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Executives

Samuel S. Weiser – President and Chief Executive Officer

Michael J. Little – Chief Financial Officer and Chief Operating Officer

Analysts

Bill Vlahos – Odyssey Value Partners, L.P.

Premier Exhibitions, Inc. (PRXI) F2Q13 Earnings Call October 15, 2012 4:00 PM ET

Operator

Please standby, we are about to begin. Good day, everyone, and welcome to the Premier Exhibitions Incorporated Fiscal 2013 Second 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, Chief Executive Officer and President of Premier Exhibitions Incorporated. Please go ahead, sir.

Samuel S. 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 risks and uncertainties.

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 also 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 would like to begin with a discussion of our business and afterwards, I will turn the call over to Michael Little, our Chief Financial Officer and Chief Operating Officer to review our financial performance in greater detail.

Let me start with an update of the Titanic assets. As we have discussed on previous calls, we’ve been working through a process to monetize the Titanic assets. I’m happy to announce this company has entered into a non-binding letter of intent with an entity representing a group of individuals will refer to as the consortium, working to purchase the stock of RMS Titanic Inc. for educational, regional, economic development and cultural purposes for price of a $189 million.

The letter of intent is confidential and has is the identity of the group and it’s subject to the parties negotiating binding purchase agreements, obtaining requisite financing commitments and other approvals. The letter of intent represents the first formalization of the process in which the company and consortium seek to combine efforts to place the Titanic assets at a permanent home as to monetize the assets for the benefit of the company’s shareholders.

The execution of the letter of intent does not guaranty that a purchase really consummated with the consortium. However, the letter of intent is designed to allow the consortium, the opportunity to secure its financing sources prepared to handle and house the collection of artifacts and to continue its efforts to establish public and private support or the venture. After careful consideration of our options, we are trilled to be moving forward with our plan to monetize the Titanic assets.

We will work diligently to pursue the transaction on terms advantageous to our shareholders in an expeditious manner. We are also highly confident that this party will prove to be an effective steward of the collection and satisfy the courts requirements for an acceptable salvor-in-possession.

Premier’s management is excited to be working with this group to complete a transaction and we look forward to working with them to progress this transaction towards completion. We are working with outstanding committed individuals, so believe that the ability to complete this transaction and have the opportunity to provide a long-term home to the collection.

We also look forward to continuing the company’s ongoing relationship with the collection through a license arrangement to continue exhibiting the artifacts and joint efforts to fully exploit RMST’s Titanic-related intellectual property. While no transaction can be guaranteed and there is still significant work to be done to close the transaction, we are working with the Group, we are confident, can execute on their plan and allow us to complete the sale process.

In addition, the LOI contemplates the sale of RMST stock, which our tax advisors believe is the preferable deal structure for the company to achieve tax efficiency. This is all the information I can provide on the process at this time, the company will continue to conduct the process confidentially, and we will provide additional information as material developments warrant.

While the news of our progress regarding the monetization of the Titanic assets is exciting, so to or the operating results of the company in the second quarter. We do going in that fiscal 2013 will be an exciting year for Premier and we haven’t been disappointed. We continue to rebuild our operating business organically and our recent turnaround has enabled us to consider strategic acquisitions that will position the company for sustainable profitability for the foreseeable future.

Our acquisition of AEI continues to be accretive and we hope to announce a couple of new exhibition properties that will add to our current portfolio in the near future. Our recent performance has solidified Premier as an industry leader in exhibition entertainment and our recent profitability should enable us to continue to build on our recent success.

We’ve earned more than $4 million of net profit in the first six months of the current fiscal year. Our adjusted EBITDA is close to $7 million over this same period. While we do not anticipate that the second half of the year will be a successful as the first half due to the nature of our exhibition calendar, we do expect these positive trends not just holding on to what we’ve accomplished through the end of August, but building on those results over the next two quarters.

While the 100th anniversary of the Titanic may have augmented first quarter results, second quarter results demonstrate the value of our turnaround efforts in the strength of our personnel and overall organization to a profitable exhibition opportunities and deliver profitable results.

As discussed in our earnings release earlier today, Premier acquired the assets of Exhibit Merchandise LLC. Our investment in that enterprise has already been recovered and we continue to expand our merchandising activities in a judicious and profitable manner. As we expand our exhibition offerings, each of these new exhibitions provides related merchandising opportunities that we can capitalize on and generate stronger returns on our invested capital.

As noted in our previous call, one of our strategic initiatives for Premier is to extend the exhibition experience beyond the four walls of the exhibition hall. During the second quarter, we continue to pursue these digital strategies that will deliver our content in varied ways to multiple constituencies of consumers. We continue to make progress on this initiative. We also continue to focus on building our core business by introducing Premier and AEI, the content owners looking to expand their brands through joint ventures and other licensing arrangements.

Furthermore, we continue to explore strategic acquisition opportunities that are accretive to our business and expand our offerings to a wider range of perspective consumers, while requiring a limited capital outlay. Additionally, we continue to explore opportunities for fee-for-service arrangements with content owners looking to develop, construct, and tour exhibitions built around their content.

Bookings for existing exhibitions and the newly acquired properties remain strong. Our calendar remains full and we continue to exploit our unique business model that includes both touring and semi-permanent installations. Our semi-permanent and installations in Las Vegas, New York, Orlando, and Atlanta continue to provide significant contributions to our gross margin.

We are constantly looking to expand our locations to other high traffic tourist markets, where we believe profit opportunities exist that far outweigh the CapEx required to enter these markets. Orlando venue continues to show positive attendance trends and merchandise sales remain strong. We are continuing to look for ways to improve the margins at our semi-permanent venues and we will be touring a special collection of Titanic Artifacts referred to as Jewels of the Titanic to these venues to build awareness and attract repeat visitors.

We have other special collection tourist plan and we’ll update you on these as they are launched. The Touring segment of our business was a significant contributor in the second quarter as our partner venue saw strong attendance yielding profit-sharing revenues that exceeded our forecasts. The nature of the touring exhibition model is that, most deals start with a fixed fee and move to a profit share as the attendance for the exhibit reaches specified levels.

As such for a successful touring exhibition, profit tends to be back loaded. As Mike will explain many of our shows in the market during the second quarter have concluded that we will be moving to new venues during the third quarter. This will limit the number of exhibition days for the current period. The results for our third quarter will reflect both the decline in operating days, as well as the reduction in profit-sharing revenues as the new venues work toward overall attendance numbers that will begin generating additional profit-sharing opportunities.

Going forward, bookings for our new content opportunities, as well as our Titanic Bodies and AEI properties will be dependent upon the expected revenue opportunity, the risk retained by the company, and the commitment of our partners. As I noted on the previous earnings call, we continue to manage the company with a philosophy of business as usual. We remain committed to finding new revenue streams, new distribution outlets, new merchandising opportunities, and most importantly, new opportunities in the digital realm.

Again, our goal is to achieve sustainable profitability quarter-to-quarter and year-to-year.

While management will be focused on working to complete the sale of the Titanic assets, we will not loose focus on the core business. Worth noting, our improved results and our expanded stronger business model and increase the value of the operating business as a standalone enterprise and our pipeline of new exhibition content should allow the company to achieve sustainable profitability in future years.

I will now turn the call over to Michael, who will discuss the financial results. After Michael concludes his remarks, we will be happy to take your questions. Mike?

Michael J. Little

Hello, everyone. I’m pleased to review our second quarter financial results with you today. For the first three-month period ending August 31, total revenues increased by $5.2 million, or 63% to $13.4 million from $8.2 million last year as we benefited from an increased number of operating days, higher attendance, greater merchandise sales, as well as full quarter of our AEI management fee.

Gross profit dramatically outpaced the revenue gain and increased $4.7 million, or 132% to $8.2 million, compared to $3.5 million for the same period last year. The higher gross profit was driven by the increased exhibitions, merchandise, management fees, management fee revenues as I will explain momentarily.

Adjusted EBITDA for the quarter was $4.3 million and rose $4 million from the prior year results. Net income was $2.8 million, or $0.06 per diluted share on a share base of $49.1 million, which compared to a net loss of $1.8 million, or $0.4 per diluted share in the second quarter of 2012. On a share base of $47.4 million, the higher share base was the result of returning to profitability this year and calculating the impact of the diluted effect of stock options.

And now let’s review our performance in a little bit more detail. Exhibition revenue increased $3.2 million, or 44% to $10.6 million from the $7.3 million in the year-ago quarter. We attributed our success to nearly 500 additional operating days, compared to the same period in fiscal 2012. That’s a 45% growth, as well as a substantial increase in average attendance, and 85% growth, largely related to our venue selection and Titanic’s 100-year anniversary.

Note that we do not recognize the exhibition revenue for the four exhibitions purchased from AEI. Instead, we receive a management fee for managing these properties in the amount of $250,000 per quarter. We had 18 exhibitions presented in the second quarter, compared to 17 in the year-ago period. Interestingly, revenue from the self-run exhibitions was slightly more than half of total revenue in the second quarter, compared to 80% in the same period last year.

While revenue from the self-run exhibitions were entirely stationary, compared to about a 70/30 mix of stationary and touring exhibitions for the second quarter of fiscal 2012. Please be aware that these comparisons exclude the AEI portfolio, which consist of the four properties that we manage King Tut, Cleopatra, Real Pirates, and American I Am.

Our average ticket price fell 18% versus the prior year to $14.32 per ticket from $17.54. I would like to make it clear that the decline in average ticket price is unrelated to any discounting activity to drive attendance, but rather the mix of current touring exhibitions, as these were more heavily weighed in museums compared to last year.

These museum venues have less revenue than our semi-permanent venues, but also have less cost than our semi-permanent facilities, resulting in a lower average ticket price with less expense. That is why our gross profit from our exhibitions grew a 132% over last year, it’s been a great six-month. The cost of exhibitions revenue decreased 3% to $4.3 million, compared to $4.4 million in the second quarter of fiscal 2012 as all exhibition cost categories remained flat, which in turn resulted in significant operating leverage.

Merchandise revenue for the quarter increased $1.7 million, or 195% to $2.6 million from $0.9 million in the year-ago period. The year-to-date increase was primarily a result of higher merchandise sales from higher attendance levels, a 12% increase on merchandise sales per ticket sold, or e-commerce website, the acquisition of assets from Exhibit Merchandising, as well as sales through QVC.

We attributed our merchandise success to the venue selection and the Titanic 100-year anniversary, which was further aided by the more compelling assortment of product offerings, including jewelry, house ware, fragrances and other Titanic themed merchandise that are inspired by or replicated based on authentic artifacts.

Within our exhibition themselves, we also feature more attracted displays and better shelf lighting, which is a reflection of our greater corporate focus on merchandise in general over the past year. The management will continue to focus on this revenue opportunity and maximize the venues profitability. Cost to merchandise as a percent of merchandise, revenue increased 38% in the second quarter of fiscal 2013, from 34% in the second quarter of fiscal 2012. This primarily was due to higher freight and handling costs.

Turning to G&A, our corporate expense increased 24% to $4.2 million, compared to $3.4 million in the second quarter of fiscal 2012. The increase was due to compensation expense, as well as higher legal and other professional fees. Depreciation and amortization expense in the second quarter decreased to 138,000 to 817,000, which is attributed to many of the fixed assets that have been fully depreciated, or impaired as part of last year’s impairment charges in the fourth quarter.

Note that we had an impairment charge of 400,000 in the second quarter of fiscal 2012, due to the termination of the licensing agreement with Playboy Enterprise International, for which there was no comparable expense in the second quarter of this year.

In addition, we settled a lawsuit for approximately $1 million in the second quarter of 2012, as approximately 200,000 related to this litigation has already been reserved in fiscal 2010. The additional settlement cost of 800,000 is reflected in the second quarter of 2012, and there is no comparable expense in the second quarter of 2013.

Finally, on our P&L, the income from operations in the second quarter improved to $3.1 million from a loss, from operations of $2 million in the second quarter of 2012. This was primarily due to higher revenues that was only partially offset by the higher expense as well as year-over-year favorable on impairment losses in legal ex-settlements has just discussed.

Interest expense was 121,000 for the quarter on our notes payable mainly relating to the AEI transaction, which compares against zero in the same period last year. This was only partially offset by the $71,000 gain on debt in the second quarter of fiscal 2013.

Income tax expense was $116,000 compared to $39,000 in income tax for the same period in this prior year. As you may recall, we have had operating losses that have been carry forward and mostly offset current tax, taxable income. Our current income tax expense relates primarily due to the foreign tax expense for our Singapore Titanic exhibition and the Federal Alternative Minimum Tax.

Finally, we realize net income of $2.8 million, or $0.06 per diluted share, compared to a net loss of $1.8 million, or $0.04 per diluted share for the same period last year. In terms of the balance sheet, cash and marketable securities were $6 million on August 31, which reflects a healthy increase from both the second quarter last year as well as fiscal 2012 year-end.

Our operating cash flows remains strong with the $3 million positive swing, compared to the same six month period from last year, and has risen $4.1 million through the first six months of this year compared to $1.1 million in the fiscal 2012.

I would like to note that the third quarter is generally a seasonally slower period as we take down move and setup the touring exhibitions representing in both the fourth quarter of the fiscal year and our first quarter of next fiscal year. Therefore, we expect our third quarter to be net income neutral compared to prior year, while the fourth quarter should demonstrate a year-over-year improvement in results subject to of course attendance increases at our new venues. Most importantly, however, we expect to be profitable on an annual basis for the first time in many years.

As Sam said, our exhibit venue pipeline for current content is completely booked for the balance of fiscal 2013, and we have great visibility into fiscal 2014 as well. We are also looking to introduce new content into the spring of 2013 as part of our expanding portfolio of educational and entertaining exhibits and experiences.

To conclude, fiscal 2013 has already proven to be an exciting year at Premier, and we are executing against our stated objectives. Our financials are strong, our strategy is clear and we believe that we can succeed in diversifying our revenue stream through the new content and merchandise opportunities while limiting our own investment capital. We will not be able to provide additional information on the Titanic sales at this time. But we would be happy to take questions on the operating results.

Operator, with that, I’m happy to open the lines to questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And we’ll go first to Bill Vlahos of Odyssey Value Partners.

Bill Vlahos – Odyssey Value Partners, L.P.

Okay, Sam, congratulations on all counts.

Samuel S. Weiser

Thanks, Bill.

Bill Vlahos – Odyssey Value Partners, L.P.

I had a couple sort of the big picture strategic questions aside from the sale of Titanic. Does that sale include the IP or potentially would that be separate?

Samuel S. Weiser

Bill, I can’t really comment on that in any greater stake other than to say that the transaction contemplates the sale of the RMST stock. So the assets of RMST would probably be conveyed, but that’s all I can comment to say on that as far as specific assets or specific intellectual property that still remains to be determined through the transaction process.

Bill Vlahos – Odyssey Value Partners, L.P.

Okay, fair enough. And then sort of how are you thinking about strategically your operating business going forward? Are you thinking about continuing it to run it as the standalone business or would you consider some sort of strategic sale or spinoff as well?

Samuel S. Weiser

Again, I think that the Board hasn’t really yet addressed that issue specifically, but I think all of those options are being considered and we’ll come up with the best and I think most strategically viable option for the shareholders, when we finally make that decision.

Bill Vlahos – Odyssey Value Partners, L.P.

Okay. And then lastly, I know you can’t talk about the sale, but roughly speaking, what sort of timeframe are you thinking about in terms of closing? Is that 30 days or 60 days or how should we be thinking about that?

Samuel S. Weiser

Yeah, I can’t comment on that. These processes have a life of their own and we’ll see what happens that’s all. We’ve got the letter of intent. We’re trying to move towards definitive agreements as we stated in the release.

Bill Vlahos – Odyssey Value Partners, L.P.

Okay. And then last minor question on the operating business. I know in the prepared remarks and in the press release you talked about these extraordinary revenue growth on the call about the fulfillment of the calendar in fiscal year 2013, 2014. Would you see some increase in ticket price, as I was a little surprised you didn’t see although, I was blown away by the number. I was a little surprised to see there wasn’t more elasticity in the pricing of the tickets, do you see that going up at some point in the future?

Samuel S. Weiser

Well, I think, we could obviously spend a great deal of time talking about our pricing policies. I think Mike talked more about the mix. I think it really depends, museums have lower costs and lower ticket prices. Our ticket prices and our permanent installations have actually been increased over the last year and those increases have held.

Bill Vlahos – Odyssey Value Partners, L.P.

Okay, terrific, and congratulations again on everything.

Samuel S. Weiser

Well, thanks.

Operator

(Operator Instructions) And gentlemen it does appear that we have no further questions. I would like to turn the conference back over to you for any additional or closing remarks.

Samuel S. Weiser

Okay, thank you, operator. Well, everybody thank you very much for joining the call. Mike and I remained available, should anybody have any specific questions going forward obviously, we are limited in what we can discuss with respect to the Titanic transaction, but we are looking forward to more information on our new exhibition properties, as well as continuing to try to build the organization to remain strong and viable as we go through this process.

Thanks again, and we look forward to speaking with you guys soon.

Operator

And once again that does conclude today’s conference call. We would like to thank you for your participation.

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