Education Development Corporation ( NASDAQ: EDUC ) Third Quarter 2023 Earnings Conference Call January 5, 2023 4:30 PM ET
corporate members
Steven Hauser – Investor Relations
Craig White is President and CEO
Dan O'Keefe is the CFO
Heather Cobb is Director of Sales and Marketing
Participants of the conference
operator or worker
Good morning everyone. And thank you for joining today's conference call to discuss the Education Development Corporation's third quarter financial and operating results and fiscal year 2023 results. Please note that this conference call has been suspended.
I would now like to turn the call over to your Investor Relations Coordinator, Steven Hauser.
Stephen Houser
Thank you to the worker and have a good day. Thank you for joining us today on Education Development Company's third quarter and fiscal year 2023 earnings call.
Today I'm speaking with Craig White, President and CEO. Heather Cobb, Director of Sales and Marketing; and Dan O'Keefe, CFO.
After the market closed this afternoon, the Company issued a press release announcing its third quarter and fiscal 2023 annual results. The release is available on the company's website at www.edcpub.com.
Before proceeding with my prepared remarks, I would like to remind you that certain statements made today are forward-looking and are protected by the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by- for various factors. For a more detailed discussion of the company's financial condition, we refer you to Education Development Corporation's latest SEC filings.
In that regard, I would like to reach out to Craig White, the company's president and CEO. you miss
Craig White
Thank you Stephen and welcome to the call.
I'll start today's call with some general remarks about the quarter, and then I'll turn to Dan and Heather to review the financials and provide an update on our sales and marketing. Finally, I'll close the call with some comments and a strategy and outlook for 2023.
We are pleased with our sales performance in the third quarter, especially compared to last quarter. We continue to face macroeconomic pressures due to record inflation, which has pushed food and fuel prices into the pockets of our target customers, especially families with young children. To counter this constant pressure, like many retailers, we offer additional discounts to support our customers and additional incentives to motivate our sales team. These marketing decisions resulted in over $30 million in net sales, but impacted our ability to manage our bottom line. Having said that, I am pleased with our ability to maintain profitability during the quarter.
After that, I'll turn to Dan O'Keefe for a quick overview of the finances. Dan?
Dan O'Keefe
Thanks Craig.
For the third quarter, net income was $30.3 million, down $14.8 million, or 32.8%, from last year's third quarter of $45.1 million, or up 56.2%. than $19.4 million in the previous quarter. The year-over-year decrease is due to the positive impact we saw a year ago due to the pandemic. The quarterly increase is mainly due to seasonality and also includes some promotions and incentives.
The average number of active business advisors at UBAM was 27,100, compared to 41,500 in the same period last year and 26,800 in the last quarter of this year. During the third quarter, we saw a stabilization in the average number of active advisors. We have seen our active advisor numbers begin to recover, while our senior advisor numbers have remained at historically high levels.
Pretax income for the third quarter was $0.0 million, a decrease of $3.6 million from $3.6 million in the third quarter last year. Net income for the quarter was also flat, from $2.6 million to $2.6 million. Earnings per share were zero compared to $0.31 on a fully diluted basis.
And now let's move on to the bright moments of the beginning of the year. We recorded net sales of €72.8 million, a decrease of €46.1 million, or 38.8%, from €118.9 million in the same period in 2022. The decrease was mainly due to a lack of active consultants combined with higher inflation, especially in the first and second periods. quarters of this year. .
The average number of active business advisors at UBAM was 28,700, compared to 47,300 in the first three quarters of 2022. Last year, we saw their numbers continue to rise due to the pandemic, with schools still closed and many family members working from home. This year, as schools reopened and families returned to work, we saw our sales advisors return to normal.
The annual income tax loss was $800,000, down $11.7 million from $10.9 million in the same period last year. The year-to-date net loss was $600,000, compared to $8.6 million in the first half of last year, down from $8.6 million in the first three quarters of last year.
Year-to-date loss of $0.07 compared to EPS of $0.94 for the first three quarters of fiscal 2022, down 107.4% on a fully diluted basis. To give everyone an update on our working capital levels, inventory levels have decreased from 67.6 million at the end of the second quarter to 64.3 million as of November 30, 2022. The quarter ended with $9 million. We continue to expect further reductions in inventory and working capital payments in the fourth quarter of the fiscal year and into fiscal 2024 as inventories return to normal levels.
Finally, our long-term dividend program remains on hold due to a strategic cash-saving decision that improves cash flow by nearly $1 million per quarter.
This concludes the financial report. I will now turn over to Heather Cobb to talk more about sales and marketing opportunities. Heather?
Erica Cobb
Thanks Dan.
As Craig mentioned earlier, we continue to evaluate market conditions and make changes we believe are necessary to motivate our sales force and attract customers. During the quarter, we launched several promotions with customer discounts and sales incentives to ensure excellent results during peak seasonal sales. These market decisions have not only helped us normalize our working capital, but they have also kept our commission sales staff busy.
In the second and third quarters, our sales and marketing teams made significant efforts to execute on the rebranding recommendations of our direct sales team. In June we announced our rebrand, hired a Tier 1 rebranding firm to help, and in December we finalized and announced a new name for our direct sales division, PaperPie. This new name allows us to better represent our entire product range. Books by Ken Miller, Usborne Books, SmartLab Games, and Learning Digest.
PaperPie also allows us to create a unique, recognizable name for our company. Our rebranding was completed earlier this week when our eCommerce client and our back office branding partner transitioned us to the new paperpie.com site. We are very excited about our new name, PaperPie, as it allows us to create a distinctive brand that unites all of our great products and people. There is a great meaning hidden in this name. But overall, we wanted our brand to represent our mission to improve literacy and learning. This is a newly created compound word that we will define ourselves.
In PaperPie, paper is a medium of communication. Whether it's a hardcover book, playable characters, a chapter series, or a creative activity. As the world continues to compete for our children's attention through screens and devices, it has never been more important to have tangible teaching and learning tools that feed our children's imaginations, nurture their emotions, and nurture their minds.
And when you think of a cake, you think of something that can be grouped around something that can be shared for fun. That's exactly what we believe our products are for: literacy and learning as a way of life. PaperPie is built to create memories, creative learning, and limitless possibilities, all in the context of unity.
Along with this strategic rebranding, starting this week, we launched the SmartLab Toys product line. These award-winning themed products, including Soft Human Body, Lab Toys, Science Lab Toys and our Mini Series, provide hands-on learning opportunities for children aged eight and up. We expect our initial launch of ten products to have an immediate impact on sales and plan to continue with additional mid-season product launches this spring and another major launch this summer.
That concludes our sales and marketing news. I'll turn the call over to Craig on the final note. you miss
Craig White
Thanks to Heather and Dan, the EDC has a long history of service. We have been profitable during recessions and other tough times. Over the past year, expenses for groceries and sales commissions have remained unchanged, but other expenses have increased, especially in the area of incoming and outgoing goods.
As this has impacted our revenue, we have recently made changes to improve profitability, including increasing the load we charge our customers. This was done at the end of the quarter, so it has had little impact so far. We have also made changes to lower our operating costs and are seeing lower input rates and benefiting from better spot rates. We expect these changes to be profitable even with lower sales.
As we return to higher profitability, we expect to resume our long-standing practice of paying quarterly dividends to our shareholders. This has been and remains a top priority for me and our shareholders.
Turning to future predictions, I would like to highlight some exciting changes taking place at EQD. First, I want to thank Heather and our sales and marketing team for a successful rebrand. Launching PaperPie was a real accomplishment. I expect not only a short-term benefit from the buzz around our new title, but also a positive direction of momentum for our business partner PaperPie as we launch new titles or strengthen and diversify the product line in our advanced IT systems.
We recently hired a new Chief Information Officer, John Leach, who has 30 years of IT experience and 20 years of direct sales experience. His guidance and leadership in supporting the launch of PaperPie was critical to its success and another asset library added to our successful brand partnership platform. He has led many IT projects and we have new products and system enhancements that will not only make our existing PaperPie partners more successful, but also bring in new partners or shorten the path to financial success selling our products. Over the next few months, we'll be rolling out several improvements to the system.
Finally, I would like to talk about the new SmartLab Toys product line. This product line has a long history of successful sales, but has never had the same marketing and sales direction as PaperPie, as we have a much wider reach. Additionally, our retail division has outside sales teams that have carried the product line in the past and are very excited to bring the line back.
Last year, 7.5 million SmartLab Toys were sold, and we're excited to surpass that number. We do not need to acquire companies to continue to diversify our product lines. We are working with existing suppliers to offer more developmental toys and games. We started selling some of them this week. We will continue to pursue opportunities with our existing suppliers and overseas opportunities.
Now that we've provided a brief overview of some of our recent activities, I'll turn the call over to one of the operators for a Q&A.
Question and answer session
operator or worker
Thank you. [Operator's Instructions].
Craig White
Hello Alan.
Unknown parser
You are welcome.
Craig White
Is this Alan?
Unknown parser
yes.
Craig White
fire
Unknown parser
I'm sorry.
Craig White
ask a question Do you have a question for us, Alan? I'm sorry.
Unknown parser
Yeah, yeah, sorry if I wasn't sure if I was active or staying there.
Craig White
We weren't sure either.
Unknown parser
Hasan. Well, what do you say – I'll ask you my three questions, then I'll hang up and hear your answer. First, UBAM posted average net sales for the advisory quarter of 941, down 6% from the same quarter last year and down 17% from the same quarter before COVID. In fact, this is the fourth year in a row that third quarter sales per advisor have declined. Are your advisors selling less each year, or is your definition of an active advisor becoming more liberal?
Second, in June of this year, Usborne Publishing Limited in the UK filed an application with the US Patent and Trademark Office for the UBAM trademark and expressly stated that it intended to use the trademark for commercial purposes. Is Usborn planning to launch its own franchise business to directly compete with PaperPie?
Finally, your Usborne Distribution Agreement defines the minimum earning goals you must order from Usborne. What are these amounts? thank you for your time.
Craig White
Of course, thanks Alan. I'm appealing – well, I'm appealing to everyone. But the decline in sales per consultant is mainly due to economic factors. But I have to say that the new distribution deal we signed with Usborne this summer has created a lot of confusion and chaos, and we've been wondering what the future will look like where we have to go through this big brand. So I think that's a lot. Without saying that we're necessarily in a downtrend, I think there's been a lot of buzz around the new brand. Interestingly, PaperPie, as Heather pointed out, is in a very clean URL and social media space. So they stick with the new name. And so I don't expect this trend to continue, but it's not clear yet.
Also, although they are registered trademarks like Usborne, myubam.com and UBM, they do not operate their own MLM division. The idea behind these changes is that they are trying to protect their global brand. And that led to us rebranding, you know, Usborne Books uses the word Usborne a lot more and they want us to do that. So they're just trying to protect him. Therefore, it will not be accepted in the future. But we have no indication that they will compete with us in the multi-level marketing department.
And then, the minimum target income is the minimum target purchase? Yes, we had a minimum – we did not publish minimum purchase agreements. They work there. They know that these are tough economic times, and we haven't been through that. But again, they are working on it. Anyway, thanks for asking.
operator or worker
[Operator Instructions] Next question, we have [Jim McMurray] [Phone]. Jim, your line is open.
Unknown parser
Thank you very much. I wonder how inflation affects annual and quarterly growth. In this case, I was talking about the effect of inflation. I'm just hoping that you can quantify the impact of inflation on a quarterly or, sorry, quarterly basis.
Craig White
I don't know if I have a heart infection, even if I'm in this room or not, these are the foods that have the most important nutrients. I don't know, this is what I want.
Dan O'Keefe
No, the key point here, in the moment that is attentive, and as such is related to the teleconferences that are related to this, this is such a thing. Take care of the future and rejoice in the good. And so in this card I correctly proved my responsibility and immediately preplanned the leaks, I found out how much of their business.
A new analysis
And why do you want to win the game, or why should you win? What are the products of non-quartile technology capable of? When is it too much of a disease?
Craig Tait
In other words, it's a reason to ask how many people have interacted with the product and the marketing technology. I don't expect a company-wide decision on discounts or similar promotions, but we'll wait it out and still not be able to sell.
A new analysis
history, history.
Craig Tait
Thank you.
operator or worker
Thank you. [Nostructions for the opera] Следующий вопрос, уст [risti onson] [tel.] из отдела разортасия. [Operator's Manual].
Our next program is [leuf morton] [tel.], investor astsky. LIFFE MORTON, POUGHALOYSTA, JUDGE YOUR QUESTION. [Інструкцыя аператара].
Ваш наступны пытанне вынікае з [Джона Бэра] [ph] ад [Невядома] Wealth Advisors. In Medved, ваша линия открыта.
Новы аналіз
Спацыбо. абрый дзень, Крэйг, ізер і Дэн. опрос, есть ли какие-либо другие ления, которые ве могли быть допавит, помимо мыйкого скелета? Славацкі прэпарат, таму гаворка ідзе пра лекавыя рэчывы, якія можна знайсці дзе заўгодна ў гэтай лінейцы прадуктаў?
Крэйг Тайт
Так, добрае пытанне. Гісторыя гэтай гульні SmartLab налічвае 40-50 прадуктаў. А некаторы не ўмее пранікнуць у прапанову, не мая Дума ці Тома, таму можна перайсці да некаторага ў не, на вэб-сайце з кухні. Гэта вялікая група катэгорыі, якая ўяўляе сабой групу тавараў, гэта не гэтыя тавары, яны не вельмі важныя Зроблены адзін для аднаго, як мой прыбрэл, які вельмі папулярны ў маім мабільным тэлеграме, які вельмі папулярны ў англійская. Я на відэа, што можна выбраць з органаў на гэтай электроннай панэлі, і вы можаце праверыць знакі на гэтым органе, вы можаце ўбачыць гэтыя вітаміны. Тэкст, які азначае: толькі адзін прадукт у гэтай лініі.
Не, гэта адна з моў, гэта вельмі новая лабараторыя, і яна працуе на гэтай палцы. Акім Абражом, ты прадзюсар, мой прадзюсер – прадзюсар. І ніякіх наведванняў гатэляў ва ўзросце ад 20 да 30 гадоў. Таму на той выступ хочацца звярнуць увагу, нягледзячы ні на што.
Новы аналіз
Навошта табе адзін зуб у роце, што абраць з парадаў адказнай лінейкі некатораў, вытворцы якіх цябе не задавальняюць? Вашы рукі разумныя і вы не хочаце губляць анатомію, прадукты, ці можна ёсць цукеркі, цукеркі і памідоры?
выдавецкая кніга
так. Хейзер, шаноўны. Кім ты працуеш?
Новы аналіз
Я ў палітыцы.
выдавецкая кніга
А што да Крэйга, у вас няма каталога прадукцыі, таму што я магу яго вырабіць. З аднаго боку, я ўпэўнены, што я скажу вам, пра што я кажу, таму я скажу вам, што рабіць далей. А хто нарадзіўся ў бязмежжы ці на свеце, за гэта і заплаціў у працэсе сацыялізацыі. І вось пра што вы кажаце і колькі ў вас грошай. Я спадзяюся, што я прыму той ці іншы спіс крокаў і каталогаў, але таксама планіроўшчыкі, якія не з'яўляюцца ні некаторымі, ні некаторымі.
Новы аналіз
гісторыі. Што ж, мне проста цікава, што, калі вы распытаеце тэох гэтага вечара і кансультантаў, і вырабіце іх водгукі аб якіх альбо цікавых кных прадуктах ад іх ніжэйстаячых і ніжэйстаячых Linja. Вось так, вось што, вось што я спрабую зрабіць, вось што, вось што, вось што. Таму як бы вы гэта ацанілі?
выдавецкая кніга
وبنفس الترجع فن البودود هو حساق عن كل منهم. Самы распаўсюджаны спосаб зрабіць рэчы – гэта тое, што шмат ідэй прыходзіць з рознымі ідэямі. У гэтай самай папулярнай катэгорыі, وسی کتیر من ناس ویستیدون. І гэта тое, што мы ўжо робім з нашымі прадуктовымі лініямі, вымяраючы тэмпературу ў нашай мясцовасці, а таксама назіраючы за тэндэнцыямі кліентаў і высвятляючы, дзе мы можам запоўніць прабелы, якія мы зараз не прапануем або недаступныя на рынку інакш.
Невядомы аналітык
ольшой. ты добры Дзякуй, вы адказалі на мае пытанні.
ізер Кобб
наогул.
Крэйг Уайт
سباسیبو.
Невядомы аналітык
Добры дзень?
Крэйг Уайт
рысці, ты тут?
Невядомы аналітык
так. Мой пытанне стварыць у тым, што ў мяне ўзніклі з ходам у сістэме, і я запусціў тую частку, аб колькасці я хачу другую, а менавіта аб цане акцыі. هل ترید أن تریا هذا?
Крэйг Уайт
Перш за ўсё, самы вядомы інвестар знаходзіцца ў Інтэрнэце па адрасе edcpub.com. А што, калі вы пойдзеце –
Невядомы аналітык
Дзе і пад чым — калі я спрабаваў зайсці ў сістэму, дык гэта будзе пад вітальнымі карпаратыўнымі дакументамі, кіраўніцтвам або часта задаванымі пытаннямі?
Крэйг Уайт
пачакайце секунду і поццем яго прама зараз. я магу направіць вас туда. Ёсць шмат тыпаў інвестараў, у дакументах кампаніі, так што вы павінны плаціць або плаціць супраць гэтага.
Дэн О'Кіф
Так, згодна з карпаратыўнымі дакументамі.
Невядомы аналітык
арозны. На дадзены момант у карпаратыўных дакументах нічога няма, гэта так. то праграма аб дадошах. تمامً , з дадзенымі прэсы – ایً کان حال علی تفرین, وہے کے کے علیہ اینترینہ, ایہما کان. рэгістратар не мог супраць яго для мяне.
Крэйг Уайт
так. так, пару недель назад, мы падалі 8-К, у якім было абсталяванне. то было аб'ява аб дадошах. Такім чынам, версія 8-K выпускаецца ў прэсе кожны год, таму вы можаце купіць яе ў любым месцы на тэлефоне.
Невядомы аналітык
арозны. هل هو تسلسل?
Крэйг Уайт
так. усе нашы дакументы ўключаны.
Невядомы аналітык
то на вашым сайце? Якія дакументы вышэйшай палаты адукацыі?
Крэйг Уайт
так. ы надзенем іх пасля звонка. так.
Невядомы аналітык
ад дзе гэта было сёння. У мяне нават прозьвішча ў дакумэнце камітэту пасьля дамовы і пасьля ўсяго не было. лік
Крэйг Уайт
так. Сли вы пойдете кчи номисии по ценныiry билтчи и Esto бирзам сша и 'TRA OSTRO А ніжэй прыведзена інфармацыя аб даходах за трэці квартал.
Невядомы аналітык
арозны. Гэта не падобна на EDGAR, гэта не звычайнае слова, але яго вельмі лёгка чытаць.
Крэйг Уайт
так. Вынікі фатаграфіі في الذكون نفسه ولأول برامة only في هذا 8-بعد EDGAR вынікі, фаза بالبيان press.
Невядомы аналітык
арозны. А 8-Што гэта значыць? На відэа тое ж самае, і першы блок у выніку наступны, і першы тып не атрымаўся, але гэта 8-К?
Крэйг Уайт
так. Я табе што скажу. Ак чаму бы вам не … у вас ёсць нумар нашага офіса.
Невядомы аналітык
Пазней пагляджу. арозны. До свидания Гэта нармальна.
Крэйг Уайт
А, выдатна. огда звоните и я с радио вам помогу.
Рабочы або рабочы
[Інструкцыі аператара]. На дадзены момант пытанняў больш няма. У вас ёсць ключавыя заўвагі?
Крэйг Уайт
Так, дзякуй. Дзякуй, што далучыліся да нас сёння. Мы цэнім вашу нязменную падтрымку і з нецярпеннем чакаем магчымасці даць вам дадатковую інфармацыю, калі мы будзем даваць справаздачу за чацвёрты квартал у траўні. Яшчэ раз дзякуй за вашу падтрымку. Звяжыцеся са мной у любы час і дзякуй.
Аператар
Дамы і спадары, гэта канец вашай тэлеканферэнцыі. Мы дзякуем вам за ўдзел і просім адключыць свае лініі.
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