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DATE

Tuesday, May 19, 2026, at 4:30 p.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Craig White
• Chief Financial Officer — Dan O’Keefe
• Chief Sales and Marketing Officer — Heather Cobb

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TAKEAWAYS

• Quarterly Net Revenues -- $4.2 million, down from $6.6 million in the prior-year quarter.
• Quarterly Net Loss -- $3.1 million, a decrease versus $4.9 million net loss in the comparable period.
• Quarterly Earnings Per Share -- Loss per share of $0.37, compared to $0.16 loss previously.
• PaperPie Average Active Brand Partners (Quarter) -- 4,500, a decrease from 9,400.
• Valuation Allowance Impact -- $1.5 million onetime tax valuation adjustment contributed to a $1 million tax expense for the quarter.
• Inventory Balance (Year-End) -- Decreased to $37.7 million from $44.7 million, producing $7 million cash flow from inventory reductions.
• Long-Term Inventory Classification -- $3.6 million of inventory was reclassified from current to long-term with no P&L impact.
• Line of Credit -- New $2 million line of credit executed; management confirmed "There are no covenants" restricting share buybacks or dividends.
• Brand Partner Recruitment -- Approximately 1,400 new PaperPie brand partners added in March through a joint special promotion.
• Inventory Write-down Policy -- CEO White asserted, "We consider everything salable still," estimating only "roughly in the neighborhood of $500,000" as slow-moving but not unsellable goods.
• Expense and Staff Restructuring -- Strategic restructuring completed at fiscal year-end, including executive pay cuts and modest reductions in office and warehouse staff.

SUMMARY

Educational Development (EDUC 3.69%) leadership outlined a multi-phase turnaround strategy focusing on conservative inventory purchasing and new title introductions. Most new products are expected to be received and showcased within weeks. Management emphasized that attracting and retaining brand partners — particularly from Gen Z — has become central to regaining sales momentum. The company is leveraging targeted recruiting, technology platform enhancements, and planned marketing initiatives for fiscal 2027. Operational improvements included staff and executive compensation adjustments. Management also confirmed that new inventory remains primarily salable, supporting the company’s working capital approach. A newly established $2 million credit line offers financial flexibility. Management reported higher average sales per brand partner, attributed to increased in-person event activity and evolving engagement strategies.

• Management indicated the March initiative led to "meaningful engagement" and optimism about future brand partner expansion.
• Technological investments are focused on simplifying product sharing for partners and personalizing the customer journey to drive long-term retention.
• "We have already received a few of these new titles and are seeing the sales excitement from both of our sales channels," CEO White noted, underscoring product-driven sales recovery.
• Branding strategy aims to "avoiding excessive discounting that can weaken our overall brand perception," with promotional activity recalibrated post-banking restrictions.

INDUSTRY GLOSSARY

• PaperPie: EDUC's direct selling segment executed through a network of independent brand partners distributing educational children’s books and related products.
• Long-Term Inventory: Inventory reclassified as not expected to sell in the short term, but considered fully salable under current pricing and promotional strategy.

Full Conference Call Transcript

Craig White: Thank you, Alan, and welcome, everyone, to the call. We appreciate your continued interest. I will start today's call with some general comments regarding the quarter, then I will pass the call over to Dan to run through the financials. After which Heather will provide an update on sales and marketing and IT projects, and then I will provide an update on our plans for fiscal 2027. Much of our fourth quarter was focused on our turnaround plan of selecting and ordering critical inventory. During the quarter, we began a conservative purchasing plan to replenish some of our best-selling out-of-stock items as well as purchased new titles.

To remind everyone, it takes anywhere from 4 to 6 months from the time we issue a purchase order until the product is received and available for sale. I am pleased to report that we have received some of these replenishment and new titles and I've seen the excitement this has created in both our sales divisions. We are still expecting most of these new titles over the next few weeks and plan to showcase them at our annual convention in June. Heather will talk more about this in her marketing update. As I've said before, our turnaround plan is not an overnight change, but a carefully developed plan for growth over the next few quarters and years.

With that, I'll now turn the call over to Dan O’Keefe to provide a brief overview of the financials.

Dan O'Keefe: Thank you, Craig. To start our fourth quarter summary compared to the prior year fourth quarter, net revenues for the quarter were $4.2 million compared to $6.6 million. Average active PaperPie brand partners totaled 4,500 compared to 9,400. Loss before income taxes were $2.1 million, a $600,000 decline over the prior fiscal fourth quarter. Income tax for the quarter -- income tax expense for the quarter was $1 million due to a onetime valuation allowance of $1.5 million. Net loss for the quarter totaled $3.1 million, a decline of $1.8 million over the prior year fiscal fourth quarter. Loss per share totaled $0.37 compared to a loss per share of $0.16 on a fully diluted basis.

Next to the fiscal year summary compared to the prior year, net revenues of $22.9 million compared to $34.2 million. Average active PaperPie brand partners totaled 5,800 compared to 12,300. Earnings before income taxes totaled $5.3 million, excluding the gain on the building sale of $12.2 million, the loss before income taxes were $6.9 million. Income tax expense was $3 million with an effective tax rate of 56.5% due to a onetime valuation allowance of $1.5 million. Net earnings totaled $2.3 million. Earnings per share totaled $0.27 compared to a loss of $0.63 last year on a fully diluted basis. Now for an update on our working capital.

Inventory levels decreased from $44.7 million at the beginning of the fiscal year to $37.7 million at the end of the fiscal year, generating $7 million of cash flow from inventory reductions. At the end of the fiscal year, the company had approximately $1.3 million of cash on our balance sheet. I would also like to mention some unusual accounting adjustments made during the fourth quarter. First, due to our accounting policy surrounding classification of long-term inventory, coupled with our decline in sales, we made a $3.6 million reclass of inventory during the fourth quarter from current inventory to long-term inventory.

The reclass had no P&L impact as it only means that we have a longer-term supply of titles, we continue to sell each month based on current sales volumes. As sales increase, we expect more and more inventory to be reclassed from long-term inventory to current inventory. Secondly, due to our historical losses prior to the fiscal 2026, our operational and our operational expectations during our turnaround period, we evaluated the need for a valuation allowance offsetting our net deferred tax assets. Based on this evaluation, we recognized a onetime valuation adjustment of $1.5 million to offset our net deferred tax assets.

This adjustment had no cash flow impact but had a direct impact on our fourth quarter tax expense, net earnings and earnings per share. When the company returns to profitability, this valuation adjustment will be reversed. The reversal will have no cash flow impact, but will have a direct impact to our tax expense, net earnings and earnings per share. This concludes the financial update. I'll now turn the call over to Heather Cobb for a sales, marketing and IT update. Heather?

Heather Cobb: Thanks, Dan. While our current results reflect the challenges of the past 2 years, we remain confident in both the direction of our strategy and the opportunity ahead of us. One of the clearest drivers of future growth for our business is growth on our PaperPie side through the brand partner community. As our active brand partner count increases, we count on that momentum to positively impact sales, customer engagement and overall business performance. For that reason, much of our sales and marketing focus in fiscal 2027 is centered on attracting, onboarding and retaining new brand partners while also continuing to engage existing leaders and teams.

We were encouraged by the response to our March joint special, which produced meaningful engagement, adding almost 1,400 new brand partners, showing that there is still strong interest in our opportunity when paired with the right timing, messaging and product excitement. We have additional strategically timed initiatives planned throughout the year that are designed to support both recruiting and sales activities. At the same time, we are being intentional about protecting the long-term value of our products and our brand. We believe there is an important balance between offering thoughtful promotions or sales that meet consumer expectations while avoiding excessive discounting that can weaken our overall brand perception over time.

Our strategy moving forward is focused on creating excitement and urgency in purposeful ways while continuing to reinforce the quality, educational value and uniqueness of our product offering. We also believe we are well positioned within a growing cultural shift towards more intentional and analog experiences. Parents and families are increasingly looking for opportunities to disconnect from constant screen time and reconnect through hands-on learning, reading, creativity and meaningful interaction. That trend aligns directly with who we have always been as a company. Our mission is creating the story of tomorrow through people, purpose and products continues to resonate and we believe our educational books, games and learning resources meet an important need in today's marketplace.

As Craig mentioned earlier, the arrival of new titles and replenishment inventory has already generated renewed excitement across both of our sales channels. Combined with our continued investment in technology and enterprise-level initiatives, we believe we are building a stronger foundation for long-term growth. Our IT and marketing teams are actively developing tools and platform enhancements designed to simplify how brand partners share our products while also creating a more seamless and enjoyable customer experience. Upcoming initiatives include a variety of platform enhancements, focused on improving product discovery, streamlining and personalizing the customer journey, expanding functionality for both brand partners and customers and supporting long-term engagement and retention.

While we continue to adapt to changes in consumer behavior and the direct selling landscape as a whole, our overall strategy remains consistent, increase our retail presence, strengthen the brand partner experience, provide exceptional products that support literacy and learning and create sustainable growth through community connection and product sharing. And one of the best ways that we do that, and Craig referenced it earlier is through our National Convention that happens each year.

Next month, we will have several hundred brand partners come into Tulsa to hear from speakers like Rory Vaden, 2 of our Kane Miller author and creators and we'll spend an entire weekend focusing on solving the problem of disconnection with a way to connect with both their customers, new hosts and next team member. We understand that turnarounds take time, and we are encouraged by the progress that we are making and confident in the path ahead. Our team remains deeply committed to the mission of this company, and we believe that, that commitment, combined with strategic execution and renewed sales force growth positions us to build momentum throughout fiscal 2027 and beyond.

Now I will turn the call back over to Craig.

Craig White: Thank you, Heather and Dan. As Dan mentioned, we had some unusual adjustments during the quarter but expect these to improve our results in the future with the execution of our turnaround plan. During the last couple of years, we have been challenged to operate our business under restrictions from our bank. I am excited about the position we are in today and the plan for growth in fiscal 2027. While we need to execute on our plan that increases sales and therefore, cash, we're putting the most focus on increasing our brand partner counts and retaining existing brand partners. Over the last 2 years, our sales force has been anxious and waiting to see what will happen.

A major factor for the reduced activity has been the lack of new products for them to get excited about for the last 2 years. As I mentioned initially, we have already received a few of these new titles and are seeing the sales excitement from both of our sales channels. We have continued to work with our vendors and are very excited about what is recently been presented to us for release in the new year. As always, and as you heard extensively from Heather, increasing our brand partner count is a big part of our overall strategy, and that means putting consistent effort toward attracting Gen Z.

This new generation is challenging, not just for our company, but all companies in the direct selling industry to revise the recruiting and engagement methods. Many of our recent IT initiatives are focused on getting Gen Z to join as new brand partners by making it easier to do business with us. They work and shop differently, and we are well positioned to meet them where they are. These are revisions to our existing model that's certainly not an overhaul. We are evaluating programs and systems that haven't brought enough of a return and trying new tactics in new markets.

We are embracing AI not as a strategy to eliminate or replace employees but to become more effective so that as we grow, we do not have to hire as many new employees. We are already seeing returns in system development or coding and basic inquiries to support tickets. I also want to make sure everyone understands that we expect to generate cash flow from inventory reductions to fund operations. Having said this, we executed a new agreement for a $2 million line of credit with our new bank to ensure we have the cash needed for growth.

And although we are currently not using line and have a higher cash balance than we had at year-end, this line ensures we can capitalize on new opportunities. Also, at the end of the fiscal year, as the next step in our turnaround plan, we executed a strategic restructuring of our office and warehouse staff, including executive pay reductions, a small reduction in force along with other expense reductions. Lastly, I want to thank all of our shareholders for their patience, our employees, customers and brand partners for their commitment to our mission and our vendors for their willingness to stick with us.

I am confident in our collective ability to emerge stronger and more resilient than ever before because I really believe we are tackling our growth from a plan -- our growth plan from a position of strength. While we were doing what we had to do to satisfy the bank, we are also thinking and planning for when we are out from under their control and continue to build. Now that we have provided a summary of some recent activity, I will now turn the call back over to Alan for question and answer. Alan?

Operator: [Operator Instructions]. Your first question comes from Igor Novgorodtsev of Lares Capital.

Igor Novgorodtsev: Thank you for taking my question and pronouncing my last name correctly. I have 2 questions. Unfortunately, I cannot see for some reason, your balance sheet on your press release. Could you talk a little bit how much inventory was reduced in this quarter? And as related to this, how much was the cash flow from the inventory reduction from operations.

Dan O'Keefe: This is Dan O’Keefe. I'm sorry, I don't have that information for you right now. We will be filing the 10-K later today. And you can obviously glean that from the 10-K coming out.

Igor Novgorodtsev: Okay. Fair enough. But would it be fair to say that the cash flow still stayed positive in Q4?

Dan O'Keefe: Well, Q4 is typically our softest quarter that in the summer months, which is Q2, our 2 softest quarters of the year. So I would say that cash flow, when you look at inventory reductions and our losses for the -- our earnings before losses for the quarter would have been close to netting even.

Igor Novgorodtsev: Okay. Fair enough. I'll just wait for your 10-K. My next question is, I appreciate that you take a revolving loan just in case, and it's actually nice to know. So hopefully, that shows to -- points towards the improvement of your business. But are there any covenants on your revolving loan than if your business improves enough doesn't allow you to buy stock back or pay a dividend to the shareholders? Or there is no such covenants?

Dan O'Keefe: There are no covenants with the new $2 million line of credit.

Igor Novgorodtsev: Okay. Excellent. Again, it's a little bit too early. I understand you just removed your biggest problem is the overhang from the loan. But did you have already made any improvements to your inventory or your operations in this quarter or that you basically just didn't have a time or given that this is the weakest quarter traditionally, these will not see the results until the next quarter?

Craig White: Okay. So we touched on it briefly. But once we sold the building and knew we were going to be able to resolve all of our debt with our previous bank, we executed a Phase 1 of our purchasing plan, which is a very conservative $0.5 million in purchases, which was executed in the fourth quarter. We are kind of just now seeing new titles come in. But as we see the results of selling new titles, we've already kind of started our Phase 2, which is another $0.5 million. Does that answer your question?

Igor Novgorodtsev: Yes. Somewhat -- okay. Sorry, somebody was adding something, I believe? Can I just continue? Is it okay?

Unknown Executive: Yes.

Igor Novgorodtsev: I just run a quick numbers on your revenue per partner, and I know that's an interesting trend in the last 2 quarters, your revenue per partner actually increased, like if you do the comparable revenue per partner, it's actually increasing and despite the account of the partner is falling, the revenue is increasing. Is that because there is something operationally changed about the partners or simply the partners that remained as the most active ones?

Heather Cobb: That's a great question. One of the trends that we're seeing that tends to mean slightly higher sales per brand partner is the growth in our in-person events that are happening whether that's book fairs, inside schools or in-person booths and things like that, which even goes back to what I mentioned in my report of moving from digital to analog. Some people are having even more in-person home parties, which we haven't done in several years. And so we believe that, that trend that you are referencing point back to the growth of these in-person events.

Igor Novgorodtsev: Okay. That's great to know. And my last question, and hopefully, it's not a long question. Given that you have such a large inventory, do you consider any of your inventory unsellable or you try to basically go for some inventory put through liquidation channels? Or you think that it's just slow moving and it will just take time, but everything is potentially sellable still?

Craig White: Yes. We consider everything salable still. And that's why I want to reiterate the move to long-term inventory. It's not that we're going to have to write off anything at all. It's still all good sellable inventory is just going to take a little longer. That being said, we make mistakes in purchasing every now and again. It happens very, very rarely. We're kind of exploring the remainder market, but the returns are just not worth it. So while we're looking into it, it's very unlikely that we'll participate in the remainder of market. Yes, we're looking at other creative marketing ways to move this inventory.

And it's more of a kind of one-off here and there of the things that are more highly inventory.

Operator: Your next question comes from Paul Carter of Capstone Asset Management.

Paul Carter: Craig, your comments about exploring the remainder market [indiscernible] say that. Is there -- can you provide some numbers around that, like what percentage of your long-term inventory are you thinking about in ways such as that?

Craig White: Well, yes, no, the creative marketing ways were as opposed to the remainder market. We looked into it, it's just not worth our time. We're just going to find other ways. As an example, just some quotes that we got back, we get like 2% of the retail price. It's just not even remotely worth it. So we're not going to participate in that.

Heather Cobb: Paul, I'll jump into you and say that in our meetings, one of the points of conversation that was important to us that may be important to you is using our time and energy and resources on this as a potential short-term or one-off strategy didn't seem like our best use of resources. And so since this wasn't going to be an ongoing strategy for us, once we discovered that it wasn't going to be worth it, we just aren't really pursuing it.

Paul Carter: Okay. Fair enough. And maybe more to that point, is -- of my question is sort of how much of your $37.7 million of inventory [indiscernible] characterize as inventory that you don't -- that you would want to maybe get rid [indiscernible] obviously not through the remainder of market. Obviously, you looked at the remainder market because you felt there was a sufficient amount of inventory that may be [indiscernible]. Can you just give us some numbers around what that is and what that is?

Craig White: No. It's roughly in the neighborhood of $500,000. I mean, it's not even a big part of our inventory.

Paul Carter: Okay. No, that's great. And then Craig, you mentioned in the press release throughout fiscal '26, you continue to run promotions with -- pricing, prioritizing cash flow, et cetera. And I know that was obviously driven [indiscernible] driven by the bank. Was that the case in Q4 or maybe -- I'm sorry, I missed a little bit of your earlier comments, maybe you already talked [indiscernible] what was your gross margin change year-over-year [indiscernible] the fourth quarter?

Dan O'Keefe: Yes. We haven't disclosed gross margin yet, Paul. And I don't have that information right in front of me, but I'm thinking back to the fourth quarter, Heather, did we run some promotional sales in December, January and February.

Heather Cobb: Yes. I mean there's always some sort of saving shelf-type promotions. It's not one of the quarters that we typically do large sales. I will say that oftentimes, our Black Friday sale trickles over into the fourth quarter just because of when the date falls on the calendar. So that can have them impact there.

Paul Carter: But would you say that the whatever promotional activity you have been experiencing, obviously, as not -- you're not feeling the pressure of the bank anymore. So that [indiscernible] coming back -- kind of normal, would you say?

Heather Cobb: Yes. That's kind of what I was alluding to when I talked about trying to meet consumer expectations, which even on the other side of it as a consumer, I like to shop a good sale. But putting out there the fact that our books are so reasonably priced with an average price point hovering right around, if not below $10, not discounting ourselves and the value that we can offer even at regular price. And so we're trying to temper that by not throwing as many large-scale promotional sales out at them, but more falling in line with the traditional timing of the Black Friday sale or a Summer Blowout or something like that.

It's kind of expected, but not negatively impacting our business side of things.

Paul Carter: Okay. And then just lastly, regarding [indiscernible] admittedly, 4,500 is lower than if [indiscernible] a couple of years ago, and that's obviously [indiscernible]. It sounds like the March joint special that you mentioned -- positively. Is it kind of [indiscernible] the current quarter average active brand partner count might be higher than 4,500?

Heather Cobb: The fourth quarter that we just reported on or the current quarter that we're working on.

Paul Carter: The quarter we're in right now, the March, April quarter.

Heather Cobb: Yes. I mean as always, and you're familiar with how this works, we constantly have ins and outs of people coming. We have been energized and hopeful about what we saw with what happened in March and are focusing even more than normal on not only bringing those people in, but also retaining them. And so I do think that we will see more of a balance shift to more coming and staying than we have losing.

Paul Carter: Okay. Great. Thanks very much, everybody.

Craig White: Thanks, Paul.

Operator: [Operator Instructions]. There are no further questions at this time. I would hand over the call to Craig White for closing comments. Please go ahead.

Craig White: Yes. It looks like maybe Igor jumped in late. Do we want to -- I'm happy to take his question.

Operator: Sure, no problem. Go ahead and Igor Novgorodtsev of Lares Capital for the next question. Your line is already open.

Igor Novgorodtsev: Sorry, I jumped in a little bit late. Yes, I just have a couple of follow-up questions. So now that you're going to start getting finally new titles, what kind of gross margin you're thinking about if we just said the old titles also side, just purely for the new titles? What would you consider like for your new businesses, acceptable gross margin?

Craig White: Well, hopefully getting back to more business as usual, if we're not discounting and when we've talked about discounting to satisfy the bank, we were talking about 40%, 50%, 60% discounting, and that's absolutely not normal. So if we do kind of some not normal discounting to meet customers' expectations, it's going to be in the 10% to 15% range. So our gross margins are going to be getting closer back to business as usual.

Igor Novgorodtsev: What was your traditional margin like over the years?

Dan O'Keefe: So Igor, we have kind of a pretty simple model. As Heather said, our average book is $10. The average cost -- landed cost of that book is $2.50. And when we sell it through the retail division like Barnes & Noble or Ingram's or one of our retail customers, we sell that $10 book to them for $5 and they sell it for $10 to their customers and they make $5 and we get $5 on that $2.50 book. When we sell it through PaperPie, we typically sell it for the retail price of $10. But we pay out commissions to the salespeople and overrides to the leadership team of about $5.

So on both -- in both sales channels, we get $5 for a $10 book that cost $2.50 and then -- and we have $2.50 to run our business on.

Igor Novgorodtsev: Right. This is very, very helpful. My other question is about...

Craig White: Do we lose Igor?

Heather Cobb: I think we lost him.

Craig White: Well, all right. Somebody let Igor know he can e-mail me.

Operator: Are there no further questions at this time, I would hand over the call to Craig White for closing remarks. Please go ahead.

Craig White: Yes. I have nothing else to add. I appreciate everyone's questions and the interest in the call. So thank you for joining us, and have a good day. We'll talk to you in July. Thanks.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.