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Premier Exhibitions Inc. (NASDAQ:PRXI)

F4Q12 Earnings Call

May 23, 2012 05:30 pm ET

Executives

Sam Weiser - Interim President & CEO

Michael Little - CFO & COO

Analysts

Daniel Earle – TD Securities

Operator

Good morning and welcome to the Premier Exhibitions’ Fiscal 2012 fourth quarter earnings results conference call. Today’s conference is being recorded. I would like to remind everyone that the company will be making forward-looking statements on today’s call. These forward-looking statements are based on current expectations and are subject to a number of risks and uncertainties and are not guarantees of future performance. Undue reliance should not be placed upon them as actual results may differ materially. Please refer to the risk factors identified in the company’s filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on the company’s operating results, performance, and financial conditions.

And now, I’d like to turn the call over to Mr. Sam Weiser, Interim Chief Executive Officer and President of Premier Exhibitions Inc. Please go ahead, sir.

Sam Weiser

Thank you, Operator and good afternoon everyone. As the operator stated, we remind everyone that today’s conference call may contain forward-looking statements which are based on our current expectations and are subject to risk and uncertainty. In addition, today we will discuss adjusted EBITDA, a non-GAAP financial measure which our company uses as a key metric for evaluating performance internally and which we believe provides investors additional information to facilitate the comparison of past and present performance. A detailed explanation of this non-GAAP measure can be found in our earnings release and Form 8-K filed today with the SEC. I want to begin with a discussion of our business including our fiscal fourth quarter and full-year results.

Then I will comment on the sale of the Titanic assets before turning the call over to Michael Little our Chief Financial Officer and Chief Operating Officer. Overall I am pleased with the progress we've made in streamlining our exhibition business to position the company for profitable ongoing operations following the sale of the Titanic assets. This past year was difficult as we reorganized and restructured to realign our headcount to focus more on revenue generation and put the company in position to maximize opportunities available with our legacy properties. I am also pleased with how our professionals have executed on various Titanic initiatives to expand our revenue opportunities and take advantage of the publicity, the 100th anniversary of the Titanic sailing and sinking has generated.

Our calendar for Titanic exhibitions is full for the foreseeable future and the exhibition will visit Dallas, Fort Worth, Kansas City, Detroit, San Diego, Houston, Bangkok, Thailand and a number of other cities during the current fiscal year, all of which will complement our permanent installations in Las Vegas, in Orlando. In Orlando we are just beginning to exploit the opportunities inherent in this prime tourist destination market with our current attendance trends generating revenue that exceeds what the exhibit was generating prior to our acquisition.

In January we installed 100 artifacts from our collection to enrich the experience for the millions of potential visitors who vacation in the Greater Orlando area on a yearly basis. And these enhancements have strengthened our retail opportunities by creating another outlet for our Titanic related merchandise. We continue to operate our Titanic exhibitions while we pursue a sale of the Titanic assets. While we hope to retain exhibition rights to the Titanic for some period of time following the sale, we can't be certain how new ownership will decide to fulfill the requirement for public display of the artifacts. We are however continuing to book engagements to meet demand since the current and future exhibitions may represent the final opportunities for the millions of Titanic fans to experience Titanic: The Artifact Exhibition.

In addition we continue to pursue new licensing and merchandising opportunities to secure new distribution channels for our Titanic merchandise and intellectual property. Since yearend our intellectual property from Expedition 2010 has been featured in the National Geographic cover story and a History Channel documentary about the groundbreaking scientific work performed on the 2010 expedition. While we didn't recover any artifacts on the most recent expedition, we did secure some amazing intellectual property that we are now introducing into our exhibitions. Our first installation was our New Atlanta Titanic exhibition and we intend to roll out more of this new exhibitory over the next six months.

We've also been working with a group at the Michigan State University to provide groundbreaking research on the Titanic Mapping Project and you can expect to hear more about this initiative in the coming months. As you might expect our e-commerce website offering Titanic theme merchandise has been showing strong results. Coupled with other merchandise related initiatives we have enjoyed an increase in merchandise revenue around the anniversary and sales continue to be strong. We have also seen a significant increase in our exhibition merchandise sales as our per cap sales increased 30% year over year in the fourth quarter.

Per cap sales refers to the amount of merchandise sold on average to everyone who attends the exhibitions. Moving forward our recent acquisition of the Arts & Exhibitions International assets has not only diversified our exhibition portfolio, but also added experienced professional talent and provided access to new content. The combination of the Premier and AEI businesses has positioned the company as an industry leader in the development and exhibition of unique content for education, entertainment and brand extension. Our focus is to establish Premier and its AEI subsidiary as the leading source for content owners to expand their brands through joint ventures and other licensing arrangements that provide the appropriate risk reward profile to generate profitable revenue growth.

As we explained in our announcement, the acquisition of AEI required no upfront cash outlay by Premier other than the transaction costs and the transaction is non-dilutive with respect to current shareholders interest in the Titanic assets. We continue to look for other strategic opportunities similar to the AEI acquisition and fee-for-service arrangements with owners of exhibition content, where we can provide accretive benefit to shareholders.

I want to take this opportunity to welcome John Norman and his AEI colleagues to Premier. We’re very excited to be working with such a luminary in the exhibition business. John brings us more than 15 years of exhibition experience and he was part of the original team that imagined our original Titanic exhibit.

The four AEI properties we acquired reflect the high standards John and his team insist on to make the visitor experience unique and educational. The exhibition properties we secured in the AEI acquisition include Tutankhamun and the Golden Age of Pharaohs, which has been viewed by more than 7 million people. King Tut opened this week in Seattle with more than 90,000 tickets being sold in advance of the opening.

The other properties acquired from AEI include Cleopatra: The Exhibition that features never before seen artifacts. Real Pirates which tells the story of The Whydah and displays artifacts collected from the ship by Barry Clifford who identified the wreck in 1984 and America I Am which celebrates the extraordinary impact of African-Americans on our nation and the world.

Turning to our financial results, our quarterly and full-year operating performance demonstrates the positive steps we’ve taken to improve our underlying financial condition and drive profitability. In fiscal 2012, we made significant progress in getting our business right sized in terms of overhead and we expect the current fiscal year to fully release the benefits of our prior year cost and management initiatives.

Despite a reduction in total revenue, we substantially improved our gross margin and operating margin and reduced our G&A expenses by more than $5 million. These efforts resulted in our generating positive adjusted EBITDA in fiscal 2012 for the first time since fiscal 2008 and narrowing our net loss versus the prior year, while further cost cutting will play a role in fiscal 2013 we also realize that we can not simply cut our way to sustainable profitability.

For the current year our focus will be on top line revenue growth while also looking to further rationalize operations where appropriate. So far results for the first quarter of fiscal through 2013 are promising. To achieve revenue growth in our exhibition business, we have redirected personnel and retest several individuals to focus exclusively on generating higher tickets sales and judiciously expanding our marketing expense to increase revenue.

Going forward, new bookings across Titanic, Bodies and the AEI properties along with new content opportunities will be dependent upon the expected revenue opportunity, the risk retained by the company and the commitment of our partners. More importantly, our professionals are clearly accountable for delivering on their specific projections and contributing to the overall corporate profitability. So while we are clearly in better shape now than we were when we started the year, we also appreciate the task ahead of us and are working diligently to provide our shareholders to level of performance that they deserve.

Before I conclude, let me comment on the Titanic sale process. We remain in discussions regarding the potential sale of these assets. As shareholders, we hope you can appreciate that this is a complex matter best conducted in strict confidence. Talks with potential buyers have turned out to be more complicated and have taken longer than we estimated.

Be that as it may, we do not want to rush the process so that we can maximize the value we receive. However to provide any more information at this time it can damage the process and ultimately the price we receive for these assets. I want to be clear that our board has committed to monetizing the Titanic assets and we intend to do so in a tax efficient, judicious and disciplined manner recognizing appraised value of the artifacts and the intrinsic value of the other Titanic assets.

In addition, when a transaction is completed we do intend to direct substantially all the net proceeds to share holders. Our directors as a group control approximately 50% of the company's shares and are focused on maximizing shareholder value. As a board, our interests are clearly aligned with our share holders.

We have no additional comments at this time but we'll update you as developments warrant. Accordingly, at the conclusion of our prepared remarks we will be pleased to take and answer your questions regarding our fourth quarter and full fiscal year 2012 results and business performance only.

And now I'll turn the call over to Michael who will discuss the financial results. Michael?

Michael Little

Hello everyone, thank you for joining us today. While I will focus most of my remarks on our financial highlights from the fourth quarter, I do think it's worthwhile to begin with a quick review of our full year results.

First on an annual basis, we grew our gross profits by 28% to $14.4 million despite a 29% reduction in total revenue. Our G&A expenses reduced by 27% to $14 million and our net loss narrowed to $5.8 million from $12.5 million despite more than a $2.1 million in impairment and litigation expense in fiscal 2012, for which there were no comparables last year.

As stated last year, our goal was to reduce G&A by $5 million. We delivered in excess of that goal. On an adjusted EBITDA basis, our results were positive for the first time since fiscal 2008. Our adjusted EBITDA came in at $1.2 million which compares to last year’s negative $7.3 million, that's a $8.5 million year-over-year increase. These are certainly outstanding list of achievements and while there's a great more to do I know that we are on the right path.

Now turning to the fourth quarter, for the three month period ending February 29, total revenue decreased 23% to $7.5 million from $9.8 million last year due to fewer bodies’ exhibits presented which was partially responsible for overall attendance and the corresponding decline in merchandise sales.

These factors were slightly offset by higher ticket prices which increased 3% to $15.69 compared to $15.22 in last year’s fourth fiscal quarter. Gross profits increased 51% to $3.1 million from $2.1 million and were driven by lower exhibit exhibition costs which decreased at more than twice the rate of the decline in exhibition revenue.

Adjusted EBITDA came in a negative $300,000 for the quarter which is a substantial improvement from the negative $3.5 million in last year’s fourth fiscal quarter. Our GAAP net loss narrowed to $2.9 million or $0.06 loss per diluted share compared to a $5.1 million or $0.11 loss per diluted share in the fourth fiscal quarter of 2011. Notably, in the fourth quarter, we incurred the $1 million impairment related to Dialog in the Dark, exhibitions in Atlanta, Georgia and in New York City, and for which there were no comparable charges in the prior year period.

Delving to our performance a little deeper, exhibition revenues decreased 21% to $6.7 million from $8.4 million in the year ago quarter. We had a 183 operating days. We had 183 fewer operating days, a 13% decrease and a 38% drop in average daily attendance, a 7% decrease which were only slightly offset by a modest increase in average ticket price.

Once again, few operating days were mostly due to exiting the self-run Body segments of our business.

We had 20 exhibits presented in the fourth quarter of 2012, comprising of seven stationary exhibitions and 13 tour and exhibitions. That compares against the 23 in the same period last year, of which five were stationary and 18 were touring.

The cost of exhibition revenue fell 45% to $4 million compared to $7.2 million in the fourth quarter of 2011. Once again, we benefited from exiting the self-run operating Body touring segments of our business. As these exhibits were closed, the cost that we incurred for production, marketing, the licensing fees and operating spends were significantly reduced or eliminated.

Beyond that, we’ve also been extremely aggressive in cost containment at the remaining exhibits. Merchandize decreased 20% to $862,000 during the fourth quarter of fiscal 2012 from $1.1 million in the year ago period, which is a reflection of the reduction in exhibitions presenting as well as lower attendance compared to the same quarter of last year.

However, on a per person basis the average spends on merchandize was up substantially between both periods. As the number suggest, we more than offset the 20% decline in exhibition revenue by reducing exhibition cost by 45%. This was accomplished by winding down most of the self-run exhibitions for late last year coupled with implementing aggressive cost containment efforts for the remaining self-run exhibits.

Gross profits for the quarter on the Titanic brand accounted for 66% or $2.1 million of the $3.1 million total gross profits. The remaining $1 million was generated by the Bodies and Dialog brands. For the full year the Titanic brand generated $8.9 million in gross profits or 62% of the $14.4 million in gross profits. Remaining $5.5 million was generated from the Bodies and Dialog brand.

Turning to G&A expense, they decreased by 37% to $3.6 million compared to $5.7 million in the fourth quarter of fiscal 2011. The decline was due to 522K reduction in compensation and benefits. As we have fewer administrative personnel supporting few exhibits and the positive $732,000 swing in bad debt expense. And $1 million reduction in other expenses made up of travel, warehouse expense, specimen licensing fees and office expense.

Depreciation and amortization expense in the fourth quarter decreased $353,000 to $1 million which is attributed to the assets being fully depreciated or amortized. Finally on our P&L, the loss from operation in the fourth quarter improved by $2.3 million to $2.7 million loss in the fourth quarter of fiscal 2012 as that compares to the $5 million loss from last year's fourth quarter. And as I stated earlier, this year's fourth quarter included $1 million impairment charge.

In terms of the balance sheet, cash and marketable securities combined were $2.7 million on February 28, while operating cash flows was negative of $1.4 million that compares to negative of $1.6 million from the same period of last year. For the full year however, our operating cash flows increased from a negative of $2.5 million to a negative of $800,000.

Liquidity continues to be a focus and as of April 30, our cash and marketable securities balance has increased by $2 million to $4.7 million. As Sam stated earlier, regarding the AEI transaction we welcome John Norman and his AEI colleagues at Premier.

This transaction required no upfront cash outlays and is immediate accretive to earnings. The addition of the four AEI brands further diversifies Premier's existing portfolio of exhibits and strengthens our overall exhibition business.

So taking as a whole, we have made substantial progress in improving our core business, and we are now better positioned than we have been in a long time. I am proud of what our team has accomplished under these difficult circumstances, and we intend to utilize fiscal 2012 as an opportunity to build a platform for top-line growth, while remaining diligent in controlling costs. Operator, with that, I'm happy to open it to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we will take our first question from Daniel Earle.

Daniel Earle – TD Securities

Hi, how are you guys doing?

Samuel Weiser

Good.

Daniel Earle – TD Securities

Can you tell us how we should think about the Chris Davino departure last month? And was he involved in any way in the auction process? I know this has something that was in the works for a while. But just walk us through how to think about that? Remind us sort of the history and just comment if he was involved directly in the auction process.

Samuel Weiser

Chris' had a contract, and as everyone knows, I think expired on April 30th. And I wouldn't read anything more into it than the contract expiry. Chris was involved in the business up until the time of his departure and, quite frankly, was very important in terms of helping to structure the conversations that we had with prospective buyers and other bidders.

More importantly, Chris' departure just because he left, he still has a transaction bonus that is still a part of his contract. So I think that while he's no longer associated with the company, I think that we can still count on Chris' ongoing involvement in helping us get a deal done.

Daniel Earle – TD Securities

Okay, thank you.

Samuel Weiser

All right, thanks Daniel. Next question?

Operator

We'll take our next question from Jeff Moore.

Unidentified Analyst

Yeah. I was curious about future acquisitions of different exhibits. Is his something that you're actively looking at or what should we expect in the future [there, Sam]?

Samuel Weiser

I think we're always looking at making smart decisions in terms of bringing on new content. Clearly, Mike and I have put in a process where we have very stringent requirements in terms of the risk reward profile that we're looking for, and what the return on the investment is for the company. We are actively talking to people all the time about new content opportunities.

Unfortunately, many of those discussions center around content that really doesn't have a whole lot of mass appeal, or where the dollars that would need to be invested could never be recovered through the exhibition. So unfortunately, we have nothing to announce in terms of new content but we continue to work towards it. And we also acquired, with the AEI acquisition, some access to some new content which we are pursuing with the AEI guys at this point.

Unidentified Analyst

Thanks.

Samuel Weiser

No problem. Thank you. Next question, please.

Operator

(Operator Instructions) And we'll take our next question from Norman Klein.

Unidentified Analyst

Yeah, good afternoon.

Samuel Weiser

Hi, Norman, how are you?

Unidentified Analyst

Fine, thank you. I looked up the definition of due diligence that you've used multiple times in your recent press releases. And it seems that the definition deals with work that is done prior to the signing of the contract. So I guess my question for you, and it's really a yes or no question, at this point in time, do we have a signed contract with someone, some company, person, country, whatever, for the sale of the artifacts and the intellectual property that goes with it?

Samuel Weiser

As I said in my comments, Norman, I'm not in a position to answer that question. We are, as we said, engaged in discussions with multiple parties and we're not going to compromise the process. We're just not going to do that.

Unidentified Analyst

Okay, fair enough. And you talked about the first quarter outlook. I think you used the term promising. First quarter is pretty much over. Can you give us some color on what the numbers might look like?

Samuel Weiser

Sure. The numbers are going to be in line and maybe a little better than they were last year. That's consistent period of time for us around the holidays and spring break. So we'll be ready to announce. But as I said in my comments, it's promising. And the big challenge for this company is sustainable profitability.

It's not one quarter of profits. It's multiple quarters, consecutive quarters of profits. And that's really what Mike and I are focused on. As I said, the first quarter looks promising but the real test for us as a management team is going to be the ability to deliver consistent and sustainable profitability for multiple quarters.

Unidentified Analyst

Okay. And this maybe something you won't be able to answer either. But last call, I spoke to you guys about the tax consequences of any sale to the company, and you told me you were working with Price Waterhouse to come up with the best solution to this for the company. Has some solution been made as to what the consequences will be at the time of an eventual sale?

Samuel Weiser

Again, I don't want to comprise the discussions that we're having. But I will tell you that, as I said in my comments, we understand the tax issues and we are working towards a tax efficient transaction. And so, we are in constant communication with our legal and tax advisors as we go through the process to make sure that whatever transaction gets done, will get done in the most tax efficient manner possible.

Unidentified Analyst

Okay. And when you eventually make an announcement, will you have already received court approval or will -- whether it would be still subject to court approval, or will that all be taken care of at some future date when some announcement is made?

Samuel Weiser

Again, I'm not going to speculate with respect to what the nature of the next announcement will be. But we will -- when we think we have something that merits full disclosure, we'll make that disclosure that may or may not involve something where the court has or has not opined. We are keeping the court advised of what's going on.

Unidentified Analyst

Okay. Thank you very much and we're all anxiously awaiting, as you can imagine.

Samuel Weiser

All right, Norman, thank you.

Unidentified Analyst

Thank you.

Operator

It appears there are no further questions at this time. Mr. Weiser, I'd like to turn the conference back to you for any additional or closing remarks.

Samuel Weiser

Okay. Thank you very much everyone for your time and patience this afternoon. Mike and I remain available should you have any direct questions you want to ask of us or things that come up subsequent to the call. We look forward to speaking with you. Thanks so much and we'll be in touch. Thanks. Bye-bye.

Operator

Thank you for your participation in the Premier Exhibitions, Inc. earnings call. If you have any further questions or comments, you may contact the company directly. That concludes today's call.

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