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Sotheby's Holdings, Inc. (NYSE:BID)

Q4 2008 Earnings Call

February 26, 2009, 04:45 pm ET

Executives

Bill Ruprecht - President and CEO

Bill Sheridan - CFO

Analysts

George Sutton - Craig-Hallum Capital

Steven Rees - JP Morgan

Rommel Dionisio - Wedbush Morgan Securities

Brian Luster - Abernathy Group

Jody Kane - Sidoti & Company

Alex Schmeltzer - Scoggin Capital

Greg Kuczynski - Janus

Jennifer Bennett – JMP Securities

Operator

Good afternoon ladies and gentlemen and welcome to the Sotheby's Fourth Quarter 2008 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a questions-and-answer session. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded.

GAAP refers to generally accepted accounting principles in the United States of America. In this earnings call, financial measures are presented in accordance with GAAP and also on a non-GAAP basis. When significant, the company excludes the impact of changes in foreign currency exchange rate when comparing current year results to the prior year.

Consequently such period-to-period comparisons are provided on a constant dollar basis by eliminating the impact of changes in foreign currency exchange rates since the prior year. Management believes that excluding the impact of significant changes in foreign currency exchange rate when comparing current year results to the prior year, provides a more meaningful discussion, and analysis of fluctuation in the company's operating results.

Also during the course of this call, the company may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such projections and statements are only predictions and involve risks and uncertainties, resulting in the possibility that the actual events or performance will differ materially from such predictions.

We refer you to the documents the company files periodically with the Securities and Exchange Commission, specifically the company's most recently filed Form 10-Q and 10-K. These documents identify important factors that could cause actual results to differ materially from those contained in the projections or forward-looking statements.

At this time, I would like to introduce Bill Ruprecht, President and Chief Executive Officer; and Bill Sheridan, Chief Financial Officer. Mr. Ruprecht, please go ahead

Bill Ruprecht

Thanks Andrea very much. Welcome everybody to this afternoon's call. As you will read announcing today 2008 revenues $691 million which is 25% decrease from prior year. And 2008 net income of $28.3 million is an 87% decrease from the prior period.

Primarily due to the decline in net auction sales when compared to prior year biggest impact, as well as principle activity losses of almost $83 million stemming from guarantees in the autumn of 2008 in New York, London and Hong Kong. Global economic shifts and turbulence impacted our sales and the revenues in the fall of '08.

Currently we have almost no net guarantee exposure. It's $1 million as of February 18 and continue to dramatically curtail or use of auction guarantees and other concessions to consigners and plan to do so until stability is restored in the global economic environment and in the financial markets.

Year-to-date in 2009, are down as compared to the prior year. However, the results of the reduction in unfortunate guarantee activity and our efforts to stabilize auction commission margins. Year-to-date 2009 margins are up 27% to 17.3% on sales.

Another move to strengthen our business, we announced on our last earnings call the beginning of a restructuring and cost management plan again in 2008. We took 4.3 million charge in the fourth quarter, expect to take another 5 million in the first quarter of '09.

We also expect to recognize 3 million of lease exhibit facility related costs in '09. Following the implementation of this restructuring, we expect to achieve annual cost savings of $17 million, salaries and related costs resulting from a 15% or so reduction in global headcount, and a $4 million facility related costs.

In addition to that restructuring, we are implementing a number of other cost saving initiatives in the business, impacting all areas of expense which will result in targeted annual savings of $100 million in 2009 versus 2008 results.

As a result of our activities to manage both the costs and the revenues, we would expect to be profitable at sales levels below 50% of our historical 2007 peak. Bill Sheridan, your turn.

Bill Sheridan

Thank you, Bill. If you turn to Appendix A which is page 6 of the press release for Sotheby's income statement, I will walk through that. On an overall basis net income for the full year 2008 was $28 million or $0.43 per diluted share. This compared to net income of $213 million or $3.25 per diluted share in the prior year. As Bill mentioned, the deterioration is largely due to the decrease in net auction sales over this period, as well as a higher level of principal losses and lower private sales commissions.

Operating revenues for the full year totaled $692 million, $226 million or 25% decrease from the prior year. This revenue decline is largely due to the $436 million or 9% decrease in net auctions sales during the period, as well as lower auction commission margins.

In addition, principal activity revenues decreased $60 million when compared to the prior year resulting in a net principal loss of $83 million. The total principal loss is largely due to $60 million of net losses on guaranteed property offered or sold in 2008.

However to clarify the impact of the $66 million in losses on guarantee, this was offset by $44 million in auction commission revenues. So in fact, our actual loss on the auction guarantees on the net of the sales was $16.4 million on a net basis. Also contributing to the operating revenue decline is $21 million or 38% decline in private sales commissions over the period.

Turning to direct costs on the expense side, for the year ended December 31, direct costs of services increased $15 million or 19% to $95 million when compared to the prior year. The increase was primarily attributable to approximately $3.7 million costs relating to the promotion of the unprecedented Damien Hirst sales in London as well as $1 million in incremental costs related to the promotion of Red Charity sale at Sotheby's in New York in the first quarter.

Also contributing to the increase was increased sales venue rental cost in Hong Kong, and higher catalogue and sale promotion costs related to Impressionist and contemporary art sales. And lastly, a higher level of spending on traveling exhibition cost.

Marketing expenses in the fourth quarter, we actually saw a 37% decline in marketing expenses, as we implemented our cost cutting strategies overall for the year-ended December 31, 2008 marketing expenses were flat with 2007.

Salaries and related costs, on the salary line we saw a decrease of $54 million or 18% to $240 million for the full year. This improvement is largely due to our $38 million or 58% decrease in incentive bonus costs due to our lower profitability, as well as lower employee benefit costs.

General and administrative costs for the year ended December 31 increased $9.5 million or 6% when compared to the same period in the prior year largely due to $6.6 million increase in premises rental and other facility costs in the U.K. $3.9 million increase in professional fee, $3.9 million increase in our bad debt expense and a higher level of travel and entertainment spending.

The company recorded an impairment loss in the fourth quarter. As a result of our annual impairment test on the Noortman Master Paintings, goodwill and trade name intangibles, we took a $13.2 million impairment loss in the fourth quarter of 2008. Net interest expense increase $14.2 million. This was essentially all due to the incremental interest expense associated with the convertible notes and senior notes issued by Sotheby's in June of this year.

Income tax expense; the effective tax rate was approximately 46% in 2000, which compared to 26% in 2007. In 2007, we recorded a benefit that did not recur on the tax line in 2008. In addition, we had a higher tax rates in various US international tax jurisdictions. In addition, Noortman Master Paintings intangible write-off was not tax deductible.

Just a brief comment on our balance sheet, cash balances were $279 million at year-end, and we had zero drawn under our revolving credit agreement. Lastly, our receivable balances declined 35% during the year for the prior year to $542 million at year-end reflecting a significant collection over the year.

Now I would like to turn this back to Bill Ruprecht. Bill?

Bill Ruprecht

Thanks Bill, couple of comments on 2009 starting with Bill's date, we had a Old Masters painting sale in January which brought $64 million highlighted by a JMW Turner, large landscape second highest price ever achieved by the artist at auction, $13 million.

In London in February, we had an Impressionist and contemporary art sales series which brought $99 million for week of sales which was inline with the presale low estimate and the highlight was a 14-year Old Dancer by Edward Degas was sold for $19 million which was a record for Degas sculpture at auction and the highest price achieved during that week of sales.

Also highlighting the contemporary sales was a Fontana which brought $6.4 million. Sell-through rates for the week was robust at 85%. Upcoming in our calendar are on March 18, and 19, the initial sales that we will be conducting in Doha, Qatar. The four sales of Contemporary, Orientalist, Islamic Art and Watches are estimated have a combined total of $25 million to $35 million over the two-day period. Highlighting

that sale is a Pearl encrusted diamond encrusted carpet of Baroda which was commissioned by the Maharaja of Baroda, presale estimate in excess of $5 million.

Beginning on April 4, we’re holding our spring sales in Hong Kong. Highlighting the week is one of the most precious Tang dynasty artifacts ever to come to the market and it has a presale estimate on this Octagonal Tortoiseshell Box of an excess of $5 million.

Just a week ago here in New York, the finest library of Hebrew manuscripts and books in the world Valmadonna Trust Library, was on view in Sotheby’s galleries. 10,000 visitors over a couple a day period came to Sotheby’s New York to view this remarkable collection which stirred excitement such that on the final day of the exhibition, there were lines entirely around block in our premises. Over 11,000 items in the collection have an estimated value of approximately $50 million. Sotheby’s has been asked by the Collector Jack Lundzer to the sell the entire library privately to an individual buyer.

Earlier this week Christie's held its summer sale in Paris to record results which shows that art market is still alive and strong. It has been a great validation of the value works of art even during challenging times.

We are in the midst of property gathering for May sales in New York and while we recognize that this is a challenging time to collect and convince sellers to part with their treasures. Since the beginning of this global economic downturn, it is repeatedly been shown that when works are of appropriate provenance, thoughtfully estimated and fresh to the market, buyers are still willing to pay significant and sometimes very much unprecedented prices to retain this real works of art.

Even during the period of global turmoil that affected our autumn sales excluding the Noortman impairment loss, we were profitable in the fourth quarter on the operating income line which is a statement not all companies can make today. And while with the curtailing of our guarantee business we've eliminated a great deal of risk in our business model which is meaningful cause of our decline in fourth quarter results. As you will recall these guarantees were made prior to the precipitous decline in the fourth quarter of 2008.

Fundamentals of our business are unchanged and in this environment it's good to be primarily in agency business and not primarily a retailer. We are committed to deliver to you on the restructuring and cost savings initiatives of over $100 million that I outlined earlier in the call. Our management I remind you was in place during the last downturn when we delivered very significant reductions both in staff and costs in the period of 2000 to 2003.

We have the ability to follow through on challenging decisions and we are committed to delivering cost stability in this era of financial complexity. On February 6th, we closed the transaction to purchase our flagship headquarters in New York City and are very pleased to be able to own this strategic asset once again. This purchase along with the resizing of our organization, strengthening the auction commission margins, and a dramatic reduction of our guarantee risks are all encouraging. And they are important developments that will ensure our continued financial strength through the challenging times ahead.

We look forward to your questions. That concludes our comments today.

Question-and-Answer session

Operator

Thank you. (Operator Instructions) And we will take our first question from George Sutton with Craig-Hallum.

George Sutton - Craig-Hallum Capital

Good afternoon to both of you, with respect to the $100 million statement that you made with respect to total costs. Can you relate that to the $21 million of salaries and facility costs that you discussed -- there's obviously a big Delta there. I'm wondering how much of that is specifically related to having less volume running through your system and how much of that might be other?

Bill Sheridan

It's lower direct costs, George, lower marketing spend, lower G&A costs. So it's pretty much across the board. Nothing, we are challenging every cost in the organization. So it’s all over the place.

George Sutton - Craig-Hallum Capital

All right okay, I appreciate, it's an impressive looking number. Now with respect to the [inaudible] auction that occurred recently and certainly was a success. Could you tell us what you feel you as an organization learned from that in terms of the art market as we stand here today?

Bill Ruprecht

I think George, this is Bill Ruprecht. It's a reaffirmation of what we had already been seeing in the spring and that was really when you got something or other wonderful to sell and it's properly priced with the great provenance, it's fresh to the market. There is a queue of people who have an active ongoing interest in works of art. There are a lot of uncertainties in the world right now and when people think about investing in this asset or that asset or the next asset, a lot of the assurances in the sense of confidence that people have had for generations of times of assets are being challenged.

But what you saw in our Impressionist sale, our contemporary sales, Christie's Impressionist sales not their Contemporary sale, but then indeed in the sales very, very significant level of interest. And then when you see something or other, it's very special. I think in many cases you can see prices that are unprecedented and as high as ever have been achieved or ever could have been achieved for those great objects.

George Sutton - Craig-Hallum Capital

So, lastly from me, with these points of clarity with respect to the market accepting high quality product, how is that impacting your message to both buyers and sellers for the spring auction consignment season?

Bill Ruprecht

I think we are not facilitating consignments by giving away our margins and doing rash balance sheet structured transactions in any substantive way, and when you engage a collector as we did for instance on the Degas 14-year-old dancer which sold for a little over $19 million couple of weeks ago. He bought that I think five years ago from us and we were able to virtually double his benefit over the period in the last five years.

So I accept and I have noted that it is a time when it may not be self evident or natural to say well, gosh, this is a great time to sell the painting on the wall. But in many cases that's just not an accurate analysis. Great things continue to find real demand that the conversation that it's our responsibility to be having it everyday with people around those works of art. Anybody who is looking at the outcome of the results of sales whether it's Turner selling for what they sold for, the Tabrugen that we sold in our Old Masters’ sale that went to the national gallery for a unprecedented price. Great things appear to be selling for extraordinary prices. So, as a buyer and or a seller I think at the very high end of the market place when the right principles are in place, you've got a ongoing and pretty robust opportunity.

We think volumes are going to be lower, there is no question, nevertheless we’re throughly engaged with our clients about advising them on what we think is highly credible set of sales strategies for the near term.

George Sutton - Craig-Hallum Capital

Perfect, thanks guys.

Operator

And with that we will take our next question from Steven Rees with JP Morgan.

Steven Rees - JP Morgan

Hi thank you. Can you here me?

Bill Sheridan

Yes Steven.

Steven Rees - JP Morgan

I am on speaker so just on the $100 million of cost savings beyond the salaries and related costs. How should we be thinking about that in terms of the flow throughout the year? Will you be on track in the first quarter to achieve that annual run rate?

Bill Sheridan

Steven it's Bill Sheridan. To be clear, the $2.1 million in salary and facility savings is in that $100 million number.

Steven Rees - JP Morgan

Okay. So that's all in.

Bill Sheridan

Yeah, the New York salary benefit is accruing principally much from the first quarter, Europe will be second quarter and on, direct cost savings is from the beginning of the year. So it’s hard to give you the specific, we can't easily calendarize it, but I think it's something rather we all are fully aware of, wanting to deliver as much as possible, if that is possible.

Steven Rees - JP Morgan

Great and I guess what sort of top line assumptions that you make, I know it’s hard to predict, but I guess assuming the market doesn't rebound this year do you need to make more cost cuts as you head into 2010?

Bill Ruprecht

I think that's a question that I think every business in the world is asking everyday right now. I'm sorry to frustrate you with it, lack of the sales line, but I would say in general terms the first quarter is always not a very good parameter of what happens after the first quarter.

And we're taking an extraordinarily sober view of the marketplace. There are, as I said, remarkable points of validation in terms of value for great works of art, but we're not sitting here waiting for the global economic uncertainty to suddenly go away. We're approaching the world as this is the situation that is going to potentially last for years. Our responsibility as a result is to size our organization to be effective in reflection to that volatility. You're looking for a number. I can't give you one.

Steven Rees - JP Morgan

Okay. Thanks for the color. Then just finally for me on the auction commission margin, it looks like the first quarter to date trends are holding it very well, I guess, of about 400 basis points. And I guess, part of that was last year was weak from some of the discounting and competitive challenges that there was. How should we be thinking about that margin, as we progress throughout the year? Do you think it is flat, the early expectation is reasonable at this point?

Bill Ruprecht

I think, everything I just said about the year is something rather I will now say about, margins, I think, we recognize getting a 27% increase in margin is a good result year-to-date. We're working like dogs to make sure that we get appropriately rewarded for the services that we provide. That's a daily lot by lot negotiated set of revenue opportunities. And we recognize how essential it is to our business model. I can't do more than that.

Steven Rees - JP Morgan

Okay. Great, thank you very much.

Operator

And we will move to our next question from Rommel Dionisio with Wedbush Morgan.

Rommel Dionisio - Wedbush Morgan Securities

Hi. Good afternoon. A question on the lease exit and facilities related cost savings of $3 million. Are you guys going to actually close some offices around the world? Or is that more just sort of easing some of the peripheral facilities like when you come to Los Angeles for example?

Bill Sheridan

It's a combination of resizing certain facilities and closing other facilities, Rommel.

Rommel Dionisio - Wedbush Morgan Securities

So, Bill, would that imply, then, that you might exit a particular geography, or --

Bill Sheridan

I can't say that specifically on this call.

Rommel Dionisio - Wedbush Morgan Securities

Okay. That's fair enough and just a follow-up question. Actually that's been answered. Okay thanks very much.

Bill Sheridan

Take care, Rommel.

Operator

And moving to our next question from Brian Luster with Abernathy Group.

Brian Luster - Abernathy Group

Yes good afternoon gentlemen. Can you just help me understand how you all took your B of A credit facility borrowings down from $250 million this November to zero in a quarter when your revenues were $166 million? Was there some sort of asset sale?

Bill Sheridan

No, no we had significant cash balances on our balance sheet, so we decided to pay that down before year-end.

Bill Ruprecht

We drew the facility in the first instance in a defensive situation when we were particularly nervous about access to liquidity in a period when a lot of companies were partially drawing their facilities as a defensive measure. We throughout that period had significant cash balances of our own, and we repaid the draw.

Bill Sheridan

In November and there's an 8-K that we filed relating to that if you want additional detail.

Brian Luster - Abernathy Group

Okay very good. And can you update us as to where the status of your inventories lie today, what's the approximate value?

Bill Sheridan

Our 10-K will be filed, it’s being filed as we speak. But inventory at the end of '07 was $206 million. It declined $20 million to $186 million at the end of '08.

Brian Luster - Abernathy Group

Great, thank you.

Operator

And we will move to our next question from Jody Kane with Sidoti & Company.

Jody Kane - Sidoti & Company

Hi thanks. Do you expect to have fewer auctions in '09 or possibly consolidating auctions in order to save money?

Bill Ruprecht

It’s Bill Ruprecht. The first priority is to maximize the benefit to the client. And we don't believe that it makes a lot of sense to try to Shoehorn property that's not tailored to specific audiences into grab bag sales. We've never seen it work particularly effectively. I think we are the only ones who have continued to have that attitude. All that said, my particular view is if volumes go down significantly we may have fewer sales, but I would not have thought that you'd see dramatic event reductions on, Jody, in the business.

Bill Sheridan

Jody our principle competitor does twice as many sales that we do in the calendar year. So, we are already pretty lean on that front.

Jody Kane - Sidoti & Company

Okay. And then are you seeing the quality of supply go down because of declining prices or is that holding up?

Bill Ruprecht

Well, I think I have already answered it, Jody, but I think the best things that you see often have value in many markets, that is virtually unchanged from some of the best prices ever achieved in some marketplaces. Volume of commerce goes down when you have fewer transactions and in some markets indeed prices have come down significantly, but that’s a pretty uneven statement as opposed to one which is easy to provide as a proxy across the art market, because we may sell less property means very little about the value of an individual object.

We continue to see very significant objects, we continue to engage and discuss and advise large numbers of clients as to what's in their collections, what makes sense and what might not make sense for them to consider selling and/or buying. So, I think I've said that it, volumes are down and there are fewer people who are discretionary sellers today than you certainly saw a year ago.

We have not yet seen very significant numbers of forced sellers or adversely impacted sellers from the financial dislocation. We are in conversations with a significant number of collectors who have some liquidity concerns and as and when those result in significant sale opportunities and I am sure we will all be happy about that.

Jody Kane - Sidoti & Company

And then on the currency, are you seeing. Do you expect to see --

Bill Ruprecht

I can't hear you. Can you talk a little louder?

Jody Kane - Sidoti & Company

I am sorry. In terms of the currency, do you expect to see U.S. buyers being more active in overseas with a stronger dollar?

Bill Ruprecht

This is always sort of odd science or art trying to project the emotional enthusiasm of people from different parts of the world. I think it is fair to say that we have continued to see despite the shift between Euro and Sterling and dollar and other currencies, a remarkably consistent basket of geographic buying interest. We have not lost the emerging markets at all and there continues to be a robust and enthusiastic group of collectors virtually from all the big countries participating in our business in an ongoing way.

All that said, our U.S. consumers have been and continue to be the single largest buying base in the world for works of art.

Jody Kane - Sidoti & Company

Okay, great. Thank you.

Operator

We will take our next question from Alex Schmelzer with Scoggin Capital].

Alex Schmelzer - Scoggin Capital

Actually the question is related to volumes, I think you answered it. Thank you.

Bill Ruprecht

Yeah, sure.

Operator

We'll move to our next question from Greg Kuczynski with Janus.

Greg Kuczynski - Janus

Hi, guys. My first question is in reference in the prepared remarks to the comment that you could be profitable at a level of sales 50% below 2007, could you explain on that a little bit I guess I wasn’t quite clear what you meant by that, if that was the breakeven point or you can be profitable even further below that?

Bill Ruprecht

I think that’s exactly what I said. So, if you want me to say that again, I will say it again but that’s exactly what I said.

Greg Kuczynski - Janus

You are saying, you can be profitable below that point?

Bill Ruprecht

That’s exactly what I said.

Greg Kuczynski - Janus

Is there a certain level of auction sales given the sort of 100 million savings reduction that you've targeted where you sort of see a breakeven point?

Bill Sheridan

We analyze all kinds of models internally but we are not going to comment on that on this call.

Bill Ruprecht

I think that you look every day at your cost structure and your revenue opportunities and every day you challenge both your cost and look to drive your revenue. So, I don’t think that there is any complacency about a particular level of breakeven.

Greg Kuczynski - Janus

Sure, it's very dynamic.

Bill Ruprecht

Comes in weather in this world, we look to drive south every single day.

Bill Sheridan

But it gives you in order of magnitude of things.

Greg Kuczynski - Janus

Yeah, definitely, it's very helpful. Another question on, in terms of the consignment environment right now, how would you say it compares in terms of the number of pieces that you are seeing offered, but just the general interest that people putting pieces up at auction now versus say 2001 which was a particularly weak year?

Bill Ruprecht

Oh boy, I can't do that with any clarity or accuracy. If you are looking for a response to the question, all I can say is in the last week there has been almost $500 million worth of art traded in Paris, France and that’s unprecedented. I think you can say that in freshness to contemporary market in London, there were a couple of $100 million traded two weeks ago, three weeks ago. So, there is still a lot of volume of opportunity in commerce out there and the secret to the whole business is can you get the right product at the right circumstances soberly priced fresh to the marketplace, because if you can, you can certainly sell it and deliver effective results to buyers. Are we in lots of conversations? You bet we are.

Greg Kuczynski - Janus

Yeah.

Bill Ruprecht

I can't give you, we have got 13.7 daily increase versus 9.6, 2001 or anything with that.

Bill Sheridan

Greg as we said it's really it's really the six months business, two halves of the year, and in the early innings of the first half.

Greg Kuczynski - Janus

Just a last question, I was amazed by the size and the success of the Christie's action and I guess, I just wanted to maybe give you guys a chance to sort of to show how enthusiastic you are about those results, or maybe I am very enthusiastic about it, I don’t know. How sort of remarkable was that, I mean, especially relative to sort of some of the dismal results we saw sort of through the end of 2008?

Bill Ruprecht

Well, it's a tail-ended 2008, you saw a Malevich painting sold here for over $60 million which was maybe eight times the price that one had ever been sold for. So, on extraordinary price results at yes, Sotheby's and yes, Christie's. In addition to what was happening as Lehman was shuttering with Damien Hirst in the third quarter of last year.

So while in aggregate, I think that the contemporary market in the first instance suffered a real retail aberration. To some extent other markets did as well. I think that the quality of the things that [inaudible] put together and owned for many years was significant. And I think that the passionate enthusiasm and desire among collectors all over the world towards those objects is as I already said, a reaffirmation on what we already knew and believed which is that great things win great prices in any market that any of us have ever experienced. So, that continues to be a validation and a reassurance about the relevance and the opportunities in our business.

Greg Kuczynski - Janus

Okay, great, thanks.

Operator

And we will take our next question from Jennifer Bennett with JMP Securities.

Jennifer Bennett – JMP Securities

Hi, you've answered a lot of my questions, but one last, would you ever consider lowering the buyers' commission margin to help drive consignments?

Bill Ruprecht

Well, let’s see, if you lower your fees to --

Jennifer Bennett – JMP Securities

That helps encourage.

Bill Ruprecht

Buyer, I am not sure why that would get you more things to sell. Other words, the friction costs for a buyer in buying a work of art while in no way insignificant are on objects that are in the sweet spot of what we do. Average price of an object in Sotheby's is over a $100,000, more than twice what it is at any other auction house.

All that said, what I would say is the average fees there is something on the order of 15% to 17%. So it’s in that context that the service will provide the buyers through globally sourcing and then bringing together in an honest transparent marketplace, we believe are pretty small. So we don’t believe that the level of our fees to buyers is encumbering or limiting our ability to attract consignments at all.

Bill Sheridan

Jennifer, is your point that if commissions are lower, will it drive demand and drive consignors?

Jennifer Bennett – JMP Securities

Exactly, I meant to say consignments that are sold.

Bill Sheridan

Our commissions in the scheme of the purchase price are very small and we do a lot of modeling surrounding that in the price in the elasticity of most of these guilds and it’s not a significantly -- I think our margin oftentimes are lower than dealers, so we're pretty comfortable with where we are in that.

Jennifer Bennett – JMP Securities

Okay, thank you

Operator

And with that we have no further questions. At this time, I would like to turn the call back over to you Mr. Ruprecht for any final closing remarks.

Bill Ruprecht

Andrea, thank you for your service today. Thank you for your interest in Sotheby's those of you still on the phone. We'll look forward to talking with you soon. Any questions you have you know you can address them to Jennifer Park, Bill Sheridan and/or me. Thanks for your interest in Sotheby, bye-bye.

Operator

Once again, this does conclude today's call. We thank you for your participation, and ask that you have a wonderful day.

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