Academic Improvement Company (NASDAQ:EDUC) Q1 2025 Earnings Convention Name July 11, 2024 4:30 PM ET
Firm Members
John Beisler – IRCraig White – President and CEO Dan O’Keefe – CFOHeather Cobb – Chief Gross sales and Advertising Officer
Convention Name Members
Paul Carter – Capstone Asset Administration
Operator
Good afternoon, women and gents, and welcome to the Academic Improvement Company’s First Quarter Fiscal 12 months 2025 Earnings Name. At the moment, all strains are in a listen-only-mode. Following the presentation, we are going to conduct the question-and-answer session. [Operator Instructions] This name is being recorded on Thursday, July 11, 2024.
Earlier than starting the decision, we want to remind you that among the statements made as we speak will likely be forward-looking and are protected below the Personal Securities Litigation Reform Act of 1995. Precise outcomes might differ materially from these expressed or implied as a result of a wide range of elements. We refer you to Academic Improvement Company’s current filings with the SEC for a extra detailed dialogue of the corporate’s monetary situation.
I might now like to show the convention over to John Beisler, Investor Relations. Please go forward.
John Beisler
Thanks, operator. With the Protected Harbor assertion learn, I will flip the decision over to Craig White.
Craig White
Okay. Thanks. I wish to introduce a few the folks becoming a member of me on the decision. We now have myself, Craig White, President and Chief Government Officer; Heather Cobb, Chief Gross sales and Advertising Officer; and Dan O’Keefe, Chief Monetary Officer. After the market closed this afternoon, the corporate issued a press launch saying its outcomes for the third quarter, which will likely be on our firm’s web site at edcpub.com.
Welcome, everybody, to the decision. We admire your continued curiosity. I’ll begin as we speak’s name with some basic feedback relating to the quarter. Then I will go the decision over to Dan and Heather to run via the financials and supply an replace on our gross sales and advertising and marketing. Lastly, I’ll wrap up the decision with an replace on our progress of the sale leaseback of our headquarters, the wholesome advanced and supply some feedback on technique and financial 2025 outlook.
Our first quarter in addition to earlier quarters of fiscal 2024 have been pushed by strategic choices to prioritize money stream over profitability. In the course of the quarter, we ran a number of promotions to energise our present gross sales drive and clients by providing reductions on our merchandise in addition to the freight we cost on shipments. These choices have been vital in these troublesome financial instances when excessive inflation is consuming the discretionary spending of our clients, coupled with our higher-than-normal stock ranges.
We’re persevering with to judge and implement cost-cutting measures in addition to leverage IT to supply new instruments to energise the sector gross sales drive in addition to contribute to the underside line. Whereas I am not happy to report a loss, we’re actively engaged on the long-term power of our enterprise mannequin.
With that, I want to flip the decision over to Dan O’Keefe to supply a short overview of the financials.
Dan O’Keefe
Thanks, Craig. To our first quarter abstract in comparison with the prior first quarter, web revenues have been $10 million in comparison with $14.5 million. Our common energetic model companions totaled 13,400 in comparison with 15,000 on the finish of our final fiscal yr. Loss earlier than earnings taxes have been $1.7 million in comparison with a lack of $1.2 million within the first quarter final yr. Web loss totaled $1.3 million in comparison with $0.9 million and loss per share totaled $0.15 in comparison with a lack of $0.11 on a completely diluted foundation.
To replace everybody on our stock and dealing capital ranges, web inventories decreased $2.9 million from $55.6 million on the finish of February 28, 2024 — February 29, 2024, to $52.7 million at Could 31, 2024.
Now for working capital replace. Our working capital line of credit score borrowed was $5.5 million on the finish of February 2024 and $5.6 million on the finish of Could 2024, with $1.4 million of availability on the finish of the primary quarter.
That concludes the monetary replace. I will now flip the decision over to Heather Cobb, to speak about gross sales and advertising and marketing alternatives in additional element. Heather?
Heather Cobb
Thanks, Dan. As Craig talked about earlier, we proceed to make strategic decisions and adjustments to convey new initiatives for achievement to our PaperPie model companions. We had a Could site-wide gross sales promotion the place we hosted an thrilling week lengthy site-wide sale that appear to seize the eye of our clients. It was undoubtedly a success.
Our June conference, we hosted attendees right here in Tulsa on the Cox Enterprise Conference Middle, throughout which we had over 50 presenters, together with 3 of our Kane Miller authors and creators from each England and Australia in addition to keynote displays on the science of hope and the significance of early literacy by our latest Board member, Dr. Amy Emerson. Response to all that was offered was overwhelmingly optimistic and the joy and vitality that our model companions left with was palpable.
That was evidenced as we held our subsequent promotion the week after we returned a one-day account activation particular provide. Because of this, we noticed over 3,700 new model companions be part of us, conserving us across the 15,000 energetic model associate depend. We now have already seen success from a lot of them who’re sharing our mission and our merchandise with their networks, bringing in new clients simply in time to guide us into the autumn promoting season.
This pleasure is fueled by the introduction of recent merchandise, which we’ve been doing via the month of June, and that can proceed via the summer time. Each our PaperPie gross sales division and our retail division see a rise of exercise across the launch of recent titles. Our retail clients proceed to thrill in our choices, discovering new sequence reside from Kane Miller, instructional manipulative from Studying Wrap-Ups and STEAM primarily based kits and merchandise from SmartLab Toys.
That concludes our gross sales and advertising and marketing replace. I will flip the decision again over to Craig for closing remarks. Craig?
Craig White
Thanks, each, Heather and Dan. One in all, if not the most important occasion in fiscal 2025 is the anticipated sale and leaseback of our headquarters constructing, the Hilti Complicated. The proceeds from this sale is not going to solely convey financial savings from diminished curiosity expense however permit us to construct a optimistic — construct optimistic money place as we proceed to work down our extra stock degree, which was roughly $30 million at year-end.
On June 6, we executed our sale leaseback settlement for the Hilti Complicated, totaling $35.5 million. The proceeds from the sale are anticipated to repay our borrowings with the financial institution.
With our new modification, we may also have a line obtainable to us publish sale with our financial institution of $4.5 million. The constructing sale settlement requires a 60-day due diligence interval with a further 30 days to shut the transaction. So we anticipate the constructing sale will likely be full by the top of second fiscal quarter or the beginning of the third fiscal quarter.
Moreover, beginning July 1, 2024, we’ve leased roughly half of our 220,000 sq. toes to a brand new tenant in a triple-net lease construction. The preliminary time period of the lease is for five years features a 5-year extension. This lease improves our month-to-month money stream and additional positions us to return to profitability.
I wish to reiterate that every little thing that we have finished within the final 15 months are to satisfy the financial institution’s necessities, which we’ve finished so. All of our efforts are starting to return to fruition and as soon as they totally do, we are going to begin to see the fruits of our effort, from diminished curiosity expense, lease earnings, which reduces our lease dedication, our price slicing and capitalizing on the goodwill acquired from charging much less for our merchandise and delivery. Our gross sales drive is grateful and excited coming off conference, heading to incentive journey to Vienna subsequent week and dealing in direction of subsequent yr’s journey to Scotland. There are lots of causes to be optimistic as we head into our fall promoting season.
I wish to thank all of our shareholders for his or her endurance, our workers for his or her dedication to our mission and our clients and model companions for his or her loyalty throughout this troublesome interval. I am assured in our collective potential to emerge stronger and extra resilient than ever earlier than.
With that, I’ll hand it again over to the operator for questions and solutions.
Query-and-Reply Session
Operator
Thanks. Girls and gents, we are going to now start the question-and-answer session. [Operator Instructions] The primary query comes from Paul Carter of Capstone Asset Administration. Your line is already open.
Paul Carter
Thanks. Good afternoon, everyone.
Heather Cobb
Hello, Paul.
Paul Carter
Simply to start out. So the $10 million of web income, how is that break up between PaperPie and your Publishing division?
Dan O’Keefe
About 85-15, Paul.
Craig White
Much like just about each different quarter, yeah.
Paul Carter
Okay. Nice. And then you definately added over 3,700 model companions up to now, which is nice. Was that simply throughout the month of June? Or was that post-convention up till as we speak, I suppose?
Heather Cobb
No, that is an awesome query. That was simply throughout the promo within the month of June.
Paul Carter
Okay. Nice. Wonderful. After which so how assured are you — I do know it is a robust query to reply, however how assured are you at stabilizing your model associate depend at this 15,000 degree? It type of looks as if it’s stabilizing considerably, I do know the macro employment image is getting barely worse, which I believe which may encourage extra folks to signal on as part-time model companions. However are you, I suppose, getting incrementally extra assured in stabilization?
Heather Cobb
That is an effective way to place it, Paul. Incrementally extra assured is precisely what we must always say. I believe we’ll put that on a T-shirt. However sure, I believe that as we see issues begin to stabilize available in the market as a complete, it makes us extra reassured that we’re heading within the route of what we wish the way forward for our model associate base to seem like.
Paul Carter
Okay. All proper. Thanks for that. After which simply switching gears, speaking about your constructing. So I suppose is that this new purchaser, Rockford Holdings, is that related to the identical group of traders is the unique ones that bowed out Blue Ledge Group? Or is it a special group?
Craig White
Yeah. Thanks. It’s related to the prior group. There’s brothers concerned, one with every group. And so it was sort of a reasonably seamless handoff from one group to the opposite. However but, it’s a new group. In order that they’re nonetheless going via their due diligence.
Paul Carter
Okay. As a result of sure, that is what I used to be simply going to ask about is I do know the — I suppose, the primary group would have finished their due diligence, proper? I believe that they had 60 days of due diligence. And simply curious why the second group, in the event that they’re related, if in addition they want that type of 60-day window? Is there one thing that they did not, I suppose, study within the first due diligence interval?
Craig White
Effectively, I stated they’re carefully associated, however nonetheless, it’s but a special group. One of many professionals as from Blue Ledge perhaps wasn’t snug, however one was nonetheless very snug. So he handed it off to Rockford, which is definitely a brother. So yeah, we’re assured, nothing has modified. It is only a new group, they usually nonetheless must undergo their due diligence and have their very own lending associate.
Paul Carter
Truthful sufficient. And so assuming that will get finished as you anticipate, together with fee prices, what do you assume the entire price of promoting the constructing goes to be? I do not know what kind of typical fee is for a industrial constructing down there.
Dan O’Keefe
Effectively, we expect we’ll web $34.5 million after commissions and bills. In order that will likely be enough to repay our borrowings with our financial institution.
Paul Carter
That is nice. Okay. After which so your revolver with the financial institution, I do know it steps down after you promote the constructing, nevertheless it matures on October 4. I do know you are going to be hopefully producing some fairly good free money stream. Do you plan on working and not using a line of credit score after October 4? Or are you in search of a special banking relationship?
Dan O’Keefe
That is a fancy query. We’re — the excellent news is that once I stated the $34.5 million will repay the financial institution that features paying off the letter of credit score. So the financial institution is providing us a $4.5 million letter of credit score publish sale, which is a really optimistic factor. We’re nonetheless evaluating what the suitable financing resolution is, and we’ve a number of completely different choices. So we — however the excellent news is that BOK has provided us an working line publish shut that can permit us to function.
We have got some distributors that we have to catch up that we have sort of delayed somewhat bit. And so we’ll have availability of $4.5 million to fund operations going into the autumn, which you already know is our busy season, which if we’re turning lots of stock into money throughout that interval, hopefully, we’ll be and not using a line by the top of the autumn.
Paul Carter
Okay. Nice. And I think you do not wish to depend your chickens earlier than they’ve hatched nevertheless it appears such as you’ll find yourself having a guide worth per share someplace within the neighborhood of like $6 to $7 as soon as the constructing is offered and the financial institution is paid off. I do know — and you will be producing vital free money stream as you sort of work via your stock. You probably did reference dividends in your press launch. However why — have you ever thought or has the board thought of like perhaps shopping for an enormous chunk of inventory again via a Dutch public sale tender provide or one thing, which might increase the worth of every remaining share fairly meaningfully, even should you purchase again inventory at a premium to what the inventory worth is correct now?
Craig White
Yeah. We now have — similar to we have stated in previous quarters, we’ve all these instruments at our disposal, whether or not it is — whereas we’re lowering debt by this transaction however inventory buyback, dividends, yeah, we’ve choices. We’ve not — such as you stated, we’re not counting any chickens earlier than they hatch. In order that will likely be — stays to be seen, which route we give.
Paul Carter
Okay. After which simply lastly, curious — simply curiosity greater than something. The undeveloped land that you simply’re retaining, do you may have any type of long-term plan for that? Or is it simply you are going to maintain on to that for the foreseeable future and simply type of an choice for someplace down the highway?
Craig White
Yeah. So bringing down these tenants, they’re shifting within the house that was not a part of our operations however we nonetheless have wants for storage. And I hate to make use of land only for storage, however that is a chance or as soon as we get this factor rightsized once more and get going once more, perhaps it is additional operations.
Paul Carter
Okay. So it appears like you do not have plans to liquidate that at any level within the foreseeable future that is —
Craig White
No.
Paul Carter
Okay, nice. Effectively, hear, that’s it for me. Thanks very a lot for taking my questions.
Heather Cobb
Thanks, Paul.
Craig White
Thanks, Paul.
Operator
[Operator Instructions] Your subsequent query comes from Frank Payer, Personal Investor. Please go forward.
Unidentified Analyst
Hello, everyone. My query is — I’ve sort of two questions, perhaps three. When the promotion that enhance the model companions was introduced because of that, did the companions have been they added via folks recruiting to their draw back current companions recruiting folks? Or are they recent with no upside particular person?
Heather Cobb
That is an awesome query, Frank. We really — we do not do any direct recruiting. We depend on our model companions to unfold the phrases, learn our mission and make that chance obtainable. We did see some are available in initially with out any person that they have been wanting to enroll below as a sponsor. However as is a part of our protocol, we mechanically assign these to a sponsor simply because that is how our construction works.
Unidentified Analyst
Okay. If I might summarize that I might perhaps conclude that your promotion was inspiring to the present model companions, they usually went out and obtained some new people.
Heather Cobb
That is completely appropriate.
Unidentified Analyst
Good. Okay. The earlier caller had talked about shopping for again shares of inventory or dividends, and I have been a shareholder for fairly some time, and I did admire the dividends may be very enticing. I suppose I am questioning what does your banker take into consideration beginning to purchase again inventory or pay dividends at this time limit.
Craig White
Effectively, yeah, we did not decide to doing it at this time limit. They’d not but be in favor of that. It is simply as soon as we’re out of debt with our present lender and doubtlessly shifting to completely different lender or no matter our future could also be, then we might take a look at it. It is not going to be earlier than we execute this sale transaction.
Unidentified Analyst
Okay. Yet another is that, if I took my notes appropriately, you may have — you assume you may have $30 million of extra stock?
Craig White
Sadly, sure.
Unidentified Analyst
Okay. Any nice concept on the right way to do away with that, that you have not considered?
Craig White
Effectively, there’s been lots of people that attempt to advise us. Now it’s extremely delicate. We do not wish to do something that might harm our present enterprise mannequin. So we’re utilizing ways like discounting and issues like that. And we have finished — on decreased gross sales, we have nonetheless moved lots of stock. So it is working properly. We’re staying inside the confines of our — the restrictions placed on us by the financial institution inside our line of credit score. So every little thing we’re doing thus far is working. However yeah, we’ll get into the autumn, which is generally at a better promoting time, so that ought to cut back stock.
However like we have stated earlier than, that is all good stock. It is not — would not have to be written off or written down or something like that. It is nonetheless very, very salable product. So we’ll flip it into money and get extra — get stronger.
Unidentified Analyst
Sounds nice. Thanks, people. Sustain the great work.
Heather Cobb
Thanks, Frank.
Operator
There aren’t any additional questions right now. I might hand over the decision to Craig White for closing feedback. Please go forward.
Craig White
Thanks, everybody, for becoming a member of us on our name as we speak. Simply as a heads up, due to the timing of the 4th of July vacation, we will likely be submitting our 10-Q on Monday. So once more, admire your continued assist, and we sit up for offering you a further replace in October. Thanks.
Operator
Girls and gents, this concludes as we speak’s convention name. Thanks in your participation, and you might now disconnect.
