EDC(US:EDUC)2019-10-16 02:10Financial Data and Key Metrics Changes - Net revenues for Q2 fiscal 2020 were approximately $24.4 million, down $0.3 million or 1% from $24.7 million in Q2 fiscal 2019 [5] - Earnings before income taxes totaled approximately $1.4 million, a decrease of $0.6 million or 30% from approximately $2 million in Q2 fiscal 2019 [5] - Net earnings in Q2 fiscal 2020 were approximately $1 million, a decrease of $0.5 million or 33% from approximately $1.5 million in Q2 fiscal 2019 [6] - Earnings per share on a fully diluted basis decreased $0.06 or 33% from $0.18 in Q2 fiscal 2019 to $0.12 in Q2 fiscal 2020 [6] - Pretax profit as a percentage of net revenues was 5.6% in Q2 fiscal 2020 compared to 8.1% in Q2 fiscal 2019 [6] Business Line Data and Key Metrics Changes - The UBAM division historically has the lowest net revenue quarter in Q2, which started slower than the previous year [7] - Sales in the published division increased just under 4% over last year's Q2 net earnings, attributed to improved distribution [9] - The company recruited over 10,000 new sales consultants in July, leading to an 8% increase in August net revenues compared to the previous year [8] Market Data and Key Metrics Changes - The company has a significant inventory buffer due to long lead times for product orders, which helps mitigate the impact of tariffs expected to start in December [50][51] - Approximately 70% of the company's products are produced in China, and tariffs are anticipated to affect these products [49] Company Strategy and Development Direction - The company is focusing on enhancing its IT infrastructure, including a mobile-friendly Consultant Back Office and an upgraded e-commerce site [12][13] - A partnership with PayPal has been established to improve payment processing and user experience [14] - The company aims to continue its trend of declaring dividends and share repurchase programs, indicating confidence in its valuation [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth during the fall selling season following a successful recruiting effort [8] - The company acknowledges challenges in the direct selling industry but emphasizes its ethical business practices [22][23] - Management is confident in the strength of its business model, even during the softest revenue quarter [21] Other Important Information - The company repurchased 60,000 shares for $400,000 during the quarter, indicating a commitment to shareholder value [21] - The company has leased out part of its older building, generating an annualized revenue of approximately $140,000 [56][57] Q&A Session Summary Question: Were there any one-time benefits in last year's expense structure that should be considered for modeling? - Management acknowledged a $400,000 rebate from a large supplier recognized in the fourth quarter of the previous year but did not identify any unusual adjustments in the third quarter [27] Question: How should incremental operating margins be viewed? - Management explained that the UBAM division has a different expense structure, with a significant portion of expenses recorded below the line, making it challenging to provide a direct dollar-to-dollar comparison [28][31] Question: What is the current consultant count? - The consultant count was approximately 35,000, but management noted that this number changes frequently as new consultants sign up and others drop out [32] Question: Is there any expectation of changes from Facebook affecting online sales? - Management anticipates that Facebook may implement changes, but the consultant base has shown resilience and creativity in adapting to challenges [40][41] Question: Are there any plans regarding capital expenditures for the upcoming fiscal year? - Management indicated that they do not project significant capital expenditures, as they are traditionally a low CapEx company [53][54]