Educational Development Corporation (EDUC) CEO Randall White on Q2 2021 Results - Earnings Call Transcript

Educational Development Corporation (NASDAQ:EDUC) Q2 2021 Earnings Conference Call October 13, 2020 4:00 PM ET

Company Participants

Randall White - CEO

Heather Cobb - Chief Sales and Marketing Officer

Craig White - Chief Operating Officer

Dan O'Keefe - CFO

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Fiscal 2021 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.

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

Randall White

Hello there, investors, welcome to our call today. Before we get started, I'd 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 a start.

With me today I have Heather Cobb, our Chief Sales and Marketing Officer. I also have Craig White, our Chief Operating Officer and I’ve 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.

Dan O'Keefe

Thanks, Randall. Here's a brief summary of our second quarter results. Net revenues for the second quarter of fiscal 2021 were approximately $59.3 million, up to $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 pre-tax 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 last year.

This concludes the earnings results and I'll pass the call back over to the man doing the Irish jig, Randall White.

Randall White

Thanks, Dan. By the way, I've got a screen which shows all you guys and I can identify who's on call so good to say hello to some old pals here on the call. Incredible, incredible month. I do have one apology. And that is the quarter so good and my apologies to those people who 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. And so since I didn't do it all or very little, I'm going to pass the marketing side over to Heather. And tell us why we're so successful, Heather.

Heather Cobb

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 have 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 non-traditional 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 suite. 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 presentations. They had the opportunity over a three-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 price 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 improvement.

Craig White

Thank you, Heather. As [Indiscernible] 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 since I've developed plans over the last few years as to whenever we got to certain level 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 as the software that our sales people 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 have 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, trying to 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 email address on products that they want to be notified for when it comes back in stock.

Okay. So in the last couple months, we've sent out 80,000 to 90,000 e-mail notifications of in-stock items. And those have resulted in well over half of million, closer to a million dollars 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 Randy.

Randall White

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 surely want to reassure you that we've a very strong management group here, very proud of the three and what they've done. Heather, people going to ask how we grow? Probably going to wonder how are we going to get from 50,000 to 100,000? Well, here's our formula. I'm going to put a message out today to our sales consultants for each one of them to go try and find one friend. So by the end of week, we should have 100,000 such people. 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 how it works.

I will tell you 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 ran. But that's much better because then over the first quarter last year, we were down 31%. So we're making improvement there. We have great products they'll sell in retail stores once the stores are back open.

So move on to profit growth and what happens as you know is we went from $0.12 to $0.51. That's a product of having financial management here that we get. We bring extra money and we don't spend it. So we're now spending our cost over larger base and it becomes more profitable, and that’s the theory of it. We have lower cost but also I will tell you that things happen in the quarter that may not happen again. Heather mentioned about the convention. We went from having the convention with about just under 2,000 people to having 10,000 virtual. And while the one that where people were here, we didn't recover our costs and we did going virtual, very interesting how that all came about.

But we're a nice model here, because the growth in UBAM, we have a great story about five years ago a teacher who had no money tried to join and her credit card declined it’s only about $75 to join. But her credit card declined. Somehow they 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 it. I'm telling you what this one lady did and 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 has changed guys.

And the best part of that is maybe, is all these orders they were shipping or prepaid. They come in on credit card or whatever and we're shipping over a million dollars a day, which means we're running out about a million dollars 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 $7.2 million of building debt. So the only debt we have left is about $11 million on this building, which is about $35 million complex. And it's healthy corporation, they've have a monthly rental of $114,000 a month and we get in lease revenue from them and we pay out about $80 in principal and interest now.

So very nice cash flow and [Indiscernible] what are you going to do with all that money? We, at the end of August, had $22 million cash and very little debt. There's about three choices. You pay down debt, you increase your dividend or you 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 up $0.10 pretty nice, I think use of our cash to reward the shareholders.

So with that, with that, there must be somebody that has a question about one thing I possibly didn't cover. So from that, I want to turn it over somebody ask me a question.

Question-and-Answer Session

Operator

[Operator Instructions]

Randall White

30-40 day for me here year guys. So if I'm really enthusiastic it’s -- got a question?

Operator

We have a question from the line of Bob Bradshaw, he's a Private Investor. Please go ahead.

Unidentified Analyst

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 a little bit, I think it was a really big deal. And I know it's often a future but I 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 two shifts. Could you talk a little bit about that as well?

Randall White

Well, I'm going to let Heather tell you about the conference, because it turned out way better than we thought. Because we like to accomplish where we can see face to face our consultants but we were able to project our message over 10,000 people, it became more and more effective, I guess. And so you're looking at some type of hybrid or something of future, right Heather?

Heather Cobb

Yeah, Bob, I think we'd be fairly short sighted 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.

Randall White

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

Craig White

Well, 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 first day. So that took a couple 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.

Randall White

I don't think Craig’s taken up credit, because, yeah, you bring in new people and you walk out to and then that look is efficiency should be, 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, our biggest month, and we're today shipping that. Dan's reason for his pad here that's -- we're gearing up to have a big third quarter.

Operator

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

Unidentified Analyst

I want to thank you for raising the dividend, great help for us investors. And also reduced the debt of the company, I know the company is getting stronger when you reduced your debt. And third, my question is you're saying that you're running two lines, two production lines right now. Do you foresee a third shift coming in November or this month?

Randall White

Yeah, we do. What we have here is our regular operation with two shifts. And we set up a two period line to add another complete line and another shift for October, November, December, if we need it. And we're right on the brink of trying to get that staffed. Well you will come back to dividend because I gave most of it. So I like it too and I like a little bit but then again I'm not 25.

Unidentified Analyst

Well, I think you guys -- your team really knocked the cover off the ball this year during the pandemic, being able to produce what you did and getting people work safely from home and also ramping up the distribution and production side. I have a question is, the tenant paying the rent now?

Randall White

There's $7 billion company, I don't think he's worried about them. Not worried about us more than them.

Operator

And Derek Moulton, your line is open.

Unidentified Analyst

Hey, congratulations on the quarter and all the success you'll have had. Maybe a question for Heather, maybe just give us a little bit of color on how are the sales consultants haven't set 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 in the field?

Heather Cobb

Yeah, 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 adapt really 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 to really try 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 fares 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 sales people do amazingly well.

Randall White

Hey, Derek, let me add one more thing to that, you wonder what's going to happen to school and 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 real happy, we'll go through a green country festival and have a booth outdoors, those are gone. So we think the loss in school book fares and face to face sales are about $15 million. So we can rebound there also. So a lot of good things will happen.

And by the way, anybody in this marketplace that we are today that 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 humble 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.

Unidentified Analyst

Well, congratulations and thanks for your time.

Randall White

Thanks Derek. Anybody else? $19.17, well historic day. Any other questions?

Operator

[Operator Instructions]

Randall White

Okay. I guess there's not much more questions you can ask than $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 calls.

Operator

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