Harold "Bud" Ingalls - CFO
Arnie Geller - Chairman and CEO
Premier Exhibitions Inc (PRXI) F3Q09 (Qtr End 30/11/2008) Earnings Call January 7, 2009 9:00 AM ET
Good day and welcome to the Premier Exhibitions Inc. third quarter 2009 earnings release conference call. Just a reminder, that today's conference is being recorded.
And now for opening remarks and introductions, I would like to turn the conference over to the Chief Financial Officer, Mr. Bill Ingalls. Please go ahead, sir.
Harold "Bud" Ingalls
Thank you, Michelle and thank you everybody for joining us this morning. Joining me on the call this morning is Arnie Geller, our Chairman and CEO.
I'd like to start with reading the Safe Harbor language. Certain of the statements made during this conference call will contain forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are within the meaning of the term, as defined in Section 27-A of the Securities Act of 1933 as amended and in Section 21-E of the Securities and Exchange Act of 1934 as amended. Premier Exhibitions has based these forward-looking statements on its current expectations and projections about future events, which may in turn be based on information currently available to Premier Exhibitions. These forward-looking statements may include statements relating to Premier Exhibitions, anticipated financial performance, business prospects, new development strategies and similar matters, and can be identified by words, such as expects, plans, believes, anticipates, may, intend, and similar words and phrases.
Additional information regarding certain of the risks and uncertainties Premier Exhibitions believes could affect its business and prospects are included in its filings with the Securities and Exchange Commission, including the section of its most recently filed Annual Report on Form 10-K entitled “Risk Factors”. Such risks and uncertainties may affect Premier Exhibitions future results and cause those results to differ materially from those expressed in the forward-looking statements made during this conference call. Premier Exhibitions, disclaims any obligation to update any of its forward-looking statements, except as maybe required by law. The company does expect to file its third quarter 10-Q for fiscal 2009, by January 9th, this coming Friday.
I'll now turn the call over to, Arnie for a few opening remarks.
Thanks, Bud and good morning, everybody. Thank you all for joining us, especially those who have got up early on the west coast. As you know, I'm chairman and CEO of Premier Exhibitions and this morning, we are here to discuss the results of operations for the company's nine month period, which ended November 30, 2008.
I'm sure you all are aware of the Consent Solicitation that's recently been filed by Sellers Capital with the SEC, wherein they are seeking to fill four vacancies on the Board of Directors, with their nominees. The company in turn has filed a Consent Revocation Statement, wherein we are asking shareholders to oppose that Consent Solicitation. We are hoping to mail the Consent Revocation Statement to shareholders this week.
However, our filing has been made with the SEC yesterday, after the closing bell and it is available on EDGAR or on our website at prxi.com under the investor relations category. So you although have an opportunity to read that at your earliest convenience. I know you realize that due to the SEC filings, management is limited as to what it can say at this time. We do hope the shareholders will wait until they receive management's statement, so that the content of both filings couldn't be compared before any final decisions are made.
With that said, I'd like to proceed by introducing, Bud Ingalls, our Chief Financial Officer, who will review with you our financial data for the nine months, which ended November 30, 2008. Bud.
Harold "Bud" Ingalls
Thank you, Arnie. I would like to now review a few comments on both our results and the outlook for the company. Our goal is to complete this call certainly in less than an hour. Of course, if we don't address everyone's issues, we will be available for follow-up, either by telephone or email.
Turning to our financial results, certainly the company has been impacted by the declining economy which resulted in a decrease in overall attendance at the company's Bodies, Titanic and other exhibitions. This decline coupled with increase costs of sales were the drivers behind lower than expected exhibition revenue and decreases in operating income to net income to our operating cash flows compared to the third quarter and year-to-date of fiscal 2008.
Let's take a minute and go through the financial results for the third quarter. Revenue was $13.5 million for the third quarter of fiscal 2009 compared to $16.7 million, a decrease of 20%. Overall attendance for Bodies and Titanic exhibitions were down 34% in the quarter compared to the same quarter last year. Despite an increase in the number of human anatomy exhibitions to 18 in the current quarter, compared to 13 in the same quarter last year.
Total revenue days were up 31% compared to the prior year. Average daily attendance was down 47% to 589 attendees in the quarter compared to 1107 in the prior year. The decrease in attendance resulted primarily from the economic downturn referred to above, and having six exhibitions in storage during the three-month period. In addition, certain of our exhibitions have taken longer to recoup their initial investment and did not show profit in the quarter. We do expect these exhibitions will reach profit sharing in Q4.
The decrease in exhibition revenue was partially offset by an increase in merchandising revenue as a result of the MGR acquisition which we will talk about in a little bit. For the quarter MGR added $1.4 million of merchandise revenue. License revenue, a component of exhibition revenue decreased to $5.3 million for the quarter compared to $7.3 million in the prior year. The decrease was primarily related to the amendment with the Live Nation agreement, a $2 million reduction. For the quarter, Bodies contributed approximately 70% of our revenue compared to 87% last year.
Cost of sales. As we discussed last quarter, the shift that occurred in the latter part of fiscal 2008 to operating more self-run venues did have an impact on our cost of sales and gross margins. With more self-run values we recorded more revenue, more direct costs than we do in partnered venues, including with JAM Live Nation and museums.
Cost of sales in the quarter increased from 5.2 to 8.6 resulting in a gross margin drop during the quarter from 69% to 36%. We operated six self-run venues in the third quarter compared to four self-run venues in the third quarter last year. And again, we were impacted by lower attendance and the fact that three of our exhibitions did not operate at a profit during the quarter. Operating expenses increased from $7.5 million in the third quarter of '08 to $7.7 million in the third quarter of fiscal '09.
I would like to take a minute and just go through the impact of that increase in the costs. First, our SG&A in the quarter was impacted by the positive benefits of eliminating salary and stock compensation for certain departed executives during the second quarter ended August 31. This had an impact of about $2.2 million and is reflected in Q3 results.
However, during the quarter, we did see certain non-recurring items that impacted our SG&A and operating cost in the quarter. We saw a $300,000 increase from the MGR acquisition mainly related to salary, rent and professional fees. Our corporate professional fees increased about $800,000 due to higher legal fees attributable as you might expect to various legal matters, the company’s SOX testing as well as higher costs for tax-related matters.
In addition, as a result of exhibitions being placed into storage, the company reclassified about $200,000 of specimen costs to G&A costs. The company increased its bad debt allowance slightly during the quarter by about $200,000, and we did see an increase in depreciation and amortization related to the increase in the number of self-run exhibitions and depreciation from significant capital projects including the Luxor, Dialog in the Dark compared to the prior year.
EBITDA and adjusted EBITDA for the quarter also declined. EBITDA for the quarter was a negative loss of $1.6 million compared to $4.6 million in the prior quarter. This was due as you would expect to lower income from operations, but was offset by a higher add-back for D&A of $1.3 million in the quarter compared to $600,000 in the prior year. Adjusted EBITDA, which adds back non-cash stock comp declined from $700,000 to negative $1 million in the quarter. Non-cash stock comp was 600,000 in the quarter compared to $2.4 million a year ago.
Just turning briefly to the year-to-date results, year-to-date revenue was $43.8 million compared to $44.3 million a year ago. Attendance again was down about 11% for the current year compared to the prior fiscal year. Attendance at our human anatomy exhibits was up 3% due to the increase in the number of operating exhibitions to 29 during the nine month period, providing an increase to 3,549 operating days in the current fiscal year compared to 2,200 in the prior year.
Although we saw an increase in the number of operating venues, we did see a decrease of 2% in our admissions revenue year-over-year. Attendance at Titanic was down 39%, despite a decrease of 1% decline in the operating days to 1,357 compared to 1,365. Although, the number of days only decreased by eight, the decrease resulted in a net decrease of 20% in admission's revenue year-over-year. Again, decreased primarily due to underperforming venues coupled with the economic downturn.
License revenue, a component of exhibition revenue, decreased to $8.6 million from $12.6. The decrease is related to the amendment of the Live Nation agreement, $2 million reduction, as well as, reduced number of venues in which we receive a license fees, primarily attributable to the increase in self-run venues. A decrease in exhibition revenue was partially offset by $5.1 million increase in merchandize revenue for the nine month period, primarily as a result of the MGR acquisition.
For the nine month period Bodies contributed about $29.6 million or 68% of our revenue, compared to 78% in the prior year. Same story on cost of sales as it is on quarter, the shift that occurred to self-run impacted our margins, cost of sales increased and gross profit margins dropped from 72% to 45%.
We operated 10 self-run venues for the nine month period, compared to 7 in the prior year. And we again had six venues that did not operate at a profitable level in the quarter, but we are seeing some definite improvement in Q4 which I will talk about in a minute.
Operating expenses increased from 14.6 for the nine month period to 22.9 in the prior year. Significant increase was caused for several reasons. First SG&A increased approximately as a result during the nine month period of restructuring and through the additions earlier in the year to our management team, as well as, charges related to separation agreements of over $2 million. This was offset by one-time adjustment of $3.7 million related to the forfeiture of stock options.
In addition, causing the increase in operating expenses, merchandising increased 1.9 following the MGR acquisition. And our DNA increased because of higher depreciation related to additional self-run significant capital projects, including the Luxor project, Dialog and increased amortization, related to The Universe Within acquisition.
Professional fees for the nine month period increased about $2.1 million. Again, a number of legal matters as you would expect, outside costs related to Sarbanes compliance and higher tax costs. The company did record an additional bad debt reserve increase, didn't write-off the asset, but additional reserves of about $500,000 during the quarter.
And finally, we did see additional operating costs because of the reclassification of specimen-related cost of $200,000 to G&A. This is the same impact as you'd expect on EBITDA and adjusted EBITDA. Our revenue, taken on a consecutive quarter basis, saw a similar impact. Operations at human anatomy exhibitions decreased to 18, compared to 19 in the previous quarter and attendance was off by an amount similar to what it was in the previous quarter.
Turning to the balance sheet, there have been a number of changes to our balance sheet, as you would expect during the quarter. Our press release includes a brief summary of those significant changes. The end of the quarter cash and marketable securities had declined by $11.5 million, from $17.5 million to $6 million, through the decrease in operating income, the MGR purchases, as well as, the initiation of several capital projects, including the Luxor, Dialog and Sports Immortals.
Working capital of about $13.9 at the end of the quarter, compared to $24 at year-end. Accounts receivable increased $4.6 million, from $3.6 million to $8.2 million, primarily as a result of delayed invoicing of the Live Nation license fee of $4 million in late November. Consecutive quarter-over-quarter changes to the balance sheet.
Cash and marketable securities declined by $3.2 million from $9.2 to $6, as you would expect, due to the decrease in operating income. Overall attendance also declined roughly 16% and we also saw expenditures for significant capital projects that wrapped up really during the fourth quarter. On more current snapshot, would show that our cash balance frankly as of yesterday was about $6.2 million, less out of 10 cheques in process, somewhere around $500,000 total.
Purchases on capital expenditures, purchases of additional property equipment increased significantly in the quarter to $4.5 million, compared to $1.1 million in the prior year. Specifically, the purchases were roughly $2.9 million at Luxor, Dialog was about $500,000 and Sports Immortals was about $400,000. The company continues to take action to reduce capital expenditures in light of current economic conditions.
The balance sheet changes between the fiscal '08 and in fiscal '09 reflect investments to continue our commitment to our new exhibition opportunities. The company is refraining from initiating any new capital projects at this time. Just on an overall basis, we estimate additional charges related to the Luxor in the fourth quarter of somewhere around $2.5 million to $3 million.
Turning to some of the initiatives that we’ve instigated in terms of cost control; we continue to make progress in the quarter in implementing cost control initiatives, and we are working diligently on our new business plan that will align our overhead and operating structure with current economic conditions and the lower attendance figures.
Last year, we first discussed our shift in fiscal '09 to more international business. Under the Live Nation agreement we operated exhibitions in Vienna, Copenhagen, Budapest, Prague, and also have opened a venue in San Juan, and on an international basis, Rio, Madrid, Montreal and Monterrey.
However, with the decline in attendance and the increase in investments they've been slower to generate a profit than we had expected. And we anticipate lower attendance levels to continue. However, we do expect to reach profit sharing during the fourth quarter on most of our exhibitions.
Approximately 43.8% of our revenues in the quarter came from activities outside the US compared to 50% a year ago. However, on a nine-month basis, only 18% of our revenues came from outside the US, compared to 42% in the prior year. This has certainly been a disappointment and has negatively impacted our results.
We are very pleased that the relocation of the Las Vegas exhibitions from the Tropicana hotel to the Luxor, is complete. BODIES, the exhibition opened 1st in August and has seen about a 10% increase in attendance as a result of our move to this new location compared to the operations at the Tropicana. We opened our permanent Titanic exhibition at the Luxor on December 20.
We've only had a short term operation but for the first ten days of operation, our attendance increased by over 125% compared to the last ten days of operations at the former location at the Tropicana. We continue to expect this move will result in increased attendance for both Titanic and Bodies.
We continue to focus on merchandising at all our exhibition locations to increase revenue per attendee and our margins on this activity. However, in December, we did complete the closing on a transaction to sell selected assets and liabilities of our merchandising operations.
These assets and liabilities are focused on the live music business and were purchased in March, 2008. Live concert merchandising business is not consistent with our current strategic direction. It requires continual investment of needed capital and delivers lower margins.
This disposition will enable us to focus further on merchandising at all our exhibitions, reduce our overhead structure and improve our utilization of capital. Details of the transaction were included in 8-K that was filed this week.
I'll just take a minute to talk about operating costs because we have had some inquiries on that including D&A and G&A. For the quarter it was $7.7 million compared to the previous quarter Q2 of $5.8 million.
We should remind you that Q2 did include several unusual items that lowered that amount, including the reversal of stock compensation of over $3 million. The current quarter we just closed, Q3, included about $1.5 million of nonrecurring costs related to legal, bad debt, stock comp and related terminations.
And on a go-forward basis, we estimate normalized operating costs will be $6.2 million with our G&A just under $5 million at $4.9 million, and roughly $4.6 million on a cash basis. This of course excludes any further reductions that we are currently working on and under consideration.
Turning to cash flow and future liquidity; as I indicated above, we presently have cash on hand of somewhere around $5 million to $6 million. And as we have indicated previously, we renewed our existing line of credit in September for $10 million with the option to increase this line in the future.
Based on operating results over the past four fiscal quarters, the company has access to about $7.1 million under its revolving loan agreement as a result of its financial covenant restrictions. We currently do not have a balance on this revolver.
While we don't have a balance on this revolver, we do expect to reduce our overhead costs and operating costs in the coming months. But the company does anticipate it may require additional outside capital resources in fiscal 2010 as outlined in our press release.
Finally, turning to more positive news; looking at our attendance numbers on a consecutive month basis, overall attendance at the company's exhibitions increased 18% comparing December to November. We had almost 430,000 visitors compared to 362,000 in the previous month of November. Revenue days were up 10% and average daily attendance per venue increased 5% to $694,000 compared to $658,000 in the previous month of November.
And finally, we had four venues close right near the end of the calendar year, and we are very pleased to be working toward opening four new exhibitions in the coming months, all at Warsaw, Athens, Dublin, Ireland and Tallahassee. Now we look forward to those as being very productive exhibitions in the future.
With that I will turn the call back over to Arnie.
Thank you, Bud. I am going to take a moment to make a few important comments. First, I would like to say that I am a proponent for a good, honest and real succession plan. As evidenced in the early part of 2008 when I turned over the reigns of the company to whom I refer to as business management.
In August of 2008, I agreed to the request of Sellers Capital to return as CEO. Within 60 days of my return, it became apparent that we did not see eye-to-eye, and that they think for a new idea which obviously has still not been formulated into a real plan. I presume that when they have a real plan they will share it with us.
Now, I have worked for 18 years to develop this company, working with the Federal Courts to continuously maintain our rights of sovereign possession of the historic shipwreck, the RMS Titanic.
While operating these blockbuster exhibitions resulting in a viable organization, and selling over $32 million tickets to-date, this company must continue to be responsible to its shareholders, its dedicated employees and its commitment to quality. I am committed to a succession plan, but only one that is real and makes sense.
If you ask Sellers what their plan is, you won't get a real answer. They are not telling us the truth about what they really have in mind, although to some, it has become apparent. They speak in gross generalities about turning the company around, but they don't say how.
None of their Directors have spoken out and while Sellers criticizes this company's management, they don't have a new team or a succession plan. If we are going to make a change for this company, let's get some seasoned exhibition industry professionals who know and can really do the job.
I will support that. If Sellers have a good plan that will truly help this company, I will support it, and ensure a smooth transition. As you know I'm a very large shareholder. I have made a career out of building this company, and I will do everything in my power to ensure that it will not be destroyed.
But in the meantime, I will continue to work hard along with our dedicated staff to protect this company and return it to being profitable. I ask you to please talk to Sellers, cut through all of their rhetoric and ask them to get to their real plan with specifics, and how they intend to accomplish it.
I am prepared to set up one-on-one calls or in person meetings where possible to answer any and all of your questions about our current operations. I ask you to please wait to receive all of the factual information from both sides before making any decision. You owe it to yourselves to make an educated decision.
We are not going to take any questions at this time but Bud Ingalls will be happy to talk one-on-one to anybody with questions. And I will be happy to do the same. I thank you all for joining us this morning, and I hope you have a good day. Thank you. Bye, bye.
That does conclude today's teleconference, ladies and gentlemen. We thank you all for your participation, and have a great day.
Thank you, Michelle.
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