

Well, since I've been here for eight years, Daniel, we've never had an unsolicited offer to buy the company that I'm aware of.

And who knows why that is? Maybe we're not on many people's radar. I really don't know. I can't even speculate on that. But we would entertain it. I mean, that's not our first thought right now at all. We want to get through this transaction and grow the business back to where we know it can be.

Just a final question. What's the sort of the banking relationship at the moment? I mean, obviously, they've continued to get some sort of flexibility. What does that -- what is your personal relationship sort of -- how does your personal relationship play into that? And is it likely to be that once we've retired those outstanding debt balances that there will still be a sort of that relationship with the working capital, like the facility? Would that still continue?

That's probably not the goal. I'll never say never. But so far, our relationship's been good. I mean, obviously, each amendment gets a little more restrictive. And that's just to make sure we're completely focused on bringing in whatever cash is necessary to pay them back.

But they've understood every step of this process. They've supported us through every step of the process. Now, there is a sense of urgency to be paid back. But again, they agree with every step that we've taken. They're involved with every step. And so it's been good so far.

Okay. When is the next call? When is the next piece of earnings release?

It will be in October. We haven't announced the earnings call date. But the second-quarter earnings call will be in October, probably around the 10th timeframe.

So should be after completion of this sale process.

Yes, hopefully. Well, thank you, Craig, and thank you, Dan.

Yeah, appreciate it.

Thank you. And 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. Thanks, everyone, for joining us on the call. Appreciate your continued support and expect to provide additional updates on the Hilti Complex sale progress prior to the next scheduled meeting in October. We'll file -- is it 8-K, 10-K?

8-K.

8-K as necessary. So you'll probably know before the next Board meeting or before the next earnings call. But anyway, good questions. I appreciate everyone's support. Thank you.

Thank you.

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