Collectors Universe, Inc. (CLCT)

F1Q2011 Earnings Call Transcript

November 4, 2010 4:30 pm ET


Michael McConnell, CEO

Joe Wallace, CFO


George Marima [ph]



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Good afternoon everyone, and thank you for joining us to discuss Collectors Universe financial results for the first quarter ended September 30, 2010. With us today from management are Michael McConnell, Chief Executive Officer, and Joe Wallace, Chief Financial Officer. Management will provide a brief overview of the quarter, then open up the call to your questions.

Comments made during today's call may contain statements regarding the company's expectations about its future financial performance including forecasts and statements concerning business trends and profitability that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The company's actual results and the future may differ, possibly materially, from those forecast in this call due to a number of risks and uncertainties. Certain of these risks and uncertainties, in addition to other risks, are more fully described in the company's filings with the Securities and Exchange Commission.

The forward-looking statements are made only as of the date of today's conference call, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise.

With that I would now like to turn the call over to Michael McConnell. Michael?

Michael McConnell

Thank you and welcome everyone to today's conference call. I will touch briefly on the quarter's financial performance and provide an update on several key initiatives at the company. I'll then turn the call over to our Chief Financial Officer, Joe Wallace, who will provide a more detailed overview of our financial results. At the conclusion of Joe's remarks, we will open the call for questions.

The company produced solid financial results for the first quarter of fiscal year 2011. Revenues grew by 5% driven primarily by an 8% increase in coin service revenues. Notably, coin units graded increased by approximately 25% compared to the same period last year. Within this unit increase at PCGS, bulk was up 35% and vintage was also up by 7%. We were particularly pleased about the continued steady increase in vintage, given it is a more consistent component of our business.

As many of you know, the bulk or modern business is inherently lumpy. Overall, our operations team did a fantastic job moving submissions through our system. A decline in average service fee, driven primarily by a mix shift to more bulk modern coins by unit, limited our gross profit improvement to a little over 1% to 61% as compared to the prior year.

Operating income before stock-based comp improved by approximately 4% as compared to the prior year. The operating leverage in the business was lower than one would expect due to our conscious effort this year to invest prudently and modestly in our business for future growth. For example, selling and marketing expense increased by approximately $300,000 quarter-on-quarter driven largely by investment in two areas

First, the European grading initiative in Paris, and second, three shows put on by PCGS and PSA in the quarter.

We obviously are monitoring these dollars carefully to ensure they deliver incremental profit for the company over the mid to long-term. As you know, the Board also approved a further increase in our dividend in early October and remains committed to a strong and stable dividend policy as a way to provide value to our stockholders.

Finally, let me briefly comment on the tax provision. First, and importantly, our cash taxes paid remain minimal and provided business conditions remain at approximately current levels, we anticipate paying minimal cash taxes in fiscal 2011 and fiscal 2012.

When the allowance against the deferred tax asset was reversed in Q4 of fiscal 2010, going forward, we will record a book tax provision on the income statement, thus impacting reported EPS. However, the cash flow statement highlights the non-cash nature of this provision.

Joe will comment further on this element of today's financial results in his prepared remarks.

Going forward, our second quarter is typically our slowest quarter of the year. We are, however, encouraged by several programs resulting from production at the U.S. Mint expected to come online between now and the end of the year. Additionally, our team just returned from Paris and we had another solid show where we continued to develop important relationships with customers on the continent.

Lastly, we expect to launch a further enhancement to our coin secure products shortly and we see steady increases in our subscriptions to our CoinFacts service, which now approaches 4,500, well above our original forecast.

I'll now turn the call over to Joe.

Joe Wallace

Thank you. Thank you, Mike, and good afternoon, everyone. I will now give a brief overview of the financial results for the first quarter of fiscal 2011. For the current first quarter, the company reported net service revenues of $9.8 million, operating income of $1.8 million, and after-tax income from continuing operations of $1.1 million or $0.15 per diluted share. This compares to net service revenues of $9.3 million, operating income of $1.8 million, and after-tax income from continuing operations of $1.7 million or $0.22 per diluted share for the first quarter of fiscal of 2010.

The reduction of the after-tax income from continuing operations in the current three months ended September 30, 2010 compared to the three months ended September 30, 2009 relates to us recording for financial reporting purposes an income tax provision of $745,000 or 40% of pre-tax income in the current period compared to $127,000 or 7% of pre-tax income in the three months ended September 30, 2009.

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