Premier Exhibitions: The Turnaround Marches on

Oct.20.09 | About: Premier Exhibitions, (PRXI)

By Jeff Annello

About two weeks ago, Premier Exhibitions (NASDAQ:PRXI) released its second quarter fiscal 2010 results. It’s amazing how quickly Chris Davino and his team are making progress.

A few things pop out glancing at the balance sheet: lots of cash and cash equivalents, a new debt obligation, and a huge decrease in payables. The new cash comes from Chairman and large investor Mark Sellers’ $12 million convertible note—which by the end of the quarter hadn’t yet been converted—while the cash pile including marketable securities sits at around $11 million. The income statement shows that PRXI made a huge jump in gross margins, 47% to 60%, by closing a bunch of exhibitions and reducing exhibition costs. With exhibition revenues fairly flat, Premier was able to generate an additional $1 million in gross profit over last year’s comparable number and $2.3 million over last quarter’s comparable number. Very, very good.

The income account and the cash flow statement show that Premier has basically returned to profitability in operations: Premier lost about $500,000 in net income, and without working capital changes, made $2.3 million in cash from operations. Those numbers would have been even higher had non-recurring legal and bad debt expenses not been so egregious in the quarter.

At first, the numbers left me wondering why the cash balance isn’t a lot higher. It turns out there are two major reasons: an uncollected $1.8 million payable that was collected subsequent to the end of the period (good) and a huge working capital investment.

Generally speaking, working capital is defined as current assets minus current liabilities. So when we say that a company has made an investment in working capital, it either means that current assets have gone up or current liabilities have gone down. In the case of PRXI, the missing link between what should have been a large increase in cash and the reality of a decrease in cash for the first half of FY 2010 was a huge working capital investment: $7 million of reduced payables and $1.6 million of previously deferred revenue now earned.

In all, it was a good showing for PRXI. The cost structure is being rationalized by Davino & Co., discipline is returning to the organization, and the ship has been righted, if not yet rocketed into prosperity. We think the company is in capable hands and look forward to the resolution of the court hearing regarding a salvage award for the second set of Titanic artifacts, which begins on October 26.

Disclosure: The author owns shares in PRXI.