Premier Exhibitions Inc. (NASDAQ:PRXI)
F2Q2011 Earnings Call Transcript
October 7, 2010 5:30 pm ET
Chris Davino – President and CEO
John Stone – CFO
Brian Wainger – VP and Chief Legal Counsel
Christopher Bratcher [ph]
Jason Braswell [ph]
Norman Klein [ph]
Nicholas Green – Green Partners
Good evening and welcome to the Premier Exhibitions second quarter fiscal year 2011 earnings results conference call. Today’s conference is being recorded. I will remind everyone that we will be making forward-looking statements on today’s call. These forward-looking statements are based on our current expectations and are subject to a number of risks and uncertainties. Actual results may differ materially. Please refer to the risk factors identified in our Form 10-K for the period ended February 28, 2010, and our subsequent filings with the Securities and Exchange Commission.
And now, I will hand the call over to Chris Davino, President and Chief Executive Officer of Premier Exhibitions Incorporated. Please go ahead, sir.
Good afternoon everyone. I appreciate you joining us all today. We are going to structure the call a little bit differently than we have in the past. Rather than John going through all of the financial detail upfront, I am going to give an overview of the quarterly results, really just a headline; two, I am going to describe the current the context within which I believe those results should be viewed mainly in the context of the focus and progress we have made in the quarter against various strategic initiatives. Three, am going to spend some time discussing what our current focus is and again there primarily new content development and some of the partnerships that we formed in the context of new content development; and four, last and address what I will characterize the corporate strategic alternatives, judging by a lot of the calls that John and I get in terms of letters we have received overtime, I think there are a fair amount of questions, I just want to deal with the topic upfront.
So, the quarterly results, in the main, revenue was essentially flat with the second quarter last year, that in spite of having more operating days this year as all of our exhibitions were generally booked. Utilization was pretty significantly high in the high 80s. This is a vast improvement over the period last year and it’s a pretty good comparison just two prior quarters in the main. Attendance overall unfortunately was soft. We did see some encouraging signs for attendance, particularly some tertiary markets, but we have got higher demographic penetration than we usually see and John will provide some of those details. Our Vegas shows did particularly well. Bodies was up 40% year-on-year, and Titanic was up roughly 24% compared to the same period last year.
But overall, attendance was down at least in part in my judgment a reflection of the economic environment that we are in. Margins were also off as a result of attendance, partially reflected by the fact that we are operating more of our shows is self-operating shows today. We continue to believe that’s the right strategy long term and I can talk about that obviously.
With regard to G&A, we were able to keep it under control, and again that is quite making significant strategic investments to grow the business. The bottom line as I look at it, EBITDA around $1.1 million for the quarter, while the positives, obviously there’s room for improvement. John can provide some of those details.
At the outset, for me I think it’s important to look at the financial results in the quarter again on the context of largely very significant moves that we have made vis-à-vis repositioning the core properties, both Titanic and Bodies. And I will start with Bodies, and I will cover this pretty quickly. We have spoken about this on prior calls, but just to remind everyone that in this quarter, really the first half of the year taken together, for Bodies, we were fulfilling four to five distinct initiatives all at the same time.
We relaunched the show itself, the actual Bodies presentation has been formally relaunched, and I will talk about what that means. Two, again more of a focus on self-run versus promoter deals; three, addressing new market opportunities again primarily tertiary markets and international markets and self-runs; and last but not least, really the different marketing efforts, and I will give into some of that as well.
So, taken together just within Bodies, four or five distinct pretty significant initiatives that pursued in execution all at the same time. So, I think and I will discuss all of these one by one, starting with the exhibition, and again I have covered some of this ground in the past, but I think it’s important to note that what we had when I got here in terms of the Bodies presentation was a relatively static model, which is primarily specimens in cases, under light, some limited black and white educational text. And what we want to create we think is categorically required that consumers in 2010 expect for any kind of entertainment offering is more vibrant, immersive, experiential, interactive model, and that we are working.
To that end, we developed some concepts that could create distinct concepts and ultimately landed on a concept that we call Your Amazing Body. I will not get into all of the attributes of that on the call, unless people have questions, obviously we will get into it, suffice it to say it’s miles from what the show was originally. And I think very different than anything our competitors have at the marketplace today.
In the quarter and again really across both quarters, the first half of the year, we rolled out as was our intention, rolled out that exhibition in its current form or in its new form really in stages over the course of time and across various markets, the goal which was to lead up to an ultimate relaunch in St. Louis, which just opened last Friday. If anyone has an opportunity to be out in St. Louis, I really recommend go and see the show, people would be generally impressed, and again it’s very, very different, much more immersive, much more visual, much more engaging than anybody has done before.
In addition to the show, again as I said, there has been more of a focus on self-operating shows. Although they come generally with a lower gross margin percentage, we think it makes all the sense in the world. One, we can control the sale from all standpoints, the operations, marketing, promotions, etcetera; Two, the ability to realize on all the financial upside instead of sharing with a partner; and three, and aiding some ways, most importantly to eliminate uncollectible receivables which has plagued this company over the course of time.
So, that’s really item two. Under Bodies, three, again, we attack new markets, primarily tertiary markets. We opened in Omaha, in Tucson, we got a couple of other markets, they are about to open the same kind of format. Internationally, we opened in Mexico City, which also leads us to yet another initiative. So, one, to operate internationally on our own, but two, to operate in a market where potentially we have to be if not permanently at least semi-permanently. And I know, John has spoken a lot in the past about our intentions with more permanent loans or semi-permanent loans to eliminate all of the upfront, working capital, the risks associated with the marketing dollars, the cost of just candidly being down of our shows of travelling, etcetera, etcetera.
So, with Mexico City, it’s really two initiatives. One, international self-op as well as a permanent or semi-permanent play. Marketing, again a lot of progress here, new creative campaigns that will fit within new shows, digital, I think people have seen our webpage now, we are making more moves into the social realm as well in getting some good traction there. And just an overall more aggressive marketing approach.
So, with that, for Bodies and step back and look at it, again a lot going on in the quarter just within the four walls of Bodies. Results, somewhat mixed, again, while shares are generally built at very high utilization. I think it’s fair to comment to say the business model is still evolving. From the show itself, the presentation, although I am thrilled with what we have accomplished, we still have more work to do. Tertiary markets, I think there is a lot of room in terms of ramping down production costs, operating costs, getting the marketing model right because the cost of marketing in those markets is dramatically different than a primary or secondary market. So, there is still some fine-tuning to be done there. And while attendance was down, I guess overall, clearly it would have been down even more without these modifications.
So, we are somewhat optimistic, we think we are very proud of the moves we have made, but other side of that coin, we will continue to evaluate the level of inventory that we carry in Bodies, some of it comes at a very significant cost. And over the course of time, as I look in the future, as we develop and bring on more and more shows through new content, Bodies would be less and less important and it’s a business model that obviously it’s been somewhat of a decline and we have made a very good move in breathing right back into it, but 10 years from now, I am not sure we are going to be in the Bodies business, certainly not to the degree than where we are today. So, while these moves are important, I think they have to be considered in the context of where this company is going long term.
Titanic, like just Bodies, as I have said in the past, we have pursued a strategy to re-launch the property overall. Two primary parts to this. First is to build a much more diverse, much more integrated business model beyond the narrow confines of the exhibition business, to create real brand ownership generally and certainly leading up to the 2012 anniversary. By doing so, hopefully to create new assets, new revenue streams, again basically to create a 360 degree business model around what I deem to be a pole position with regard to the shipwreck. It’s certainly very different move than we have done in the past.
Two, and primarily through the expedition, our goal was to demonstrate to the oceanographic community as well as to the court that we could be, deemed to be worthy stewards above the collection and the shipwreck. I think obviously the favorable court ruling that we just recently received granting us minimum cash reward of $110 million or an in-specie reward certainly demonstrates that we have achieved our goals vis-à-vis our stewardship of the collection in the eyes of the judge, in the eyes of the oceanographic community to which she looks, the judge looks I think in part as she contemplates all relationships to the collection of shipwreck.
We have got a lot of questions about ultimate value of the artifact collections, so I will just deal with it. Again, it’s in our judgment of being ruling that the cash award if we were to be granted that versus in-specie award, is a minimum of $110 million. When you consider the 87 artifact, and you contemplate the value inherent in all the work products associated with bone collection, then adding on to that total value or rights or salvage rights, the rights to shipwreck, the ability to collect future artifacts, and all the assets generated from this exhibition, which I will talk about, I think this puts the value north of $200 million in round numbers, and obviously we could talk about that.
When we talk about the expedition itself, again, this was a pretty significant step for this company, very different than other expeditions that we have done in the past, the primary intent of which have been to recover artifacts for use in the exhibitions. I know or at least I assume that many people were able to follow the expedition online. So, I would say that at least in my judgment, we were able to achieve the primary objective that we set out for our sales, and I will discuss some of these pretty generally.
We use state-of-the-art, what are called autonomous vehicles to survey the entire wreck site. We have covered expanse, area spanning three miles by five miles originally and then we brought it down to an area that was about a mile-and-a-half to around a mile in width. That covered not only the bow and stern sections, but if not all of course through all of the primary targets in the artifacts field. So, for that smaller bow, we covered every meter, literally every inch of it with very high resolution sonar, as well as covering every inch of it with optical imagery.
By doing so, not only did we image the bow and the stern section, another target in the debris field had been previously imaged, but I think it’s fair to say that we imaged previously unseen and certainly if prior to having them seen before, certainly not being imaged before. We brought back a wealth of information. The archeological and oceanographic community are really excited about what we have been able to uncover. From the standpoint of what we call mapping the wreck site. That aside, we used another vehicle called an ROV, with the most technically advanced cameras, high-def 3D cameras to produce high-def 3D video and still of the bow and stern sections which we covered completely. So separate and apart from the optical work done by the AUVs, we covered the bow and stern section with even higher quality cameras to produce probably more than 50 or 60 hours of video, again the bow and stern and selected targets in the debris field.
By virtue of doing that, surveying the wreck site, using the 3D imagery, not only to produce video that will I think fascinate the public, but a means or tool basically to evaluate the ship's condition in a way that hadn’t been available before. Most experts that I have spoken to either that were on the expedition and even those that were following from afar believe that by virtue of what we have accomplished and that we have substantially raised the bar in terms of deep sea exploration and archeology. Second and kind of a part and parcel with that, by virtue of the group that we have got together to execute this mission, be it NOAA, the National Park Service, Woods Hole, the Institute of Nordic Archaeology, obviously RMST and Salvo, putting all of these together, we really got a new standard in how public and private sectors can work together to maintain and preserve shipwrecks.
So, certainly while it wasn’t part of our commercial goals, but more in line with our role as guardian of the shipwreck, we can be very, very proud of what we have accomplished again the view of the experts. As entertainment company that doesn’t do all the time literally long initiative raise the bar substantially and change the game for on a forward-looking basis as it relates to deep sea exploration, we will be very proud of that.
From an exposure standpoint, the mission garnered a lot of attention, we had over 550 million media impressions. (inaudible), that’s through various print, news outlet rolled over as well as online. So, again 550 million media impressions, that means people all over the world literally were able to follow the expedition. So, I think obviously we are pretty happy we have the online campaign wins, the Website, storytelling through Facebook, bringing new expedition to life through Facebook, and through the social media, I think the team did a really great job. In terms of assets, we have generated, with the 3D footage that we have and content to create in all likelihood a Blu-ray DVD, in all likelihood straight-to-home sale. We have contracted from a major cable network to develop a documentary around the expedition itself, around the findings of the expedition, around new discoveries that were made, don’t want to go too far off on a tangent, but in the face of maybe 15 documentaries on prior expedition, I think we can be very happy that this expedition really stayed out in terms of what we were setting out to do and what we might find, and I think it’s the view of some of these folks that have looked at Titanic over the course of time that it’s their judgment some of the – related to debris field is actually organized might unlock mysteries as to how Titanic actually sank, and that would be basically the cornerstone of this documentary that can be developed.
Another asset that we are pretty excited about is our hope and certainly our intent to produce a 3D mosaic of the bow. This notion of virtual raise of Titanic. Again, we are pushing the envelope. That will require literally emerging the data sets from the sonar imagery, the acoustics imagery as well as the optical imagery, and literally taking those various and divergent and distinct data sets and creating from them one image of the ship in its current condition. If we are able to do that and it’s my hope that it will, the result will have various commercial applications, be it gaming, be it in online experience, be it a research center online or a learning center, again from a gaining world to an online research center and everything in between, there are properties like Titanic, a lot of ways that you can commercialize, monetize benefit from such an asset.
So, again trying to push the envelope, taking advanced technology, the data that has flowed from that and literally piecing it together in a way that really hasn’t been done before, I think it’s pretty exciting and hopefully we will bear the financial rewards from having done so.
I guess another element to the Titanic plan has been in addition to the general digital strategy to get an ecommerce site up, I am happy to say that we do have one up now. It’s somewhat limited in terms of its product offering. We have got a fair amount of work to do, but I am happy to sit here today and tell you that we have actually got an ecommerce site up. So overall, when you look at our achievements to date, primarily what occurred in the quarter and basically the first half of the year, I believe we have taken a very dramatic step and a very important step in this company. We have not only created, but solidified value vis-à-vis the artifact collection with the court’s ruling, but even as important as that, I think we have created and certainly demonstrated an ability which has been my goal, I talked about in prior calls to again demonstrating the ability to create a more robust, more dynamic, more of a 360 degree business model around an iconic asset properties like Titanic, and I think we have demonstrated to ourselves and hopefully to the community that we have been able to do that. And I think that will reflect well on us and certainly will be important as we look to pursue new content opportunities in the future.
So, immediate goals with respect to Titanic, capitalizing on some of the IP that we develop, creating, not to be left off the page, a new – much like Bodies, relaunching the Titanic expedition, leading up to the anniversary in 2012. Using the assets generated from the trip, be it high-def 3D video, be it the photo mosaic, the virtual Titanic if you will, and keeping that together, using those as we hopefully move the needle substantially in terms of what the new expedition can look like.
So, again, when we look at the quarterly results, in my view, we have to be evaluating in the context of us trying to make projects against all of those initiatives all at the same time. We are always looking to balance obviously short-term profitability, but on the way and in parallel making major moves to reposition the company in terms of core properties, in terms of long-term financial viability and obviously and obviously as I said earlier demonstrating the ability to create a more dynamic set of business model and ultimately diverse our revenue streams by virtue of doing so.
So, that’s again what’s transpired in Q2. Looking what we are focusing on at the moment in sort of the foreseeable future, in addition to advancing both Titanic and Bodies in the way that I described, really the primary focus is on new content development. We have got a number of initiatives underway that we feel are relatively solid. One in particular, I should spend some time on is a strategic partnership that we recently formed to pursue new content. I think we have disclosed it in the prior Q, but didn’t spend much time on the topic on the last call. So, I want to spend a little bit time on that now. And in doing so, as we have announced, that we formed a joint venture with an entity called S2BN, and that’s a diversified entertainment company headed by Michael Cohl. I am sure most people on the call know who Michael Cohl is, he is one of the most prominent and successful content promoters in the world. S2BN is again diversified entertainment company. They are primarily in the music space, but they also do a lot in theater and with expeditions. Our goal with S2BN in this joint venture is really to obviously maybe to leverage our joint capabilities, to take advantage of Premier’s strength with regard to exhibition, conceptualization, design, production, marketing operations, what have you. S2BN really brings to the table relationships and just his perspective on the entertainment space, access and perspective on new content, he and his partners obviously world-class promotion capabilities, their knowledge of markets, their relationship with partners internationally. And you think it’s a great marriage, a great manner in which to pursue new content generally, the model accommodates sharing of risk, affords us the ability to finance projects not only with S2BN capital, deferred party capital, and along the way, it allows us to demonstrate our capabilities¸ again diversify our revenue base, while using limited capital against more projects, I guess it’s one way to say it.
So, that’s what we are doing with S2BN, again it’s a relatively new joint venture. There are a couple of projects that we are pursuing together already. One is relatively close to being announced. The way I would describe it sitting here today is like all of our projects that we are pursuing, these are with some of the most iconic brands in the world, entities or properties that are the strongest in the categories that will, like we have banded with the Titanic off late, provide us with the opportunity to create 360 degree business model around the event or the exhibition or the experience, something that’s not static, but is immersive in terms of its experience but also provides the opportunity to have multiple revenue streams, multiple tie-ins, sponsorship, on and on and on.
So, that’s what we are doing as with S2BN. We still have projects, some projects obviously we are pursuing on our own. We have got a number in that category as well that we are actually pretty excited about. Like with Michael Cohl and his group, these are some of the most iconic properties in the world. So, taken together, we can have some flexibility as to what we do on our own and flexibility as to what we do with partners.
The last point I will make on new content is again, I am pretty happy with the fact that some of the opportunities that are coming to us today are coming to us, getting phone calls from people kind of out of the blue, people that have either new content or some of these iconic properties who have watched from their vantage point the projects that we have made vis-à-vis reposition this company, vis-à-vis demonstrating new capabilities in all of these areas. Today, I think that’s the best witness test. People literally coming to us with the hope that we will bring that product to market. So, again, while we will certainly grow up to do this, not only opportunistically or reactively, obviously we are looking into the marketplace and what we need to – basically the consumer demand dynamics and working backwards to see what shows we could develop to fit those dynamics, I think in addition to that, we should feel good collectively that in the judgment of industry participants in the main, from their view we are ready to take on their properties. I think that is highly instructive.
And just one more thing to note on the topic of new projects that have been rolled out, if you can consider Dialog in the Dark, a new project, I consider it a new project because of the way that we are re-launching it basically, like Titanic, like with Bodies, we have a complete overhaul of the properties, obviously there will be a blockbuster in a way that Titanic or Bodies was. But it certainly going to be a more dynamic business than we had in the past, more even-oriented, even take advantage of more of the potential for diversity, corporate training, different types of entertainment event being associated with it, sponsorship will obviously be key. The dialog is ready for prime time again, and we are currently working on a touring schedule, both in terms of self-runs and also with museum partners.
Topic four, let me cover this relatively quickly and then hand the call over to John. I wanted to discuss strategic, what I would characterize as corporate strategic alternatives for a moment. Again, as I said at the outset, I know a lot of people have questions about this, (inaudible). I think it has been disclosed, I will start with Sellers Capital first. I think Sellers is very – went public with an intention to liquidate its fund. We have decided to retain the investment in PRXI. I think that’s great news. So, with that, I think it’s fair to say at this stage, Sellers is no longer pursuing a transaction for his stake in Premier, and while he know that the Sellers Capital timeframe is not infinite, we certainly appreciate Sellers Capital giving the management team time to pursue these strategic alternatives, obviously with the goal of maximizing shareholder value over the course of time.
The other question I get often is – and I think it largely came as a consequence of – Mark indicating that he might try to move to stake, and capital stake. And the question is, is the company for sale? The company has engaged an investment banker. Is the company officially for sale, and I would tell you categorically no. Every public company obviously is for sale at some point, if someone comes out of the wood work and puts him off on the table, we are not proactively, nor have we instructed our investment banker to design a process to solicit offers for the company.
So, with Sellers Capital stake aside, my commentary on the fact that we are not looking to market the company aside, we certainly are looking at and are evaluating M&A opportunity more opportunistically. I am not going to add a lot of detail sitting here today, but what I can say is there are opportunities out in the marketplace, be it in our space or related spaces that we find intriguing, that we are all looking at, we will look at, we have got advisors on the scene to help us evaluate and explore, and these are projects or properties who are business models that transaction structure aside, that can provide everything from new content, diversity in the business model, additional resources, capital, the ability to leverage Premier’s resources and capabilities. So, again we are taking somewhat of an opportunistic approach, obviously focusing on those companies that are already profitable and can provide for accretive transactions.
So, I won't be surprised if there are some questions about at that at the end, but in the interim, I am going to hand it over to John to go through the financial information in more detail.
Thank you, Chris. And with the background color Chris just gave us, let me share a few details. As we stated the full complement of shares was touring this quarter whereas in the second quarter of last year, five shares spent some portion of the quarter in storage, with no place to go. Why is that important? We are constantly evaluating our touring capacity particularly in the Bodies brand. We consider the available markets, how we predict we think each may be, compare that with a number of new costs of the shows we are carrying in inventory, and we feel like we have got that balance right in the second quarter and executed according to plan to deploy each tour.
Our utilization rate was 87% in the second quarter as compared with 74% in the same quarter last year. Importantly, we achieved this level of deployment in a heavily self-operated way. We entered tertiary markets and international markets running the shows ourselves. That’s something this company have never done. So, we deployed the assets fully, but attendance was soft. Total attendance was off 11%, at 1.2 million compared with 1.3 million last year. But with the increase in operating days, this means average daily attendance at each show was off 17%.
Remember, these are averages, for example, our Vegas shows improved year-over-year. Titanic Las Vegas is on track to have its highest attendance this year ever, but that just means some of the other shows had a pronounced drop in attendance per day. And when you are so heavily deployed in a self-operated way, that drop in average daily attendance really cut the gross profit. As I said, we are seeing some very positive signs in Titanic attendance and most of that has been even before we announced this year’s Expedition. We see tremendous potential in the Titanic brand as we approach the 2012 Centennial, and we are exploring a number of ways to leverage the output from this year’s expedition.
All of that said, we continue to operate in a difficult economy and total attendance was softer than we expected this quarter. Just as every other form of entertainment has been affected, consumers continue to carefully justify how they spend their discretionary entertainment dollars if at all. We had several shows where attendance floated around the breakeven point. That means a modest increase in average daily attendance would have translated into significant added profit.
The drop in average daily attendance across the company of 139 tickets per day compared with last year equates to $4 million less revenue this quarter. That revenue would have been additional gross profit. A higher average ticket price did help blunt the impact of lower attendance and we will look to ways take prices further in the coming weeks and months and in the markets we think we can.
Focusing on tertiary markets, we entered two markets and saw their attendance at roughly 7% of the demographic area of population, and we are still refining our cost structure in these smaller markets with basically in these early steps to adjust the tertiary million markets can be profitable for our form of entertainment. There are about 40 cities this size in the United States that represents a fairly large playing field not simply for Bodies and Titanic, but for other content as well.
So, that market has tremendous potential, but it’s not without risk. Each of the cities is as unique and that’s particularly true in this difficult economy. On self-operating internationally, the team moved quickly to open Bodies in New York City. We have demonstrated we have some ability to operate independently outside of the United States. We have spent more time looking at our auctions here, and we will be announcing another international show in major European markets that will be self-operated as well.
Let’s talk about the rise in direct costs of revenue for a minute, they are up significantly. But this is strictly a function of the number of self-operated shows. Self-operating days went from 460 in last year’s second quarter to 1,071 this quarter. The simple mechanics of GAAP means higher costs running through our books as compared to working with promoters in museums. We did have a planned modest increase in daily self-operating costs related to the new marketing and advertising, but when you do the math, the entire increase is a function of self-operated shows and was in accordance with our plan for the quarter.
As we have said, the actual attendance was far less than we expected or planned, with the wisdom and strategy of self-operating we have covered before. Basically, if you think you can drive attendance in a particular market, then we should own it, rather than sharing the profits with a third party. It’s a double-edged sword though, if people don’t come to the show, it cuts directly at your gross profit margins and there is no one there to share the pain. We have stressed this every quarter and we continue to stress the obvious importance of attendance.
As Chris indicated, we are making adjustments and remain committed to self-operated model. It is profitable in many cases and it comes without having to sue your partner to get paid. We are evaluating our total touring capacity in light of the attendance patterns. Our first goal in operating business of course is to be profitable. Titanic attendance patterns suggest we will make more money if we keep the shows booked as we approach the Centennial. And add to that, new types of revenue that Chris had described to the degree, the Bodies brand may be approaching maturity, we will adjust our balance there, but to be clear, the Bodies brand remains profitable in most markets and we are committed to it long term. I am speaking here in terms of degrees of adjustment. We currently operate 14 Bodies shows around the world and fully expect to be in the brand for a long time.
One last comment before I leave the metrics on attendance and ticket prices and direct costs revenue that result in gross margin. Despite all of the difficulties and soft attendance this quarter, at the core and in the main, Titanic and Bodies are a profitable base from which to operate and expand the business.
All right, moving on to G&A, we made some headways here. Table 5 indicates we did a better job controlling legal and consulting fees, total compensation expenses lower. In the prior period, we had significant bad debt, and while we continue to have difficulty collecting the amounts we are owed by some of our third party promoters, we generally approved the quality of AR this quarter and therefore did not add any AR reserves or bad debt expense this quarter. The collecting cash, when someone else run to the box office remains an issue again in this economy and if they win attendance doesn’t meet everyone’s expectations.
It all adds down to an operating loss of roughly $215,000. If you add back depreciation and amortization of $1.2 million and non-cash stock-based comp of $154,000, you have adjusted EBITDA of approximately $1.1 million in the quarter. That number includes about $400,000 spent on strategic initiatives other than the dive that were expensed.
I am asked to remind you that we have a definition of adjusted EBITDA and reconciliation of adjusted EBITDA to net income, which is presented in the press release and tables. If you are unable to see that, you can find it on our Website at www.prxi.com.
On the balance sheet, looking at cash, we began the year with $13.6 million in cash and marketable securities. As of August 31st, we had $8.1 million. That’s a total net use of $5.5 million. From the beginning of the year, we have been clear that our plan was to spend capital prudently on strategic initiatives Chris outlined and we have. The dive costs paid in the second quarter totaled $2.6 million. The dive was in process at August 31st, so there are going to be some cost in payment in the third quarter, but on the whole, the dive will be within its budget of between $3.5 million to $3.9 million.
Year-to-date, we have spent and capitalized approximately $700,000 relaunching the Bodies brand. For that, we have gradually converted seven of the 14 shows, and I too encourage you to see the show at St. Louis if you are able to, it’s a significant transformation of the brand compared to where Bodies was a year ago.
We have capitalized about $0.5 million of costs associated with the development of new content namely Playboy. Half of those costs are borne by our joint venture partner, and costs of these and other strategic initiatives that were not capitalized totaled approximately $1 million. And you can follow my math here, I am coming down to about $700,000 that we have used in ordinary operations of the $5.5 million. As we said all along, we moderate spending on strategic initiatives when and where we possibly could according to the cash earnings of the business. So, we have done that and we flex most of the initiatives in order to be able to do that the way we did and to conserve capital.
Self-operating on some of these shows does put a strain on working capital, and we are doing everything we can to manage and balance those demands. Moving on down to balance sheet, I should point out is an income tax receivable of $3.1 million. $2.8 million of that relates to prior years and that return has been filed with the internal revenue service. And we have every expectation of receiving that we find in the next few weeks.
Looking down at the rest of the balance sheet, you can see capitalizing much of the cost of the dive that was incurred through August 31st. There are seven intangible long-lived assets we have retrieved from the dive, which Chris has described, and we have disclosed the cost incurred in this interim balance sheet, and we will allocate the total cost among those identified intangibles in the subsequent period. We expect to amortize these costs over a period of several years as the cash associated with them is received. That’s just about that with the numbers.
With that, I will turn the call back over to the operator for questions. Rica?
(Operator instructions) And we will take our first question from Christopher Bratcher [ph].
Christopher, how are you doing?
Fine. I just had a question. I am an investor. I own about 70,000 shares, and a couple of questions. One is regarding your promoter that you just hired who is a pretty powerful promoter, what’s his compensation agreement? Is he getting a stock?
It’s a joint venture where we are pursuing projects together. There is no compensation associated with it.
Okay, good. And I had two other questions. One is you are really close to getting profitable even in this economic environment, do you think that the video sales direct-to-DVD would put you over the top or is that just a minute amount, do you think it has to do with opening more Titanic shows? I mean, how do you think you are going to get over the top, because you are really close?
I think it comes from a variety of, hopefully it comes from a variety of places. Just within the Titanic property, again there’s going to be a lot of momentum leading up to the anniversary. The show will evolve -- over the course of time, will evolve with regard to the assets that we generated on the mission, but even short of a complete re-launch to be able to queue within to bring in some of the high-def video immediately. So, that’s part of it. Second part of it just again within the realm of Titanic, all of these other assets, separate revenue stream be it a documentary with a major cable network that we will show in the revenue from, be it a high-def Blu-ray piece that we view separate apart from that, that we cannot own outright, be it monetizing what I would call the virtual Titanic raise if you will, 3D photo mosaic will have hopefully value, significant value over the course of time.
That also is going to hit tomorrow morning, so I think certainly over the course of time, over the next couple of quarters, we will begin to see the benefit of that.
Right. I mean, you are talking about something, I mean really high margin that you only need like $200,000 or $300,000 to get over the top so to speak.
Yes, it’s our intention candidly for the exhibitions themselves to be profitable, to become profitable just on the back of the exhibition. Everything else is on top of that, not only in terms of just the financial benefits, but also the ability to demonstrate and the capability to produce more vibrant, that I would characterize as a 360 degree business model around these properties.
Okay. And the last question, is Sellers Capital like an advisor day-to-day or is he just a passive portion sort of happy with his position and that’s bad?
While Mark Sellers is Chairman of the company, so he’s very active in that capacity.
Okay. And he’s just going to go along for the ride. It sounds, so he’s not even going to sell stock from time-to-time at the moment?
I don’t want to speak for Mark, but as I said, what I am prepared to say publicly is that, that stake is no longer available for sale, we are not actively marketing it, and that’s where it fits.
Last question, your court award for – that they are going to determine next year. Is their estimate, do you think, is a low vol, or is that pretty much, what you or I mean that it’s – are you guys pretty agreed on that?
I will give you my answer and Brian Wainger, one of our chief counsels, is on the phone, and Brian might, if I don’t answer it fully, Brian, you can take it up, provide more color, but for me, I think it’s the judgment of our counsel that if we were to get a cash reward, in-specie reward, that the minimum cash reward would be $110 million.
Okay. Which one would you guys rather have?
I am not going to comment on that this early stage. I think it’s very premature for us to be talking about Titanic in that way.
Fair enough. I wish you luck and thanks for answering my questions.
Thanks for introducing.
All right, take care.
Thank you, sir. And we will take our next question from Jason Braswell [ph].
Thanks for taking my call. I believe you just answered it. My question was regarding the Sellers Capital. You mentioned that he is no longer offering those shares for sale. Does that mean he is I guess you might not be able to speak for him, does that mean his fund is going to stay open or is he going to distribute those shares to his clients?
Let me answer this question, and I will be beating around the bush. So, basically there is no possible way I am going to sell anywhere close to this price, so effectively stock market will stay until the price of the stock gets higher. And until such time that, that happens we will just hold on to what we got. If it takes two months, if it takes two years, there is no timeframe whatsoever, it’s more about price and value at this point than it is about a timeframe. So, we haven’t been marketing the stake because of that. There is just no reason to market it at this price.
And in fact, we still have the investment banker retained as we have disclosed before, but we just haven’t been contacting anyone or going out and meeting with people about the stake. It’s just kind of on hold, because the value since the court case, the value in my mind has changed. It’s no longer probability adjusted evaluation, it’s now certainty because we got the court ruling. So, I don’t have to adjust the value downward in my head as to what I would take in a sale. So, that’s kind of why we have decided to just take it off the table for the time being until we get a better opportunity to sell.
Thanks for answering my question. One more quick question, the concert promoter that you mentioned, what was that name again, I didn’t catch that name?
The entity is S2BN [ph], the individual who is the Chairman of S2BN is Michael Cohl.
Okay, thank you.
Thank you, sir. And moving along, we will take our next question from Norman Klein [ph].
Good afternoon. Thanks for taking my call.
Hi, Norman, how are you?
Fine, thank you. First, Chris, I just want to thank you and everyone involved with the expedition, I am sure there is a lot of physical and mental discomfort along the way, but I just think it was a great accomplishment I am sure from your standpoint in which one of the highlights of your professional carrier.
Thank you so much.
I was following it on Facebook and Dave Gallo was kind enough to answer some of my questions. I just want to just reaffirm them. He indicated that you guys brought back about 300 terabytes of data, that’s all of data.
That’s accurate. We consider all of the optical imagery over every inch of a mile-and-a-half by mile site, that in addition to all of the sonar imagery, all the acoustic imagery of the 3D, high-def 3D video and still, yes, all hold that level of that data.
Okay. And can you give us an idea of a couple of things that you had planned to accomplish and because of the weather issues, you weren’t able to get to?
It’s a good question. As I said at the offset, in spite of the weather, in spite of some of the equipment challenges, we got everything done that we set out to do, I was thrilled. What it really took was that the plan originally wasn’t to have all the vehicles in the water at the same time. There is some lifting inherent in doing that. I think this is probably the first mission anywhere we had two autonomous vehicles working at the same time that you had a tethered vehicle two-and-a-half miles down. So, we pushed the envelope a bit and how we executed the mission and by virtue of doing so, we truncated the time that we need to be out on the play.
All right. That’s great to hear. Just something off the type of the expedition, is there or did you make any progress in sub-leasing, the space at Vegas, I know we talked about a little bit a couple of quarters ago, haven’t heard anything since?
Yes, I will pass it to John.
We have. During the quarter, we signed all the documents and we sort of joined forces with a third party. We put an exhibition in the third space. It’s an exciting plan. I don’t want to steal. There is Thunder, but I would say it’s sports related and it is planned to be open in time for the Super Bowl.
Okay and this is not sports-related, in conjunction with the lawsuit that we are fighting with our previous –?
No, it’s not. It’s in a different vein I think than the concept that’s been on the table and that we are in litigation over.
Okay. And the litigation you mentioned talk about any progress or –?
Brian, why don’t you address that?
Sure. We are in a process of going through discovery. It is progressing as we would expect and beyond that, there is not much more we could take at this point about the actual case.
Okay. Appreciate it. Okay, I think this has been a great call and Mr. Seller is not actively – he’s waiting until we catch up at least $4 a share. And with that, I am on the team with that goal. So, thanks again, appreciate it. Take care.
Thanks, Norman, appreciate it.
And next, we will hear from Nicholas Green with Green Partners.
Nicholas Green – Green Partners
Thank you. In the last quarter, you guys were looking to raise capital about $20 million through some preferred stock sales. And I am just wondering if you can maybe clarify what you are thinking with the proceeds, and if you guys maybe looking for something in the future?
Yes, Nicholas, thanks for the question. I would say that, that was just a part of the proxy and as we opened the year and evaluated what sort of strategic alternatives might exist, we thought that we had maximum flexibility if we had sort of something on the shelf. That did not pass. I think we didn’t push it very hard, and we viewed it as not real bother. If we come up with a good idea, and we think we need capital, we will come back to the shareholders at that time and ask for your vote then.
Nicholas Green – Green Partners
Okay. So, you didn’t have any grand plans at the time when you were thinking of 20 million or –?
We had a specific idea at that point, we have outlined, in fact we would have been required to.
Nicholas Green – Green Partners
That makes sense. And from a balance sheet perspective, and you guys are obviously spending money on the right thing, how do you feel going forward with your growth kind of CapEx plans? It looks like with the tax refund you will be sitting around, roughly 10 million or so, how do you see that going forward sort of from a balance sheet strength perspective?
We are comfortable with our liquidity right now, and I think it’s a constant balance where you say where should you invest your capital mix, and that we are seeing profit, we have a way generating profit from the core business and Chris outlined some growth initiatives, and so, we just have to look at that. Not to mention as we described, we have the ability with joint venture partner on some of these new concepts where we want to or where we want to raise outside capital and perhaps diversify our risk on some of the new concepts.
Nicholas Green – Green Partners
Thanks so much and guys keep up the hard work.
(Operator instructions) And at this time, there are no further questions; I would like to turn the conference back over to Mr. Davino.
Again, thank you everyone for participating today. As always, if you have additional questions, anything comes to mind, don’t hesitate to call either John or myself. Thanks again.
Thank you for your participation in Premier Exhibitions Incorporated earnings call. If you have any further questions or comments, you may contact the company directly. This concludes today’s call.
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