Collectors Universe, Inc. (CLCT) Q1 2012 Earnings Call May 9, 2011 4:30 PM ET Executives Michael McConnell – CEO Joe Wallace – CFO Analysts Brandon Austin [ph] Presentation Operator
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Your company produced solid financial results for the third quarter of fiscal year 2012, with record sales revenue of $13.1 million, the highest quarterly revenue in the company’s 26 year history. With that as the headline, I would like to comment on several key elements to the quarter.First, I will explain the major drivers to the increases in sales and marketing, and G&A expenses as compared to the third quarter last year. The increases are primarily driven by three strategic activities, expansion into Asia, our Paris operation, and investment in information technology. We consider these appropriate and necessary investments to support the second plank of our strategy, namely to extend prudently and pragmatically. During the last week of March and the first week of April, we officially planted our flag on the Asian continent. A team of our employees was in Hong Kong for the Hong Kong International Coin Convention Show. In preparation for this important growth initiative, we incurred launch costs in the quarter, specifically those costs totaled approximately $280,000, and have been recorded primarily in the sales and marketing and G&A line items. The show achieved revenues of approximately 225,000, with an average selling price of $32. Because the show straddles Q3 and Q4, approximately 160,000 of the revenue from the show will not hit the P&L until Q4. Therefore the net impact to this quarter, the third quarter’s P&L of our expansion into Asia was a negative approximately $215,000. Lastly we incurred start-up [ph] capital expenditures for Hong Kong in the quarter of approximately $150,000. We also held one more show in Paris then during the comparable quarter last year. This difference led to an increase in sales and marketing by approximately $60,000. Further, related to our international expansion, this year we held three international shows in Q3, typically our busiest quarter anyway, as compared to one international show in the comparable quarter last year.
This puts stress on the overall organization and cost us some efficiency. We will evolve and learn from our mistakes and calibrate the application of our human resources as we move forward with our international initiatives. Next, as we have refined the completion of our software upgrade, NuVision [ph], and invested in various IT related service enhancements for operations, we incurred additional IT and consulting costs in the quarter of approximately $110,000.It has been a year of significant investment in our overall information technology and information technology infrastructure, and we expect this to moderate in the future. Next, I want to draw your attention to the refinement of our accounting for Collectors Club memberships, and the significant impact on grading revenue and profit this quarter. Historically, we brought into revenue that portion of a client membership fee, relating to the grading vouchers provided within the first 60 days of that new member. Because of the upgrade to our financial software in the second quarter, we can now track the redemption of each individual voucher. As a result, $150,000 of high margin revenue that would have historically been brought into the P&L in the quarter, has instead been recorded as deferred revenue, and will come into sales when the specific vouchers are redeemed. Importantly, the cash for the membership has been received. Further, over the next year, we will gain a better understanding of the estimate for the number of unused vouchers. Finally, looking forward, we are seeing a slowdown in our bulk modern business. As indicated in the past, this aspect of our business is volatile, difficult to predict, and subject to production volume impediments [ph] and precious metal prices. Compared to last year at the same time, there has been a noticeable decline in the production of gold and silver eagles at the US Mint. Additionally, precious metal market prices have been choppy to declining. Read the rest of this transcript for free on seekingalpha.com