Collectors Universe Inc. (CLCT)
F4Q2010 Earnings Call Transcript
September 8, 2010 4:30 pm ET
Michael McConnell – CEO
Joe Wallace – CFO
George Marina [ph]
Marcel Herbst [ph]
Previous Statements by CLCT
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Good afternoon, everyone, and thank you for joining us to discuss Collectors Universe financial results for the fourth quarter ended June 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 and then open the call up 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 in the future may differ, possibly materially, from those forecasts 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 & 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 Mr. Michael McConnell. Please go ahead.
Thank you. Welcome to today's conference call. Before turning the call over to Joe Wallace, our CFO, who will discuss the financial results in more detail, I would like the opportunity to review the progress our company has made in fiscal 2010. A year ago I detailed several key areas of focus or our company. The first was to instill a sharp attention to efficiency and cost control in our core authentication and grading businesses.
Despite the weak macroeconomic environment, revenue grew for the year by approximately 11%, and we achieved a gross margin of 60.8% and an operating margin of 23.5%. These exclude stock-based compensation expense. The operating margin was a record for the company. In 2005 we achieved 23%.
Our entire team contributed to these financial results, and I sincerely thank them for their commitment, wisdom, hard work and creativity. Understanding who we are, what we do well, and being accountable to our plans have led to a renewed confidence in ourselves and formed a solid foundation to the business going forward.
We also completed the exit from the diamond and gemstone businesses. The excess office space in Midtown Manhattan was sublet resulting in a substantial reduction in both Collectors Universe liability as well as risk. This chapter is behind us. However, we will not forget the important lessons learned, and I believe our current strategy and implementation of growth initiatives demonstrate our commitment to prudent stewardship of your company.
Finally, to address our capital structure, last July we completed a Dutch tender for approximately 19% of the shares outstanding at a price of $5. Subsequently we initiated and then increased the quarterly dividend. Return on capital – return on invested capital from our continued operations now approaches 40%.
In summary, our back to basics plan is working well.
Looking forward to fiscal year 2011, we are encouraged by the ongoing development of various growth initiatives. Before discussing those specifically, let me highlight that we will continue to maintain our focus on efficiency and costs.
Moreover, we will seek growth opportunities within our core business and with an acute attention to incremental investment and returns on invested capital. We are looking to hit singles and doubles rather than home runs.
Specifically, the following products and services were introduced to our markets and customers during this past year. CoinFact is a little over one year old now, has exceeded our expectations and has over 3,750 monthly subscribers at 9.95 per month and continues to add new subscribers at a steady pace.
While not ready for launch yet, we continue to invest in the development of CardFacts and believe it has the potential to be as successful as CoinFacts.
Coin Secure and Plus grading were introduced in April. Sequential revenue since launch has been approximately 24%, and we anticipate achieving a pricing premium of approximately 35% over our existing service levels over time.
The marketplace is beginning to recognize the value of the secured designation and prices realized data. Importantly, the financial characteristics of this initiative had been favorable with an estimated payback on incremental capital invested of less than one year.
Our internet activities continue to perform well. CCE today has 551 members with a total revenue of approximately 1.7 million, an increase of 12% on the prior year. Recently we launched an upgraded site that has been well received by our customers and we continue to add attractive features such as quick price.
We anticipate this area of our business will continue to generate solid growth at very, very high profit margins.
PSA, PSA/DNA launched in June two new innovative products targeted at photo and autograph markets. Early indications are promising. The capital costs for this initiative were negligible and highlights how we can extend our services in extremely profitable ways.
Just as an aside on an overall basis while PSA revenue has declined, PSA/DNA revenue increased by 16%.
Finally, our expansion of world Coin Grading through the opening of an office in Paris is exceeding our base case expectations. We are all encouraged by the reception of our products and services in the European market and my sense is we may have under estimated the potential in Europe. Although early days, we are cautiously optimistic and I look forward to reporting back to you in more detail on our next call.