EDC's Q2 2026: Contradictions Emerge on Real Estate Sale Proceeds, Dividend Reinstatement, and Banking Strategy

The above is the analysis of the conflicting points in this earnings call

Date of Call: October 9, 2025

Financials Results

• Revenue: $4.6M, compared to $6.5M in prior-year Q2
• EPS: $-0.15 per diluted share, improved from $-0.22 in prior-year Q2

Guidance:

• Expect Hilti Complex sale to close before November 25, 2025; proceeds to retire bank loans.
• Continuing to make monthly interest and principal payments; working capital sufficient until sale closes.
• Evaluating financing options post-close; plan to start with a conservative $3–$5M credit line.
• Phased introduction of new titles planned for spring post-sale; focus on growing brand partner count.
• Mobile-first IT upgrades and marketing aimed at young millennials/older Gen Z to aid recruitment.
• Goal is to return to revenue growth and profitability after sale; dividend not expected for at least 1–2 quarters.

Business Commentary:

* Decline in Sales and Brand Partners: - Educational Development Corporation reported net revenues of $4.6 million for Q2 fiscal 2026, a decrease from $6.5 million in the prior year. - The reduction in sales was primarily driven by a significant decrease in the average active PaperPie brand partners, which dropped from 13,900 to 5,800. - The decline was attributed to a challenging sales environment and the absence of new titles to energize the sales force.

• Focus on Cost Reduction and Profitability:
• The company's losses before income taxes decreased to $1.8 million in Q2, compared to $2.5 million in the prior year.
• The improvement in losses was due to focused efforts on reducing costs, despite lower sales.

• The primary goal is to achieve profitability through revenue growth, driven by adding brand partners.

• Sale Leaseback of Headquarters:

• The company is in the process of selling its headquarters, the Hilti Complex, with a targeted close date before November 25, 2025.
• The sale is expected to pay off bank loans and provide working capital to meet ongoing needs.

• The bank supports the sale, and the company is confident in completing the transaction, as the buyer is familiar with the local real estate market.

• Strategic Marketing and IT Efforts:

• The company is focusing on attracting younger millennials and older Gen Z individuals to join the industry.
• Recent initiatives include improving technology to make it easier to do business, with a mobile-first approach and an enhanced onboarding process.

• These efforts are aimed at increasing brand partner counts and reversing the decline in sales.

• Inventory Management and Banking Relationship:

• Inventory levels have decreased from $44.7 million at the beginning of fiscal year 2026 to $40.7 million at the end of August, generating $4 million in cash flow.
• The company has now defaulted on its bank loans, but no additional measures have been taken by the bank yet.
• The company is working on developing options for financing post-building sale close, with plans to establish a conservative credit line in the range of $3 million to $5 million.

Sentiment Analysis:

• Sales declined and loans are in default, but management is confident: “Very, very confident” the $32.2M building sale will close before Nov 25, 2025. Losses narrowed despite lower sales, aided by cost focus and expected interest expense relief post-sale. Plans include conservative refinancing ($3–$5M line) and new titles in spring to rebuild brand partner count.

Q&A:

• Question from Paul Carter (Capstone Asset Management): Can you confirm whether the buyer group is related to 10Mark Holdings of Encino, CA?
  Response: Yes; the buyer is related to 10Mark Holdings, a significant Oklahoma real estate owner.

• Question from Paul Carter (Capstone Asset Management): How much is the earnest money on the real estate transaction?
  Response: $100,000 held in escrow until closing.

• Question from Paul Carter (Capstone Asset Management): What will you net from the property sale after costs?
  Response: No figure provided; management expects some excess proceeds sufficient to begin plans.

• Question from Paul Carter (Capstone Asset Management): How confident are you in closing at $32.2M?
  Response: Very high confidence given buyer’s market familiarity and third-party validation.

• Question from Paul Carter (Capstone Asset Management): Status and size of a new credit line post-sale?
  Response: Options under development; banks await sale close; plan to start conservatively at $3–$5M.

• Question from Paul Carter (Capstone Asset Management): What cost cuts enable profitability at ~5,800 brand partners, and what remains?
  Response: Largest impact will be eliminating interest expense and curbing non-core discounting; also exit ~$1M/yr outside storage and pursue smaller savings.

• Question from Paul Carter (Capstone Asset Management): How much of partner decline is due to lack of new titles, and will counts rebound quickly once titles return?
  Response: New titles are key but not sole factor; expect gradual improvement as titles return and IT/marketing initiatives roll out.

• Question from Paul Carter (Capstone Asset Management): Will you reinstate the dividend after the sale and turnaround?
  Response: Longer-term goal, but not expected for 1–2 quarters while rebuilding sales and headcount.

• Question from Alexander Smithley (Mitchell DeClerck): Which assets are collateralized under the bank agreement?
  Response: All assets are cross-collateralized: building, AR, inventory, equipment, and land; liens to be released after sale payoff.

• Question from Alexander Smithley (Mitchell DeClerck): How will you increase brand partner count—ads or tech?
  Response: Multipronged: provide tools for partner-led recruiting, enterprise IT/marketing targeting young millennials/Gen Z, and new titles to spur interest.