Collectors Universe, Inc. (CLCT)
Q4 2011 Earnings Conference Call
August 26, 2011 4:15 pm ET
Michael J. McConnell – Chief Executive Officer & Director
Joseph J. Wallace – Chief Financial Officer
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, 2011. 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 forecasted in this call due to a number of risks and uncertainties. Certain of these risks and uncertainties, in addition to the 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 J. McConnell
Thank you, and good afternoon and thank you for all of you attending our conference call today. A little over two years ago the management and board developed a strategy in operating plan that we believe would restore value for our shareholders. That plan focused on three key elements. The first was to focus on our core business and pursue top line growth through internal, prudent from a cost perspective growth initiatives. The second was to improve the operating efficiency of our operations. And the third was to deal aggressively and proactively with our non-core businesses and legacy assets and liabilities. Thus far that plan is working well.
The following figures exclude all the discontinued operations. Over the last two years, revenue of [our] company has grown by 24% within a difficult macroeconomic environment. Unit volumes have increased by 19% over the same period. Web-based advertising has grown from $900,000 for the year ended 2009 to $1.4 million for the year just ended, a 61% increase. CoinFacts is approaching 5,000 subscribers and generates revenue over $500,000 from a standing start in July of 2009.
Our online marketplaces have grown membership revenue by 34% over the two year period. We’ve opened office in Paris last year and expected to generate almost $1 million of revenue in the coming year and reach breakeven. Admittedly that is later than we originally forecast.
We introduced a new technology called CoinSecure and it generated $300,000 of revenue in the year just ended. Our PSA/DNA operation just recently moved into its East Coast offices and we expect that new operation to contribute nicely to that division’s results in the coming year.
Looking ahead, we are increasingly excited about our opportunities across the pacific and we’ll carefully consider the most economic way to expand into that area of the world. This top line growth has occurred, while keeping a sharp eye on costs and operating efficiencies.
Gross margins have expanded from 54% to 62%. Importantly, operating margins have increased to 24% from approximately 7% over the same period. This has occurred, while we continue to invest through the income statement in our various growth initiatives. For example, in the fiscal year just ended June 30, we invested approximately $0.5 million against which little profit was realized in the current period.
Additionally, we have managed the capital base of the firm to drive returns for the owners. Return on invested capital has increased from 3% to 19% on a book basis, which assumes we are a full cash tax payer. As each of you know, we have not paid cash taxes in the current year and remain and continue to have deferred tax assets to utilize in the coming year. Even after returning approximately $25 million to shareholders over the last two years, the balance sheet remains very conservative with no gearing and a healthy cash balance.
Finally, we have cleaned up the past and today’s non-cash impairment charge related to the Expos operation represents the last significant legacy item faced by this business. Joe will speak more to the specific of Expos, but let me say the business is healthy, just not worth its historical carrying value.
Put some numbers around it. Revenue and profit over the last two years have declined by 14% and 28% respectively. Despite this decline the operating margin for Expos remains mid-teens and it requires little capital expenditure or working capital. And importantly as we move into fiscal 2012, the management is working hard to develop plans for Expos that will optimize its return for our shareholders. The trend is entirely unsatisfactory and we will address it.
Looking ahead, the year has started strongly. Revenue is pacing nicely ahead of last year’s first quarter through the middle of August and current backlog is up over 50% as compared to last year. The most important initiative however on my mind right now is our recruitment of a senior type Chief Digital Officer.
While we are all very proud of the work by the existing management team in driving our web-based activities to the levels I discussed earlier, there is a sense that further upside is available to us in the coming years. If any of our listeners have suggestions or know someone who could help us, please pass their name along to me and I’ll route it through Heidrick & Struggles, who is helping us with the search. I believe this is a terrific opportunity for the right person to join our unique company.